Note 1: Organization and Business

Organization and Nature of Business

Genius Brands International, Inc. (“we,” “us,” “our,” or the “Company”) is a global content and brand management company that creates and licenses multimedia content. Led by experienced industry personnel, the Company distributes its content primarily on television and streaming platforms and license its properties for a broad range of consumer products based on the Company’s characters. In the children's media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, which provides enrichment as well as entertainment. New intellectual property titles include Stan Lee’s Superhero Kindergarten produced with Stan Lee’s Pow! Entertainment and Oak Productions. Arnold Schwarzenegger lends his voice as the lead and is also an Executive Producer on the series. Another new offering is KC! Pop Quiz, a live action game show featuring kids as contestants. The show is hosted by Casey Simpson, a prominent social media influencer and former Nickelodeon star. Both KC! Pop Quiz and Superhero Kindergarten are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) distribution outlet, the Kartoon Channel!. Other newer series include, the preschool property Rainbow Rangers, which debuted in November 2018 on Nickelodeon, and which was renewed for a third season and preschool property Llama Llama, which debuted on Netflix in January 2018 and was renewed by Netflix for a second season. The Company’s library titles include the award-winning Baby Genius, adventure comedy Thomas Edison's Secret Lab® and Warren Buffett’s Secret Millionaires Club, created with and starring iconic investor Warren Buffett, which is distributed across the Company’s Genius Brands Network on Comcast’s Xfinity on Demand, AppleTV, Roku, Amazon Fire, YouTube, Amazon Prime, Cox, Dish, Sling and Zumo, as well as Connected TV. The Company is in production on a new animated series starring Shaquille O’Neal called Shaq’s Garage which the Company expects to debut during the fourth quarter of 2022.

In addition, the Company acts as licensing agent for Penguin Young Readers, a division of Penguin Random House LLC which owns or controls the underlying rights to Llama Llama, leveraging the Company’s existing licensing infrastructure to expand this brand into new product categories, new retailers, and new territories.

The Company commenced operations in 2006, assuming all the rights and obligations of its then Chief Executive Officer, under an Asset Purchase Agreement between the Company and Genius Products, Inc., in which the Company obtained all rights, copyrights, and trademarks to the brands “Baby Genius,” “Kid Genius,” “123 Favorite Music” and “Wee Worship,” and all then existing productions under those titles. In 2011, the Company reincorporated in Nevada and changed its name to Genius Brands International, Inc. (the “Reincorporation”). In connection with the Reincorporation, the Company changed its trading symbol to “GNUS.”

In 2013, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with A Squared Entertainment LLC, a Delaware limited liability company (“A Squared”), A Squared Holdings LLC, a California limited liability company and sole member of A Squared (the “Parent Member”), and A2E Acquisition LLC, its newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”). Upon closing of the transactions, A Squared, as the surviving entity, became a wholly-owned subsidiary of the Company.

On February 1, 2021, the Company, through GBI Acquisition LLC, a New Jersey limited liability company, and 2811210 Ontario Inc., a company organized under the laws of the Province of Ontario, two wholly-owned subsidiaries of the Company, purchased the outstanding equity interests of ChizComm Ltd., a corporation organized in Canada, and ChizComm USA Corp., a New Jersey corporation (collectively “ChizComm”).

Liquidity

During the year ended December 31, 2021, the Company’s cash and cash equivalents and marketable security positions increased by $14.1 million. Cash in excess of immediate requirements is invested in accordance with the Company’s investment policy, primarily with a view for liquidity and capital preservation. Accordingly, available-for-sale securities, consisting principally of corporate and government debt securities, are also available as a source of liquidity. As of December 31, 2021, the Company held marketable securities with a fair value of $112.5 million as available-for-sale.

Historically, the Company has incurred net losses. For the years ended December 31, 2021, and December 31, 2020, the Company reported net losses of $126.3 million and $401.7 million, respectively. The Company reported net cash used in operating activities of $23.7 million and $8.1 million for the years ended December 31, 2021, and December 31, 2020, respectively. As of December 31, 2021, the Company had an accumulated deficit of $595.8 million and total stockholders’ equity of $144.7 million. As of December 31, 2021, the Company had current assets of $136.2 million, including cash and cash equivalents of $2.1 million and marketable securities of $112.5 million, and current liabilities of $21.1 million. The Company had working capital of $115.1 million as of December 31, 2021, compared to working capital of $101.4 million as of December 31, 2020.

