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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
--------------------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 33-0852923
(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 13,100,059 shares outstanding of the registrant's Common Stock as of
August 18, 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
Item 1 Financial Statements
Condensed Consolidated Balance Sheet at June 30, 2000
(unaudited) 3
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 2000
and June 30, 1999 (unaudited) 4
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2000
and June 30, 1999 (unaudited) 5
Condensed Consolidated Statements of Cash Flow
For the Six Months Ended June 30, 2000
and June 30, 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
Item 1 Legal Proceedings 10
Item 2 Changes in Securities and Use of Proceeds 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
-------------
ASSETS
Current assets:
Cash and equivalents $ 128,295
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $48,021 188,613
Inventories 186,395
Other current assets 16,438
------------
Total current assets 519,741
Property and equipment, net of accumulated depreciation
of $43,478 99,022
Production masters, net of accumulated amortization
of $121,919 227,912
Patents and trademarks, net of accumulated
amortization of $4,500 28,303
Deposits and other 86,714
------------
$ 961,692
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans from shareholders $ 46,667
Accounts payable 401,795
Accrued payroll and related expenses 143,326
Accrued other expenses 69,032
------------
Total current liabilities 660,820
Redeemable common stock 461,260
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; 25,000,000 shares
authorized: 12,782,641 shares outstanding 12,783
Additional paid-in capital 5,929,490
Unamortized Stock Options (12,575)
Accumulated deficit (6,090,086)
------------
Total stockholders' equity (160,388)
------------
$ 961,692
============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------
2000 1999
------------- -------------
Revenues:
Music $ 559,585 $ 392,163
Licensing 37,500 -
Jewelry/Other 250,205 365,641
------------- -------------
Total revenues 847,290 757,804
------------- -------------
Costs and expenses:
Cost of sales:
Music 207,211 93,372
Licensing 11,250 -
Jewelry/Other 184,462 353,820
Sales and marketing 404,363 379,326
Infomercial - 53,750
Product and web development 252,891 73,302
General and administrative 930,887 643,689
------------- -------------
Total costs and expenses 1,991,064 1,597,259
------------- -------------
Loss from operations (1,143,774) (839,455)
Gain on disposal 70 -
Interest expense (5,471) (12,908)
------------- -------------
Loss before provision for income taxes (1,149,175) (852,363)
Provision for income taxes (800) (800)
------------- -------------
Net loss $ (1,149,975) $ (853,163)
============= =============
Basic and diluted loss per common share:
Net loss per share $ (0.10) $ (0.09)
============= =============
Basic and diluted weighted average shares 11,935,070 9,077,656
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
-----------------------------
2000 1999
------------- -------------
Revenues:
Music $ 313,254 $ 241,340
Licensing 37,500 -
Jewelry/Other 132,855 152,890
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Total revenues 483,609 394,230
------------- -------------
Costs and expenses:
Cost of sales:
Music 126,551 57,462
Licensing 11,250 -
Jewelry/Other 86,619 148,303
Sales and marketing 184,904 255,890
Product and web development 92,270 35,632
General and administrative 423,641 361,835
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Total costs and expenses 925,235 859,122
------------- -------------
Loss from operations (441,626) (464,892)
Gain on disposal 70 -
Interest expense (1,480) (4,970)
------------- -------------
Loss before provision for income taxes (443,036) (469,862)
Provision for income taxes - -
------------- -------------
Net loss $ (443,036) $ (469,862)
============= =============
Basic and diluted loss per common share:
Net loss per share $ (0.04) $ (0.05)
============= =============
Basic and diluted weighted average shares 11,790,017 9,655,966
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
GENIUS PRODUCTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $(1,149,975) $ (853,163)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 41,499 15,361
Common stock issued for services 70,640 222,781
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 383,780 (98,635)
Inventories (11,248) (11,149)
Deposits and other (5,271) (221,138)
Increase (decrease) in:
Accounts payable (150,557) (310,343)
Accrued expenses 84,555 75,402
------------ ------------
Net cash used by operating activities (736,577) (1,180,884)
------------ ------------
Cash flows from investing activities
Patents and trademarks (10,468) -
Development of production masters - (245,590)
Purchase of property and equipment (6,393) (64,832)
------------ ------------
Net cash used in investing activities (16,861) (310,422)
------------ ------------
Cash flows from financing activities:
Payments on notes payable (1,000) -
Proceeds from issuance of common stock 810,100 1,479,734
Exercise of stock options 27,000 -
------------ ------------
Net cash provided by financing activities 836,100 1,479,734
------------ ------------
Net (decrease) increase in cash and equivalents 82,662 (11,572)
Cash at beginning of period 45,633 121,157
------------ ------------
Cash at end of period $ 128,295 $ 109,585
============ ============
Non-cash investing and financing activities:
Repayment of loan by issuance
of common stock $ 52,400 $ -
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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 NOTE
A TO THE FINANCIAL STATEMENTS INCLUDED ABOVE. 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.
