Kartoon Studios, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2025

Note 1: Organization and Business

Organization and Nature of Business

Kartoon Studios, Inc. (formerly known as Genius Brands International, Inc.) (the “Company” or “we,” “us” or “our”) is a global content and brand management company that creates, produces, licenses, and broadcasts educational, multimedia animated content for children. Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television, and license properties for a broad range of consumer products based on the Company’s characters. The Company is a “work for hire” producer for many of the streaming outlets and animated content intellectual property (“IP”) holders. In the children’s media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment. With the exception of selected WOW Unlimited Media Inc. (“Wow”) titles, the Company’s programs, along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service, itsfree ad supported TV (“FAST”) channels and subscription video on demand (“SVOD”) outlets,Kartoon Channel! andAmeba TV,as well as linear streaming platforms. These streaming platforms include Comcast, Cox, DISH, Sling TV, Amazon Prime Video, Amazon Fire, Roku, Apple TV, Apple iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, YouTube, YouTube Kids, and Samsung and LG smart TVs. The Company's in-house owned and produced animated shows includeStan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger,Llama Llama starring Jennifer Garner,Rainbow Rangers, KC! Pop Quiz, andShaq’s Garage starring Shaquille O’Neal. The Company’s library titles include the award-winningBaby Genius, adventure comedyThomas Edison’s Secret Lab®, andWarren Buffett’s Secret Millionaires Club, created with and starring iconic investor Warren Buffett,Team Zenko Go!, Reboot,Bee & PuppyCat: Lazy in Space andCastlevania.

The Company also licenses its programs to other services worldwide, in addition to the operation of its own channels, including, but not limited to, Netflix, Paramount+, Max, Nickelodeon, and satellite, cable, and terrestrial broadcasters around the world.

Through our investments in Germany’s Your Family Entertainment AG (“YFE”), a publicly traded company on the Frankfurt Stock Exchange (RTV-Frankfurt), we have gained access to a leading producer and distributor of high-quality children’s and family programming. YFE owns and operates one of Europe’s largest channel-independent libraries of around 150 titles and 3,500 half-hour episodes.

Through the ownership of Wow, the Company established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and itsChannel Frederator Network, the largest animation focused creator network on YouTube with over 2,500 channels. Frederator also owns Frederator Studios, focused on developing and producing shorts and series for and with partners. Over the past 20 years, Frederator Studios has partnered with Cartoon Network, Nickelodeon, Nick Jr., Netflix, Sony Pictures Animation, and Amazon.

The Company has rights to certain select valuable IP, through our ownership of a controlling interest in Stan Lee Universe, LLC (“SLU”), an entity we control and through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”).

The Company also owns The Beacon Media Group, LLC (“Beacon Media”) and The Beacon Communications Group, Ltd. (“Beacon Communications”) (collectively, “Beacon”), a leading North American media and marketing agency, celebrated for its innovative, tailored strategies and unmatched expertise in reaching kids, parents, and families with precision and impact. Beacon represents over 20 kids and family clients, including Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, Cepia LLC, and Zebra Pens.

In addition, the Company owns the Canadian company Ameba Inc. (“Ameba”), which operates a premier subscription-based streaming service specializing in younger children's entertainment. As a cornerstone of our subscription offerings, Ameba delivers a vast library of engaging and educational content, accessible across multiple platforms. We believe, that Ameba significantly enhances our digital footprint and revenue streams.

The Company's common stock is listed on the NYSE American LLC (“NYSE American”) exchange, under the symbol “TOON”.

Recent Transactions

"Winnie-the-Pooh” Project Financing

On June 21, 2024, we announced the launch ofWinnie-the-Pooh on the Kartoon Channel through a $30.0 million joint venture (the “JV”) with Catalyst Venture Partners (“Catalyst”). The binding term sheet governing the project stipulates after Catalyst recoups its investment, the ownership and profit split between the partners is 35% to Kartoon Studios and 65% to Catalyst Venture Partners. In addition, Kartoon Studios is entitled to receive a 25% agency fee for licensing and distribution from gross proceeds, which is payable prior to the distribution of net proceeds. Under the terms, Kartoon Studios maintains operational control and oversees the production process.Winnie-the-Pooh is based on the designs and stories of one of the most successful and enduring brands of all time, A.A. Milne’sWinnie-the-Pooh. Catalyst has agreed to provide the full amount of the production financing with the plan to include an animated holiday movie, 5 holiday specials and 4 seasons of episodic series.

