U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8 POS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GENIUS PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0852923
(State of Incorporation) (I.R.S. Employer ID No.)
11250 El Camino Real, Suite 100, San Diego, California 92130
(Address of Principal Executive Offices) (Zip Code)
Non-Qualified Stock Option Plan
(Full title of the Plan)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport Beach
California 92660
(Name and address of agent for service)
(949) 975-0544
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered Maximum Aggregate Registration
to be Offering Offering Fee
Registered Price Per Price
Share (1)
Common
Stock 5,000,000 $0.054 $2,700,000 $715.50
(1) The Offering Price is used solely for purposes of estimating
the registration fee pursuant to Rule 457(h) under the Securities
Act of 1933. The Offering Price per Share is established
pursuant to a Non-Qualified Stock Option Plan.
PROSPECTUS
1,000,000 SHARES (1)
COMMON STOCK, $0.001 PAR VALUE
GENIUS PRODUCTS, INC.
The following selling shareholders of Genius Products, Inc.,
a Nevada corporation, are hereby offering up to 1,000,000 shares
of its $0.001 par value common stock (resulting from the exercise
of options granted under the Non-Qualified Stock Option Plan of
the company) at the market price on a delayed basis under Rule
415 pursuant to the terms of this Prospectus: Klaus Moeller,
Dorian Lowell, Michael Meader, Larry Balaban, and Howard Balaban
(collectively, "Selling Shareholders"). Genius Products, Inc.
will receive from the proceeds an amount equal to the exercise
price payable in consideration of the exercise of the options.
The trading symbol of the company's common stock on the Over the
Counter Bulletin Board is "GNUS."
The shares offered hereby are highly speculative and involve a
high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 4).
These securities have not been approved or disapproved by the
U.S. Securities and Exchange Commission or any state securities
commission nor has the U.S. Securities and Exchange Commission or
any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
Information contained herein is subject to completion or
amendment. The registration statement relating to the securities
has been filed with the U.S. Securities and Exchange Commission.
The securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Dated: July 3, 2000
(1) Pursuant to SEC Rule 416, there will be a change in the
amount of securities being issued to prevent dilution resulting
from stock splits, stock dividends, or similar transaction.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus
("Prospectus"). Each prospective investor is urged to read this
Prospectus, and the attached Exhibits, in their entirety.
The Company.
The company was incorporated in the State of Nevada on
January 6, 1996, under the name Salutations, Inc. In September
1997, Salutations, Inc. acquired all of the outstanding shares of
a company called International Trade and Manufacturing
Corporation ("ITM"), a Nevada corporation founded in 1992 by
Klaus Moeller, the current Chairman and Chief Executive Officer,
and Gerald Edick. At the time of the acquisition, Salutations,
Inc. was a public company with shares quoted on the Over the
Counter ("OTC") Bulletin Board. Immediately after the
acquisition, Salutations, Inc. assumed all of the operations and
businesses of ITM and changed its name to International Trading
and Manufacturing Corporation ("ITMC"). In October 1999, the
name of the company was changed from International Trading and
Manufacturing Corporation to Genius Products, Inc., to reflect a
new business line.
The original business of ITM/ITMC involved the design,
development and distribution of semi-precious and precious
gemstone and costume jewelry. Since 1997, however, the jewelry
business has experienced increased competition, an erosion of
profit margins and a decline in sales. As a result, in September
1998, the company shifted its focus to potentially more
profitable lines of business involving the product line discussed
below.
The company is a producer, publisher and distributor of
classical, instrumental and vocal compact disks ("CDs"),
cassettes and videos for children under the BABY GENIUS brand
name, which sell at retail outlets nationwide, and at numerous e-
commerce retail web sites on the Internet. The company currently
produces 24 CD and cassette titles, and two video titles. The
trademark BABY GENIUS is registered, allowed or pending across a
wide range of baby and child product categories. The company
published the BABY GENIUS web site at WWW.BABYGENIUS.COM where
visitors can buy BABY GENIUS products and obtain free information
on pregnancy, childcare, parenting and other matters related to
child development. Visitors can also buy third party products and
services and become members of our BABY GENIUS CLUB.
