The CEO of Genius Brands International (NASDAQ: $GNUS) sold 460,576 of his own shares totaling $1,354,088, on June 23 2020.
This news left investors nervous as to what caused CEO Andy Heyward to sell off such a large portion of his stock as this would typically be a sign of bad news to come.
In fact there is much more to the report than what is on the surface.
“It was wrongly reported that I sold shares in the company, which I did not do. In fact, it was a cashless exercise redeeming debt for equity. I should also point out that I have never sold a single share in the company, and I have no intention to do so.” – Andy Heyward CEO.
Heyward did not sell off his shares; he instead performed a debt/equity swap.
This is when a company essentially exchanges debt they owed to a second party for shares of their stock. Therefore the second party is repaid with equity of the company.
Genius Brands owed $13.75 million to exchangeable noteholders to be paid in 12 equal payments beginning September 2020.
Instead of beginning the payment cycle, they paid off their debt with shares of the company. This speaks for the confidence the noteholders have for Genius Brand’s future.
It is important to note that even with the companies recent insider trading, Andy Heyward still remains the highest shareholder of Genius Brands. This news should leave investors relieved as the CEO has so much skin in the game. The performance of his company directly affects his profits.
While debt/equity swaps are not always great news as in some cases they are performed because a company can not afford to pay off its debt.
In the case of Genius Brands, there is more to the debt/equity swap.
This exchange added 4 million dollars to their balance sheet totaling their net liquidity to 55 million.
It is also key to note that this transaction has left them debt-free. With many companies scrambling to sell exchangeable notes to raise cash flows, Genius Brands is sitting debt-free, planning their next moves for the future.
With the world economy’s current conditions, being debt-free is great news to investors as markets are about as unpredictable as they can be. Having no debt and high liquidity, Genius Brands is prepared to take on any possible future bumps in the road.
Before getting into the next steps of the company, it’s important to understand what Genius Brands exactly does. They were founded in 2006 – have been creating animated TV series since 2009 – and now an entertainment company that creates and licenses content for children and tweens.
Looking to the future, Genius Brands has made deals with notable individuals for their next endeavors. The name that had the public aroused was Arnold Schwarzenegger. He will be the lead actor in their new show: “Stan Lee’s Superhero Kindergarten”.
The trailer for the new series can be found here.
With one of the most well-known names in acting history and being inspired by the beloved Stan Lee, the show is guaranteed to be a hit. It will air on Amazon Prime Video as early as Spring 2020.
It is safe to say their newfound liquidity will be put towards the further production of this animated series along with any other future projects.
This series is part of the launch of Genius Brand’s “Kartoon Channel!” – a brand new channel as it was first launched on June 15, 2020.
So what should investors do with $GNUS moving forward?
This is a buy and hold play as the company will not generate significant profits until 2021.
Although the stock price will gradually begin to rise as investors anticipate the arrival of new projects and future profits.