Liquidity

As of March 31, 2025, the Company had cash and restricted cash of $2.8 million, which decreased by $5.6 million as compared to December 31, 2024. The decrease was primarily due to cash used in financing activities of $2.6 million, cash used in operating activities of $1.8 million and cash used in investing activities of $1.2 million. The cash used in financing activities was primarily due to repayments of the production facilities and margin loan, net of proceeds from each, resulting in net cash used of $2.5 million, and payments of lease obligations of $0.1 million. The cash used in operating activities was primarily due to net loss of $6.6 million partially offset by net change in non-cash adjustments of $4.6 million, and net change in operating asset and liabilities of $0.2 million. The cash used in investing activities was due to purchase of marketable securities of $1.8 million.

As of March 31, 2025, the Company held available-for-sale marketable securities with a fair value of $3.2 million. An increase of $1.2 million as compared to December 31, 2024 was due to a purchase transaction during the three months ended March 31, 2025. The available-for-sale securities consist principally of corporate and government debt securities and are also available as a source of liquidity.

As of March 31, 2025 and December 31, 2024, the Company’s margin loan balance was $0.4 million and $0.9 million, respectively. During the three months ended March 31, 2025, the Company borrowed an additional $2.7 million from its investment margin account and repaid $3.2 million primarily with cash received from sales and maturities of marketable securities. The borrowed amounts were primarily used for operational costs. The interest rates for the borrowings fluctuate based on the Fed Funds Upper Target plus 0.60%. The weighted average interest rates were 0.32% and 0.46%, respectively, on average margin loan balances of $0.1 million and $1.0 million as of March 31, 2025 and December 31, 2024, respectively. The Company incurred interest expense on the loan of $1,806 and $18,632 during the three months ended March 31, 2025 and 2024, respectively. The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

Historically, the Company has incurred net losses. For the three months ended March 31, 2025 and 2024, the Company reported net losses of $6.6 million and $7.1 million, respectively. The Company reported net cash used in operating activities of $1.8 million, and cash used in operating activities of $3.8 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, the Company had an accumulated deficit of $745.8 million and total stockholders’ equity of $30.1 million. As of March 31, 2025, the Company had total current assets of $25.1 million, including cash of $2.3 million, restricted cash of $0.5 million, and marketable securities of $3.2 million, and total current liabilities of $26.8 million. The Company had negative working capital of $1.7 million as of March 31, 2025, compared to working capital of $1.2 million as of December 31, 2024. Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations and noted the Company has sufficient marketable securities and investments to fund operations for the next 12 months from the issuance date of this 10-Q.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim condensed consolidated financial statements of the Company have been prepared in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The accompanying combined interim financial statements are unaudited, but in the opinion of management, contain all adjustments (which include normal recurring adjustments) considered necessary to present fairly the interim financial statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the Company’s 2024 Annual Report.

The following is provided to update the Company’s significant accounting policies previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Reclassifications

The Company identified a disclosure error in the presentation of the Note 6Property and Equipment, net reported in the Form 10-K for the year ended December 31, 2024. While the balance sheet correctly reflected the net book value of property and equipment, the footnote disclosure overstated by $0.7 million both the gross asset cost and accumulated depreciation as of December 31, 2024. The disclosure error did not impact the total net carrying amount of property and equipment or the consolidated financial statements as a whole. The comparative balances as of December 31, 2024 in Note 6 have been revised to reflect the correct gross cost and accumulated depreciation amounts.

The outstanding warrant balance as of December 31, 2024, previously included 100,000 warrants that had been exercised in April 2024. This exercised amount was identified in the Q1 2025 review and the prior period balance has been corrected accordingly. The correction was not material to the financial statements, did not result in any adjusting entry, and had no impact on the Company’s results of operations or financial position.

Foreign Currency Forward Contracts

As of March 31, 2025 and December 31, 2024, the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement resulted in a net liability of $0.5 million and $0.6 million, respectively, recorded within Other Current Liabilities on the condensed consolidated balance sheets. For the three months ended March 31, 2025 and 2024, the Company recorded a realized loss of $139,424 and $15,507, respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements of operations.

Trade Accounts Receivable and Allowance for Credit Loss

As of March 31, 2025 and December 31, 2024, the Company recorded an allowance for credit loss of $0.2 million and $0.2 million, respectively.

The following table summarizes the activity in the allowance for credit losses related to trade accounts receivable as of March 31, 2025 and December 31, 2024 (in thousands):

Tax Credits Receivable

The Company classifies majority of its tax credits receivable as current based on their normal operating cycle. As of March 31, 2025, a portion of the Company’s tax credits receivable is presented as a long-term asset due to uncertainty regarding the timing of obtaining the necessary certifications required to process the tax credits. Management will continue to monitor the status of the outstanding items and reclassify the receivable to current when the timing of collection becomes reasonably estimable.

