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Note 1: The Company and Significant Accounting Policies
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9 Months Ended |
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Sep. 30, 2011
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| Significant Accounting Policies [Text Block] |
Note
1: The Company and Significant Accounting
Policies
Organization
and Nature of Business
Genius
Brands International, Inc. (“we”,
“us”, “our” or the
“Company”), formerly known as Pacific
Entertainment Corporation, provides music-based products
which we believe are entertaining, educational and beneficial
to the well-being of infants and young children under our
brands, including Baby Genius. We create, market
and sell children’s DVDs, CD music and book products in
the United States by distribution at wholesale to retail
stores and outlets and direct to consumers through various
“deal for a day” sites. We also
license the use of our brands, both domestically and
internationally, to others to manufacture, market and sell
products based on our characters and brand, whereby we
receive advances and royalties.
Pacific
Entertainment Corporation commenced operations in January
2006, assuming all of the rights and obligations of its Chief
Executive Officer, Klaus Moeller, under an Asset Purchase
Agreement between the Company and Genius Products, Inc., in
which we obtained all rights, copyrights, and trademarks to
the brands “Baby Genius,” “Little
Genius,” “Kid Genius,” “123 Favorite
Music” and “Wee Worship,” and all then
existing productions under those titles. On
October 17, 2011 and October 18, 2011, Genius Brands
International, Inc., f/k/a
Pacific Entertainment Corporation (the
“Company”), filed Articles of Merger with the
Secretary of State of the State of Nevada and with the
Secretary of State of the State of California, respectively.
As previously described on the Company’s Schedule 14C
Information Statement, filed with the Securities and Exchange
Commission on September 21, 2011, by filing the Articles of
Merger, the Company (i) changed its domicile to Nevada from
California, and (ii) changed its name to Genius Brands
International, Inc. from Pacific Entertainment Corporation
(the “Reincorporation”). Pursuant to
the Articles of Merger, Pacific Entertainment Corporation, a
California corporation, merged into Genius Brands
International, Inc., a Nevada corporation that, prior to the
Reincorporation, was the wholly owned subsidiary of Pacific
Entertainment Corporation. Genius Brands International, the
Nevada corporation, is the surviving
corporation. In connection with the
Reincorporation, on October 12, 2011, the Company filed an
Issuer Company-Related Action Notification Form with the
Financial Industry Regulatory Authority
(“FINRA”). Upon approval of the Reincorporation,
FINRA will issue us a new ticker symbol for trading
purposes.
In
August 2009, the Company launched a line of Baby Genius
pre-school toys. The line of 24 Baby Genius toys,
manufactured by toy manufacturer Battat Incorporated,
included musical, activity, and role-play toys that
incorporate the Baby Genius principle of music as a core
learning tool to engage and encourage children to
communicate, connect, discover, and use their
imagination. The Company granted an exclusive
license to Battat for the marketing and distribution of a
line of toys based on the Baby Genius brand and characters in
the United States and Canada, and non-exclusive rights of
distribution in other parts of the world. This
license was terminated according to the terms of the contract
in December 2010 although we granted Battat the right to
continue to distribute the existing line of toys through late
Spring 2011. We received no royalty reporting from
Battat subsequent to the three month period ended March 31,
2011 and anticipate no further royalty revenue from this
license agreement.
On
January 11, 2011, the Company signed an agreement with Jakks
Pacific’s Tollytots® division for a new toy line.
As a result of the five-year agreement, Tollytots®
immediately began development on a comprehensive line of
musical and early learning toys, incorporating the music,
characters and themes from the Baby
Genius series of videos and music CDs. The new toy
line will cover a broad range of exclusive categories,
including learning and developmental toys, most plush toys
and musical toys, as well as several other non-exclusive
categories. As part of the development of the new
products, the Company has engaged in the creation of several
new characters.
The
Company also obtains licenses for other select brands we feel
we can market and sell through our distribution channels and
are distributing content obtained from independent studios
and producers.
The
Company’s Financial Statements are prepared in
accordance with accounting principles generally accepted in
the United States of America. These require the
use of estimates and assumptions that affect the assets,
liabilities, revenues and expenses reported in the financial
statements, as well as amounts included in the notes thereto,
including discussion and disclosure of contingent
liabilities. Although the Company uses its best
estimates and judgments, actual results could differ from
these estimates as future confirming events occur.
Interim
Consolidated Financial Statements
The accompanying
condensed consolidated financial statements of the Company
have been prepared without audit. Certain
information and disclosures required by accounting principles
generally accepted in the United States have been condensed
or omitted. These condensed consolidated financial
statements reflect all adjustments that, in the opinion of
management, are necessary to present fairly the results of
operations of the Company for the periods
presented. The results of operations for the three
and nine month periods ended September 30, 2011, are not
necessarily indicative of the results that may be expected
for any future period or the fiscal year ending December 31,
2011.
These
consolidated financial statements should be read in
conjunction with the consolidated financial statements
included in the Company’s 2010 Annual Report filed with
the OTC Markets Group Inc. on March 11, 2011 and in the
Company’s registration statement on Form 10, as
amended, filed on July 26, 2011.
Significant
Accounting Policies
Revenue
Recognition – The Company recognizes revenue
related to product sales when (i) the seller’s price is
substantially fixed, (ii) shipment has occurred causing the
buyer to be obligated to pay for product, (iii) the buyer has
economic substance apart from the seller, and (iv) there is
no significant obligation for future performance to directly
bring about the resale of the product by the buyer as
required by Revenue Recognition Topic 605 of the FASB
Accounting Standards Codification.
Revenues
associated with the sale of branded CDs, DVDs and other
products, are recorded when shipped to customers pursuant to
approved customer purchase orders resulting in the transfer
of title and risk of loss. Cost of sales, rebates
and discounts are recorded at the time of revenue recognition
or at each financial reporting date.
The
Company’s licensing and royalty revenue represent
variable payments based on net sales from brand licensees for
content distribution rights. Revenue from licensed
products is recognized when realized or realizable based on
royalty reporting received from licensees.
Principles of
Consolidation - The consolidated financial statements
include the financial statements of the Company, and its 75%
owned subsidiary: Circle of Education LLC. All
inter-company balances and transactions have been eliminated
in consolidation.
Other
Estimates – The Company estimates reserves for
future returns of product based on an analysis that considers
historical returns, changes in customer demand and current
economic trends. The Company regularly reviews the
outstanding Accounts Receivable balances for each account and
monitors delinquent accounts for
collectability. The Company reviews all intangible
assets periodically to determine if the value has been
impaired by recent financial transactions using the
discounted cash flow analysis of revenue stream for the
estimated life of the assets.
Liquidity
- Historically, the Company has incurred net
losses. As of September 30, 2011, the Company had
a consolidated accumulated deficit of $8,018,787 and total
stockholders’ deficit of $1,093,953. At
September 30, 2011, the Company had consolidated current
assets of $1,591,653, including cash of $238,879, and
consolidated current liabilities of $1,290,961, resulting in
working capital of $300,692. For the nine month
period ending September 30, 2011, the Company reported a
consolidated net loss of $1,255,794, including stock option
expense of $385,137 which has no cash expenditure
requirement. The Company had net cash used by
operating activities of $537,334. Management
believes that its increasing revenue each year over the prior
year and cash generated by operations, together with funds
available from short-term related party advances, will be
sufficient to fund planned operations for the next twelve
months. However, there can be no assurance that
operations and operating cash flows will continue at the
current levels or improve in the near future. If
the Company is unable to obtain profitable operations and
positive operating cash flows sufficient to meet scheduled
debt obligations, it may need to seek additional funding or
be forced to scale back its development plans or to
significantly reduce or terminate operations.
Reclassifications
– Certain amounts in the condensed consolidated
financial statements as of December 31, 2010 have been
reclassified to conform to the presentation as of September
30, 2011.
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