The corporate mission of the company is to develop BABY
GENIUS, KID GENIUS (subject to trademark registration) and other
"GENIUS" names into premier brand names across a broad range of
baby and child product categories. The company plans to develop
and publish additional music and other educational and
entertaining CDs, cassettes and videos under the BABY GENIUS
name. The company also plans to publish CD-ROMs, DVDs and other
interactive media for babies and children under these brand
names. The company intends to develop its web site into a
premier parent partner/child-care site to provide content,
products and services on the three areas it believes to be of
greatest concern to parents: the health and well-being, education
and financial security of their children. The company's plans to
develop its Internet site include entering into strategic
partnerships with major corporations to provide content, goods,
and services, and to engage in cross-marketing programs with our
partners. The company intends to license the BABY GENIUS brand
name directly to licensees or through a master licensing agent to
manufacturers of top quality baby and child products.
The Offering.
Shares realized upon the exercise of certain options held by the
following individuals (granted through a company Non-Qualified
Stock Option Plan) will be offered under a shelf registration
under U.S. Securities and Exchange Commission ("SEC") Rule 415 at
the current market price: Klaus Moeller, Dorian Lowell, Michael
Meader, Larry Balaban, and Howard Balaban (collectively, "Selling
Shareholders"). If all the shares being offered to the public
under the current offering are sold, this will represent net
proceeds to the Selling Shareholders of $1,000,000 (based on the
closing market price of $1.00 on June 29, 2000), less the option
exercise price of $0.54 per share upon the exercise of the
options (for a balance of $460,000). If the Selling Shareholders
sell all 1,000,000 shares, this will result in proceeds to the
company of $540,000.
Liquidity of Investment.
Although the shares will be "free trading," there has been only a
limited public market for the shares. Therefore, an investor may
not be able to sell is shares when he or she wishes; therefore,
an investor may consider his or her investment to be long-term.
See "Risk Factors."
Risk Factors.
An investment in the company involves risks due in part to a
limited previous financial and operating history of company, as
well as competition in the industry in which the company
operates. Also, certain potential conflicts of interest arise
due to the relationship of the company to management and others.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE
AND INVOLVE A HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY
BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE,
CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS AMONG OTHER
THINGS, AS WELL AS ALL OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS.
(a) History of Losses; Accumulated Deficit; Working Capital
Deficiency.
The company has incurred losses of $2,079,398 and
2,140,599 for the fiscal years 1999 and 1998, respectively. The
likelihood of the success of the company must be considered in
the light of the problems, expenses, difficulties, complications,
and delays frequently encountered in connection with the
expansion of a business and the competitive environment in which
the company operates. Unanticipated delays, expenses and other
problems such as setbacks in product development, and market
acceptance are frequently encountered in connection with the
expansion of a business. As a result of the fixed nature of many
of the company's expenses, the company may be unable to adjust
spending in a timely manner to compensate for any unexpected
delays in the development and marketing of the company's products
or any capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on the company's
business, operations and financial condition.
Dependence On Short-Term Financing.
The company is dependent on obtaining short-term financing
to sustain operations. The company is currently operating at a
loss and has negative cash flow. The credit terms the company
extends to its customers are more favorable than those the
company has with its vendors and service providers, and the
company has insufficient cash balances to sustain losses.
Accordingly, the company has to finance its working capital
requirements by selling shares of the company's common stock for
cash or in consideration of services rendered.
In May 2000, the company completed a private placement of
shares under Regulation D of the 1933 Securities Act, as amended,
pursuant to which the company raised net proceeds of $715,000,
all of which was immediately spent on accounts payable and other
working capital requirements. The company has also retained an
investment bank to help it raise funds through private placements
of our common shares on a "best efforts" basis over the short and
medium term, as well as to provide investor relations services.
No assurance can be made that the investment bank will succeed in
raising any cash in a timely manner or at all. The retention is
on a non-exclusive basis and the company is actively seeking
funds from other sources. A further source of short-term
financing is the selling of the company's accounts receivable
(factoring) although the costs of such financing are expensive.
Failure to obtain financing will have a material adverse effect
on our business, operations and financial condition.
Dependence On Long-Term Financing.
The company's ability to implement its business plan and
grow the company is dependent on raising a significant amount of
capital. In March 2000, the company retained an investment bank
to help us raise up to $5 million through private placements of
our common shares on a "best efforts" basis. No assurance can be
made that the investment bank will succeed in raising all or any
of such amount. The retention is on a non-exclusive basis and
the company is actively seeking funds from other sources. If the
company is unable to raise capital, its ability to implement its
business plan and the growth of the company will be adversely
affected.
Need For Strong Brand Identity.
