What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-05-22 · 478 added, 367 removed, 758 unchanged (53% of the section changed)

FINANCIAL STATEMENTS.

Genius Brands International, Inc.

Kartoon Studios, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current Assets:

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Stockholders’ Equity:

Preferred Stock Series A, $ 0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Preferred Stock Series B, $ 0.001 par value, 1 share authorized, 1 share issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Common Stock, $ 0.001 par value, 40,000,000 shares authorized, 32,113,784 and 31,918,552 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Preferred Stock Series A, $ 0.001 par value, 9,999,999 shares authorized, 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Preferred Stock Series B, $ 0.001 par value, 1 share authorized, 1 share issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Common Stock, $ 0.001 par value, 40,000,000 shares authorized, 35,054,573 and 31,918,552 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional Paid-in Capital 773,377 762,418

Treasury Stock at Cost, 46,333 and 42,633 shares of common stock as of March 31, 2023 and December 31, 2022, respectively

Treasury Stock at Cost, 48,498 and 42,633 shares of common stock as of June 30, 2023 and December 31, 2022, respectively

( 305 ) ( 290 )

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Accumulated Other Comprehensive Loss ( 6,218 ) ( 9,925 )

Total Genius Brands International, Inc.

Total Kartoon Studios, Inc.

Stockholders' Equity 85,770 111,079

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The accompanying notes are an integral part of these financial statements.

Genius Brands International, Inc.

Table of Conten t s

Kartoon Studios, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Production Services $ 7,033 $ 10,018 $ 16,919 10,018

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Other Income (Expense), Net ( 6,368 ) ( 3,161 ) ( 8,080 ) 2,256

Loss Before Income Tax Expense ( 24,793 ) ( 4,562 )

Income Tax Expense – –

Loss Before Income Tax Benefit ( 15,951 ) ( 12,150 ) ( 40,744 ) ( 16,710 )

Income Tax Benefit 705 – 705 –

Net Loss ( 15,246 ) ( 12,150 ) ( 40,039 ) ( 16,710 )

Net Loss Attributable to Non-Controlling Interests 31 31

Net Loss Attributable to Genius Brands International, Inc.

Net (Income) Loss Attributable to Non-Controlling Interests 16 ( 1,193 ) 47 ( 1,162 )

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 15,230 ) $ ( 13,343 ) $ ( 39,992 ) $ ( 17,872 )

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The accompanying notes are an integral part of these financial statements.

Genius Brands International, Inc.

Table of Conten t s

Kartoon Studios, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Net Loss $ ( 15,246 ) $ ( 12,150 ) $ ( 40,039 ) $ ( 16,710 )

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Total Comprehensive Net Loss $ ( 13,909 ) $ ( 14,678 ) $ ( 36,332 ) $ ( 22,622 )

Net Loss Attributable to Non-Controlling Interests 31 31

Total Comprehensive Net Loss Attributable to Genius Brands International, Inc.

Net (Income) Loss Attributable to Non-Controlling Interests 16 ( 1,193 ) 47 ( 1,162 )

Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc.

$ ( 13,893 ) $ ( 15,871 ) $ ( 36,285 ) $ ( 23,784 )

The accompanying notes are an integral part of these financial statements.

Genius Brands International, Inc.

Table of Conten t s

Kartoon Studios, Inc.

Condensed Consolidated Statements of Stockholders' Equity

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Share Based Compensation – – – – 910 – – – – – 910

Unrealized Gain on Marketable Securities

– – – – – – – – 2,367 – 2,367

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – 2,367 – 2,367

Foreign Translation Adjustment – – – – – – – – 3 – 3

– – – – – – – ( 24,762 ) – ( 31 ) ( 24,793 )

Net Loss – – – – – – – ( 24,762 ) – ( 31 ) ( 24,793 )

Balance, March 31, 2023 32,113,784 $ 320 1 $ – $ 763,327 46,333 $ ( 299 ) $ ( 666,205 ) $ ( 7,555 ) $ 1,759 $ 91,347

Issuance of Common Stock for Services 404,251 – – – 997 – – – – – 997

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 224,988 29 – – ( 29 ) 2,165 ( 6 ) – – – ( 6 )

