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 September 30, 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.
---------------------
(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 5,954,353 shares outstanding of the registrant's Common Stock as of
November 12, 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 September 30,2001
(unaudited) 3
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 2001
and September 30, 2000 (unaudited) 4
Condensed Consolidated Statements of Operations
For the nine Months Ended September 30, 2001
and September 30, 2000 (unaudited) 5
Condensed Consolidated Statements of Cash Flow
For the nine Months Ended September 30, 2001
and September 30, 2000 (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 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 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 11
2
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30,
- --------------------------------------------------------------------------------
2001
------------
ASSETS
Current assets
Cash and equivalents $ 51,566
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $47,958 163,492
Inventories 154,437
------------
Total current assets 369,495
Property and equipment, net of accumulated depreciation
of $76,091 69,522
Production masters, net of accumulated amortization
of $286,860 204,545
Patents and trademarks, net of accumulated
amortization of $13,185 32,064
Deposits and other 88,687
------------
$ 764,313
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans from shareholders $ 91,667
Convertible debentures 60,000
Accounts payable 726,720
Accrued payroll and related expenses 79,702
Accrued other expenses 301,863
------------
Total current liabilities 1,259,952
Redeemable common stock 487,421
Commitments and contingencies --
Stockholders' deficit:
Common stock, $.001 par value; 25,000,000 shares
authorized: 5,942,577 shares outstanding 5,943
Additional paid-in capital 8,382,492
Unamortized stock options --
Stock subscription receivable (106,000)
Accumulated deficit (9,265,495)
------------
Total stockholders' deficit (983,060)
------------
$ 764,313
============
The accompanying notes are an integral part of these statements.
3
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
2001 2000
------------ ------------
Revenues
Music $ 141,463 $ 79,146
Licensing 108 --
Jewelry, other 225,329 186,451
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Total revenues 366,900 265,597
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COSTS AND EXPENSES
Cost of sales
Music 207,403 23,890
Licensing 750 --
Jewelry, other 146,929 165,608
Sales and marketing 91,425 53,360
Product and web development 63,610 93,251
General and administrative 326,934 420,633
------------ ------------
Total costs and expenses 837,051 756,742
------------ ------------
Loss from operations (470,151) (491,145)
Gain on disposal -- --
Interest expense (11,864) (11,505)
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Loss before provision for income taxes (482,015) (502,650)
Provision for income taxes -- --
------------ ------------
Net loss $ (482,015) $ (502,650)
============ ============
Basic and diluted loss per common share:
Net loss per share $ (0.09) $ (0.17)
============ ============
Basic and diluted weighted average shares 5,266,606 2,999,721
============ ============
The accompanying notes are an integral part of these statements.
4
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
2001 2000
------------ ------------
Revenues
Music $ 389,526 $ 638,731
Licensing 20,350 37,500
Jewelry, other 374,918 436,656
------------ ------------
Total revenues 784,794 1,112,887
------------ ------------
COSTS AND EXPENSES
Cost of sales
Music 384,317 231,101
Licensing 3,000 11,250
Jewelry, other 272,917 350,070
Sales and marketing 370,050 457,723
Product and web development 284,004 346,142
General and administrative 1,071,981 1,351,520
------------ ------------
Total costs and expenses 2,386,269 2,747,806
------------ ------------
Loss from operations (1,601,475) (1,634,919)
Gain on disposal -- 70
Interest expense (89,818) (16,976)
------------ ------------
Loss before provision for income taxes (1,691,293) (1,651,825)
Provision for income taxes 800 800
------------ ------------
Net loss $(1,692,093) $(1,652,625)
============ ============
Basic and diluted loss per common share:
Net loss per share $ (0.36) $ (0.54)
============ ============
Basic and diluted weighted average shares 4,753,821 3,060,265
============ ============
The accompanying notes are an integral part of these statements.
5
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------
2001 2000
------------ ------------
Cash flows from operating activities
Net loss $(1,692,093) $(1,652,625)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 136,468 80,395
Common stock issued for services 236,229 153,508
Stock option costs 13,624
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 170,777 390,145
Inventories (35,568) (47,679)
Deposits and other (27,758) (38,295)
Increase (decrease) in:
Accounts payable 57,860 (244,172)
Accrued payroll and other expenses 149,981 110,685
------------ ------------
Net cash used by operating activities (1,004,104) (1,234,414)
------------ ------------
Cash flows from investing activities
Patents and trademarks (10,946) (11,969)
Development of production masters (80,531) --
Purchase of property and equipment (3,111) (6,393)
------------ ------------
Net cash used in investing activities (94,588) (18,362)
------------ ------------
Cash flows from financing activities
Payments on notes payable -- (1,000)
Borrowings on notes payable 125,000 265,000
Proceeds from issuance of convertible debt 260,000 --
Proceeds from issuance of common stock 710,330 810,100
Exercise of stock options -- 163,750
------------ ------------
Net cash provided by financing activities 1,095,330 1,237,850
------------ ------------
Net increase (decrease) in cash and equivalents (3,362) (14,926)
Cash at beginning of period 54,928 45,633
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Cash at end of period $ 51,566 $ 30,707
============ ============
Non-cash investing and financing activities:
Payment of loans by issuance of common stock $ 545,526 $ 317,400
============ ============
The accompanying notes are an integral part of these statements.