The company believes that its growth in sales and the
recognition of the BABY GENIUS brand name have been partly
attributable to Deidre Hall's participating in a successful
national media campaign and the endorsement of the BABY GENIUS
music titles by Ms. Hall, Minnesota Public Radio and Public Radio
Music Source. Ms. Hall's agreement expired in February 2000, and
while the company is negotiating its renewal, no assurance can be
made that it can be renewed on terms acceptable to the company,
or at all. The frequency or quality of this media exposure and
these endorsements may not continue. The company believes that
continuing to strengthen the BABY GENIUS brand name will be
critical to achieve widespread acceptance of its products.
Favorable public perception of the GENIUS-branded products will
depend largely on the company's ability to continue providing
users with high quality products and the success of its marketing
efforts. The company plans to increase its marketing
expenditures to create and maintain brand recognition. However,
brand promotion activities may not yield increased revenues and,
even if they do, any increased revenues may not offset the
expenses the company incurs in building its brand.
Dependence On New Products.
The company's future growth will be dependent on its ability
to identify and develop GENIUS-branded products which can be sold
at acceptable margins through wholesale and retail outlets, as
well as on the Internet, and on its ability to acquire the
necessary rights to market and distribute such products and to
enter into arrangements with third-party manufacturers and
distributors to produce and distribute such products. There can
be no assurance that the company will be successful in
identifying and developing quality products that may be
successfully marketed through these channels or in entering into
relationships with third-party manufacturers and distributors. A
failure to identify and develop new products would have a
detrimental impact on the company's future performance.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. Although seven of the company's
officers, directors, and key employees have an employment
agreement with the company, there can be no assurance that these
personnel will remain employed by the company after the
termination of such agreements. Should any of these individuals
cease to be affiliated with the company for any reason before
qualified replacements could be found, there could be material
adverse effects on the company's business and prospects. In
addition, management has no experience in managing companies in
the same business as the company.
In addition, all decisions with respect to the management of
the company will be made exclusively by the officers and
directors of the company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the company. The success of the company,
to a large extent, will depend on the quality of the directors
and officers of the company. Accordingly, no person should
invest in the shares unless he is willing to entrust all aspects
of the management of the company to the officers and directors.
Change Of Control Payments.
The company has entered into Change of Control Executive
Employment Agreements with seven of our executive officers and
key employees. These agreements provide that if any executive
officer or key employee is terminated after a change of control
of the company occurring on or before December 31, 2001, the
terminated officer or employee may receive, among other things, a
lump sum payment equal to ten times the highest annual
compensation paid by the company to that officer or employee in
the preceding three years. If a change of control of the company
occurs on or before December 31, 2001, and any executive officer
or key employee is terminated, the company may incur substantial
expenditures to satisfy the payments due under the Change of
Control Executive Employment Agreements. These expenditures
could adversely affect the company's financial results and
potentially discourage any hostile buyer from making an
unsolicited offer to purchase the company.
Limitations on Liability, and Indemnification, of Directors and
Officers.
The company's Articles of Incorporation include
provisions to eliminate, to the fullest extent permitted by the
Nevada Revised Statutes as in effect from time to time, the
personal liability of directors of the company for monetary
damages arising from a breach of their fiduciary duties as
directors. The Bylaws include provisions to the effect that the
company may, to the maximum extent permitted from time to time
under applicable law, indemnify any director, officer, or
employee to the extent that such indemnification and advancement
of expense is permitted under such law, as it may from time to
time be in effect. Any limitation on the liability of any
director, or indemnification of directors, officer, or employees,
could result in substantial expenditures being made by the
company in covering any liability of such persons or in
indemnifying them.
Potential Conflicts of Interest Involving Management.
Currently, the officers and directors of the company devote 100%
of their time to the business of the company. However, conflicts
of interest may arise in the area of corporate opportunities
which cannot be resolved through arm's length negotiations. All
of the potential conflicts of interest will be resolved only
through exercise by the directors of such judgment as is
consistent with their fiduciary duties to the company. It is the
intention of management, so as to minimize any potential
conflicts of interest, to present first to the Board of Directors
to the company, any proposed investments for its evaluation.
Dependence On Significant Spokesperson.
In 1999, Deidre Hall served as the celebrity spokesperson
for our products. The company believes its continued success can
be helped by its ability to renew Ms. Hall's agreement or attract
other celebrity spokespersons. Its agreement with Ms. Hall
expired in February 2000, and the company is currently
negotiating a multi-year renewal of the contract with Ms. Hall's
agent. While the company believes it will reach agreement with
Ms. Hall for a renewal of her service agreement, no assurance can
be made that the company will in fact reach agreement at all or
on terms as favorable as her previous engagement. Nor can there
be any assurance that the company will be able to recruit and
retain other celebrity spokespersons of comparable stature.
