Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

March 31, 2023
☐oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to___________

Commission file number: 000-54389

 

GENIUS BRANDS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Nevada20-4118216
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)(I.R.S. Employer Identification No.)

190 N. Canon Dr.Drive, 4th, 4th Floor FL

Beverly Hills,, CA90210

(Address of principal executive offices and zip code)

310-273-4222

(Registrant’s telephone number, including area code)code: 310-273-4222

____________________________

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each classTrading Symbol(s)Name of each exchange on whichExchange where registered
Common Stock, par value $0.001 per shareGNUSGNUSThe Nasdaq Capital Market

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 Yesx ☒ No ☐

o

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 (§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes Yesx ☒ No ☐

o

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.

Large accelerated filer o
☐Accelerated filer☐o
Non-accelerated filerx
☒Smaller reporting company☒x
Emerging growth company☐o

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. ☐

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ oNo ☒

x

As of August 15, 2022,May 19, 2023, the registrant had 317,235,11632,117,452 shares of common stock $0.001 par value per share, outstanding.



Table of Contents
GENIUS BRANDS INTERNATIONAL, INC.

FORM 10-Q


For the Quarterly Period Ended June 30, 2022

March 31, 2023


Table of Contents

PART I - FINANCIAL INFORMATION
3
3
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Operations
4
Condensed Consolidated Statements of Comprehensive Income (Loss)Loss
5
Condensed Consolidated Statements of Stockholders’ Equity
6
Condensed Consolidated Statements of Cash Flows
7
Notes to Condensed Consolidated Financial Statements
8
4537
5745
5745
PART II - OTHER INFORMATION
5947
5947
6148
6248
6248
6248
6247
6248
6
349

2

2



PART I -I- FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS.

Genius Brands International, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

       
  June 30, 2022  December 31, 2021 
  (unaudited)    
ASSETS        
Current Assets:        
Cash and Cash Equivalents $7,816  $2,058 
Restricted Cash  0   8,002 
Investments in Marketable Securities (amortized cost of $103,155)  97,428   112,523 
Accounts Receivable, net  9,508   7,632 
Tax Credits Receivable  25,892   0 
Note & Accounts Receivable from Related Party  1,405   1,276 
Other Receivable  2,932   969 
Prepaid Expenses and Other Assets  5,342   3,725 
Total Current Assets  150,323   136,185 
         
Noncurrent Assets:        
Property and Equipment, net  2,564   449 
Right of Use Assets, net  12,014   2,785 
Film and Television Costs, net  16,900   2,940 
Investment in Your Family Entertainment AG  17,840   6,695 
Intangible Assets, net  35,661   9,733 
Goodwill  36,720   15,227 
Other Assets  320   69 
Total Assets $272,342  $174,083 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts Payable $4,279  $7,192 
Participations Payable  4,571   2,438 
Accrued Expenses  1,121   535 
Accrued Salaries and Wages  2,712   799 
Deferred Revenue  13,396   432 
Margin Loan  61,052   6,392 
Production Facilities, net  19,115   0 
Bank Indebtedness  2,718   – 
Lease Liability  3,098   664 
Warrant Liability  586   855 
Due to Related Party  0   63 
Other Current Liabilities  100   1,761 
Total Current Liabilities  112,748   21,131 
         
Noncurrent Liabilities:        
Deferred Revenue  4,564   3,492 
Lease Liability  9,579   2,460 
Contingent Earn Out  1,345   1,340 
Other Noncurrent Liabilities  1,019   1,007 
Total Liabilities $129,255  $29,430 
         
Commitments and contingent liabilities (Note 21)        
Stockholders’ Equity        
Preferred Stock Series A, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  0   0 
Preferred Stock Series B, $0.001 par value, 1 share authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  0   0 
Common Stock, $0.001 par value, 400,000,000 shares authorized 317,235,116 and 303,379,122 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively  317   303 
Additional Paid in Capital  761,737   739,495 
Accumulated Deficit  (613,720)  (595,848)
Accumulated Other Comprehensive Loss  (7,133)  (1,221)
Total Genius Brands International, Inc. Stockholders' Equity  141,201   142,729 
Non-Controlling Interests in Consolidated Subsidiaries  1,886   1,924 
Total Stockholders' Equity  143,087   144,653 
         
Total Liabilities and Stockholders’ Equity $272,342  $174,083 


March 31, 2023December 31, 2022
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents$4,765 $7,432 
Investments in Marketable Securities (amortized cost of $73,898)69,650 83,706 
Accounts Receivable, net10,382 15,558 
Tax Credits Receivable, net23,523 26,255 
Notes and Accounts Receivable from Related Party2,896 2,844 
Other Receivable868 1,162 
Prepaid Expenses and Other Assets2,188 2,568 
Total Current Assets114,272 139,525 
Noncurrent Assets:
Property and Equipment, net2,175 2,400 
Operating Lease Right of Use Assets, net8,300 8,506 
Finance Lease Right of Use Assets, net3,013 2,338 
Film and Television Costs, net7,909 7,780 
Investment in Your Family Entertainment AG15,660 16,247 
Intangible Assets, net24,562 29,167 
Goodwill20,520 31,807 
Other Assets149 148 
Total Assets$196,560 $237,918 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable$5,602 $11,436 
Participations Payable2,591 2,965 
Accrued Expenses1,023 895 
Accrued Salaries and Wages2,854 2,484 
Deferred Revenue6,316 9,065 
Margin Loan48,894 60,810 
Production Facilities, net16,711 18,282 
Bank Indebtedness3,865 1,741 
Current Portion of Operating Lease Liability857 802 
Current Portion of Finance Lease Liability1,726 1,623 
Warrant Liability159 548 
Due To Related Party— 2 
Other Current Liabilities161 255 
Total Current Liabilities90,759 110,908 
Noncurrent Liabilities:
Deferred Revenue3,369 3,369 
Operating Lease Liability, Net Current Portion7,844 8,095 
Finance Lease Liability, Net Current Portion1,600 1,020 
Deferred Tax Liability705 705 
Other Noncurrent Liabilities936 952 
Total Liabilities105,213 125,049 
Commitments and Contingencies (Note 20)
Stockholders’ Equity:
Preferred Stock Series A, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively– – 
Preferred Stock Series B, $0.001 par value, 1 share authorized, 1 share issued and outstanding as of March 31, 2023 and December 31, 2022, respectively– – 
Common Stock, $0.001 par value, 40,000,000 shares authorized, 32,113,784 and 31,918,552 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively320 319 
Additional Paid in Capital763,327 762,418 
Treasury Stock at Cost, 46,333 and 42,633 shares of common stock as of March 31, 2023 and December 31, 2022, respectively(299)(290)
Accumulated Deficit(666,205)(641,443)
Accumulated Other Comprehensive Loss(7,555)(9,925)
Total Genius Brands International, Inc. Stockholders' Equity89,588 111,079 
Non-Controlling Interests in Consolidated Subsidiaries1,759 1,790 
Total Stockholders' Equity91,347 112,869 
Total Liabilities and Stockholders’ Equity$196,560 $237,918 
The accompanying notes are an integral part of these financial statements.

3

3

Table of Contents
Genius Brands International, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

             
  Three Months Ended  

Six Months Ended

 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
Revenues:            
Production Services $10,018  $0  $10,018  $0 
Content Distribution  8,529   135   8,942   275 
Licensing & Royalties  2,495   1,236   2,536   1,407 
Media Advisory & Advertising Services  1,082   971   2,067   1,724 
Total Revenues  22,124   2,342   23,563   3,406 
                 
Operating Expenses:                
Marketing and Sales  972   1,541   1,132   2,143 
Direct Operating Costs  14,648   1,269   14,992   1,518 
General and Administrative  15,105   7,106   25,962   14,039 
Total Operating Expenses  30,725   9,916   42,086   17,700 
                 
Loss from Operations  (8,601)  (7,574)  (18,523)  (14,294)
                 
Other Income (Expense):                
Interest Expense  (418)  (9)  (473)  (18)
Other Income (Expense), Net  (3,131)  189   2,286   (69,341)
Net Other Income (Expense)  (3,549)  180   1,813   (69,359)
                 
Loss Before Income Tax Expense  (12,150)  (7,394)  (16,710)  (83,653)
                 
Provision for Tax Expense  0   0   0   0 
                 
Net Loss  (12,150)  (7,394)  (16,710)  (83,653)
                 
Net Income Attributable to Non-Controlling Interests  (1,193)  0   (1,162)  0 
                 
Net Loss Attributable to Genius Brands International, Inc. $(13,343) $(7,394) $(17,872) $(83,653)
                 
Net Loss per Share (Basic) $(0.04) $(0.02) $(0.06) $(0.28)
Net Loss per Share (Diluted) $(0.04) $(0.02) $(0.06) $(0.28)
                 
Weighted Average Shares Outstanding (Basic)  315,519,907   300,646,819   309,682,010   293,969,462 
Weighted Average Shares Outstanding (Diluted)  315,519,907   300,646,819   309,682,010   293,969,462 

Three Months Ended
March 31, 2023March 31, 2022
Revenues:
Production Services$9,886 $– 
Content Distribution3,301 414 
Licensing & Royalties46 41 
Media Advisory & Advertising Services956 986 
Total Revenues14,189 1,441 
Operating Expenses:
Marketing and Sales245 160 
Direct Operating Costs11,285 344 
General and Administrative9,225 10,857 
Impairment of Property and Equipment120 — 
Impairment of Intangible Assets4,023 – 
Impairment of Goodwill11,287 – 
Total Operating Expenses36,185 11,361 
Loss from Operations(21,996)(9,920)
Interest Expense(1,085)(55)
Other Income (Expense), Net(1,712)5,413 
Loss Before Income Tax Expense(24,793)(4,562)
Income Tax Expense– – 
Net Loss(24,793)(4,562)
Net Loss Attributable to Non-Controlling Interests31 31 
Net Loss Attributable to Genius Brands International, Inc.$(24,762)$(4,531)
Net Loss per Share (Basic)$(0.77)$(0.15)
Net Loss per Share (Diluted)$(0.77)$(0.15)
Weighted Average Shares Outstanding (Basic)31,978,33530,377,925
Weighted Average Shares Outstanding (Diluted)31,978,33530,377,925
The accompanying notes are an integral part of these financial statements.

4

4

Genius Brands International, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

             
  Three Months Ended  Six Months Ended 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
Net Loss $(12,150) $(7,394) $(16,710) $(83,653)
Other Comprehensive Income (Loss):                
Change in Unrealized Losses on Marketable Securities  (1,095)  (158)  (4,595)  (158)
Realized Losses on Marketable Securities Reclassified from AOCI into Earnings  44   0   123   0 
Foreign Translation Adjustment  (1,477)  111   (1,440)  111 
Total Other Comprehensive Loss  (2,528)  (47)  (5,912)  (47)
Total Comprehensive Net Loss  (14,678)  (7,441)  (22,622)  (83,700)
Less: Comprehensive Income Attributable to Non-Controlling Interests  (1,193)  0   (1,162)  0 
Total Comprehensive Net Loss Attributable to Genius Brands International, Inc. $(15,871) $(7,441) $(23,784) $(83,700)

Three Months Ended
March 31, 2023March 31, 2022
Net Loss$(24,793)$(4,562)
Change in Accumulated Other Comprehensive Income (Loss):
Change in Unrealized Gain/(Losses) on Marketable Securities830 (3,500)
Realized Losses on Marketable Securities Reclassified from AOCI into Earnings1,537 79 
Foreign Currency Translation Adjustments3 37 
Total Change in Accumulated Other Comprehensive Loss2,370 (3,384)
Total Comprehensive Net Loss$(22,423)$(7,946)
Net Loss Attributable to Non-Controlling Interests31 31 
Total Comprehensive Net Loss Attributable to Genius Brands International, Inc.$(22,392)$(7,915)
The accompanying notes are an integral part of these financial statements.

5

5

Genius Brands International, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(unaudited)

                        
  Common Stock Preferred Stock Additional Paid-In  Accumulated  Accumulated Other Comprehensive  Non-
Controlling		    
  Shares Amount Shares Amount Capital  Deficit  Loss  Interest  Total 
Balance, December 31, 2021 303,379,122 $303 – $– $739,495  $(595,848) $(1,221) $1,924  $144,653 
                               
Issuance of Common Stock for Services 386,196  – –  –  311   –   –   –   311 
Issuance of Common Stock for Vested Restricted Stock Units 603,648  1 –  –  (1)  –   –   –   – 
Share Based Compensation –  – –  –  4,491   –   –   –   4,491 
Other Comprehensive Loss –  – –  –  –   –   (3,384)  –   (3,384)
Net Loss –  – –  –  –   (4,531)  –   (31)  (4,562)
                               
Balance, March 31, 2022 304,368,966 $304 – $– $744,296  $(600,379) $(4,605) $1,893  $141,509 
                               
Shares Issued for Wow Acquisition 11,057,085  11 1  –  11,543   –   –   –   11,554 
Fair Value of Replacement Options Related to Wow Acquisition –  – –  –  1,213   –   –   –   1,213 
Issuance of Common Stock for Services 736,667  1 –  –  441   –   –   –   442 
Issuance of Common Stock for Vested Restricted Stock Units 1,072,398  1 –  –  (1)  –   –   –   – 
Share Based Compensation –  – –  –  4,245   –   –   –   4,245 
Other Comprehensive Loss –  – –  –  –   –   (2,528)  –   (2,528)
Distributions to Non-Controlling Interests –  – –  –  –   –   –   (1,200)  (1,200)
Net (Loss) Income –  – –  –  –   (13,341)  –   1,193   (12,148)
                               
Balance, June 30, 2022 317,235,116 $317 1 $– $761,737  $(613,720) $(7,133) $1,886  $143,087 
                               
                               
                               
Balance, December 31, 2020 258,438,514 $258 – $– $588,501  $(469,557) $(5) $–  $119,197 
                               
Shares Issued for ChizComm acquisition 1,980,658  2 –  –  3,525   –   –   –   3,527 
Proceeds From Warrant Exchange, net 39,740,500  40 –  –  57,225   –   –   –   57,265 
Issuance of Common Stock for Services 161,986  – –  –  241   –   –   –   241 
Share Based Compensation –  – –  –  2,573   –   –   –   2,573 
Warrant Incentive –  – –  –  69,138   –   –   –   69,138 
Net Loss –  – –  –  –   (76,259)  –   –   (76,259)
                               
Balance, March 31, 2021 300,321,658 $300 – $– $721,203  $(545,816) $(5) $–  $175,682 
                               
Issuance of Common Stock for Services 469,677  1 –  –  728   –   –   –   729 
Share Based Compensation –  – –  –  2,994   –   –   –   2,994 
Other Comprehensive Loss –  – –  –  –   –   (47)  –   (47)
Net Loss –  – –  –  –   (7,395)  –   –   (7,395)
                               
Balance, June 30, 2021 300,791,335 $301 – $– $724,925  $(553,211) $(52) $–  $171,963 

Common StockPreferred StockAdditional Paid-In CapitalTreasury StockAccumulated DeficitAccumulated Other Comprehensive LossNon-Controlling InterestTotal
SharesAmountSharesAmountSharesAmount
Balance, December 31, 202231,918,552$319 1$– $762,418 42,633 (290)$(641,443)$(9,925)$1,790 $112,869 
Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes78,0881 –– (1)3,700 (9)– – – (9)
Fractional Shares Issued Upon Reverse Stock Split117,144––– – – – – – – – 
Share Based Compensation–––– 910 – – – – – 910 
Unrealized Gain on Marketable Securities–– –– – – – – 2,367 – 2,367 
Foreign Translation Adjustment–––– – – – – 3 – 3 
Net Loss–––– – – – (24,762)– (31)(24,793)
Balance, March 31, 202332,113,784$320 1$– $763,327 46,333$(299)$(666,205)$(7,555)$1,759 $91,347 
Balance, December 31, 202130,337,914$303 –$– $739,495 –$– $(595,848)$(1,221)$1,924 $144,653 
Issuance of Common Stock for Services38,620– –– 311 –– – – – 311
Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes60,3661 –– (1)–– – – – –
Share Based Compensation–– –– 4,491 –– – – – 4,491
Unrealized Loss on Marketable Securities–– –– – –– – (3,421)– (3,421)
Foreign Translation Adjustment–– –– – –– – 37 – 37
Net Loss–– –– – –– (4,531)– (31)(4,562)
Balance, March 31, 202230,436,900$304 –$— $744,296 –$— $(600,379)$(4,605)$1,893 $141,509 
The accompanying notes are an integral part of these financial statements.

6

6

Genius Brands International, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

       
  June 30, 2022  June 30, 2021 
Cash Flows from Operating Activities:        
Net Loss $(16,710) $(83,653)
         
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:        
Amortization of Film and Television Costs  2,253   760 
Depreciation and Amortization of Property, Equipment & Intangible Assets  1,103   301 
Amortization of Right of Use Asset  700   92 
Share Based Compensation Expense  8,736   5,567 
Amortization of Premium on Marketable Securities  545   0 
(Gain) on Revaluation of Equity Investment in Your Family Entertainment AG  (2,901)  0 
(Gain) Loss on Foreign Currency Transactions  1,296   0 
(Gain) Loss on Warrant Revaluation  (269)  317 
Interest Incurred on Debt  422   0 
Realized Loss on Marketable Securities  123   0 
Warrant Incentive Expense  0   69,139 
Stock Issued for Services  312   41 
Other  51   (81)
         
Decrease (Increase) in Operating Assets:        
Accounts Receivable, net  6,078   1,906 
Other Receivables  384   0 
Tax Credits Earned (less capitalized)  (4,247)  0 
Tax Credits Received  1,702   0 
Film and Television Costs, net  (6,015)  (3,176)
Note Receivable from Related Party  (128)  0 
Prepaid Expenses & Other Assets  (469)  (1,158)
         
Increase (Decrease) in Operating Liabilities:        
Accounts Payable  (4,439)  922 
Accrued Salaries & Wages  338   41 
Accrued Expenses  (2,250)  (329)
Accrued Production Costs  (1,658)  0 
Participations Payable  1,283   664 
Deferred Revenue  (3,455)  (474)
Lease Liability  (352)  143 
Due to Related Party  (63)  137 
Other Noncurrent Liabilities  (42)  0 
Net Cash Used in Operating Activities  (17,672)  (8,841)
         
Cash Flows from Investing Activities:        
Cash Payment for Wow, net of Cash Acquired  (37,311)  0 
Cash Payment for Equity Investment in YFE  (9,540)  0 
Cash Payment for Ameba, net of Cash Acquired  (3,893)  0 
Cash Payment for ChizComm, net of cash acquired  0   (7,789)
Investment in Stan Lee Universe, LLC  0   (500)
Investment in Marketable Securities  0   (80,902)
Proceeds from Principal Collections on Marketable Securities  4,420   0 
Proceeds from Sales of Marketable Securities  5,536   0 
Purchase of Property & Equipment  (401)  (125)
Investment in Intangible Assets  (22)  0 
Net Cash Used in Investing Activities  (41,211)  (89,316)
         
Cash Flows from Financing Activities:        
Proceeds from Margin Loan  58,980   0 
Repayments of Margin Loan  (4,522)  0 
Proceeds from Production Facilities  4,330   0 
Repayments of Production Facilities  (1,795)  (825)
Proceeds from Bank Loan  1,291   0 
Capital Lease Payments  (442)  0 
Debt Issuance Costs  (40)  0 
Repayment of Note Payable  (9)  0 
Distributions to Non-Controlling Interest  (1,200)  0 
Repayment of Payroll Protection Program  0   (367)
Proceeds from Warrant Exchange, net  0   57,265 
Net Cash Provided by Financing Activities  56,593   56,073 
         
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash  46   0 
         
Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash  (2,244)  (42,084)
Beginning Cash, Cash Equivalents and Restricted Cash  10,060   100,456 
Ending Cash, Cash Equivalents and Restricted Cash $7,816  $58,372 
         
Schedule of Non-Cash Financing and Investing Activities        
Shares issued for Wow Acquisition $11,554  $0 
FV of Replacement Options Granted Related to Wow Acquisition $1,213  $0 
Shares issued for ChizComm acquisition $0  $3,527 
Liability for Acquisition Earnout Shares $0  $7,210 
Issuance of Common Stock for Services $0  $969 

March 31, 2023March 31, 2022
Cash Flows from Operating Activities:
Net Loss$(24,793)$(4,562)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Amortization of Film and Television Costs236 200 
Depreciation and Amortization of Property, Equipment & Intangible Assets705 263 
Amortization of Right of Use Asset748 97 
Amortization of Premium on Marketable Securities169 276 
Share Based Compensation Expense910 4,491 
Impairment Loss of Intangible Assets4,023 – 
Impairment of Goodwill11,287 – 
Impairment of Property and Equipment120 – 
(Gain) Loss on Revaluation of Equity Investments in Your Family Entertainment AG895 (5,395)
Unrealized (Gain) Loss on Foreign Currency Transactions(308)192 
Gain on Warrant Revaluation(139)(41)
Realized Loss on Marketable Securities1,537 79 
Noncash Interest Expense1,044 – 
Stock Issued for Services– 312 
Bad Debt Expense161 9 
Other Non-Cash Items2 – 
Decrease (Increase) in Operating Assets:
Accounts Receivable, net5,107 4,399 
Other Receivable294 295 
Tax Credits Earned (less capitalized)(4,597)– 
Tax Credits Received, net7,237 – 
Film and Television Costs, net(365)(1,293)
Prepaid Expenses and Other Assets379 (914)
Increase (Decrease) in Operating Liabilities:
Accounts Payable(5,838)(2,016)
Accrued Salaries & Wages370 49 
Accrued Expenses129 84 
Accrued Production Costs(94)(1,552)
Participations Payable(373)(114)
Deferred Revenue(2,749)(73)
Lease Liability(195)(98)
Interest Paid on Debt(636)– 
Due To Related Party(2)(51)
Other Liabilities(21)– 
Net Cash Used in Operating Activities(4,757)(5,363)
Cash Flows from Investing Activities:
Cash Payment for Equity Investment in Your Family Entertainment– (6,637)
Cash Payment for Ameba, net of Cash Acquired– (3,893)
Loans to Related Party(52)(102)
Proceeds from Principal Collections on Marketable Securities460 1,910 
Proceeds from Sales and Maturities of Marketable Securities14,257 5,536 
Purchase of Property & Equipment(17)(61)
Net Cash Provided by (Used in) Investing Activities14,648 (3,247)
Cash Flows from Financing Activities:
Proceeds from Margin Loan3,732 59,570 
Repayments of Margin Loan(15,648)(8,210)
(Repayments of)/Proceeds from Production Facilities, net(1,840)– 
Proceeds from Bank Indebtedness, net2,030 – 
Repayments of Notes Payable– (7)
Principal Payments on Finance Lease Obligations(535)– 
Debt Issuance Costs(45)– 
Shares Withheld for Taxes on Vested Restricted Shares(9)– 
Payment for Warrant Put Option Exercise(250)– 
Net Cash Provided by (Used in) Financing Activities(12,565)51,353 
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash7 8 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(2,667)42,751 
Beginning Cash, Cash Equivalents and Restricted Cash7,432 10,060 
Ending Cash, Cash Equivalents and Restricted Cash$4,765 $52,811 
Schedule of Non-Cash Financing and Investing Activities
Leased Assets Obtained in Exchange for New Finance Lease Liabilities$1,216 $– 
The accompanying notes are an integral part of these financial statements.

