Kartoon Studios, Inc.
For the period ended Dec 31, 2025. Filed Mar 31, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 31, 2026
TOON$0.50+2.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001683168-25-002049
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-31.
0001683168-26-002452
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 124 previous paragraphs and 114 current paragraphs.
41 unchanged; 34 reworded; 36 added; 46 removed; 3 previous and 3 current paragraphs rearranged.
Tables are not compared: 14 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (36)
Current report
We are a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children.
Current report
Animation Production Services:Our production services business is centered on delivering original and third-party commissioned animated content with a focus on production efficiency and scalability. Mainframe Studios, our primary production entity, is undertaking operational enhancements through the adoption of flexible production workflows, strategic outsourcing, and the integration of new technologies. These initiatives aim to optimize cost structures and streamline the production pipeline. To date, Mainframe has produced over 1,200 television episodes, 70 movies, and three feature films, including titles such asBarbie Dreamhouse Adventures,Octonauts: Above & Beyond,Cocomelon,SuperKitties, andUnicorn Academy, in partnership with leading global media companies.
Current report
Film and Television Licensing: We recognize revenue by licensing rights to exploit functional IP (IP that has significant standalone functionality, such as the ability to be played or aired). Our content distribution strategy is focused on scaling audience reach and monetization across a network of branded destinations, includingKartoon Channel!,Kartoon Channel! Worldwide, Frederator, and Ameba. We plan to grow revenue through expanded licensing activity and increased utilization of owned IP assets such as Rainbow Rangers, Stan Lee brands,Shaq’s Garage, and many more. To support margin expansion, we are actively implementing AI-driven tools designed to reduce operating costs in areas such as localization and video resolution enhancement.
Current report
Advertising Revenue:We receive advertising revenue through our wholly-owned VOD services,Kartoon Channel! and Ameba, and Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of Federator’s creator network,Channel Frederator Network. Additionally, advertising revenue is derived fromKartoon Channel! branded channels on Free Ad Supported Streaming TV services.
Current report
Merchandising and Licensing: The Company enters into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s symbolic IP (IP that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is derived from its association with the entity’s past or ongoing activities, such as a brand or logo). We believe the licensing and royalties business presents the most significant long-term growth opportunity. Strategic emphasis is being placed on the commercialization of the Stan Lee intellectual property portfolio and the launch of theHundred Acre Wood: Winnie & Friendsproperty, with a focus on both digital and physical consumer products, as well as location-based fan experiences. We intend to expand the use of our broader IP catalog in licensing programs beginning in 2026 and beyond.
Current report
Beacon, our specialized media and marketing agency, provides media advisory and advertising consulting services to clients. Revenue is recognized when the services are performed or are paid through a monthly retainer. Our media advisory and advertising operations are structured to generate recurring and diversified revenue through a combination of retainer-based engagements and commission-driven media planning and buying. This blended revenue model affords client flexibility and supports margin optimization through efficient resource utilization. Beacon has continued to invest in higher-value service offerings, including influencer-driven marketing programs, data-informed media planning, and customized campaign development. These capabilities have increased the scope and duration of client engagements and strengthened customer retention. As these services scale, we expect to benefit from operating leverage, as incremental revenue can be generated with comparatively limited increases in fixed costs. The group continues to build upon its established presence in the toy industry while expanding into adjacent sectors, including family entertainment and travel.
Current report
Recent Developments
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October Financing
Current report
On October 22, 2025, pursuant to the terms of the October 2025 Purchase Agreement, we closed a registered direct offering (the “Registered Direct Offering”) of 3,000,000 shares (the ”October 2025 Shares”) of our common stock, and pre-funded warrants (the “October 2025 Pre-Funded Warrants”) to purchase up to 6,903,049 shares of common stock to the October 2025 Investor. In a concurrent private placement (the “Concurrent Private Placement” and, together with the Registered Direct Offering, the “October Offerings”), pursuant to the October 2025 Purchase Agreement, we also sold to the October 2025 Investor unregistered warrants (the “October 2025 Common Warrants”) to purchase up to 9,903,049 shares of common stock (the “October 2025 Common Warrant Shares”), with an exercise price of $0.738 per share. Each October 2025 Share and privately placed October 2025 Common Warrant was sold at a combined public offering price of $0.738, and each October 2025 Pre-Funded Warrant and privately placed October 2025 Common Warrant was sold at a combined public offering price of $0.737, for aggregate gross proceeds at closing of approximately $7.3 million, prior to deducting placement agent fees and other offering expenses. In connection with the October Offerings, we paid to the placement agent a cash fee equal to 7% of the aggregate gross proceeds from the sale of the securities sold in this offering, plus $75,000 as a reimbursement of certain out-of-pocket expenses. The placement agent is also entitled to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common Warrants, if any. In addition, we issued warrants (the “Placement Agent Warrants”) to purchase 693,213 shares of common stock to the placement agent and its designees with an exercise price of $0.8118 per share.
Current report
Pursuant to the terms of the October 2025 Purchase Agreement, until January 31, 2026, we agreed that neither we nor any of our subsidiaries would issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents (as defined in the October 2025 Purchase Agreement) or file any registration statement or any amendment or supplement thereto, subject to certain limited exceptions, including (i) the prospectus supplement relating to the registered direct offering, and (ii) the Resale Registration Statement (as defined below). We further agreed, subject to limited exceptions, for a period from the date of the October 2025 Purchase Agreement until October 20, 2027, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents involving a Variable Rate Transaction (as defined in the October 2025 Purchase Agreement); provided however that commencing October 20, 2026, we are allowed to enter into, and issue shares pursuant to, an “at the market” offering.
Current report
Pursuant to the October 2025 Purchase Agreement, we agreed to file, as soon as practicable (and in any event within thirty (30) calendar days of the date of the October 2025 Purchase Agreement), a registration statement (the “Resale Registration Statement”) providing for the resale by the October 2025 Investor of the October 2025 Common Warrant Shares. We filed the Resale Registration Statement on November 19, 2025 and it was declared effective by the SEC on December 9, 2025. We agreed to use commercially reasonable efforts to keep the Resale Registration Statement effective at all times until the October 2025 Investor does not own any October 2025 Common Warrants or October 2025 Common Warrant Shares.
Current report
Section 3(a)(10) Accounts Payable Settlement
Current report
On August 27, 2025, we entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with Continuation Capital, Inc. (“CCI”) to settle $1.8 million of outstanding accounts payable, in exchange for issuing 3,148,535 shares of common stock. Under the terms of the agreement, CCI made payments to our vendors in cash and, in exchange, we issued shares of common stock to CCI. The settlement was valued at 1.75 share of common stock per $1.00 of accounts payable, pursuant to the terms of the agreement. The transaction was approved by a court after a public hearing on the fairness of the terms and conditions. The transaction was carried out in stages and as of December 31, 2025, we had completed the arrangement, settling a total of $1.8 million, and issued 3,148,535 shares of common stock. We recognized a loss of $0.7 million on the settlement, representing the difference between the carrying value of liabilities extinguished and the fair value of shares issued, included in Other Income (Expense), Net, on our consolidated statements of operations.