Industry Trends.
The company's recent growth in sales has been based in part
on both the evolution of consumer tastes and preferences towards
educational products for babies and children. The company
believes it is also based on recent publicity on the effect of
classical music on child development. There are differences of
opinion, however, in the scientific community regarding the
efficacy of classical music on child development. A change in
consumer tastes and preferences regarding our products may have
an adverse effect on our results of operations. There can be no
assurance that consumer tastes and preferences will continue to
favor our products and marketing segments.
Distribution Facilities.
The company has an informal sub-lease arrangement pursuant
to which the company rents a portion of a warehouse facility in
Atlantic, Iowa (for a monthly rent of $500) from which the
company distribute BABY GENIUS products to certain customers.
The warehouse sub-lessor has indicated to us that it may assign
its lease sometime in the next three months. If the head lease
is assigned, our sub-lease would terminate and the company would
either have to renegotiate a new lease with a new lessor, or find
alternative warehousing facilities. No assurance can be made
that in such circumstances that the company would be able to
renew or renegotiate our existing sub-lease, or enter into a new
lease at a new facility, on as favorable terms as the existing
sub-lease or at all. If the company are required to vacate our
warehouse facility without having established alternative
distribution arrangements, our distribution and sales operations
may be adversely affected.
Acceptance And Effectiveness Of Internet Electronic Commerce.
The company's success in establishing an e-commerce business
through its BABY GENIUS web site will be dependent on consumer
acceptance of e-retailing and an increase in the use of the
Internet for e-commerce. If the markets for e-commerce do not
develop or develop more slowly than the company expects, its e-
commerce business may be harmed. If Internet usage does not
grow, the company may not be able to increase revenues from
Internet advertising and sponsorships which also may harm both
our retail and e-commerce business. Internet use by consumers is
in an early stage of development, and market acceptance of the
Internet as a medium for content, advertising and e-commerce is
uncertain. A number of factors may inhibit the growth of
Internet usage, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and limited
availability of cost-effective, high-speed access. If these or
any other factors cause use of the Internet to slow or decline,
our results of operations could be adversely affected.
Competition In Internet Commerce.
Increased competition from e-commerce could result in
reduced margins or loss of market share, any of which could harm
both our retail and e-commerce businesses. Competition is likely
to increase significantly as new companies enter the market and
current competitors expand their services. Many of the company's
present and potential competitors are likely to enjoy substantial
competitive advantages, including larger numbers of users, more
fully-developed e-commerce opportunities, larger technical,
production and editorial staffs, and substantially greater
financial, marketing, technical and other resources. If the
company does not compete effectively or if it experiences any
pricing pressures, reduced margins or loss of market share
resulting from increased competition, the company's business
could be adversely affected.
Unreliability Of Internet Infrastructure.
If the Internet continues to experience increased numbers of
users, frequency of use or increased bandwidth requirements, the
Internet infrastructure may not be able to support these
increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face
additional outages and delays in the future. These outages and
delays could reduce the level of Internet usage and traffic on
the company website. In addition, the Internet could lose its
viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity.
If the Internet infrastructure is not adequately developed or
maintained, use of the company website may be reduced. Even if
the Internet infrastructure is adequately developed, and
maintained, the company may incur substantial expenditures in
order to adapt its services and products to changing Internet
technologies. Such additional expenses could severely harm the
company's financial results.
Transactional Security Concerns.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks.
Any breach in our security could cause interruptions in the
operation of our website and have an adverse effect on the
company's business.
Governmental Regulation Of The Internet.
There are currently few laws that specifically regulate
communications or commerce on the Internet. Laws and regulations
may be adopted in the future, however, that address issues
including user privacy, pricing, taxation and the characteristics
and quality of products and services sold over the Internet. An
increase in regulation or the application of existing laws to the
Internet could significantly increase our costs of operations and
harm the company's business.
Technological Change.
The market for CDs, cassettes and video technology is
subject to change. There can be no assurance that over time
these technologies will not be affected by competition from
another form of information storage and retrieval technology,
such as on-line information services. A further strong advance
in the technology surrounding cable and satellite that would give
consumers access to information and entertainment may limit the
expansion of the market for applications based on CDs, cassettes
and video. In addition, existing CD technology may also be
replaced by new CD technologies such as digital video disc
technology. The replacement of CD technology by another
information storage and retrieval technology, or the replacement
of existing CD technology by a new technology at a pace too rapid
for production adjustments, may also have a material adverse
effect on the company's business, financial condition and results
of operations.
