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 Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001683168-25-002049
Item 1A. Risk FactorsCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-31.
0001683168-26-002452
Item 1A. Risk FactorsThe 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 85 previous paragraphs and 93 current paragraphs.
43 unchanged; 31 reworded; 19 added; 10 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 2 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 (19)
Current report
We must raise additional capital to fund our operations in order to continue as a going concern.
Current report
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. Management has evaluated the significance of these conditions in relation to our ability to meet our obligations and concluded that there is substantial doubt about our ability to continue as a going concern for a period of at least one year subsequent to the issuance of the accompanying consolidated financial statements. In order to address our capital needs, we will need to raise further capital through the sale of equity or debt securities, financing arrangements or by entering into collaborative, strategic, and/or licensing transactions. There can be no assurance that we will be able to complete any such financing, collaborative or strategic transactions in a timely manner or on acceptable terms, or at all. Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise additional capital. There can be no assurance that we will be successful in accomplishing these objectives. Without such additional capital, we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.
Current report
The financial statements included elsewhere in this Annual Report on Form 10-K have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern within one year after the date the financial statements are issued.
Current report
Pursuant to the terms of the Securities Purchase Agreement that we entered into in connection with the registered direct offering and concurrent private placement that closed on October 22, 2025 (the “October 2025 Purchase Agreement”), we agreed, subject to limited exceptions, for a period from October 20, 2025 until October 20, 2027, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of our common stock or common stock equivalents involving a variable rate transaction; provided however, that commencing October 20, 2026, we are allowed to enter into, and issue shares pursuant to, an “at the market” offering. The October 2025 Purchase Agreement further provides that the investor thereunder (the “October 2025 Investor”) has the right to participate in certain subsequent financings by us in an amount equal to 50% of such subsequent financings for 12 months following October 22, 2025.
Current report
The loss of one or more significant customers could have a material adverse effect on us.
Current report
A small number of customers have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period of several consecutive years. During the year ended December 31, 2025, four customers each accounted for more than 10% of our total consolidated revenue. These customers accounted for an aggregate of 81.9% of our total revenue. As of December 31, 2025, we had three customers, the accounts receivable for each of which exceeded 10% of our total accounts receivable. These customers accounted for an aggregate of 54.5% of the total accounts receivable as of December 31, 2025. The loss of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Current report
RISKS RELATED TO INTELLECTUAL PROPERTY, LITIGATION AND CYBERSECURITY
Current report
RISKS RELATED TO INFLATION, INTEREST RATES, AND OTHER ADVERSE ECONOMIC CONDITIONS
Current report
Changes in U.S. trade policy, including current and proposed tariffs on foreign-produced content, could adversely impact our business operations, particularly due to our reliance on animation production services based in Canada and Asia.
Current report
The U.S. government has indicated its intent to adopt, and in certain cases has implemented, a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multilateral trade agreements. It has initiated or is considering the imposition of tariffs on certain foreign goods. Changes in U.S. trade policy could result in one or more U.S. trading partners adopting responsive trade policies, making it more difficult or costly for us to conduct our international and domestic operations. As an example, on May 4, 2025, President Trump announced an intention to impose tariffs on films made outside of the United States, which he reiterated in September 2025. Although our parent company is based in the United States, our primary animation production operations are located in Canada. The scope and the extent of the proposed tariffs is not yet finalized and there is a risk that such measures could be extended to include animated content produced internationally. Our business operations, financial condition, and results of operations could be significantly affected by such a measure and the potential expansion of existing tariffs or implementation of new tariffs, trade restrictions, or retaliatory measures by other countries that could disrupt our established operations. This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our profit margin on certain services.
Current report
We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our services, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition, and results of operations.
Current report
A shutdown of the U.S. federal government may adversely affect our business.
Current report
A recurring shutdown of the U.S. federal government may adversely affect our business operations and regulatory compliance. During such shutdowns, while the SEC’s EDGAR system remains operational, the unavailability of SEC staff to review filings, issue comments, or declare registration statements effective may delay our ability to complete public offerings, respond to comment letters, or obtain timely regulatory approvals. These delays could impact our access to capital markets, hinder strategic transactions, and create uncertainty around our disclosure obligations. Additionally, the lack of interpretive guidance or exemptive relief during a shutdown may increase legal and compliance risks. There can be no assurance that any future shutdowns will not materially affect our operations or financial condition.