As of March 31, 2025 and December 31, 2024, $10.8 million and$12.7 million in tax credit receivables related to Wow’s film and television productions were recorded, net of $0.6 million and $0.6 million, respectively, recorded as an allowance for credit loss. As of March 31, 2025, $2.5 million in tax credits receivable net of $0.4 million allowance for credit loss was presented as non-current asset. As of December 31, 2024 $2.4 million in tax credits receivable net of $0.4 million allowance for credit loss was presented as non-current asset.

Concentration of Risk

The Company maintains its cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD 100,000. As of March 31, 2025 and December 31, 2024, the Company had ten and twelve bank deposit accounts with an aggregate uninsured balance of $0.8 million and $6.7 million, respectively.

The Company has a managed account with a financial institution. The managed account maintains its investments in marketable securities of approximately $3.2 million and $2.0 million as of March 31, 2025 and December 31, 2024, respectively. Assets in the managed account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash). In addition, the financial institution provides additional “excess of SIPC” coverage which insures up to $1.0 billion. As of March 31, 2025 and December 31, 2024, the Company did not have account balances held at this financial institution that exceed the insured balances.

The Company’s investment portfolio, consists of investment-grade securities and, although reduced in size compared to prior years, remains reasonably diversified among security types, industries and issuers. The Company’s policy limits the amount of credit exposure to any one security issue or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

During the three months ended March 31, 2025, the Company had four customers, whose total revenue exceeded 10% of the total condensed consolidated revenue. These customers accounted for 85.1% of the total revenue. During the three months ended March 31, 2024, the Company had two customers whose total revenue exceeded 10% of the total condensed consolidated revenue. These customers accounted for 61.7% of the total revenue.

As of March 31, 2025, the Company had three customers whose total accounts receivable exceeded 10% of the total accounts receivable. These customers accounted for 53.2% of the total accounts receivable as of March 31, 2025. As of December 31, 2024, the Company had three customers whose total accounts receivable exceeded 10% of the total accounts receivable. These customers accounted for 53.2% of the total accounts receivable as of December 31, 2024.

There is significant financial risk associated with a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated credit losses.

Fair Value of Financial Instruments

The following table summarizes the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2025 (in thousands):

The following table summarizes the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2024 (in thousands):

Fair values were determined for each individual security in the investment portfolio. The Company’s marketable securities are considered to be available-for-sale investments as defined under FASB ASC 320,Investments – Debt and Equity Securities. An allowance for credit loss was not recorded for the marketable securities as of March 31, 2025 and December 31, 2024. Refer to Note 5 for additional details.

New Accounting Standards Issued but Not Yet Adopted

In December 2023, the FASB issued ASU No. 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024. The Company is in the process of evaluating the impact that the adoption of this ASU will have to the consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

In March 2024, the FASB issued ASU 2024-01,Scope Application of Profits Interests and Similar Awards. The ASU is intended to help entities determine whether profits interest and similar awards are in the scope of ASC 718,Stock Compensation. The ASU solely focuses on scope and does not address guidance on recognition, classification, attribution, or measurement. For public business entities, it is effective for annual periods beginning after December 15, 2024 and interim periods within those annual periods. For all other entities, it is effective for annual periods beginning after December 15, 2025. Early adoption is permitted for both interim and annual financial statements. The amendments would be applied either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. The Company is in the process of evaluating the impact that the adoption of this ASU will have to the consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

In November, 2024 the FASB issued ASU 2024-03,Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expense. This update mandates that public companies provide more detailed information about specific expenses in their financial statement notes. The effective date for this guidance is annual reporting periods beginning after December 15, 2026, with interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is in the process of evaluating the impact that the adoption of this ASU will have to the consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

Note 3: Variable Interest Entity

In July 2020, the Company entered into a binding term sheet with POW! Entertainment, LLC. (“POW”) in which the Company agreed to form an entity with POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee. The entity is called “Stan Lee Universe, LLC” (“SLU”). POW and the Company executed an Operating Agreement for the joint venture, effective as of June 1, 2021. The purpose of the acquisition was to enable the Company to assume the worldwide rights, in perpetuity, to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations (the “Stan Lee Assets”), from which the Company plans to develop and license multiple properties each year.

