Kartoon Studios, Inc. 10-K

Item 1. Business Overview 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, we distribute our content primarily on television and streaming platforms and license our properties for a broad range of consumer products based on our characters. In the children's media sector, our 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 advertiser supported video on demand (“AVOD”) distribution outlet, the Kartoon Channel!. Other series include the preschool property Rainbow Rangers , which debuted in November 2018 on Nickelodeon, and which was renewed for a third season and the preschool property Llama Llama, which debuted on Netflix in January 2018 and was renewed by Netflix for a second season. Our content 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 our 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. We are also in production on a new animated series starring Shaquille O’Neal called Shaq’s Garage , which we expect to debut during the fourth quarter of 2022. In addition, we act 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 our existing licensing infrastructure to expand this brand into new product categories, new retailers, and new territories. Recent Investments Effective as of June 1, 2021, we 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, we obtained 50% ownership in the entity as a variable interest in the Stan Lee trade name. This agreement enables SLU 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 we plan to develop and license multiple properties each year. SLU is considered a variable interest entity in which we are the primary beneficiary. Accordingly, the transaction was accounted for as an asset acquisition of a trade name intangible in the amount of $4.0 million and the results of SLU are included in our consolidated financial statements, with the portion of non-controlling interest recorded in our stockholders’ equity. During June 2021, we started investing our excess cash into available-for-sale marketable securities. As of December 31, 2021, we held $112.5 million of securities, with a recorded unrealized loss on fair value of $1.3 million and received $1.2 million in interest income. On December 1, 2021, we 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 our common stock (valued at approximately $3.4 million as of December 1, 2021), we received 3,000,500 shares of YFE’s common stock. As of December 31, 2021, we had a 29% economic ownership interest in YFE. 1 On January 13, 2022, we 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 . We purchased 100% of Ameba’s issued and outstanding shares for $3.5 million in cash and paid $0.3 million for the underlying software code that powers the subscription video on demand (“SVOD”) deliveries. With the acquisition, we will launch a subscription-based streaming platform, the Kartoon Channel! KidAverse. The platform will include all of the popular animated programs of a children’s channel, metaverse features and it will be fully curated and child safe. The platform will also offer collectable digital cards based on many of the channel’s popular characters, including those from the upcoming Stan Lee Universe and a digital currency for kids called Kidaverse MetaBuck$. Additionally, we intend for the Kartoon Channel! Kidaverse to introduce child-safe messaging, podcasts, music, and additional content. Pending Acquisition On October 26, 2021, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and our wholly-owned subsidiary, 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 we will purchase 100% of WOW’s issued and outstanding shares for $38.4 million in cash and 11,000,000 shares of our common stock. We believe that the acquisition will allow us to expand our audience demographic into the potentially lucrative teen and young adult marketplaces, provide additional content on the Kartoon Channel! and provide additional brands to be licensed for consumer products and our global distribution sales networks. Strategy Our over-arching strategic goal is to be a leading global producer and distributor of kids’ media. To achieve that goal, we are developing, producing, marketing and licensing new branded children’s entertainment properties. The criteria for moving forward on a new project include positive social messaging and fun and unique storytelling. We have invested heavily into our wholly owned worldwide distribution system and our content is available to kids and families on a multitude of platforms and devices. We also have a licensing team to develop and sell consumer products based on the brands we manage. Our Products Original Content We own and produce original content that is meant to entertain and enrich toddlers to tweens as well as families. It is generally a three-year cycle from the inception of an idea, through production of the content and development and distribution of a range of consumer products to retail, creating an inevitable lag time between the creation of the intellectual property to the realization of economic benefit of those assets. Our goal is to maintain a robust and diverse portfolio of brands, appealing to various interests and ages, featuring evergreen topics with global appeal. Our portfolio of intellectual