Current report
We are a “smaller reporting company,” and the reduced public company reporting and disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
Current report
We are currently a “smaller reporting company,” as defined in the Securities Exchange Act and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. For so long as we continue to qualify as a “smaller reporting company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to public companies that are not smaller reporting companies. These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure; an exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Sarbanes-Oxley Act; and reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, registration statements and proxy statements. We will continue to be a “smaller reporting company” until we have more than $250 million in public float (based on our common stock) measured as of the last business day of our most recently completed second fiscal quarter or, in the event we have no public float (based on our common stock), annual revenues of more than $100 million during the most recently completed fiscal year.
Current report
As a result, the information we provide will be different than the information that is available with respect to other larger public companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the market price of our common stock may be more volatile.
Removed paragraphs (10)
Previous report
The value of our investments is exposed to capital market risks, and our consolidated results of operations, financial condition or cash flows could be adversely affected by realized losses, impairments and changes in unrealized positions as a result of: significant market volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, a reduction in market liquidity, declines in equity prices, changes in national, state/provincial or local laws and the strengthening or weakening of foreign currencies against the U.S. dollar. Levels of write-down or impairment are impacted by our assessment of the intent to sell securities that have declined in value as well as actual losses as a result of defaults or deterioration in estimates of cash flows. If we reposition or realign portions of the investment portfolio and sell securities in an unrealized loss position, we will incur a credit loss. Any such loss may have a material adverse effect on our results of operations and business.
Previous report
Based on its assessment, our management concluded that, as of December 31, 2024 our internal control over financial reporting was ineffective due to material weakness resulting from the inadequate design of user access provisioning/deprovisioning controls area.
Previous report
Loss of key personnel may adversely affect our business.
Previous report
Our success greatly depends on the performance of our executive management team, including Andy Heyward, our Chief Executive Officer. The loss of the services of any member of our core executive management team or other key persons could have a material adverse effect on our business, results of operations and financial condition. We do not have “key man” insurance coverage for any of our employees.
Previous report
In addition, due to potential costs from our international expansion efforts outside of the United States, our gross margin for international customers may be lower than our gross margin for domestic customers. As a result, our overall gross margin may fluctuate as we further expand our operations and customer base internationally.
Previous report
Our level of debt could have adverse consequences on our business, such as making it more difficult for us to satisfy our obligations with respect to our other debt; limiting our ability to refinance such indebtedness or to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; increasing our vulnerability to economic downturns and adverse developments in our business; exposing us to the risk of increased interest rates as certain of our borrowings are at fixed long term rates and or variable rates of interest; limiting our flexibility in planning for, and reducing our flexibility in reacting to, changes in the conditions of the financial markets and our industry; placing us at a competitive disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness and exposing us to potential events of default (if not cured or waived) under covenants contained in our debt instruments.
Previous report
If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock.
Previous report
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of our common stock is less than $5.00 and our common stock is no longer listed on a national securities exchange such as the NYSE, our stock may be deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified information and to obtain from the customer a signed and date acknowledgment of receipt of that document. In addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
Reworded paragraphs (31)
Previous wording
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes beginning on Page F-1 of this Annual Report on Form 10-K.
Current wording
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes beginning on F -5 of this Annual Report on Form 10-K.
Previous wording
You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price.
Current wording
You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.
Previous wording
We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. For the year ended December 31, 2024, we generated net revenues of $32.6 million and incurred a net loss attributable to Kartoon Studios Inc. of $20.7 million, while for the previous year, we generated net revenue of $44.1 million and incurred a net loss attributable to Kartoon Studios Inc. of $77.1 million. These losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and working capital.
Current wording
We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. For the year ended December 31, 2025, we generated net revenues of $39.4 million and incurred a net loss attributable to Kartoon Studios Inc. of $24.5 million, while for the previous year, we generated net revenue of $32.6 million and incurred a net loss attributable to Kartoon Studios Inc. of $20.7 million. These losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and working capital.
Previous wording
If we are not able to obtain sufficient capital, we may not be able to continue our growth.
Current wording
Limits on our ability to sell securities under the October 2025 Purchase Agreement may make it difficult for us to procure additional financing. If we are not able to obtain sufficient capital, we may not be able to continue our growth.