Proceeds From Warrant Exchange, net 2,311,550 2 – – 4,854 – – – – – 4,856

Warrant Inducement – – – – 3,511 – – – – – 3,511

Share Based Compensation – – – – 717 – – – – – 717

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – 633 – 633

Foreign Translation Adjustment – – – – – – – – 704 – 704

Net Loss – – – – – – – ( 15,230 ) – ( 16 ) ( 15,246 )

Balance, June 30, 2023 35,054,573 $ 351 1 $ — $ 773,377 48,498 $ ( 305 ) $ ( 681,435 ) $ ( 6,218 ) $ 1,743 $ 87,513

Table of Conten t s

Balance, December 31, 2021 30,337,914 303 – – 739,495 – – ( 595,848 ) ( 1,221 ) 1,924 144,653

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Balance, March 31, 2022 30,436,900 $ 304 – $ – $ 744,296 – $ – $ ( 600,379 ) $ ( 4,605 ) $ 1,893 $ 141,509

Shares Issued for Wow Acquisition 1,105,708 11 1 – 11,543 – – – – – 11,554

Fair Value of Replacement Options Related to Wow Acquisition – – – – 1,213 – – – – – 1,213

Issuance of Common Stock for Services 73,667 1 – – 441 – – – – – 442

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 107,241 1 – – ( 1 ) – – – – – –

Share Based Compensation – – – – 4,245 – – – – – 4,245

Unrealized Loss on Marketable Securities – – – – – – – – ( 1,051 ) – ( 1,051 )

Foreign Translation Adjustment – – – – – – – – ( 1,477 ) – ( 1,477 )

Distributions to Non-Controlling Interests – – – – – – – – – ( 1,200 ) ( 1,200 )

Net Loss – – – – – – – ( 13,341 ) – 1,193 ( 12,148 )

Balance, June 30, 2022 31,723,516 $ 317 1 $ — $ 761,737 – $ — $ ( 613,720 ) $ ( 7,133 ) $ 1,886 $ 143,087

The accompanying notes are an integral part of these financial statements.

Genius Brands International, Inc.

Table of Conten t s

Kartoon Studios, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

Cash Flows from Operating Activities:

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Impairment of Property and Equipment 120 –

(Gain) Loss on Revaluation of Equity Investments in Your Family Entertainment AG 895 ( 5,395 )

Unrealized (Gain) Loss on Foreign Currency Transactions ( 308 ) 192

Warrant Incentive Expense 16,174 –

Deferred Income Taxes ( 705 ) –

Marketing Expenses in Exchange for Stock 1,195 –

Gain on Revaluation of Equity Investments in Your Family Entertainment AG ( 3,427 ) ( 2,901 )

Unrealized (Gain) Loss for Foreign Currency of Equity Investments in Your Family Entertainment AG ( 295 ) 1,296

Gain on Warrant Revaluation ( 6,202 ) ( 269 )

Realized Loss on Marketable Securities 2,257 123

Noncash Interest Expense 1,044 –

Stock Issued for Services 997 312

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Lease Liability ( 297 ) ( 352 )

Interest Paid on Debt ( 636 ) –

Due To Related Party 53 ( 63 )

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Cash Flows from Investing Activities:

Cash Payment for Wow, net of Cash Acquired – ( 37,311 )

Cash Payment for Equity Investment in Your Family Entertainment – ( 9,540 )

Cash Payment for Ameba, net of Cash Acquired – ( 3,893 )

Loans to Related Party ( 52 ) ( 102 )

Repayments from/(Loans to) Related Party for Note Receivables 1,357 ( 128 )

Proceeds from Principal Collections on Marketable Securities 460 4,420

Proceeds from Sales and Maturities of Marketable Securities 34,169 5,536

Investment in Intangible Assets, net – ( 22 )

Purchase of Property & Equipment ( 38 ) ( 401 )

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Proceeds from Bank Indebtedness, net 2,931 1,291

Proceeds from Warrant Exchange, net 5,299 –

Repayments of Notes Payable – ( 9 )

Principal Payments on Finance Lease Obligations ( 1,216 ) ( 442 )

Debt Issuance Costs ( 45 ) –

Distributions to Non-Controlling Interest – ( 1,200 )

Shares Withheld for Taxes on Vested Restricted Shares ( 15 ) –

Payment for Warrant Put Option Exercise ( 250 ) –

Net Cash Provided by (Used in) Financing Activities ( 12,565 ) 51,353

Net Cash (Used in) Provided by Financing Activities ( 27,941 ) 56,593

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash ( 13 ) 46

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash ( 2,667 ) 42,751

Net Decrease in Cash, Cash Equivalents and Restricted Cash ( 2,593 ) ( 2,244 )

Beginning Cash, Cash Equivalents and Restricted Cash 7,432 10,060

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Leased Assets Obtained in Exchange for New Finance Lease Liabilities $ 1,216 $ –

Warrants Issued for Services $ 443 $ –

Shares Issued for Wow Acquisition $ – $ 11,554

Fair Value of Replacement Options Granted Related to Wow Acquisition $ – $ 1,213

The accompanying notes are an integral part of these financial statements.

