UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
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 March 31, 2002
[ ] 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 15,377,165 shares outstanding of the registrant's Common Stock as of
May 9,2002.
Transitional small business disclosure format (check one): Yes [ ] No [X]
================================================================================
GENIUS PRODUCTS, INC.
INDEX
PAGE
PART I Financial Information 3
Item 1 Financial Statements 3
Condensed Consolidated Balance Sheet at March 31, 2002
(unaudited) 3
Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2002
(unaudited) 4
Condensed Consolidated Statements of Cash Flow
For the Three Months Ended March 31, 2002
(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
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 9
2
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31,
- --------------------------------------------------------------------------------
2002
-------------
ASSETS
Current assets
Cash and equivalents $ 1,200,046
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $96,000 557,668
Inventories 192,505
-------------
Total current assets 1,950,219
Property and equipment, net of accumulated depreciation
of $86,972 86,072
Production masters, net of accumulated amortization of
$460,347 324,473
Patents and trademarks, net of accumulated
amortization of $15,528 65,361
Deposits and other 181,179
-------------
$ 2,607,304
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 425,949
Accrued payroll and related expenses 19,528
Accrued other expenses 118,792
-------------
Total current liabilities 564,269
Deferred income - Advance royalties 350,000
Redeemable common stock 505,860
Commitments and contingencies --
Stockholders' deficit:
Common stock, $.001 par value; 25,000,000 shares
authorized: 12,912,449 shares outstanding 12,912
Additional paid-in capital 14,034,463
Unamortized stock options --
Stock subscription receivable (2,423,910)
Accumulated deficit (10,436,290)
-------------
Total stockholders' equity 1,187,175
-------------
$ 2,607,304
=============
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 MARCH 31,...
- --------------------------------------------------------------------------------
2002 2001
------------ ------------
Revenues
Music $ 319,870 $ 219,888
Licensing 5,600 10,060
Video 20,784 --
Jewelry, other 104,362 58,433
------------ ------------
Total revenues 450,616 288,381
------------ ------------
COSTS AND EXPENSES
Cost of sales
Music 119,968 92,556
Licensing 13,268 2,250
Video 6,161 --
Jewelry, other 75,141 49,061
Sales and marketing 88,707 187,640
Product and web development 36,306 134,926
General and administrative 539,340 384,101
------------ ------------
Total costs and expenses 878,891 850,534
------------ ------------
Loss from operations (428,275) (562,153)
Interest income 345 --
Interest expense (7,125) (55,670)
------------ ------------
Loss before provision for income taxes (435,055) (617,823)
Provision for income taxes 800 800
------------ ------------
Net loss $ (435,855) $ (618,623)
============ ============
Basic and diluted loss per common share:
Net loss per share $ (0.05) $ (0.14)
============ ============
Basic and diluted weighted average shares 8,971,768 4,354,377
============ ============
The accompanying notes are an integral part of these statements.
4
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,...
- -----------------------------------------------------------------------------------------
2002 2001
------------ ------------
Cash flows from operating activities
Net loss $ (435,855) $ (618,623)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 34,396 45,889
Common stock issued for services 55,999 87,771
Stock options granted to non-employees for services 131,329 --
Stock issued for compensation 180,000 --
Interest expense on redeemable common stock 6,410 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (176,160) 152,881
Inventories (69,194) (245)
Deposits and other (96,212) 3,110
Increase (decrease) in:
Accounts payable (419,633) 34,583
Deferred income 350,000 --
Accrued payroll and other expenses (112,645) 105,056
------------ ------------
Net cash used by operating activities (551,565) (189,578)
------------ ------------
Cash flows from investing activities
Patents and trademarks (35,640) (10,946)
Development of production masters (168,051) (22,500)
Purchase of property and equipment (29,780) --
------------ ------------
Net cash used in investing activities (233,471) (33,446)
------------ ------------
Cash flows from financing activities
Borrowings on notes payable 62,505 20,000
Proceeds from issuance of convertible debt -- 210,000
Proceeds from issuance of common stock 1,894,579 15,000
------------ ------------
Net cash provided by financing activities 1,957,084 245,000
------------ ------------
Net increase (decrease) in cash and equivalents 1,172,048 21,976
Cash at beginning of period 27,998 54,928
------------ ------------
Cash at end of period $ 1,200,046 $ 76,904
============ ============
Non-cash investing and financing activities:
Payment of loans by issuance of common stock $ 62,506 $ 317,400
Common stock subscribed 645,817
Exercise of options with notes receivable 1,778,000
------------ ------------
$ 2,486,323 $ 317,400
============ ============
The accompanying notes are an integral part of these statements.
