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 June 30, 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 15,471,947 shares outstanding of the registrant's Common Stock as of
August 16, 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 June 30, 2002
(unaudited) 3
Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 2002
(unaudited) 4
Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2002
(unaudited) 5
Condensed Consolidated Statements of Cash Flow
For the Six Months Ended June 30, 2002
(unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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 10
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30,
- --------------------------------------------------------------------------------
2002
-------------
ASSETS
Current assets
Cash and equivalents $ 1,222,354
Accounts receivable, net of allowance for
doubtful accounts and sales returns of $126,000 652,781
Inventories 311,491
-------------
Total current assets 2,186,626
Property and equipment, net of accumulated depreciation
of $96,877 151,115
Production masters, net of accumulated amortization of
$460,347 419,251
Patents and trademarks, net of accumulated
amortization of $17,967 62,923
Deposits and other 202,436
-------------
$ 3,022,351
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 442,734
Accrued payroll and related expenses 19,528
Debentures payable 60,000
Accrued other expenses 106,871
-------------
Total current liabilities 629,133
Deferred income - Advance royalties 280,000
Redeemable common stock 515,298
Commitments and contingencies -
Stockholders' equity:
Common stock, $.001 par value; 25,000,000 shares
authorized: 15,336,309 shares outstanding 15,336
Additional paid-in capital 15,745,157
Stock subscription receivable (2,610,276)
Accumulated deficit (11,552,297)
-------------
Total stockholders' equity 1,597,920
-------------
$ 3,022,351
=============
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 JUNE 30,
- --------------------------------------------------------------------------------
2002 2001
------------- -------------
REVENUES
Music $ 331,692 $ 28,175
Licensing 14,487 10,182
Video 78,887 --
Jewelry, other 129,904 91,156
------------- -------------
Total revenues 554,970 129,513
------------- -------------
COSTS AND EXPENSES
Cost of sales
Music 408,697 84,350
Licensing 5,548 --
Video 4,417 --
Jewelry, other 128,450 76,935
Sales and marketing 71,698 90,983
Product and web development 8,447 85,469
General and administrative 1,093,833 360,946
------------- -------------
Total costs and expenses 1,721,090 698,683
------------- -------------
Loss from operations (1,166,120) (569,170)
Interest income 66,183 --
Interest expense (16,028) (22,284)
------------- -------------
Loss before provision for income taxes (1,115,965) (591,454)
Provision for income taxes -- --
------------- -------------
Net loss $ (1,115,965) $ (591,454)
============= =============
Basic and diluted loss per common share:
Net loss per share $ (0.07) $ (0.13)
============= =============
Basic and diluted weighted average shares 15,016,620 4,577,065
============= =============
The accompanying notes are an integral part of these statements.
4
GENIUS PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------------------
2002 2001
------------- -------------
REVENUES
Music $ 651,562 $ 248,064
Licensing 20,087 20,242
Video 99,671 --
Jewelry, other 234,265 149,589
------------- -------------
Total revenues 1,005,585 417,895
------------- -------------
COSTS AND EXPENSES
Cost of sales
Music 528,665 176,914
Licensing 18,816 2,250
Video 10,579 --
Jewelry, other 203,591 125,989
Sales and marketing 160,406 278,624
Product and web development 44,754 220,394
General and administrative 1,633,172 745,047
------------- -------------
Total costs and expenses 2,599,983 1,549,218
------------- -------------
Loss from operations (1,594,398) (1,131,323)
Interest income 66,528 --
Interest expense (23,153) (77,954)
------------- -------------
Loss before provision for income taxes (1,551,023) (1,209,277)
Provision for income taxes 800 800
------------- -------------
Net loss $ (1,551,823) $ (1,210,077)
============= =============
Basic and diluted loss per common share:
Net loss per share $ (0.13) $ (0.27)
============= =============
Basic and diluted weighted average shares 12,016,087 4,491,824
============= =============
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 SIX MONTHS ENDED JUNE 30,
- ----------------------------------------------------------------------------------------------
2002 2001
------------ ------------
Cash flows from operating activities
Net loss $(1,551,823) $(1,210,077)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 86,366 91,177
Bad debt expense 30,000 --
Common stock issued for services 350,050 179,539
Stock options granted to non-employees for services 376,575 --
Stock issued for compensation 180,000 --
Interest expense on redeemable common stock 15,848 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (369,539) 249,827
Inventories (188,180) (55,973)
Deposits and other (117,469) (6,153)
Increase (decrease) in:
Accounts payable (402,848) 151,109
Deferred income 280,000 --
Accrued payroll and other expenses (124,603) 225,815
------------ ------------
Net cash used by operating activities (1,435,623) (374,736)
------------ ------------
Cash flows from investing activities
Patents and trademarks (35,640) (10,946)
Development of production masters (228,856) (26,850)
Purchase of property and equipment (104,731) (1,611)
------------ ------------
Net cash used in investing activities (369,227) (39,407)
------------ ------------
Cash flows from financing activities
Borrowings on notes payable 62,506 125,000
Proceeds from issuance of convertible debt 60,000 260,000
Proceeds from issuance of common stock 2,876,700 15,000
------------ ------------
Net cash provided by financing activities 2,999,206 400,000
------------ ------------
Net increase (decrease) in cash and equivalents 1,194,356 (14,143)
Cash at beginning of period 27,998 54,928
------------ ------------
Cash at end of period $ 1,222,354 $ 40,785
============ ============
Non-cash investing and financing activities:
Acquisition of production masters through the
issuance of common stock $ 73,600 $ --
Payment of loans by issuance of common stock 62,506 435,526
Common stock subscribed 764,010 --
Exercise of options with notes receivable 1,778,000 --
------------ ------------
$ 2,678,116 $ 435,526
============ ============
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 statement 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.
