EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements give effect to the proposed business combination of Genius Brands International, Inc. (‘GNUS’) and A Squared Entertainment, LLC (‘A2E’) in the merger. In addition, the following unaudited pro forma condensed combined financial statements (a) assume that the exchange offer has occurred and that all membership units have been exchanged for 297,218,237 shares of common stock with a value of $0.035 per share,(b) give effect to conversion of all notes and accrued salaries to common stock of GNUS prior to, or concurrent with, the merger, and (c) assumes that GNUS has closed a $1.426 million private placement of common stock concurrent with the merger at a purchase price of $0.035 per share of GNUS common stock. The merger, the exchange and the financing are referred to collectively as the pro forma events.
Under the merger agreement, A2 Acquisition, LLC, a wholly owned subsidiary of GNUS, merged with and into A2E, with A2E surviving as a wholly owned subsidiary of GNUS. The shares of GNUS common stock issued to A2E members in connection with the merger represents 50% of the outstanding shares of GNUS common stock immediately following the consummation of the merger.
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only. The pro forma information is not necessarily indicative of what the combined company’s condensed consolidated financial position or results of operations actually would have been had the pro forma events occurred as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. The pro forma adjustments are based on the information available at the time of the preparation of this filing.
The unaudited pro forma condensed combined balance sheet gives effect to the pro forma events as if they had occurred on September 30, 2013 and December 31, 2012.The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2013 and the year ended December 31, 2012 are presented as if the pro forma events had occurred on the first day of the respective period. The historical financial statements have been adjusted in the pro forma financial statements to give effect to events that are (1) directly attributable to the pro forma events, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined company. The unaudited pro forma condensed combined financial data should be read in conjunction with the historical consolidated financial statements and notes thereto of GNUS and A2E, as well as the other information contained or incorporated by reference.
Although GNUS and A2E have structured the transactions as a merger of equals, the merger will be treated as a business combination for accounting purposes, and GNUS is the deemed accounting acquirer and A2E is the deemed accounting acquiree based on a number of factors viewed at the time of the preparation of these statements. The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial statements do not include any adjustments for the anticipated benefits from cost savings or synergies of GNUS and A2E operating as a combined company or for liabilities resulting from integration planning.
| 1 |
Pro Forma Combined and Consolidated Balance Sheets
As of December 31, 2012 (audited)
| ASSETS | Genius Brands International, Inc. | A Squared Entertainment, LLC | Pro Forma Adjustments | Note # | Combined | |||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash | $ | 447,548 | $ | 28,863 | $ | 1,253,750 | 1E | $ | 1,730,161 | |||||||||||
| Accounts Receivable, net | 1,084,233 | 111,702 | – | 1,195,935 | ||||||||||||||||