property can be licensed, re-licensed, and potentially exploited for years to come, with revenue derived from multiple sources and territories. Our portfolio of original content includes: Content in Production Shaq’s Garage: Shaq’s Garage , starring and co-produced by NBA legend, Shaquille O’Neal, is a children’s animated series about the secret adventures of Shaquille’s extraordinary collection of cars, trucks, and other unique vehicles—the Shaq Pack. Shaq’s Garage is expected to be launched on the Kartoon Channel! during the fourth quarter of 2022. Rainbow Rangers Season 3 : From Shane Morris, the writer of Frozen , and Rob Minkoff, the director of The Lion King , Rainbow Rangers is an animated series about the adventures of seven magical girls from Kaleidoscopia, a fantastic land on the other side of the rainbow. The Rangers serve as Earth’s guardians and first-responders. Season 3 will be launched on the Kartoon Channel! on April 15, 2022. We are also currently negotiating broadcast agreements in several additional territories. 2 Already Released Content Superhero Kindergarten: In conjunction with Stan Lee’s POW! Entertainment and Arnold Schwarzenegger’s Oak Productions, we developed an animated pre-school series with the current title of “ Stan Lee’s Superhero Kindergarten .” Stan Lee’s Superhero Kindergarten tells the story of a classroom, led by a former superhero/teacher voiced by Mr. Schwarzenegger, filled with kids with superpowers and how they learn to use those powers to fight against the forces of evil while still dealing with all of the issues that come from being six years old. Superhero Kindergarten premiered on the Kartoon Channel! during the second quarter of 2021. KC! Pop Quiz: KC! Pop Quiz is a quiz show for kids that is distributed by the Kartoon Channel! . The show’s mission is to entertain, inspire, and educate. It features social media influencers as hosts and real kids who win real prizes. Having a “game show” format, it premiered on the Kartoon Channel! during the third quarter of 2021. Rainbow Rangers Seasons 1 & 2 : From Shane Morris, the writer of Frozen , and Rob Minkoff, the director of The Lion King , Rainbow Rangers is an animated series about the adventures of seven magical girls from Kaleidoscopia, a fantastic land on the other side of the rainbow. The Rangers serve as Earth’s guardians and first-responders. Viacom’s Nick Jr. licensed the series for broadcast in the U.S. Nick Jr. ordered a second season of Rainbow Rangers and we have delivered 26 half hour episodes and the series premiered on Nick Jr. in November 2018. We are also currently negotiating broadcast agreements in several additional territories. Llama Llama : We completed production of fifteen half-hour animated episodes in 2017, which premiered on Netflix in early 2018. Llama Llama’s creators include Oscar-winning director Rob Minkoff, director Saul Blinkoff ( Doc McStuffins ), showrunner Joe Purdy, art director Ruben Aquino ( Frozen ) and Emmy-winning producers Jane Startz and Andy Heyward. Based on the NY Times best-selling children’s books of the same name, the animated series centers on young Llama Llama’s first steps in growing up and facing childhood milestones. Each episode is structured around a childhood milestone and a life lesson learned by Llama Llama and his friends, told with a sense of humor, vitality, and understanding. In 2019, we completed production of an additional ten half-hour animated episodes which were delivered to Netflix in September 2019. SpacePop : SpacePop is a music and fashion driven animated property that has garnered over 17 million views and over 63,000 subscribers since its launch in May 2016 on YouTube. With 108 three-minute webisodes produced, SpacePop had a best-in-class production team which included Steve Banks (head writer and story editor of Sponge Bob Square Pants ) as content writer; Han Lee ( Pink Fizz, Bobby Jack ) for original character designs; multiple Grammy Award-winning producer and music veteran Ron Fair (Fergie, Mary J. Blige, Black Eyed Peas, Pussycat Dolls, Christina Aguilera and more), singer-songwriter Stefanie Fair (founding member of RCA’s girl group Wild Orchid with Fergie) for the original SpacePop theme music; and veteran music producer and composer John Loeffler ( Kidz Bop, Pokemon ) for original songs. SpacePop products range from apparel and accessories, to beauty, cosmetics, candy, books and music. Thomas Edison’s Secret Lab : Thomas Edison’s Secret Lab is a STEM-based comedy adventure series by Emmy-nominated writer Steve Banks, multi-Emmy Award-winning writer Jeffrey Scott ( Dragon Tales ), and Emmy Award-winning producer Mark Young ( All Dogs Go To Heaven 2 ). The series includes 52 eleven-minute episodes as well as 52 ninety-second original music videos produced by Grammy Award-winning producer Ron Fair and premiered on public television in April 2015. The animated series follows the adventures of Angie, a 12-year-old prodigy who, along with her young science club, discovers Thomas Edison’s secret lab. Warren Buffett’s Secret Millionaire’s Club : With 26 thirty-minute episodes and 26 four-minute webisodes, which premiered on public television in October 2011, this animated series features Warren Buffett who acts as a mentor to a group of entrepreneurial kids who have international adventures that lead them to encounter neighborhood and community problems to solve. Warren Buffett’s Secret Millionaire’s Club empowers kids by helping them learn about the business of life and the importance of developing healthy life habits at an early age. All of our released content can be streamed on our Kartoon Channel! platform. 