What happened

Shares of Genius Brands International (GNUS -0.94%) are down more than 7% as of 12:28 p.m. EDT after falling almost 12% in mid-morning trading on August 19. Since peaking in early June, shares have fallen 83%. 

So what

Over the past few months, interest in Genius Brands has started to wane. In about a decade as a public company, the children's video content producer has had a few modest hits, including Llama Llama and Rainbow Rangers, but it has never made money or delivered meaningful gains for investors. 

Two hands, one with thumb up, one with thumb down.

Image source: Getty Images.

In short, today's sell-off is a continuation of traders losing interest in the company since the peak in mid-June, and likely the drag of millions of new shares being steadily sold into the market. Earlier this year, the company raised millions of dollars by selling warrants to investors that they can convert to common shares for $0.21 per share.

In early June -- one day after the all-time high, to be exact -- the company filed a disclosure with the Securities and Exchange Commission (SEC) that investors registered to sell 60.1 million shares of stock. Here's what has happened since:

GNUS Chart

GNUS data by YCharts

Genius Brands' stock price has fallen 83%, while the number of shares outstanding has surged more than 50%. The bottom line: As much as the share price has fallen, investors who paid $0.21 per share via those warrants are still earning nearly a 7-bagger on their investment at recent prices. 

Now what

Management continues to tout the company on the dubious prospects that it is primed to be the next Netflix. In the second quarter, the company launched Kartoon Channel!, a streaming service featuring the company's library of kids' shows. Genius Brands' CEO has touted Kartoon Channel! as "Netflix for kids with commercials" (which means it's not really Netflix), and investors rushed in to participate in the possibilities. 

Moreover, there are positives, including the prospects for the Stan Lee content the company is lined up to start producing, along with the addition of some serious talent to develop that content and manage Kartoon Channel!. Those warrants have also added a lot of cash to the balance sheet, giving the company a large margin of safety to develop and monetize its new content.

Here's the catch: Genius Brands, in nearly a decade as a public company, has never made money or generated positive operating cash flows in any year. Its entire existence has been funded by the issuance and sale of new shares every year or two to raise capital:

GNUS Cash and Equivalents (Quarterly) Chart

GNUS Cash and Equivalents (Quarterly) data by YCharts

The end result has been consistent destruction of shareholder value as the share count has increased immensely, while the business has just continued to burn cash. 

Will it be different this time? Maybe the company has finally hit on the right combination of content and distribution it can monetize. But the reality is we won't know before 2021, and history is decidedly not on the company's side based on its past returns. Moreover, this stock represents enormous risk for individual investors. A misconception is that its low per-share price makes it "cheap" along with a tiny market cap, while high interest makes it ripe for manipulation. Add it all together, and most investors should avoid Genius Brands.