NOTE B: COMMON STOCK
During the six months ended June 30, 2002, we issued a total of 9,152,553
shares, of which 3,559,700 restricted shares were issued at prices of $.50, $.63
and $.80 per share for notes secured by the stock amounting to $2,542,410. We
also issued (a) 4,566,190 shares at a price of $.63 per share for net proceeds
of $2,876,700 in private placements, (b) 99,215 shares for the conversion of
$62,506 short-term debt, and (c) 616,484 shares for $350,050 in services and
$73,600 of production masters. Additionally, 310,964 shares were issued to
employees for $180,000 past and current compensation.
7
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 six months ended June 30, 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 related to the distribution of our line of videos. Revenues also
include sales of jewelry products, net of returns.
Total revenues increased 329% ($425,457) to $554,970 for the three
months and 141% ($587,690) to $1,005,585 for the six months ended June 30, 2002.
Music sales increased 1077% for the three months ended June 30, 2002
compared to the three months ended June 30, 2001, and 163% for the six months
ended June 30, 2002, as compared to the six months ended June 30, 2001, due to
the completion of our re-packaging activities and the continued delivery of our
new multi packs. We are now developing new titles and shipping the new style
packaging. Video sales (royalties) are up from $0 to $78,887 for the three
months and from $0 to $99,671 for the six months of this year versus 2001. These
increases are a result of our obtaining a wider distribution of our products and
increasing our sales to existing customers. Increasing jewelry and other sales,
from $91,156 to $129,904 (43%) and from $149,589 to $234,265 (57%), for the
three and six month periods respectively, are an indication of our reluctance to
abandon a product line that has been profitable for us. We continue to consider
whether we will remain in this business area and continue to place our primary
focus on our music and video business segment.
Costs of sales consist primarily of the costs of products sold to
customers and packaging and shipping costs and commissions relating to licensing
revenues. The high cost of sales for both music and jewelry products are a
reflection of the clearance and write off of old inventory and the charge to
operations for promotional products. The gross margin on video sales and
royalties, and our licensing revenues, was 75% for the six months ended June 30,
2002 and 89% for the three months ended June 30, 2002.
Sales and marketing expenses consist of costs for consultants,
marketing personnel and promotional activities. Sales and marketing expenses
decreased by 21% ($19,285) to $71,698 for the three months ended June 30, 2002
from $90,983 for the three months ended June 30, 2001 reflecting the continued
effort to reduce costs. Our costs for the six months ended June 30, 2002 are
down 42% compared to the six months ended June 30, 2001. Costs in this area will
begin to increase as we commit resources to marketing and sales of new and
existing product lines.
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 90% and 80% for the three and six
months ended June 30, 2002 respectively as compared to the same periods in 2001.
Cost reductions of $77,022 and $175,640 for the three and six months as compared
to the same periods in 2001 were the result of the completion of the web site
development and our previous lack of funding. The effects of the increasing
expenditures for product development can be seen in the increased development
costs capitalized during the period. The cost of this activity will be
recognized in future periods.
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 203% ($732,887) to $1,093,833 for the three months ended June 30, 2002 and
119% ($888,125) to $1,633,172 for the six months ended June 30, 2002 from
$360,946 for the three months and $745,047 for the six months ended June 30,
2001. This increase is a result of the costs associated with the issuance of
options to both employees and consultants ($376,575), the increased cost of
consultants and professionals as we increased our marketing efforts ($283,000),
an increase in our bad debt reserve ($30,000) and other general increases
related to the renewed activity brought about by the new funding.
8
The 28% decrease in interest expense for the three months ended June
30, 2002 from the same period last year and the 70% decrease in interest expense
for the six months ended June 30, 2002 compared to the same period last year
reflects the decrease in borrowings due to the funding from the issuance of
stock rather than notes and debentures. Interest income represents the earnings
on both short-term invested funds and the amounts earned on subscription
agreements. The funding has secured our operations through 2002.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2002 we obtained significant
financing primarily through the issuance of additional common shares in private
placements for cash proceeds of $2,876,700. We believe this financing is
sufficient to meet our needs for as much as twelve months.
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 June 30, 2002, we issued
a total of 9,152,553 shares, of which (a) 3,559,700 restricted shares were
issued at prices of $.50, $.63 and $.80 per share for notes secured by the stock
amounting to $2,542,410. We also issued 4,566,190 shares at a price of $.63 per
share for net proceeds of $2,876,700 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 497,057 unregistered shares and
119,427 registered 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, 310,964 shares were issued to employees in
lieu of cash payment for past and current compensation. All cash proceeds were
used principally 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
3.1.4 Certificate of Amendment to the Articles Of
Incorporation of Genius Products, Inc.
10.71 Genius Products, Inc. Audit Committee Charter
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) REPORTS ON FORM 8-K
None.
9
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 19, 2002 By: /s/ Klaus Moeller
---------------------------------------
Klaus Moeller, Chief Executive Officer,
Chairman of the Board and Interim
Chief Financial Officer
10