7

7

Genius Brands International, Inc.

And Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2022

(unaudited)

March 31, 2023

Note 1: Organization and Business

Organization and Nature of Business


Genius Brands International, Inc. (“we,” “us,” “our,” or the “Company”) is a publicly traded (NASDAQ:GNUS) global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children. Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television and licenses itslicense properties for a broad range of consumer products based on the Company’s characters. The Company is a leading “work for hire” producer for many of the streaming outlets and IPanimated content intellectual property ("IP") holders. In the children’s media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment. TheWith the exception of selected Wow Unlimited Media Inc. titles, the Company’s programs, along with thoselicensed programs, it acquires and/or licenses, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service, Kartoon Channel!,its free ad supported TV ("FAST") channels and its subscription video on demand (“SVOD”) distribution outlets, Kartoon Channel! Kidaverse, and Ameba TV. These streaming services are available on Apple TV, Apple iOS, Android TV, Android mobile, Amazon Prime, Amazon Fire, Tubi, Roku, Comcast, Cox, Dish/Sling, Zumo,Xumo, Pluto, Samsung Smart TVs, LG Smart TVs, as well as YouTube, among other popular platforms. The Company’sCompany's in-house owned and produced animated shows include Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC Pop Quiz, and the upcoming Shaq’s Garage starring Shaquille O’Neal, scheduled to debut in the fourthsecond quarter of 2022.2023. The Company’s 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.

Buffett, Team Zenko Go!, Reboot, Bee & PuppyCat: Lazy in Space and Castlevania.

The Company also licenses its programs to other services worldwide, in addition to the operation of its own channels, including but not limited to Netflix, HBO Max, Paramount+, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.

Through the Company’s recent investmentinvestments in Germany’s Your Family Entertainment (“YFE”), a publicly traded company on the Frankfurt Exchange (RTV-Frankfurt), it has gained access to one of the largest animation catalogues in Europe with over 3,00050 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide and, whichworldwide.
Through the Company is currently in processownership of rebranding as Kartoon Channel! Worldwide.

The Company also recently acquired WOW Unlimited Media Inc. (“Wow”), and through that acquisition,the Company established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and its Channel Frederator Network, the largest animation focused multi-channel network on YouTube, with over 2,500 content creators and currently averages over 1 billion views per month.

8
channels.

The Company ownshas rights to a select amount of valuable IP, includingincluded among them a controlling interest in Stan Lee Universe (“SLU”), through which it controls the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”). The Company plans to launch a Stan Lee Centennial program of merchandise set to coincide with Stan Lee’s 100th birthday on December 28, 2022.

The Company also owns Beacon Media Group ("Beacon"), the largest media buying service for children in North America. Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka, Moose Toys, and JAKKS Pacific.

In addition, the Company recently acquiredowns the Canadian company Ameba TVInc. (“Ameba”), which distributes a profitable SVOD channelservice for kids, and is now expected tohas become the backbonefocal point of the newly launched SVOD channel of Kartoon Channel!, Kartoon Channel! Kidaverse.

revenue growth for Genius Networks’ subscription offering.

The combination of the Company and its investment in YFE, its acquired companies Wow, Ameba and Beacon Mediaaffiliates provide the Company with world class animation production studios, a catalogue representing thousands of hours of premium global content for children, a broadcast system for delivering that content and an in-house Consumer Products Licensingconsumer products licensing infrastructure to fully exploit the content.


8

Recent Investments

Developments

On February 1, 2021,6, 2023, the Company, through GBI Acquisition LLC,Company's board of directors approved a New Jersey limited liability company, and 2811210 Ontario Inc., a company organized under the laws1-for-10 reverse stock split of the ProvinceCompany's outstanding shares of Ontario, two wholly-owned subsidiaries ofcommon stock. The reverse stock split was effected on February 10, 2023 at 5:00 p.m. Eastern time. At the Company, purchased the outstanding equity interests of ChizComm Ltd., a corporation organized in Canada, and ChizComm USA Corp., a New Jersey corporation. During the fourth quarter of 2021, the Company rebranded and renamed ChizComm Ltd. to Beacon Communications and ChizComm USA Corp. to Beacon Media (collectively, the “Beacon Media Group”).

On January 13, 2022, the Company completed its acquisition of theeffective time, every 10 issued and outstanding shares of Ameba and gained access to its kid-safe SVOD platform technology and 13,000 episodes of content. Refer to Note 3 for additional details.

On April 6, 2022, the Company completed its acquisition of Wow. On October 26, 2021, the Company’s wholly-owned subsidiary, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act. The Company purchased 100% of Wow’s issued and outstanding shares for approximately $38.3 million in cash and 11,057,000 shares of the Company’sCompany's common stock. Refer to Note 3 for additional details.

Following the initial equity investment in YFE during the fourth quarter of 2021, the Company participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, the Company purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholdersstock were converted into 2,574,000one share of common stock. Any fractional shares of YFE common stock 304,631resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of which were purchased by the Company, at 2.00 EUROS perfractional shares. The par value of each share or $0.6 million. On April 5, 2022, the Company exercised its subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million, increasingremained unchanged. The reverse stock split proportionately reduced the number of YFE’sshares of authorized common stock from 400,000,000 to 40,000,000 shares. The reverse stock split also applied to common stock issuable upon the exercise of the Company's outstanding warrants and stock options. The reverse stock split did not affect the authorized preferred stock of 10,000,001 shares. Unless noted, all references to shares of common stock and per share amounts contained in this Quarterly Report on Form 10-Q have been retroactively adjusted to 6,857,132reflect a 1-for-10 reverse stock split.

Liquidity
As of March 31, 2023, the Company had cash and the Company’s ownership in YFE to 49.2% as of June 30, 2022.

Liquidity

During the six months ended June 30, 2022, the Company’s cash, cash equivalents and restricted cashof $4.8 million, which decreased by $2.2 million.$2.7 million as compared to December 31, 2022. The decrease was primarily due to cash used in investmentfinancing activities inclusive of $12.6 million, primarily due to the Wow and Ameba acquisitions and the YFE investments, totaling $41.2 million, $17.7 million used for operational activities, offset by $56.6 millionrepayment of financing from the margin loan, and production facilities$4.8 million used in operational activities. The cash used was offset by cash provided by the sales and bank indebtedness assumed in the Wow Acquisition.

9
maturities of marketable securities of $14.3 million.

As of June 30, 2022,March 31, 2023, the Company held available-for-sale marketable securities with a fair value of $97.4 $69.7 million, as available-for-sale, a decrease of $15.1 which decreased by $14.1 million as compared to December 31, 20212022. The decrease was primarily due to the Company selling $5.5$11.4 million of its held securities, during the period, a decrease in fair value$2.9 million of $4.5 million recorded as an unrealized loss,securities maturing and additional prepaymentsprepayment proceeds of $4.4$0.5 million on principals for certain mortgage-backed securities and $0.5 million for continued amortization of premiums during the period.three months ended March 31, 2023. The decrease was offset by the net decrease of $0.8 million in unrealized and realized loss activity. The available-for-sale securities consist principally of corporate and government debt securities and are also available as a source of liquidity. As the Company’s recent focus has been on expanding its business, excess cash and liquid investments have been utilized to pay the Company’s margin loan down.

The Company borrowed an additional $59.0$3.7 million from its investment margin account during the sixthree months ended June 30, 2022March 31, 2023 and repaid $4.5$16.3 million with cash received from sales and/or redemptionsand maturities of its marketable securities. During the six months ended June 30, 2022, the borrowed amounts were used to finance the Company’s additional investments in YFE and the closing of the acquisitions of Ameba and Wow, in each case pledging certain of its marketable securities as collateral. During the three months ended June 30, 2022,March 31, 2023, the additional borrowings of $3.2 million related to the Company’s final obligated purchase of YFE shares and additional transactional costs in the acquisition of Wow.borrowed amounts were primarily used for operational costs. The interest raterates for these investment margin accountthe borrowings fluctuatesfluctuate based on the Federal Funds Rate plus 0.65% with interest only payable monthly.0.65%. The weighted average interest rate was 1.23%rates were 0.89% and 1.66% on an average margin loan balancebalances of $55.7$46.2 million and $27.1 million as of March 31, 2023 and December 31, 2022, respectively. The Company incurred interest expense on the loan of $0.7 million and $21,846 during the three months ended June 30, 2022. The weighted average interest rate was 0.98% on an average margin loan balance of $34.6 million during the six months ended June 30, 2022. The Company incurred interest expense of $201,160 during the six months ended June 30, 2022.March 31, 2023 and March 31, 2022, respectively. The investment margin account borrowings do notmature but are payable on demand ascollateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, thereforeeffecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

Upon As of March 31, 2023 and December 31, 2022, the acquisition of Wow, the Company assumed certain credit facilities (the “Facilities”) with a Canadian bank. The Facilities are comprised of: (i) a $5.0Company's margin loan balance was $48.9 million CAD ($3.9 and $60.8 million, USD) revolving demand facility, (ii) an $8.0 respectively.million CAD ($6.2 million USD) equipment lease line, (iii) a treasury risk management facility of up to $0.5 million CAD ($0.4 million USD) for foreign exchange forward contracts, and (iv) interim financing facilities for specific production titles. The Facilities are guaranteed by the Company and the security reflects substantially all of the tangible and intangible assets of the Company and its subsidiary guarantors subject to permitted encumbrances, including a combination of federal and provincial tax credits, other government incentives, production service agreements, and license agreements. The Facilities are generally repayable on demand and are subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions. Refer to Note 14 for additional details.

Historically, the Company has incurred net losses. For the three months ended June 30,March 31, 2023 and March 31, 2022, and 2021, the Company reported net losses of $13.3$24.8 million and $7.4 million, respectively. For the six months ended June 30, 2022 and 2021, the Company reported net losses of $17.9 million and $83.7$4.5 million, respectively. The Company reported net cash used in operating activities of $17.7$4.8 million and $8.8$5.4 million for the sixthree months ended June 30,March 31, 2023 and March 31, 2022, and 2021, respectively. As of June 30, 2022,March 31, 2023, the Company had an accumulated deficit of $613.7$666.2 million and total stockholders’ equity of $141.2$91.3 million. As of June 30, 2022,March 31, 2023, the Company had current assets of $150.3$114.3 million, including cash and cash equivalents of $7.8$4.8 million and marketable securities of $69.7 million, and current liabilities of $112.7$90.8 million. The Company had working capital of $37.6$23.5 million as of June 30, 2022,March 31, 2023, compared to working capital of $115.1$28.6 million as of December 31, 2021.

2022.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from audited statements. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principlesin conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”) for complete financial statements and should be read in conjunction with the audited financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on April 6, 2022.

.

The accompanying condensed consolidated financial statements include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to state fairly the Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flows for all periods presented.

9
Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

10

Segments

Segments

The Company determineddetermines its operating segments on the same basis that it assesses performance and makes operating decisions. The Company principally operates in two distinct business segments: the Content Production & Distribution Segment, which produces and distributes children’s content, and the Media Advisory & Advertising Services Segment, which provides media and advertising services. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company has identified its Chief Executive Officer as the CODM. The segments are organized around the products and services provided to customers and represent the Company’s reportable segments. Prior to the acquisition of the Beacon Media Group (formerly “ChizComm”), the Company’s operations were comprised of a single segment.

The accounting policies for each segment are the same as for the Company as a whole. Refer to Note 22 for additional information.

Principles of Consolidation and Basis of Presentation

The Company’s condensed consolidated financial statements include the accounts of Genius Brands International, Inc. and its wholly-owned subsidiaries. The Company consolidates all majority-owned subsidiaries investments in entities in which it has controlling influence and variable interest entities where the Company has been determined to be the primary beneficiary. MinorityThe interests in a variable interest entity which the Company does not control are recorded as non-controlling interests. Non-consolidated investments are accounted for using the equity method or the fair value option when the Company has the ability to significantly influence the operating decisions of the investee. When the Company does not have the ability to significantly influence the operating decisions of an investee, these equity securities are classified as either marketable investment securities or other investments and recorded at fair value with changes recognized within otherOther Income (expense)(Expense), net on the condensed consolidated statements of operations and comprehensive income (loss). All significant intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations

The Company accounts for transactions that are classified as business combinations in accordance with the Financial Accounting Standards Boards’ (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). Once a business is acquired, the Company allocates the fair value of the purchase consideration to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. As required, preliminary fair values are determined upon acquisition, with the final determination of the fair values being completed within the one-year measurement period from the date of acquisition. The valuation of acquired assets and assumed liabilities requires significant judgment and estimates, especially with respect to intangible assets. The valuation of intangible assets requires that the Company use valuation techniques such as the income approach. The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates. The Company estimates the fair value based upon assumptions management believes to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Acquisition-related expenses and any related restructuring costs are recognized separately from the business combination and are expensed as incurred.

11

Variable Interest Entities

The Company holds an interest in Stan Lee University (“SLU”), an entity that is considered a variable interest entity (“VIE”). The variable interest relates to 50% ownership in the entity that is comprised of the Stan Lee Assets (as defined below) and that requires additional financial support from the Company to continue operations. The Company’s total net cash investment in SLU as of June 30, 2022, is $0.8 million. The Company is considered the primary beneficiary and is required to consolidate the VIE.

In evaluating whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and the Company’s decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

10
In determining whether the Company has the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company evaluates all of its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of ourthe Company’s interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of ourthe Company’s economic interests is a matter that requires the exercise of professional judgment. The Company continuously assesses whether it is the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in the Company consolidating its collaborators or partners.

Use of Estimates

The preparation of financial statements in conformity with 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.

Foreign Currency

The Company considers the U.S. dollar ("USD") to be its functional currency for its United States and certain Canadian based operations. The Company considers the Canadian dollar to be its("CAD") is the functional currency forof its Canada based operations.Wow entity. Accordingly, the financial information is translated from the Canadian dollar to the U.S. dollar for inclusion in the Company’s condensed consolidated financial statements. Revenue and expenses are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss)Accumulated Other Comprehensive Income (Loss), net in stockholders’ equity.

Foreign exchange transaction gains and losses are included in other income (expense)Other Income (Expense), net inNet on the condensed consolidated statements of operations.

12

Foreign Currency Forward Contracts

The Company's wholly-owned subsidiary, Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar. Wow uses foreign currency derivatives, specifically foreign currency forward contracts ("FX forwards"), to manage its exposure to fluctuations in the CAD-USD exchange rates. FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The FX forwards are typically settled in CAD for their fair value at or close to their settlement date. The Company does not currently designate any of the FX forwards under hedge accounting and therefore reflects changes in fair value as unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged. The Company does not hold or use these instruments for speculative or trading purposes.
Per FASB ASC 815-10-45, Derivatives and Hedging, the Company has elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative instruments. Therefore, the Company presents the asset or liability position of the FX forwards that are with the same counterparty net as either an asset or liability in its condensed consolidated balance sheets.
As of March 31, 2023, the gross amount of FX forwards in an asset and liability position that were subject to a master netting arrangement was $14.9 million and $15.0 million, respectively, resulting in a liability recorded within Other Current Liabilities on the Company's condensed consolidated balance sheet of $0.1 million. The change in fair value of $0.1 million for the three months ended March 31, 2023 was recorded as an unrealized gain within Production Services Revenue on the Company's condensed consolidated statement of operations. The Company did not hold FX forwards prior to the Wow Acquisition.
Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents. As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had cash and cash equivalents of $7.8$4.8 million and $2.1$7.4 million, respectively, that at times could exceed FDIC or CDIC limits.
11
Allowance for Doubtful Accounts
Accounts receivables are presented on the condensed consolidated balance sheets, net of estimated uncollectible amounts. The carrying amounts of trade accounts receivable and unbilled accounts receivable represent the maximum credit risk exposure of these assets. On a quarterly basis, in accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments ("ASC 326"), the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for doubtful accounts that reflects its best estimate of the lifetime expected credit losses. The allowance for credit loss is based on an assessment of past events, current economic conditions, and forecasts of future events. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. As of March 31, 2023 and December 31, 2022, the Company recorded an allowance for doubtful accounts of $70,977 and $65,421, respectively.

The Company limits its exposure to this credit risk through a credit approval process and credit monitoring procedures. In addition, Wow’s contracts with customers usually require upfront and milestone payments throughout the production process. The Company’s customer base is mainly comprised of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and AVOD and SVOD platforms that have been customers for several years.
Tax Credits Receivable

The FederalCanada Revenue Agency (“CRA”) and certain Provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.

Estimated amounts receivable in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and television programmingcosts when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying expenditures are made and there is reasonable assurance of realization. Determination of when and if the conditions of eligibility have been met is based on management’s judgement,judgment, and the amount recognized is based on management’s estimates of qualifying expenditures. The ultimate collection of previously recorded estimates is subject to ordinary course audits from the Canada Revenue Agency (“CRA”)CRA and Provincial agencies. Changes in administrative policies by the CRA or subsequent review of eligibility documentation may impact the collectability of these estimates. The Company continuously reviews the results of these audits to determine if any circumstances arise that in management’s judgementjudgment would result in a previously recognized amount to be considered no longer collectible.

The Company classifies the tax credits receivable as current based on their normal operating cycle. Government assistance, in the form of refundable tax credits, is relied upon as a key component of production financing. These amounts are claimed from the CRA through the submission of income tax returns and can take up to 18 to 24 months from the date of the first tax credit dollar being earned to being received. As this financing is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the normal operating cycle for such assets is considered to be a 12-to-24-month12 to 24-month period, or the time it takes for the CRA to assess and refund the tax credits earned.

As of June 30,March 31, 2023 and December 31, 2022, the Company had $25.9$23.5 million and $26.3 million in current Tax Credit Receivables on its condensed consolidated balance sheet. The Company does not havetax credit receivables related to Wow’s film and television productions was recorded, net of $0.3 million and $0.2 million recorded as an allowance on tax credits receivable as of June 30, 2022, based on historical experience and future expectations.

for doubtful accounts, respectively.

Marketable Debt Securities

The Company purchases high quality, investment grade securities from diverse issuers. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Currently, the Company classifies its investments in marketable securities as “available-for-sale”available-for-sale ("AFS") and records these investments at fair value. The securities are available to support current operations and, accordingly, the Company classifies the investments as current assets without regard to their contractual maturity.

Unrealized gains or losses on available-for-sale securities for which the Company expects to fully recover the amortized cost basis are recognized in accumulated other comprehensive income (loss) income,, a component of stockholders’ equity. IfGains and losses as a result of sales of securities are reclassified from previously unrealized gains and losses on AFS securities in accumulated other comprehensive income (loss) to other income (expense), net in the condensed consolidated statements of operations.
12
On a quarterly basis, the Company reviews its AFS securities to assess declines in fair value for credit losses. For each AFS security with an amortized cost that exceeds its fair value, the Company first determines if it intends to sell aor is more-likely-than-not required to sell the debt security before the expected recovery of its amortized cost. If it intends to sell or it is more likely than not that it wouldwill more-likely-than-not be required to sell a debtthe security, before the recovery of its amortized cost basis,Company recognizes the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognizedimpairment as a credit loss in the condensed consolidated statements of operations.

operations by writing down the security’s amortized cost to its fair value. For AFS securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss. The portion of the decline in fair value that is due to factors other than a credit loss is recognized in accumulated other comprehensive income (loss) as an unrealized loss.

The Company reports accrued interest receivable separately from the available-for-saleAFS securities and has elected not to measure an allowance for credit losses for accrued interest receivables. Uncollectible accrued interest is written off when the Company determines that no additional interest payments will be received. Approximately $0.4Classified within Other Receivables on the condensed consolidated balance sheets, approximately $0.4 million and $0.3 million in interest income was receivable as of June 30,March 31, 2023 and December 31, 2022, and classified within Other Receivables on the condensed consolidated balance sheets.

respectively.

Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums accounted for byover the life of the security or, in the case of callable securities, through the first call date, using the level yield method, with no pre-paymentprepayment anticipated.

13

Equity-Method Investments

When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S. GAAP. Significant influence generally exists when the firm owns 20% to 50% of the entity’s common stock or in-substance common stock.

In general, the Company accounts for investments acquired at fair value. See Note 5 for further information about the Company’s investment in YFE’s equity securities accounted for under the fair value option.