Influence of External Factors on Prospects for Company.
The industry of the company in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the company will
result in commercially profitable business. The marketability of
its products will be affected by numerous factors beyond the
control of the company. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect companies' spending. Factors which leave less money in
the hands of potential customers of the company will likely have
an adverse effect on the company. The exact effect of these
factors cannot be accurately predicted, but the combination of
these factors may result in the company not receiving an adequate
return on invested capital.
Trademark Infringement Claims.
The company may be held liable for copyright or trademark
infringement if the content or packaging of its CDs, cassettes,
videos or other products infringes upon the copyrights or
trademarks of others. Such claims of infringement, if brought,
could materially adversely affect the company's business and
financial condition. In addition, it has come to the company's
attention that certain third parties may be infringing upon the
BABY GENIUS trademarks in certain product categories. The
company is consulting with its counsel and will defend as the
company deem necessary any such infringements. Defending its
intellectual property rights may be costly in terms of legal fees
and management time. Expenditure of significant legal fees could
have a material adverse effect on the company's financial
condition and no assurance can be made that the company would
prevail in any litigation defending our intellectual property
rights. Failure to take necessary defensive legal action for
lack of cash could result in compromising the company's rights to
its intellectual property, which would have a material adverse
effect on the company's business, its financial position and the
value of its intellectual property.
Costs Of Repurchasing Certain Shares.
During the period 1997 through 1999, the company issued
shares in Arizona, Pennsylvania and Washington, for which no
share registration filings were made under the securities laws of
those states and for which exemptions from registration appears
to be unavailable. In order to comply with the laws of those
states, the company will offer to repurchase all such shares from
investors who originally acquired them from the company, who were
residents in those states at the time of purchase, and who
continue to hold such shares at the time the offer is made. The
company will pay to each shareholder who accepts the offer, the
price per share they originally paid, plus interest, where
applicable, accrued from the date of initial purchase to the date
of repurchase.
The total number of shares subject to repurchase is 307,550,
and the potential cost to the company is $420,323, plus accrued
interest. The costs of repurchasing shares subject to the offer
would be paid out of company funds, but the company does not have
sufficient cash to repurchase all such shares, and even a low
number of repurchases would have a material adverse impact on the
company's operations and financial condition if the company is
unable to raise funds to pay for such costs. If the company are
unable to repurchase shares for lack of funds, the selling
shareholders may seek to exercise certain rights as creditors or
seek to enforce claims for breach of contract. In addition,
interest would continue to accrue on the outstanding amounts owed
to shareholders in Pennsylvania and Washington at annual rates of
6% and 8%, respectively. If, at the time a repurchase offer is
made, the market price of the company's shares is higher than the
repurchase price, the company does not believe that all affected
shareholders would accept the repurchase offer. No assurance can
be made, however, that shareholders will decline any repurchase
offer, and the company may be obligated to repurchase all shares
subject to the offers.
Repurchase offers in Pennsylvania and Washington have to be
approved by the regulatory authorities of those states, and the
authorities in Washington will not approve our repurchase offers
until certain proceedings between the company and the state's
Department of Financial Institutions, Securities Division, have
been concluded. To date, approval to extend repurchase offers to
the affected shareholders in Washington is dependent on the
company providing certain additional information to the
Washington Securities Division, which is currently being prepared
by the company. Delays in obtaining regulatory approval would
also cause increases in the amount of interest payable pursuant
to repurchase offers. To date, the company has delayed making
redemption offers to all affected shareholders because the share
price of our stock has, on average, traded below the prices at
which such shareholders purchased the affected securities. The
company believes that given such price differences, affected
shareholders would be more likely than not to accept repurchase
offers. The company's current cash shortages preclude it from
honoring any acceptances. The company therefore believes it is
in the best interests of the company and the shareholders,
especially the affected shareholders, that the company first
raise sufficient capital to pay affected shareholders who may
accept repurchase offers, prior to making the repurchase offers.
Inability To Utilize Net Operating Loss.
In 1997, 1998, and 1999, the company incurred losses
resulting in a net operating loss carryforward as of December 31,
1999, of $4,310,317 and $2,155,159 for federal and state income
tax purposes, respectively. The federal and state net operating
losses begin to expire in 2012 and 2002, respectively. Because
the company anticipates significant expenditures with respect to
implementing its business plan, including its Internet e-commerce
business, there is a risk that the company will be unable to make
enough profits, if any, during the net operating loss
carryforward period to realize the deferred income tax asset.