3 Licensed Content In addition to the wholly owned or partially-owned properties listed above, we represent Llama Llama in the licensing and merchandising space. Kartoon Channel! Network In June 2020, we launched the Kartoon Channel! , a digital family entertainment destination that delivers enduring childhood moments of humor, adventure, and discovery and is available across multiple AVOD and over-the-top platforms, including Comcast, Cox, DISH, Sling TV, Amazon Prime, Amazon Fire, Apple TV, Apple iOS, Android TV, Android Mobile, Google Play, Xumo, Roku, Tubi, and streaming via KartoonChannel.com, as well as accessible via Samsung Smart TVs and LG TVs. The Kartoon Channel!, is available in over 170 million U.S. television households and on over 300 million devices, delivering numerous episodes of carefully curated free family-friendly content. The channel features animated classics for little kids, including “ The Wubbulous World of Dr. Seuss,” “Babar,” “Mello Dees,” “Super Simple Songs,” and “Baby Genius,” and content for bigger kids, such as “Pac-Man,” “Angry Birds,” “Yu-Gi-Oh,” and “ Bakugan, ” to original programming like “Stan Lee’s Superhero Kindergarten, ” starring Arnold Schwarzenegger. The Kartoon Channel! also offers STEM-based content through its Kartoon Classroom!, including “ Baby Einstein,” “Lil Doc,” “Counting with Earl,” and more. Distribution Content Today’s global marketplace and the manner in which content is consumed has evolved to a point where we believe there is only one viable strategy, ubiquity. Kids today expect to be able to watch what they want whenever they want and wherever they want. As such, content creators now must offer direct access on multiple fronts. This includes not only linear broadcast in key territories around the world but also across a multitude of digital platforms. We have strong relationships with and actively solicit placement for our content with major linear broadcasters, as well as on the digital side with Netflix, Comcast’s Xfinity platform, AppleTV, Roku, Samsung TV, Amazon Fire, Amazon Prime, Netflix, YouTube, Cox, Dish, Sling, Zumo and Connected TV. We replicate this model of ubiquity around the world defining content distribution strategies by market that blends the best of linear, video on demand (“VOD”), and digital distribution. Finally, we expanded our long-term strategic partnership with Sony Pictures Home Entertainment from domestic to global in January 2017. On August 31, 2018, Sony Pictures Home Entertainment assigned all of its rights and interest in our programs to Alliance Entertainment, LLC. Consumer Products A source of our revenue is our licensing and merchandising activities from our underlying intellectual property content. We work directly in licensing properties to a variety of manufacturers and occasionally to retailers. We currently have, across all brands, in excess of 50 licensees and hundreds of licensed products either in development, in market or scheduled to enter the market. Products bearing our trademarks can be found in a wide variety of retail distribution outlets reaching consumers in retailers such as Wal-Mart, Target, Barnes & Noble, Kohl’s, Amazon.com and many more. License agreements that we enter into often include financial guarantees and commitments from the manufacturers guaranteeing a minimum stream of revenue for us. As licensed merchandise is sold at retail, these advances and/or minimum guarantees can earn out, at which point we could earn additional revenue. 4 Marketing Our marketing mission is to generate awareness and consumer interest in the brands of Genius via a 360-degree approach to reach audiences through all touchpoints. Successful marketing campaigns for our brands have not only included traditional marketing tactics but now also include utilizing social media influencers (individuals with a strong, existing social media presence who drive awareness of our brands to their followers), strategic social media marketing, and cross-promotional consumer product campaigns. We also deploy digital and print advertising to support the brands, as well as work with external media relations professionals to promote our efforts to both consumer and industry. We consistently initiate grass roots marketing campaigns and strategic partnerships with brands that align and offer value to us. Our Kartoon Channel! platform, which reaches over 170 million U.S. television households, provides reach for cross promotion of content and consumer products. Competition We compete against other creators of children’s content including Disney, Nickelodeon, PBS Kids, and Sesame Street, as well as other small and large creators. In the saturated children’s media space, we compete with these other creators for both content distribution across linear, VOD, and digital