Allowance for Doubtful Accounts

Accounts receivable are presented on the balance sheets net of estimated uncollectible amounts. The carrying amounts of trade accounts receivable and unbilled accounts receivable represents the maximum credit risk exposure of these assets. The Company evaluates its accounts receivable balances on a quarterly basis to determine collectability based on an assessment of past events, current economic conditions, and forecasts of future events. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful.

The Company limits its exposure to this credit risk through a credit approval process and credit monitoring procedures. In addition, Wow’s contracts with customers usually require upfront and milestone payments throughout the production process. The Company’s customer base is mainly comprised of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and AVOD and SVOD platforms that have been customers for several years.

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 condensed consolidated statement of operations.

Whenever events or circumstances change, an assessment is made as to whether there has been impairment to the value of long-lived assets by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment date. The Company has performed an interim review of its long-lived assets due to decreases in the Company's market value during the three months ended March 31, 2023. Refer to Note 7 for details.

Right of Use Leased Assets

The Company determines at contract inception whether the arrangement is a lease based on its ability to control a physically distinct asset and determines the classification of the lease as either operating or finance under FASB ASC 842, Leases (“ASC 842”). For all leases, the Company combines all components of the lease including related nonlease components as a single component. Operating leases are reflected as operating rightOperating Lease Right of useUse (“ROU”) Assets and Operating Lease Liabilities and finance leases are reflected as Finance Lease ROU assets and operating lease liabilities inFinance Lease Liabilities on the condensed consolidated balance sheets.

Operating lease

Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of collateralized borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption, oron the lease commencement date.

date or for leases

13
existing upon the date of initial adoption of ASC 842, the date of adoption. The implicit rates within the Company’s existing finance leases are determinable and therefore used to determine the present value of finance lease payments.
The operating lease ROU assetassets also includesinclude any lease payments made prior to lease commencement date and excludes lease incentives. LeaseSpecific lease terms used in computing the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company is reasonably certain that it will exercise the option. The Company will reassess expected lease terms based on changes in circumstances that indicate options may be more or less likely to be exercised. Lease expense is recognized on a straight-line basis over the lease term inwithin General and Administrative Expenses on the condensed consolidated statementstatements of operations. Lease incentives are recognized as a reduction to the lease expense on a straight-line basis over the underlying lease term.

14
Refer to Notes 8 and 20 for details of the Company's leases.

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 amortized using the individual-film-forecast-computationindividual-film-forecast method, whereby these costs are amortized, and participations costs are accrued based on the ratio of the current period’s revenues to management’s estimate of ultimate revenue expected to be recognized from each production.

Productions in Development
Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences. Development costs include the costs of acquiring film rights to books, scripts or original screenplays and the third-party costs to adapt such projects, including visual development and design. Advances or contributions received from third parties to assist in development are deducted from these costs.
Productions in Progress
For the Company’s film and television programs in progress, capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to the Company. Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.
Completed Productions
Completed productions are carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired distribution rights, less accumulated amortization and accumulated impairment losses.
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of the Company’s business, some titles are more successful or less successful than anticipated. Management reviews itsthe ultimate revenue for productions in development and cost estimates on a title-by-title basis, when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost. This may result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production to its estimated fair value.

An impairment charge is recorded in the amount by which the unamortized costs exceed the estimated fair value. These write-downs are included in amortization expense within Direct Operating Expenses on the Company’s condensed consolidated statements of operations. There were no events or changes in circumstances that would indicate a change in fair value of productions and therefore the Company has not recorded any impairment charges during the three or six months ended June 30, 2022.

The Company expenses all

All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes. Additionally, for episodic series, 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 episodic series, the costs of significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred.

14
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 acquisition 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. The Company completes the annual goodwill and indefinite-lived intangible asset impairment tests at the end of each fiscal year. To test for goodwill impairment, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit, of which the Company has two, is less than its carrying value. If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach. The fair value of a reporting unit is compared with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

15

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.

Other intangible

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.

The Company has performed an interim review of its intangible assets and goodwill due to decreases in the Company's market value during the three months ended March 31, 2023. Refer to Note 10 for details.
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 analyzes freestanding equity-linked instruments including warrants attached to debt to concludedetermine 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 the Company’s stock, it is classified as an asset or liability recorded at fair value. If the instrument is considered indexed to the Company’s stock, the Company analyzes additional equity classification requirements per FASB 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 ASC 815-15, Embedded Derivatives.

Borrowing Costs

Borrowing costs related to

Treasury stock
The Company records the issuancerepurchase of interim production financingshares of its common stock at cost on the trade date of the transaction. These shares are recorded asconsidered treasury stock, which is a reduction to the carrying amountstockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares.
Revenue Recognition
15

Revenue Recognition

The Company accounts for revenue according to standard FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized when a customer obtains control of the products or services in a contract. JudgementJudgment is required in determining the timing of whether the transfer of control occurs at a point in time or over time and is discussed below. The Company evaluates each contract to identify separate performance obligations as a contract with a customer may have one or more performance obligations. Consideration in a contract with multiple performance obligations is allocated to the separate performance obligations based on their stand-alone selling prices. If a stand-alone selling price is not determinable, the Company estimates the stand-alone selling price using an adjusted market assessment approach. The Company’s main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales.

Gross versus Net Revenue Presentation

The Company evaluates individual arrangements with third parties to determine whether the Company acts as principal or agent under the terms. To the extent that the Company acts as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial statement line items. To the extent that the Company acts as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services. Determining whether the Company acts as principal or agent is based on an evaluation of which party has substantial risks and rewards of ownership under the terms of an arrangement. The most significant factors that the Company considers include identification of the primary obligor, as well as which party has credit risk, general and inventory risk and the latitude or ability in establishing prices.

The Company has identified the following material and distinct performance obligations.

·Provide animation production services.

·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).
·Provide media and advertising services to clients.
·Fixed and variable fee advertising and subscription-based revenue generated from the Genius Brands Kartoon Channel! and the Frederator owned and operated YouTube channels.
·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).

17
obligations:


•Provide animation production services.

•License rights to exploit Functional Intellectual Property (“functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired. Functional IP derives a substantial portion of its utility from its significant standalone functionality).

•License rights to exploit Symbolic Intellectual Property (“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).

•Provide media and advertising services to clients.

•Fixed and variable fee advertising and subscription-based revenue generated from the Genius Brands Kartoon Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network on YouTube.

•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).

Production Services


Animation Production Services

For revenue from animation production services, the customer controls the output throughout the production process. Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up. Revenue and the associated costs of such contracts are recognized over time on a percentage of completion basis - i.e., as the project is being produced, prior to it being delivered to the customer. The percentage-of-completion is calculated based upon the proportion of costs incurred cumulatively to total expected costs. Changes in revenue recognized as a result of adjustments to total expected costs are recognized in profit or loss on a prospective basis. Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, the Company recognizes this difference as unbilled accounts receivable.receivable within other receivables on the Company's condensed consolidated balance sheet. Unbilled accounts receivable isreceivables are transferred to accounts receivable when the Company has an unconditional right to consideration.

When the outcome of an arrangement cannot be estimated reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable.

Content Distribution

16
Film and Television Licensing

The Company recognizes 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 and 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. The Company recognizes 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.

Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, the Company recognizes this difference as unbilled accounts receivable.receivable within other receivables on the Company's condensed consolidated balance sheet. Unbilled accounts receivables are transferred to accounts receivable when the Company has an unconditional right to consideration.

Advertising revenues

The Company sells advertising and subscriptions on its wholly-owned AVOD service, Kartoon Channel!, and its SVOD distribution outlets, Kartoon Channel! Kidaverse, and Ameba TV. Advertising sales are generated in the form of either flat rate promotions or advertising impressions served. For flat rate promotions with a fixed term, the Company recognizes revenue is recognized when all five revenue recognition criteria under 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 CPMcost per impression.mille impressions ("CPM"). Impressions served are reported to the Company on a monthly basis, and revenue is reported in the month the impressions are served. For subscription-based revenue, the Company recognizes revenue is recognized when a customer downloads the mobile device application and their credit card is charged.

Upon the acquisition of Wow, the Company generates advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its multi-channel network on YouTube. Revenue is recognized when services are provided in accordance with the Company’s agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable. Receivables are usually collectable within 30 days.

18

Licensing & Royalties

Merchandising and licensing

The Company enters into merchandising and licensing agreements that allow customerslicensees to produce merchandise utilizing certain of the Company’s intellectual property. For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the license period commencing on the date at which the customerlicensees can use and benefit from the licensed content. Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured. Invoices are issued based on the contractual terms of an agreement and are usually payable within 30-45 days.

Product Sales

The Company recognizes revenue related to product sales when the Company completes its performance obligation, which is when the goods are transferred to the buyer.

Media Advisory & Advertising Services

Media and Advertising Services

The Company provides media and advertising services to clients. Revenue is recognized when the services are performed. When the Company purchases advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.

Gross Versus Net Revenue Presentation
The Company evaluates individual arrangements with third parties to determine whether the Company acts as principal or agent under the terms. To the extent that the Company acts as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial statement line
17
items. To the extent that the Company acts as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services. Determining whether the Company acts as principal or agent is based on an evaluation of which party has substantial risks and rewards of ownership under the terms of an arrangement. The most significant factors that the Company considers include identification of the primary obligor, as well as which party has credit risk, general and inventory risk and the latitude or ability in establishing prices.
Direct Operating Costs

Direct operating costs include costs of the Company’s product sales, non-capitalizable film costs, film and television cost amortization expense, impairment expenses related to film and television costs, and participation expense related to agreements with various animation studios, post-production studios, writers, directors, musicians or other creative talent with which the Company is obligated to share net profits of the properties on which they have rendered services. Upon the acquisition of Wow, the Company also includes salaries and related service production employee costs as part of its direct operating costs.

Share-Based Compensation

The Company issues stock-based awards to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”). Share-based compensation cost is recorded for all options and awards of unvested stock based on the grant-date fair value of the award.

19

The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model, which requires management to make assumptions with respect to the fair value on the grant date. The assumptions are as follows: (i) the expected term assumption of the award is based on the Company’s historical exercise and post-vesting behavior (ii) the expected volatility assumption is based on historical and implied volatilities of the Company’s common stock calculated based on a period of time generally commensurate with the expected term of the award; (iii) the risk-free interest rates are based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent expected term; (iv) and the expected dividend yields of the Company’s stock are based on history and expectations of future dividends payable. In the case of RSUs the fair value is calculated based on the Company’s underlying common stock on the date of grant.

The Company recognizes compensation expense over the requisite service period ratably, using the graded attribution method, which is in-substance, recognizing multiple awards based on the vesting schedule. The Company has elected to account for forfeitures when they occur. The Company issues authorized shares available for issuance under the Company’s 2015 Incentive Plan and the Company’s 2020 Incentive Plan upon employees’ exercise of their stock options.

Debt Issuance Costs
Debt issuance costs relate to the issuance of Wow’s Production Facilities and are recorded as a reduction to the carrying amount of debt and amortized to interest expense using the effective interest method over the respective terms of the facilities. Debt issuance costs directly attributable to the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended use or sale. Debt issuance costs as of March 31, 2023 and December 31, 2022 were insignificant.
Earnings Per Share

Basic earnings (loss) per share of common stock (“EPS”) is calculated by dividing net income (loss) applicable to common stockholders 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 stockholders 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
18
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 maintains its cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to $100,000 CAD. As of June 30,March 31, 2023 and December 31, 2022, the Company had sixeleven and twelve bank deposit accounts with an aggregate uninsured balance in bank deposit accounts of $1.8 million.

20
$3.2 million and $3.4 million, respectively.

The Company has a managed account and a brokerage account with a financial institution. The managed account maintains the Company’sits investments in marketable securities of $97.4$69.7 million as of June 30, 2022.March 31, 2023. The brokerage account did not hold any of the Company’shave a cash balance as of June 30, 2022.March 31, 2023. Assets in the managed account and brokerage account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000$250,000 for cash). In addition, the financial institution provides additional “excess of SIPC” coverage which insures up to $1$1.0 billion. As of June 30, 2022March 31, 2023, the Company has not had account balances held at this financial institution that exceed the insured balances.

The Company’s investment portfolio consists of investment-grade securities diversified among security types, industries and issuers. The Company’s policy limits the amount of credit exposure to any one security issue or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

 For

During the three months ended June 30, 2022,March 31, 2023, the Company had fivethree customers, whose total revenue exceeded 10%10% of total consolidated revenue. These customers accounted for 81.25%71.9% of total revenue.

For the six months ended June 30, 2022, As of March 31, 2023, the Company had five customers whose total revenue exceeded 10% of total consolidated revenue. These customers accounted for 76.3% of total revenue. As of June 30, 2022, the Company had four customers whose total accounts receivable exceeded 10%10% of total accounts receivable. These customers accounted for 65.04%69.0% of the total accounts receivable as of June 30, 2022.

ForMarch 31, 2023.

During the three months ended June 30, 2021,March 31, 2022, the Company had one customer whose total revenue exceeded 10%10% of the total consolidated revenue. This customer accounted for 47% of total revenue.

For the six months ended June 30, 2021, the Company had one customer, whose total revenue exceeded 10% of total consolidated revenue. This customer accounted for 34%13.3% of total revenue. As of June 30, 2021,December 31, 2022, the Company had two customers whose total accounts receivable exceeded 10%10% of total accounts receivable. ThoseThese customers accounted for 62%26.1% of the total accounts receivable. 

receivable as of December 31, 2022.

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. As of June 30, 2022 and December 31, 2021, the Company recorded an allowance for bad debt of $67,897 and $22,080, respectively.

Fair value of Financial Instruments

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 820Fair Value Measurement (“ASC 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(level 1 measurements) and the lowest priority to unobservable inputs (Level(level 3 measurements). These tiers include:

·
•Level 1 - Observable inputs such as quoted prices for identical instruments in active markets;
•
Level 1 - Observable inputs such as quoted prices for identical instruments in active markets;

·Level 2 - 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

·Level 3 - 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.

21

Financial instruments that are not measured at fairactive; and

•Level 3 - 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 on the condensed consolidated statement of operationsdrivers are represented by cash, receivables, payables, accrued liabilities, bank indebtedness, the Company’s margin loan and interim production financing.

unobservable.

The carrying amounts of cash, restricted cash, receivables, payables, accrued liabilities, bank indebtedness and the Company’s margin loan approximate fair value due to the short-term nature of the instruments. The Company used the fair values of the Company’s liability-classified derivative warrants are revalued at the end of each reporting period determined using the BSM model (Level 2) with standard valuation inputs. Refer to Note 1918 for additional details. The investment in YFE is also revalued at the end of each reporting period based on the trading price of YFE (Level 1). Refer to Note 5 for additional details. Upon the acquisition of Wow, the Company assumed foreign currency forward contracts that are not traded in active markets.markets were assumed. These are
19
fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts.

contracts (Level 2).

The fair values of the available-for-sale securities are generally based on quoted market prices, where available. These fair values are obtained primarily from third-party pricing services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and disclosures. Level 2 securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities, United States Government securities, foreign government securities, and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or a variety of valuation techniques, incorporating inputs that are currently observable in the markets for similar securities.

The following table summarizes the marketable securities measured at fair value by level within the fair value hierarchy as of June 30, 2022March 31, 2023 (in thousands):

Schedule of marketable security measured at fair value         
  Level 1  Level 2  Total Fair Value 
Marketable investments:            
Corporate Bonds $31,129  $11,897  $43,026 
U.S. Treasury  23,194   0   23,194 
Mortgage-Backed  0   6,197   6,197 
U.S. agency and government sponsored securities  0   12,504   12,504 
U.S. states and municipalities  0   11,079   11,079 
Asset-Backed  0   1,428   1,428 
Total $54,323  $43,105  $97,428 

Level 1Level 2Total Fair Value
Marketable investments:
Corporate Bonds$31,552 $2,387 $33,939 
U.S. Treasury19,775 – 19,775 
U.S. agency and government sponsored securities— 6,392 6,392 
U.S. states and municipalities— 9,544 9,544 
Total$51,327 $18,323 $69,650 

Fair values were determined for each individual security in the investment portfolio. The Company’s marketable securities are considered to be available-for-sale investments as defined under FASB ASC 320, Investments – Debt and Equity Securities. There were noNeither an impairment chargesor an allowance for credit loss was recorded for the marketable securities.securities as of March 31, 2023 and December 31, 2022. Refer to Note 6 for additional details.

Financial and nonfinancial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs and include the Company’s contingent earn-out liability, goodwill, intangible assets and film and television costscosts.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU No. 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. On October 16, 2019, the FASB approved a proposal to change the effective date of ASU No. 2016-13 for smaller reporting companies, such as the Company, delaying the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. Early adoption is permitted for interim and annual reporting periods. The Company has adopted the ASU as of June 30, 2022. There were no significant events that occurred or circumstances that resulted in an adjustment to the fair value of those assets and liabilities measured on a non-recurring basis during the three months ended June 30, 2022.

22

Recent Accounting Pronouncements

January 1, 2023. The Company reviewed all recently issued accounting pronouncements and concluded that they wereadoption did not applicable or not expected to have a significantmaterial impact on the Company’sCompany's condensed consolidated financial statements.

Refer to Note 6 for additional details.

Note 3: Acquisitions
AcquisitionsThe Company has determined that the following acquisition completed by the Company constitutes a business acquisition as defined by ASC 805,

Business Combinations (“ASC 805”). Accordingly, the assets acquired and the liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs

20
associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s purchase price allocations were based on an evaluation of the appropriate fair values and represent management's best estimate based on available data at the time of acquisition and during the one year period thereafter. Fair values were determined based on the requirements of ASC 820, Fair Measurements and Disclosures (“ASC 820”).
Wow Unlimited Media

On April 6, 2022, the Company completed the acquisition of Wow. On October 26, 2021, the Company’s wholly-owned subsidiary, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act.Act. The Company purchased 100% of the issued and outstanding shares of Wow, for $38.3 million in cash and 11,057,085 shares of the Company’s common stock, including Wow’s subsidiary Frederator. The plan of arrangement and final agreement, together with the acquisition of Wow’s Mainframe Studios and its subsidiary Frederator, are referred to as the “Wow Acquisition.”

Final

The final consideration of $52.7 million, excluding transaction costs, was paid by the Company in the transaction at closingclosing. The consideration consisted of $38.3$38.3 million in cash, and 11,057,0851,105,708 shares of the Company’s common stock, including 691,26269,126 Exchangeable Shares, with a fair value of $11.6$11.6 million, 2,409,515240,952 options granted to employees of Wow, 196,753 of which with a fair value of $1.2 million, were previously vested options of $1.2 million,and included in the purchase price and $0.3 million for future services and $1.6$1.6 million in severance and bonuses to executives, for total consideration of $52.7 million, or $50.1 million net of cash acquired, excluding transaction costs as described in more detail below.

executives.

Transaction costs incurred relating to the Wow Acquisition of $4.5 million, including banks,bank, legal and accounting totaled $3.1 million, which is included in generalfees, were expensed as part of General and administrativeAdministrative expenses on the Company's fiscal year ended December 31, 2022 consolidated statement of operations in the three months ended June 30, 2022.operations. The Company will also expense the unvested replacement options, with a fair value of $0.3$0.3 million, as stock-based compensation expense over the remaining requisite service period specified in the agreements.

The Wow Acquisition facilitates the Company’s expansion as a global animation and children’s digital media company. With Wow’s content, ongoing production projects and the addition of two studios that can also be leveraged for in-house production of the Company’s properties, will drive cost synergies, facilitate further expansion into the global children’s entertainment market and strengthen financial growth. Frederator, with its owned and operated channels on YouTube,, will provide a distribution platform to facilitate the global growth of Kartoon Channel!Channel!.

The Company has determined that the Wow Acquisition constitutes a business acquisition as defined by ASC 805. Accordingly, the assets acquired, and the liabilities assumed in the transaction were recorded at their estimated acquisition fair values, while transaction costs associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s preliminary purchase price allocation was based on an evaluation of the available data to determine the appropriate fair values based on the requirements of ASC 820 and represents managements best estimates.

23


The following table summarizes the consideration paid:paid (in thousands):

Schedule of Total purchase price consideration paid   
  Amount 
Cash $38,310 
Genius Common Stock Issued  10,832 
Shares Issued Exchangeable for Genius Common Stock  722 
Stock Option Value of Replacement Options- Pre-Combination Vested Options  1,213 
Severance Payments  1,044 
Bonuses  529 
Total $52,650 

As of June 30, 2022, the accounting for the acquisition is preliminary, as the Company is finalizing its valuation and determination of the intangible assets.

Amount
Cash$38,310 
Genius Common Stock Issued10,832 
Shares Issued Exchangeable for Genius Common Stock722 
Stock Option Value of Replacement Options- Pre- Combination Vested Options1,214 
Severance Payments1,044 
Bonuses529 
Total$52,651

The Company has engaged a third-party valuation firm to assist withcompleted and finalized the purchase price allocation which will be completed in subsequent quarters.