During the three months ended March 31, 2025 and 2024, SLU generated an insignificant amount of net loss. There were no contributions or distributions during the three months ended March 31, 2025 and 2024 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

Note 4: Investment in Equity Interest

As of March 31, 2025, the Company owned 6,857,132 shares of YFE. At the time of the initial investment in 2021, it was determined that based on the Company’s 29% ownership in YFE, the Company had significant influence over the entity. Therefore, under the equity method of accounting, the Company elected to account for the investment at fair value under the fair value option. Under the fair value option, the investment is remeasured and recorded at fair value each reporting period, with the change recorded through earnings. As of March 31, 2025, the fair value of the investment was determined to be $13.4 million recorded within noncurrent assets on the Company’s consolidated balance sheet. The fair value as of March 31, 2025 decreased by net $3.0 million, as compared to December 31, 2024. The net decrease is comprised of the net impact of a decrease in YFE’s stock price, and the effect of foreign currency remeasurement from EURO to USD. The total change in fair value is recorded within Other Income (Expense), net on the Company’s consolidated statement of operations. As of March 31, 2025 and December 31, 2024, the Company’s ownership in YFE was 44.8%.

Note 5: Marketable Securities

The Company classifies its marketable debt securities as available-for-sale (“AFS”) and reports them at fair value in accordance with ASC Topic 326,Measurement of Credit Losses on Financial Instruments.

The investments in marketable securities had an adjusted cost basis of $3.3 million and a market value of $3.2 million as of March 31, 2025. The balances consisted of the following securities(in thousands):

The investments in marketable securities as of December 31, 2024 had an adjusted cost basis of $2.1 million and a market value of $2.0 million. The balances consisted of the following securities(in thousands):

The Company holds 7 AFS securities, 5 of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of March 31, 2025. The AFS securities held by the Company as of December 31, 2024 had also been in an unrealized loss position for a period greater than 12 months. The Company reported the net unrealized losses in accumulated other comprehensive income (loss), a component of stockholders’ equity. As of March 31, 2025 and December 31, 2024, an allowance for credit loss wasnot recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized gain of $4,454 and losses of $141,174 were recognized in earnings during the three months ended March 31, 2025 and 2024, respectively, primarily due to selling securities prior to maturity in Q1 2024 to prevent further market condition losses on the securities.

The contractual maturities of the Company’s marketable investments as of March 31, 2025 were as follows (in thousands):

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

Note 6: Property and Equipment, net

The Company has property and equipment as follows (in thousands):

During the three months ended March 31, 2025 and 2024, the Company recorded depreciation expense of $0.1 million.

During the three months ended March 31, 2025 and 2024, the Company didnot incur any impairment charges on its property and equipment.

Note 7: Leased Right-of-Use Assets, net

Leased right-of-use assets consisted of the following (in thousands):

As of March 31, 2025, the weighted-average lease term for the Company’s operating leases was 70 months and the weighted-average discount rate was 11.1%. As of December 31, 2024, the weighted-average lease term for operating leases was 73 months and the weighted-average discount rate was 11.1%.

Operating lease costs during the three months ended March 31, 2025 and 2024 were $0.4 million and $0.4 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statements of operations.

During the three months ended March 31, 2025, the Company recorded finance lease costs of $0.1 million primarily comprised of ROU amortization of $0.1 million. During the three months ended March 31, 2024, the Company recorded finance lease costs of $0.4 million primarily comprised of ROU amortization. ROU amortization is recorded within General and Administrative Expenses and accretion of interest expense is recorded within Other Expense, net on the Company’s condensed consolidated statements of operations.

Note 8: Film and Television Costs, net

The following table highlights the activity in Film and Television Costs as of March 31, 2025 and December 31, 2024 (in thousands):

During the three months ended March 31, 2025 and 2024, the Company recorded amortization expense of $0.1 million and $0.1 million, respectively. The Company didnot write-down or record any significant impairment charges on film costs during the three months ended March 31, 2025 and 2024.

Note 9: Intangible Assets, net

Intangible Assets, net

The Company had the following intangible assets(in thousands) with their weighted average remaining amortization period (in years):

Intangible Assets, net

During the three months ended March 31, 2025 and 2024, the Company recorded intangible asset amortization expense of $0.5 million and $0.5 million, respectively.

Expected future amortization of intangible assets subject to amortization as of March 31, 2025 is as follows (in thousands):

As of March 31, 2025, $5.3 million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives and are not subject to amortization.

Note 10: Deferred Revenue

As of March 31, 2025 and December 31, 2024, the Company had aggregate short term and long term deferred revenue of $9.5 million and $9.4 million, respectively. The increase in deferred revenue is insignificant and primarily related to productions on various shows nearing completion of the project as of March 31, 2025, similar to the progress as of December 31, 2024. Wow's deferred revenue balance relates to cash received from customers for productions in progress. Revenue is fully recognized upon production completion. Deferred revenue also includes both (i) variable fee contracts with licensees and customers in which the Company collected advances and minimum guarantees against future royalties and (ii) fixed fee contracts. The Company recognizes revenue related to these contracts when all revenue recognition criteria have been met.

