AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY __, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ________________
Commission file number 000-27915
GENIUS PRODUCTS, INC.
A NEVADA CORPORATION
(Name of small business issuer as specified in its charter)
NEVADA 33-085292
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11250 EL CAMINO REAL #100
SAN DIEGO, CA 92127
(Address of principal executive officers)
(858) 793-8840
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check where the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |X| No |_|
There were 12,746,749 shares outstanding of the registrant's Common
Stock as of May 16,2000.
Transitional small business disclosure format (check one):
Yes |_| No |X|
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1
GENIUS PRODUCTS, INC.
INDEX
PAGE
----
Part I Financial Information 3
Item 1 Financial Statements 3
Condensed Balance Sheet at
March 31, 2000 (unaudited) 4
Condensed Statements of Operations
For the Quarter Ended March 31, 2000
and March 31, 1999 (unaudited) 5
Condensed Statements of Cash Flow
For the Quarter Ended March 31, 2000
and March 31, 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II Other Information 9
Item 1 Legal Proceedeings 9
Item 2 Changes in Securities and Use of Proceeds 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 13
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The following financial statements are furnished:
o Consolidated Balance Sheet as of March 31, 2000
o Consolidated Statements of Operations for the three
months and six months ended March 31, 2000
o Consolidated Statement of Cash Flows for the three
months and six months ended March 31, 2000
o Notes to Unaudited Consolidated Financial Statements
3
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, 2000
--------------
ASSETS
Current assets:
Cash and equivalents $ 40,043
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $168,879 262,009
Inventories 216,217
--------------
Total current assets 518,269
Property and equipment, net of accumulated depreciation
of $37,080 105,878
Production masters, net of accumulated amortization
of $94,028 240,408
Patents and trademarks, net of accumulated
amortization of $3,133 24,212
Deposits and other 86,996
--------------
$ 975,763
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans from shareholders $ 47,667
Accounts payable 356,897
Accrued payroll and related expenses 136,727
Accrued other expenses 26,682
--------------
Total current liabilities 567,973
Redeemable common stock 459,110
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; 25,000 shares
authorized: 12,134,137 shares outstanding 12,134
Additional paid-in capital 5,613,597
Stock subscription receivable (30,000)
Accumulated deficit (5,647,051)
--------------
Total stockholders' equity (51,320)
--------------
$ 975,763
==============
4
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
--------------- --------------
Revenues:
Music $ 246,331 $ 150,823
Jewelry 117,350 212,751
--------------- --------------
Total revenues 363,680 363,574
--------------- --------------
Costs and expenses:
Cost of sales:
Music 80,660 35,910
Jewelry 97,843 205,517
Sales and marketing 219,459 123,436
Infomercial - 53,750
Product and Web development 160,621 37,670
General and administrative 507,246 281,854
--------------- --------------
Total costs and expenses 1,065,829 738,137
--------------- --------------
Loss from operations (702,149) (374,563)
Interest expense (3,991) (7,938)
--------------- --------------
Loss before provision for income taxes (706,140) (382,501)
Provision for income taxes (800) (800)
--------------- --------------
Net loss $ (706,940) $ (383,301)
=============== ==============
Basic and diluted loss per common share:
Net loss per share $ (0.06) $ (0.05)
=============== ==============
Basic and diluted weighted average shares 11,409,464 8,426,069
=============== ==============
5
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2000 1999
--------------- --------------
Cash flows from operating activities:
Net loss $ (706,940) $ (383,301)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 34,567 8,660
Common stock issued for services 43,673 20,080
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 310,384 6,487
Inventories (41,069) (15,295)
Deposits and other 4,957 18,791
Increase (decrease) in:
Accounts payable (197,605) (81,826)
Accrued expenses 35,606 15,725
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Net cash used by operating activities (516,427) (410,679)
--------------- ------------
Cash flows from investing activities:
Patents and trademarks (5,010) -
Development of production masters (7,401) (41,774)
Purchase of property and equipment (6,852) (25,116)
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Net cash used in investing activities (19,263) (66,890)
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Cash flows from financing activities:
Proceeds from issuance of common stock 530,100 411,555
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Net cash provided by financing activities 530,100 411,555
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Net (decrease) in cash and equivalents (5,590) (66,014)
Cash at beginning of period 45,633 131,157
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Cash at end of period $ 40,043 $ 65,143
=============== ============
Non-cash investing and financing activities:
Repayment of loan by issuance of common stock $ 52,400 $ -
=============== ============
6
GENIUS PRODUCTS, INC.