The preliminary purchase price allocation is based uponas of December 31, 2022 and recorded the estimaterespective fair values of the fair value of the assets acquired and the liabilities assumed by the Company on April 6, 2022 as follows (in thousands):

Schedule of fair value of the assets acquired and the liabilities assumed   
Cash and cash equivalents $2,573 
Accounts Receivable  34,237 
Prepaid Expenses and Other  1,245 
Property and Equipment  1,936 
ROU Assets  10,311 
IP (In-Process)  4,600 
IP (Proprietary Productions)  5,684 
Tradename  7,631 
Customer Relationships  16,064 
Networks and Platforms  803 
Goodwill  21,399 
Accounts Payable  (1,547)
Participations Payable  (1,380)
Bank Debt  (1,475)
Accrued Liabilities  (3,825)
Interim Production Facilities  (16,930)
Deferred Revenue  (18,080)
Lease Liabilities  (10,614)
Other Liabilities  (60)
Total Consideration $52,650 



24
Cash and cash equivalents$2,573 
Accounts Receivable34,237 
Other Receivable78 
Prepaid Expenses and Other1,245 
Property and Equipment1,936 
ROU Assets10,311 
IP (Productions in Progress)4,600 

21

IP (Completed Productions)5,684 
Tradename7,630 
Customer Relationships16,064 
Networks and Platforms803 
Goodwill21,398 
Accounts Payable(1,547)
Participations Payable(1,380)
Bank Debt(1,475)
Accrued Liabilities(3,825)
Interim Production Facilities(16,930)
Deferred Revenue(18,080)
Lease Liabilities(10,614)
Other Liabilities(57)
Total Consideration$52,651

The identifiable intangible assets acquired of $34.8$34.8 million is comprised of $16.1 million for Customer Relationships, with remaining economic lives of 8 years, $10.3 million for IP Content including completed productions and productions in progress, that is included as part of Film and Television costsCosts, net on the condensed consolidated balance sheet and will be amortized as such, Tradenames for $7.6$7.6 million, with an indefinite life and Networks and Platforms of $0.8$0.8 million, with a remaining economic life of 16 years. The goodwill of $21.4$21.4 million arising from the acquisition consists largely of the synergies expected from the combined businesses, including the Company’s ability to produce its content in-house utilizing the acquired studios and expansion of the Kartoon Channel! platform. The goodwill was recorded to the Content Production & Distribution reporting unit and is not deductible for tax purposes.

The valuation and allocationfair values of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions, especially with respect toacquired identifiable intangible assets that are subject to change withinas described above were determined using the purchase price allocation period generally one year from the acquisition date, including our evaluation of certain income tax positions, with corresponding adjustments to goodwill.

following methods:

Valuation Methodology

The Networks and Platforms were valued by performing a discounted cash flow analysis, specifically the multi-period excess earnings method. This method involves quantifying the amount of residual (or excess) cash flows generated by the current digital network content, based primarily upon historical revenue and projections over its expected life, and considers the operating expenses and contributory asset charges associated with servicing such network. Projected cash flows attributable to the networks are discounted to present value at a rate commensurate with the perceived risk. The significant assumptions used in this model included the customer attrition rate, acquisition rate of new customers, weighted average cost of capital, and expense estimates. The useful life of the networks is estimated based primarily upon the present value of cash flows attributable to the digital network. The significant assumptions used in this method included the royalty rate and weighted average cost of capital.

The Tradenames were valued using the relief-from-royalty method. The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value.

Ameba

On January 13, 2022, the Company completed the acquisition of Ameba, pursuant to a Stock Purchase Agreement (the “SPA”) by and between the Company and Tony Havelka, a resident of the Province of Manitoba (the “Seller”), in which the Company acquired from the Seller all of the issued and outstanding equity interests of Ameba. Concurrently, pursuant to an Asset Purchase Agreement (the “APA”) by and among the Company, the Seller and Tek Gear Inc., a corporation owned by the Seller, the Company acquired from the Seller a proprietary software platform (the “Technology”) that powers the Ameba SVOD deliveries. The transactions contemplated by the SPA and the APA are referred to as the “Ameba Acquisition.”

Consideration paid by the Company in the transaction at closing consisted of $3.8 million in cash, inclusive of $0.3 million for a net working capital adjustment (the “NWC Adjustment”) pursuant to the SPA and $0.3 million in cash pursuant to the APA, for total consideration of $4.1 million, or $3.9 million net of cash acquired, excluding transaction costs and subject to as described in more detail below.

Transaction costs incurred relating to the Ameba Acquisition, including legal and accounting, totaled $0.1 million, which is included in general and administrative expenses on the statement of operations. The agreement provided for an adjustment to the purchase price based on an adjusted net working capital (“NWC”) as defined in the agreement.

25

The Ameba acquisition facilitates the Company’s expansion into SVOD with its technology and content essential to the launch of the ad-free subscription-based Kartoon Channel! Kidaverse platform. The acquisition provides immediate benefit recognized through the content available on the SVOD Ameba channel app, available for download on Amazon Fire TV, Roku, Xbox 360, Xumo, LG Smart TV, TiVo, VEWD, CINEMOOD and iOS and Android devices.

The Company has determined that the Ameba Acquisition constitutes a business acquisition as defined by ASC 805. Accordingly, the assets acquired, and the liabilities assumed in the transaction were recorded at their estimated acquisition fair values, while transaction costs associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s preliminary purchase price allocation was based on an evaluation of the available data to determine the appropriate fair values based on the requirements of ASC 820 and represents managements best estimates.

The following table summarizes the consideration paid, including the Net Working Capital Adjustment (in thousands):

Total purchase price consideration paid   
  Amount 
SPA cash consideration at closing $3,500 
APA cash consideration at closing  300 
Net working capital adjustment  269 
Total $4,069 

The net working capital calculation was finalized as $268,657 during the three months ended June 30, 2022, as determined by the Company and agreed upon by the acquiree. The amount was paid to the acquiree on June 30, 2022.

As of June 30, 2022, the accounting for the acquisition is preliminary, as the Company is finalizing its valuation and determination of the intangible assets. The Company has engaged a third-party valuation firm to assist with the purchase price allocation, which will be completed in subsequent quarters.

The preliminary purchase price allocation is based upon an estimate of the fair value of the assets acquired and the liabilities assumed by the Company on January 11, 2022 as follows (in thousands):

Assets acquired and liabilities assumed   
Cash $176 
Accounts Receivable  238 
Prepaids Expenses  25 
Trade Name  23 
Digital Network  2,804 
Technology  300 
Goodwill  673 
Accounts Payable and Accrued Expenses  (140)
Tax Liability  (30)
Total Consideration $4,069 

26

The identifiable intangible assets acquired of $3.1 million is comprised of $2.8 million for the Digital Network, Ameba TV, with a remaining economic life of 18 years, $24,000 for Ameba’s trade name with a useful life of 3 years and $0.3 million for the SVOD technology with a remaining useful life of approximately 3 years. The $0.7 million in goodwill arising from the acquisition consists largely of the synergies expected from the combined businesses, including the Company’s build-out of its technology for the expansion of the Kartoon Channel! platform. The goodwill was recorded to the Content Production & Distribution reporting unit and is not deductible for tax purposes.

The valuation and allocation of the preliminary purchase price shown in the above table was based upon a preliminary valuation and estimates and assumptions, especially with respect to intangible assets, that are subject to change within the purchase price allocation period generally one year from the acquisition date, including our evaluation of certain income tax positions, with corresponding adjustments to goodwill.

Valuation Methodology

The digital network was valued by performing a discounted cash flow analysis. This method includes discounting the projected cash flows associated with the current digital network content, based primarily upon historical revenue and projections over its expected life and considers the operating expenses and contributory asset charges associated with servicing such network. Projected cash flows attributable to the digital network was discounted to the present value at a rate commensurate with the perceived risk. The useful life of the digital network is estimated based primarily upon the present value of cash flows attributable to the digital network.

The Ameba trade name was valued using the relief-from-royalty method. This method is an income approach that estimates the portion of a company’s earnings attributable to an asset based on the royalty rate the company would have paid for the use of the asset if it did not own it. Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset. The resulting annual royalty payments are tax-affected and then discounted to present value. The useful life of the trade name is based on the estimated time it will take for the Company to rebrand the Ameba trade name and logo with the Company branded Kartoon Channel! Kidaverse trade name.

The technology was valued at cost.

The assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:

·Historical performance including sales and profitability.

·Expense estimates.
·Contributory asset charges.

·Estimated economic life of asset.

·Acquisition of new customers.

·Attrition of existing customers.

27

Supplemental Pro Forma Information


The following supplemental unaudited supplemental pro forma information summarizes the Company’s results of operations as if the acquisitions were completed at the beginning of the periods presented (in thousands, except for share and per share data):

Supplemental pro forma information            
  Three Months Ended 
  Genius Brands Consolidated (including Wow and Ameba results)  Wow  Ameba 
  June 30, 2022  June 30, 2021  June 30, 2021(1)  June 30, 2021 
             
Total Revenues $22,124  $17,246  $14,732  $172 
                 
Net Income (Loss) $(13,343) $(6,933) $374  $87 
                 
Net Loss per Common Share (Basic and Diluted) $(0.04) $(0.02) $0  $0 
                 
Weighted Average Shares Outstanding (Basic and Diluted)  315,519,907   300,646,819   0   0 

                   
  Six Months Ended 
  

Genius Brands Consolidated

(including Wow and Ameba results)

  Wow  Ameba  Wow  Ameba 
  June 30, 2022  June 30, 2021  June 30, 2022(1)  June 30, 2022  June 30, 2021(1)  June 30, 2021 
                   
Total Revenues $41,667  $30,192  $35,810  $849  $26,453  $333 
                         
Net Income (Loss) $(16,926) $(82,070) $1,154  $(32) $1,418  $165 
                         
Net Loss per Common Share (Basic and Diluted) $(0.05) $(0.28) $0  $0  $0  $0 
                         
Weighted Average Shares Outstanding (Basic and Diluted)  309,682,010   293,969,462   0   0   0   0 


22

Three Months EndedThree Months Ended
Genius Brands Consolidated
(including WOW Pre-Acquisition Results)		Wow Pre-Acquisition
March 31, 2023
March 31, 2022 (1)
March 31, 2022 (1)
Total Revenues$14,189 $19,517 $18,076 
Net Income (Loss) Attributable to Genius Brands International, Inc.$(24,762)$(3,520)$1,011 
Net Loss per Share of Common Stock (Basic and Diluted)$(0.77)$(0.11)
Weighted Average Shares Outstanding (Basic and Diluted)31,978,33531,483,633

(1) The unaudited historical financial statements of Wow are not adjusted for conversion to U.S. GAAP from International Financial Reporting Standards, as the adjustments are immaterial to the periods presented.

28

Note 4: Variable Interest Entity

In July 2020, the Company entered into a binding term sheet with POW, Inc.POW! Entertainment, LLC. (“POW!”POW”) in which the Companywe agreed to form an entity with POW!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” (“SLU”). POW!LLC.” POW and the Company executed an Operating Agreement for the joint venture, effective as of June 1, 2021. The purpose of the acquisition was to enable the Company 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 (the “Stan Lee Assets”), from which Genius Brandsthe Company plans to develop and license multiple properties each year.

The Company contributed $2.0 million to obtain 50% of SLU’s voting equity and POW, for the remaining 50%, contributed the specified intangible assets associated with the Stan Lee Assets. POW will retain certain rights in the transferred intangible assets, namely existing the rights/obligations arising from current licensing agreements. Under ASC 805, the Company determined that the value of SLU was wholly attributable to the Stan Lee Assets and would be accounted for as an asset acquisition. The acquisition cost of $2.0 million was equivalent to the value of the Stan Lee Assets contributed by POW. Therefore, the fair value of the consideration paid by the entity of $2.0 million and the fair value of the 50% non-controlling interest approximated a total of $4.0 million.

Pursuant to the guidance under ASC 810, the Company concluded that SLU qualifies as a variable interest entity (“VIE”). The Company consolidates the results of SLU as it was determined that the Company is the primary beneficiary due to having the power through the collaboration to direct the activities that most significantly impact the entity’s economic performance and the Company is required to fund over half of the economic support of the entity. Accordingly, the Company recorded the total fair value of the Stan Lee Assets in SLU of $4.0 million, as an intangible asset to be amortized over the duration of 70 years, the life of the publicity rights related to Stan Lee’s name, likeness, voice, physical characteristics, etc.

During the three months ended June 30, 2022,March 31, 2023, SLU generated $2.4 $0.1 million in net income, upon entering into a license agreement to license certain of the Stan Lee Assets.income. The Company distributed $1.2 million to POW as their share of the non-controlling interest in SLU. The Company’sCompany's net investment in SLU, net of the cash received from a distribution of $1.2 million, is $0.8 million as of June 30,March 31, 2023 of $0.8 million, remained the same as compared to December 31, 2022.

There were no changes in facts and circumstances that occurred during the three or six months ended June 30, 2022March 31, 2023 that would result in a re-evaluation of the VIE assessment.

Note 5: Investment in Equity Interest

On December 1, 2021,

As of March 31, 2023, the Company completed a $6.8 millionowned 6,857,132 shares of YFE. At the time of the initial investment in YFE. In exchange for $3.4 million in cash and 2,281,269 shares of2021, it was determined that based on the Company’s common stock (valued at approximately $3.4 million), the Company received 3,000,000 shares of YFE’s common stock.

29

Following the initial equity investment in YFE during the fourth quarter of 2021, the Company participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, the Company purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholders, were converted into 2,574,000 shares of YFE common stock, 304,631 of which were purchased by the Company at 2.00 EUROS per share, or $0.6 million. On April 5, 2022, the Company exercised its subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million, increasing the number of YFE’s outstanding shares to 6,857,132 and the Company’sCompany's 28.69% ownership in YFE, to 49.2% asthe Company had significant influence over the entity. Therefore, under the equity method of June 30, 2022.

Theaccounting, the Company has elected to applyaccount for the investment at fair value under the fair value option. Under the fair value option, for itsthe investment in YFE (Level 1) as YFE is a publicly traded company onremeasured and recorded at fair value each reporting period, with the Frankfurt Exchange, therefore its trading price is readily available and relied upon by investors. The Company recognizes changes inchange recorded through earnings. As of March 31, 2023, the fair value of its investment in YFE as unrealized gains (losses), net in the accompanying consolidated statements of operations with other income (loss), net.

The Company revalues the investment in YFE securitieswas determined to be $15.7 million recorded within noncurrent assets on the Company's condensed consolidated balance sheets. The fair value as of March 31, 2023 decreased $0.6 million, as compared to December 31, 2022. The decrease is comprised of the endnet impact of each reporting period. During the three months and six months ended June 30, 2022, the Company recordeda decrease in YFE's stock price, resulting in a loss in fair value of $2.5$0.9 million and the effect of remeasuring the investment balance from the EURO to USD, resulting in a gain of $2.9 million, respectively,$0.3 million. The total change in fair value is recorded within other income (loss)Other Income (Expense) on the Company’sCompany's condensed consolidated statement of operations, netoperations. As of a $1.1 million lossMarch 31, 2023 and a $1.3 million loss, respectively, due toDecember 31, 2022, the changeCompany's ownership in the foreign currency translation rate during the three and six months ended June 30, 2022, respectively.

Wow has a 63% membership interest in Ratchet Productions, LLC ("RPLLC"), a privately-owned company registered in Colorado. Wow accounts for its interest using the equity method of accounting. Prior to the Wow Acquisition, in 2016, Wow determined that its investment in RPLLCYFE was impaired and reduced its investment to $044.8%. As the investment has been $0, and remains as such, there has been no impact on the Company’s financial statements for the membership interest in RPLLC.

Note 6: Marketable Securities

The Company classifies and accounts for its marketable debt securities as available-for-saleAFS and the securities are stated at fair value.

On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326), which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. The credit loss model applicable to AFS debt securities require the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. The adoption of the ASU did not have a material impact on the Company's financial statements.

23
The investments in marketable securities had an adjusted cost basis of $103.2$73.9 million and a market value of $97.4$69.7 million as of June 30, 2022.March 31, 2023. The balances consisted of the following securities (in thousands):

Summary of Investment in marketable security         
  Adjusted Cost  Unrealized Gain/(Loss)  Fair Value 
Corporate Bonds $45,446  $(2,420) $43,026 
U.S. Treasury  24,281   (1,087)  23,194 
Mortgage-Backed  6,610   (413)  6,197 
U.S. agency and government sponsored securities  13,529   (1,025)  12,504 
U.S. states and municipalities  11,836   (757)  11,079 
Asset-Backed  1,453   (25)  1,428 
Total $103,155  $(5,727) $97,428 

30

Adjusted CostUnrealized Gain/(Loss)Fair Value
Corporate Bonds$35,901 $(1,962)$33,939 
U.S. Treasury20,816 (1,041)19,775 
U.S. agency and government sponsored securities6,898 (506)6,392 
U.S. states and municipalities10,283 (739)9,544 
Total$73,898 $(4,248)$69,650 

The investments in marketable securities as of December 31, 2022 had an adjusted cost basis of $90.3 million and a market value of $83.7 million. The balances consisted of the following securities (in thousands):

Adjusted CostUnrealized Gain/(Loss)Fair Value
Corporate Bonds$40,823 $(2,579)$38,244 
U.S. Treasury20,869 (1,313)19,556 
Mortgage-Backed5,980 (606)5,374 
U.S. agency and government sponsored securities10,781 (1,221)9,560 
U.S. states and municipalities11,801 (895)10,906 
Asset-Backed67 (1)66 
Total$90,321 $(6,615)$83,706 

The Company holds sixty-eight AFS securities, all of which are in an unrealized loss position and have been in an unrealized loss position for a period greater than twelve months as of March 31, 2023. The AFS securities held by the Company as of December 31, 2022 have also been in an unrealized loss position for a period greater than twelve months. The Company reported the net unrealized losses in accumulated other comprehensive (loss) income, a component of stockholders' equity. As of March 31, 2023 and December 31, 2022, no allowance for credit loss impairment has been recognized as the issuers of these securities have not established a cause for default and various rating agencies have reaffirmed each security's investment grade status. The decline in fair value is largely due to changes inof these securities has fluctuated since the purchase date as market interest rates and other market conditions and is expected to recover as the securities approach maturity.fluctuate. The Company has evaluateddoes not intend to sell these securities and determinedit is more likely than not that no allowance is necessary based on the credit quality andCompany will not be required to sell before the low riskrecovery of loss due to the security type. The Company holds sixty-three available-for-sale securities, allsecurities' amortized cost basis.
Realized losses of which are in an unrealized loss position as of June 30, 2022. The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period greater than 12 months as of June 30, 2022 are as follows:

Schedule of Unrealized losses and fair values of available for sale securities      
  Gross Unrealized Loss  Fair Value 
Corporate Bonds $(1,328) $24,698 
U.S. Treasury  (823)  18,518 
Mortgage-Backed  (358)  4,604 
U.S. agency and government sponsored securities  (871)  10,717 
U.S. states and municipalities  (591)  8,341 
Asset-Backed  (24)  1,429 
Total $(3,995) $68,307 

A net realized loss of $44,241 and $123,291 related to the prepayment of principals for certain mortgage-backed securities was recorded$1.5 million were recognized in earnings during the three and six months ended June 30,March 31, 2023. The realized losses were primarily due to the sale of certain mortgage and asset-backed securities prior to their maturities to prevent further losses on the securities due to market conditions during the quarter. Realized losses of $0.1 million were recognized during the three months ended March 31, 2022 respectively.

due to prepayments of principal on certain mortgage-backed securities.

The contractual maturities of the Company’s marketable investments as of June 30, 2022March 31, 2023 were as follows (in(in thousands):

Summary of contractual maturity   
  Fair Value 
Due within 1 year $11,763 
Due after 1 year through 5 years  73,413 
Due after 5 years through 10 years  4,218 
Due after 10 years  8,034 
Total $97,428 

Fair Value
Due within 1 year$16,240 
Due after 1 year through 5 years53,410 
Total$69,650
The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

The Company did not sell any securities during the three or six months ended June 30, 2022 that resulted in material gains or losses.

31


24

Note 7: Property and Equipment, Net

The Company has property and equipment as follows (in(in thousands):

Schedule of property and equipment, net      
  June 30, 2022  December 31, 2021 
Furniture and Equipment $199  $181 
Computer Equipment  283   173 
Leasehold Improvements  2,130   44 
Software  235   177 
Production Equipment  23   23 
Property and Equipment, Gross  2,870   598 
Less Accumulated Depreciation  (306)  (149)
Property and Equipment, Net $2,564  $449 

March 31, 2023December 31, 2022
Furniture and Equipment$180 $224 
Computer Equipment213 315 
Leasehold Improvements2,258 2,273 
Software163 263 
Production Equipment— 23 
Property and Equipment, Gross2,814 3,098 
Less Accumulated Depreciation(471)(530)
Foreign Currency Translation Adjustment(168)(168)
Property and Equipment, Net$2,175 $2,400 
During the three months ended June 30,March 31, 2023 and 2022, and 2021, the Company recorded depreciation expense of $0.2 million$121,607 and $82,688,$37,051, respectively.
During the sixthree months ended June 30, 2022March 31, 2023, due to changes in the Company's estimated undiscounted future cash flows, a reassessment of its long-lived assets was performed. As a result, the carrying value of one of the Company's asset groups property and 2021,equipment assets were written down to zero and an Impairment of Property and Equipment of $119,727 was recorded within Operating Expenses in the Company recorded depreciation expensecondensed consolidated statement of $0.2 million and $0.1 million, respectively.

operations.

Note 8: Right of Use Leased Assets

Asset

Right of use assetsasset consisted of the following (in(in thousands):

Schedule of right of use asset      
  June 30, 2022  December 31, 2021 
Office Lease Assets $10,095  $3,351 
Equipment Lease Assets  3,236   13 
Right of Use Assets, Gross  13,331   3,364 
         
Accumulated Amortization  (1,317)  (579)
Right of Use Assets, Net $12,014  $2,785 

March 31, 2023December 31, 2022
Office Lease Assets$10,313 $10,313 
Equipment Lease Assets5,145 3,928 
Right Of Use Asset, Gross15,458 14,241 
Accumulated Amortization(3,335)(2,587)
Foreign Currency Translation Adjustment(810)(810)
Right Of Use Asset, Net$11,313 $10,844 
Refer to Note 20 for details on the Company's lease commitments.
As of March 31, 2023, the weighted-average lease term for the Company's operating leases was 90 months and the weighted-average discount rate was 10.4%. As of December 31, 2022, the weighted-average lease term for operating leases was 93 months and the weighted-average discount rate was 10.4%.
As of March 31, 2023, the weighted-average lease term for the Company's finance leases was 43 months and the weighted-average discount rate was 5.4%. As of December 31, 2022, the weighted-average lease term for the Company's finance leases was 35 months and the weighted-average discount rate was 5.3%.
Operating lease costs during the three months ended March 31, 2023 and 2022 were $0.4 million and $0.2 million, respectively, recorded within General and Administrative Expenses on the Company's condensed consolidated statement of operations.
During the three months ended June 30, 2022 and 2021,March 31, 2023 the Company recorded finance lease costs of $0.6 million, comprised of ROU asset amortization of $0.5 million recorded within General and Administrative Expenses on the Company's condensed consolidated statement of operations and accretion of interest expense of $$49,904 recorded within Interest
25
0.7Table of Contents million and $0.1 million, respectively. During
Expense on the six months ended June 30, 2022 and 2021, theCompany's condensed consolidated statement of operations. The Company recorded ROU asset amortization expensedid not have finance leases as of $0.6 million and $0.2 million, respectively.