5
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, 2001. 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, 2002.
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 and licensing the distribution of our videos. In addition, revenues
include sales of jewelry products, net of returns.
Total revenues increased 56% ($162,235) to $450,616 for the three
months ended March 31, 2002 from $288,381 for the three months ended March 31,
2001.
Music sales increased 30% for the three months in 2002 compared to the
three months of 2001, due to the completion of our re-packaging activities and
the initialization of sales of our new multi packs. We are now developing new
titles, shipping the new style and releasing our latest video, The Four Seasons.
We are also seeing increasing music orders in the first quarter as a result of
the changes and completion of new licensing and distribution agreements. Jewelry
and other sales increased 79% ($45,929) to $104,362 for the three months ended
March 31, 2002 from $58,433 for the three months ended March 31, 2001. The
increase in video revenues to $20,784 reflects the release and initial sales of
our videos that had not been completed in 2001. Licensing revenues dropped by
44% from a year ago due to the lack of funding during the prior year that
restricted development of new characters and products.
6
Cost of sales consists primarily of the costs of products sold to
customers and packaging and shipping costs and commissions relating to licensing
revenues. Cost of sales for jewelry products and other sales has increased by
53% ($26,080) to $75,141 for the three months ended March 31, 2002, compared to
$49,061 in 2001. This represents the increased volume of sales, and shows an
increase in the gross margin on jewelry from 16% in 2001 to 28% in 2002. The
increase is due to a reduction in the returns and the increased volume.
Increased sales and the completion of the return program for new packaging has
helped us realize an increase in the margin on music sales from 58% to 62%.
Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
decreased by 53% ($98,933) to $88,707 for the three months ended March 31, 2002
from $187,640 for the three months ended March 31, 2001 reflecting the continued
effort to reduce costs and the previous lack of funding.
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 73% ($98,620) to $36,306 for the
three months ended March 31, 2002 from $134,926 for the three months ended March
31, 2001. The completion of web site development and the previous restrictions
due to funding had curtailed our developmental activities. The effects of the
new funding will be seen in increased activity in product development in the
second and third quarters.
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 40% ($155,239) to $539,340 for the three months ended March 31, 2002 from
$384,101 for the three months ended March 31, 2001. This increase is
primarily a result of the costs associated with the issuance of options to both
employees and consultants.
The 87% decrease in interest expense for the first quarter from a year
ago reflects the decrease in borrowings due to the funding from the issuance of
stock rather than notes and debentures.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2002 we obtained significant
financing primarily through the issuance of additional common shares in private
placements
for cash proceeds of $1,894,579. We believe we now have sufficient liquidity to
sustain operations through the end of the second quarter of 2003. If our capital
requirements vary from our current plans, we may require additional financing
sooner than we anticipate.
We also received $350,000 in advance royalties related to the
distribution and sale of our videos.
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, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period from January 1, 2002 through March 31, 2002, we
issued a total of 6,728,693 shares, of which (a) 2,222,500 restricted shares
were issued at a price of $0.80 per share for notes secured by the stock
amounting to $1,778,000, and 4,032,375 shares at a price of $.63 per share for
net proceeds of $1,894,579, and subscriptions of $645,817, 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) 99,215 shares
were issued for the conversion of short-term debt, and (c) an aggregate of
88,887 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. Additionally, 285,716 shares were issued to employees in
lieu of cash payment for past and current compensation. The proceeds were, and
will be, used for working capital.
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
None.
(b) REPORTS ON FORM 8-K
None.
8
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
May 17, 2002 By: /s/ Klaus Moeller
---------------------------------------
Klaus Moeller, Chief Executive Officer,
Chairman of the Board and Interim
Chief Financial Officer
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 of the May 17, 2002
- --------------------- Board and Interim Chief Financial Officer
Klaus Moeller (principal executive officer and
principal financial officer)
/s/ Deborah L. Cross Director May 17, 2002
- ---------------------
Deborah L. Cross
/s/ Larry Balaban Director May 17, 2002
- ---------------------
Larry Balaban
9