Kartoon Studios, Inc.
For the period ended Jun 30, 2026. Filed Aug 14, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Aug 14, 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-Q
Period ended 2026-03-31; filed 2026-05-15.
0001683168-26-003977
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-08-14.
0001683168-26-006405
Item 2. 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 67 previous paragraphs and 101 current paragraphs.
36 unchanged; 27 reworded; 30 added; 2 removed; 2 previous and 8 current paragraphs rearranged.
Tables are not compared: 6 previous and 9 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 (30)
Current report
Section 16(b) Litigation Settlement
Current report
Between May 29, 2026 and June 11, 2026, we entered into settlement agreements with six defendants (the “Settling Parties”) in the action styledTodd Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 (S.D.N.Y.), an action brought under Section 16(b) of the Securities Exchange Act of 1934 by a stockholder on behalf of and for our benefit, in which we were named only as a nominal defendant, seeking disgorgement of alleged short-swing profits realized by certain investors in the 2020 private placements. The Settling Parties agreed to pay aggregate settlement amounts of $78.5 million minus fees and expenses of plaintiff’s counsel (in an amount not yet determined), subject to certain terms and conditions, and the parties agreed to mutual releases. Pursuant to the settlement agreements, 50% of each settlement amount, or $39.2 million in the aggregate, was paid directly to us during June 2026, and the remaining 50% was deposited into escrow to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to us after the applicable approval orders become final. We recognized the $39.2 million received as a non-recurring, non-operating gain, included in Other Income (Expense), net, on our condensed consolidated statements of operations for the three months ended June 30, 2026. In connection with the settlement with the Anson Investments Master Fund LP and its affiliates (collectively, the “Anson Parties”), on June 10, 2026, we entered into a standstill and voting agreement with the Anson Parties, under which we agreed to pay the Anson Parties $4.0 million and the Anson Parties agreed to certain voting commitments and standstill restrictions through June 11, 2027. We recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the condensed consolidated statements of operations for the three months ended June 30, 2026. The related liability was included in current liabilities on the condensed consolidated balance sheet as of June 30, 2026 and was paid in July 2026. In accordance with ASC 450-30-25-1, any residual amounts distributable to us from escrow constitute a gain contingency and will be recognized if and when realized.
Current report
Adoption of Stockholder Rights Plan and Related Measures
Current report
On July 1, 2026, the Board of Directors adopted a Preferred Stock Rights Agreement (a stockholder rights plan), filed a related Certificate of Designation designating 300,000 shares of a new Series D Participating Preferred Stock, and adopted amendments to our Bylaws. The stockholder rights plan is intended as a protective measure to guard against coercive or unfair takeover tactics and the accumulation of a controlling interest in the Company without negotiation with the Company’s Board. The Series D Participating Preferred Stock was designated solely to support the stockholder rights plan; no shares have been issued, and the rights issued under the plan become exercisable only upon the occurrence of certain triggering events. These actions did not affect our financial condition, results of operations or shares of common stock outstanding as of or for the period covered by this report. For additional information, see Note 22,Subsequent Events, to our condensed consolidated financial statements included in this report, Part II, Item 1A,Risk Factors, and our Form 8-K filed with the SEC on July 2, 2026, as amended on July 6, 2026, and our Registration Statement on Form 8-A filed on July 2, 2026.
Current report
On July 8, 2026, we sold all of the issued and outstanding common stock of Frederator Networks, Inc. (“Frederator Networks”), which operated the Frederator Channel network business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June 18, 2026. We will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary, includingBee and PuppyCat, Bravest Warriors, Castlevania, andCatbug, for distribution and product licensing opportunities. The transaction was part of our strategic realignment to focus on monetization of premium intellectual property and franchise development. Upon closing, we ceased to have a controlling financial interest in Frederator Networks. The base purchase price under the purchase agreement was $0.5 million in cash, subject to customary post-closing adjustments for net working capital, indebtedness, and cash and cash equivalents, on a cash-free, debt-free basis. We expect to recognize a loss on disposal of approximately $0.3 million (before income taxes), representing the excess of Frederator Networks’ net carrying amount over the estimated net consideration to be received. This estimate is preliminary, unaudited, and subject to change pending finalization of the post-closing working capital true-up pursuant to the purchase agreement, which is expected to be completed within 60 days of closing. Because the transaction closed after June 30, 2026, Frederator Networks’ assets, liabilities, and results of operations continue to be included in our condensed consolidated financial statements as of and for the three and six months ended June 30, 2026, on a continuing-operations basis. Frederator Networks did not meet the held-for-sale criteria of ASC 360-10-45-9 as of June 30, 2026. Management concluded that the disposition does not represent a strategic shift that has, or will have, a major effect on our operations or financial results, and accordingly, the transaction does not qualify for discontinued-operations presentation under ASC 205-20. In connection with the closing, Frederator Networks, Inc. and Project Robot LLC entered into a three-year Channel Distribution Agreement with Frederator Studios, LLC. Under this arrangement, Frederator Studios, LLC will continue to receive a declining share of net YouTube receipts (85% in year one, decreasing to 5% by year three) generated from certain retained channels through YouTube CMS infrastructure. Frederator Studios, LLC and Frederator Networks, Inc. will each retain a 50% ownership interest in theFrederator trademark. Management does not believe this continuing involvement affects the conclusions and estimates described above.