Note 11: Margin Loan

As of March 31, 2025 and December 31, 2024, the Company’s margin loan balance was $0.4 million and $0.9 million, respectively. During the three months ended March 31, 2025, the Company borrowed an additional $2.7 million from its investment margin account and repaid $3.2 million primarily with cash received from sales and maturities of marketable securities. The borrowed amounts were primarily used for operational costs. The interest rates for the borrowings fluctuate based on the Fed Funds Upper Target plus 0.60%. The weighted average interest rates were 0.32% and 0.46%, respectively, on average margin loan balances of $0.1 million and $1.0 million as of March 31, 2025 and December 31, 2024, respectively. The Company incurred interest expense on the loan of $1,806 and $18,632 during the three months ended March 31, 2025 and 2024, respectively. The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

Note 12: Bank Indebtedness and Production Facilities

The Company has certain credit facilities that are comprised of the following:

Production Facilities, net

The production facilities are used for financing specific productions. The Company’s production facilities bear interest at rates ranging from bank prime plus 1.00% -1.25% per annum. The production facilities are generally repayable on demand. Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements as well as those of certain of our subsidiaries and related entities acting as guarantors of the production facilities.

As of March 31, 2025 and December 31, 2024, the Company had an outstanding net balance of USD 7.4 million (CAD 10.6 million), including USD 0.6 million (CAD 0.8 million) of interest, and USD 9.2 million (CAD 13.3 million), including USD 0.8 million (CAD 1.2 million) of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

As of March 31, 2025 and December 31, 2024, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production facilities of $127,040 and $122,973, respectively, which were included as a reduction to the carrying amount of production facilities.

Equipment Lease Facility

In the fourth quarter of 2022, the Company entered into an equipment lease agreement with a Canadian bank. This additional equipment lease facility allows the Company to finance equipment purchases of up to $1.0 million (CAD 1.4 million) in total. Each transaction under the equipment lease facility has specific financing terms in respect of the leased equipment such as term, finance amount, rate, and payment terms.

As of March 31, 2025, the Company has two leases remaining under this facility with finance rates of 7.52% and 8.20%, and remaining lease terms of 8 months and 17 months.

As of March 31, 2025 and December 31, 2024, the outstanding balances, net of repayments, of $0.2 million (CAD 0.3 million) and $0.3 million (CAD 0.4 million), respectively, were included within current and noncurrent Finance Lease Liabilities, net on the Company’s consolidated balance sheets.

Note 13: Stockholders’ Equity

Common Stock

As of March 31, 2025 and December 31, 2024 the total number of authorized shares of common stock was 190,000,000.

As of March 31, 2025 and December 31, 2024, there were 47,785,248 and 46,209,081 shares of common stock outstanding, respectively.

During the three months ended March 31, 2025 and 2024, the Company issued 14,990 and 53,497 shares of common stock for services, respectively.

During the three months ended March 31, 2025 and 2024, the Company issued 99,177 and 49,949 shares of common stock in connection with vested restricted stock units (RSUs), net of shares withheld for tax obligations, respectively.

On March 5, 2025, the Company issued 1,462,000 shares of common stock to investor Armistice Capital Master Fund Ltd. upon the exercise of outstanding pre-funded warrants. The warrants were exercised at a price of $0.001 per share, which represented par value, resulting in total proceeds of $1,462. The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001 per share including 9,944,000 shares of undesignated preferred stock,6,000 shares designated as 0% Series A Convertible Preferred Stock and 50,000 shares as Series C Preferred Stock. The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time-to-time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

As of March 31, 2025 and December 31, 2024, there were 0 shares of Series A Convertible Preferred Stock outstanding. As of March 31, 2025 and December 31, 2024, there were 0 shares of Series C Preferred Stock outstanding.

Treasury Stock

During the three months ended March 31, 2025,134 shares of common stock with a cost of $252 were withheld to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury Stock on the condensed consolidated balance sheet.

Note 14: Stock Options

On August 27, 2020, the Company’s stockholders approved the adoption of the Kartoon Studios, Inc. 2020 Equity Incentive Plan (as amended, the ”2020 Plan”). The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”). The maximum number of shares available for issuance was initially equal to the sum of (i) 3,000,000 shares of common stock and (ii) the number of shares of common stock remaining available for issuance under the 2015 Plan, which was then equal to 216,767 shares. On May 23, 2023, the Company’s stockholders approved the adoption of an Amended and Restated 2020 Equity Incentive Plan, which provided for the maximum number of shares of common stock available for issuance under the 2020 Plan to be increased by 5,000,000 shares. As of March 31, 2025 the maximum number of shares available for issuance was 8,216,767. The remaining 12,000 outstanding stock options granted under the 2015 Plan, as of March 31, 2025, remain to be governed under such plan. On May 14, 2025, the Company’s stockholders approved an amendment to the 2020 Plan. Refer to Note 22 Subsequent Events for additional details.