Current report
On November 18, 2025, we entered into a second agreement with CCI to settle an additional $1.0 million of accounts payable under Section 3(a)(10) of the Securities Act, in exchange for issuing 1,695,072 shares of common stock. The terms were consistent with the original arrangement. During the three months ended December 31, 2025 we settled $0.4 million of accounts payable by issuing 717,712 shares of common stock to CCI. We recognized a loss of $0.1 million on the settlement, representing the difference between the carrying value of liabilities extinguished and the fair value of shares issued, included in Other Income (Expense), Net, on the Company’s consolidated statements of operations.
Current report
Production Services
Current report
Licensing and Royalties
Current report
Media Advisory and Advertising Services
Current report
Marketing and Sales
Current report
The 45% decrease in marketing and sales expenses for the year ended December 31, 2025, as compared to the year ended December 31, 2024, was primarily due to changes in the Company’s corporate awareness initiatives, which resulted in reduced spending on advertising campaigns.
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Direct Operating Costs
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General and Administrative
Current report
The $1.2 million decrease in general and administrative expenses for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was driven by a decrease of $0.8 million in salaries and wages, a decrease of $0.5 million in depreciation expense which reflected completion of certain equipment lease terms, a decrease of $0.5 million in professional fees reflecting lower legal expenses including legal insurance reimbursements and reduced use of external consulting services, a decrease of $0.3 million in share-based compensation expense due to awards that were fully vested and recognized in the prior year, and a decrease of $0.2 million in rent expense due to currency translation of our foreign office rent expense and lease reassignment agreement. The decrease was partially offset by an increase of $0.8 million in certain expenses primarily related to higher development expenses, and an additional charge of $0.3 million in bad debt expense for accounts receivable deemed unrecoverable.
Current report
Impairment Charge
Current report
During the year ended December 31, 2025, we performed an impairment assessment of our intangible assets including our definite-lived intangible assets and our indefinite-lived intangible assets. Pursuant toASC 350-30, General Intangibles Other than Goodwill, we evaluate our intangible assets periodically to determine whether events or changes in circumstances indicate that their carrying values may not be recoverable. Based on this analysis, we recorded an impairment charge of $0.8 million, recognized as an impairment of intangible assets within operating expenses in the consolidated statement of operations. The impairment related to the Frederator and Wow Tradenames, which are indefinite-lived intangible assets, due to a reduction in the estimated present value of their expected future cash flows.
Current report
No impairment charges were recognized in the prior year ended December 31, 2024.
Current report
We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. To date, we have funded our operations from cash flows we have generated from our operations, proceeds from the sale of our securities and loans. For the years ended December 31, 2025 and December 31, 2024, we reported net losses of $24.7 million and $20.9 million, respectively. We reported net cash used in operating activities of $11.4 million, and cash used in operating activities of $3.5 million for the years ended December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $763.8 million and total stockholders’ equity of $27.5 million. As of December 31, 2025, we had total current assets of $35.8 million, including cash of $2.9 million, and marketable securities of $4.0 million, and total current liabilities of $33.5 million. We had working capital of $2.3 million as of December 31, 2025, compared to working capital of $1.2 million as of December 31, 2024.
Current report
Going Concern
Current report
Based on our current expected level of operating expenditures and the cash and cash equivalents on hand at December 31, 2025, management concluded that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements. Historically, we have financed our operations primarily through revenue generated from operations, loans and sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner going forward. During the year ended December 31, 2025, we were successful in raising net proceeds of $6.5 million in connection with the October Offerings, which closed on October 22, 2025, strengthening our cash position. Despite this, macroeconomic conditions continue to present challenges in the animation and advertising industries, primarily due to ongoing government tariffs and intensified competition. In order to address our capital needs, we intend to consider multiple alternatives, including, but not limited to, the sale of equity or debt securities, financing arrangements or entering into collaborative, strategic, and/or licensing transactions. Our ability to sell securities registered under our registration statement on Form S-3 is limited until such time that the market value of our voting securities held by non-affiliates is $75 million or more. In addition, the number of shares of common stock and securities convertible or exercisable for common stock that we can sell, under certain circumstances, will be limited by NYSE American rules and regulations. If we are able to raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing shareholders will be diluted. The issuance of debt can result in restrictive covenants that limit operations. Additionally, the October 2025 Purchase Agreement includes certain limitations on our ability to raise working capital through certain types of transactions for a period of time. There can be no assurance that we will be able to complete any such financing, collaborative or strategic transaction in a timely manner or on acceptable terms. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
Current report
The net cash used in investing activities decreased by $11.6 million, from cash provided by investing activities of $10.0 million in the year ended December 31, 2024, to cash used by investing activities of $1.6 million in the year ended December 31, 2025. The decrease was primarily due to investment of the portions of the financing proceeds from the October Offerings and prior year offering in the marketable securities totaling to $6.7 million and a decrease in proceeds received from the sales and maturities of marketable securities of $5.2 million during the year ended December 31, 2025, offset by an increase in proceeds received from the repayment of loan from related party of $0.3 million.
Current report
The increase in cash used in financing activities of $11.3 million was primarily due to an increase of $10.3 million in production facilities drawdowns, net of repayments and issuance costs, a decrease of $1.3 million in finance lease obligations due to concluding several lease commitments in prior year, proceeds of $0.8 million received from the partial disposal of our equity investment in YFE, and proceeds of $0.5 million related to the ERTC factoring transaction, offset by a reduction in cash of $1.0 million related to margin loan balance representing repayments net borrowings, and a decrease in cash proceeds received from financing transactions compared to prior year by $0.6 million.
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Critical Accounting Estimates
Current report
We continuously assess whether we are the primary beneficiary of a VIE as changes to existing relationships or future transactions may result in us consolidating its collaborators or partners. Our assessment is sensitive to changes in contractual arrangements such as decision-making authority or funding commitments. Changes in these factors could result in a different consolidation conclusion and materially affect our financial statements. We evaluated reconsideration events during the year ended December 31, 2025 and concluded there were no changes to our consolidation assessments.
Current report
During the year ended December 31, 2025, changes in the Company’s financial projections triggered a reassessment of both its definite- and indefinite-lived intangible assets for potential impairment. Based on this analysis, the Company recorded an impairment charge of $0.8 million, recognized as Impairment of Intangible Assets within Operating Expenses in the consolidated statement of operations. The impairment related to the Frederator and Wow Tradenames, which are indefinite-lived intangible assets, due to a reduction in the estimated present value of their expected future cash flows.
Current report
Revenue generated from content distribution and creator network is not significantly dependent on management estimates and assumptions, as revenue is recognized based on reports provided by customers and platform owners reflecting actual advertising impressions, views, and related metrics for the period. However, reported revenue is sensitive to changes in audience engagement, content performance, advertising demand, and third-party platform policies. While these factors may result in variability in revenue from period to period, such variability reflects changes in actual performance rather than changes in accounting assumptions or estimates. Revenue is also subject to uncertainty arising from reliance on third-party reporting and platform-specific monetization practices.