Current report
Net income for the three months ended June 30, 2026 was $27.0 million, compared to a net loss of $6.3 million for the three months ended June 30, 2025. The increase was primarily attributable to a non-recurring, non-operating gain of $39.2 million from the Section 16(b) litigation settlement received in June 2026. Excluding this one-time gain, we would have incurred a net loss from operations for the three months ended June 30, 2026. As a result, period-over-period comparisons of net income are not indicative of underlying operational performance. For additional information regarding the settlement, see Recent EventsSection 16(b) Litigation Settlement.
Current report
In addition, our results for the three months and six months ended June 30, 2026 include the operations of Frederator Networks, Inc., which was sold on July 8, 2026. In the future, we expect to focus on monetization of premium intellectual property and franchise development. For additional information regarding the Frederator Networks sale, see Recent EventsSale of Frederator Networks, Inc.
Current report
The $1.8 million decrease in general and administrative expenses for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025, was driven by a decrease of $0.7 million in salaries and wages primarily due to the capitalization of certain wages associated with a new film project and reduced headcount, a decrease of $0.6 million in professional fees reflecting reduced use of external consulting services and timing of the annual shareholder meeting costs, a decrease of $0.3 million in various administrative costs, mainly IT infrastructure and other equipment costs, a decrease of $0.1 million in bad debt expense due to certain receivables being written down in prior year quarter, and a gain on disposal of equipment of $0.1 million recorded in the current period. The decrease was partially offset by an increase of $0.1 million in share-based compensation expense due to new awards granted in recent periods.
Current report
On July 8, 2026, we completed the sale of Frederator Networks, Inc. We assessed the Frederator Networks, Inc. asset group for recoverability using the executed Stock Purchase Agreement price as the primary evidence of fair value and determined that any impairment indicated as of June 30, 2026 would be limited to the aggregate shortfall on the transaction of approximately $0.3 million. Because the sale closed on July 8, 2026, this shortfall will be reflected in the loss on deconsolidation of Frederator recognized in the third quarter of 2026. Accordingly, no impairment charge was recorded during the three months ended June 30, 2026. For additional information, see Note 22,Subsequent Events, to the Company’s condensed consolidated financial statements included in this report.
Current report
Revenue
Current report
Production Services
Current report
Content Distribution
Current report
Licensing and Royalties
Current report
Media Advisory and Advertising Services
Current report
Revenue generated by media advisory and advertising services for the six months ended June 30, 2026 decreased by 27% as compared to the six months ended June 30, 2025, primarily due to a reduced number of customer accounts in the period compared to prior period.
Current report
Expenses
Current report
Marketing and Sales
Current report
Direct Operating Costs
Current report
General and Administrative
Current report
Impairment Charge
Current report
On July 8, 2026, we completed the sale of Frederator Networks, Inc. We assessed the Frederator Networks, Inc. asset group for recoverability using the executed Stock Purchase Agreement price as the primary evidence of fair value and determined that any impairment indicated as of June 30, 2026 would be limited to the aggregate shortfall on the transaction of approximately $0.3 million. Because the sale closed on July 8, 2026, this shortfall will be reflected in the loss on deconsolidation of Frederator recognized in the third quarter of 2026. Accordingly, no impairment charge was recorded during the six months ended June 30, 2026. For additional information, see Note 22,Subsequent Events, to the Company’s condensed consolidated financial statements included in this report.
Current report
Three Months and Six Months Ended June 30, 2026
Current report
Three Months and Six Months Ended June 30, 2025
Current report
Liquidity and Capital Resources
Current report
During the six months ended June 30, 2026, we received aggregate cash of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The Settling Parties agreed to pay us aggregate settlement amounts of $78.5 million minus fees and expenses of plaintiff’s counsel (in an amount not yet determined), subject to certain terms and conditions, and the parties agreed to mutual releases. Pursuant to the settlement agreements, 50% of each settlement amount, or $39.2 million in the aggregate, was paid directly to us during June 2026, and the remaining 50% was deposited into escrow to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to us after the applicable approval orders become final. These receipts are non-recurring and non-operating in nature and do not represent a source of operating cash flow. We used a significant portion of these receipts to purchase $32.3 million of available-for-sale securities, primarily U.S. Treasury securities. As a result, the settlement receipts are reflected principally in the marketable securities balance rather than in the ending cash balance. We hold these securities as a source of liquidity and expect to draw on them to fund working capital and operating requirements. We have not received, and have not recognized, the portion of the settlement deposited into escrow. Any residual amounts distributable to us will become available as a source of liquidity if and when realized. On June 10, 2026, we entered into a standstill and voting agreement with the Anson Parties, under which we agreed to pay the Anson Parties $4.0 million for certain voting commitments and standstill restrictions through June 11, 2027.