32
March 31, 2022.

Note 9: Film and Television Costs, Net

During the six months ended June 30, 2022, Film and Television Costs increased by $14.0 million, net of amortization expense, as compared to December 31, 2021. Excluding the $9.5 million acquired from the Wow Acquisition, Film and Television Costs increased $4.5 million during the six months ended June 30, 2022, primarily due to the production of Shaq’s Garage. The increase is partially offset by amortization of Rainbow Rangers and Superhero Kindergarten.

During the three months ended June 30, 2022 and 2021, the Company recorded Film and Television Cost amortization expense of $2.2 million, $1.9 million of which amortized by Wow, and $0.2 million, respectively. During the six months ended June 30, 2022 and 2021, the Company recorded Film and Television Cost amortization expense of $2.4 million, $1.9 million of which amortized by Wow, and $0.7 million, respectively.

The following table highlights the activity in Film and Television Costs as of June 30, 2022March 31, 2023 and December 31, 20212022 (in thousands):

Schedule of film and television costs activity   
Film and Television Costs, Net as of December 31, 2020 $11,828 
Additions to Film and Television Costs  10,650 
Film Amortization Expense  (19,538)
Film and Television Costs, Net as of December 31, 2021  2,940 
Additions to Film and Television Costs  16,213 
Film Amortization Expense  (2,253)
Film and Television Costs, Net as of June 30, 2022 $16,900 
Film and Television Costs, Net as of December 31, 2021$2,940 
Additions to Film and Television Costs18,364 
Disposals(11)
Film Amortization Expense & Impairment Losses(12,996)
Foreign Currency Translation Adjustment(517)
Film and Television Costs, Net as of December 31, 20227,780
Additions to Film and Television Costs365 
Film Amortization Expense(236)
Foreign Currency Translation Adjustment— 
Film and Television Costs, Net as of March 31, 2023$7,909

Note 10: Intangible Assets, Net and Goodwill

Intangible Assets, Net


The Company had the following intangible assets (in thousands) with their weighted average remaining amortization period (in years):

Intangible Assets, Net

Schedule of Intangible Asset        
  Weighted Average Remaining Amortization Period 

June 30,

2022

  

December 31,

2021

 
Customer Relationships 9 $22,205  $6,120 
Digital Networks 17  3,607   0 
Trade names 69  11,654   4,000 
Technology 3  300   0 
Non-Compete 2  60   60 
Other Intangible Assets (a) 2  323   301 
Intangible Assets, Gross    38,149   10,481 
           
Foreign Currency Translation Adjustment    (786)  24 
Less Accumulated Amortization    (1,702)  (772)
Intangible Assets, Net   $35,661  $9,733 

__________________ 

(a)Represents the remaining unamortized logo and website intangible assets related to the merger with A Squared.

33

Weighted Average Remaining Amortization Period
March 31, 2023December 31, 2022
Customer Relationships6.9$17,325 $17,325 
Digital Networks15.0803 3,537 
Trade Names68.210,360 11,783 
Technology–– 293 
Other Intangible Assets (a)–– 325 
Intangible Assets, Gross28,488 33,263 
Less Accumulated Amortization(2,228)(2,398)
Foreign Currency Translation Adjustment(1,698)(1,698)
Intangible Assets, Net$24,562 $29,167 

_______________________
(a)Represents the remaining unamortized logo and website intangible assets related to the merger with A Squared.
During the three months ended June 30,March 31, 2023 and 2022, and 2021, the Company recorded intangible asset amortization expense of $0.9$0.6 million and $0.1$0.2 million, respectively. DuringAs of March 31, 2023, $7.2 million of the three months ended June 30, 2022Company's intangible assets related to the acquired trade names from the Wow acquisition that have indefinite lives and 2021, theare not subject to amortization. The Company recorded amortization expensedid not have any indefinite-lived intangible assets as of $March 31, 2022.
0.7 million and $0.2 million, respectively.

Pursuant to ASC 350-30, General Intangibles Other than Goodwill, the Company reviews theseits intangible assets periodically to determine if the value should be retired or impaired due to recent events. There were noDuring the three months ended March 31, 2023, due to changes in events or circumstances during the three or six months ended June 30, 2022 that would indicate anCompany's financial projections, the Company reassessed its definite and indefinite-

26
lived intangible asset values to determine whether impairments existed. As a result, the Company recorded a total Impairment of Intangible Assets of $4.0 million within Operating Expenses in the condensed consolidated statement of operations at March 31, 2023. The impairment charge consisted of a write-down of definite-lived intangible assets of $2.8 million due to a decrease in one of the Company's asset groups estimated undiscounted cash flows. In addition, due to a decrease in its estimated present value of cash flows, it was determined that the Frederator tradename, an indefinite-lived intangible assets.

asset, was impaired by $1.3 million.

Expected future amortization of intangible assetassets subject to amortization as of June 30, 2022March 31, 2023 is as follows (in thousands):

Expected future intangible asset amortization   
Fiscal Year:   
2022 $1,427 
2023  2,851 
2024  2,827 
2025  2,720 
2026  2,712 
Thereafter  23,124 
Total $35,661 

Fiscal Year:
2023$1,545 
20242,058 
20252,058 
20262,058 
20272,058 
Thereafter8,846 
Total$18,623 
Goodwill

In 2013, the Company recognized $10.4$10.4 million in goodwill as a result of theits merger with A Squared.Squared which was allocated to the Content Production and Distribution reporting unit. During the first quarter of 2021, the Company recognized $9.6$9.7 million in goodwill as a result of theits acquisition of the Beacon, Media Group (formerly ChizComm), which was subsequently determinedallocated to be impaired as of December 31, 2021, resulting in an impairment charge of $4.8 millionits Media Advisory and a goodwill balance of $4.9 million.

Advertising Services reporting unit.

As a result of the Ameba Acquisition during the first quarter of 2022 the Company recorded goodwill of $0.7 million as determined to be the amount in excess of the fair value of the assets acquired and liabilities assumed in the acquisition. The goodwill recorded for the Ameba Acquisition was allocated to the Content Production and Distribution reportable segment.

As a result of the Wow Acquisition during the second quarter of 2022, the Company recorded goodwill of $21.4$1.5 million, as determined to be the amount in excessincluding a tax basis step-up of the fair value of the assets acquired$0.8 million and liabilities assumed in the acquisition.$21.4 million, respectively. The goodwill recorded forresulting from the Ameba and Wow AcquisitionAcquisitions was allocated to the Content Production and Distribution reportable segment.

As Beacon Communications and Wow are incorporated as Canadian companies with CAD being theirWow's functional currency is the CAD, goodwill will change each period due to currency exchange differences.

The Company will perform its annual review

As of December 31, 2022, the goodwill duringallocated to the fourth quarter of 2022. There were no events or changes in circumstances that would indicate an impairment in goodwill duringCompany's Media Advisory and Advertising Services reporting unit was written down to zero due to impairment.
During the sixthree months ended June 30, 2022.

34
March 31, 2023, the Company reassessed its remaining goodwill allocated to the Content Production and Distribution reporting unit for impairment. As a result, the Company recorded an Impairment of Goodwill of $11.3 million within Operating Expenses in its condensed consolidated statement of operations.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment (inreporting unit (in thousands):

Schedule of Goodwill         
  Content Production & Distribution  Media Advisory & Advertising Services  Total 
Goodwill as of December 31, 2021 $10,366  $4,861  $15,227 
Acquisition of Ameba  673   0   673 
Acquisition of Wow  21,398   0   21,398 
Foreign Currency Translation Adjustment  (558)  (20)  (578)
Goodwill as of June 30, 2022 $31,879  $4,841  $36,720 
Content Production & DistributionMedia Advisory & Advertising ServicesTotal
Goodwill as of December 31, 2022$31,807 $– $31,807 
Goodwill Impairment(11,287)– (11,287)
Foreign Currency Translation Adjustment– – – 
Goodwill as of March 31, 2023$20,520 $– $20,520 

Note 11: Deferred Revenue

As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had total short term and long term deferred revenue of $18.0$9.7 million and $3.9$12.4 million, respectively. IncludedThe decrease in deferred revenue is primarily related to productions on various shows nearing completion of the project as of March 31, 2023, compared to the progress as of December 31, 2022. Wow's deferred revenue balance as of June 30, 2022 is $13.1 million the Company assumed in the Wow Acquisition. The deferred revenue balance assumed representsrelates to cash received from customers for productions in progress. Revenue is fully recognized upon production completion. Deferred revenue also includes both (i) variable fee contracts with licensees and
27
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.

Note 12: Supplemental Financial Statement Information

Other Income (Expense), Net

Components of other income (expense), net, are summarized as follows (in(in thousands)::

Schedule of Other Operating Cost and Expense, by Component            
  Three Months Ended  

Six Months Ended

 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
             
Gain (Loss) on Warrant Revaluation (a) $227  $119  $269  $(317)
Loss on Foreign Exchange (b)  (1,073)  (5)  (1,262)  (7)
Loss on Marketable Securities Investments (c)  (44)  0   (123)  0 
Gain (Loss) on Revaluation of Equity Investment in YFE(d)  (2,494)  0   2,901   0 
Interest Income (e)  253   75   501   122 
Warrant Incentive Expense (f)  0   0   0   (69,139)
Interest Expense (g)  (418)  (9)  (473)  (18)
Net Other Income (Expense) $(3,549) $180  $1,813  $(69,359)

Three Months Ended
March 31, 2023March 31, 2022
Interest Expense (a)$(1,085)$(55)
Gain on Warrant Revaluation (b)139 41 
Gain (Loss) on Foreign Exchange (c)320 (192)
Loss on Marketable Securities Investments (d)(1,537)(79)
Gain (Loss) on Revaluation of Equity Investment in YFE (e)(895)5,395 
Interest Income (f)310 248 
Finance Lease Interest Expense (g)(50)– 
Other1 – 
Other Income (Expense)$(1,712)$5,413 
35

(a)Interest expense during the three months ended March 31, 2023 primarily consisted of $0.7 million of interest incurred on the margin loan collateralized by the marketable security investments and $0.4 million of interest incurred on production facilities loans and bank indebtedness assumed as part of the Wow Acquisition.
(b)The gain (loss) on warrant revaluation is related to the change in fair value of outstanding warrants that were determined to be derivative liabilities attached to previously issued and converted convertible notes.
(b)(c)ForThe gain on foreign currency exchange during the three and six months ended June 30, 2022 loss on foreign exchangeMarch 31, 2023 primarily relatesrelated to the foreign exchange loss onEURO weakening against the USD compared to the previous reporting period end date of December 31, 2022. The remeasurement of the investment in YFE’s equity securities accounted for under the fair value option. For the three and six months ended June 30, 2021 loss onresulted in a foreign exchange related to foreign currency denominated monetary transactions.gain of $0.3 million.
(c)(d)The Company started investing in marketable securities during the three months ended June 30, 2021. The net realized loss on marketable securities recognized during the three and six months ended June 30, 2022 reflects the loss in the investments in available-for-sale securities that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities. The Company did not incur any realized losses on marketable securities during the three and six months ended June 30, 2021.
(d)(e)The gain (loss) onfair value revaluation of the equity investment in YFE is the change in fair value recognized on the Company’s investments in YFE accounted for using the fair value option.option as of March 31, 2023, resulted in a $0.9 million loss, excluding the impact of foreign currency recorded separately as a Gain on Foreign Exchange. The gain (loss)loss is a result of the changedecrease in YFE’s stock price at the endas of the current reporting period.March 31, 2023, as compared to December 31, 2022.
(e)(f)Interest Income received during the three and six months ended June 30, 2022 and 2021March 31, 2023 primarily consistsconsisted of cash interest received onof $0.4 million from the investments in marketable securities, net of premium amortization expense of premiums.$0.2 million. The remaining increase is due to interest accrued on the Notes Receivable from Related Parties.
(f)The Warrant Incentive Expense is related to the fair value of new warrants that were issued in 2021 to certain existing warrant holders in exchange for previously issued outstanding warrants.
(g)InterestThe finance lease interest expense duringrepresents the three and six months ended June 30, 2022 primarily consistsinterest portion of $0.2 million of interest incurred on the Company’s margin loan collateralized by its marketable security investments and $0.3 million of interest incurred on its production facilities loan and bank indebtednessfinance lease obligations assumed as part of the Wow Acquisition.Acquisition for equipment purchased under an equipment lease line. Prior to the acquisition of Wow, the Company did not have any finance leases.

Note 14: 13: Bank Indebtedness and Production Facilities

Upon the acquisition of Wow, the Company assumed certain credit facilities (the “Facilities”). The Facilities are comprised of the following:
Revolving Demand Facility

On December 15, 2022, the Company amended the Facility. Draws under theof up to $8.0 million CAD (previously $5.0 million CADCAD) under a revolving demand facility can be made in Canadian or US dollars at the option of the Company by way of bank prime rate loans, Canadian Bankers’ Acceptances, USD LIBOR,Secured Overnight Financing Rate (“SOFR”) or letters of credit and can be repaid at any time without penalty and without notice and are generally repayable on demand.credit. Canadian or US dollar bank prime borrowings bear interest at a rate equal to bank prime plus 2.00% per annum.         
For other draws under the revolving facility, the respective loans bear interest at a rate equal to Canadian Bankers’ Acceptances or USD LIBORSOFR plus 3.75% per annum.
28
As of June 30, 2022,March 31, 2023, the Company had an outstanding balance of $2.7$3.9 million USD ($5.2 million CAD) on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s condensed consolidated balance sheet.

As of June 30, 2022,sheets.

Equipment Lease Line
On March 17 2023, the Company was in compliance with all covenantsamended the terms of the equipment lease line under the Facility. Under the equipment lease line, the Company may borrow up to $4.0 million CAD (previously $4.3 million CAD) under a revolving demand facility.

Equipment Lease Line

equipment lease line.

Each transaction under the $8.0 million CAD equipment lease line has specific financing terms in respect of the leased equipment such as term, finance amount, rate, and payment terms. The finance rates for these equipment leases range from 4%3.94% - 4.5%7.18% with remaining lease terms of 17-31 months as of the Wow Acquisition date.5 - 40 months. The Company has recorded finance lease right of use assets and finance lease liabilities for the leased equipment acquired in respect of these draws. The
As of March 31, 2023, the Company has drawn down a total of $7.9$2.1 million CADUSD ($6.12.9 million USD), with anCAD) under the equipment lease line. These outstanding balancebalances as of June 30, 2022 of $2.6 million CAD ($2.0 million USD),March 31, 2023, net of repayments, are included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheet.

sheets.

Treasury Risk Management Facility

Advances of up to $500,000 CAD available under the treasury risk management facility are subject to market rates as determined by the lender’s treasury department or derivatives group at the time of the drawdown request. The maximum term for foreign exchange forward contracts and interest rate swaps is one year.

As of June 30, 2022,March 31, 2023, there were no outstanding amounts drawn under the treasury risk management facility.
As of March 31, 2023, the Company was in compliance with all covenants under the Facility.

Interim Financing

Production Facilities

As part of the acquisition of WOW, the Company assumed production facilities for financing specific productions. The Company’s interim financingproduction facilities for specific productions bear interest at rates ranging from bank prime plus 1.25%1.00% - 1.75%1.25% per annum. The interim production financing facilities are generally repayable on demand and are generallyguaranteed and secured by the Company. The security reflects substantially all of the Company's tangible and intangible assets including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements.
As of June 30, 2022,March 31, 2023, the Company had an outstanding balance of $19.2$16.7 million USD ($22.6 million CAD), including $0.8 million USD ($1.1 million CAD of interest), recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheet.

36
sheets.


Note 15: Margin Loan

As

Equipment Lease Facility
Separate from the Facility's equipment lease line, a subsidiary of June 30, 2022, the Company hadentered into an equipment lease agreement with a Canadian bank. This additional equipment lease facility allows the Company to finance equipment purchases of up to $1.4 million CAD in total. Each equipment lease is for a term of three years and will have specific financing terms such as finance amount and the bank’s lease base rate. The Company has recorded finance lease right of use assets and finance lease liabilities for the leased equipment acquired in respect of these draws.
The outstanding balance in its margin loan accountas of $61.1 March 31, 2023, net of repayments, is $0.5 million an increase of $54.7 USD ($0.7 million as compared to December 31, 2021. CAD) and is included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.
Note 14: Margin Loan
The Company borrowed an additional $59.0 $3.7 million from its investment margin account during the sixthree months ended June 30, 2022March 31, 2023 and repaid $4.5 $16.3 million with cash received from sales and/or redemptionsand maturities of its marketable securities. During the three months ended March 31, 2022,2023, the borrowed amounts were primarily used to finance the Company’s additional investments in YFE and the closing of the acquisitions of Ameba and WOW, in each case pledging certain of its marketable securities as collateral. During the three months ended the additional borrowings of $3.2 million related to the Companies final obligated purchase of YFE shares and transaction costs related to the Wow Acquisition.for operational costs. The interest raterates for these investment margin accountthe borrowings fluctuatesfluctuate based on the Federal Funds Rate plus 0.65% with interest only payable monthly. The weighted average interest rate was 1.23%rates were 0.89% and 1.66% on an average margin loan balancebalances of $55.7$46.2 million and $27.1 million as of March 31, 2023 and December 31, 2022, respectively. The Company incurred interest expense on the loan of $0.7 million and $21,846 during the three months ended June 30, 2022.March 31, 2023 and March 31, 2022, respectively. The weighted average interest rate was 0.98% on an average margin loaninvestment
29
201,160 during the six months ended June 30, 2022. The investment margin account borrowings do notmature but are payable on demand ascollateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, thereforeeffecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the Company's margin loan balance was $48.9 million and $60.8 million, respectively.

Note 16: 15: Stockholders’ Equity

Common Stock

On February 6, 2023, the Company's board of directors approved a 1-for-10 reverse stock split of the Company's outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:00 p.m. Eastern time. At the effective time, every 10 issued and outstanding shares of the Company's common stock were converted into 1 share of common stock. Any fractional shares of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of fractional shares. The par value of each share of common stock remained unchanged. The reverse stock split proportionately reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000 shares. The reverse stock split also applied to common stock issuable upon the exercise of the Company's outstanding warrants and stock options. The reverse stock split did not affect the authorized preferred stock of 10,000,001 shares. Unless noted, all references to shares of common stock and per share amounts contained in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect a 1-for-10 reverse stock split.
As of June 30, 2022,March 31, 2023, the total number of authorized shares of common stock was 400,000,000.

40,000,000.

As of June 30, 2022,March 31, 2023 and December 31, 2021,2022, there were 317,235,11632,113,784 and 303,379,12231,918,552 shares of common stock outstanding, respectively.

On February 24, 2022, the Company issued 36,196 shares of the Company’s common stock valued at $65,515 which were held in escrow as part of the ChizComm acquisition.

On March 2, 2022, the Company issued 350,000 shares of the Company’s common stock valued at $0.3 million to a consultant for advisory services.

On April 7, 2022, the Company issued 10,365,823 shares of the Company’s common stock valued at $10.8 million related to the Wow Acquisition, as part of the purchase price. Also included as part of the Wow Acquisition, the Company has issued 691,262 shares, valued at $0.7 million, which will be exchanged at a future redemption date upon tender of ExchangeCo (as defined below) shares as specified in the agreement. See additional information on the ExchangeCo shares below under “Preferred Stock.”

On May 31, 2022, the Company issued 736,667 shares of the Company’s common stock valued at $0.4 million to a nonemployee for productions services.

During the six months ended June 30, 2022, the Company issued 1,676,046 shares of the Company’s common stock valued at $1.4 million representing delivery of vested RSUs.

Preferred Stock

The Company has 10,000,00010,000,001 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.

37

In connection with the Company’s acquisition of Wow, certain eligible Canadian shareholders, noteholders and optionholders of Wow elected to receive the Exchangeable Shares in the capital of the Wow Exchange Co. Inc. (“ExchangeCo”) instead of shares of the Company’s common stock to which they were otherwise entitled.

The shares of ExchangeCo are exchangeable into shares of the Company’s common stock in accordance with their terms. Holders of the ExchangeCo shares are entitled to defined voting rights (the “Voting Rights”) in the Company pursuant to a voting and exchange trust agreement (the “Voting Agreement”) dated April 6, 2022 between the Company, ExchangeCo, 1329258 B.C. Ltd. and Computershare Trust Company of Canada (the “Voting Trustee”). The Voting Trustee holds a single share of Series B Preferred Stock in the capital of the Company (the “Special Voting Share”), which grants the Voting Trustee that number of votes at the meetings of the Company’s shareholders as is equal to the number of shares of the Company’s common stock that at such time have not been delivered pursuant to the tender of ExchangeCo shares. The Voting Trustee is required to exercise each vote attached to the Special Voting Share only as directed by the relevant holder of the underlying Genuis SharesCompany shares of common stock and, in the absence of any instructions, will not exercise voting rights with respect to the applicable shares.