No Cumulative Voting
Holders of the shares are not entitled to accumulate their votes
for the election of directors or otherwise. Accordingly, the
holders of a majority of the shares present at a meeting of
shareholders will be able to elect all of the directors of the
company, and the minority shareholders will not be able to elect
a representative to the company's board of directors.
Absence of Cash Dividends
The Board of Directors does not anticipate paying cash dividends
on the shares for the foreseeable future and intends to retain
any future earnings to finance the growth of the company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Limited Public Market for Company's Securities.
Prior to the Offering, there has been only a limited public
market for the shares of common stock being offered. There can
be no assurance that an active trading market will develop or
that purchasers of the shares will be able to resell their
securities at prices equal to or greater than the respective
initial public offering prices. The market price of the shares
may be affected significantly by factors such as announcements by
the company or its competitors, variations in the company's
results of operations, and market conditions in the retail,
electron commerce, and internet industries in general. The
market price may also be affected by movements in prices of stock
in general. As a result of these factors, purchasers of the
shares offered hereby may not be able to liquidate an investment
in the shares readily or at all.
No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
There has been only a limited public market for the
common stock of the company. The common stock of the company is
currently quoted on the Over the Counter Bulletin Board. As a
result, an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the market value of the
company's securities. In addition, the common stock is subject to
the low-priced security or so called "penny stock" rules that
impose additional sales practice requirements on broker-dealers
who sell such securities. The Securities Enforcement and Penny
Stock Reform Act of 1990 ("Reform Act") requires additional
disclosure in connection with any trades involving a stock
defined as a penny stock (generally, according to recent
regulations adopted by the U.S. Securities and Exchange
Commission, any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions), including
the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the
risks associated therewith. The regulations governing low-
priced or penny stocks sometimes limit the ability of broker-
dealers to sell the company's common stock and thus, ultimately,
the ability of the investors to sell their securities in the
secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association
of Securities Dealers, Inc. member broker/dealers as market
makers, the liquidity of the common stock could be impaired, not
only in the number of shares of common stock which could be
bought and sold, but also through possible delays in the timing
of transactions, and lower prices for the common stock than might
otherwise prevail. Furthermore, the lack of market makers could
result in persons being unable to buy or sell shares of the
common stock on any secondary market. There can be no assurance
the company will be able to maintain such market makers.
Shares Eligible For Future Sale
A number of the shares of common stock which are currently held,
directly or indirectly, by management have been issued in
reliance on the private placement exemption under the Securities
Act of 1933. Such shares will not be available for sale in the
open market without separate registration except in reliance upon
Rule 144 under the Act. In general, under Rule 144 a person (or
persons whose shares are aggregated) who has beneficially owned
shares acquired in a non-public transaction for at least on year,
including persons who may be deemed affiliates of the company (as
that term is defined under the Act) would be entitled to sell
within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of common
stock, or the average weekly reported trading volume during the
four calendar weeks preceding such sale, provided that certain
current public information is then available. If a substantial
number of the shares owned by these shareholders were sold
pursuant to Rule 144 or a registered offering, the market price
of the Common Stock could be adversely affected.
Forward-Looking Statements.
This Prospectus contains "forward looking statements" within the
meaning of Rule 175 of the Securities Act of 1933, as amended,
and Rule 3b-6 of the Securities Act of 1934, as amended,
including statements regarding, among other items, the company's
business strategies, continued growth in the company's markets,
projections, and anticipated trends in the company's business and
the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the company's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the company's control.
The company cautions that these statements are further qualified
by important factors that could cause actual results to differ
materially from those in the forward looking statements,
including, among others, the following: reduced or lack of
increase in demand for the company's products, competitive
pricing pressures, changes in the market price of ingredients
used in the company's products and the level of expenses incurred
in the company's operations. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire or prove to
be accurate. The company disclaims any intent or obligation to
update "forward looking statements."
Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant system failure which
could affect the company's ability to conduct normal business
operations. This creates potential risk for all companies, even
if their own computer systems are Year 2000 compliant. It is not
possible to be certain that all aspects of the Year 2000 issue
affecting the company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The company currently believes that its systems are Year 2000
compliant in all material respects. Although management is not
aware of any material operational issues or costs associated with
preparing its internal systems for the Year 2000, the company may
experience serious unanticipated negative consequences (such as
significant downtime for one or more of its suppliers) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of customers may be affected by Year 2000
issues. The company does not currently have any information
about the Year 2000 status of its potential material suppliers.