| Inventory | 326,072 | – | – | 326,072 | ||||||||||||||||
| Prepaid and Other Assets | 139,983 | 31,622 | – | 171,605 | ||||||||||||||||
| Total Current Assets | 1,997,836 | 172,187 | 1,253,750 | 3,423,773 | ||||||||||||||||
| Property and Equipment, net | 23,736 | 111,783 | – | 135,519 | ||||||||||||||||
| Capitalized Product Development in Process | 246,617 | 340,512 | – | 587,129 | ||||||||||||||||
| Intangible Assets, net | 356,070 | – | – | 356,070 | ||||||||||||||||
| Debenture Issuance Costs | 191,762 | – | (191,762 | ) | 1A | – | ||||||||||||||
| Total Assets | $ | 2,816,021 | $ | 624,482 | $ | 1,061,988 | $ | 4,502,491 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Accounts Payable | $ | 971,097 | $ | 412,838 | $ | – | $ | 1,383,935 | ||||||||||||
| Accrued Expenses | 496,662 | 47,837 | – | 544,499 | ||||||||||||||||
| Accrued Salaries and Wages | 516,083 | – | (505,655 | ) | 1C | 10,428 | ||||||||||||||
| Accrued Interest - Debentures | 45,716 | – | (45,716 | ) | 1A | – | ||||||||||||||
| Derivative Valuation | 68,962 | – | (68,962 | ) | 1A | – | ||||||||||||||
| Due to Related Parties - short term portion | – | 1,621,804 | (179,838 | ) | 1B | 1,441,966 | ||||||||||||||
| Total Current Liabilities | 2,098,520 | 2,082,479 | (800,171 | ) | 3,380,828 | |||||||||||||||
| Long Term Liabilities: | ||||||||||||||||||||
| Notes Payable (Net of Discount of $485,147 and $0, respectively) | 514,853 | – | (514,853 | ) | 1A | – | ||||||||||||||
| Notes Payable and Accrued Interest – Related Parties | 447,891 | – | (447,891 | ) | 1C | – | ||||||||||||||
| Total Liabilities | 3,061,264 | 2,082,479 | (1,762,915 | ) | 3,380,828 | |||||||||||||||
| Stockholders’ Equity (Deficit) | ||||||||||||||||||||
| Common Stock, $0.001 par value | 71,913 | – | 413,717 | 1A, 1C, 1D, IE | 485,630 | |||||||||||||||
| Members equity (Deficit) - A Squared Holdings, LLC | – | (1,457,997 | ) | 1,457,997 | 1D | – | ||||||||||||||
| Additional Paid in Capital | 9,890,868 | – | 4,195,897 | 1A, 1C | 14,086,765 | |||||||||||||||
| Accumulated Deficit | (10,208,024 | ) | – | (3,242,708 | ) | 1A, 1C, 1D, IE | (13,450,732 | ) | ||||||||||||
| Total Genius Brands International, Inc. Stockholders’ Equity (Deficit) | (245,243 | ) | (1,457,997 | ) | 2,824,903 | 1,121,663 | ||||||||||||||
| Noncontrolling Interest | – | – | – | – | ||||||||||||||||
| Total Equity | (245,243 | ) | (1,457,997 | ) | 2,824,903 | 1,121,663 | ||||||||||||||
| Total Liabilities & Stockholders’ Equity (Deficit) | $ | 2,816,021 | $ | 624,482 | $ | 1,061,988 | $ | 4,502,491 | ||||||||||||
Adjustments to Unaudited Pro Forma Combined Balance Sheet
1A. Reflects purchase accounting adjustments to eliminate derivative valuation of debentures and conversion of debentures and notes, including accrued but unpaid interest, to common stock. It is a condition to closing that all debt be converted to equity on the closing date.
1B. The related party debt of the acquiree is reduced to reflect the sum of $516,966 to Andy Heyward for advances made prior to the closing date and $925,000 to a previous member. A2E disputes the basis for this liability to the previous member. It is not being pursued and A2E believes it is not collectible.
1C. Reflects conversion of all related party debt and accrued but unpaid salaries to previous officers of Genius Brands to equity as a condion of closing.
1D. Reflects exchange of equity of A Squared Holdings, LLC for 297,218,237 shares of common stock of Genius Brands.