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Licensing and Royalties
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Media Advisory and Advertising Services
Removed paragraphs (46)
Previous report
Our production services business is focused on creating high-quality original and for hire content in the most efficient way possible. To achieve this, our Mainframe Studios division, the main driver of this business, is exploring more ways to improve operations by adopting a more flexible and efficient approach. This includes collaborating with outsource partners and utilizing AI technology to streamline processes and drive efficiencies within the organization. With over 1,200 episodes, 70 movies, and three feature films to its credit, the division has partnered with major industry players to produce acclaimed series such as “Barbie Dreamhouse Adventures,” “Octonauts: Above & Beyond,” and “Unicorn Academy.”
Previous report
Our content distribution business is focused on achieving scale across our networks, includingKartoon Channel!, Frederator, Ameba, andKartoon Channel! Worldwide. Revenue growth is expected to be driven by the continued focus on licensed content and exploitation of our current content such as Stan Lee, Shaq’s Garage, Rainbow Rangers and many more. Continued profit growth should be realized the more we can scale the business across our platforms. In addition, we have implemented and are continuing to look at artificial intelligence (“AI”) tools to reduce the cost of operating distribution expenses such as dubbing expenses, video resolution upscaling and converting between 2D and 3D.
Previous report
We believe that our licensing and royalties business has the most upside and potential for us of all our business lines. We are looking to take advantage of our incredible set of Stan Lee assets to drive consumer products - both digitally and physically. We plan to focus on utilizing all of our IP assets further in 2025 and beyond.
Previous report
Our media advisory and advertising services business is focused on driving deal flow opportunities and winning annuity business through retainers and projects. The team continues to focus on the toy business, but also expansion into tangential industries such as family and travel. The team has expanded their reach over the past 12-18 months by leveraging their relationships with influencers to promote products and provide bespoke marketing initiatives for the clients.
Previous report
On April 23, 2024, pursuant to the terms of a securities purchase agreement, dated April 18, 2024 (the “SPA”), we closed a registered direct offering of the sale of 3,900,000 shares of our common stock, par value $0.001 per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the "Investor"), at $1.00 per share of Common Stock and $0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $4,000,000, prior to deducting placement agent fees and other offering expenses. Additionally, in connection with the April 2024 Offering, the exercise price of certain warrants to purchase 4,784,909 shares of common stock, previously issued by us in June 2023, was reduced from $2.50 per share to $1.00 per share pursuant to anti-dilution provisions contained in such warrants.
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“Winnie-the-Pooh” Project Financing
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On June 21, 2024, we announced the launch of “Winnie-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 JV stipulates after Catalyst recoups its investment with 10% premium, the ownership and profit split between the partners is 60% to Kartoon Studios and 40% to Catalyst Venture Partners. “Winnie-the-Pooh” is based on the designs and stories of one of the most successful brands of all time, A.A. Milne’s “Winnie-the-Pooh,” a property that has generated over $80 billion in sales over the last four decades and is estimated to currently generate $3-$6 billion per year. 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.
Previous report
On December 18, 2024, we closed an offering (the “December 2024 Offering”) for aggregate gross proceeds of approximately $4,496,480 from one institutional investor and issued to such investor 4,375,000 shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736 shares of common stock, Series A common stock purchase warrants to purchase up to 7,894,736 shares of common stock, and Series B common stock purchase warrants to purchase up to 7,894,736 shares of common stock. Each share of common stock and each pre-funded warrant was issued together with one Series A warrant and one Series B warrant as part of an integrated offering. The purchase price per share of common stock, together with accompanying Series A and Series B warrants, was $0.57, while the purchase price per pre-funded warrant was $0.569. We incurred a placement agent fee of approximately $389,754 and issued warrants to purchase 1,657,895 shares of common stock to the placement agent with an exercise price of $0.71 per share. Following an analysis under applicable accounting guidance, we determined that the pre-funded warrants and placement agent warrants met the criteria for equity classification, while the Series A and Series B warrants required classification as liabilities due to settlement provisions requiring shareholder approval. The liability-classified warrants will be subsequently measured at fair value, with changes recognized in earnings. In accordance with applicable accounting standards, we allocated the total proceeds among the instruments issued, recognizing the warrants as a liability at their full fair value. As a result of this allocation, we recorded a non-cash loss of $1.0 million. Executing the transaction was driven by several strategic considerations. The capital injection strengthened our liquidity position, supporting project development and ongoing operations. Additionally, while the warrants resulted in a non-cash accounting loss due to their fair value measurement, they did not impact our cash flows. Furthermore, our management believes, that the offering was beneficial from a market visibility perspective.
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“Andrew The Big BIG Unicorn” Owned IP Project
Previous report
On August 28, 2024, Mainframe Studios, our affiliate, announced that it is co-producing Andrew the Big BIG Unicorn, an animated children’s series, in collaboration with Pirate Size Productions (Australia) and Infinite Studios (Singapore/Indonesia). The series (40 episodes, seven minutes each) is targeted at preschool audiences and follows the adventures of a young rhino living as a very big unicorn. The project is targeted for delivery in March 2026. The production is commissioned by ABC (Australia), CBC (Canada), and SRC (Canada), with Kartoon Studios retaining international distribution, licensing, and merchandising rights. The series will premiere on ABC Kids and ABC iview in Australia and on CBC Kids, Radio-Canada, CBC Gem, and ICI TOU.TV in Canada. The project reflects our ongoing commitment to expanding its global content production footprint and leveraging strategic partnerships in key international markets.
Previous report
The decrease in marketing and sales expenses for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to cost saving efforts during the year ended December 31, 2024 and the recognition of marketing expenses related to stock issued for services of $1.2 million for our Shaq’s Garage series in the year ended December 31, 2023, which were not incurred during the current year period.
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The $10.1 million decrease in general and administrative expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was driven by a decrease of $2.0 million in stock-based compensation expense and a decrease of $1.2 million in depreciation and amortization mainly due to impairment related asset reductions in prior period. Additionally, we observed a reduction of $6.8 million in overhead costs primarily due to cost-saving initiatives.
Previous report
During the year ended December 31, 2024, we performed an impairment assessment of our intangible assets including our definite-lived intangible assets and our indefinite-lived intangible assets. Based on the results of our impairment testing, we concluded that the carrying amounts of our intangible assets remained recoverable, and no impairment charge was required. During the year ended December 31, 2023, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible assets and our remaining goodwill for impairment. As a result, we recorded an impairment charge to our property and equipment of $0.1 million, our definite-lived intangible assets of $2.8 million, our indefinite-lived intangible assets of $1.7 million and our goodwill recorded within the Content Production and Distribution reporting unit of $33.5 million in our consolidated statement of operations.
Previous report
In the second and third quarter of 2024, we were not in compliance with financial covenant calculations related to the revolving demand facility and equipment lease line. As a result of these financial covenant violations, we and the lender agreed to an early repayment of the equipment leases under the equipment lease line and the revolving demand facility in the fourth quarter of 2024. As of December 31, 2024, we are no longer subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease agreements that were repaid in full and terminated in the fourth quarter of 2024.