The company's Year 2000 plans are based on management's best
estimates.
USE OF PROCEEDS
The proceeds from the sale of the shares of the Selling
Shareholders, less the exercise price of the options under which
these share were issued, will be paid directly to these
individuals for their own personal use. The company will receive
the exercise price of the options from the proceeds of this
offering.
If the Selling Shareholders sell all 1,000,000 shares, this
will result in proceeds to the company of $540,000. The company
expects to use any proceeds it receives upon exercise of the
options held by the Selling Shareholders for working capital and
general corporate purposes.
DETERMINATION OF OFFERING PRICE
The offering price of the shares being offered hereby is to
be determined based on the market price of the shares of common
stock of the company on the Over the Counter Bulletin Board on
the date of sale thereof.
SELLING SECURITY HOLDERS
The Selling Shareholders, all of whom are officers and directors
of the company, will be offering their shares of common stock in
this offering realized upon the exercise of certain options held
by these individuals (obtained through a company Non-Qualified
Stock Option Plan):
Name and Amount of Amount Offered Amount of Percentage
Position of Securities for the selling Securities of
Selling Owned Prior Shareholder's Owned After Ownership
Shareholders to Current Account(2) Current After
Offering(1) Offering Current
Offering(3)
Klaus
Moeller,
Chief
Executive
Officer/
Chairman of
the Board 2,490,000 200,000 2,290,000 17.48%
Dorian
Lowell,
President 1,655,700 200,000 1,455,700 11.11%
Michael
Mader,
Executive
Vice
President 2,000,000 200,000 1,800,000 13.74%
Larry
Balaban,
Senior Vice
President 900,000 200,000 700,000 5.34%
Howard
Balaban,
Senior Vice
President 900,000 200,000 700,000 5.34%
(1) For each person, the total amount includes (as an update to the
ownership figures contained in the most recent 10-KSB filing of
the company), options granted under the Non-Qualified Stock
Option Plan on May 25, 2000 to purchase 350,000 options of common
stock at $0.54 per share (exercisable from May 25, 2000 to May
25, 2003).
(2) The shares to be sold by each Selling Shareholder consist of the
exercise of a portion of the 350,000 options granted, as
discussed in footnote (1) above.
(3) Based on the total issued and outstanding as of June 15, 2000 of
13,100,749.
PLAN OF DISTRIBUTION
Shares realized upon the exercise of certain options held by the
following individuals (granted through a company Non-Qualified
Stock Option Plan) will be offered under a shelf registration
under U.S. Securities and Exchange Commission ("SEC") Rule 415 at
the current market price: Klaus Moeller, Dorian Lowell, Michael
Meader, Larry Balaban, and Howard Balaban (collectively, "Selling
Shareholders"). If all the shares being offered to the public
under the current offering are sold, this will represent net
proceeds to the Selling Shareholders of $1,000,000 (based on the
closing market price of $1.00 on June 29, 2000), less the option
exercise price of $0.54 per share upon the exercise of the
options (for a balance of $460,000). If the Selling Shareholders
sell all 1,000,000 shares, this will result in proceeds to the
company of $540,000.
The company will make available to any investor, prior to any
issue of the resale of the shares, the opportunity to ask
questions and receive answers from the company concerning any
aspect of the investment and to obtain any additional information
contained in this Prospectus, to the extent that the company
possesses such information or can acquire it without unreasonable
effort or expense.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis,
will receive a direct or indirect interest in the small business
issuer, or was a promoter, underwriter, voting trustee, director,
officer, or employee of the small business issuer.
MATERIAL CHANGES
There have been no material changes in the company's affairs
which have occurred since the end of the latest fiscal year for
which certified financial statements were included in the latest
annual report to security holders and which have not been
described in a report on a Form 10-QSB or Form 8-K filed under
the Securities Exchange Act of 1934.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
(a) The documents listed in (1) and (2) below are specifically
incorporated by reference into this Prospectus:
1. The company's latest annual report on Form 10-KSB filed
pursuant to Section 13(a) of the Exchange Act which contains
financial statements for the company's latest fiscal year for
which a Form 10-KSB was required to have been filed; and
2. All other reports filed pursuant to Section 13(a) of the
Exchange Act since the end of the fiscal year covered by the
annual report referred to in (1) above; and
3. Since the common stock of the company is registered under
Section 12 of the Exchange Act, the description of such class of
securities which is contained in the Form 10-SB registration
statement of the company filed under the Exchange Act, including
any amendment or reports filed for the purpose of updating such
description.