Current report
Subsequent to June 30, 2026, we sold our interest in Frederator Networks, Inc. for $0.5 million, subject to customary post-closing adjustments for net working capital, indebtedness, and cash and cash equivalents, on a cash-free, debt-free basis. Frederator Networks was not a material contributor to our consolidated operating cash flows, and the sale is not expected to have a material adverse effect on our liquidity. In connection with the sale, we entered into a three-year Channel Distribution Agreement under which we will receive a declining share of net YouTube receipts generated by certain retained channels. For additional information, see Recent Events -Sale of Frederator Networks, Inc.
Current report
During the six months ended June 30, 2026, we received $39.2 million in direct cash proceeds from the settlement of the Section 16(b) litigation, which we have substantially deployed into available-for-sale marketable securities as a source of liquidity. Management has evaluated the significance of these conditions in relation to our ability to meet our obligations and noted that we have sufficient cash, marketable securities and investments to fund operations for the next 12 months from the issuance date of this 10-Q.
Current report
As of June 30, 2026, we had access to production facilities with an outstanding balance of $12.9 million. Our production facilities are generally repayable on demand and bear interest at rates ranging from bank prime plus 1.00% to 1.25% per annum. Borrowings under these facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including federal and provincial tax credits and production service agreements. We expect to continue utilizing production facilities to finance specific productions as projects advance through the production pipeline. For additional information regarding our production facilities, see Note 12, Bank Indebtedness and Production Facilities, to our condensed consolidated financial statements.
Current report
Change in operating activities of $37.7 million during the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, include an increase in net income of $33.4 million driven primarily by the legal settlement cash receipts, an increase of $5.6 million in net non-cash expense adjustments, and an increase of $1.3 million in cash flows from operating assets activity, offset by a decrease of $2.6 million in cash flows from operating liabilities activity.
Current report
In addition, we expect to incur significant production costs in connection with the development and launch ofHundred Acre Wood’s: Winnie and Friends, which is scheduled to premiere with preliminary activities in Q4 2026 and a full launch anticipated in Q1 2027. We expect to fund these production costs through a combination of existing cash and marketable securities, production facilities, and potential licensing and distribution advances.
Removed paragraphs (2)
Previous report
Liquidity, Going Concern, and Capital Resources
Previous report
Going Concern
Reworded paragraphs (27)
Previous 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. The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three months ended March 31, 2026 and 2025. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 31, 2026 (“The 2025 Annual Report”), and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or …
Excerpt shortened here; the source contains the full paragraph.
Current wording
Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on March 31, 2026 (“The 2025 Annual Report”), and elsewhere in this Report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.
Previous wording
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. Mainframe Studios is currently engaged in the production of numerous owned IP and for-hire projects spanning a range of formats and target audiences, includingPhoebe & Jay, It's Andrew, Unicorn Academy, andSuperKitties. This content is being produced for leading platforms and broadcasters such as Disney Junior, PBS Kids, Netflix, Canadian Broadcasting Corporation, and the Australian Broadcasting Corporation, among others. These projects are at various stages of production and delivery, with certain titles completed during the prior year and others expected to be delivered through 2026.
Current wording
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. Mainframe Studios is currently engaged in the production of numerous owned IP and for-hire projects spanning a range of formats and target audiences, includingPhoebe & Jay, It’s Andrew, andSuperKitties. This content is being produced for leading platforms and broadcasters such as Disney Junior, PBS Kids, Netflix, CBC, and the Australian Broadcasting Corporation, among others. These projects are at various stages of production and delivery, with certain titles completed during the prior year and others expected to be delivered through 2026.
Previous wording
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 asRainbow 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 wording
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 asRainbow 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. Subsequent to the end of the quarter, the Company sold its interest in Frederator Networks, Inc. For additional information, see Recent Events,Sale of Frederator Networks, Inc.
Previous wording
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 wording
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 Frederator’s creator network,Channel Frederator Network. Additionally, advertising revenue is derived fromKartoon Channel! branded channels on Free Ad Supported Streaming TV services. Subsequent to the end of the quarter, the Company sold its interest in Frederator Networks, Inc. In connection with such sale, the Company entered into a three-year Channel Distribution Agreement. For additional information, see Recent Events,Sale of Frederator Networks, Inc.
Previous wording
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’s: 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 in 2026 and beyond.
Current wording
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’s: Winnie and 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 in 2026 and beyond.
Previous wording
On August 27, 2025, we entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act of 1933, as amended (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 makes payments to our vendors in cash and, in exchange, we issue shares of common stock to CCI. The settlement was valued at 1.75 shares of common stock per $1 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 completed in the year ended December 31, 2025.
