Note 15: Commitments and Contingencies

The Company has various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts are not recognized as liabilities in our consolidated financial statements but are required to be disclosed in the footnotes to the financial statements. For example, the Company is contractually committed to make certain minimum lease payments for the use of property under its operating lease. In addition, the Company has contractual commitments for employment agreements of certain employees.

On February 6, 2018, the Company entered into a lease for approximately 6,969 square feet of general office space at 131 South Rodeo Drive, Suite 250, Beverly Hills, CA 90212 pursuant to a 91-month lease that commenced on June 22, 2018. The Company will pay rent of $364,130 annually, subject to annual escalations of 3.5%.

Rental expenses incurred for operating leases during the three months ended September 30, 2018 and 2017 were $130,173 and $35,862, respectively including deferred rent of $35,511 during the three months ended September 30, 2018. Rental expenses incurred for operating leases during the nine months ended September 30, 2018 and 2017 were $241,578 and $106,884, respectively including deferred rent of $35,511 for the nine months ended September 30, 2018.

The following is a schedule of future minimum contractual obligations as of September 30, 2018, under the Company’s operating leases and employment agreements:

In addition to employment agreements and operating leases, in the normal course of its business, the Company enters into various agreements associated with its individual properties. Some of these agreements call for the potential future payment of royalties or “profit” participations for either (i) the use of third party intellectual property, such as the case with Stan Lee and the Mighty 7 and Llama Llama among others, in which the Company is obligated to share net profits with the underlying rights holders on a certain basis as defined in the respective agreements or (ii) services rendered by animation studios, post-production studios, writers, directors, musicians or other creative talent for which the Company is obligated to share with these service providers a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement.

Additionally, other agreements contain options to acquire rights to intellectual property and would require payment to the rights holders contingent upon the Company securing minimum production, broadcast, or other financing commitments from third parties.

For Genius Brands Network, the Company licenses content for exhibition for which the Company is obligated to pay between 35% and 100% of revenues from the channel allocated to the aforementioned content after the deduction of certain direct operating expenses.

The Company is scheduled to participate in a mediation with one of its’ co-producers/third party participants regarding amounts owed under a production agreement. The parties disagree on the definition of “Net Receipts” and the amounts deductible prior to the sharing of profits. The Company believes its definition of “Net Receipts” will prevail as a result of the mediation. In the event the Company is unsuccessful, the amount owed, and the impact will not have a material effect on the Company or its financial statements.