On January 28, 2021, the Company entered into letter agreements (the “Letter Agreements”) with certain existing institutional and accredited investors to exercise certain outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 39,740,500 shares of the Company’s common stock at their original exercise price of $1.55 per share (the “Exercise”). The Company received approximately $61.6 million in gross proceeds. The Special Equities Group, a division of Bradley Woods & Co. Ltd., acted as warrant solicitation agent and received a cash fee of approximately $4.3 million. In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of 39,740,500 shares of common stock (the “New Warrants”) at an exercise price of $2.37 per share, exercisable immediately, with an exercise period of five years from the initial issuance date. Pursuant to the Letter Agreements, the New Warrants are substantially in the form of the Existing Warrants (except for customary legends and other language typical for an unregistered warrant, including the ability for the holder of the New Warrant to make a cashless exercise if no resale registration statement covering the common stock underlying the New Warrants is effective after six months). The Company was required to register the resale of the shares of common stock issuable upon exercise of the New Warrants.

During December 2021, the Company borrowed from its investment margin account the aggregate amount of $6.4 million for its investments in YFE and future closing of its pending acquisition of WOW, in each case pledging certain of its marketable securities as collateral. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus 0.65% with interest only payable monthly. The weighted average interest rate during the year ended December 31, 2021, was 0.72% and the average balance of the borrowings was $5.9 million as of December 31, 2021. These investment margin account borrowings do not mature but are payable on demand and recorded as a current liability on the Company’s consolidated balance sheets. As of December 31, 2021, the Company had the ability to borrow up to 66% of the balance held in marketable securities, with the option to increase its borrowing capacity, if needed.

Recent Investments

Effective as of June 1, 2021, the Company executed an Operating Agreement with POW!, Inc. (“POW!”) to form a joint venture to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee. The entity is called Stan Lee Universe, LLC (“SLU”) and activity commenced during the fourth quarter of 2021. In exchange for a cash investment of $2.0 million, the Company obtained 50% ownership in the entity as a variable interest in the Stan Lee trade name. This agreement enables the Company to assume the worldwide rights, in perpetuity, to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations (the “Stan Lee Assets”), from which Genius Brands plans to develop and license multiple properties each year. SLU is considered a variable interest entity in which the Company is the primary beneficiary. Accordingly, the transaction was accounted for as an asset acquisition of the Stan Lee Assets in the amount of $4.0 million and the results of SLU are included in the Company’s consolidated financial statements, with the portion of non-controlling interest recorded in stockholders’ equity.

On December 1, 2021, the Company completed a $6.8 million investment in Your Family Entertainment (“YFE”). In exchange for $3.4 million in cash and 2,281,269 shares of the Company’s common stock (valued at approximately $3.4 million), the Company received 3,000,500 shares of YFE’s common stock. As of December 31, 2021, the Company has a 29% economic ownership interest in YFE.

On January 13, 2022, the Company acquired Canadian streaming service Ameba TV and gained access to its kid-safe platform technology and 13,000 episodes of content including Casper the Friendly Ghost, Donkey Kong Country, Gummy Bears and Rescue Heroes. The Company purchased 100% of Ameba’s issued and outstanding shares for $3.5 million in cash and paid $0.3 million for the underlying software code that powers the subscription video on demand (“SVOD”) deliveries.

Pending Acquisition

On October 26, 2021, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company and Wow Unlimited Media Inc. (“WOW”), a corporation existing under the laws of the Province of British Columbia, entered into an Arrangement Agreement to effect a transaction among the parties by way of a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act, whereby the Company will purchase 100% of WOW’s issued and outstanding shares for $38.4 million in cash and 11,000,000 shares of the Company’s common stock. The Company has not completed its initial accounting for the business combination which will be accounted for using the acquisition method of accounting. The fair value of the assets and liabilities are still to be determined. The acquisition is expected to be completed during the second quarter of 2022.