platforms, as well as retail shelf space for our licensed products. To compete effectively, we are focused on our strategic positioning of “content with a purpose,” which we believe is a point of differentiation embraced by the industry, as well as parents and educators. Additionally, the Kartoon Channel! enables us to increase the awareness of our brands through an owned platform. Customers and Licensees For the year ended December 31, 2021, one customer accounted for 14.6% of our revenue from the licensing of our products. For the year ended December 31, 2020, two customers accounted for 44% of our revenue from the delivery of Rainbow Rangers Season 2 to Nick Jr. and MTV Networks Latin America. As of December 31, 2021, we have partnered with over 50 consumer products licensees. As of the same date, we licensed our content to over 60 broadcasters in over 150 countries globally as well as a number of VOD and online platforms that have a global reach. This broad cross-section of customers includes companies such as Comcast, Netflix, Sony, YouTube, Mattel, Target, Penguin Publishing, Manhattan Toys, Roku, Apple TV, Amazon, Google, Bertelsmann Music Group, Discovery International, and others both domestically and internationally. Government Regulation The FCC requires broadcast networks to air a required number of hours of educational and informational content (E/I). We are subject to online distribution regulations, namely the FTC’s Children’s Online Privacy Protection Act (COPPA) which regulates the collection of information of children younger than 13 years old. We are currently subject to regulations applicable to businesses generally, including numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing, enforcement and advertising of credit accounts, and limitations on the maximum amount of finance charges that may be charged by a credit provider. Although credit to some of our customers is provided by third parties without recourse to us based upon a customer’s failure to pay, any restrictive change in the regulation of credit, including the imposition of, or changes in, interest rate ceilings, could adversely affect the cost or availability of credit to our customers and, consequently, our results of operations or financial condition. Licensed toy products are subject to regulation under the Consumer Product Safety Act and regulations issued thereunder. These laws authorize the Consumer Product Safety Commission (the “CPSC”) to protect the public from products which present a substantial risk of injury. The CPSC can require the manufacturer of defective products to repurchase or recall such products. The CPSC may also impose fines or penalties on manufacturers or retailers. Similar laws exist in some states and other countries in which we plan to market our products. Although we do not manufacture and may not directly distribute toy products, a recall of any of the products may adversely affect our business, financial condition, results of operations and prospects. 5 We also maintain websites which include our corporate website located at www.gnusbrands.com, as well as www.spacepopgirls.com, www.kidgeniustv.com, www.babygenius.com, www.smckids.com, www.slam7.com, www.edisonsecretlab.com and www.rainbowrangers.com. These websites are subject to laws and regulations directly applicable to internet communications and commerce, which is a currently developing area of the law. The United States has enacted internet laws related to children’s privacy, copyrights and taxation. However, laws governing the internet remain largely unsettled. The growth of the market for internet commerce may result in more stringent consumer protection laws, both in the United States and abroad, that place additional burdens on companies conducting business over the internet. We cannot predict with certainty what impact such laws will have on our business in the future. In order to comply with new or existing laws regulating internet commerce, we may need to modify the manner in which we conduct our website business, which may result in additional expense. Because our products are manufactured by third parties and licensees, we are not significantly impacted by federal, state and local environmental laws and do not have significant costs associated with compliance with such laws and regulations. Intellectual Property As of December 31, 2021, we own the following properties and related trademarks: “Rainbow Rangers” , “ SpacePop ”, “ Secret Millionaires Club”, “Thomas Edison’s Secret Lab” , “ Baby Genius ”, “ Kid Genius ”, “ Wee Worship ”, and “ Kaflooey ”, as well as several other names and trademarks on characters that had been developed for our content and brands. Additionally, we have the United States trademark and various international trademarks applications pending for Kartoon Channel!, Kartoon Channel! Jr., KC! Pop Quiz, Little Genius and Little Genius Jukebox . As of December 31, 2021, we hold 22 registered trademarks in multiple classes in the United States associated with the Genius brand. We also have a number of registered and pending trademarks in Europe, Australia, China, Japan and Mexico and other countries in which our products are sold. We also jointly hold 92 registered