Previous wording
We expect that as our business continues to evolve and grow, we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly. These factors could have a material adverse effect on our future operating results and our financial condition.
Current wording
To the extent we require additional funding, we will therefore be limited in the types of fundraising transactions that we are able to pursue in compliance with the October 2025 Purchase Agreement. If we require additional funding while these restrictive covenants remain in effect, we may be unable to effect a financing transaction on terms acceptable to us, or at all, while also remaining in compliance with the terms of the October 2025 Purchase Agreement, or we may be forced to seek a waiver from the October 2025 Investor, which the October 2025 Investor is not obligated to grant to us. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to fund or expand our business, and we will have to modify our business plans accordingly. These factors could have a material adverse effect on our future operating results and our financial condition.
Previous wording
Production costs will be amortized according to the individual film forecasting methodology. If estimated remaining revenue is not sufficient to recover the unamortized production costs, the unamortized production costs will be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue, we would be required to adjust amortization of related production costs. These adjustments would adversely impact our business, operating results and financial condition.
Current wording
Production costs are amortized according to the individual film forecasting methodology. If estimated remaining revenue is not sufficient to recover the unamortized production costs, the unamortized production costs will be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue, we would be required to adjust amortization of related production costs. These adjustments would adversely impact our business, operating results and financial condition.
Previous wording
The value of our investments is subject to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows.
Current wording
The value of our investments is subject to capital markets risk as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows.
Previous wording
Our results of operations are affected by the performance of our investment portfolio. Our excess cash is invested by an external investment management service provider, under the direction of the Company’s management in accordance with the Company’s investment policy. The investment policy defines constraints and guidelines that restrict the asset classes that we may invest in by type, duration, quality and value. Our investments are subject to market-wide risks, and fluctuations, as well as to risks inherent in particular securities. The failure of any of the investment risk strategies that we employ could have a material adverse effect on our financial condition, results of operations and cash flows.
Current wording
Our results of operations may be affected, to a limited extent, by the performance of our investment portfolio. Our excess cash is invested by an external investment management service provider under the direction of the Company’s management in accordance with the Company’s investment policy. The investment policy defines constraints and guidelines that restrict the asset classes in which we may invest by type, duration, credit quality and concentration. Our marketable securities portfolio is composed of high-grade, investment-quality securities intended to preserve capital and maintain liquidity rather than generate significant returns. As a result, the portfolio is designed to limit exposure to market risk. These investments remain subject to general market fluctuations and risks inherent in particular securities. While we do not expect such risks to have a significant impact, adverse market conditions could affect the value or returns of these investments and may impact our financial condition, results of operations or cash flows. If we reposition or realign portions of our investment portfolio and sell securities in an unrealized loss position, we will incur a credit loss. Any such loss may have a material adverse effect on our results of operations and business.
Previous wording
For the year ended December 31, 2024, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein.
Current wording
In addition, we maintain an investment in foreign equity, the securities of YFE that we hold, which is inherently volatile and subject to greater market risk. The value of this investment may be significantly affected by changes in equity market conditions, foreign currency exchange rate movements, and economic or geopolitical developments in the relevant jurisdictions. For example, we recognized a loss on revaluation of our equity investment in YFE of approximately $9.8 million and $1.6 million for the years ended December 31, 2025 and December 31, 2024, respectively, as a result of decreases in YFE’s stock price during the respective reporting periods. For the year ended December 31, 2025, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein.
Previous wording
We have incurred indebtedness that could adversely affect our operations and financial condition.
Current wording
We have incurred indebtedness that could adversely affect the profitability of our business operations and financial condition.
Previous wording
As of December 31, 2024, we and our subsidiaries have production loan facility obligations (“production facilities”) of approximately $9.2 million. We also had an outstanding margin loan of $0.9 million secured by our marketable investment securities as of December 31, 2024. Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements. As well as those of certain of our subsidiaries and related entities acting as guarantors of the production facilities. If the production entities default on those obligations, the lender under the production facilities could foreclose on certain of our assets held by our subsidiaries and related entities who are parties to those production facilities. In addition, the existence of these security interests may adversely affect our financial flexibility. The production facilities and the margin loan are generally repayable on demand and are subject to customary default provisions, representations and warranties and other terms and conditions.