1E. Reflects 39,828,652 shares of common stock issued for investment of $1,257,750 net cash
| 2 |
Pro Forma Combined and Consolidated Statements of Operations
For the Year Ended December 31, 2012 (audited)
| Genius Brands International, Inc. | A Squared Entertainment LLC | Pro Forma Adjustments | Note # | Combined | ||||||||||||||
| Revenues: | ||||||||||||||||||
| Product Sales | $ | 6,277,663 | $ | – | $ | – | $ | 6,277,663 | ||||||||||
| Distribution, TV and Home Entertainment | – | 515,067 | – | 515,067 | ||||||||||||||
| Licensing & Royalties | 292,536 | 453,660 | – | 746,196 | ||||||||||||||
| Total Revenues | 6,570,199 | 968,727 | – | 7,538,926 | ||||||||||||||
| Cost of Sales (Excluding Depreciation) | 4,836,321 | 1,088,648 | – | 5,924,969 | ||||||||||||||
| Gross Profit | 1,733,878 | (119,921 | ) | – | 1,613,957 | |||||||||||||
| Operating Expenses: | ||||||||||||||||||
| Product Development | 32,792 | – | – | 32,792 | ||||||||||||||
| Guaranteed Payments | – | 828,775 | – | 828,775 | ||||||||||||||
| Professional Services | 181,172 | 655,644 | 339,810 | 3A | 1,176,626 | |||||||||||||
| Rent Expense | 38,982 | 115,555 | – | 154,537 | ||||||||||||||
| Marketing & Sales | 727,695 | 729,852 | – | 1,457,547 | ||||||||||||||
| Depreciation & Amortization | 149,823 | 17,609 | – | 167,432 | ||||||||||||||
| Salaries and Related Expenses | 1,689,064 | 149,969 | – | 1,839,033 | ||||||||||||||
| Stock Compensation Expense | 264,122 | – | – | 264,122 | ||||||||||||||
| Other General & Administrative | 612,513 | 480,563 | – | 1,093,076 | ||||||||||||||
| Total Operating Expenses | 3,696,163 | 2,977,967 | 339,810 | 7,013,940 | ||||||||||||||
| Loss from Operations | (1,962,285 | ) | (3,097,888 | ) | (339,810 | ) | (5,399,983 | ) | ||||||||||
| Other Income (Expense): | ||||||||||||||||||
| Other Income | 388 | 375,000 | – | 375,388 | ||||||||||||||
| Interest Expense | (332,055 | ) | (23,174 | ) | – | (355,229 | ) | |||||||||||
| Interest Expense – Related Parties | (50,259 | ) | – | 50,259 | 3B | – | ||||||||||||
| Gain (loss) on extinguishment of debt | 76,280 | 3,000,000 | – | 3,076,280 | ||||||||||||||
| Gain (loss) on derivative valuation | 200,322 | – | (200,322 | ) | 3B | – | ||||||||||||
| Net Other Income (Expense) | (105,324 | ) | 3,351,826 | (150,063 | ) | 3,096,439 | ||||||||||||
| Gain (Loss) before Income Tax Expense and Noncontrolling Interest | (2,067,609 | ) | 253,938 | (489,873 | ) | (2,303,544 | ) | |||||||||||
| Income Tax Expense | – | – | – | – | ||||||||||||||
| Net Loss | (2,067,609 | ) | 253,938 | (489,873 | ) | (2,303,544 | ) | |||||||||||
| Net Loss attributable to Noncontrolling Interest | – | 531,308 | – | 531,308 | ||||||||||||||
| Net Income (Loss) attributable to Genius Brands International, Inc. and A Squared Entertainment, LLC. | $ | (2,067,609 | ) | $ | 785,246 | $ | (489,873 | ) | $ | (1,772,236 | ) | |||||||
Adjustments to Unaudited Pro Forma Combined Statement of Operations
3A. Reflects legal costs associated with the merger transaction
3B. Reflects purchase accounting adjustments to eliminate derivative valuation of debentures and conversion of debentures and notes, including accrued but unpaid interest, to common stock. It is a condition to closing that all debt be converted to equity on the closing date.