trademarks in multiple classes in multiple countries associated with our ownership interest in Stan Lee Universe, in addition to 6 pending trademarks. As of December 31, 2021, we also hold 146 motion pictures, 13 sound recordings, and two literary work copyrights related to our video, music and written work products. We have 50/50 ownership agreements with the following partners and their related brands: Martha Stewart’s “ Martha & Friends ”; and Gisele Bündchen’s “ Gisele & the Green Team ”. In addition to the wholly-owned or partially-owned properties listed above, we represent Llama Llama in the licensing and merchandising space. Environmental, Social and Governance Strategy We are attempting to shape culture, social attitudes and societal outcomes with our animated content and consumer products that touch the lives of young people and their families. As a global content company that reaches millions of people, we aim to be a positive force in the world. We are committed to advancing and strengthening our approach to environmental, social and governance (“ESG”) topics to help serve our partners, audiences, employees and shareholders — and to enhance our success as a business. We are committed to responsible, ethical and inclusionary business practices as outlined below: 6 Human Capital Management As of December 31, 2021, we employed 67 full-time employees and 16 independent contractors. We aim to build a culture that attracts and retains the best employees and a workplace where everyone feels welcome, safe and inspired. Our human capital management strategy is intended to address the following areas: A Culture of Diversity, Equity and Inclusion We seek to foster a culture of diversity, equity and inclusion through a range of partnerships, collaborations, programs and initiatives, some of which are described below. We strive to be an inclusionary workplace because we believe that it strengthens our business. · In 2021, we created the role of Chief Diversity Officer. That role is responsible for both helping meet our hiring goals and reviewing the content we create. · Our board of directors is diverse: 33.3% female and with representation from people of color and the LGBTQ community. · Our diverse workforce is approximately 58% female. Preventing Harassment and Discrimination We have enacted policies addressing harassment, discrimination and other behaviors that could create a hostile workplace, some of which are described below. · We make available to our employees, training on preventing sexual harassment, discrimination and retaliation. · We expect employees to report any violations of Company policies, including sexual harassment, they witness. Among other ways, employees can report incidents of harassment using our anonymous complaint and reporting hotline. Social Impact and Corporate Social Responsibility We believe that the content we produce, primarily directed at young people and their families, both reflects and influences how our young viewers perceive and understand important issues. We endeavor to earn our viewers’ trust through a variety of practices, and we are focused on using our platforms to create positive social impacts. By way of just a few examples: in our show Rainbow Rangers , a diverse cast of girls works to save animals and protect the environment, while demonstrating the power of teamwork; in our Llama Llama series, we teach kindness and inclusion, and feature a differently abled character, which we have been told is appreciated by moms and kids who deal with physical challenges. In the earliest days of the COVID-19 pandemic, we spread public service messages to keep our audiences safe and informed with animated shorts featuring the iconic voices from our series including Warren Buffett from The Secret Millionaires Club and Jennifer Garner, the voice of Mama Llama from the Llama Llama series. Our mission statement says it all: “Content with a Purpose.” Social justice, caring about the environment and modeling appropriate and inclusionary behavior for kids has been part of our company for many years and we are constantly seeking ways to improve on what we have already been doing. 7 Website Access to Our SEC Filings and Corporate Governance Documents On the Investors page on our website www.gnusbrands.com we post links to our filings with the SEC, our Corporate Code of Conduct and Whistleblower Policy, which applies to our Board of Directors, executives and all of our employees, our Company Bylaws, our Insider Trading Policy and the charters of the committees of our Board of Directors. Our filings with the SEC are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. You can also obtain copies of these documents by writing to us at: Genius Brands International, Inc., at 190 N. Canon Drive, 4 th Floor, Beverly Hills, California 90210, Attn: Corporate Secretary or by using the “Contact” page of our website www.gnusbrands.com/contact-us. All of these documents and filings are available free of charge. Generally, stockholders who have questions or concerns should contact our Investor Relations department at 212-564-4700. The contents of our website are not incorporated in, or otherwise to be regarded as part of, this Annual Report on Form 10-K.