Previous report
Over the next 12 months, the Company expects to use cash primarily to fund ongoing operations, content production, and strategic growth initiatives. Management believes that the future cash needs can be addressed through a combination of actions within its control, including cost reductions, optimization of working capital, and securing licensing and distribution advances. Other potential sources of liquidity that are outside of the Company's control include receipt of IRS Employee Retention Tax Credits, warrant redemptions, or proceeds from capital raises. Any of these will help improve the Company's liquidity position and depend on external factors such as IRS processing timelines, market conditions, and investor participation. Based on current cash balances and the ability to execute on planned initiatives, management believes it has sufficient liquidity to meet its obligations for at least the next 12 months.
Previous report
The decrease of $63.8 million in cash provided by investing activities to $10.0 million at December 31, 2024 from cash provided by investing of $73.8 million at December 31, 2023 was primarily due to a decrease in proceeds from the sales and maturities of marketable securities of $62.6 million during the year ended December 31, 2024.
Previous report
The decrease in cash used in financing activities of $57.7 million was primarily due to a decrease in repayments of our margin loan and production facilities of $73.2 million, and increase in proceeds from securities purchase agreement of $7.5 million; partially offset by less proceeds drawn from the margin loan and production facilities of $14.2 million, an absence of warrant exchange proceeds of $5.3 million received in prior year, and an increase in repayments of bank indebtedness for $3.9 million.
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Critical Accounting Policies and Estimates
Previous report
In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating its collaborators or partners.
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Foreign Currency Forward Contracts
Previous report
Our wholly-owned subsidiary, Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar. Wow uses foreign currency derivatives, specifically foreign currency forward contracts (“FX forwards”), to manage its exposure to fluctuations in the CAD-USD exchange rates. FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The FX forwards are typically settled in CAD for their fair value at or close to their settlement date. We do not currently designate any of the FX forwards under hedge accounting and therefore reflect changes in fair value as unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged. We do not hold or use these instruments for speculative or trading purposes.
Previous report
Per FASB ASC 815-10-45,Derivatives and Hedging, we have elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative instruments. Therefore, we present the asset or liability position of the FX Forwards that are with the same counterparty net as either an asset or liability in our consolidated balance sheets.
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Employee Retention Tax Credit (ERTC)
Previous report
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Tax Credit. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended the availability of the ERTC. The Company accounted for the ERTC as a gain contingency in accordance with ASC 450-30 -Gain Contingencies. Under this standard, the ERTC was recognized only after the contingency was resolved and deemed realizable.
Previous report
During the year ended December 31, 2024, we recognized an ERTC benefit totaling$1.2 million. This amount is included in Other Income (Expense) in the consolidated statements of operations. As of December 31, 2024 we had not received any refunds related to the ERTC and we had an outstanding receivable of$1.2 millionw hich is recorded in other current assets in the consolidated balance sheet. Subsequent to December 31, 2024 we received $0.2 million of ERTC refunds from the IRS, updating the outstanding receivable to $1.0 million. The Company did not record any ERTC benefits in the year ended December 31, 2023.
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Debt
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We measure issued debt at amortized cost, net of any debt premiums, discounts, and debt issuance costs. These amounts are amortized over the life of the debt using the effective interest rate method, ensuring that interest expense reflects the underlying borrowing costs. In cases where the straight-line method results in an immaterial difference compared to the effective interest rate method, we may apply the straight-line method.
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Equity-Linked Instruments
Previous report
We analyze freestanding equity-linked instruments including warrants to conclude whether the instrument meets the definition of the derivative and whether it is considered indexed to our own stock. If the instrument is not considered indexed to our stock, it is classified as an asset or liability recorded at fair value. If the instrument is considered indexed to our stock, we analyze additional equity classification requirements per ASC 815-40,Contracts in Entity’s Own Equity. When the requirements are met, the instrument is recorded as part of our equity, initially measured based on its relative fair value with no subsequent re-measurement. When the equity classification requirements are not met, the instrument is recorded as an asset or liability and is measured at fair value with subsequent changes in fair value recorded in earnings.
Previous report
When required, we also consider the bifurcation guidance for embedded derivatives per ASC 815-15,Embedded Derivatives.
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We have identified the following material and distinct performance obligations:
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Film and Television Licensing
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Advertising revenues
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Merchandising and licensing
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Product Sales
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Media and Advertising Services
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Gross Versus Net Revenue Presentation
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We evaluate individual arrangements with third parties to determine whether we act as principal or agent under the terms. To the extent that we act as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial statement line items. To the extent that we act as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services. Determining whether we act as principal or agent is based on an evaluation of which party has substantial risks and rewards of ownership under the terms of an arrangement. The most significant factors that we consider include identification of the primary obligor, as well as which party has credit risk, general and inventory risk and the latitude or ability in establishing prices.
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Share-Based Compensation
Previous report
We issue stock-based awards to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”). Share-based compensation cost is recorded for all options and awards of non-vested stock based on the grant-date fair value of the award.
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Reworded paragraphs (34)
Previous wording
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the MD&A contains forward-looking statements that involve risks and uncertainties. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” immediately preceding Part I for important information to consider when evaluating such statements.
Current wording
This management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain an understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the following MD&A contains forward-looking statements that involve risks and uncertainties. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” immediately preceding Part I for important information to consider when evaluating such statements.
Previous wording
Production services revenue was generated specifically by Mainframe Studios providing animation production services. Revenue for production services is recognized over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of costs incurred cumulatively to total expected costs. Consequently, less revenue is recognized during the periods in which the projects are near completion or completed. The production services revenue for the year ended December 31, 2024 was 33% lower than the production services revenue recognized during the year ended December 31, 2023. The decrease was primarily due to a lower volume of animation production services projects in progress during the year ended December 31, 2024 as compared to the prior year period.
Current wording
Production services revenue was generated specifically by Mainframe Studios providing animation production services. Revenue for production services is recognized over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of costs incurred cumulatively to total expected costs. Consequently, less revenue is recognized during the periods in which the projects are near completion or completed. The production services revenue for the year ended December 31, 2025 was 50% higher than the production services revenue recognized during the year ended December 31, 2024. The increase was primarily due to several projects commencing toward the end of 2024 and progressing into more advanced production stages in early 2025, resulting in higher revenue recognized under the percentage-of-completion method, reflecting a significant portion of the production activities and related costs.
Previous wording
Revenue related to content distribution on AVOD and SVOD, including advertising sales for the year ended December 31, 2024, decreased by 18% as compared to the year ended December 31, 2023. This was primarily due to a decrease in content revenue from Frederator’s creator network on YouTube of $1.7 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The decrease in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period. In addition, the decline in content distribution revenue was partially due to a decrease in Wow’s IP production revenue of $0.3 million, as there were no new IP projects delivered during the year ended December 31, 2024.
Current wording
Revenue related to content distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including advertising sales for the year ended December 31, 2025, decreased by 17% as compared to the year ended December 31, 2024. This was primarily due to a decrease in content revenue from Frederator’s creator network on YouTube of $2.2 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The decrease in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period. In addition, reduced worldwide content distribution activities resulted in a $0.1 million decrease attributable to that division. The decline in content distribution revenue was partially offset by an increase in Wow’s IP related revenue of $0.7 million, as there were episodes of a new IP project delivered during the year ended December 31, 2025.
Previous wording
Revenue related to our licensing and royalties for the year ended December 31, 2024 decreased by 54% as compared to the year ended December 31, 2023, primarily due to lower amounts earned from our license deals related to our consumer products agreements and music licensing agreements, which decreased by $0.3 million.