As of June 30, 2022March 31, 2023 and December 31, 2021,2022, there were 0 shares of Series A Convertible Preferred Stock outstanding. As of June 30,March 31, 2023 and December 31, 2022, there was 1 share of Series B Preferred Stock outstanding.

Treasury Stock
During the three months ended March 31, 2023, 3,700 shares of common stock with a cost of $9.435 were withheld to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury Stock on the condensed consolidated balance sheet.
30
Note 17: 16: 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 2,167,667216,767 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 waswere 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 three months ended March 31, 2022, the Company granted options to purchase 875,0003,000,000 shares of common stock, to employees with a fair market value of $603,750. The options were granted on March 17, 2022, with a three-year vesting period and a five-year term.

As part of the Wow Acquisition,which does not include shares that the Company granted replacement optionsmay issue related to purchase 1,733,100 shares of the Company’s common stock to Wow employees who would continue to provide services to the Company. 676,415 options to purchase common stock were also granted to certain departing Wow shareholders to replace their previously vested Wow options. These options were cancelled after 30 days of the grant date if not exercised. The fair market value of $1.5 million was determined utilizing assumptions as of the replacement date of April 6, 2022 and were valued using the BSM option pricing model. The number of shares granted was determined by using an exchange ratio calculated by a third party based on the intrinsic value of the Wow common stock purchased as part of the acquisition and the value of the Company’s common stock as of the agreement date. The vesting terms of the replacement options remained the same as the Wow options for which they were exchanged. All shares that replaced previously vested Wow shares were included as part of the purchase price based on the calculated fair value on the acquisition date of $1.2 million for 1,967,528 shares. The remaining options to vest with a fair value of $0.3 million will be expensed over the remaining requisite period. The options expire within 3 years from the replacement option grant date or the original Wow option, whichever is greater.

38
acquisitions.

During the three months ended June 30, 2022, the Company also granted 500,000 options to purchase shares of common stock to a former employee of Wow, as a new employee of the Company after the acquisition date. The options vest evenly over three years and expire 10 years from the grant date of June 23, 2022.

The fair value of the options granted during the three months ended June 30, 2022 was calculated using the BSM option pricing model based on the following assumptions:

Schedule of assumptions used            
  3/17/2022 Options  4/6/22 Replacement Options  6/23/22 Options 
Exercise Price $0.90  $0.51-$1.66  $0.78 
Dividend Yield  0%   0%   0% 
Volatility  104%   114%-123%   113% 
Risk-free interest rate  0.41%   2.67%-2.70%   3.14% 
Expected life of options  5.0 years   3.0-4.3 years   5.0 years 

The following table summarizes the stock option activity during the sixthree months ended June 30, 2022:

Schedule of stock option activity         
  Number of Shares  Weighted- Average Remaining Contractual Life  Weighted- Average Exercise Price 
Outstanding at December 31, 2021  10,197,312   7.96  $1.75 
Granted  3,784,515   4.33  $1.11 
Exercised  0   –  $0 
Forfeited/Cancelled  (1,026,915)  3.30  $1.54 
Expired  0   –  $0 
Outstanding at June 30, 2022  12,954,912   6.88  $1.55 
             
Unvested at June 30, 2022  3,775,901   6.48  $1.43 
Vested and exercisable at June 30, 2022  9,179,011   7.05  $1.61 

March 31, 2023:

Number of SharesWeighted- Average Remaining Contractual
Life		Weighted- Average Exercise Price
Outstanding at December 31, 20221,351,4216.49$15.09 
Granted––$– 
Exercised––$– 
Forfeited/Cancelled(4,100)2.78$30.34 
Expired––$– 
Outstanding at March 31, 20231,347,3216.26$15.05 
Unvested at March 31, 2023312,8775.92$13.23 
Vested and exercisable March 31, 20231,034,4446.36$15.59 
During the three months ended June 30,March 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the employee per the original employment agreement. This resulted in 95,758 options becoming immediately vested on the separation date and $0.1 million in expense recognized by the Company.
During the three months ended March 31, 2023 and 2022, and 2021, the Company recognized $0.4$0.4 million and $0.8 million, respectively, in share-based compensation expense related to stock options. During the six months ended June 30, 2022 and 2021, the Company recognized $0.8 million and $1.9$0.4 million, respectively, in share-based compensation expense related to stock options. The unrecognized share-based compensation expense related to stock options at June 30, 2022as of $1.8March 31, 2023 was $0.9 million and will be recognized through the second quarterover a weighted average remaining contractual life of 2025 based on the remaining vesting periods, assuming the options are not cancelled or forfeited. As6.26 years. The outstanding shares as of June 30, 2022 there was $159,311 of aggregateMarch 31, 2023 have an aggregated intrinsic value related to outstanding unvested options. The weighted average fair value per option granted during the three months ended June 30, 2022 was $0.64.

39
of $0.

Note 18: 17: Restricted Stock Units

During the three months ended

On March 31, 2022,17, 2023, the Company granted 300,00011,070 fully vested RSUs to a nonemployeethe Company's board members with a fair market value of $268,500.$30,000. The RSUs expire five years from date of grant.
An aggregate of 593,358 shares of common stock were granted on March 17, 2022, with a three-year vesting period and a five-year term.

During the three months ended June 30, 2022, the Company granted 469,677 fully vested RSUs to a nonemployee for production services with a fair market value of $286,806. The RSUs were granted on May 10, 2022 with a five-year term and recorded as part of capitalized production costs.

During the three months ended June 30, 2022, the Company also granted 500,000 RSUs to a former employee of Wow,issued as a new employeeresult of the Company after the acquisition date, with a fair market value of $390,000. The RSUs were granted on June 23, 2022, with a three-year vesting period and a five-year term.

vested RSUs.

The following table summarizes the Company’s RSU activity during the sixthree months ended June 30, 2022:

Schedule of restricted stock units         
  Restricted Stock Units  

Weighted-

Average Remaining Contractual Life

  

Weighted-

Average Grant Date Fair Value per Share

 
Unvested at December 31, 2021  15,383,234   4.34  $1.40 
Granted  1,269,677   4.84  $0.74 
Vested  (3,371,311)  4.10  $1.29 
Forfeited/Cancelled  0   –  $0 
Unvested at June 30, 2022  13,281,600   3.88  $1.36 

March 31, 2023:

31
Restricted Stock UnitsWeighted-
Average Remaining Contractual Life		Weighted-
Average Grant Date Fair Value per Share
Unvested at December 31, 20221,161,9443.41$13.67 
Granted11,0704.96$2.71 
Vested(37,105)3.49$11.76 
Forfeited/Cancelled––$– 
Unvested at March 31, 20231,135,9093.17$13.63 
During the three months ended June 30,March 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested shares held by the employee per the original employment agreement. This resulted in 24,243 shares becoming immediately vested and issued on the separation date and $0.1 million in expense recognized by the Company.
During the three months ended March 31, 2023 and 2022, and 2021, the Company recognized $3.8$0.5 million and $0.8$4.1 million, respectively, in share-based compensation expense related to RSUs. During the six months ended June 30, 2022 and 2021, the Company recognized $7.9 million and $1.9 million, respectively, inRSU awards. The unvested share-based compensation expense related to RSUs. The unrecognized share-based compensation expense related to RSUs at June 30, 2022as of $2.9March 31, 2023 is $1.2 million which will be recognized through the second quarter of 2025 based on the remaining vesting periods, assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the three months ended March 31, 2023 was $0.4 million.

Note 19: 18: Warrants
Warrants

The Company hasfollowing table summarizes the activity in the Company's outstanding warrants outstandingduring the three months ended March 31, 2023:
Warrants Outstanding Number of
Shares		Weighted Average Remaining
Contractual Life		Weighted Average Exercise Price Per
Share
Balance at December 31, 20224,433,5933.37$22.50 
Granted––$– 
Exercised––$– 
Expired(4,000)–$30.00 
Forfeitures(50,000)7.69$13.90 
Balance at March 31, 20234,379,5933.08$22.59 
Exercisable March 31, 20234,379,5933.08$22.59 
Exercisable December 31, 20224,433,5933.37$22.50 

The warrants to purchase up to 45,511,965 shares of the Company’s common stock outstanding as of June 30, 2022,March 31, 2023 and December 31, 2021, with2022 had a total value of $74.2$72.4 million an average exercise price of $1.86and average term of 5.5 years.

40
$73.3 million, respectively.


As of June 30, 2022, 892,857March 31, 2023, 89,286 liability classified derivative warrants to purchase shares of the Company’s common stock remained outstanding and are revalued each reporting period. As of June 30, 2022,March 31, 2023, the warrants were revalued at $0.6$0.2 million, resulting in a decrease of $0.3$0.1 million in liability as compared to December 31, 2021.2022. The change in value is recorded within Net Other Income (Expense)net other income (expense) on the condensed consolidated statementstatements of operations.

The valuation inputs asfair value of June 30, 2022 included an expected volatilitythe outstanding derivative warrants was determined by using the Black-Scholes option pricing model ("BSM") based on the following assumptions:
32
Exercise Price$2.10 
Dividend Yield0 %
Volatility127 %
Risk-free interest rate4.03 %
Expected life of options2.0 years
128
% and an annual interest
On February 16, 2023, the Company received a notification of exercise from the holder of the remaining 50,000 warrants with a put option. The put option was exercised for a fixed rate of 2.97%.

The Company did not have any warrant activity during the three or six months ended June 30, 2022.

$250,000.

Note 20: 19: Income Taxes


    The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 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.


ASC 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.


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 June 30, 2022March 31, 2023 and December 31, 2021,2022, 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 states of California, Massachusetts and New Jersey and will start filing in New York. 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.


The Company is subject to USU.S. income taxes on a stand-alone basis. The Company, the Beacon Media Group (formerly ChizComm) and Wow file separate stand-alone tax returns in each jurisdiction in which they operate. Beacon Communications, Wow and Ameba are corporations operating in Canada and are subject to Canadian income taxes on itstheir stand-alone taxable income.

Note 21: Commitment20: Commitments and Contingencies

The following is a schedule of future minimum contractual obligations as of June 30, 2022 (inMarch 31, 2023 (in thousands):

Schedule of future minimum lease payments                     
  2022  2023  2024  2025  2026  Thereafter  Total 
Operating/Capital Leases $1,849  $3,285  $2,242  $1,808  $1,825  $6,385  $17,394 
Employment Contracts  3,283   2,189   794   427   0   0   6,693 
Consulting Contracts  1,656   503   0   0   0   0   2,159 
Debt  63,782   18,440   24   24   18   0   82,288 
  $70,570  $24,417  $3,060  $2,259  $1,843  $6,385  $108,534 

41

20232024202520262027ThereafterTotal
Operating Leases$1,229 $1,701 $1,750 $1,768 $1,541 $4,601 $12,590 
Finance Leases1,504 1,066 588 228 – – 3,386 
Employment Contracts2,924 1,088 427 – – – 4,439 
Consulting Contracts2,365 1,428 – – – – 3,793 
Debt52,759 16,711 – – – – 69,470 
$60,781 $21,994 $2,765 $1,996 $1,541 $4,601 $93,678 

Leases

On January 30, 2019, the Company entered into an operating lease for 5,838 square feet of general office space at 190 N. Canon Drive, Suite 400, Beverly Hills, CA 90210 pursuant to a 96-month lease that commenced on August 1, 2019. The Company pays rent of $0.4 million annually, subject to annual escalations of 3.5%.

On February 1, 2021, as part of the ChizComm Acquisition, the Company assumed an operating lease that was entered into on May 19, 2019 for 6,845 square feet of general office space located at 245 Fairview Mall Drive, Suites 202 and 301, Toronto, Ontario M2J 4T1 pursuant to an 84-month lease which commenced on October 1, 2019. The Company pays rent of $95,830 annually, subject to annual escalations of 5% to 7%. Also, as part
33
On March 2, 2021, the Company entered into an operating lease for 4,765 square feet of general office space located at 1050 Wall Street West, Suite 665, Lyndhurst NJ, 07071 pursuant to an 89-month lease which commenced on October 1, 2021. The Company pays rent of $0.1 million$115,154 annually subject to annual escalations of 2.5%.

On April 6, 2022, as part of the Wow Acquisition, the Company assumed an operating lease for 45,119 square feet of general office space located at 2025 West Broadway, Suite 200, Vancouver, B.C., V6J 1Z6. The right of use asset and lease liability were revalued on the acquisition date based on the remaining lease term of 117 months with payments of $81,769 per month, subject to escalations of 7% each of the third and fifth years. The lease liability and right of use asset were determined to be $6.6 million, utilizing a discount rate of 11.5%11.5%. As part of the assumed office lease, the Company also assumed a parking lease for 80 parking spaces. The parking lease was also revalued utilizing the 11.5% discount rate. With a remaining lease term of 117 months, paying $6,091 per month, the ROU asset and lease liability were determined to be $0.5 $0.5 million as of the acquisition date.

date and recorded within current and noncurrent Operating Lease Liabilities on the Company's condensed consolidated balance sheet upon acquisition.

Also, as part of the Wow Acquisition, the Company assumed various capital equipment finance leases, the majority of which are under Master Line of Credit Agreements with certain banking institutions. As the rates were implicit in the leases, the Company determined that the carrying value of the leases as of the acquisition date equaled the fair value. As determined by utilizingWith the implicit raterates in the leases that rangedrange from 3.7%- 14.5% with, remaining lease terms of 10-33 months and monthly payments of $1,346-$57,362 as of the Wow Acquisition date, the finance lease. The remaining capital lease obligations of $3.5were determined to be $3.5 million and recorded as of the acquisition date was included as part of the Company’s existing current and noncurrent lease liabilitiesFinance Lease Liabilities on the Company’s condensed consolidated balance sheet upon consolidation.

As of June 30, 2022, the weighted-average lease term for all

The present value discount of the Company’sminimum operating and capital leaseslease payments above was 82 months and the weighted-average discount rate on the leases was 9.7%.

Rental expenses incurred for operating and capital leases during the three months ended June 30, 2022 and 2021 were $0.4$3.9 million and $0.1 million, respectively. Rental expenses incurred for operating and capital leases during the six months ended June 30, 2022 and 2021 were $0.6 million and $0.2 million, respectively.

42
as of March 31, 2023.

Other Funding Commitments


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, 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.


Note 22: 21: Related Party Transactions

Pursuant to his employment agreements dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an Executive Producer fee of $12,500 per one-half hour episode for each episode he provides services as an executive producer. During the sixthree months ended June 30,March 31, 2023 and March 31, 2022, Mr. Heyward earned $0.6 millionand was paid $162,500 and $612,155 in producer fees.fees, respectively. Mr. Heyward was also paid $55,000 as part ofearned his $55,000 quarterly discretionary bonus during eachthe three months ended March 31, 2023.
On August 25, 2022, Mr. Heyward's employment agreement was amended to include assignment of music royalties to Mr. Heyward for all musical compositions in which he provides services as a composer for or on behalf of the first and second quartersCompany, in the event that the Company acquires up to 50% of 2022.

the writer's share of the royalties for that musical composition. If the Company acquires more than 50% of the writer's share of the royalties on musical compositions Mr. Heyward provided services for, he has the option to purchase the additional royalties from the Company at the price the Company paid to acquire the additional royalties. During the three months ended March 31, 2023, Mr. Heyward has not earned royalties from musical compositions.

Pursuant to his employment agreement dated April 7, 2022, whereas Michael Hirsh, was appointed as the CEO of Wow and its Frederator and Mainframe Studio subsidiaries a member of the Company’s Executive Committee and a member of the Company’s Board of Directors, is entitled to an Executive Producer fee of $12,400 per one-half hour for each episode of any audio-visual production produced by Wow and any of its subsidiaries during the term of his employment, up to 52 episodes per year. During the sixthree months ended June 30, 2022,March 31, 2023, Mr. Hirsh didhas not yet earn anyearned producer fees under the employment agreement.

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 entered into a customary merchandise license
34
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 three months ended June 30,March 31, 2023 and March 31, 2022, the CompanyMr. Heyward has not earned $0 in royalties from this agreement.

On September 30, 2021, the Company entered into a Loan Agreement and Promissory Note with POW!POW in the amount of $1,250,000,$1,250,000, accruing simple interest at the annualized rate of 9%9%. The entire principal sum was required to be remitted to POW!’s client trust account of POW!’s legal counsel within 5 days of the effective date. The principal, plus interest must be repaid by no later than November 1, 2022. Within the Loan Agreement, it is stated that the proceeds of $1,000,000 are required to be used by POW! to settle the arbitration against Stan Lee Studios (aka Proxima Studios) and $250,000 shall be used to solely pay for the payment of legal costs and fees. The principal amount was transferred to POW! on October 12, 2021 and on or about November 4, 2021, POW and Proxima entered into a binding settlement agreement resolving all the claims made by Proxima. The loan has accrued interest of $52,442$0.2 million and $0.1 million as of June 30,March 31, 2023 and December 31, 2022, respectively, recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheet.sheets. In addition, pursuant to its joint venture with POW!POW and formation of the entity Stan Lee Universe, LLC, the Company included within Note Receivable from Related Party, the amount owed to the Company related to the 50% non-controlling interest held by POW!.

POW. On November 1, 2022, POW failed to repay the Loan as set forth in the applicable loan agreement and the Company had not received any payment as of March 31, 2023. As the Library secures repayment, the Company initiated a public sale of the Stan Lee Library owned by POW during February 2023, however, POW has since repaid the loan during April 2023 and the auction has been cancelled.
On July 19, 2022, the Company entered into a Shareholder Loan Agreement with YFE in the amount of EURO 1.3 million, accruing interest at the fixed annualized rate of 5%, with successive interest periods of three months due on the last day of each calendar quarter. The entire principal sum was required to be remitted to YFE within 5 days of the effective date. The principal, plus interest must be repaid by no later than June 30, 2026. The loan has accrued interest of USD $44,701 as of March 31, 2023 recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheet.
On December 1, 2021, the Company entered into an Independent Contractor Agreement for two years with F&M Film and Medien Beteiligungs GmbH ("F&M"), a company controlled by Dr. Stefan Piëch. Pursuant to the agreement, F&M will receive $150,000 annually, paid on a semi-monthly basis. In addition, Dr. Piëch was granted 30,000 of the Company's RSUs that vest in three six-month intervals beginning on December 1, 2021.
During 2022, the Company entered into a sublease agreement with a related party to lease one office in the general office space at 190 N. Canon Drive, Suite 400, Beverly Hills, CA 90210. The sublease payment is $595 per month and recorded to Other Income in the Company's condensed consolidated statement of operations.

Note 23: 22: Segment Reporting

The Company’s CODM uses revenue and net earnings to evaluate the profitability and performance of each operating segment. All other financial information is reviewed by the CODM on a consolidated basis. The CODM does not evaluate the operating segments using asset information and it is therefore not disclosed. All expenses directly attributable to each reportable segment isare included in the operating results for each segment. However, the CODM does not evaluate the expenses by operating segment and, therefore, it is not separately presented.

43


The following table presents the revenue and net earnings within the Company’sCompany's two operating segments for the three and six months ended June 30, 2022 and 2021 (in thousands):
Three Months Ended
March 31, 2023March 31, 2022
Total Revenues:
Content Production & Distribution$13,233 $455 
Media Advisory & Advertising Services956 986 
Total Revenue$14,189 $1,441 
Net Loss:
Content Production & Distribution$(24,208)$(4,040)
Media Advisory & Advertising Services(554)(491)
Total Operating Loss$(24,762)$(4,531)
35
(in thousands)Table of Contents:

Segment information by revenues and net earnings                
  Three Months Ended  

 

Six Months Ended

 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
Total Revenues:                
Content Production & Distribution $21,042  $1,371  $21,496  $1,682 
Media Advisory & Advertising Services  1,082   971   2,067   1,724 
Total Revenue $22,124  $2,342  $23,563  $3,406 
                 
Net Loss:                
Content Production & Distribution  (12,822)  (6,851)  (16,860)  (82,840)
Media Advisory & Advertising Services  (520)  (543)  (1,012)  (813)
Total Net Operating Loss $(13,342) $(7,394) $(17,872) $(83,653)

Geographic Information

The following table provides information about disaggregated revenue by geographic area for the three months ended June 30, 2022 and 2021 (in(in thousands):

Schedule of segments by geographic area                
  Three Months Ended  

Six Months Ended

 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
Total Revenues:                
United States $15,441  $1,880  $15,993  $2,616 
Canada  5,709   462   6,596   790 
United Kingdom  974   0   974   0 
Total Revenue $22,124  $2,342  $23,563  $3,406 
Three Months Ended
March 31, 2023March 31, 2022
Total Revenues:
United States$8,640 $553 
Canada3,555 888 
United Kingdom1,844 – 
Other150 – 
Total Revenue$14,189 $1,441 

Note 24: 23: Subsequent Events

On July 7, 2022,

During April 2023, the Company entered into an Equipment Master Leasereceived the principal, plus interest accrued, payment due of $1.4 million related to the Loan Agreement and Promissory Note with the Royal BankPOW.
36



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 six months ended June 30, 2022March 31, 2023 and 2021.2022. 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 April 6, 202213, 2023 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-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 of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the MD&A contains forward-looking statements that involve risks and uncertainties.


Our Business

Organization and Nature of Business


Genius Brands International, Inc. (“we,” “us,” “our,” or the “Company”) is a publicly traded (NASDAQ:GNUS) global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children. Led by experienced industry personnel, we distribute our content primarily on streaming platforms and television and we license our properties for a broad range of consumer products based on our characters. We are a leading “work for hire” producer for many of the streaming outlets and IPanimated content intellectual property ("IP") holders. In the children’s media sector, our portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment. OurWith the exception of selected Wow Unlimited Media Inc. titles, our programs, along with thoselicensed programs, we acquire and/or license, are being broadcast in the United States on our wholly-owned advertisement supported video on demand (“AVOD”) service, Kartoon Channel!,our free ad supported TV ("FAST") channels and our subscription video on demand (“SVOD”) distribution outlets, Kartoon Channel! Kidaverse and Ameba TV. These streaming services are available on Apple TV, Apple iOS, Android TV, Android mobile, Amazon Prime, Amazon Fire, Tubi, Roku, Comcast, Cox, Dish/Sling, Zumo,Xumo, Pluto, Samsung Smart TVs, LG Smart TVs, as well as YouTube, among other popular platforms. Our in-house owned and produced animated shows include Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC Pop Quiz, and the upcoming Shaq’s Garage starring Shaquille O’Neal, scheduled to debut in the fourthsecond quarter of 2022.2023. 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.