(b) All documents subsequently filed by the company pursuant to
Sections 13(a), 13(c), or 14 of the Exchange Act, prior to the
termination of the offering are also incorporated by reference
into this Prospectus.
(c) Information:
1. The company will provide to each person, including any
beneficial owner, to whom a Prospectus is delivered, a copy of
any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the
prospectus;
2. The company will provide this information upon written or
oral request;
3. The company will provide this information at no cost to the
requester; and
4. The name, address, and telephone number to which the request
for this information must be made: Dorian Lowell, President,
11250 El Camino Real, Suite 100, San Diego, California 92130;
(858) 793-8840.
5. The company files annual, quarterly and special reports,
proxy statements and other information with the U.S. Securities
and Exchange Commission, Washington, D.C. 20549. The company has
also filed with the Commission this registration statement on
Form S-8 POS under the Securities Act of 1933 with respect to
the shares of common stock offered by this Prospectus. This
Prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules filed
with the registration statement. Certain items are omitted in
accordance with the rules and regulations of the Commission. For
further information with respect to the company and the common
stock offered by this prospectus, reference is made to the
registration statement and the exhibits and schedules filed with
the registration statement. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each
such statement being qualified in all respects by such reference.
A copy of the company's filings, including this
registration statement, and the exhibits and schedules filed with
it, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's
regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and
copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees
prescribed by the Commission. The public may obtain information
on the operation of the public reference room by calling the
Commission at 1 (800) SEC-0330. The Commission maintains a World
Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission, including the company. The
address of the site is http://www.sec.gov. The registration
statement, including all its exhibits and any amendments, has
been filed electronically with the Commission.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
No Personal Liability.
No director of the company will have personal liability to the
company or any of its stockholders for monetary damages for
breach of fiduciary duty as a director involving any act or
omission of any such director since provisions have been made in
the Articles of Incorporation limiting such liability. The
foregoing provisions shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of
loyalty to the company or its stockholders, (ii) for acts or
omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable
Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes or, (v) for any transaction from which the director
derived an improper personal benefit.
Indemnification.
The By-laws provide for indemnification of the directors,
officers, and employees of the company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the company. The Nevada
Revised Statutes provide further for permissive indemnification
of officers and directors and the company may provide
indemnification under such provisions.
A. NRS 78.7502 Discretionary And Mandatory
Indemnification Of Officers, Directors, Employees And Agents:
General Provisions.
1. A corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation, and that, with respect to any criminal action
or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper.
3. To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections 1 and 2, or in defense of any claim, issue or
matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense.
B. NRS 78.751 Authorization Required For Discretionary
Indemnification; Advancement Of Expenses; Limitation On
Indemnification And Advancement Of Expenses.
1. Any discretionary indemnification under NRS 78.7502
unless ordered by a court or advanced pursuant to subsection 2,
may be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a
quorum consisting of directors who were not parties to the
action, suit or proceeding;
(c) If a majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
2. The articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses
of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
3. The indemnification and advancement of expenses
authorized in NRS 78.7502 or ordered by a court pursuant to this
section:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to or for the
advancement of expenses made pursuant to subsection 2, may not be
made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law
and was material to the cause of action.
(b) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
C. NRS 78.752 Insurance And Other Financial Arrangements
Against Liability Of Directors, Officers, Employees And Agents.
1. A corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee
or agent, or arising out of his status as such, whether or not
the corporation has the authority to indemnify him against such
liability and expenses.
2. The other financial arrangements made by the
corporation pursuant to subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(d) The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
3. Any insurance or other financial arrangement made on
behalf of a person pursuant to this section may be provided by
the corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the
propriety of the terms and conditions of any insurance or other
financial arrangement made pursuant to this section and the
choice of the person to provide the insurance or other financial
arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director
approving it to personal liability for his action,
even if a director approving the insurance or other financial
arrangement is a beneficiary of the insurance or other financial
arrangement.
5. A corporation or its subsidiary which provides self-
insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of
Title 57 of NRS.
6. The company, with approval of the company's Board of
Directors, has obtained directors' and officers' liability.
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the U.S.
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8 and
has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorize, in the City
of San Diego, State of California, on June 30, 2000.
Genius Products, Inc.
By: /s/ Klaus Moeller
Klaus Moeller, Chief Executive Officer