Current wording
Revenue related to our licensing and royalties for the year ended December 31, 2025 increased by 30% as compared to the year ended December 31, 2024, primarily due to higher amounts earned from our existing license deals related to our consumer products agreements, music licensing agreements, and certain new executed licensing agreements related to Stan Lee Universe, LLC assets.
Previous wording
Revenue generated by media advisory and advertising services for the year ended December 31, 2024 decreased by 2% as compared to the year ended December 31, 2023, primarily due to lower net renewal activity and fewer media purchases from clients during the year ended December 31, 2024.
Current wording
Revenue generated by media advisory and advertising services for the year ended December 31, 2025 decreased by 14% as compared to the year ended December 31, 2024, primarily due to lower net renewal activity and media purchases from clients, which were impacted by the new U.S. tariffs legislative uncertainty.
Previous wording
Direct Operating Costs during the year ended December 31, 2024 consisted primarily of salaries and related expenses for the animation production services employees of Wow and Frederator. Creator network channel expenses, licensing and production of content costs, such as participation expenses related to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of Direct Operating Costs. The decrease was primarily due to a $7.4 million reduction in Wow’s animation production services costs for the year ended December 31, 2024, as compared to the prior year. The decrease was mainly from a reduction in salary costs, net of tax credits, as a result of a reduction in headcount on a lower volume of service production projects in the current year, as compared to the year ended December 31, 2023. The decrease was also due to a reduction in film amortization expense recognized during the year ended December 31, 2024 of $7.3 million as compared to the year ended December 31, 2023 as a result of less film and television production and no impairment recognized during the current year. In addition, costs associated with Frederator’s creator network and licensing and royalties for the year ended December 31, 2024 decreased by $2.4 million compared to the prior year period. The decrease was mainly due to a reduction in payments to our creator network members and aligned with the decline in Frederator creator network revenue.
Current wording
Direct operating costs during the year ended December 31, 2025 consisted primarily of salaries and related expenses for the animation production services employees of Wow. Creator network channel expenses, licensing and production of content costs, such as participation expenses related to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of direct operating costs. The 16% increase was primarily due to higher salary costs by $5.6 million due to higher headcount included in Production Services related to new projects that progressed into more advanced production stages in the current year compared to the same period of the prior year. In addition, an increase of $0.2 million in operating costs is attributable to higher participation expenses arising from existing contractual agreements due to an increase in royalties and licensing revenue. The increase in direct operating costs was partially offset by a $2.1 million decrease of costs associated with Frederator’s creator network and licensing and royalties for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was mainly due to a reduction in payments to our creator network members in relation to the decline in Frederator creator network revenue.
Previous wording
As of December 31, 2024, we had cash of $8.4 million, which increased by $4.3 million as compared to December 31, 2023. The increase was primarily due to cash provided by investing activities of $10.0 million, the effect of exchange rate of $0.9 million, offset by cash used in operating activities of $3.5 million and cash used in financing activities of $3.1 million. The cash used in financing activities was primarily due to repayment of the production facilities and bank indebtedness $8.6 million, and payments on finance leases of $1.7 million, offset by the proceeds received from the securities purchase agreement of $7.5 million. The cash provided by investing activities was primarily due to sales and maturities of marketable securities of $10.0 million.
Current wording
As of December 31, 2025, we had cash of $2.9 million, which decreased by $5.4 million as compared to December 31, 2024. The decrease was primarily due to cash used in operating activities of $11.4 million, cash used in investing activities of $1.6 million, and the effect of exchange rate of $0.6 million, offset by cash provided by financing activities of $8.1 million. The cash used in investing activities was primarily due to investment of financing proceeds in marketable securities of $6.7 million, and purchase of property and equipment of $0.2 million, offset by the proceeds received from sales of marketable securities of $4.8 million and proceeds of $0.4 million from repayment of a loan from related party. The cash provided by financing activities was primarily due to the net proceeds of $6.5 million, from the October Offerings, proceeds of $0.8 million received from sale of equity investment, drawdowns, net of repayments and debt issuance costs, of $1.6 million from production facilities, and proceeds of $0.5 million received from our ERTC factoring transaction, offset by the net margin loan repayment of $0.9 million and finance lease payments of $0.4 million.
Previous wording
During the year ended December 31, 2024, we derived a significant amount of funds from the sale of our equity securities and loans. On April 23, 2024, we closed the April 2024 Offering selling 3,900,000 shares of our common stock, par value $0.001 per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”), at $1.00 per share of Common Stock and $0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $4,000,000, prior to deducting placement agent fees and other offering expenses. On December 18, 2024, we closed the December 2024 Offering, raising aggregate gross proceeds of approximately $4,496,480 and issuing 4,375,000 shares of Common Stock, pre-funded common stock purchase warrants to purchase up to 3,519,736 shares of Common Stock, Series A common stock purchase warrants to purchase up to 7,894,736 shares of Common Stock, and Series B common stock purchase warrants to purchase up to 7,894,736 shares of Common Stock.
Current wording
During the year ended December 31, 2025, we derived a significant amount of funds from the sale of our equity securities and loans. On October 22, 2025 we closed the October Offerings, selling 3,000,000 shares of our common stock, the October 2025 Pre-Funded Warrants to purchase up to 6,903,049 shares of common stock, and the October 2025 Common Warrants to purchase up to 9,903,049 shares of common stock for aggregate gross proceeds at closing of approximately $7.3 million, prior to deducting placement agent fees and other offering expenses. Net proceeds from the October Offerings were $6.5 million.
Previous wording
As of December 31, 2024, we held available-for-sale marketable securities with a fair value of $2.0 million, a decrease of $9.9 million as compared to December 31, 2023 due to sales and maturities during the year ended December 31, 2024. The available-for-sale securities consist principally of corporate and government debt securities and are also available as a source of liquidity.
Current wording
As of December 31, 2025, we held available-for-sale marketable securities with a fair value of $4.0 million, an increaseof$2 millionas compared to December 31, 2024 due to the investment of the net proceeds from the October Offerings during the year ended December 31, 2025. The available-for-sale securities consist principally of government debt securities and are also available as a source of liquidity.
Previous wording
As of December 31, 2024 and December 31, 2023, our margin loan balance was $0.9 million and $0.8 million, respectively. During the year ended December 31, 2024, we borrowed an additional $11.0 million from our investment margin account and repaid $10.9 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 0.46%and 0.98%on average margin loan balances of $1.02 millionand$27.4 millionas of December 31, 2024 and December 31, 2023, respectively. We incurred interest expense on the loan of $0.1 million and $1.5 million during the years ended December 31, 2024 and December 31, 2023, 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 our consolidated balance sheets.
Current wording
As of December 31, 2025, we had no outstanding margin loan balance. As of December 31, 2024 the margin loan balance was $0.9 million. During the year ended December 31, 2025, we borrowed an additional $5.9 million from our investment margin account and repaid $6.8 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 0.20%and 0.46%on average margin loan balances of $0.2 million and $1.0 million as of December 31, 2025 and December 31, 2024, respectively. We incurred interest expense on the loan of$8,392 and $0.1 million during the years ended December 31, 2025 and December 31, 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 our consolidated balance sheets.
