Genius Brands International, Inc. — Form 10-Q Summary
Business context and reporting period
For the quarter ended March 31, 2018, the company operated as a global children’s content and brand-management business, creating, distributing, and licensing multimedia content and related consumer products. Key properties included Llama Llama, Rainbow Rangers, SpacePop, Baby Genius, and Thomas Edison’s Secret Lab. The filing entity was Genius Brands International, Inc.; the requested company metadata identifies Kartoon Studios, Inc.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $93,213 | $198,091 |
| Operating loss | $(1,263,470) | $(1,315,407) |
| Net loss | $(1,263,464) | $(1,316,234) |
| Basic and diluted loss per share | $(0.18) | $(0.26) |
| Net cash used in operating activities | $(1,214,107) | $(2,346,210) |
| Ending cash, cash equivalents and restricted cash | $6,223,310 | $5,227,097 |
Revenue declined 53% year over year. The reported operating margin was approximately negative 1,356% and the net margin was approximately negative 1,355%, reflecting the company’s very low revenue base relative to operating costs. Operating expenses were $1.36 million, down 10% from $1.51 million. The filing does not present EBITDA.
At March 31, 2018, total assets were $26.98 million, total liabilities were $11.39 million, and stockholders’ equity was $15.59 million. Working capital was $4.60 million, down from $7.12 million at December 31, 2017. The company had $2.69 million of net production-loan borrowings, compared with $4.32 million at year-end 2017. The facility bears interest at Prime plus 1% or LIBOR plus 3.25% and is secured by Llama Llama-related license fees and copyrights.
Material changes versus the prior comparable period
- Television and home-entertainment revenue fell 91% to $3,754, while licensing and royalty revenue fell 56% to $66,812.
- Kid Genius Networks revenue increased to $22,009 from $1,505, driven by higher advertising impressions and additional campaigns.
- General and administrative expense decreased 6% to $1.32 million, primarily due to lower share-based compensation and professional fees.
- Net loss improved modestly by $52,770, while operating cash use improved by $1.13 million, largely because of collections related to Llama Llama deliveries.
- The company invested $1.77 million in film and television costs during the quarter, primarily for production and development of Rainbow Rangers. Net film and television costs increased to $4.34 million from $2.78 million at December 31, 2017.
- The company raised approximately $1.80 million in its January 2018 private placement, receiving $1.596 million of net proceeds and issuing approximately 592,000 shares and warrants for approximately 592,000 shares at a $3.00 exercise price.
- The company repaid approximately $1.63 million of the production facility during the quarter.
Accounting, outlook, risks and unusual items
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. The adoption reduced beginning accumulated deficit by an adjustment of $173,112 and reduced first-quarter revenue by $68,184 and costs by $10,099 compared with the amounts that would have been reported under the prior standard.
- Management stated that cash, working capital, the production facility, and the deal pipeline were expected to fund operations for the next twelve months, but cautioned that additional funding, reduced development and production, or reduced operations could be required if profitability and positive operating cash flow are not achieved.
- Liquidity remains dependent on financing and content monetization. The company used $1.21 million in operating cash during the quarter and had an accumulated deficit of $42.64 million.
- Customer and revenue concentration is significant: two customers each represented more than 10% of quarterly revenue, and one customer represented 98% of accounts receivable at March 31, 2018.
- Approximately $5.72 million of cash was uninsured by the FDIC at March 31, 2018.
- The company carried a $925,000 disputed trade payable, which management believes is uncollectible because the applicable statute of limitations has expired.
- The company had $4.74 million of deferred revenue, including advances and minimum guarantees, which will be recognized as contractual revenue-recognition conditions are met.
- The company entered into a new office lease with total future minimum payments of approximately $3.09 million.
- No material pending legal proceedings or material changes to previously disclosed risk factors were reported. No formal quantitative revenue or earnings guidance was provided.
- After quarter-end, on May 14, 2018, the company issued 277,508 shares valued at $2.81 per share to a vendor for production services.
Most important facts for investors to verify
- Whether revenue growth from Llama Llama, Rainbow Rangers, advertising, and licensing can offset the company’s substantial recurring cost base.
- The timing and collectability of accounts receivable, particularly the balance concentrated with one customer.
- Remaining availability, repayment terms, collateral, and covenant compliance under the production facility.
- Future financing requirements and potential dilution from approximately 4.10 million outstanding warrants, 1.29 million options, and the Series A convertible preferred stock.
- Recoverability of $4.34 million of capitalized film and television costs, $10.37 million of goodwill, and $1.86 million of intangible assets.
- The continuing effects of ASC 606 on revenue timing, deferred revenue, and comparability with prior periods.