AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
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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, 2001
[ ] 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.
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(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 whether 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 632,027 shares outstanding of the registrant's Common Stock as of
April 30, 2001.
Transitional small business disclosure format (check one): Yes [ ] No [X]
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GENIUS PRODUCTS, INC.
INDEX
PAGE
PART I Financial Information 3
Item 1 Financial Statements 3
Condensed Consolidated Balance Sheet at March 31, 2001
(unaudited) 3
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2001
and March 31, 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flow
For the Three Months Ended March 31, 2001
and March 31, 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II Other Information 8
Item 1 Legal Proceedings 8
Item 2 Changes in Securities and Use of Proceeds 8
Item 3 Defaults Upon Senior Securities 8
Item 4 Submission of Matters to a Vote of Security Holders 8
Item 5 Other Information 8
Item 6 Exhibits and Reports on Form 8-K 8
SIGNATURES 10
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
GENUIS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2001
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ASSETS
Current assets:
Cash and equivalents $ 76,904
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $247,237 181,388
Inventories 119,114
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Total current assets 377,406
Property and equipment, net of accumulated depreciation
of $62,869 79,631
Production masters, net of accumulated amortization
of $240,658 220,549
Patents and trademarks, net of accumulated
amortization of $9,860 35,390
Deposits and other 57,819
--------------
$ 770,795
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible Debentures $ 10,000
Loans from shareholders 66,667
Accounts payable 703,443
Accrued payroll and related expenses 85,547
Accrued other expenses 200,517
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Total current liabilities 1,066,174
Redeemable common stock 480,160
Commitments and contingencies -
Stockholders' deficit:
Common stock, $.001 par value; 6,250,000 shares
authorized: 4,531,472 shares outstanding 4,531
Additional paid-in capital 7,517,956
Stock subscriptions receivable (106,000)
Accumulated deficit (8,192,026)
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Total stockholders' deficit (775,539)
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$ 770,795
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3
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2001 2000
--------------- ---------------
Revenues:
Music $ 219,888 $ 246,330
Licensing 10,060 -
Jewelry/Other 58,433 117,350
--------------- ---------------
Total revenues 288,381 363,680
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Costs and expenses:
Cost of sales:
Music 92,556 80,660
Licensing 2,250 -
Jewelry/Other 49,061 97,843
Sales and marketing 187,640 219,459
Product and web development 134,926 160,621
General and administrative 384,101 507,246
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Total costs and expenses 850,534 1,065,829
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Loss from operations (562,153) (702,149)
Interest expense (55,670) (3,991)
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Loss before provision for income taxes (617,823) (706,140)
Provision for income taxes (800) (800)
--------------- ---------------
Net loss $ (618,623) $ (706,940)
=============== ===============
Basic and diluted loss per common share:
Net loss per share $ (0.14) $ (0.25)
=============== ===============
Basic and diluted weighted average shares 4,354,377 2,852,366
=============== ===============
4
GENIUS PRODUCTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2001 2000
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Cash flows from operating activities
Net loss $(618,623) $(706,940)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 45,889 34,567
Common stock issued for services 87,771 43,673
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 152,881 310,384
Inventories (245) (41,069)
Deposits and other 3,110 4,957
Increase (decrease) in:
Accounts payable 34,583 (197,605)
Accrued payroll and other expenses 105,056 35,606
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Net cash used by operating activities (189,578) (516,427)
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Cash flows from investing activities
Patents and trademarks (10,946) (5,010)
Development of production masters (22,500) (7,401)
Purchase of property and equipment - (6,852)
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Net cash used in investing activities (33,446) (19,263)
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Cash flows from financing activities:
Proceeds from loans from shareholders 20,000 -
Proceeds from issuance of common stock 15,000 530,100
Proceeds from issuance of convertible debt 210,000 -
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Net cash provided by financing activities 245,000 530,100
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Net (decrease) increase in cash and equivalents 21,976 (5,590)
Cash at beginning of period 54,928 45,633
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Cash at end of period $ 76,904 $ 40,043
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Non-cash investing and financing activities:
Repayment of loans and interest by issuance
of common stock $ 435,526 $ 52,400
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5
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, 2000. Company management
believes that the disclosures are sufficient for 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 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 months ended March 31, 2001.
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. The
company also recognizes royalty revenue related to licensing the Baby Genius
trademark. In addition, revenues include sales of jewelry products, net of
returns.
Total revenues decreased by 21% ($75,299) to $288,381 for the three
months ended March 31, 2001 from $363,680 for the three months ended March 31,
2000. Music sales decreased 11% ($26,442) to $219,888 for the three months ended
March 31, 2001 from $246,330 for the three months ended March 31, 2000. In the
first quarter of 2000 the company promoted its music products through a special
offer on its web site. This promotion was not repeated in the first quarter of
2001. In the three months ended March 31, 2001 the company recognized licensing
revenues of $10,060 relating to our Baby Genius licensing program. There were no
licensing revenues for the three months ended March 31, 2000. Jewelry and other
sales decreased 50% ($58,917) to $58,433 for the three months ended March 31,
2001 from $117,350 for the three months ended March 31, 2000. The reduction in
sales was as a result of reduced marketing efforts as management focused on
developing the music business.