6
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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 and nine months ended September 30, 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 recognizes royalty revenue related to licensing the Baby Genius
trademark. In addition, revenues include sales of jewelry products, net of
returns.
Total revenues increased 38% ($101,303) to $366,900 for the three
months ended September 30, 2001 from $265,597 for the three months ended
September 30, 2000. Total revenues decreased 29% ($328,093) to $784,794 for the
nine months ended September 30, 2001 from $1,112,887 for the nine months ended
September 30, 2000.
Music sales increased 79% for the three months in 2001 compared to the
three months of 2000, largely due to the finalization of the returns as we
changed out old packaging for new artwork in accordance with our style guide. We
have now finished the redesign of our packaging and are developing new titles,
shipping the new style and releasing our latest video, The Four Seasons. We are
seeing increasing music orders in the fourth quarter as a result of the changes
and completion of new licensing and distribution agreements. Jewelry and other
sales increased 21% ($38,878) to $225,329 for the three months ended September
30, 2001 from $186,451 for the three months ended September 30, 2000. Jewelry
and other sales decreased 14% ($61,738) to $374,918 for the nine months ended
September 30, 2001 from $436,656 for the nine months ended September 30, 2000.
We have seen strong jewelry orders for the third quarter and are expecting
continued strength in this line into the fourth quarter despite the reduction in
marketing efforts. We plan to discontinue the jewelry line in 2002.
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 has been negatively affected by the
costs associated with the packaging update, returns and related costs. In
addition, in this quarter we took an inventory write down of $150,000 related to
the old packaging in inventory. We also took an additional $30,000 allowance for
returns. Cost of sales for jewelry products and other sales has decreased to 65%
(146,929) and 73% (272,917) for the three and nine months ended September 30,
2001 respectively compared to 80% ($165,608) and 89% ($350,070) for the same
periods in 2000. This is due to a renegotiation of terms with our primary
customer.
Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
increased by 59% ($31,248) to $64,608 for the three months ended September 30,
2001 from $53,360 for the three months ended September 30, 2000 reflecting the
use of current funding in this area. Sales and marketing expenses decreased by
21% ($94,490) to $363,233 for the nine months ended September 30, 2001 from
$457,223 for the nine months ended September 30, 2000. The decrease reflects the
lack of funding available for all activities for most of the year.
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 32% ($29,641) to $63,610 for the
three months ended September 30, 2001 from $93,251 for the three months ended
September 30, 2000. Product and web development expenses decreased by 18%
($62,138) to $284,004 for the nine months ended September 30, 2001 from $346,142
for the nine months ended September 30, 2000. Because our web site is now
complete, we expect all resources budgeted for this area to go toward new
product 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 22% ($93,699) to $326,934 for the three months ended September 30, 2001 from
$420,633 for the three months ended September 30, 2000. This decrease is
primarily a result of a decrease in administrative salaries and related expenses
due to the reduction of staff. General and administrative expenses for the nine
months ended September 30, 2001 decreased by 21% ($279,539) to $1,071,981 from
$1,351,520 for the nine months ended September 30, 2000.
The 3% increase in interest expense for the third quarter over a year
ago reflects increased borrowing for operations. We expect that both short and
long term borrowing will increase substantially as we complete our proposed
funding agreements in the fourth quarter. If completed as expected, the funding
will secure our operations through 2002.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 2001 we obtained financing
primarily through the issuance of additional common shares in private placements
for cash proceeds of $710,330. 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. We have, however,
obtained $312,600 in the fourth quarter and we believe additional funding of up
to $2,000,000 could be in place in the first quarter, 2002.
8
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 September 30, 2001,
we issued a total of 1,571,989 shares, of which (a) 15,000 restricted shares
were issued at a price of $1.00 per share for net proceeds of $15,000, and
767,750 shares at a price of $.80 per share for net proceeds of $710,330 to
accredited investors pursuant to private placements under Section 506 of
Regulation D of the Securities Act of 1933, as amended (the "Securities Act"),
(b) 573,025 shares were issued for the conversion of short-term debt and
interest of $545,526 and (c) an aggregate of 287,076 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
----------- -----------
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*
9
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.
10
+ 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 half 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
November 13, 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 November 19, 2001
- ---------------------- of the Board and Interim CFO
Klaus Moeller
/s/ Deborah L. Cross Director November 19, 2001
- ----------------------
Deborah L. Cross
11