During the three months ended March 31, 2025 and 2024, the Company didnot grant any stock options.

The following table summarizes the Company’s option activity:

During the three months ended March 31, 2025 and 2024, the Company recognized $18,213 and $69,965, respectively, in share-based compensation expense related to stock options included in General and Administrative Expense on the Company’s condensed consolidated statements of operations. The unrecognized share-based compensation expense at March 31, 2025 was $20,156 which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited. The outstanding shares as of March 31, 2025 had an aggregated intrinsic value ofzero.

Note 15: Restricted Stock Units

Restricted stock units (“RSUs”) are granted under the Company’s 2020 Plan. During the three months ended March 31, 2025 and 2024, the Company granted 110,968 and 95,229 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $65,375 and $131,379, respectively.

An aggregate of 110,968 shares of common stock were issued during the three months ended March 31, 2025 as a result of RSUs vested during the current and prior periods.

The following table summarizes the Company’s RSU activity:

During the three months ended March 31, 2025 and 2024, the Company recognized $0.1 million and $0.2 million, respectively, in share-based compensation expense related to RSU awards included in General and Administrative Expense on the Company’s condensed consolidated statements of operations. The unvested share-based compensation as of March 31, 2025 was $17,545 which will be recognized through the fourth quarter of 2026 assuming the underlying grants are not cancelled or forfeited. The total fair value of shares vested during the three months ended March 31, 2025 was $0.1 million.

Note 16: Warrants

The following table summarizes the activity in the Company’s outstanding warrants during the three months ended March 31, 2025:

On March 13, 2025,89,286 derivative warrants classified as a liability as issued with convertible notes in 2020 to purchase shares of the Company’s common stock expired and were no longer outstanding as of March 31, 2025. In addition,18,000 warrants previously classified as equity expired during the three months ended March 31, 2025.

On March 5, 2025,1,462,000 of the pre-funded warrants were exercised at a price of $0.001 per share, which represented par value, resulting in total proceeds of $1,462. The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

As of March 31, 2025,7,894,736 Series A derivative warrants and 7,894,736 Series B derivative warrants, which were issued in connection with the public offering on December 18, 2024 and are classified as liabilities, remained outstanding. These warrants, which are exercisable for shares of the Company’s common stock, are remeasured at fair value at each reporting period. As of March 31, 2025, the warrants were revalued at approximately $5.0 million, resulting in a $0.4 million decrease in the liability as compared to December 31, 2024. The change in value was recorded as a Gain on Revaluation of Warrants within Other Income (Expense), net on the consolidated statements of operations and within the Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities on the consolidated statements of cash flows.

The fair value of the outstanding Series A derivative warrants was determined by using the Black-Scholes Merton option pricing model based on the following assumptions as of March 31, 2025:

The fair value of the outstanding Series A derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31, 2024:

The fair value of the outstanding Series B derivative warrants was determined by using the Black-Scholes Merton option pricing model based on the following assumptions as of March 31, 2025:

The fair value of the outstanding Series B derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31, 2024:

Note 17: Supplemental Financial Statement Information

Other Expense, net

Components of Other Expense, net, are summarized as follows (in thousands):

Note 18: Income Taxes

The Company accounts for income taxes in accordance with ASC 740,Income Taxes, which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.

ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the consolidated financial statements.

For the three months ended March 31, 2025, the effective tax rate was 0%. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, a foreign tax rate differential, and a change in valuation allowance. For the three months ended March 31, 2024, the effective tax rate was 0%. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, a foreign tax rate differential, and a change in valuation allowance.

During the three months ended March 31, 2025 the Company didnot record an income tax expense. As of March 31, 2025 and December 31, 2024, net deferred liability was $1.3 million and $1.3 million, respectively.

Kartoon Studios, Inc. and its wholly-owned U.S. subsidiaries are subject to U.S. income taxes and file a consolidated tax return in the U.S. The Beacon Communications Group, Ltd., Ameba Inc. and WOW Unlimited Media Inc. are subject to Canadian income taxes on a stand-alone basis and file separate tax returns in Canada.