Current wording
As of December 31, 2025, we and our subsidiaries have production loan facility obligations (“production facilities”) of approximately $11.8 million. Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including primarily federal and provincial tax credits and other government incentives, as well as production service agreements and license agreements. As of December 31, 2025, we recorded$16.8 million in tax credit receivables related to Wow’s film and television productions, net of$0.4 million in allowance for credit loss. If the production entities default on their obligations under the production facilities, the lender could foreclose on certain assets held by our subsidiaries and related entities that are parties to those facilities; however, such foreclosure would only apply to the extent any outstanding amounts exceed the related tax credit receivables securing those obligations. As the amounts currently outstanding do not exceed the associated tax credit receivables, these assets are not presently at risk. In addition, the existence of these security interests may adversely affect our financial flexibility. The production facilities and the margin loan are generally repayable on demand and are subject to customary default provisions, representations and warranties, and other terms and conditions.
Previous wording
We face competition from a variety of content creators that sell similar merchandise and have better resources than we do.
Current wording
We face competition from a variety of content creators that sell similar merchandise and have greater resources than we do.
Previous wording
We have sought a competitive advantage by providing “content with a purpose” which are both entertaining and enriching for children and offer differentiated value that parents seek in making purchasing decisions for their children. While we do not believe that this value proposition is specifically offered by our competitors, our competitors have greater financial resources and more developed marketing channels than we do which could impact our ability, through our licensees, to secure shelf space thereby decreasing our revenues or affecting our profitability and results of operations. In addition, new technological developments, including the development and use of generative artificial intelligence (“AI”), are rapidly evolving. If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.
Current wording
We have sought a competitive advantage by providing “content with a purpose” which are both entertaining and enriching for children and offer differentiated value that parents seek in making purchasing decisions for their children. While we do not believe that this value proposition is specifically offered by our competitors, our competitors have greater financial resources and more developed marketing channels than we do, which could negatively impact our ability, through our licensees, to secure shelf space, thereby decreasing our revenues or affecting our profitability and results of operations. In addition, new technological developments, including the development and use of generative artificial intelligence (“AI”), are rapidly evolving. If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.
Previous wording
As part of our business model to manage cash flows, we have partnered with a number of third-party production and animation studios around the world for the production of our new content in which these partners fund the production of the content in exchange for a portion of revenues generated in certain territories. We are reliant on our partners to produce and deliver the content on a timely basis meeting the predetermined specifications for that product. The delivery of inferior content could result in additional expenditures by us to correct any problems to ensure marketability. Further, delays in the delivery of the finished content to us could result in our failure to deliver the product to broadcasters to which it has been pre-licensed. While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect our profitability.
Current wording
As part of our business model to manage cash flows, we have partnered with a number of third-party production and animation studios around the world for the production of our new content in which these partners fund the production of the content in exchange for a portion of the revenues generated in certain territories. We rely on our partners to produce and deliver the content on a timely basis meeting the predetermined specifications for a specified product. The delivery of inferior content could result in additional expenditures by us to correct any problems to ensure marketability. Further, delays in the delivery of the finished content to us could result in our failure to deliver the product to broadcasters to which it has been pre-licensed. While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect our profitability and reputation.
Previous wording
The availability of retailer programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs, are important with respect to promoting our properties. In addition, although we may have agreements for the advertising and promotion of our products through our licensees, we will not be in direct control of those marketing efforts and those efforts may not be done in a manner that will maximize sales of our products and may have a material adverse effect on our business and operations.
Current wording
The availability of retailer programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs, are important with respect to promoting our properties. In addition, although we may have agreements in place for the advertising and promotion of our products through our licensees, we are not and will not be in direct control of those marketing efforts and those efforts may not be done in a manner that will maximize sales of our products and may have a material adverse effect on our business and operations.
Previous wording
We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG.
Current wording
We are exposed to investment risk with the ownership of an equity interest in Your Family Entertainment AG.
Previous wording
During the year ended December 31, 2021, we acquired a material equity interest in a company publicly traded on the Frankfurt Stock Exchange, Your Family Entertainment AG (“YFE”). With an ownership stake of 44.8%, we are exposed to the risk of success of the YFE business. We are also exposed to risk of adverse reactions to the transaction or changes to business relationships; competitive responses; inability to maintain key personnel and changes in general economic conditions in Germany. If YFE fails to perform to our expectations, it could have a material adverse effect on our results of operations or financial condition and liquidity.