Notes to Condensed Financial Statements
(Unaudited)
NOTE A : BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Genius Products, Inc. have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission.
The information furnished herein reflects all adjustments, consisting
of only normal recurring accruals and adjustments which are, in the opinion of
management, necessary to fairly state the operating results for the respective
periods. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The notes to the condensed financial statements should be read in conjunction
with the notes to the consolidated financial statements contained in the
Company's Form 10-KSB for the year ended December 31, 1999. Company management
believes that the disclosures are sufficient for the interim financial reporting
purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE HEREIN. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE AND INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE COMPANY'S OR THE INDUSTRY'S
ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
Revenues consist primarily of music (Baby Genius) product sales to
wholesale customers and via the internet to retail customers, and charges to
customers for shipping and handling net of product returns and discounts. In
addition revenues include sales of jewelry products net of returns.
Total revenues remained level at $363,680 for the three months ended
March 31, 2000 compared to $363,574 for the three months ended March 31, 1999.
Music sales increased by $95,508 (63%) to $246,331 for the three months ended
March 31, 2000 from $150,823 for the same period in 1999. Of this increase
$61,507 was due to sales from our web site and $34,001 from sales to wholesale
customers. There were no music sales from our web site for the three months
ended March 31, 1999. Jewelry sales decreased by $95,401 (45%) to $117,350 from
$212,751 as a result of increased competition and reduced marketing efforts.
Cost of sales consist primarily of the cost of products sold to
customers and packaging and shipping costs. Cost of sales for music products was
$80,660 (33% of music sales) for the three months ended March 31, 2000 compared
to $35,910 (24% of music sales) for the three months ended March 31, 1999. The
decrease in gross profit margin in music sales to 67% from 86% was due to
special promotional offers to customers purchasing from our web site. Cost of
sales for jewelry products was $97,843 (83% of jewelry sales) for the three
months ended March 31, 2000 compared to $205,517 (96% of jewelry sales) for the
three months ended March 31, 1999.
7
Sales and marketing expenses consist of costs for consultants,
marketing personnel, promotional activities and the engagement of a national
spokesperson related to the promotion of the Baby Genius product line. Sales and
marketing costs increased by 78% ($96,023) to $219,459 for the three months
ended March 31, 2000 from $123,436 for the three months ended March 31, 1999.
The increase was due to expenses for trade shows of $56,308, and services paid
in stock valued at $36,671.
Infomercial expenses of $53,750 incurred in the three months ended
March 31, 1999 related to costs for the Astrology Network product line, which
was discontinued in March 1999.
Product and web development expenses consist of personnel, consultants
and services in the development of the Baby Genius web site and product line.
Product and web development costs increased by 326% ($122,951), to $160,621 for
the three months ended March 31, 2000 from $37,670 for the three months ended
March 31, 1999. The increase was due to general development expenses and
included $76,224 for the development of the Baby Genius web site.
General and administrative expenses consist of payroll and related
costs for executive and administrative personnel, professional services and
other general corporate expenses. General and administrative expenses increased
by 80% ($225,392) to $507,246 for the three months ended March 31, 2000 from
$281,854 for the three months ended March 31, 1999. Audit, accounting, legal and
professional fees of $152,129 for the three months ended March 31, 2000,
compared with $42,891 for the same period in 1999, represent $109,238 of this
increase and were as a result of fees related to the audited financial
statements for 1999, preparation and filing of our Form 10-KSB and other filings
with the Securities and Exchange Commission, and services related to fund
raising activities. In addition the appointment of a new president in August
1999 and additional administrative staff in the first quarter of 2000 gave rise
to an increase in administrative salaries and related expenses.
Interest expense consists of costs related to short term loans. There
were no significant charges for the periods in question, interest expense was
$3,991 for the three months ended March 31, 2000 compared to $7,938 for the
three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000 we obtained financing
through a private placement offering. The company issued 1,330,000 shares at a
price of $0.50 per share, and raised cash proceeds of $530,100 net of finders
fees, subscriptions receivable and shares issued in payment of a company loan of
$52,400 owed to an investor in the private placement. For the period April 1,
2000 through the date of filing, we placed a further 546,667 shares at $0.50 per
share in the same offering, and raised cash proceeds of $244,000 net of legal
costs associated with the placement.