Previous wording
During the year ended December 31, 2024, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. We believe that our current cash balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months. To meet our short and long-term liquidity needs, we expect to use existing cash and marketable securities balances.
Current wording
During the year ended December 31, 2025, we met our immediate cash requirements through existing cash balances, including cash raised from the October Offerings. Additionally, we issued equity and equity-linked instruments to certain companies and individuals as payment for services and compensation.
Previous wording
As of December 31, 2024, we had current assets of $34.7 million, including cash of $7.9 million, restricted cash of $0.5 million and marketable securities of $2.0 million, and our current liabilities were $33.4 million. We had working capital of $1.2 million as of December 31, 2024 as compared to working capital of $10.0 million as of December 31, 2023. These balances exclude the related party note receivable of $1.4 million, which has been reclassified from current to noncurrent assets. The decrease of$8.8 millionwas due to adecrease of $21.0 million in current assets and a decrease of $12.2 million in current liabilities compared to prior year. A decrease in current assets is primarily driven by a decrease of $9.9 million in marketable securities investments, a decrease of $10.4 million inproduction tax credit receivable position, adecrease of $6.1 million inaccounts receivable, offset by anincrease in cash of $4.3 million and an increase of $1.3 million in other receivable related to ERTC A decrease in current liabilities is primarily driven by a decrease of $6.1 million in production facilities, a decrease by $4.9 million in accounts payable, a decrease of $2.9 million in bank indebtedness, partially offset by an increase of $2.9 million in deferred revenue.
Current wording
As of December 31, 2025, we had current assets of $35.8 million, including cash of $2.9 million and marketable securities of $4.0 million, and our current liabilities were $33.5 million. We had working capital of $2.3 million as of December 31, 2025, as compared to working capital of $1.2 million as of December 31, 2024. The increase of$1.1 millionwas due to anincrease of $1.1 million in current assets compared to the prior year. The increase in current assets is primarily driven by an increase of $6.5 million inproduction tax credit receivable position due to recognized credits for the ongoing projects, anincrease of $2.0 million in marketable securities investments due to the investment of a portion of the financing proceeds in securities, an increase of $0.2 million in prepaid expense balance, and an increase of $0.2 million in other receivables related to ERTC, offset by adecrease in cash of $5.4 million, and a decrease of $2.4 million in accounts receivable related to the timing of contractual billing milestones in production projects. Current liabilities as of December 31, 2025 were unchanged compared to the prior year, reflecting offsetting changes related to an increase of $2.6 million in production facilities due to advance stages of production projects, and an increase of $0.3 million in accrued expenses, offset by a decrease of $1.6 million in deferred revenue related to revenue recognized under the percentage-of-completion method on production projects, a decrease of $0.9 million in margin loan balance due to repayment of the balance, and a decrease of $0.4 million in participation payable.
Previous wording
Our total cash for the years ended December 31, 2024 and December 31, 2023 was $7.9 million and $4.1 million, respectively.
Current wording
Our total cash and restricted cash as of the years ended December 31, 2025 and December 31, 2024 was $2.9 million and $8.4 million, respectively.
Previous wording
Items necessary to reconcile from net loss to cash used in operating activities included net noncash expenses of $9.9 million for the year ended December 31, 2024 as compared to net noncash expenses of $59.3 million for the year ended December 31, 2023. The majority of the decrease of $49.4 million was primarily due to the absence of prior impairment expenses of our long-lived assets, intangible assets and goodwill of $45.0 million recorded during the year ended December 31, 2023 and decrease of fair value of the warrant liability by $12.7 million compared to the prior year. In addition, the Company observed a decrease in realized loss on marketable securities by $3.9 million due to the lower sales of our marketable securities prior to their maturity date, a decrease in our stock-based compensation of $2.0 million due to the absence of accelerations in vesting that occurred in the prior year, a decrease in the amortization of Right-of-Use Assets of $1.0 million due to prior year impairments, a decrease of $1.2 million in marketing expenses paid by stock that only occurred in the prior year and a decrease of $0.9 million in write-offs of disputed accounts payable that also occurred only in the prior year. Additionally, the Company observed a decrease in the amortization of film and television costs of $0.4 million. The decrease is offset by an increase of $10.3 million related to revaluation of the warrants, an increase of $1.0 million related to loss on financing transaction, an increase of $1.0 million related to the deferred tax balance and an increase related to the change of $5.5 million in the total fair value of the equity investment in YFE which consist of market valuation and FX impact.
Current wording
Items necessary to reconcile from net loss to cash used in operating activities included net noncash expenses of $20.2 million for the year ended December 31, 2025, as compared to net noncash expenses of $9.9 million for the year ended December 31, 2024. The increase of $10.3 million in noncash expenses compared to prior year was primarily due to an increase of $5.4 million in loss of the total fair value of the equity investment in YFE which consist of market valuation and foreign exchange impact, a loss of $1.8 million on debt settlement related to repayment agreement of the loan from related party and accounts payable settlement discount, a loss of $1.5 million on partial disposal of the equity investment in YFE, an impairment of intangible assets of $0.8 million, an increase in warrants revaluation loss of $0.3 million due to Series A and Series B warrants fair value adjustments, and a loss of $0.3 million related to YFE for the TOON share exchange transaction. Additionally, we recorded a noncash reduction of $2.2 million in accounts payable due to corresponding stock issuances to CCI. These movements were offset by the absence of a $1.0 million loss on a financing transaction that closed in the prior year, a decrease of $0.6 million in realized loss on marketable securities due to the fewer sales of our marketable securities prior to their maturity date, a decrease of $0.3 million in stock-based compensation expense due to completed amortization of the portion of certain equity awards, and a gain of $0.1 million related to the deferred tax provision.
Previous wording
Items necessary to reconcile from net loss to cash provided by operating activities included operating asset and liability activities of $7.6 million in the year ended December 31, 2024 and $1.8 million as of December 31, 2023. The net decrease of $5.8 million in operating asset and liability activities to cash provided by operating activities was primarily due to a decrease of $6.0 million in operating assets activity. This was primarily due to an increase of $8.5 million in net receipts of outstanding accounts receivable due to completion of multiple projects, and an increase in net receipts tax credits during the current year of $1.1 million related to completed projects, partially offset by a decrease in prepaids balance of $0.5 million, a decrease of $1.2 million representing the outstanding balance of the ERTC receivable as of December 31, 2024, and a reduction in other receivables of $1.1 million. A increase in operating liabilities activity was $0.3 million, primarily due to a decrease in accounts payable of $10.2 million, offset by an increase of $9.0 million in deferred revenue, representing cash received in advance for projects not yet recognized.
