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(&#8220;we&#8221;, &#8220;us&#8221;, &#8220;our&#8221; or the &#8220;Company&#8221;), formerly known as Pacific Entertainment Corporation, provides music-based products which we believe are entertaining, educational and beneficial to the well-being of infants and young children under our brands, including Baby Genius.&#160;&#160;We create, market and sell children&#8217;s DVDs, CD music and book products in the United States by distribution at wholesale to retail stores and outlets and direct to consumers through various &#8220;deal for a day&#8221; sites.&#160;&#160;We also license the use of our brands, both domestically and internationally, to others to manufacture, market and sell products based on our characters and brand, whereby we receive advances and royalties.</font> </div><br/><div style="LINE-HEIGHT: 1.25; TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Pacific Entertainment Corporation commenced operations in January 2006, assuming all of the rights and obligations of its Chief Executive Officer, Klaus Moeller, under an Asset Purchase Agreement between the Company and Genius Products, Inc., in which we obtained all rights, copyrights, and trademarks to the brands &#8220;Baby Genius,&#8221; &#8220;Little Genius,&#8221; &#8220;Kid Genius,&#8221; &#8220;123 Favorite Music&#8221; and &#8220;Wee Worship,&#8221; and all then existing productions under those titles.&#160;&#160;On October 17, 2011 and October 18, 2011, Genius Brands International, Inc., <font style="FONT-STYLE: italic; DISPLAY: inline">f/k/a</font> Pacific Entertainment Corporation (the &#8220;Company&#8221;), filed Articles of Merger with the Secretary of State of the State of Nevada and with the Secretary of State of the State of California, respectively. As previously described on the Company&#8217;s Schedule 14C Information Statement, filed with the Securities and Exchange Commission on September 21, 2011, by filing the Articles of Merger, the Company (i) changed its domicile to Nevada from California, and (ii) changed its name to Genius Brands International, Inc. from Pacific Entertainment Corporation (the &#8220;Reincorporation&#8221;).&#160;&#160;Pursuant to the Articles of Merger, Pacific Entertainment Corporation, a California corporation, merged into Genius Brands International, Inc., a Nevada corporation that, prior to the Reincorporation, was the wholly owned subsidiary of Pacific Entertainment Corporation. Genius Brands International, the Nevada corporation, is the surviving corporation.&#160;&#160;In connection with the Reincorporation, on October 12, 2011, the Company filed an Issuer Company-Related Action Notification Form with the Financial Industry Regulatory Authority (&#8220;FINRA&#8221;). Upon approval of the Reincorporation, FINRA will issue us a new ticker symbol for trading purposes.</font> </div><br/><div style="LINE-HEIGHT: 1.25; TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In August 2009, the Company launched a line of Baby Genius pre-school toys.&#160;&#160;The line of 24 Baby Genius toys, manufactured by toy manufacturer&#160;Battat Incorporated, included musical, activity, and role-play toys that incorporate the Baby Genius principle of music as a core learning tool to engage and encourage children to communicate, connect, discover, and use their imagination.&#160;&#160;The Company granted an exclusive license to Battat for the marketing and distribution of a line of toys based on the Baby Genius brand and characters in the United States and Canada, and non-exclusive rights of distribution in other parts of the world.&#160;&#160;This license was terminated according to the terms of the contract in December 2010 although we granted Battat the right to continue to distribute the existing line of toys through late Spring 2011.&#160;&#160;We received no royalty reporting from Battat subsequent to the three month period ended March 31, 2011 and anticipate no further royalty revenue from this license agreement.</font> </div><br/><div style="LINE-HEIGHT: 1.25; TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On January 11, 2011, the Company signed an agreement with Jakks Pacific&#8217;s Tollytots&#174; division for a new toy line. As a result of the five-year agreement, Tollytots&#174; immediately began development on a comprehensive line of musical and early learning toys, incorporating the music, characters and themes from the <font style="FONT-STYLE: italic; DISPLAY: inline">Baby Genius</font> series of videos and music CDs. 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TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Interim Consolidated Financial Statements</font> </div><br/><div style="LINE-HEIGHT: 1.25; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font id="TAB1" style="MARGIN-LEFT: 18pt"></font>The accompanying condensed consolidated financial statements of the Company have been prepared without audit.&#160;&#160;Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted.&#160;&#160;These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the periods presented.&#160;&#160;The results of operations for the three and nine month periods ended September 30, 2011, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2011.</font> </div><br/><div style="LINE-HEIGHT: 1.25; 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DISPLAY: inline">Revenue Recognition</font> &#8211; The Company recognizes revenue related to product sales when (i) the seller&#8217;s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by Revenue Recognition Topic 605 of the FASB Accounting Standards Codification.</font> </div><br/><div style="LINE-HEIGHT: 1.25; TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Revenues associated with the sale of branded CDs, DVDs and other products, are recorded when shipped to customers pursuant to approved customer purchase orders resulting in the transfer of title and risk of loss.&#160;&#160;Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date.</font> </div><br/><div style="LINE-HEIGHT: 1.25; 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