Genius Brands International Inc (GNUS)

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Stock Awards Pay Off Big for Bobby Kotick, Andy Heyward
https://labusinessjournal.com/news/2021/jun/07/stock-awards-pay-big-kotick-heyward/

Heyward: stocking up
In contrast to Activision’s gains, Genius Brands International had a lousy year in 2020.
The company, which produces video content and related merchandise for children and tweens, saw revenue fall 58% to $2.5 million.

Genius Brands also racked up a loss of $402 million, which was much larger than its 2019 loss of $11 million.

In its annual report, Genius Brands attributed the huge loss to the company’s issuance last year of $390 million in warrants and options to raise working capital for its various entertainment projects and to repurchase shares. The report said the company’s actual operating loss was roughly the same as in 2019.

“These losses, among other things, have had an adverse impact on our results of operations, our financial condition, stockholders’ equity, net current assets and working capital,” the company stated.

Despite this huge loss, Genius Brands’ share price surged 411% to $1.38 in 2020, though that was up from a penny stock level of 27 cents a share at the end of 2019.

In its annual report, Genius Brands notes that the stock has a limited public float and that trading volume is generally low and sporadic, setting the conditions for significant volatility in the share price. “The market price for our common stock may not necessarily be a reliable indicator of our fair market value,” the company said.

Heyward’s compensation package is tied to the company’s share price performance, which begins to explain the huge gulf between his 40-fold gain in compensation and the company’s large 2020 loss.

USC’s Murphy said that much of Heyward’s compensation gain is somewhat illusory. That’s because accounting rules require Genius Brands to state the fair market value of share awards, even before they vest.

Under terms of Heyward’s 2018 employment agreement with the board, on Dec. 7, 2020, he was awarded 7.5 million restricted stock units (equivalent to shares) that on that date had a market value of $10.4 million and 5 million options with a market value on that date of $5.75 million.

The combined equity awards were worth more than $16 million. The remaining $1.3 million of his $17.4 million in compensation came from his salary and bonus as well as nearly $500,000 in producer’s fees paid by third parties.

The annual report also notes that Heyward on Dec. 7 received another 7.5 million restricted stock units with a market value of $10.4 million. The company chose not to count this set of RSUs toward his 2020 compensation, although USC’s Murphy said he saw no reason why they shouldn’t have been counted.

In any event, Murphy said, the value of these shares is transitory.

“He got a big grant of equity that may or may not be worth a whole lot when the RSU shares vest,” Murphy said. “So, it’s a really big number, but next year, there’s a good chance that compensation might fall.”