The three and six months ended June 30, 2000.
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. For
the quarter ended June 30, 2000 the company recognized royalty revenue related
to licensing the Baby Genius trademark. In addition, revenues include sales of
jewelry products, net of returns.
Total revenues increased 23% ($89,379) to $483,609 for the three months
ended June 30, 2000 from $394,230 for the three months ended June 30, 1999.
Total revenues increased 12% ($89,486) to $847,290 for the six months ended June
30, 2000 from $757,804 for the six months ended June 30, 1999.
Music sales increased by 30% ($71,914) to $313,254 for the three
months ended June 30, 2000 from $241,340 for the three months ended June 30,
1999. Music sales increased 43% ($167,422) to $559,585 for the six months ended
June 30, 2000 from $392,163 for the six months ended June 30, 1999. Of these
increases, $61,022 and $122,529 are in respect of sales from our website. There
were no music sales from our website for the six months ended June 30, 1999. For
the three months ended June 30, 2000 the company recognized licensing revenues
of $37,500 relating to the granting of a master toy license under our Baby
Genius licensing program. There were no licensing revenues for the three and six
months ended June 30, 1999. Jewelry and other sales decreased 13% ($20,035) to
$132,855 for the three months ended June 30, 2000 from $152,890 for the three
months ended June 30, 1999. Jewelry and other sales decreased 32% ($115,436) to
$250,205 for the six months ended June 30, 2000 from $365,641 for the six months
ended June 30, 1999. For both periods the reduction in sales was as a result of
reduced marketing efforts.
7
Cost of sales consist primarily of the costs of products sold to
customers and packaging and shipping costs and commissions relating to licensing
revenues. Cost of sales for music products was 40% of music sales ($126,551) and
37% of music sales ($207,211) for the three and six months ended June 30, 2000
compared to 24% ($57,462) and 24% ($93,372) for the same periods in 1999. The
resulting decrease in profit margin to 60% for the three months ended June 30,
2000, from 76% for the three months ended June 30, 1999 and the decrease to 63%
for the six months ending June 30, 2000, from 76% for the six months ended June
30, 1999, was due to special promotional offers to customers purchasing from our
web site and the lowering of our retail sales price. Cost of sales for jewelry
products and other sales was 65% of related sales ($86,619) and 74% of related
sales ($184,462) for the three and six months ended June 30, 2000 respectively
compared to 97% ($148,303) and 97% $353,820 for the same periods in 1999.
Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
decreased by 28% ($70,986) to $184,904 for the three months ended June 30, 2000
from $255,890 for the three months ended June 30 1999. The decrease is due to
the company not renewing its contract with its spokesperson in March 2000. Sales
and marketing expenses increased by 7% ($25,037) to $404,363 for the six months
ended June 30, 2000 from $379,326 for the six months ended June 30, 1999. The
increase reflects a rise in promotional activities in the areas of personnel,
trade shows and retail promotions.
Infomercial expenses of $53,750 incurred in the six months ended June
30, 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 159% ($56,638) to $92,270 for the
three months ended June 30, 2000 from $35,632 for the three months ended June
30, 1999. Product and web development expenses increased by 245% ($179,589) to
$252,891 for the six months ended June 30, 2000 from $73,302 for the six months
ended June 30, 1999. The increase was primarily due to expenses in the
development of the Baby Genius web site of $148,043.
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 17% ($61,806) to $423,641 for the three months ended June 30, 2000 from
$361,835 for the three months ended June 30, 1999. This increase is primarily as
a result of a rise in administrative salaries and related expenses due to the
appointment of additional staff. General and administrative expenses for the six
months ended June 30, 2000 increased by 45% ($287,198) to $930,887 from $643,689
for the six months ended June 30, 1999. In addition to a rise in personnel
costs, audit, accounting, legal and professional fees increased as a result of
fees related to 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.
Interest expense consists of costs related to short-term loans.
Interest expense decreased by 70% ($3,490) to $1,480 for the three month period
ended June 30, 2000 from $4,970 for the three month period ended June 30, 1999.