Cost of sales consist primarily of the costs of products sold to
customers, packaging and shipping costs and commissions relating to licensing
revenues. Cost of sales for music products was 42% of music sales ($92,556) for
the three months ended March 31, 2001 compared to 33% of music sales ($80,660)
for the same period in 2000. The resulting decrease in profit margin to 58% for
the three months ended March 31, 2001 from 67% for the three months ended March
31, 2000, was due the lowering of our retail price and sales made at on a
non-returns basis at discounted prices. Cost of sales for jewelry products and
other sales was 84% ($49,061) of related sales for the three months ended March
31, 2001 compared to 83% ($97,843) for the same period in 2000.
6
Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
decreased by 14% ($31,819) to $187,640 for the three months ended March 31, 2001
from $219,459 for the three months ended March 31, 2000. This decrease is due to
the company declining to renew our contract with our spokesperson and declining
to retain consultants engaged in prior periods.
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 decreased by 16% ($25,695) to $134,926 for the
three months ended March 31, 2001 from $160,621 for the three months ended March
31, 2000. This decrease is primarily due to a reduction in web site development.
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 decreased
by 24% ($123,145) to $384,101 for the three months ended March 31, 2001 from
$507,246 for the three months ended March 31, 2000. This decrease was primarily
due to the Company's initiating cost-cutting measures.
Interest expense consists of costs related to debentures and other
short-term loans. Interest expense increased by $51,679 to $55,670 for the three
months ended March 31, 2001 from $3,991 for the three months ended March 31,
2000. This increase primarily reflects an increase in debentures and other
short-term debt, all of which was subsequently converted into equity.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2001 we obtained financing
primarily through the issuance of short-term convertible debt raising cash
proceeds of $210,000. The Company has retained a consultant to help us raise
funds through private placements of our common shares on a "best efforts" basis
over the short and medium term, as well as provide investor relations services.
No assurance can be made that the consultant will succeed in raising further
cash in a timely manner or at all. The retention is on a non-exclusive basis and
we are actively seeking funds from other sources.
Net cash used in operating activities was $189,578 and $516,427 for the
three months ended March 31, 2001 and March 31, 2000 respectively. Net operating
cash flows for the three months ended March 31, 2001 were primarily attributable
to operating losses of $618,623 offset by a decrease in accounts receivable of
$152,881, an increase in accounts payable and accrued expenses of $139,639 and
non-cash charges for depreciation and amortization, and common stock issued for
services. 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 acounts receivable of
$310,384 and non-cash charges for depreciation and amortization, and common
stock issued for services.
Net cash used in investing activities was $33,446 and $19,263 for the
three months ended March 31, 2001 and March 31, 2000 respectively. Cash used in
investing activities for the three months ended March 31, 2001 was attributable
to the development of production masters ($22,500) and filing trade marks
($10,946) in respect of the Baby Genius product line. 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 production
masters ($7,401), and filing trade marks ($5,010) in respect of the Baby Genius
product line.
Net cash provided by investing activities was $245,000 and $530,100 for
the three months ended March 31, 2001 and March 31, 2000 respectively. Cash
provided by investing activities for the three months ended March 31, 2001 was
primarily attributable to proceeds from the issuance of short-term convertible
debt. Cash provided by investing activities for the three months ended March 31,
2000 was attributable to proceeds from the issuance of common stock through
private placement offerings.
7
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of conducting business, we are involved in various
litigation. There has been no material change in legal proceedings from those
disclosed previously in our Form 1O-KSB for the year ended December 31, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from January 1, 2001 through the date of this filing,
we issued a total of 632,027 shares, of which (a) 15,000 restricted shares were
issued at a price of $1.00 per share for net proceeds of $15,000, to accredited
investors pursuant to a private placement under Section 506 of Regulation D of
the Securities Act of 1933, as amended (the "Securities Act"), (b) 435,526
shares were issued for the conversion of short-term debt and interest of
$435,526 and (c) an aggregate of 181,501 unregistered shares pursuant to a
number of agreements with third-party consultants and service providers and
related parties issued under Section 4 (2) of the Securities Act. 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.
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 Deidre 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 Moeller*
8
Exhibit No. Description
----------- -----------
10.10 Change of Control Executive Employment Agreement with Klaus
Moeller*
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 Boomerang 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+
10.39 License Agreement with Jakks Pacific, Inc.++
10.40 License Agreement with Catton Apparel Group++
10.41 License Agreement with J. Wasson Enterprises, Inc.++
10.42 Settlement Agreement(Investment Agreement) with American Public
Media Group(formerly known as Minnesota Communications Group)++
10.43 Settlement Agreement(Settlement Agreement) with American Public
Media Group(formerly known as Minnesota Communications Group)++
10.44 Production Agreement with James Sommers++
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* 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.
**** 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.
9
+ Incorporated by reference from the exhibits included with the Company's
Form 10-QSB (No. 000-27915), filed with the SEC on August 14, 2000.
++ Incorporated by reference from the exhibits included with the Company's
Form 10-KSB (No. 000-27915), filed with the SEC on April 17, 2001.
(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 year ended December 31, 2001.
A current report on Form 8-K, (Item 5 - Other Events), dated April 10,
2001 was filed reporting a one-for-four reverse stock split of the Company's
authorized shares of common stock.
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
May __, 2001 ---------------------------------
Klaus Moeller, Chief Executive
Officer, Chairman of the Board and
Interim CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Klaus Moeller Chief Executive Officer, Chairman May __, 2001
- ---------------------- of the Board and Interim CFO
Klaus Moeller
/s/ Deborah L. Cross Director May __, 2001
- ----------------------
Deborah L. Cross
10