Current wording
Change in cash used in operating activities also includes fluctuations in working capital, including movements in operating assets and liabilities. Working capital adjustments reflect timing differences between the recognition of revenues and expenses and the related cash receipts or payments. Operating asset and liability activities resulted in a decrease of $6.9 million in cash in the year ended December 31, 2025 and an increase of $7.6 million in cash as of December 31, 2024. The net decrease of $14.5 million in operating asset and liability cashflows was primarily due to an increase of $14.4 million in operating assets activity, which resulted in a higher use of cash. This was primarily due to lower net receipts tax credits during the current year by $9.3 million, a decrease of $3.8 million in net receipts of outstanding accounts receivable primarily due to contractual milestones in invoicing production projects, higher capitalized costs related to ongoing productions by $2.1 million, and an increase of $0.4 million in prepaid balance representing cash paid for future services, offset by an absence of a $1.2 million ERTC receivable recorded in the prior year. The remaining variance of approximately $0.1 million was attributable to a net decrease in operating liabilities which had unfavorable impact on operating cash flows. This was primarily due to a decrease of $5.0 million in deferred revenue balance representing cash received in advance for projects not yet recognized, and a decrease $1.4 million in accrued production costs including timing of Mainframe production costs accruals and production advance from external partner received in prior year, offset by a $5.0 million favorable movement in accounts payable primarily reflecting the settlement of a significant portion of payables in stock and larger vendor payments recorded in the prior year, favorable movements in accrued salaries of $0.7 million due to timing of salaries, and an increase of $0.6 million in accrued expenses representing additional costs recognized during the period that were outstanding as of December 31, 2025.
Previous wording
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $27.1 million as of December 31, 2024, of which about $18.9 million could be owed within one year. Included in the amount that could be due within one year is the margin loan current balance of $0.9 million and production facilities of $9.3 million.
Current wording
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $31.1 million as of December 31, 2025, of which about $20.9 million could be owed within one year. The balance that could be due within one year includes production facilities of $11.9 million.
Previous wording
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP. This requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management. We also have other significant accounting policies that are relevant to understanding our results. For additional information about these policies, see Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Current wording
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). This requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management. We also have other significant accounting policies that are relevant to understanding our results. For additional information about these policies, see Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Previous wording
We hold an interest in Stan Lee University (“SLU”), an entity that is considered a variable interest entity (“VIE”). The variable interest relates to 50% ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from us to continue operations. We are considered the primary beneficiary and are required to consolidate the VIE.
Current wording
We hold an interest in Stan Lee University (“SLU”), an entity that is considered a variable interest entity (“VIE”). The variable interest relates to 50% ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from us to continue operations.
Previous wording
In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.
Current wording
For each entity, we evaluate our ownership interest and contractual arrangements to determine whether we should consolidate the entity or account for our interest as an investment at inception and upon reconsideration events. This estimate is critical because it determines whether an entity is consolidated into our consolidated financial statements, which has significant impact on our reported results. As part of this evaluation, we determined, that the SLU entity is a VIE. Management evaluated key considerations through a qualitative and quantitative analysis in determining whether an entity is a VIE including whether (i) the entity has sufficient equity to finance its activities without additional financial support from other parties, (ii) the ability or inability to make significant decisions about the entity’s operations, and (iii) the proportionality of voting rights of investors relative to their obligations to absorb the expected losses (or receive the expected returns) of the entity. We used judgment in determining if we are the primary beneficiary and are thus required to consolidate the entity. In making this determination, we evaluated whether we or another party involved with the VIE, (i) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of or receive benefits from the VIE that could be significant to the VIE. In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we considered the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly affect the entity’s economic performance as compared to other economic interest holders. This evaluation required consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important. We concluded, that we are considered the primary beneficiary and are required to consolidate the VIE.
Previous wording
Estimated amounts receivable in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and television costs when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying expenditures are made and there is reasonable assurance of realization. Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures. The ultimate collection of previously recorded estimates is subject to ordinary course audits from the Canada Revenue Agency (“CRA”) and provincial agencies. Changes in administrative policies by the CRA or subsequent review of eligibility documentation may impact the collectability of these estimates. We continuously review the results of these audits to determine if any circumstances arise that in management’s judgment would result in a previously recognized amount to be considered no longer collectible.
Current wording
Estimated amounts receivable in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and television costs when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying expenditures are made and there is reasonable assurance of realization. Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures. The ultimate collection of previously recorded estimates is subject to ordinary course audits from the Canada Revenue Agency (“CRA”) and provincial agencies. The amounts recognized are sensitive to changes in assumptions regarding eligibility, qualifying expenditures, and interpretations applied by the CRA and provincial agencies. Changes in administrative policies by the CRA or subsequent review of eligibility documentation may impact the collectability of these estimates. We continuously review the results of these audits to determine if any circumstances arise that in management’s judgment would result in a previously recognized amount to be considered no longer collectible.
Previous wording
As of December 31, 2024 and December 31, 2023, $12.7 million and $20.7 millionin tax credit receivables related to Wow’s film and television productions were recorded, net of $0.6 million and $0.5 million, respectively, recorded as an allowance for credit loss. 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. The Company did not have any non-current tax credits receivable as of December 31, 2023.
Current wording
As of December 31, 2025 and December 31, 2024,$16.8 million and $12.7 millionin tax credit receivables related to Wow’s film and television productions were recorded, net of$0.4 million and$0.6 million, respectively, recorded as an allowance for credit loss. We did not have any non-current tax credits receivable as of December 31, 2025. 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.
Previous wording
Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences. Capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to the Company. Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.
Current wording
Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences. Capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit. Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.
Previous wording
Completed productions are carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired distribution rights, less accumulated amortization and accumulated impairment losses.
Current wording
Completed productions are carried at the cost of proprietary film and television programs which have been produced by us or to which we have acquired distribution rights, less accumulated amortization and accumulated impairment losses.
Previous wording
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of business, some titles are more successful or less successful than anticipated. Management reviews the ultimate revenue and cost estimates on a title-by-title basis, when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost. This may result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production to its estimated fair value. An impairment charge is recorded in the amount by which the unamortized costs exceed the estimated fair value. These write-downs are included in amortization expense within Direct Operating Expenses on the consolidated statements of operations.
Current wording
The amounts capitalized and the related amortization, and accrued participation costs are sensitive to changes in key assumptions such as ultimate revenues per production, production costs, audience reception, market conditions, and contractual obligations for participations. Changes in these factors could materially affect amortization and potential impairment charges. Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of business, some titles are more successful or less successful than anticipated. Management reviews the ultimate revenue and cost estimates on a title-by-title basis, when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost. This may result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production to its estimated fair value. An impairment charge is recorded in the amount by which the unamortized costs exceed the estimated fair value. These write-downs are included in amortization expense within Direct Operating Expenses on the consolidated statements of operations. During the year ended December 31, 2025, key assumptions remained consistent with those applied in the prior year.
Previous wording
All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes. Additionally, for episodic series, from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing content. After the initial release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred.
Current wording
All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes. Additionally, for episodic series, from time to time, we develop additional content, improved animation and bonus songs/features for its existing content. After the initial release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred.
Previous wording
Impairment testing is sensitive to assumptions regarding projected revenue growth rates, royalty rate assumptions and discount rates. Significant uncertainties affecting impairment analysis include declines in revenue due to market shifts or content performance, changes in industry conditions, including streaming and network distribution models, economic downturns, which could increase discount rates and impact future cash flows and regulatory or legal changes, affecting brand valuation or content monetization. Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where impairment charges would be required in future periods. Specifically, results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. An impairment loss could have a material and adverse impact on the Company's consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows. Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.