Net cash used in operating activities was $516,427 and $410,679 for the
three months ended March 31, 2000 and March 31, 1999 respectively. Net operating
cash flows for the three months ended March 31, 2000 were primarily attributable
to operating losses of $706,940 and a decrease in accounts payable of $197,605
offset by a decrease in accounts receivable of $310,384 and non-cash charges for
depreciation and amortization, and stock issued for services. Net operating cash
flows for the three months ended March 31, 1999 were primarily attributable to
operating losses of $383,301 and a decrease in accounts payable of $81,826.
Net cash used in investing activities was $19,263 and $66,890 for the
three months ended March 31, 2000 and March 31, 1999 respectively. Cash used in
investing activities for the three months ended March 31, 2000 was attributable
to the purchase of property and equipment ($6,852), the development of
productions masters ($7,401), and filing trademarks ($5,010) in respect of the
Baby Genius product line. Cash used in investing activities for the three months
ended March 31, 1999 was attributable to the purchase of property and equipment
($25,116) due to the relocation of office premises and the development of Baby
Genius production masters ($41,774).
Net cash provided by investment activities was $530,100 and $411,555
for the three months ended March 31, 2000 and March 31, 1999 respectively. For
both periods cash provided by financing activities was attributable to proceeds
from the issuance of common stock through private placement offerings.
8
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from January 1, 2000 through the date of this filing,
we issued a total of 1,996,626 shares for net cash proceeds of $774,100, of
which 1,730,000 shares were sold in a private placement at a price of $0.50
share, and 266,626 shares were issued to third party service providers in lieu
of cash.
As part of the Company's policy of saving cash by paying partners,
outside service providers and consultants in options or other convertible
securities, during the period from January 1, 2000 through the date of this
filing, we granted a options to purchase a total of 202,540 shares of the
Company's common stock at exercise prices ranging from $0.98 to $1.28. Grantees
of these options include our independent director, members of the Company's
advisory board, and GuidanceResources.com, LLC. The rights to buy shares under
certain of these options vest over a period of time and generally expire three
years after the date of grant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
ITEM 5. OTHER INFORMATION
On May 12, by a unanimous consent of the board of directors, the board
resolved to reprice the following options to acquire shares of the Company's
common stock previously granted to the following employees on April 26, 2000:
Old
Price/Share New Price/Share
Employee # Shares $ $ # Shares
--------------------- ---------- --------------- ----------------- -------------
Klaus Moeller 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Dorian Lowell 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Mike Meader 550,000 0.75 0.54 220,000
0.75 165,000
1.00 165,000
Larry Balaban 400,000 0.75 0.54 160,000
0.75 120,000
1.00 120,000
Howard Balaban 400,000 0.75 0.54 160,000
0.75 120,000
1.00 120,000
The closing price of the shares of the Company's common stock on April
26, 2000 was $0.5312; the original exercise price of $0.75 for all shares
represented a premium of 41% over such market price. After further review, and
in light of the failure of the share price to increase in value following
disclosure in both our Form 10-KSB and subsequent press releases of developments
in the Company's business, which we believe, should have caused an increase in
the shares price to reflect a fair value of the Company, we took the position
that the premium of the exercise price for certain shares had been set too high,
and therefore we resolved to reprice the exercise prices over a range of prices
ranging from the market price at the time of grant to certain premiums above the
market price. We believe that the Company will only retain executives of caliber
and experience if they are offered competitive compensation packages. Because
the Company cannot afford to pay high cash salaries, the granting of options is
a critical component of the overall compensation paid to our officers. We
believe it is uncompetitive and a disincentive to set the exercise price of
options at unreasonable premiums over the market price of the shares on the date
of grant. Similarly, a decline in the price of the shares over a period when
both the Company's business operations and prospects are improving, and our
executives have made significant contributions, but which is not offset by a