The Company files income tax returns in the U.S. federal jurisdiction and in the states of California, Florida, Massachusetts, New Jersey, New York, as well as Canada. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward to make adjustments up to the amount of the net operating losses. The Company is currently subject to U.S. federal, state and local and foreign tax examinations by tax authorities. The Company is no longer subject to audits by U.S. federal, state, local or foreign authorities for years prior to 2020.

Kartoon Studios, Inc. and its wholly-owned U.S. subsidiaries are subject to U.S. income taxes and file a consolidated tax return in the U.S. The Beacon Communications Group, Ltd., Ameba Inc. and WOW Unlimited Media Inc. are subject to Canadian income taxes on a stand-alone basis and file separate tax returns in Canada.

Note 19: Commitments and Contingencies

The following is a schedule of future minimum cash contractual obligations as of March 31, 2025 (in thousands):

Leases

The present value discount of the minimum operating lease payments above was $2.2 million which when deducted from the cash commitments for the leases included in the table above, equates to the lease liabilities of $6.2 million recorded as of March 31, 2025 on the Company’s condensed consolidated balance sheet.

Employment contracts

The Company has entered into employment agreements with certain key executives, which remain in effect for fixed terms. Under these agreements, the executives receive a base salary, subject to potential reviews at the discretion of the Board of Directors. Some of these agreements also include provisions for severance benefits in certain circumstances. As a result, the Company's commitments under these agreements represent future salary or severance payments obligations.

Other Funding Commitments

The Company enters into various agreements associated with its individual properties. Some of these agreements call for the potential future payment of royalties or “profit” participations for either (i) the use of third party intellectual property, in which the Company is obligated to share net profits with the underlying rights holders on a certain basis as defined in the respective agreements, or (ii) services rendered by animation studios, post-production studios, writers, directors, musicians or other creative talent for which the Company is obligated to share with these service providers a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement.

In May 2024, the Company entered into a license agreement for the animated television seriesAndrew the Big BIG Unicorn, under which it committed to provide a non-refundable advance to one of the co-producers. As of March 31, 2025, approximately $0.5 million of the committed advance remains unpaid and is expected to be funded in 2025. The advance is recoupable from future distribution and licensing revenues generated within the Company’s licensed territories.

Note 20: Related Party Transactions

Pursuant to his employment agreement dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an executive producer fee of $12,500 per one-half hour episode for each episode he provides services as an executive producer*.*During the three months ended March 31, 2025 and 2024, Mr. Heyward didnot earn any executive producer fees. Mr. Heyward also earned his $55,000 quarterly bonus during the three months ended March 31, 2025 and 2024.

On August 25, 2022, Mr. Heyward’s employment agreement was amended to include assignment of music royalties to Mr. Heyward for all musical compositions in which he provides services as a composer for or on behalf of the Company, in the event that the Company acquires up to 50% of the writer's share of the royalties for that musical composition. If the Company acquires more than 50% of the writer's share of the royalties on musical compositions Mr. Heyward provided services for, he has the option to purchase the additional royalties from the Company at the price the Company paid to acquire the additional royalties. During the three months ended March 31, 2025 and 2024, Mr. Heyward hasnot earned royalties from musical compositions.

On February 27, 2023, Mr. Heyward’s employment agreement was further amended to provide him a creative producer fee of $100,000 per quarter, prorated for the three months ended March 31, 2024, for services rendered to Wow. During the three months ended March 31, 2025 and 2024, Mr. Heyward earned $100,000 in creative producer fees.

On July 21, 2020, the Company entered into a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward. The Company entered into a customary merchandise license agreement with AHAA for the use of characters and logos related to Warren Buffett’sSecret Millionaires Club andStan Lee’s Mighty 7 in connection with certain products to be sold by AHAA. The terms and conditions of such license are customary within the industry, and the Company earns an industry standard royalty on all sales made by AHAA utilizing the licensed content. During the three months ended March 31, 2025 and 2024, Mr. Heyward hasnot earned royalties from this agreement.

On July 19, 2022, the Company entered into a Shareholder Loan Agreement with YFE in the amount of EURO 1.3 million, accruing interest at the fixed annualized rate of 5%, with successive interest periods ofthree months due on the last day of each calendar quarter. The principal plus interest were to be repaid by no later than June 30, 2026. On April 27, 2025, the Company entered into a settlement agreement with YFE to resolve the outstanding Shareholder Loan Agreement. Pursuant to the settlement, the Company accepted a reduced repayment amount of $0.4 million, payable in two installments no later than June 2025, in full satisfaction of the loan balance. Although the settlement agreement became effective in April 2025, the Company recorded an adjustment to the balance of the loan and recognized a loss of approximately $0.9 million during the three months ended March 31, 2025, as the negotiations were at an advanced stage and the transaction was considered probable and reasonably estimable. As of March 31, 2025, $0.4 million is included within current assets on the Company’s condensed consolidated balance sheets.