45
Buffett, Team Zenko Go!, Reboot, Bee & PuppyCat: Lazy in Space and Castlevania.


We also license our programs to other services worldwide, in addition to the operation of our own channels, including but not limited to Netflix, HBO Max, Paramount+, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.


37
Through our recent investmentinvestments in Germany’s Your Family Entertainment (“YFE”), a publicly traded company on the Frankfurt Exchange (RTV-Frankfurt), we have gained access to one of the largest animation catalogues in Europe with over 3,00050 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide and which we are currently inworldwide.

Through the processownership of rebranding as Kartoon Channel! Worldwide.

We recently acquired WOW Unlimited Media Inc. (“Wow”), and through that acquisition, we established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and its Channel Frederator Network, the largest animation focused multi-channel network on YouTube, with over 2,500 content creators and currently averages over 1 billion views per month.

channels.


We ownhave rights to a select amount of valuable IP, includingincluded among them a controlling interest in Stan Lee Universe (“SLU”), through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”). We plan to launch a Stan Lee Centennial program of merchandise set to coincide with Stan Lee’s 100th birthday on December 28, 2022.


We also own Beacon Media Group ("Beacon"), the largest media buying service for children in North America. Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka, Moose Toys, and JAKKS Pacific.

In addition, we recently acquiredown the Canadian company Ameba TVInc. (“Ameba”), which distributes a profitable SVOD channelservice for kids, and is now expected tohas become the backbonefocal point of the newly launched SVOD channel of Kartoon Channel!, Kartoon Channel! Kidaverse.

The combination of ourselves,revenue growth for Genius Networks’ subscription offering.


We and our investment in YFE, our acquired companies Wow, Ameba and Beacon Media provides us withaffiliates provide world class animation production studios, a catalogue representing thousands of hours of premium global content for children, a broadcast system for delivering that content and an in-house Consumer Products Licensingconsumer products licensing infrastructure to fully exploit the content.

Environmental, Social and Governance Strategy

We are attempting to shape culture, social attitudes and societal outcomes with our animated content and consumer products that touch the lives of young people and their families. As a global content company that reaches millions of people, we aim to be a positive force in the world.

We are committed to advancing and strengthening our approach to environmental, social and governance (“ESG”) topics to help serve our partners, audiences, employees and shareholders — and to enhance our success as a business.

We are committed to responsible, ethical and inclusionary business practices as outlined below:

46

Human Capital Management

As of June 30, 2022,March 31, 2023, we employed 817715 full-time employees and 9046 independent contractors.

We aim to build a culture that attracts and retains the best employees and a workplace where everyone feels welcome, safe and inspired. Our human capital management strategy is intended to address the following areas:

A Culture of Diversity, Equity and Inclusion

We seek to foster a culture of diversity, equity and inclusion through a range of partnerships, collaborations, programs and initiatives, some of which are described below.

We strive to be an inclusionary workplace because we believe that it strengthens our business.
•In 2021, we created the role of Chief Diversity Officer. That role is responsible for both helping meet our hiring goals and reviewing the content we create.

•Our board of directors is diverse with representation from people of color and the LGBTQ community.
Preventing Harassment and Discrimination

We have enacted policies addressing harassment, discrimination and other behaviors that could create a hostile workplace, some of which are described below.

·We make available to our employees, training on preventing sexual harassment, discrimination and retaliation.
·We expect employees to report any violations of Company policies, including sexual harassment, they witness. Among other ways, employees can report incidents of harassment using our anonymous complaint and reporting hotline.

•We make training on preventing sexual harassment, discrimination and retaliation available to our employees.
38
•We expect employees to report any violations of Company policies, including sexual harassment, they witness. Among other ways, employees can report incidents of harassment using our anonymous complaint and reporting hotline.
Social Impact and Corporate Social Responsibility

We believe that the content we produce, primarily directed at young people and their families, both reflects and influences how our young viewers perceive and understand important issues. We endeavor to earn our viewers’ trust through a variety of practices, and we are focused on using our platforms to create positive social impacts.

By way of just a few examples: in our show Rainbow Rangers, a diverse cast of girls works to save animals and protect the environment, while demonstrating the power of teamwork; in our Llama Llama series, we teach kindness and inclusion, and feature a differently abled character, which we have been told is appreciated by moms and kids who deal with physical challenges. In the earliest days of the COVID-19 pandemic, we spread public service messages to keep our audiences safe and informed with animated shorts featuring the iconic voices from our series including Warren Buffett from The Secret Millionaires Club and Jennifer Garner, the voice of Mama Llama from the Llama Llama series.

Our mission statement says it all: “Content with a Purpose.” Social justice, caring about the environment and modeling appropriate and inclusionary behavior for kids has been part of our company for many years and we are constantly seeking ways to improve on what we have already been doing.

47

Acquisition


Recent Developments
On February 6, 2023, our board of Wow Unlimited Media Inc.

On April 6, 2022, we completeddirectors approved a 1-for-10 reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:00 p.m. Eastern time. At the acquisition of Wow. On October 26, 2021 our wholly-owned subsidiary, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act. We purchased 100% of Wow’seffective time, every 10 issued and outstanding shares for $38.3 million in cash and 11,057,085 shares of our common stock.

Recent Investments

Following the initial equity investment in YFE during the fourth quarter of 2021, we participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, we purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholdersCompany's common stock were converted into 2,574,000one share of common stock. Any fractional shares of YFE common stock 304,631resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of which were purchased by us, at 2.00 EUROS perfractional shares. The par value of each share or $0.6 million. On April 5, 2022, we exercised our subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million, increasingremained unchanged. The reverse stock split proportionately reduced the number of YFE’s outstanding shares of authorized common stock from 400,000,000 to 6,857,132 and our ownership in YFE40,000,000 shares. The reverse stock split also applied to 49.2% as of June 30, 2022.

Coronavirus (COVID-19)

We continue to work with our stakeholders (including customers, employees, consumers, suppliers, business partners and local communities) to responsibly address this global pandemic. We will continue to monitorcommon stock issuable upon the situation and assess possible implications to our business and our stakeholders and will take appropriate actions in an effort to mitigate adverse consequences. We cannot assure you that we will be successful in any such mitigation efforts. The extent to which the COVID-19 pandemic will continue to negatively impact our operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, the emergence of new virus variants, new information which may emerge concerning the severity of the COVID-19 pandemic, outbreaks occurring at anyexercise of our facilities,outstanding warrants and stock options. The reverse stock split did not affect the actions takenauthorized preferred stock of 10,000,001 shares. Unless noted, all references to control the spreadshares of COVID-19 or treat its impact,common stock and changesper share amounts contained in worldwide and U.S. economic conditions. Further deteriorations in economic conditions, as a result of the COVID-19 pandemic or otherwise, could lead to a further or prolonged decline in demand for our products and services and negatively impact our business. It may also impact financial markets and corporate credit markets which could adversely impact our access to financing or the terms of any such financing. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and its resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in “Item 1A. Risk Factors” and elsewhere in the 2021 AnnualQuarterly Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on April 6, 2022, such as our ability10-Q have been retroactively adjusted to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could havereflect a security impact as a result1-for-10 reverse stock split.


39

Results of Operations

Our summary results for the three months ended June 30,March 31, 2023 and 2022 and June 30, 2021 are below.

below:

Revenues

  Three Months Ended       
  June 30, 2022  June 30, 2021  Change  % Change 
  (in thousands, except percentages) 
Production Services Revenue $10,018  $–  $10,018   –% 
Content Distribution  8,529   135   8,394   6,218% 
Licensing & Royalties  2,495   1,236   1,259   102% 
Media Advisory & Advertising Services  1,082   971   111   11% 
Total Revenue $22,124  $2,342  $19,782   845% 

Three Months Ended
March 31, 2023March 31, 2022Change% Change
(in thousands, except percentages)
Production Services$9,886 $– $9,886 100 %
Content Distribution3,301 414 2,887 697 %
Licensing & Royalties46 41 5 12 %
Media Advisory & Advertising Services956 986 (30)(3)%
Total Revenue$14,189 $1,441 $12,748 885 %

Production Services revenue is generated specifically by Wow providing animation production services for the three months ended June 30, 2022, since the acquisition of the Company at the start of the quarter.

Content Distribution revenue is generated from the distribution of our properties for broadcast on television, video-on-demand (“VOD”) or SVOD in domestic and international markets and the sale of DVDs for home entertainment through our partners. Content Distribution also includes our advertising sales generated on our digital networks, the Kartoon Channel! in the form of either flat rate promotions or advertising impressions served, SVOD revenues generated by Ameba and revenue generated by Frederator on its multi-channel network.

Fluctuations in Content Distribution revenue are based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content or advertisement to the customer. Revenue related to our AVOD and SVOD, including advertising sales during the three months ended June 30, 2022, increased 6,218% as compared to the three months ended June 30, 2021, primarily due to the acquisition of Ameba, Wow and Frederator, increasing revenue by $7.7 million.

Licensing & Royalties revenues are generated by the items in 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. Revenue related to our licensing and royalties for the three months ended June 30, 2022 increased 102% as compared to the three months ended June 30, 2021, due to entering an agreement for the licensing of certain Stan Lee Assets.

Media Advisory & Advertising Services revenue is a combination of client retainer fee-based services and media commissions generated by our wholly-owned subsidiary, Beacon Media Group, which we acquired on February 1, 2021. The increase of 11% during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 represents new customers acquired, net of churn, during the period.

49
March 31, 2023.

Expenses

  Three Months Ended       
  June 30, 2022  June 30, 2021  Change  % Change 
  (in thousands, except percentages)       
Marketing and Sales $972  $1,541  $(569)  (37)%
Direct Operating Costs  14,648   1,269   13,379   1,054% 
General and Administrative  15,105   7,106   7,999   113% 
Total Expenses $30,725  $9,916  $20,809   210% 

Marketing and Sales expenses consist primarily of advertising expenses and certain payments made to our marketing partners. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities. The decrease in marketing and sales expenses for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 was primarily due to a decrease in marketing and advertising expenses incurred to promote Kartoon Channel.

Amortization, including any impairments of film and television costs, makes up the majority of our Direct Operating Costs. Expenses directly associated with the acquisition, salaries and related expenses to the production services employees Mainframe and Frederator, licensing and production of content, such as participation expenses 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 and costs of our product sales make up the remainder of Direct Operating Costs. The increase in direct operating costs for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 was primarily due to the consolidation of service salaries and channel expenses related to the Wow Acquisition.

General and Administrative expenses primarily consist of payroll and related expenses, share-based compensation related to our equity compensation plan, rent, depreciation of our property and equipment and amortization of our intangible assets, as well as professional fees and other general corporate expenses. The $8.0 million increase in general and administrative expenses for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily consisted of a $4.5 million increase in costs associated with the acquisition of Wow and Frederator and an increase share-based compensation expense and the consolidation of Wow’s general and administrative expenses for the three months ended June 30, 2022.

Our summary results for the six months ended June 30, 2022 and June 30, 2021 are below.

50

Revenues

  Six Months Ended       
  June 30, 2022  June 30, 2021  Change  % Change 
  (in thousands, except percentages)       
Production Services Revenue $10,018  $–  $10,018   –% 
Content Distribution  8,942   275   8,667   3,152% 
Licensing & Royalties  2,536   1,407   1,129   80% 
Media Advisory & Advertising Services  2,067   1,724   343   20% 
Total Revenues $23,563  $3,406  $20,157   592% 

Production Services Revenue is generated specifically by Wow providing animation production services for the six months ended June 30, 2022.

Content Distribution revenue is generated from the distribution of our properties for broadcast on television, video-on-demand (“VOD”) or subscription video-on-demand (“SVOD”) in domestic and international markets and the sale of DVDs for home entertainment through our partners. Content Distribution also includes our advertising sales generated on our digital network, the Kartoon Channel! in the form of either flat rate promotions or advertising impressions served, SVOD revenues generated by Ameba and revenue generated by Frederator on its multi-channel network.


Fluctuations in Content Distribution revenue are based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content or advertisement to the customer. Revenue related to our AVOD and SVOD, including advertising sales for the sixthree months ended June 30, 2022,March 31, 2023, increased 3,152%697% as compared to the sixthree months ended June 30, 2021March 31, 2022 primarily due to the acquisition of Ameba, Wow and Frederator, increasing Content Distribution revenue by $7.7$3.0 million.


Licensing & Royalties revenues are generated by the items in 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. Revenue related to our licensing and royalties for the sixthree months ended June 30, 2022March 31, 2023 increased 80%12% as compared to the sixthree months ended June 30, 2021March 31, 2022 primarily due to entering an agreement for the licensing of certain Stan Lee Assets.


Media Advisory & Advertising Services revenue is a combination of client retainer fee-based services and media commissions generated by our wholly-owned subsidiary, Beacon Media Group which we acquired on February 1, 2021. The increase of 20% represents an additional month of revenue recognized during the six months ended June 30, 2022 as compared the six months ended June 30, 2021 and new customers acquired, net of churn during the period.

51
("Beacon").

Expenses

Expenses

  Six Months Ended       
  June 30, 2022  June 30, 2021  Change  % Change 
  (in thousands, except percentages)       
Marketing and Sales $1,132  $2,143  $(1,011)  (47)%
Direct Operating Costs  14,992   1,518   13,474   888% 
General and Administrative  25,962   14,039   11,923   85% 
Total Expenses $42,086  $17,700  $24,386   138% 

Three Months Ended
March 31, 2023March 31, 2022Change% Change
(in thousands, except percentages)
Marketing and Sales$245 $160 $85 53 %
Direct Operating Costs11,285 344 10,941 3181 %
General and Administrative9,225 10,857 (1,632)(15)%
Impairment of Property and Equipment120 – 120 100 %
Impairment of Intangible Assets4,023 – 4,023 100 %
Impairment of Goodwill11,287 – 11,287 100 %
Total Expenses$36,185 $11,361 $24,824 219 %

Marketing and Sales expenses consist primarily of advertising expenses and certain payments made to our marketing partners. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities. The decreaseincrease in marketing and sales expenses for the sixthree months ended June 30, 2022March 31, 2023 as compared to the sixthree months ended June 30, 2021March 31, 2022 was primarily
40
due to a decrease in marketing and advertising expenses incurred to promote the Kartoon Channel.

Amortization, including any impairmentsChannel! as well as the launch of film and television costs makes up the majority of our Superhero Kindergarten.

Direct Operating Costs. Expenses directly associated withCosts during the acquisition,three months ended March 31, 2023 consist primarily of salaries and related expenses tofor the animation production services employees of Mainframe and Frederator,Frederator. Channel expenses, licensing and production of content costs, such as participation expenses related to agreementsprofit sharing obligations 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 theythat have rendered services and costsamortization, including any write-downs of our product salesfilm and television costs, make up the remainder of Direct Operating Costs.
The increase in direct operating costsis primarily due to the acquisition of Ameba, Wow and Frederator, which increased Direct Operating Costs for the sixthree months ended June 30, 2022March 31, 2023 by $11.1 million as compared to the sixthree months ended June 30, 2021 was primarily due to the consolidation of service salaries and channel expenses into our financial statements related to the Wow Acquisition.

March 31, 2022.

General and Administrative expenses primarily consist of payroll and related expenses, share-based compensation related to our equity compensation plan, rent, depreciation of our property and equipment and amortization of our intangible assets, as well as professional fees and other general corporate expenses. The $11.9$1.6 million increasedecrease in general and administrative expenses for the sixthree months ended June 30, 2022March 31, 2023 as compared to the sixthree months ended June 30, 2021March 31, 2022 was primarily consisteddue to a decrease in stock-based compensation of $3.6 million due to the absence of modification expenses that were incurred in the prior year period and a $4.5decrease in professional fees of $0.9 million offset by the increase in costs associated with the acquisition of Wow and Frederator, a $4.2 million increase in share-based compensation expense, a $2.2 million increase related to an increase in salaries and wages, directors’ and officers’ insurance and the consolidation of Wow’s general and administration expenses forduring the three months ended June 30, 2022.

52
March 31, 2023 of $8.2 million, due to the consolidation of Ameba, Wow and Frederator's general and administration expenses.

During the three months ended March 31, 2023, we reassessed our long-lived assets, including our definite-lived intangible assets, our indefinite-lived intangible assets and our remaining goodwill allocated to the Content Production and Distribution reportable segment for impairment. As a result, we recorded an impairment charge to our property and equipment of $0.1 million, our definite-lived intangible assets of $2.8 million, our indefinite-lived intangible assets of $1.3 million and our goodwill recorded within the Content Production and Distribution reporting unit of $11.3 million in our condensed consolidated statement of operations.

Other Income (Expense), Net

Components of other income (expense), net are summarized as follows follows:
Three Months Ended
March 31, 2023March 31, 2022Change% Change
(in thousands, except percentages)
Interest Expense (a)$(1,085)$(55)$(1,030)1,873 %
Gain on Warrant Revaluation (b)139 41 98 239 %
Gain (Loss) on Foreign Exchange (c)320 (192)512 (267)%
Loss on Marketable Securities Investments (d)(1,537)(79)(1,458)1,846 %
Gain (Loss) on Revaluation of Equity Investment in YFE (e)(895)5,395 (6,290)(117)%
Interest Income (f)311 248 63 25 %
Finance Lease Interest Expense (g)(50)– (50)100 %
Other1 – 1 100 %
Other Income (Expense)$(1,711)$5,413 $(7,124)(132)%
(in thousands)
:

  Three Months Ended  

Six Months Ended

 
  June 30, 2022  June 30, 2021  June 30, 2022  June 30, 2021 
             
Gain (Loss) on Warrant Revaluation (a) $227  $119  $269  $(317)
Loss on Foreign Exchange (b)  (1,073)  (5)  (1,262)  (7)
Loss on Marketable Securities Investments (c)  (44)  –   (123)  – 
Gain (Loss) on Revaluation of Equity Investment in YFE(d)  (2,494)  –   2,901   – 
Interest Income (e)  253   75   501   122 
Warrant Incentive Expense (f)  –   –   –   (69,139)
Interest Expense (g)  (418)  (9)  (473)  (18)
Net Other Income (Expense) $(3,549) $180  $1,813  $(69,359)

41
(a)Interest expense during the three months ended March 31, 2023 primarily consisted of $0.7 million of interest incurred on the margin loan collateralized by the marketable security investments and $0.4 million of interest incurred on production facilities loans and bank indebtedness assumed as part of the Wow Acquisition.
(b)The gain (loss) on warrant revaluation is related to the change in fair value of outstanding warrants that were determined to be derivative liabilities attached to previously issued and converted convertible notes.
(b)(c)ForThe gain on foreign currency exchange during the three and six months ended June 30, 2022, loss on foreign exchangeMarch 31, 2023 primarily relatesrelated to the foreign exchange loss onEURO weakening against the USD compared to the previous reporting period end date of December 31, 2022. The remeasurement of the investment in YFE’s equity securities accounted for under the fair value option. For the three and six months ended June 30, 2021, loss onresulted in a foreign exchange related to foreign currency denominated monetary transactions.gain of $0.3 million.
(c)(d)We started investing in marketable securities during the three months ended June 30, 2021. The net realized loss on marketable securities recognized during the three and six months ended June 30, 2022 reflects the loss in the investments in available-for-sale securities that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities. We did not incur any realized losses on marketable securities during the three and six months ended June 30, 2021.
(d)(e)The gain (loss) onfair value revaluation of the equity investment in YFE is the change in fair value recognized on our investments in YFE accounted for using the fair value option.option as of March 31, 2023, resulted in a $0.9 million loss, excluding the impact of foreign currency recorded separately as a Gain on Foreign Exchange. The gain (loss)loss is a result of the changedecrease in YFE’s stock price at the endas of the current reporting period.March 31, 2023, as compared to December 31, 2022.
(e)(f)Interest Income received during the three and six months ended June 30, 2022 and 2021,March 31, 2023 primarily consistsconsisted of cash interest received onof $0.4 million from the investments in marketable securities, net of premium amortization expense of premiums.$0.2 million. The remaining increase is due to interest accrued on the Notes Receivable from Related Parties.
(f)The Warrant Incentive Expense is related to the fair value of new warrants that were issued in 2021 to certain existing warrant holders in exchange for previously issued outstanding warrants.
(g)InterestThe finance lease interest expense duringrepresents the three and six months ended June 30, 2022 primarily consistsinterest portion of $0.2 million of interest incurred on our margin loan collateralized by our marketable security investments and $0.3 million of interest incurred on our production facilities loan and bank indebtednessthe finance lease obligations assumed as part of the Wow Acquisition.

53Acquisition for equipment purchased under an equipment lease line. Prior to the acquisition of Wow, we did not have any finance leases.




42
Liquidity and Capital Resources

During the six months ended June 30, 2022, our

As of March 31, 2023, we had cash and cash equivalents and restricted cashof $4.8 million, which decreased by $2.2 million.$2.7 million as compared to December 31, 2022. The decrease was primarily due to cash used in investmentfinancing activities inclusive of $12.6 million, primarily due to the Wow and Ameba acquisitions and the YFE investments,repayment of $41.2 million, $17.7 million used for operational activities, offset by $56.6 million of financing from the margin loan, and production facilities$4.8 million used in operational activities. The cash used was offset by cash provided by the sales and bank indebtedness assumed in the Wow Acquisition.

maturities of marketable securities of $14.3 million.