Current wording
During the year ended December 31, 2021, we acquired a material equity interest in YFE, a company publicly traded on the Frankfurt Stock Exchange. With an ownership stake of 32.5% as of December 31, 2025, we are exposed to the risk of success of the YFE business. We are also exposed to risk of adverse reactions to the transaction or changes to business relationships; competitive responses; inability to maintain key personnel and changes in general economic conditions in Germany. Germany was in a recession for most of 2025 and 2024, largely due to persistent high inflation and falling household spending. Continued inflation, volatility or recessionary risks in Germany could adversely affect YFE’s business, results of operations and stock price. If YFE fails to perform to our expectations, it could have a material adverse effect on our results of operations or financial condition and liquidity. For example, the fair value of the investment as of December 31, 2025 decreased by net $9.8 million, as compared to December 31, 2024. The net decrease is comprised of the net impact of a decrease in YFE’s stock price, the share sale and exchange transactions completed in the quarter, and the effect of foreign currency remeasurement from EURO to USD. The total change in fair value is recorded within Other Income (Expense), net on the Company’s consolidated statements of operations.
Previous wording
We have expanded into international operations, including the acquisitions of Wow and Ameba, our launch ofKartoon Channel! WW and our investment in YFE. As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion. Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States. We have limited experience with international operations, and further international expansion efforts may not be successful.
Current wording
We have expanded into international operations, including as a result of our acquisitions of Wow and Ameba, our launch ofKartoon Channel! Worldwide and our investment in YFE. As part of our growth strategy, we intend to continue to evaluate potential opportunities for further international expansion. Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States. We have limited experience with international operations, and further international expansion efforts may not be successful.
Previous wording
Wow’s functional currency is the Canadian dollar, therefore their financial results are translated into USD, our reporting currency, upon consolidation of our financial statements. We are then exposed to more significant currency fluctuation risks as a result of the Wow Acquisition. Fluctuations between the foreign exchange rates, in particular the Canadian dollar and the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.
Current wording
Wow's functional currency is the Canadian dollar; therefore their financial results are translated into U.S. dollars, our reporting currency, upon consolidation of our financial statements. We are exposed to more significant currency fluctuation risks as a result of our acquisition of Wow in 2021. Fluctuations between the foreign exchange rates, and in particular the Canadian dollar and the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.
Previous wording
Our ability to compete in the animated content and entertainment industry depends, in part, upon successful protection of our proprietary and intellectual property. We protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited, or no, practical protection in some jurisdictions. It may be possible for unauthorized third parties to copy and distribute our productions or portions of our productions. In addition, although we own most of the music and intellectual property included in our products, there are some titles which the music or other elements are in the public domain and for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights. It is an inherent risk in our industry that people may make such claims with respect to any title already included in our products, whether or not such claims can be substantiated. If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and the resulting diversion of resources could have an adverse effect on our business, operating results or financial condition.
Current wording
Our ability to compete in the animated content and entertainment industry depends, in part, upon successful protection of our proprietary and IP. We protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited, or no, practical protection in some jurisdictions, especially jurisdictions outside of the United States. It may be possible for unauthorized third parties to copy and distribute our productions or portions of our productions. In addition, although we own most of the music and IP included in our products, there are some titles for which the music or other elements are in the public domain and for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights. It is an inherent risk in our industry that people may make ownership or royalty claims with respect to any title already included in our products, whether or not such claims can be substantiated. If litigation is necessary in the future to enforce our IP rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and the resulting diversion of resources could have an adverse effect on our business, operating results or financial condition.
Previous wording
Further, recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. Military conflicts and wars (such as the ongoing conflicts between Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, other geopolitical events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, and supply chain issues created by tariffs threatened by the current U.S. Administration on imports can cause exacerbated volatility and disruptions to various aspects of the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations.
Current wording
Further, recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. Military conflicts and wars (such as the ongoing conflicts between Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, other geopolitical events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, trade wars, and supply chain issues created by tariffs threatened or imposed by the current U.S. Administration on imports can cause exacerbated volatility and disruptions to various aspects of the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations.
Previous wording
Regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, could result in disruption or non-availability of our service or particular content or increased operating costs in the applicable jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property rights.