| 3 |
Pro Forma Combined and Consolidated Balance Sheets
As of September 30, 2013 (unaudited)
| ASSETS | Genius Brands International, Inc. | A Squared Entertainment, LLC | Pro Forma Adjustments | Note # | Combined | |||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash | $ | 234,211 | $ | 1,999 | $ | 1,153,750 | 4E | $ | 1,389,960 | |||||||||||
| Accounts Receivable, net | 249,297 | 61,949 | – | 311,246 | ||||||||||||||||
| Inventory | 271,421 | – | – | 271,421 | ||||||||||||||||
| Prepaid and Other Assets | 138,386 | 12,750 | – | 151,136 | ||||||||||||||||
| Total Current Assets | 893,315 | 76,698 | 1,153,750 | 2,123,763 | ||||||||||||||||
| Property and Equipment, net | 19,375 | 78,932 | – | 98,307 | ||||||||||||||||
| Capitalized Product Development in Process | 397,749 | 413,360 | – | 811,109 | ||||||||||||||||
| Intangible Assets, net | 247,011 | – | – | 247,011 | ||||||||||||||||
| Debenture Issuance Costs | – | – | – | – | ||||||||||||||||
| Total Assets | $ | 1,557,450 | $ | 568,990 | $ | 1,153,750 | $ | 3,280,190 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Accounts Payable | $ | 834,387 | $ | 194,010 | $ | (50,100 | ) | 4F | $ | 978,297 | ||||||||||
| Accrued Expenses | 199,633 | 480,336 | – | 679,969 | ||||||||||||||||
| Accrued Salaries and Wages | 746,377 | – | (724,932 | ) | 4C | 21,445 | ||||||||||||||
| Accrued Interest - Debentures | 40,663 | – | (40,663 | ) | 4A | – | ||||||||||||||
| Derivative Valuation | 2,040,240 | – | (2,040,240 | ) | 4A | – | ||||||||||||||
| Due to Related Parties - short term portion | – | 1,569,320 | (127,354 | ) | 4B | 1,441,966 | ||||||||||||||
| Notes Payable - short term portion (Net of Discount of $979,500) | 638,834 | – | (638,834 | ) | 4A | – | ||||||||||||||
| Total Current Liabilities | 4,500,134 | 2,243,666 | (3,622,123 | ) | 3,121,677 | |||||||||||||||
| Long Term Liabilities: | ||||||||||||||||||||
| Notes Payable (Net of Discount of $0) | – | – | – | – | ||||||||||||||||
| Notes Payable and Accrued Interest – Related Parties | 469,389 | – | (469,389 | ) | 4C | – | ||||||||||||||
| Total Liabilities | 4,969,523 | 2,243,666 | (4,091,512 | ) | 3,121,677 | |||||||||||||||
| Stockholders’ Equity (Deficit) | ||||||||||||||||||||
| Common Stock, $0.001 par value, 250,000,000 shares authorized; 71,912,617 shares issued and outstanding, respectively | 87,512 | – | 515,457 | 4A, 4C, 4D, 4E, 4F | 602,969 | |||||||||||||||
| Members equity (Deficit) - A Squared Holdings, LLC | – | (1,674,676 | ) | 1,674,676 | 4D | – | ||||||||||||||
| Additional Paid in Capital | 10,894,489 | – | 4,195,897 | 4A, 4C, 4F | 15,090,386 | |||||||||||||||
| Stock Subscription Payable | 100,000 | – | (100,000 | ) | 4E | – | ||||||||||||||
| Accumulated Deficit | (14,494,074 | ) | – | (1,040,768 | ) | 4A, 4C, 4D, 4E | (15,534,842 | ) | ||||||||||||
| Total Genius Brands International, Inc. Stockholders’ Equity (Deficit) | (3,412,073 | ) | (1,674,676 | ) | 5,245,262 | 158,513 | ||||||||||||||
| Noncontrolling Interest | – | – | – | – | ||||||||||||||||
| Total Equity | (3,412,073 | ) | (1,674,676 | ) | 5,245,262 | 158,513 | ||||||||||||||
| Total Liabilities & Stockholders’ Equity (Deficit) | $ | 1,557,450 | $ | 568,990 | $ | 1,153,750 | $ | 3,280,190 | ||||||||||||
Adjustments to Unaudited Pro Forma Combined Balance Sheet
4A. Reflects purchase accounting adjustments to eliminate derivative valuation of debentures and conversion of debentures and notes, including accrued but unpaid interest, to common stock. It is a condition to closing that all debt be converted to equity on the closing date.
4B. The related party debt of the acquiree is reduced to reflect the sum of $516,966 to Andy Heyward for advances made prior to the closing date and $925,000 to a previous member. A2E disputes the basis for this liability to the previous member. It is not being pursued and A2E believes it is not collectible.
4C. Reflects conversion of all related party debt and accrued but unpaid salaries to previous officers of Genius Brands to equity as a condition of closing.
4D. Reflects exchange of equity of A Squared Holdings, LLC for 297,218,237 shares of common stock of Genius Brands.