As of June 30, 2022,March 31, 2023, we held available-for-sale marketable securities with a fair value of $97.4$69.7 million, as available-for-sale, a decrease of $15.1which decreased by $14.1 million as compared to December 31, 2021.2022. The decrease was primarily due to selling $14.3 million of securities, $2.9 million of securities maturing and additional prepayment proceeds of $0.5 million on principals for certain mortgage-backed securities during the three months ended March 31, 2023. The decrease was offset by the net decrease of $0.8 million in unrealized and realized loss activity. The available-for-sale securities which consist principally of corporate and government debt securities and are also available as a source of liquidity. As our recent focus has been on expanding its business, excess cash and liquid investments have been utilized to pay our margin loan down.

We borrowed an additional $59.0$3.7 million from our investment margin account during the sixthree months ended June 30, 2022March 31, 2023 and repaid $4.5$16.3 million with cash received from sales and/or redemptionsand maturities of its marketable securities. During the three months ended March 31, 2022,2023, the borrowed amounts were primarily used to finance our additional investments in YFE and the closing of the acquisitions of Ameba and WOW, in each case pledging certain of our marketable securities as collateral. During the three months ended June 30, 2022, the additional borrowings of $3.2 million related to the Company’s final obligated purchase of YFE shares and additional transactional costs in the acquisition of Wow.for operational costs. The interest raterates for these investment margin accountthe borrowings fluctuatesfluctuate based on the Federal Funds Rate plus 0.65% with interest only payable monthly. The weighted average interest rate was 1.23%rates were 0.89% and 1.66% on an average margin loan balancebalances of $55.7$46.2 million and $27.1 million as of March 31, 2023 and December 31, 2022, respectively. We incurred interest expense on the loan of $0.7 million and $21,846 during the three months ended June 30, 2022. The weighted average interest rate was 0.98% on an average margin loan balance of $34.6 million during the six months ended June 30, 2022. We incurred interest expense of $201,160 during the six months ended June 30, 2022.March 31, 2023 and March 31, 2022, respectively. The investment margin account borrowings do notmature but are payable on demand ascollateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, thereforeeffecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on our condensed consolidated balance sheets.

Upon the acquisition of Wow, we assumed certain credit facilities (the “Facilities”) with a Canadian bank. The Facilities are comprised of: (i) a $5.0 million CAD ($3.9 million USD) revolving demand facility, (ii) an $8.0 million CAD ($6.2 million USD) equipment lease line, (iii) a treasury risk management facility of up to $0.5 million CAD ($0.4 million USD) for foreign exchange forward contracts, and (iv) interim financing facilities for specific production titles.

The Facilities are guaranteed by us and the security reflects substantially all of our and our subsidiary guarantors tangible and intangible assets subject to permitted encumbrances, including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements. The Facilities are generally repayable on demand and are subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions.

54

Working Capital

As of June 30,March 31, 2023 and December 31, 2022, our margin loan balance was $48.9 million and $60.8 million, respectively.

Working Capital
As of March 31, 2023, we had current assets of $150.3$114.3 million, including cash and cash equivalents of $7.8$4.8 million and marketable securities of $97.4$69.7 million, and our current liabilities were $112.7$90.8 million. We had working capital of $37.6$23.5 million as of June 30, 2022March 31, 2023 as compared to working capital of $115.1$28.6 million as of December 31, 2021.2022. The decrease of $77.5$5.1 million in working capital as compared to December 31, 2021 was primarily due to a decrease in our cash and cash equivalents and marketable security position, offset by the $54.7 million increasechange in net current assets and liabilities as a result of the acquisition of Wow and Ameba and additional short-term borrowings from our margin loan balance and a $21.8 million increase due to the assumption of Wow’s current debt for interim production facilities and bank loans upon the acquisition.

account.

During the sixthree months ended June 30, 2022March 31, 2023, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. We have the ability to borrow against license contracts, production service contracts, or refundable tax credits receivable, entering into leases, the issuance of debentures, or the issuance of shares. The Company manages liquidity risk by continuously monitoring actual and forecasted cash flows, using lease financing and by maintaining revolving credit facilities. We believe that our current cash and cash equivalents balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months.

To meet our short and long-term liquidity needs, we expect to use existing cash and marketable securities balances.

Comparison of Cash Flows for the SixThree Months Ended June 30,March 31, 2023 and March 31, 2022 and June 30, 2021

Our total cash, cash equivalents and restricted cash as of June 30,March 31, 2023and March 31, 2022 and 2021 was $7.5$4.8 million and $58.4$52.8 million, respectively.

Comparison

43

Three Months Ended
March 31, 2023March 31, 2022Increase (Decrease) in Net Cash
(in thousands)
Net Cash Used in Operating Activities$(4,757)$(5,363)$606 
Net Cash Provided by (Used in) Investing Activities14,648 (3,247)17,895 
Net Cash Provided by (Used in) Financing Activities(12,565)51,353 (63,918)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash7 8 (1)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash$(2,667)$42,751 $(45,418)

Operating Activities

Cash

Net Noncash Expenses
Items necessary to reconcile from net loss to cash flow used in operating activities included net noncash expenses of $21.4 million for the sixthree months ended June 30, 2022 increased $8.8 millionMarch 31, 2023 as compared to net noncash expenses of $0.5 million for the three months ended March 31, 2022. The majority of the increase of $20.9 million was due to the impairments of our long-lived assets, intangible assets and goodwill of $15.4 million incurred during the three months ended March 31, 2023, our equity investment in YFE going from a loss of $5.4 million to a gain of $0.9 million and a decrease in stock-based compensation of $3.6 million.
Change in Operating Assets and Liabilities
The increase in cash provided by operating asset activity of $5.6 million as of March 31, 2023 compared to March 31, 2022 was primarily due to the receipt of tax credits earned, net by the Wow entity of $2.6 million, a decrease in the cash used duringof $1.3 million in prepaid expenses and assets due to the six months ended June 30, 2021. absence of a prepayment incurred for an insurance policy, that was not incurred in the current period and a decrease in cash used for film and television costs of $0.9 million.
The changeincrease in cash used in operating liability activities isof $5.6 million as of March 31, 2023 compared to March 31, 2022 was primarily due to the increase in cash used for accounts payable of $9.5$3.8 million used to pay down operating liabilities as compared to the prior period, primarily due to the increaseand deferred revenue of $2.7 million, offset by a decrease in liabilities from the acquisitionaccrued production costs of Wow.

$1.5 million.

Change in Investing Activities

Cash used in investing activities for the sixthree months ended June 30, 2022 decreased $48.1 million asMarch 31, 2023 compared to the three months ended March 31, 2022, increased from cash used during the six months ended June 30, 2021. The decrease in investing of $3.2 million, to cash used forprovided by investing wasof $14.6 million, primarily due to ourusing cash of $10.5 million for investments and acquisitions in the prior year, that did not occur in the current period and an increase in proceeds from the sales and maturities of marketable securities of $80.9 million and the cash payment to acquire ChizComm of $7.8$7.3 million during the sixthree months ended June 30, 2021 compared to the cash used to acquire Wow and Ameba of $41.2 million, cash paid for our equity investmentMarch 31, 2023.
Change in YFE of $9.5 million, offset by proceeds from marketable securities of $10.0 million during the six months ended June 30, 2022.

Financing Activities

Cash provided by financing activities for the sixthree months ended June 30, 2022 increased by $0.5 million as compared to cash provided during the six months ended June 30, 2021. The primary source of cash during the six months ended June 30, 2022 was the net proceeds borrowed from our margin loan of $54.5 million and $2.5 million from production loans,March 31, 2023 compared to the primary sourcethree months ended March 31, 2022, decreased from cash provided by investing of $51.4 million, to cash used in investing of $12.6 million, primarily due to paying down the margin loan during the six months ended June 30, 2021 of $57.3current quarter compared to additional borrowings in the prior year quarter resulting in a net $63.3 million from the warrant exercise during January 2021.

decrease in cash provided by financing activities.

Material Cash Requirements

We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $108.5$89.1 million as of June 30, 2022,March 31, 2023, of which about $80.0$60.8 million could be owed within one year if the margin loan and interim production facilities are called, could be owed within one year. For additional information on our contractual commitments and timing of future payments see Note 21 to the condensed consolidated financial statements included in this Report on Form 10-Q.

called.

We plan to utilize our liquidity (as described above) to fund our material cash requirements.

44

As of June 30, 2022,March 31, 2023, we have $5.8$3.4 million in commitments for capital expenditures, related to equipment leases.

56

Critical Accounting Policies

and Estimates


The preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.


Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 20212022 Annual Report on Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 20212022 Annual Report on Form 10-K describe the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.

Off Balance Sheet Arrangements


We have no off-balance sheet arrangements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.


ITEM 4. CONTROLS AND PROCEDURES.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework).
Based on this assessment, our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), has concluded that, as of March 31, 2023, our internal controls over financial reporting were not effective based on those criteria.
45
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are observed in many small companies with a small number of accounting and financial reporting staff:
•Insufficient segregation of duties on certain controls or processes;
•Limited resources to design and implement internal control procedures to support financial reporting objectives;
•Lack of risk assessment procedures on internal controls to detect financial reporting risks; and
•Insufficient procedures and documentation related to review type controls and information technology controls.
Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the sixthree months ended June 30, 2022,March 31, 2023, in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

57

Management’s Plan to Remediate the Material Weaknesses

Management had been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. Such measures include the following:
•Continue to hire qualified accounting personnel to prepare and report financial information in accordance with GAAP; and
•Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures.
Changes in Internal Control over Financial Reporting

During the sixthree months ended June 30, 2022,March 31, 2023, we continued to execute upon our 2021 planned remediation actions as disclosed in Item 9A. of our 2021 Annual Report on Form 10-K which was filed with the SEC on April 6, 2022, which are all intended to strengthen our overall control environment. This includes hiring additional accounting personnel at our corporate headquartersincluded the continuation of internal policies and other locations.procedures development and documentation on internal controls over financial reporting. We are committed to maintaining a strong internal control environment and believe that these remediation efforts will represent significant improvements in our control environment. Our management will continue to monitor implement, test and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Inherent Limitations over Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

58

46


PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

As of June 30, 2022,March 31, 2023, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject other than described below.

As previously disclosed, the Company, its Chief Executive Officer Andy Heyward, and its Chief Financial Officer Robert Denton 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 In re Genius Brands International, Inc. Securities Litigation, Master File No. 2:20-cv-07457 DSF (RAOx). Initially, the leadLead plaintiffs alleged generally that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). by issuing allegedly false or misleading statements about the Company, initially over an alleged class period running from March into early July 2020, and, in their second amended complaint, over a class period alleged to extend into March 2021. Plaintiffs sought unspecified damages on behalf of the alleged class of persons who invested in ourthe Company’s common stock during the alleged class period. The defendants moved to dismiss lead plaintiffs’ amended complaint; and in a decision issued on August 30, 2021, the Court dismissed the amended complaint but granted lead plaintiffs a further opportunity to plead a claim.

On September 27, 2021, the lead plaintiffsDefendants filed a second amended complaint, naming the same defendants. The new complaint alleged that the Company made numerous false or misleading statements about the Company’s business and business prospects over an expanded alleged class period, which they say violated Section 10(b) and 20(a) of the Exchange Act. The lead plaintiffs again sought unspecified damages on behalf of the alleged class—persons who invested in the Company’s common stock during the newly alleged class period. In November 2021, defendants filed a motionmotions to dismiss the second amended complaint. Ondifferent versions of lead plaintiffs’ pleading. Most recently, on July 15, 2022, the Court issued a decision dismissing thegranted defendants’ motion directed to lead plaintiffs’ second amended complaint, ordering that the complaint and the action be dismissed in itstheir entirety and with prejudice. On August 12, 2022, lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. Briefing of the appeal concluded earlier this year. The Company cannot predict whether the Court will entertain oral argument of the appeal, when a hearing might be scheduled, the outcome of thatthe appeal or the timing of a decision on it.

the appeal. In the meantime, there is no other activity in the case.

Related to the securities class action, the Company’s directors (other than Dr. Cynthia Turner-Graham), together with Messrs. Heyward and Denton and former director Michael Klein, have been named as defendants in several putativepunitive stockholder derivative lawsuits. As previously disclosed, these include a consolidated proceeding pending in the U.S. District Court for the Central District of California and styled In re Genius Brands Stockholder Derivative Litigation, Case No. 2:20-cv-08277 DSF (RAOx); an action filed in the Los Angeles County Superior Court captioned Ly, etc. v.Heyward, et al., Case No. 20STCV44611; and an additional case pending in the U.S. District Court for the District of Nevada, styled Miceli, etc. v. Heyward, et al., Case No. 3:21-cv-00132-MMD-WGC. While the allegations and legal claims vary somewhat among the derivative actions, they all generally allege that the defendants breached fiduciary duties owed to the Company. By theseThe plaintiffs, all alleged stockholders of the Company, purport to sue on behalf and for the benefit of the Company. Accordingly, the derivative lawsuits, the plaintiffs seek no recovery from the Company. Instead, as a stockholder derivative action, the Company is named as a nominal defendant. The plaintiffs, all alleged stockholders of the Company, purport to sue on behalf and for the benefit of the Company. Pursuant to agreements among the parties, the courts in all of the derivative lawsuits have stayed proceedings pending the outcome of the securities class action. The Company cannot predict the impact of the securities class action’s dismissaloutcome on appeal on the shareholder derivative lawsuits.

59

TheFinally, the Company is also a nominal defendant in an action filed in January 11, 2022 in the U.S. District Court for the Southern District of New York and styled Todd Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 VM.22-cv-00249-VM. The action, which again purports to be brought on behalf and for the benefit of the Company, seeks the recovery under Section 16(b) of the Exchange Act of supposed short-swing profits allegedly realized by roughly a dozen persons and entities that participated as investors in certain of the Company’s private placements of securities in 2020. Plaintiff Augenbaum, who purports to be a Company stockholder, filed his lawsuit after issuing a demand to the Company’s Board of Directors asking that the Company sue the investor defendants. The Company rejected the demand in late December 2021, and Mr. Augenbaum sued a few weeks later, as Section 16(b) permits him to do. No Company officer or director is among the defendants. The defendant investors filed a motion to dismiss, which the Court took under submission in mid-November 2022 after the action requested and received court permissioncompletion of full briefing. By decision issued March 30, 2023, the Court granted defendants’ motion to filedismiss with leave to amend. On May 1, 2023, plaintiff filed an amended complaint. The Company anticipates that defendants will renew their motions to dismiss, the action, and motions were filed July 25, 2022, and plaintiffbut no schedule for doing so has opposed the motions. Briefing is scheduled to close on August 22, 2022.yet been set. There is otherwise no current activity in the case. The Company cannot predict the outcome of the motionsanticipated motion to dismiss the amended complaint, the timing of court action on the requests, or the outcome of the lawsuit more generally. While the Company again notes that plaintiff seeks no relief against the Company, several of the defendant investors have made demands on the Company that it indemnify their costs of defending the action, invoking provisions in the agreements by which the investors acquired Company securities.

The Company believesdisagrees that it has indemnity obligations applicable to this action; however, the indemnification demands lack merit; however, it is in discussions with investors who have made demands. The Company cannot predict the outcome of those discussions or the magnitude of any potential indemnification liability.

On January 18, 2022, the Company was named as a defendant in a lawsuit filed in the Supreme Court of the State of New York, County of New York styled Harold Chizick and Jennifer Chizick v. Genius Brands International, Inc., ChizComm Ltd., Index No. 650278/2022, alleging: (1) breach of employment agreement, (2) breach of duty of good faith, (3) constructive dismissal, (4) indemnification, (5) violation of the Employment Standards Act 2000 of Ontario, and (6) defamation. On February 25, 2022, the Company filed a Motion to Dismiss on the ground that venue is improper. In response, Plaintiffs’ counsel has advised that they will be amending their complaint to address the arguments in the Company’s venue motion. Plaintiffs filed their Amended Complaint on March 17, 2022, adding a claim for Reformation of the Plaintiffs’ Employment Agreements to address the Company’s lack of venue argument and a claim for Breach of Escrow Agreement regarding alleged release of shares held in escrow pursuant to the parties’ Purchase and Sale Agreement. On April 25, 2022, the Company filed a Motion for Partial Dismissal of the Plaintiffs’ Amended Complaint seeking (1) dismissal of Plaintiffs’ claims for Indemnification and Defamation and (2) a stay of Plaintiffs’ claim for Breach of Escrow Agreement pending the required arbitration of this claim. At the hearing on this Motion to Dismiss on June 14, 2022, the Company was successful in having (1) the Indemnification claim dismissed with prejudice and (2) the claim for Breach of Escrow Agreement stayed pending arbitration of this claim before the American Arbitration Association (“AAA”). The Company’s Answer to the Amended Complaint with these two claims dismissed and stayed respectively is due on August 11, 2022. No trial date has been set and discovery continues in the case.

On June 3, 2022, Plaintiffs commenced their AAA arbitration proceeding regarding their claim for Breach of Escrow Agreement by filing their Arbitration Demand. The parties are presently in the process of selecting an arbitrator in this proceeding.

On June 6, 2022, Plaintiffs filed a Request for Emergency Relief in the AAA proceeding seeking a mandatory injunction to release the Company shares held in escrow pending indemnification claims under the terms of the PSA. The Company opposed this Emergency Relief Request on multiple grounds (including, without limitation, the lack of any irreparable harm, the adequacy of money damages and the Company’s indemnification claim applicable to the escrowed shares) and the hearing on this Emergency Relief Request occurred at the AAA offices in New York on June 24, 2022. The parties are still awaiting the ruling from the Emergency Arbitrator regarding this requested relief.

issue.

In all of the above-mentioned active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously. The Company maintains a program of directors’ and officers’ liability insurance that, subject to the insurers’ reservations of rights, has offset a portion of the costs of defending the securities class action litigation, and that the Company expects will afford coverage for some costs of the other shareholder litigation should any of those cases proceed.

60


47

ITEM 1A. RISK FACTORS.

Other than as set forth below, there

There have been no material changes to the Risk Factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Risks Related to our Common Stock

Our failure to meet the continued listing requirements of Nasdaq Capital Market could result in a delisting of our common stock.

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.

On March 4, 2022, we received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that for the preceding 30 consecutive business days, our common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as required by Nasdaq Listing Rule 5550(a)(2). The notice had no immediate effect on the listing or trading of our common stock, and our common stock will continue to trade on The Nasdaq Capital Market under the symbol “GNUS” at this time.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a grace period of 180 calendar days, or until August 31, 2022, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance will be achieved automatically and without further action when the closing bid price of our common stock is at or above $1.00 for a minimum of 10 consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us of our compliance and the matter will be closed.

If, however, we do not achieve compliance with the Minimum Bid Price Requirement by August 31, 2022, we may be eligible for additional time to comply. In order to be eligible for such additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and we must notify Nasdaq in writing of its intention to cure the deficiency during the second compliance period. There can be no guarantee that we will regain compliance with the Minimum Bid Price Requirement, that we will maintain compliance with other Nasdaq Listing Rules, or that we will be eligible for a second compliance period.

Risks Related to the Wow Acquisition

We may not realize all of the anticipated financial, marketing and operational benefits of the Wow Acquisition.

The benefits we expect to achieve as a result of the Wow Acquisition will depend, in part, on our ability to realize anticipated growth opportunities and cost synergies. Our success in realizing these growth opportunities and cost synergies, and the timing of this realization, depends on the successful integration of Wow’s business and operations with our business and operations. Even if we are able to integrate our business with Wow’s business successfully, this integration may not result in the realization of the full benefits of the growth opportunities and cost synergies we currently expect within the anticipated time frame or at all. For example, me may be unable to eliminate duplicative costs, achieve growth plans, or effectively increase market share exposure. Moreover, we anticipate that we will incur substantial expenses in connection with the integration of our business with Wow’s business. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately, and may exceed current estimates.

61
2022.

Accordingly, the benefits from the Wow Acquisition may be offset by costs incurred or delays in integrating the companies, which could cause our financial assumptions to be inaccurate.

Exchange Rate fluctuations could result in significant foreign currency gains and losses and affect our business results.

Because the results of Wow are reported in Canadian dollars, which we will then translate to U.S. dollars for inclusion in our consolidated financial statements, we will be exposed to more significant currency translation risk as a result of the Wow Acquisition. As a result, changes between the foreign exchange rates, in particular the Canadian dollar and the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. We currently do not enter into hedging arrangements to minimize the impact of foreign currency fluctuations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.

On February 18, 2022, the Company issued 350,000 shares of the Company’s common stock valued at $0.89 per share to a consultant for advisory services. The issuance of the shares of common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

On February 24, 2022, the Company issued 36,196 shares of the Company’s common stock valued at $1.81 per share, which were held in escrow as part of the ChizComm acquisition. The issuance of the shares of common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.
None.

None.

ITEM 6. EXHIBITS.

Exhibit

No.

Description
31.1*
Section 302 Certification of Chief Executive Officer.
31.2*
Section 302 Certification of Chief Financial Officer.
32.1**
Section 906 Certification of Chief Executive Officer.
32.2**
Section 906 Certification of Chief Financial Officer.
101.INS*101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*101.SCHInline XBRL Taxonomy Extension Schema Document
101.CAL*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document

____________________________ 

*104.0Filed herewithCover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101).

**Furnished herewith

62

__________

*Filed herewith.
**    Furnished herewith.    
48
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GENIUS BRANDS INTERNATIONAL, INC.Genius Brands International, Inc.
Date: August 17, 2022May 22, 2023By:/s/ Andy Heyward

Andy Heyward

Chief Executive Officer

(Principal (Principal Executive Officer)

Date: August 17, 2022May 22, 2023By:/s/ Robert LL. Denton

Robert L. Denton

Chief Financial Officer

(Principal (Principal Financial and Accounting Officer)

63

49