Current wording
Regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, could result in disruption or non-availability of our services or particular content or increased operating costs in the applicable jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property rights.
Previous wording
Our failure to meet the continued listing requirements of NYSE American could result in a delisting of our common stock.
Current wording
Our failure to meet the continued listing requirements of NYSE American could result in a delisting of our common stock, which would negatively impact the price of our common stock and our ability to access the capital markets.
Previous wording
Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of blank check preferred stock without seeking approval of our shareholders. Any additional preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we will not do so in the future.
Current wording
Our Articles of Incorporation, as amended (our “Articles of Incorporation”), authorize us to issue up to 10,000,000 shares of blank check preferred stock without seeking approval of our shareholders. As of December 31, 2025, 6,000 shares of our authorized preferred stock have been designated as 0% Series A Convertible Preferred Stock, 1 share of our authorized preferred stock has been designated as Series B Preferred Stock, and 50,000 shares of our authorized preferred stock have been designated as Series C Preferred Stock, none of which shares were outstanding. Any preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we will not do so in the future.
Previous wording
We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock.
Current wording
We do not expect to pay dividends on our common stock in the future and any return on investment may be limited to the value of our common stock.
Previous wording
We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as our Board of Directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. If we do not pay dividends, our common stock may be less valuable because the return on investment will only occur if its stock price appreciates.
Current wording
We do not currently anticipate paying cash dividends on shares of our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as our Board of Directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. If we do not pay dividends, our common stock may be less valuable because the return on investment will only occur if its stock price appreciates.
Previous wording
If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to us being current in our periodic reports filed with the SEC.
Current wording
If our stockholders sell substantial amounts of our common stock in the public market or upon shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Previous wording
As of March 31, 2025, approximately 45,486,535 shares of common stock of the 47,784,964 shares of common stock issued are outstanding and freely trading. As of December 31, 2024, there were 25,834,752 warrants outstanding. Lastly, as of December 31, 2024, there are 952,140 shares of common stock underlying outstanding options granted, 2,468,676 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 4,881,094 shares reserved for issuance under our Kartoon Studios, Inc. 2020 Incentive Plan.
Current wording
As of March 31, 2026, approximately 53,898,226 shares of common stock of the 56,336,035 shares of common stock issued are outstanding and freely trading. As of December 31, 2025, there were 41,622,504 warrants outstanding. Lastly, as of December 31, 2025, there are 969,130 shares of common stock underlying outstanding options granted, 1,712,395 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 8,481,135 shares reserved for issuance under our Kartoon Studios, Inc. 2020 Incentive Plan.
Previous wording
In the past we identified material weaknesses in our internal controls, and while most have been remediated, internal control over information technology general control remains ineffective. If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting in future periods may be adversely affected.
Current wording
In the past, we identified material weaknesses in our internal controls. If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting in future periods may be adversely affected.
Previous wording
The Sarbanes-Oxley Act and related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly basis. Effective internal controls are necessary for us to provide timely and reliable financial reports and effectively prevent fraud. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024. We have identified control deficiencies that constituted a material weaknesses in our internal controls and procedures in the past. Most of these material weaknesses have been remediated, but one material weakness remains in the information technology general controls area.
Current wording
The Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly basis. Effective internal controls are necessary for us to provide timely and reliable financial reports and effectively prevent fraud. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025, and determined that our internal control over financial reporting was effective. However, in the past, including as of December 31, 2024, our management identified control deficiencies that constituted material weaknesses in our internal controls and procedures resulting in a determination that our internal control over financial reporting was not effective as of such dates. The material weaknesses, that were previously identified by management, have been remediated, but if we fail to maintain adequate internal controls, our financial statements may not accurately reflect our financial condition. Any material misstatements could require a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in the market value of our securities.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
In the past, our management concluded that, as of December 31, 2023 and March 31, 2024, our internal control over financial reporting was not effective due to the following identified material weaknesses(i) inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or processes; (ii) lack of specialized experts related to income tax areas; and (iii)inappropriate application of accounting standards related to warrant modifications. If we fail to remediate the material weakness that existed as of December 31, 2024 and subsequently maintain adequate internal controls, our financial statements may not accurately reflect our financial condition. Any material misstatements could require a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in the market value of our securities.