4E. Reflects 39,828,652 shares of common stock issued for investment of $1,257,750 net cash
4F. Records conversion of amounts due to vendors into shares of common stock.
| 4 |
Pro Forma Combined and Consolidated Statements of Operations
For the Nine Months Ended September 30, 2013 (unaudited)
| Genius Brands International, Inc. | A Squared Entertainment LLC | Pro Forma Adjustments | Note # | Combined | ||||||||||||||
| Revenues: | ||||||||||||||||||
| Product Sales | $ | 1,267,689 | $ | – | $ | – | $ | 1,267,689 | ||||||||||
| Distribution, TV and Home Entertainment | – | 57,607 | – | 57,607 | ||||||||||||||
| Licensing & Royalties | 301,884 | 94,554 | – | 396,438 | ||||||||||||||
| Total Revenues | 1,569,573 | 152,161 | – | 1,721,734 | ||||||||||||||
| Cost of Sales (Excluding Depreciation) | 1,188,339 | 721,933 | – | 1,910,272 | ||||||||||||||
| Gross Profit | 381,234 | (569,772 | ) | – | (188,538 | ) | ||||||||||||
| Operating Expenses: | ||||||||||||||||||
| Product Development | 29,899 | – | – | 29,899 | ||||||||||||||
| Guaranteed Payments | – | 494,229 | – | 494,229 | ||||||||||||||
| Professional Services | 167,448 | – | 339,810 | 2A | 507,258 | |||||||||||||
| Rent Expense | 8,201 | 110,015 | – | 118,216 | ||||||||||||||
| Marketing & Sales | 204,144 | 24,589 | – | 228,733 | ||||||||||||||
| Depreciation & Amortization | 116,246 | 35,011 | – | 151,257 | ||||||||||||||
| Salaries and Related Expenses | 1,164,436 | 137,255 | – | 1,301,691 | ||||||||||||||
| Stock Compensation Expense | 212,390 | – | – | 212,390 | ||||||||||||||
| Other General & Administrative | 265,807 | 318,311 | – | 584,118 | ||||||||||||||
| Total Operating Expenses | 2,168,571 | 1,119,410 | 339,810 | 3,627,791 | ||||||||||||||
| Loss from Operations | (1,787,337 | ) | (1,689,182 | ) | (339,810 | ) | (3,816,329 | ) | ||||||||||
| Other Income (Expense): | ||||||||||||||||||
| Other Income | 42 | 7,572 | – | 7,614 | ||||||||||||||
| Interest Expense | (900,348 | ) | (72 | ) | 895,428 | 2B | (4,992 | ) | ||||||||||
| Interest Expense – Related Parties | (21,497 | ) | – | – | (21,497 | ) | ||||||||||||
| Gain (loss) on derivative valuation | (1,051,034 | ) | – | 1,051,034 | 2B | – | ||||||||||||
| Gain (loss) on extinguishment of debt | (217,376 | ) | – | – | (217,376 | ) | ||||||||||||
| Loss on exchange of warrants | (308,500 | ) | – | – | (308,500 | ) | ||||||||||||
| Net Other Income (Expense) | (2,498,713 | ) | 7,500 | 1,946,462 | (544,751 | ) | ||||||||||||
| Loss before Income Tax Expense and Noncontrolling Interest | (4,286,050 | ) | (1,681,682 | ) | 1,606,652 | (4,361,080 | ) | |||||||||||
| Income Tax Expense | – | – | – | – | ||||||||||||||
| Net Loss | (4,286,050 | ) | (1,681,682 | ) | 1,606,652 | (4,361,080 | ) | |||||||||||
| Net Loss attributable to Noncontrolling Interest | – | – | – | – | ||||||||||||||
| Net Loss attributable to Genius Brands International, Inc. and A Squared Entertainment, LLC. | $ | (4,286,050 | ) | $ | (1,681,682 | ) | $ | 1,606,652 | $ | (4,361,080 | ) | |||||||
Adjustments to Unaudited Pro Forma Combined Statement of Operations
2A. Reflects legal costs associated with the merger transaction
2B. Reflects purchase accounting adjustments to eliminate derivative valuation of debentures and conversion of debentures and notes, including accrued but unpaid interest, to common stock. It is a condition to closing that all debt be converted to equity on the closing date.
| 5 |