Interest expense decreased by 58% ($7,437) to $5,471 for the six months ended
June 30, 2000 from $12,908 for the six months ended June 30, 1999. The decreases
in both periods reflect the reduction in short-term loans.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000 we obtained financing through
a private placement offering. The company issued 1,876,667 shares at a price of
$.50 per share, and raised cash proceeds of $810,100 net of finders' fees, legal
costs and shares issued in payment of a company loan of $52,400 owed to an
investor in the private placement. In addition the company raised $27,000 from
the exercise of stock options.
8
Net cash used in operating activities was $736,577 and $1,180,884 for
the six months ended June 30, 2000 and June 30, 1999 respectively. Net operating
cash flows for the six months ended June 30, 2000 were primarily attributable to
operating losses of $1,149,975 and a decrease in accounts payable of $150,557.
This was partially offset by a decrease in accounts receivable of $383,780,
non-cash charges for depreciation and amortization and stock issued for
services. Net operating cash flows for the six months ended June 30, 1999 were
primarily attributable to operating losses of $853,163, and a decrease in
accounts payable of $310,343.
Net cash used in investing activities was $16,861 and $310,422 for the
six months ended June 30, 2000 and June 30, 1999 respectively. Cash used in
investing activities for the six months ended June 30, 2000 was attributable to
the purchase of property and equipment ($6,393) and filing trade marks ($10,468)
in respect of the Baby Genius product line. Cash used in investing activities
for the six months ended June 30, 1999 was attributable to the purchase of new
computer equipment ($64,832) and the development of Baby Genius production
masters ($245,590) to extend our range of titles.
Net cash provided by financing activities was $836,100 and $1,479,734
for the six months ended June 30, 2000 and June 30, 1999 respectively. For both
periods cash provided by financing activities was primarily attributable to
proceeds from the issuance of common stock through private placement offerings.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 7, 2000, the company received notice of an action being filed
against the company and The Danielson Company, by Sasha St. Clair in the US
District Court for the District of Utah for patent and trademark infringement
and breach of contract claims. The plaintiff seeks unliquidated damages of not
less than $5 million for each claim, as well as punitive and treble damages. The
claims relate to a product marketed by the company pursuant to a contract
entered into between the company and Mr. St. Clair, which Mr. St. Clair
unilaterally terminated last year. We intend to settle or, if a reasonable
settlement is not possible, to vigorously defend the claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from July 1 2000, through the date of this filing, we
issued a total of 317,418 shares, of which (a) 12,500 shares registered pursuant
to a Form S-8 were sold to certain officers of the company upon exercise of
certain options for $0.54 per share for total net cash proceeds of $6,750, (b)
296,200 shares registered pursuant to a Form S-8 were sold to a consultant for
services to the company upon exercise of certain options for $0.54 per share for
total net proceeds of $159,948, and (c) 8,718 restricted shares were issued to
third party service providers for services rendered and valued at $4,359. All
proceeds were used for working capital purposes.
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 April 1, 2000 through the date of this
filing, we granted options (a) to officers and employees to purchase 1,830,000
shares registered pursuant to a Form S-8 in connection with the company's Genius
Products, Inc. 2000 Non-Qualified Stock Option Plan (the "Plan"), at an exercise
price of $0.54 per share, (b) to third party service providers to purchase
177,540 shares registered pursuant to a Form S-8 in connection with the
company's Plan, at an exercise price of $0.54 per share, and (c) to third party
service providers to purchase 105,000 restricted shares, the exercise prices of
which ranged from $0.61 to $1.25 per share. The rights to buy shares under
certain of these options vest over a period of time. The options generally
expire three years after the date of grant.
On August 4, 2000, the company borrowed $110,000 from the chief
executive officer pursuant to an unsecured demand promissory note bearing an
annual interest rate of 7.00%, and $100,000 from an unrelated third party
pursuant to an unsecured demand promissory note bearing an annual interest rate
of 7.00%. All proceeds were used for working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit No. Description
- ----------- -----------
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 Marketing, 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*****
10.32 Consulting Agreement with Johnny Drummond
10.33 Stock Option Agreement with Klaus Moeller
10.34 Stock Option Agreement with Dorian Lowell
10.35 Stock Option Agreement with Michael Meader
10.36 Stock Option Agreement with Larry Balaban
10.37 Stock Option Agreement with Howard Balaban
10.38 Stock Option Agreement with Alison Elliott
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.
11
** 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.
**** 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.
***** Incorporated by reference from the exhibits included with the Company's
Form 10-QSB (No. 000-27915), Amendment No. 1, filed with the SEC on May
18, 2000.
(b) REPORTS ON FORM 8-K
None filed by the Company during the second quarter of the fiscal year
ending on December 31, 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
August 21, 2000 By: /S/ Klaus Moeller
-----------------------------------
Klaus Moeller, CEO and Interim CFO
13