During 2022, the Company entered into a sublease agreement with a related party to leaseone office in the general office space at 190 N. Canon Drive, Suite 400, Beverly Hills, CA 90210. The monthly income was $595 during the three months ended March 31, 2025 and 2024 and recorded within Other Expense, net in the Company's condensed consolidated statements of operations.

During the quarter ended September 30, 2024, the Company entered intoa one year consulting agreement with a related party for office space interior design services. The agreement was subject to an initial fee of $6,545 and a monthly fee of $595 that commenced on September 1, 2024. The monthly expense was $595 and $0 during the three months ended March 31, 2025 and 2024, respectively, and was recorded within General and Administrative expenses in the Company's condensed consolidated statements of operations.

Note 21: Segment Reporting

ASC Topic 280Segment Reporting establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker, or group, in deciding how to allocate resources and assess performance.

The Company’s chief operating decision maker (“CODM”) uses revenue and net income (loss) to evaluate the profitability and performance of each operating segment. The CODM does not evaluate the operating segments using asset information and it is therefore not disclosed. Segment operating expenses include operating expenses directly attributable to the segment as well as certain shared corporate administration services and other costs which are allocated to the reportable segments, such as legal expenses, human resources expenses, accounting expenses, insurance expenses, and corporate facilities expenses. Segment operating expenses exclude certain non-recurring items and other costs, such as interest expense, interest income, share-based compensation expense, and taxes. The Company’s CODM evaluates the performance of each reportable segment based on segment operating income (loss) because it provides insight to operational leverage and other operational metrics for each segment.

The Company has identified two operating segments based on the nature of the products and services offered:

Content Production and Distribution segment includes the operations of Kartoon Studios, Inc, Mainframe Studios, and Frederator Studios. These entities are aggregated due to their similar economic characteristics, nature of products and services, production processes, customer types, and distribution methods. This segment is focused on the creation, production, and distribution of animated and live-action content, as well as licensing and royalty revenue from intellectual property.

Media Advisory and Advertising Services segment includes The Beacon Media Group and The Beacon Communications Group. These entities provide media advisory and advertising services and marketing services.

The CEO (CODM) reviews revenue and net operating results, as allocated based on the nature of the business activity.

The following table presents the revenue and net earnings within the Company'stwo operating segments (in thousands):

Geographic Information

The following table provides information about disaggregated revenue by geographic area (in thousands):

Additional considerations include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator and Kartoon Studios at the entity level. The additional financial information prepared by the segment managers is discussed at length in meetings with the CODM. The Company determines that the revenue information reviewed by the CODM, combined with the financial information discussed with the segment managers is sufficiently detailed to allow the CODM to assess each component’s performance and make resource allocation decisions. Kartoon Studios, Frederator and Mainframe Studios are separate entities, although according to ASC 280-10-50-11 all criteria are met in order to present result in aggregation.

When evaluating the Company’s performance and making key decisions regarding resource allocation, the CODM reviews several metrics included in net income or loss, which also include the following:

All other segment items included in net income or loss are reported on the consolidated statements of operations and described within their respective disclosures.

Note 22: Subsequent Events

Subsequent to March 31, 2025, the Company sold marketable securities and received proceeds of $1.0 million. Additionally, the Company redeemed marketable securities and received proceeds of $0.3 million.

Subsequent to March 31, 2025, the fair value of the Company’s investment in YFE experienced a decline due to a decrease in YFE’s stock price. As of May 14, 2025, the share price of YFE was €1.19 compared to €1.81 as of March 31, 2025. The Company will continue to monitor the investment for any further developments and assess any potential accounting implications.

Effective April 1, 2025, the Company’s subsidiary, Beacon Communications, executed a rent reassignment agreement relinquishing one floor of its office space in Toronto to a new tenant who assumed the lease obligation for that floor, and completed the sale of related furniture assets.

On May 14, 2025, at the Company’s 2025 Annual Meeting of Stockholders (the “2025 Annual Meeting”), the Company’s stockholders approved an amendment to the 2020 Plan to increase the aggregate number of shares of the Company’s common stock available for awards under the 2020 Plan by 5,000,000 shares. The Company’s stockholders also approved the issuance of up to an aggregate of 17,447,366 shares of the Company’s Common Stock upon the exercise of the Series A Common Stock Purchase Warrants, Series B Common Stock Purchase Warrants, and the Placement Agent Common Stock Purchase Warrants issued in connection with the offering that closed on December 18, 2024.