Current wording
On November 18, 2025, we entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with CCI, to settle an additional $1.0 million of accounts payable in exchange for issuing 1,695,072 shares of common stock. Under the terms of the agreement, CCI makes payments to our vendors in cash and, in exchange, we issued shares of common stock to CCI. The settlement was valued at 1.75 shares of common stock per $1 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. During the six months ended June 30, 2026, we settled $0.6 million of accounts payable and issued an aggregate of 977,360 shares of common stock to CCI. During the six months ended June 30, 2026, 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 our condensed consolidated statements of operations. The transaction was carried out in stages and completed as of June 30, 2026.
Previous wording
On November 18, 2025, we entered into a new agreement to settle an additional $1.0 million of accounts payable under Section 3(a)(10) of the Securities Act with CCI, in exchange for issuing 1,695,072 shares of common stock. The terms were consistent with the original arrangement. As of March 31, 2026 we had completed the arrangement, settling a total of $1.0 million of accounts payable and issuing an aggregate of 1,695,072 shares of common stock. During the three months ended March 31, 2026, we settled an aggregate of $0.6 million of accounts payable, issued 977,360 shares of common stock to CCI, and 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 condensed consolidated statements of operations.
Current wording
On April 8, 2026, we entered into a new agreement to settle an aggregate of $1.1 million of outstanding accounts payable under Section 3(a)(10) of the Securities Act with CCI, in exchange for issuing 2,001,797 shares of common stock, and to settle an additional past obligations up to $0.3 million in exchange for issuing 551,250 shares of common stock. The terms were consistent with the November 2025 arrangement. The transaction was carried out in stages and completed as of June 30, 2026. During the three months ended June 30, 2026, we recognized a loss of $0.6 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 condensed consolidated statements of operations.
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 three months ended March 31, 2026 was 38% lower than the production services revenue recognized during the three months ended March 31, 2025. The decrease was primarily due to the timing of production deliveries at Mainframe Studios, with several projects shifting from the first quarter into later periods in 2026, reducing the proportion of costs incurred relative to total estimated project costs. In contrast, the comparable prior year period benefited from multiple projects simultaneously entering advance production phases, resulting in a higher concentration of production activity and correspondingly higher revenue recognized under the percentage of completion method.
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 three months ended June 30, 2026 was 53% lower than the production services revenue recognized during the three months ended June 30, 2025. The decrease was primarily due to the timing of production deliveries at Mainframe Studios, with several projects shifting from the first quarter into later periods in 2026, reducing the proportion of costs incurred relative to total estimated project costs. In contrast, the comparable prior year period benefited from multiple projects simultaneously entering advanced production phases, resulting in a higher concentration of production activity and correspondingly higher revenue recognized under the percentage of completion method.
Previous wording
Revenue related to our licensing and royalties for the three months ended March 31, 2026 decreased by 13% as compared to the three months ended March 31, 2025, primarily attributable to timing differences in revenue recognition from our existing license deals.
Current wording
Revenue related to our licensing and royalties for the three months ended June 30, 2026 decreased by 29% as compared to the three months ended June 30, 2025, primarily attributable to timing differences in revenue recognition from our existing license deals.
Previous wording
Revenue generated by media advisory and advertising services for the three months ended March 31, 2026 decreased by 8% as compared to the three months ended March 31, 2025, primarily due to lower net renewal activity and media purchases from clients, which were impacted by continued U.S. tariffs legislative uncertainty.
Current wording
Revenue generated by media advisory and advertising services for the three months ended June 30, 2026 decreased by 47% as compared to the three months ended June 30, 2025, primarily due to a reduced number of customer accounts in the period compared to the prior period.
Previous wording
Marketing and sales expenses for the three months ended March 31, 2026 increased by approximately 3% as compared to the three months ended March 31, 2025. The increase is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting no significant changes in the Company's corporate awareness initiatives or advertising activities.
Current wording
Marketing and sales expenses for the three months ended June 30, 2026 decreased by approximately 17% as compared to the three months ended June 30, 2025. The decrease is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting no significant changes in the Company’s corporate awareness initiatives or advertising activities.
Previous wording
Direct operating costs during the three months ended March 31, 2026 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 29% decrease was primarily due to lower salary costs by $2.5 million driven by a lower headcount included in Production Services related to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current period. The decrease in direct operating costs was partially offset by an increase of $0.3 million in film amortization expense and an increase of $0.2 million in participation expenses arising from new contractual agreements entered into during the period as well as existing agreements, consistent with the corresponding increase in owned-IP revenue.
Current wording
Direct operating costs during the three months ended June 30, 2026 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 35% decrease was primarily due to lower salary costs by $2.2 million driven by a lower headcount in Production Services related to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current period and a decrease of $0.6 million of direct costs related to Frederator Networks. The decrease in direct operating costs was partially offset by an increase of $0.2 million in film amortization expense and an increase of $0.1 million in participation expenses arising from new contractual agreements entered into during the period as well as existing agreements, consistent with the corresponding increase in owned-IP revenue.
Previous wording
During the three months ended March 31, 2026 and March 31, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible assets for impairment. As a result, we concluded that impairment charges to those assets were not required. Furthermore, we concluded that no indicators of impairment or triggering events were identified during the periods.
Current wording
During the three months ended June 30, 2026 and June 30, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets and our indefinite-lived intangible assets for impairment. No indicators of impairment or triggering events were identified during the periods, and we concluded that no impairment charges were required.
Previous wording
Revenue related to content distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including advertising sales for the three months ended March 31, 2026, increased by 15% as compared to the three months ended March 31, 2025. The increase was primarily driven by revenue recognized from the delivery of episodes of Wow’s*It’s Andrew!*IP Project of $0.2 million, distribution revenue from other Wow IP of $0.6 million and an increase in sales activity of Ameba and Kartoon Channel divisions by $0.1 million. The increase was partially offset by a decline in content revenue from Frederator’s creator network on YouTube of $0.6 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The decrease in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period.
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 six months ended June 30, 2026, increased by 4% as compared to the six months ended June 30, 2025. The increase was primarily driven by revenue recognized from the delivery of episodes of Mainframe’s*It’s Andrew!*IP Project and distribution revenue from other Mainframe IP of $1.2 million, and an increase in sales activity of Ameba and Kartoon Channel divisions by $0.2 million. The increase was partially offset by a decline in content revenue from Frederator’s creator network on YouTube of $1.2 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The decrease in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period.
Previous wording
The $0.6 million decrease in general and administrative expenses for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, was driven by a decrease of $0.5 million in salaries and wages and a decrease of $0.3 million in professional fees, reflecting reduced use of external consulting services. The decrease was partially offset by an increase of $0.1 million in share-based compensation expense due to new awards granted in recent periods and an increase of $0.1 million in other administrative costs, mainly IT infrastructure and other equipment costs.
Current wording
The $2.3 million decrease in general and administrative expenses for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, was driven by a decrease of $1.2 million in salaries and wages primarily due to the capitalization of certain wages associated with a new film project and reduced headcount, a decrease of $0.9 million in professional fees, reflecting reduced use of external consulting services and timing of the annual shareholder meeting costs, a decrease of $0.2 million in other administrative costs, mainly IT infrastructure and other equipment costs, and a gain on disposal of equipment of $0.1 million recorded in the current period. The decrease was partially offset by an increase of $0.2 million in share-based compensation expense due to new awards granted in recent periods.
Previous wording
As of March 31, 2026, we had cash of $5.0 million, which increased by $2.1 million as compared to December 31, 2025. The increase was primarily due to cash provided by investing activities of $2.9 million, cash provided by financing activities of $1.8 million, and the effect of exchange rate of $0.2 million, offset by cash used in operating activities of $2.9 million. The cash provided by investing activities of $2.9 million was primarily due to proceeds from the sale and maturities of marketable securities. The cash provided by financing activities of $1.8 million, was primarily due to the drawdowns, net of repayments and debt issuance costs, from production facilities. The cash used in operating activities of $2.9 million was primarily due to net loss of $6.4 million, and net change in operating asset and liabilities of $2.3 million, partially offset by net change in non-cash adjustments of $5.9 million.
Current wording
As of June 30, 2026, we had cash of $7.7 million (which does not include cash held in escrow from the Section 16(b) litigation settlement described above), which increased by $4.8 million as compared to December 31, 2025. The increase was primarily due to cash provided by operating activities of $31.4 million, cash provided by financing activities of $1.7 million, and the effect of exchange rate of $0.5 million, offset by cash used in investing activities of $28.8 million. The cash provided by operating activities of $31.4 million was primarily due to net income of $20.5 million, and a favorable impact of net change in non-cash adjustments of $15.1 million, partially offset by a net use of cash related to operating assets and liabilities of $4.2 million. Net income was driven primarily by a non-recurring and non-operating cash receipt of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The cash provided by financing activities of $1.7 million was primarily due to the drawdowns, net of repayments and debt issuance costs, from production facilities of $1.2 million, proceeds from a warrant exercise of $0.6 million, partially offset by finance lease payments of $0.1 million. The cash used in investing activities of $28.8 million was primarily due to the investment of the settlement proceeds in marketable securities of $32.8 million, offset by the proceeds received from the redemption of marketable securities purchased in prior periods of $4.0 million.
Previous wording
As of March 31, 2026, we held available-for-sale marketable securities with a fair value of $1.0 million. A decreaseof$3.0 millionas compared to December 31, 2025, was due to a sale of securities during the three months ended March 31, 2026. The available-for-sale securities consist principally of government debt securities and are also available as a source of liquidity.
Current wording
As of June 30, 2026, we held available-for-sale marketable securities with a fair value of $32.8 million, compared to $4.0 million as of December 31, 2025, representing an increase of $28.8 million. The increase was primarily due to purchases of $32.3 million of securities funded by the proceeds received under the Section 16(b) litigation settlement, together with $0.5 million of securities purchased in May 2026, partially offset by $4.0 million of securities redeemed upon maturity during the six months ended June 30, 2026. The available-for-sale securities consist principally of U.S. Treasury securities and are available as a source of liquidity.
Previous wording
As of March 31, 2026, we had total current assets of $30.7 million, including cash of $5.0 million, and marketable securities of $1.0 million, and our total current liabilities were $31.4 million. We had negative working capital of $0.7 million as of March 31, 2026 as compared to working capital of $2.3 million as of December 31, 2025. Thedecreaseof$3.0 millionwas due to a decrease of $5.0 million in current assets, offset by a decrease of $2.0 million in current liabilities compared to the balances as of December 31, 2025. The decrease in current assets is primarily driven by a decrease of $6.3 million in accounts receivable related to the timing of contractual billing milestones in production projects, a decrease of $3.0 million in marketable securities investments due to the sale of a portion of the marketable securities, offset by an increase of $2.1 million in cash primarily due to proceeds from the sale of a portion of the marketable securities, an increase of $1.7 million in production tax credit receivabledue to recognized credits for the ongoing projects, an increase of $0.3 million in prepaid expenses, and an increase of $0.2 million in other receivable due to collection of insurance proceeds related to previously filed claims. The decrease in current liabilities is primarily driven by a decrease of $5.0 million in accounts payable driven by the settlements under Section 3(a)(10) of the Securities Act, a decrease of $0.8 million in deferred revenue balance related to revenue recognized under the percentage-of-completion method on production projects, offset by an increase of $1.8 million in accrued expenses related mainly to billing timing and insurance policy renewals, and an increase of $1.8 million in production facilities due to advance stages of production projects. During the three months ended March 31, 2026, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation.
Current wording
As of June 30, 2026, we had total current assets of $63.0 million, including cash of $7.7 million, and marketable securities of $32.8 million, and our total current liabilities were $31.6 million. We had working capital of $31.4 million as of June 30, 2026 as compared to working capital of $2.3 million as of December 31, 2025. Theincreaseof$29.1 millionwas due to an increase of $27.3 million in current assets and a decrease of $1.9 million in current liabilities compared to the balances as of December 31, 2025. The increase in current assets is primarily driven by an increase of $28.8 million in marketable securities investments due to investments of a portion of the cash proceeds from the settlement of the Section 16(b) litigation in the marketable securities, an increase of $4.8 million in cash primarily due to the remaining settlement proceeds not allocated to marketable securities, an increase of $0.8 million in prepaid expenses, and an increase of $0.7 million in production tax credit receivabledue to recognized credits for the ongoing projects, offset by a decrease of $7.6 million in accounts receivable related to the timing of contractual billing milestones in production projects and a decrease of $0.2 million in other receivables due to collection of insurance proceeds related to previously filed claims. The decrease in current liabilities is primarily driven by a decrease of $6.4 million in accounts payable primarily within the Media Advisory and Advertising Services segment, driven by the seasonality of the business, as sales peak during the holiday season, a decrease of $1.7 million in deferred revenue balance related to revenue recognized under the percentage-of-completion method on production projects, offset by a standstill agreement payable of $4.0 million which was outstanding as of June 30, 2026, an increase of $1.1 million in production facilities due to advance stages of production projects, an increase of $1.0 million in accrued expenses related mainly to billing timing and insurance policy renewals, and an increase of $0.1 million in participation payable due to timing of production related participant distributions.
Previous wording
Based on our current expected level of operating expenditures and the cash and cash equivalents on hand at March 31, 2026, 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. We continue to navigate macroeconomic challenges in the animation and advertising industries, including ongoing government tariffs and intensified competition. In the prior periods, we have demonstrated resilience in our financing activities, having successfully raised net proceeds through public offerings. In parallel, management also plans to preserve liquidity, as needed, by implementing cost saving measures. For example, during the three months ended March 31, 2026, in order to improve liquidity, we settled $0.6 million of outstanding accounts payable in a transaction under Section 3(a)(10) of the Securities Act. 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. There can be no assurance that we will be able to complete any 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 wording
During the six months ended June 30, 2026, we met our immediate cash requirements through existing cash balances. We continue to navigate macroeconomic challenges in the animation and advertising industries, including ongoing government tariffs and intensified competition. In the prior periods, we have demonstrated resilience in our financing activities, having successfully raised net proceeds through public offerings, and continue to explore opportunities to further strengthen our financial position. In parallel, management also plans to preserve liquidity, as needed, by implementing cost saving measures. For example, during the six months ended June 30, 2026, in order to improve liquidity, we settled approximately $1.7 million of outstanding accounts payable in transactions under Section 3(a)(10) of the Securities Act. Additionally, we also used equity and equity-linked instruments to pay for services and compensation.
Previous wording
Comparison of Cash Flows for the Three Months Ended March 31, 2026 and March 31, 2025
Current wording
Comparison of Cash Flows for the Six Months Ended June 30, 2026 and June 30, 2025
Previous wording
Our total cash as of March 31, 2026 and March 31, 2025 was $5.0 million and $2.8 million, respectively.
Current wording
Our total cash as of June 30, 2026 and June 30, 2025 was $7.7 million and $2.6 million, respectively.
Previous wording
Items necessary to reconcile net loss to cash used in operating activities included net non-cash expenses of $5.9 million for the three months ended March 31, 2026 as compared to net non-cash expenses of $4.6 million for the three months ended March 31, 2025. The increase of $1.3 million in non-cash expenses compared to prior year was primarily due to an increase of $0.6 million non-cash adjustment due to stock issued for services, the absence of $0.4 million gain on warrant revaluation recorded in prior year, an increase of $0.3 million in Film and Television amortization related to the projects delivered in prior year, an increase of $0.1 million in stock-based compensation expense due to new awards granted, and a loss of $0.8 million related to accounts payable debt settlement transactions. Additionally, we recorded a noncash reduction of $0.6 million in accounts payable due to corresponding stock issuances to CCI. These movements were offset by a $0.8 million net decrease in loss on debt settlement, reflecting a $1.0 million loss on the related party loan settlement in the prior year compared to a $0.2 million loss on accounts payable settlement transactions in the current year.
Current wording
Items necessary to reconcile net loss to cash provided by operating activities included net non-cash expenses of $15.1 million for the six months ended June 30, 2026 as compared to net non-cash expenses of $9.5 million for the six months ended June 30, 2025. The increase of $5.6 million in non-cash expenses compared to prior year was primarily due to a $4.0 million accrued expense related to the standstill agreement recorded in the current period, an increase of $2.0 million non-cash adjustment due to stock issued for services, an absence of foreign currency YFE investment remeasurement recorded in the six months ended June 30, 2025 resulting in a $1.9 million change compared to the prior year, a noncash reduction of $1.7 million in accounts payable due to corresponding stock issuances to CCI, an increase of $0.8 million in loss on debt settlement related to the transaction under Section 3(a)(10) of the Securities Act of 1933, an increase of $0.4 million in Film and Television amortization related to the projects delivered in prior year, and an increase of $0.2 million in stock-based compensation expense due to new awards granted. These movements were offset by a decrease of $3.9 million in expense related to fair value adjustment of YFE investment, an absence of $1.3 million loss on debt related to the settlement agreement of the loan from related party recorded in prior year period, and an absence of $0.2 million loss related to revaluation of the warrants recorded in prior year period.
Previous 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 $2.3 million in cash during the three month ended March 31, 2026, and an increase of $0.2 million in cash during the three month ended March 31, 2025. The changes resulted in a net decrease in operating asset and liability cash flows of $2.5 million compared to prior year. This was primarily due to a decrease in net cash flows generated by the operating assets activity by $3.1 million, partially offset by a decrease in cash flows used by the operating liabilities by $0.6 million. The decrease in cash flows from operating activities by $3.1 million was primarily driven by a lower reduction in operating assets during the year, which generated less cash than in the comparative period. This was due to lower net receipts of tax credits during the current period by $4.1 million and higher capitalized costs related to ongoing productions by $1.2 million, and an unfavorable impact of $0.1 million attributable to other receivables, offset by cash flows generated by net receipts of outstanding accounts receivable by $1.9 million and less cash spent on prepaid services by $0.4 million. The decrease in cash flows used by the operating liabilities by $0.6 million was primarily due to generally less accounts payable settled in cash by $1.0 million, an increase of $0.5 million in accrued expenses representing additional costs recognized during the period that were outstanding as of March 31, 2026, offset by an unfavorable impact of deferred revenue movement of $0.8 million representing revenue recognized related to cash received in advance in prior periods, and a decrease of $0.1 million related to timing of Mainframe production costs accruals.
Current wording
Change in cash provided by 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 net decrease of $4.2 million in cash during the six months ended June 30, 2026, as compared to a net decrease of $2.9 million in cash during the six months ended June 30, 2025. The changes resulted in an increase in use of cash related to operating asset and liability cash flows of $1.3 million compared to prior year. This was primarily due to a decrease in cash flows from the operating liabilities by $2.6 million, offset by an increase in net cash flows generated by the operating assets activity by $1.3 million. The decrease in cash flows used by the operating liabilities by $2.6 million was primarily due to unfavorable impact of deferred revenue movement of $1.7 million representing revenue recognized related to cash received in advance in prior periods, generally more accounts payable settled in cash by $1.2 million, an unfavorable impact of lower accrued salaries and wages costs of $0.6 million, and an unfavorable impact of lower media purchases accrued expenses of $0.2 million, offset by favorable impact of accrued participation costs movement of $0.5 million due to timing of payment obligation and an increase of $0.3 million related to timing of Mainframe production costs accruals. Net cash flows generated by the operating assets activity by $1.3 million compared to the prior year period was due to generally higher net receipts of outstanding accounts receivable by $2.5 million, a favorable impact of $0.4 million attributable to other receivables, partially offset by higher capitalized costs related to ongoing productions by $1.1 million, lower net receipts of tax credits during the current period by $0.4 million and more cash spent on prepaid services by $0.1 million as compared to the prior year period.
Previous wording
The increase in cash provided by investing activities of $4.1 million was primarily due to an increase in proceeds from the sales and maturities of marketable securities of $2.3 million during the three months ended March 31, 2026. In addition, during the three months ended March 31, 2025, we invested a portion of the financing proceeds from the prior year offering in the marketable securities totaling to $1.8 million.
Current wording
The cash used in investing activities increased by $30.1 million, primarily due to investment of a portion of the legal settlement proceeds in the marketable securities totaling to $31.0 million, partially offset by an increase in proceeds from the redemption of marketable securities of $0.8 million during the six months ended June 30, 2026.
Previous wording
The increase in cash provided by financing activities of $4.3 million was primarily due to a decrease in repayments of our production facilities and margin loan of $5.0 million, and a decrease in borrowings from our margin loan and production facilities of $0.7 million during the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.
Current wording
The increase in cash provided by financing activities of $1.9 million was primarily due to higher net proceeds from borrowing from our margin loan and production facilities of $1.2 million during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025, proceeds from warrants exercise of $0.6 million, and lower finance leases payments by $0.1 million.
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 $30.1 million as of March 31, 2026, of which $20.1 million could be owed within one year. Included in the amount that could be due within one year is the production facilities balance of $13.7 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 $26.9 million as of June 30, 2026, of which $16.8 million could be owed within one year. Included in the amount that could be due within one year is the production facilities balance of $12.9 million.
Previous wording
As of March 31, 2026, we had $0.3 million in commitments for capital expenditures, related to equipment leases.
Current wording
As of June 30, 2026, we had $0.2 million in commitments for capital expenditures, related to equipment leases.
Rearranged current paragraphs (8)
Current report — wording carried from elsewhere
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. The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three and six months endedJune 30, 2026 and June 30, 2025*.*
Current report — wording carried from elsewhere
Revenue related to content distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including advertising sales for the three months ended June 30, 2026, decreased by 7% as compared to the three months ended June 30, 2025. The decrease of $0.1 million was due to a decrease in Frederator’s creator network revenue from YouTube by $0.7 million driven by overall less viewership as compared to the prior year period, partially offset by an increase in Mainframe content distribution revenue by $0.4 million due to delivery of episodes of Mainframe’s*It’s Andrew!*IP Project and distribution revenue from other Mainframe IP, and an increase in sales activity of Ameba and Kartoon Channel divisions by $0.2 million.
Current report — wording carried from elsewhere
Our summary results for the six months ended June 30, 2026 and 2025 are below:
Current report — wording carried from elsewhere
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 six months ended June 30, 2026 was 46% lower than the production services revenue recognized during the six months ended June 30, 2025. The decrease was primarily due to the timing of production deliveries at Mainframe Studios, with several projects shifting from the first quarter into later periods in 2026, reducing the proportion of costs incurred relative to total estimated project costs. In contrast, the comparable prior year period benefited from multiple projects simultaneously entering advance production phases, resulting in a higher concentration of production activity and correspondingly higher revenue recognized under the percentage of completion method.
Current report — wording carried from elsewhere
Revenue related to our licensing and royalties for the six months ended June 30, 2026 decreased by 21% as compared to the six months ended June 30, 2025, primarily attributable to timing differences in revenue recognition from our existing license deals.
Current report — wording carried from elsewhere
Marketing and sales expenses for the six months ended June 30, 2026 decreased by approximately 6% as compared to the six months ended June 30, 2025. The decrease is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting no significant changes in the Company’s corporate awareness initiatives or advertising activities.
Current report — wording carried from elsewhere
Direct operating costs during the six months ended June 30, 2026 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 32% decrease was primarily due to lower salary costs of $4.0 million driven by a lower headcount in Production Services related to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current quarter, a decrease of $1.2 million of direct costs related to Frederator Networks and the elimination of $0.1 million from the restructuring of our international operations. The decrease in direct operating costs was partially offset by an increase of $0.5 million in film amortization expense and an increase of $0.3 million in participation expenses arising from new contractual agreements entered into during the period as well as existing agreements, consistent with the corresponding increase in owned-IP revenue. Additionally, $0.1 million in product development costs was not capitalized.
Current report — wording carried from elsewhere
During the six months ended June 30, 2026 and June 30, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets and our indefinite-lived intangible assets for impairment. No indicators of impairment or triggering events were identified during the periods, and we concluded that no impairment charges were required.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
On April 8, 2026, we entered into a new agreement to settle an additional $1.1 million of accounts payable under Section 3(a)(10) of the Securities Act with CCI, in exchange for issuing 2,001,797 shares of common stock, and to settle additional obligations up to $0.3 million in exchange for issuing 551,250 shares of common stock. The terms were consistent with the original arrangement.
Previous report — wording carried elsewhere
Three Months Ended March 31, 2026 and March 31, 2025