reduction in the exercise price, is, we believe, unfair to those executives. A
decline in our share price results in an effective increase in the premium of
the exercise price over the market price which penalizes the executives, and is
potentially harmful to the Company if the executive then takes the view that his
or her overall compensation package is becoming uncompetitive. We will continue
to review the exercise prices and vesting dates of options granted to our
employees and may reprice and/or change vesting dates as we deem appropriate
based on the prevailing price of our shares and the Company's business
operations and prospects.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit No. Description
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2.1 Agreement and Plan of Reorganization with Salutations, Inc.,
and related exhibits and consents*
3.1 Articles of Incorporation, as amended*
3.2.1 Bylaws, as amended*
3.2.2 Bylaws, as amended on April 20, 2000****
4.2 Shareholders Agreement with Minnesota Communications Group,
and related exhibits and schedules*
4.3 Convertible Debenture with Russ Karlen*
4.4 Convertible Debenture with Steve Livingston*
4.5 Option Agreement to Purchase Common Stock with Kevin
Harrington Enterprises, Inc.*
4.6 Option agreement to Purchase Common Stock with Tim
Harrington*
4.7 Form of Stock Option Agreement with Employees*
4.8 Specimen Certificate for Common Stock***
10.1 License Agreement with Minnesota Communications Group*
10.2 License Agreement with Minnesota Public Radio*
10.3 Spokesperson Agreement for Diedre Hall with Panache, Inc.,
and related exhibits and addendum thereto*
10.4 Sublease with Torrey Hills Corporate Center, and related
exhibits*
10.5 Fulfillment Services Agreement with Professional Marketing
Associates, Inc.*
10.6 Letter Agreement with Lido Group*
10.7 International Marketing and Distribution Agreement with HSND,
and amendment and addendum thereto*
10.8 Non-Qualified Stock Option Plan*
10.9 Senior Executive Employment Agreement with Klaus Moller*
10.10 Change of Control Executive Employment Agreement with Klaus
Moller*
10.11 Senior Executive Employment Agreement with Dorian Lowell*
10.12 Change of Control of Executive Employment Agreement with
Dorian Lowell*
10.13 Senior Executive Employment Agreement with Michael Meader*
10.14 Change of Control of Executive Employment Agreement with
Michael Meader*
10.15 Executive Employment Agreement with Larry Balaban*
10.16 Change of Control of Executive Employment Agreement with
Larry Balaban*
10.17 Executive Employment Agreement with Howard Balaban*
10.18 Change of Control of Executive Employment Agreement with
Howard Balaban*
10.19 Executive Employment Agreement with Vinko Kovac*
10.20 Change of Control of Executive Employment Agreement with
Vinko Kovac*
10.21 License Agreement with Sasha St. Clair*
10.22 Letter Agreement with Gerald Edick*
10.23 Form of License Agreement with Naxos of America, Inc.*
10.24 Financial Public Relations Letter of Agreement with Porter,
LeVay & Rose, Inc.**
10.25 License Agreement with Boomerange Manrketing, Inc/*
10.26 Service(s) Agreement with Cost Care, Inc.
(dba Unicare Managed Care Services)**
10.27 Executive Employment Agreement with Alison Elliott***
10.28 Change of Control Agreement with Alison Elliott***
10.29 Consulting Agreement with Gerald Edick***
10.30 Production Agreement with Richard Perry
10.31 Representation Agreement with Global Icons
15 Letter of Cacciamatta Accountancy Corporation regarding
unaudited interim financial information
27 Financial Data Schedule
- -------------
* Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 000-27915) on Form 10-SB filed with the SEC
on November 2, 1999.
** Incorporated by reference from the exhibits included with the Company's
Registration Statement (No. 000-27915), Amendment No. 1, on Form 10-SB
filed with the SEC on December 17, 1999.
*** Incorporated by reference from the exhibits included with the Company's
Form 10-KSB (No. 000-27915) filed with the SEC on April 14, 2000.
11
**** Incorporated by reference from the exhibits included with the Company's
Form 10-KSB (No. 000-27915), Amendment No. 1, filed with the SEC on May
1, 2000.
(b) REPORTS ON FORM 8-K
The following is a list of Current Reports on Form 8-K filed
by the Company during the first quarter of the fiscal year ending on December
31, 2000.
1. Form 8-K dated March 16, 2000, reporting under Item 4 a change
in the Company's certifying accountant.
2. Amendment No. 1 to Form 8-K dated March 28, 2000, reporting
additional information required under Item 4 regarding the
change in the Company's certifying accountant previously
reported in Form 8-K dated March 16, 2000.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENIUS PRODUCTS, INC., a Nevada Corporation
By: /S/ Klaus Moeller
---------------------------------------
Klaus Moeller, CEO and Interim CFO
13