Current wording
Impairment testing is sensitive to assumptions regarding projected revenue growth rates, royalty rate assumptions and discount rates. Significant uncertainties affecting impairment analysis include declines in revenue due to market shifts or content performance, changes in industry conditions, including streaming and network distribution models, economic downturns, which could increase discount rates and impact future cash flows and regulatory or legal changes, affecting brand valuation or content monetization. Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where impairment charges would be required in future periods. Results may vary from our forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. An impairment loss could have a material and adverse impact on our consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows. During the year ended December 31, 2025, we did not make any material changes to the key assumptions underlying the estimates.
Previous wording
We account for revenue according to standard FASB ASC 606,Revenue from Contracts with Customers(“ASC 606”).
Current wording
We account for revenue according to FASB ASC 606,Revenue from Contracts with Customers(“ASC 606”).
Previous wording
Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized when a customer obtains control of the products or services in a contract. Judgment is required in determining the timing of whether the transfer of control occurs at a point in time or over time and is discussed below. We evaluate each contract to identify separate performance obligations as a contract with a customer may have one or more performance obligations. Consideration in a contract with multiple performance obligations is allocated to the separate performance obligations based on their stand-alone selling prices. If a stand-alone selling price is not determinable, we estimate the stand-alone selling price using an adjusted market assessment approach. Our main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales.
Current wording
Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized when a customer obtains control of the products or services in a contract. The application of ASC 606 requires us to make significant judgments, that materially affect the amount and timing of revenue recognized, including estimates of total expected costs for production service contracts, stand-alone selling prices, determinations of whether we act as principal or agent in customer arrangements, and determinations of the timing of whether the transfer of control occurs at a point in time or over time. We evaluate each contract to identify separate performance obligations as a contract with a customer may have one or more performance obligations. Consideration in a contract with multiple performance obligations is allocated to the separate performance obligations based on their stand-alone selling prices. If a stand-alone selling price is not determinable, we estimate the stand-alone selling price using an adjusted market assessment approach.
Previous wording
For revenue from animation production services, the customer controls the output throughout the production process. Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up. Revenue and the associated costs of such contracts are recognized over time on a percentage of completion basis - i.e., as the project is being produced, prior to it being delivered to the customer. The percentage-of-completion is calculated based upon the proportion of costs incurred cumulatively to total expected costs. Changes in revenue recognized as a result of adjustments to total expected costs are recognized in profit or loss on a prospective basis. Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheet. Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration.
Current wording
Revenue from animation production services is sensitive to changes in estimates of total expected production costs, project timelines, and the achievement of contractual milestones. Because revenue is recognized over time using a percentage-of-completion method, changes in cost estimates or production delays may result in changes to the amount and timing of revenue recognized in a given period. The percentage-of-completion is calculated based upon the proportion of costs incurred cumulatively to total expected costs. Changes in revenue recognized as a result of adjustments to total expected costs are recognized in profit or loss on a prospective basis. Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheet. Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration. When the outcome of an arrangement cannot be estimated reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable. Production service revenues represent a significant portion of our operating revenues. These estimates are subject to uncertainty due to the complexity and length of production cycles, and unforeseen production challenges, which may cause actual results to differ from management’s estimates.
Previous wording
We recognize revenue related to licensed rights to exploit functional IP in two ways; for minimum guarantees, we recognize fixed revenue upon delivery of content and the start of the license period and for functional IP contracts with a variable component, we estimate revenue such that it is probable there will not be a material reversal of revenue in future periods. We recognize revenue related to licensed rights to exploit symbolic IP substantially similarly to functional IP. Although it has a different recognition pattern from functional IP, the valuation method is substantially the same, depending on the nature of the license.
Current wording
We recognize revenue related to licensed rights to exploit functional IP in two ways; for minimum guarantees, we recognize fixed revenue upon delivery of content and the start of the license period and for functional IP contracts with a variable component, we estimate revenue such that it is probable there will not be a material reversal of revenue in future periods. We recognize revenue related to licensed rights to exploit symbolic IP substantially similarly to functional IP. Although it has a different recognition pattern from functional IP, the valuation method is substantially the same, depending on the nature of the license. Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue.
Previous wording
Upon the acquisition of Wow, we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its creator network,Channel Frederator Network, on YouTube. Revenue is recognized when services are provided in accordance with our agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable. Receivables are usually collectable within 30 days.
Current wording
Upon the acquisition of Wow in 2021, we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its creator network,Channel Frederator Network, on YouTube. Revenue is recognized when services are provided in accordance with our agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable. Receivables are usually collectable within 30 days.
Previous wording
We enter into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of our intellectual property. For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the license period commencing on the date at which the licensees can use and benefit from the licensed content. Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured. Invoices are issued based on the contractual terms of an agreement and are usually payable within 30-45 days.
Current wording
We enter into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of our intellectual property. For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the license period commencing on the date at which the licensees can use and benefit from the licensed content. Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured. Invoices are issued based on the contractual terms of an agreement and are usually payable within 30-45 days. We recognize revenue related to product sales (e.g., apparel and collectibles) when we complete our performance obligation, which is when the goods are transferred to the buyer. Royalty revenue is not significantly affected by management estimates, as amounts are recognized based on sales reports received from licensees and contractual royalty rates. Accordingly, changes in royalty revenue primarily reflect changes in actual consumer demand for licensed products rather than changes in accounting assumptions. However, reported royalty revenue is subject to uncertainty related to the timing, accuracy, and completeness of licensee sales reports, as well as collectability considerations. In addition, royalty revenue may fluctuate due to factors such as retail performance, product mix, seasonality, and macroeconomic conditions affecting consumer spending, all of which are outside of our direct control.
Previous wording
We provide media and advertising consulting services to clients. Revenue is recognized when the services are performed or as paid through the monthly retainer. When we purchase advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.
Current wording
We provide media and advertising consulting services to clients. Revenue is recognized when the services are performed or as paid through the monthly retainer. When we purchase advertising for clients on linear and across digital and streaming platforms and receive a commission, the commissions are recognized as revenue in the month the advertising is displayed. Marketing contracts specify applicable fees or rates, and marketing spend is driven by customer-authorized campaign activity. Revenue and expenses are recognized based on actual services performed, with minimal reliance on management estimates. While revenue amounts are based on contractual rates and actual media spend supported by third-party reports, management judgment is required in evaluating contract terms under ASC 606, determining principal versus agent presentation, and ensuring appropriate cutoff and completeness of revenue recognition.
Previous wording
For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 to the financial statements in Item 8 of this Annual Report.
Current wording
For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
Our main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales.
Current report — wording carried from elsewhere
Our main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales. During the year ended December 31, 2025, there were no material changes to the revenue recognition policies, methods, or significant judgments applied under ASC 606.
Current report — wording carried from elsewhere
For revenue from animation production services, the customer controls the output throughout the production process. Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, we are entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
When the outcome of an arrangement cannot be estimated reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable.
Previous report — wording carried elsewhere
Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms. The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheets. Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration.
Previous report — wording carried elsewhere
We recognize revenue related to product sales (e.g., apparel and collectibles) when the Company completes its performance obligation, which is when the goods are transferred to the buyer.