Genius Brands International, Inc.

Table of Conten t s

Kartoon Studios, Inc.

And Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2023

June 30, 2023

Organization and Business

Organization and Nature of Business

Genius Brands International, Inc.

Kartoon Studios, Inc.

(formerly known as Genius Brands International, Inc.;

“we,” “us,” “our,” or the “Company”) is a global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children.

Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television and license properties for a broad range of consumer products based on the Company’s characters.

Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television and licenses properties for a broad range of consumer products based on the Company’s characters.

The Company is a “work for hire” producer for many of the streaming outlets and animated content intellectual property (“IP”) holders.

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With the exception of selected WOW Unlimited Media Inc.

titles, the Company’s programs, along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service, its free ad supported TV ("FAST") channels and subscription video on demand (“SVOD”) outlets, Kartoon Channel!

("Wow") titles, the Company’s programs, along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service, its free ad supported TV (“FAST”) channels and subscription video on demand (“SVOD”) outlets, Kartoon Channel!

These streaming services are available on Apple TV, Apple iOS, Android TV, Android mobile, Amazon Prime, Amazon Fire, Tubi, Roku, Comcast, Cox, Dish/Sling, Xumo, Pluto, Samsung Smart TVs, LG Smart TVs, as well as YouTube, among other platforms.

The Company's in-house owned and produced animated shows include Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC Pop Quiz , and the upcoming Shaq’s Garage starring Shaquille O’Neal, scheduled to debut in the second quarter of 2023.

The Company’s library titles include the award-winning Baby Genius , adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret Millionaires Club , created with and starring iconic investor Warren Buffett, Team Zenko Go!, Reboot , Bee & PuppyCat:

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Through the Company’s investments in Germany’s Your Family Entertainment (“YFE”), a publicly traded company on the Frankfurt Exchange (RTV-Frankfurt), it has gained access to one of the largest animation catalogues in Europe with over 50 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide.

Through the ownership of WOW Unlimited Media Inc.

(“Wow”), the Company established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world.

Through the ownership of Wow, the Company has established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world.

In addition, Wow owns Frederator Networks Inc.

(“Frederator”) and its Channel Frederator Network , the largest animation focused multi-channel network on YouTube with over 2,500 channels.

The Company has rights to a select amount of valuable IP, included among them a controlling interest in Stan Lee Universe (“SLU”), through which it controls the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”).

The Company has rights to a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe, LLC (“SLU”), through which it controls the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”).

The Company also owns Beacon Media Group (“Beacon”), the largest media buying service for children in North America.

Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka, Moose Toys, and JAKKS Pacific.

Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka and Moose Toys.

In addition, the Company owns the Canadian company Ameba Inc.

(“Ameba”), which distributes SVOD service for kids, and has become the focal point of revenue growth for Genius Networks’ subscription offering.

(“Ameba”), which distributes SVOD service for kids and has become the focal point of revenue growth for TOON Media Networks’ subscription offering.

The Company and its affiliates provide world class animation production studios a catalogue representing thousands of hours of premium global content for children, a broadcast system for delivering that content and an in-house consumer products licensing infrastructure to fully exploit the content.

On June 23, 2023, the Company was renamed Kartoon Studios, Inc.

On June 26, 2023, the Company transferred its listing to NYSE American LLC (“NYSE American”).

In connection with listing on NYSE American, the Company

Table of Conten t s

voluntarily delisted from the Nasdaq Capital Market (“Nasdaq”).

The Company’s common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023.

Table of Conten t s

Recent Developments

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Unless noted, all references to shares of common stock and per share amounts contained in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect a 1-for-10 reverse stock split.

As of March 31, 2023, the Company had cash and cash equivalents of $ 4.8 million, which decreased by $ 2.7 million as compared to December 31, 2022.

The decrease was primarily due to cash used in financing activities of $ 12.6 million, primarily due to the repayment of the margin loan, and $ 4.8 million used in operational activities.

The cash used was offset by cash provided by the sales and maturities of marketable securities of $ 14.3 million.

As of March 31, 2023, the Company held available-for-sale marketable securities with a fair value of $ 69.7 million, which decreased by $ 14.1 million as compared to December 31, 2022.

The decrease was primarily due to selling $ 11.4 million of securities, $ 2.9 million of securities maturing and additional prepayment proceeds of $ 0.5 million on principals for certain mortgage-backed securities during the three months ended March 31, 2023.

The decrease was offset by the net decrease of $ 0.8 million in unrealized and realized loss activity.

Exercise of 2021 Warrants and Issuance of New Warrants

On June 26, 2023, the Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain existing institutional and accredited investors pursuant to which such investors agreed to exercise for cash certain warrants issued by the Company in January 2021 (the “2021 Warrants”) to purchase 2,311,550 shares of common stock (the “Exercise”).

To induce the Exercise by holders of the 2021 Warrants, the Company also amended the exercise price of the 2021 Warrants from $ 23.70 per share (as adjusted pursuant to a 1-for-10 reverse stock split of our outstanding shares of common stock effected on February 10, 2023) to $ 2.50 per share pursuant to the terms of the 2021 Warrants.

In consideration for the Exercise, the exercising holders received warrants to purchase up to 4,623,100 shares of common stock, and The Special Equities Group, LLC, a division of Dawson James Securities, which acted as the warrant solicitation agent for the Exercise, received a warrant to purchase up to 161,809 shares of common stock (collectively, the “Warrants”).

Prior to closing of the Exercise, the Company had 32,755,748 shares of common stock outstanding.

Following the repricing of the 2021 Warrants, certain 2021 Warrants were exercised for an aggregate of 2,311,550 shares, resulting in 35,067,298 outstanding shares.

Therefore, the issuance of 4,784,909 shares of common stock upon exercise of the Warrants would have constituted an excess of 19.99 % of the outstanding shares of common stock of the Company (determined as of the date of, and without regard for, the issuance of the Warrants and the shares issued upon exercise of the repriced 2021 Warrants).

The Warrants will be exercisable at any time at a price per share of $ 2.50 upon approval by the Company’s shareholders of (a) a proposal to approve an amendment to the articles of incorporation to increase the authorized shares of common stock from 40,000,000 shares to 190,000,000 shares with a corresponding increase in the total number of authorized shares of capital stock of the Company from 50,000,000 shares to 200,000,000 shares (the “Share Increase Proposal”) and (b) approve, in accordance with 713(A) of the NYSE American Company Guide, the issuance of more than 19.99 % of the Company’s outstanding common stock upon the exercise of the Warrants (the “Warrant Exercise Proposal” and together with the Share Increase Proposal, the “Proposals”).

The Company is holding its annual shareholder meeting on August 25, 2023, at which the Company will seek the shareholders approval of the Proposals.

The Warrants have a term of exercise of five years from the date of Shareholder Approvals.

Pursuant to the Letter Agreements, the Company filed a registration statement on Form S-3 covering the resale of the shares of common stock issuable upon the exercise of the Warrants on July 26, 2023, which registration statement is currently pending with the Securities and Exchange Commission (“SEC”).

As of June 30, 2023, the Company had cash and cash equivalents of $ 4.8 million, which decreased by $ 2.6 million as compared to December 31, 2022.

The decrease was primarily due to cash used in financing activities of $ 27.9 million, primarily due to repayment of the margin loan, net proceeds, offset by the cash received from the warrant exchange and $ 10.6 million used in operating activities.

The cash used was offset by cash provided by sales and maturities of marketable securities of $ 34.2 million.

As of June 30, 2023, the Company held available-for-sale marketable securities with a fair value of $ 49.5 million, which decreased by $ 34.2 million as compared to December 31, 2022 due to sales and maturities during the six months

Table of Conten t s

ended June 30, 2023.

The available-for-sale securities consist principally of corporate and government debt securities and are also available as a source of liquidity.

The Company borrowed an additional $ 3.7 million from its investment margin account during the three months ended March 31, 2023 and repaid $ 16.3 million with cash received from sales and maturities of marketable securities.

During the three months ended March 31, 2023, the borrowed amounts were primarily used for operational costs.

The Company borrowed an additional $ 8.6 million from its investment margin account during the six months ended June 30, 2023 and repaid $ 41.8 million primarily with cash received from sales and maturities of marketable securities.

During the six months ended June 30, 2023, the borrowed amounts were primarily used for operational costs.

The interest rates for the borrowings fluctuate based on the Federal Funds Rate plus 0.65 %.

The weighted average interest rates were 0.89 % and 1.66 % on average margin loan balances of $ 46.2 million and $ 27.1 million as of March 31, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 0.7 million and $ 21,846 during the three months ended March 31, 2023 and March 31, 2022, respectively.

The weighted average interest rates were 0.67 % and 1.66 % on average margin loan balances of $ 44.2 million and $ 27.1 million as of June 30, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 0.6 million and $ 0.2 million during the three months ended June 30, 2023 and June 30, 2022, respectively.

The Company incurred interest expense on the loan of $ 1.3 million and $ 0.2 million during the six months ended June 30, 2023 and June 30, 2022, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the Company's margin loan balance was $ 48.9 million and $ 60.8 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company’s margin loan balances were $ 27.6 million and $ 60.8 million, respectively.

The Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility, revolving equipment lease line and treasury risk management facility that have an aggregate total outstanding balance of $ 6.7 million USD ($ 8.9 million CAD).

The Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt to EBITDA ratio as of June 30, 2023.

The Company has continued to make its regular principal and interest payments in a timely basis since the effective borrowing date.

The revolving demand facility and the treasury risk management facility can be called at anytime by the lender as per the original terms of the facilities.

The risk of the lender demanding repayment can be deemed greater due to the breach of covenants, however, at the time the financial statements were available for issuance, the lender has not provided the Company with a formal notification of a covenant breach.

Historically, the Company has incurred net losses.

For the three months ended March 31, 2023 and March 31, 2022, the Company reported net losses of $ 24.8 million and $ 4.5 million, respectively.

The Company reported net cash used in operating activities of $ 4.8 million and $ 5.4 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

As of March 31, 2023, the Company had an accumulated deficit of $ 666.2 million and total stockholders’ equity of $ 91.3 million.

As of March 31, 2023, the Company had current assets of $ 114.3 million, including cash and cash equivalents of $ 4.8 million and marketable securities of $ 69.7 million, and current liabilities of $ 90.8 million.

The Company had working capital of $ 23.5 million as of March 31, 2023, compared to working capital of $ 28.6 million as of December 31, 2022.

For the three months ended June 30, 2023 and June 30, 2022, the Company reported net losses of $ 15.2 million and $ 13.3 million, respectively.

For the six months ended June 30, 2023 and June 30, 2022, the Company reported net losses of $ 40.0 million and $ 17.9 million, respectively.

The Company reported net cash used in operating activities of $ 10.6 million and $ 17.5 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

As of June 30, 2023, the Company had an accumulated deficit of $ 681.4 million and total stockholders’ equity of $ 87.5 million.

As of June 30, 2023, the Company had current assets of $ 91.6 million, including cash and cash equivalents of $ 4.8 million and marketable securities of $ 49.5 million, and current liabilities of $ 77.2 million.

The Company had working capital of $ 14.4 million as of June 30, 2023, compared to working capital of $ 28.6 million as of December 31, 2022.

Summary of Significant Accounting Policies

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These reclassifications had no effect on the reported results of operations.

Out-of-Period Adjustment

The Company identified an error in the Company’s condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2023 and balance sheet for the period ended March 31, 2023 .

The Company’s deferred tax liability, and net loss for the period ended March 31, 2023 , are overstated by $ 705,000 .

In accordance with Staff Accounting Bulletin (“SAB”) No.

99, “Materiality,” and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” The Company believes

Table of Conten t s

that the impact of the error was not material to the financial statements for the three months ended March 31, 2023 , based on an evaluation of both quantitative and qualitative factors.

As a result, the Company determined that correcting the prior period financial statements for such an immaterial error would not require the Form 10-Q for the three months ended March 31, 2023 to be amended.

The Company has elected to record an out-of-period adjustment and record the amount in the condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2023, the condensed consolidated statement of cash flow for the six months ended June 30, 2023 and the condensed consolidated statements of stockholders’ equity for the three months ended June 30, 2023.

The Company does not believe recording the amount in the condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2023 has a material impact on the Company’s results of operations.

The Company determines its operating segments on the same basis that it assesses performance and makes operating decisions.

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Principles of Consolidation and Basis of Presentation

The Company’s condensed consolidated financial statements include the accounts of Genius Brands International, Inc.

The Company’s condensed consolidated financial statements include the accounts of Kartoon Studios, Inc.

and its wholly-owned subsidiaries.

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Non-consolidated investments are accounted for using the equity method or the fair value option and recorded at fair value with changes recognized within Other Income (Expense), Net on the condensed consolidated statements of operations and comprehensive income (loss).

All significant intercompany accounts and transactions have been eliminated in consolidation.

All significant intercompany accounts and transactions have been eliminated upon consolidation.

Business Combinations

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The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates.

The Company estimates the fair value based upon assumptions management believes to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The Company estimates the fair value based upon assumptions that management believes to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

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Variable Interest Entities

The Company holds an interest in Stan Lee University (“SLU”), an entity that is considered a variable interest entity (“VIE”).

The variable interest relates to 50 % ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from the Company to continue operations.

The Company holds an interest in Stan Lee University, LLC (“SLU”), an entity that is considered a variable interest entity (“VIE”).

The variable interest relates to 50 % ownership in the entity that is comprised of the Stan Lee Assets

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and that requires additional financial support from the Company to continue operations.

The Company is considered the primary beneficiary and is required to consolidate the VIE.

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dollar (“USD”) to be its functional currency for its United States and certain Canadian based operations.

The Canadian dollar ("CAD") is the functional currency of its Wow entity.

Accordingly, the financial information is translated from the Canadian dollar to the U.S.

dollar for inclusion in the Company’s condensed consolidated financial statements.

The Canadian dollar (“CAD”) is the functional currency of Wow, a wholly-owned subsidiary of the Company.

Accordingly, the financial information is translated from CAD to USD for inclusion in the Company’s condensed consolidated financial statements.

Revenue and expenses are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date.

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Therefore, the Company presents the asset or liability position of the FX forwards that are with the same counterparty net as either an asset or liability in its condensed consolidated balance sheets.

As of March 31, 2023, the gross amount of FX forwards in an asset and liability position that were subject to a master netting arrangement was $ 14.9 million and $ 15.0 million, respectively, resulting in a liability recorded within Other Current Liabilities on the Company's condensed consolidated balance sheet of $ 0.1 million.

The change in fair value of $ 0.1 million for the three months ended March 31, 2023 was recorded as an unrealized gain within Production Services Revenue on the Company's condensed consolidated statement of operations.

As of June 30, 2023, the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement were $ 17.7 million and $ 17.7 million, respectively, resulting in an asset recorded within Prepaid Expenses and Other Assets on the condensed consolidated balance sheet.

The change in fair value of $ 0.1 million and $ 0.2 million for the

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three and six months ended June 30, 2023, respectively, was recorded as an unrealized gain within Production Services Revenue on the condensed consolidated statement of operations.

The Company did not hold FX forwards prior to the Wow Acquisition.

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The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

As of March 31, 2023 and December 31, 2022, the Company had cash and cash equivalents of $ 4.8 million and $ 7.4 million, respectively, that at times could exceed FDIC or CDIC limits.

As of June 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $ 4.8 million and $ 7.4 million, respectively, that at times could exceed FDIC or CDIC limits.

Allowance for Doubtful Accounts

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Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful.

As of March 31, 2023 and December 31, 2022, the Company recorded an allowance for doubtful accounts of $ 70,977 and $ 65,421 , respectively.

As of June 30, 2023 and December 31, 2022, the Company recorded an allowance for doubtful accounts of $ 112,250 and $ 65,421 , respectively.

The Company limits its exposure to this credit risk through a credit approval process and credit monitoring procedures.

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Tax Credits Receivable

The Canada Revenue Agency (“CRA”) and certain Provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.

The Canadian federal government and certain provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.

Estimated amounts receivable in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and television costs when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying expenditures are made and there is reasonable assurance of realization.

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As this financing is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the normal operating cycle for such assets is considered to be a 12 to 24-month period, or the time it takes for the CRA to assess and refund the tax credits earned.

As of March 31, 2023 and December 31, 2022, $ 23.5 million and $ 26.3 million in current tax credit receivables related to Wow’s film and television productions was recorded, net of $ 0.3 million and $ 0.2 million recorded as an allowance for doubtful accounts, respectively.

As of June 30, 2023 and December 31, 2022, $ 25.1 million and $ 26.3 million in current tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.4 million and $ 0.2 million recorded as an allowance for doubtful accounts, respectively.

Marketable Debt Securities

The Company purchases high quality, investment grade securities from diverse issuers.

Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet

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Currently, the Company classifies its investments in marketable securities as available-for-sale (“AFS”) and records these investments at fair value.

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Uncollectible accrued interest is written off when the Company determines that no additional interest payments will be received.

Classified within Other Receivables on the condensed consolidated balance sheets, approximately $ 0.4 million and $ 0.3 million in interest income was receivable as of March 31, 2023 and December 31, 2022, respectively.

Classified within Other Receivables on the condensed consolidated balance sheets, approximately $ 0.2 million and $ 0.3 million in interest income were receivable as of June 30, 2023 and December 31, 2022, respectively.

Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums accounted for over the life of the security or, in the case of callable securities, through the first call date, using the level yield method, with no prepayment anticipated.

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Whenever events or circumstances change, an assessment is made as to whether there has been impairment to the value of long-lived assets by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment date.

The Company has performed an interim review of its long-lived assets due to decreases in the Company's market value during the three months ended March 31, 2023.

During the first quarter of 2023, the Company performed an interim review of its long-lived assets due to decreases in the Company's market value.

There were not any events or circumstances that required the Company to reassess its assets during the three months ended June 30, 2023.

Refer to Note 6 for details.

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Right of Use Leased Assets

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As the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company estimates the incremental borrowing rate to reflect the profile of collateralized borrowing over the expected term of the leases based on the information available on the lease commencement date or for leases

existing upon the date of initial adoption of ASC 842, the date of adoption.

The implicit rates within the Company’s existing finance leases are determinable and therefore used to determine the present value of finance lease payments.

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Management reviews the ultimate revenue and cost estimates on a title-by-title basis, when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost.

This may result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production to its estimated fair value.

This may result in a

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change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production to its estimated fair value.

An impairment charge is recorded in the amount by which the unamortized costs exceed the estimated fair value.

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Annual amortization of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset.

The Company has performed an interim review of its intangible assets and goodwill due to decreases in the Company's market value during the three months ended March 31, 2023.

During the first quarter of 2023, the Company performed an interim review of its long-lived assets due to decreases in the Company’s market value.

There were not any events or circumstances that required the Company to reassess its assets during the three months ended June 30, 2023.

Refer to Note 9 for details.

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When required, the Company also considers the bifurcation guidance for embedded derivatives per ASC 815-15, Embedded Derivatives .

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Treasury stock

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The Company has identified the following material and distinct performance obligations:

• Provide animation production services.

• License rights to exploit Functional Intellectual Property (“functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired.

• Providing animation production services.

• Licensing rights to exploit Functional Intellectual Property (“functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired.

Functional IP derives a substantial portion of its utility from its significant standalone functionality).

• License rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual property 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, including its ordinary business activities, such as the Company’s licensing and merchandising programs associated with its animated content).

• Provide media and advertising services to clients.

• Fixed and variable fee advertising and subscription-based revenue generated from the Genius Brands Kartoon Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network on YouTube .

• Options to renew or extend a contract at fixed terms.

(While this performance obligation is not significant for the Company’s current contracts, it could become significant in the future).

• Options on future seasons of content at fixed terms.

(While this performance obligation is not significant for the Company’s current contracts, it could become significant in the future).

• Licensing rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual property 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, including its ordinary business activities, such as the Company’s licensing and merchandising programs associated with its animated content).

• Providing media and advertising services to clients.

• Fixed and variable fee advertising and subscription-based revenue generated from the Kartoon Studios Kartoon Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network on YouTube .

• Options to renew or extend a contract at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future).

• Options on future seasons of content at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future).

Production Services

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The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue.

When revenue exceeds milestone billings, the Company recognizes this difference as unbilled accounts receivable within other receivables on the Company's condensed consolidated balance sheet.

When revenue exceeds milestone billings, the Company recognizes this

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difference as unbilled accounts receivable within other receivables on the Company’s condensed consolidated balance sheet.

Unbilled accounts receivables are transferred to accounts receivable when the Company has an unconditional right to consideration.

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Media and Advertising Services

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The Company provides media and advertising services to clients.

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The Company evaluates individual arrangements with third parties to determine whether the Company acts as principal or agent under the terms.

To the extent that the Company acts as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial statement line

To the extent that the Company acts as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services.

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Direct operating costs include costs of the Company’s product sales, non-capitalizable film costs, film and television cost amortization expense, impairment expenses related to film and television costs, and participation expense related to agreements with various animation studios, post-production studios, writers, directors, musicians or other creative talent with which the Company is obligated to share net profits of the properties on which they have rendered services.

Upon the acquisition of Wow, the Company also includes salaries and related service production employee costs as part of its direct operating costs.

Upon the acquisition of Wow, the Company also includes the salaries and related service production employee costs of Wow as part of its direct operating costs.

Share-Based Compensation

The Company issues stock-based awards to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”).

Share-based compensation cost is recorded for all options and awards based on the grant-date fair value of the award.

Share-based compensation cost is recorded for all options and RSUs based on the grant-date fair value of the award.

The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model, which requires management to make assumptions with respect to the fair value on the grant date.

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Debt issuance costs directly attributable to the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended use or sale.

Debt issuance costs as of March 31, 2023 and December 31, 2022 were insignificant.

Debt issuance costs as of June 30, 2023 and December 31, 2022 were insignificant.

Earnings Per Share

Basic earnings (loss) per share of common stock (“EPS”) is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

Diluted EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding, plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate.

Table of Conten t s

method, as appropriate.

During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because they are antidilutive.

Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.

At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets and records a

valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets and records a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

Concentration of Risk

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Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to $100,000 CAD.

As of March 31, 2023 and December 31, 2022, the Company had eleven and twelve bank deposit accounts with an aggregate uninsured balance of $ 3.2 million and $ 3.4 million, respectively.

The Company has a managed account and a brokerage account with a financial institution.

The managed account maintains its investments in marketable securities of $ 69.7 million as of March 31, 2023.

The brokerage account did not have a cash balance as of March 31, 2023.

Assets in the managed account and brokerage account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

As of June 30, 2023 and December 31, 2022, the Company had 14 and 12 bank deposit accounts with an aggregate uninsured balance of $ 3.1 million and $ 3.4 million, respectively.

The Company has a managed account with a financial institution.

The managed account maintains its investments in marketable securities of $ 49.5 million and $ 83.7 million as of June 30, 2023 and December 31, 2022, respectively.

Assets in the managed account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

In addition, the financial institution provides additional “excess of SIPC” coverage which insures up to $1.0 billion.

As of March 31, 2023, the Company has not had account balances held at this financial institution that exceed the insured balances.

As of June 30, 2023 and December 31, 2022, the Company did not have account balances held at this financial institution that exceed the insured balances.

The Company’s investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.

The Company’s policy limits the amount of credit exposure to any one security issue or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

During the three months ended March 31, 2023, the Company had three customers, whose total revenue exceeded 10% of total consolidated revenue.

These customers accounted for 71.9 % of total revenue.

As of March 31, 2023, the Company had five customers whose total accounts receivable exceeded 10% of total accounts receivable.

These customers accounted for 69.0 % of the total accounts receivable as of March 31, 2023.

During the three months ended March 31, 2022, the Company had one customer whose total revenue exceeded 10% of the total consolidated revenue.

This customer accounted for 13.3 % of total revenue.

As of December 31, 2022, the Company had two customers whose total accounts receivable exceeded 10% of total accounts receivable.

These customers accounted for 26.1 % of the total accounts receivable as of December 31, 2022.

During the three months ended June 30, 2023, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 81.2 % of the total revenue.

During the six months ended June 30, 2023, the Company had three customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 71.4 % of the total revenue.

As of June 30, 2023, the Company had four customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 70.4 % of the total accounts receivable as of June 30, 2023.

During the three months ended June 30, 2022, the Company had five customers whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 81.3 % of the total revenue.

During the six months ended June 30, 2022, the Company had five customers whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 76.3 % of the total revenue.

As of June 30, 2022, the Company had four customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 65.0 % of the total accounts receivable as of June 30, 2022.

There is significant financial risk associated with a dependence upon a small number of customers.

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• