Kartoon Studios, Inc.

As of June 30, 2026, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, other than as described below. Each of the proceedings described below was previously reported in Part I, Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 31, 2026 (the “2025 Annual Report”), and in Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (the “Q1 2026 Form 10-Q”), which descriptions are incorporated herein by reference. The following summarizes material developments during the quarter ended June 30, 2026.

Securities Litigation:

As previously reported, the Company and its Chief Executive Officer Andy Heyward are defendants in a putative securities class action pending in the U.S. District Court for the Central District of California, styled In re Genius Brands International, Inc. Securities Litigation, Master File No. 2:20-cv-07457 DSF (RAOx). Plaintiffs seek unspecified damages on behalf of a putative class of persons who invested in the Company’s common stock during the alleged class period. Following the District Court’s February 4, 2025 and August 5, 2025 orders, a single alleged misstatement under Plaintiffs’ Third Amended Complaint remains at issue in the case. The alleged misstatement appeared in a press release issued March 17, 2020, and was repeated in a shareholder letter issued March 20, 2020. It stated that the Nickelodeon cable platform Nick Jr. had increased its airing of the Company’s cartoon series Rainbow Rangers to 26 times a week. Plaintiffs claim this statement was false and was issued with an intent to deceive investors. Defendants have denied and continue to deny any wrongdoing.

As previously reported, the parties mediated the dispute, together with the shareholder derivative actions referenced below, before Phillips ADR in December 2024. The case did not settle during the mediation. In light of the District Court’s February 4, 2025 order, the mediator reached out to the parties to determine whether there is a basis now to resolve the dispute. The mediator has not reported back concerning his discussions with Plaintiffs’ counsel. The Company cannot predict whether the parties will decide to continue with mediation or, if they do, whether they will be able to reach a settlement of the case and of the related shareholder derivative litigation on terms acceptable to the parties. The Company cannot predict the outcome of the securities class action.

At the status conference held January 12, 2026, the Court referred the case to Magistrate Judge Oliver to resolve questions about the scope of discovery and concerning proposals by Defendants to streamline the Defendants’ formal Answer to the Third Amended Complaint, in both cases to focus on the small portion of the Third Amended Complaint remaining. Since that time, the parties have served discovery demands and responses, and Judge Oliver has resolved a number of discovery disputes in a manner that has limited the scope of discovery being sought by Plaintiffs. Additionally, Plaintiffs designated a few dozen paragraphs of their Third Amended Complaint that they felt should be formally answered by Defendants, and Defendants have filed their Answer. Discovery is ongoing, with both parties having substantially completed their document productions. The Court has not issued a scheduling order.

Shareholder Derivative Actions:

There have been no material developments during the quarter in the previously reported shareholder derivative actions, including Cohen v. Heyward, et al., Case No. A-25-929617-C (District Court of Clark County, Nevada). The Company is named only as a nominal defendant, and the plaintiffs seek no recovery from the Company. All of the derivative actions remain stayed, or are expected to be stayed, pending the outcome of the securities class action, whose outcome, and therefore the outcome of the derivative actions, the Company cannot predict.

Section 16(b) Litigation:

As previously reported, the Company is a nominal defendant in Todd Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 AS (S.D.N.Y.), an action brought under Section 16(b) of the Exchange Act by a stockholder on behalf and for the benefit of the Company. The action seeks disgorgement of alleged short-swing profits realized by certain investors in the Company’s 2020 private placements. No Company officer or director is among the defendants. The plaintiff seeks no relief from the Company, and the Company stands to receive any recovery obtained in the action.

Settlements with six of the eight defendants. Between May 29, 2026 and June 11, 2026, the Company and plaintiff’s counsel entered into settlement agreements with six of the eight defendants, resolving the plaintiff’s claims against those defendants subject to the terms and conditions of the settlement agreements. The settling parties agreed to pay aggregate settlement amounts of approximately $78.5 million (gross of plaintiff’s counsel’s fees and expenses, which have not yet been awarded), and the parties agreed to mutual releases. The settling defendants also waived any indemnity claims against the Company relating to the action. Fifty percent of each settlement amount, or $39.2 million in the aggregate, was paid directly to the Company during June 2026. The remaining fifty percent was deposited into escrow to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to the Company after the applicable approval orders become final. Plaintiff’s application for attorneys’ fees and expenses is expected to occur in the coming months. In connection with the settlement with the Anson Investments Master Fund LP and its affiliates, on June 10, 2026, the Company entered into a standstill and voting agreement under which the Company agreed to pay the Anson parties $4.0 million. This amount was paid in July 2026. For the accounting treatment of the settlement receipts, the escrowed balance, and the standstill and voting agreement, see Note 1 and Note 2 to the condensed consolidated financial statements.

Trial as to the non-settling defendants. The Court held trial beginning June 8, 2026 and concluding June 18, 2026, after which the jury returned a verdict in favor of the two non-settling defendants and awarded no damages. Following the verdict, plaintiff’s counsel filed a motion for judgment as a matter of law and, in the alternative, for a new trial. If the motions are denied, the Company anticipates the plaintiff will appeal to the United States Court of Appeals for the Second Circuit. Should the Court of Appeals rule in the plaintiff’s favor, the Company may have an opportunity to recover funds from the non-settling defendants, whether through a judgment as a matter of law or a favorable verdict in a second trial. If the jury verdict is instead upheld, the case will conclude with no further damages awarded. The Company cannot predict the outcome of the pending motions, any future appeal, or a potential second trial.

As previously reported in the Q1 2026 Form 10-Q, one of the non-settling defendants, Empery Asset Management and affiliated entities, filed an action against the Company styledEmpery Asset Master Ltd., et al. v. Kartoon Studios, Inc., Index No. 650906/2026 (Supreme Court of the State of New York, New York County). The action alleges breach of contract and seeks declaratory relief in connection with the Company’s denial of their indemnification demands, with damages of approximately $3.5 million plus a declaration that the Company is obliged to advance their defense expenses on an ongoing basis. During the quarter, following the parties’ stipulation, the federal court entered an order on May 13, 2026 remanding the action to state court. On June 22, 2026, Empery filed an amended complaint adding the second non-settling defendant, Brio Capital Master Fund Ltd. and an affiliated entity, as additional plaintiffs and asserting damages of over $10 million. The Company filed its answer responding to the amended complaint on July 28, 2026. The Company denies all liability.

As previously reported, the Company’s indemnification matter with its placement agent, Special Equities Group (“SEG”), arising from a non-party subpoena in the Augenbaum litigation, was resolved by an amicable agreement between the parties. The Company’s agreements with SEG differ in nature from those at issue in the Empery litigation and have no bearing on the outcome of the claims in that litigation. There were no further developments during the quarter.

In all of the aforementioned active proceedings, the Company has denied and continues to deny any allegations of wrongdoing directed against it. The Company intends to defend the claims asserted against it vigorously. The Company maintains a program of directors’ and officers’ liability insurance, which, subject to the insurers’ reservations of rights, has to this point offset a substantial portion of the costs incurred in defending the Securities Litigation and the Shareholder Derivative Actions, as well as the Augenbaum lawsuit.