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 licenses 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”) and subscription video on demand (“SVOD”) distribution outlet, the Kartoon Channel!. Other newer series include, the preschool property Rainbow Rangers, which debuted in November 2018 on Nickelodeon, and 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”). During the fourth quarter of 2021, the Company rebranded and renamed ChizComm Ltd. to Beacon Communications and ChizComm USA Corp. to Beacon Media (collectively, the “Beacon Media Group”).

On January 13, 2022, the Company completed its acquisition of the issued and outstanding shares of Ameba Inc., a corporation incorporated under the laws of the Province of Manitoba and gained access to its kid-safe subscription-based video on demand platform technology and 13,000 episodes of content. Refer to Note 3 for additional details.

Acquisition Completed Subsequent to Quarter End

On April 6, 2022, the Company completed its previously disclosed acquisition of Wow Unlimited Media Inc. (“WOW”), a corporation existing under the laws of the Province of British Columbia. On October 26, 2021, the Company’s wholly-owned subsidiary, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and WOW, 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. The Company purchased 100% of WOW’s issued and outstanding shares for approximately $38.3 million in cash and 11,057,000 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.

Recent Investments

Following the initial equity investment in Your Family Entertainment AG (“YFE”) during the fourth quarter of 2021, the Company participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, the Company purchased an additional 2,637,717 shares of YFE, at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholders, were converted into 2,574,000 shares of YFE common stock, 304,631 of which were purchased by the Company, at 2.00 EUROS per share or $0.6 million, increasing the number of YFE’s outstanding shares and increasing the Company’s ownership in YFE to 45.6% as of March 31, 2022.

Liquidity

During the three months ended March 31, 2022, the Company’s cash and cash equivalents (excluding restricted cash) increased by $47.8 million. Of this amount, $43.3 million, including transactional costs, was borrowed and transferred from the Company’s investment margin account to subsequently finance the WOW acquisition, as noted above.

As of March 31, 2022, the Company held marketable securities with a fair value of $101.3 million as available-for-sale, a decrease of $11.2 million during the three months ended March 31, 2022. 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, the available-for-sale securities, consisting principally of corporate and government debt securities, are also available as a source of liquidity.

During the three months ended March 31, 2022, the Company borrowed an additional $59.6 million from its investment margin account and repaid $8.2 million with cash received from sales and/or redemptions of its marketable securities. The borrowed amounts were used to finance the Company’s additional investments in YFE and the closing of its 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 was 0.72% and the average balance of the borrowings was $13.6 million as of March 31, 2022. The Company incurred interest expense of $21,846 during the three months ended March 31, 2022. The investment margin account borrowings do not mature but are payable on demand as the custodian can issue a margin call at any time, therefore the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets. The Company has the ability to borrow up to 66% of the balance held in marketable securities, with the option to increase its borrowing capacity, if needed. As of March 31, 2022, the outstanding balance of the margin loan was $57.8 million, or 57% of the balance held in marketable securities.

Historically, the Company has incurred net losses. For the three months ended March 31, 2022 and March 31, 2021, the Company reported net losses of $4.5 million 4,531 and $76.3 million,76,259 respectively. The Company reported net cash used in operating activities of $5.3 million 5,332 and $5.6 million 5,640 for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company had an accumulated deficit of $600.3 million 600,379 and total stockholders’ equity of $141.6 million. 139,616 As of March 31, 2022, the Company had current assets of $164.3 million, 164,291 including cash and cash equivalents of $45.6 million 49,811 and current liabilities of $68.9 million. 68,907 The Company had working capital of $95.4 million as of March 31, 2022, compared to working capital of $115.1 million as of December 31, 2021.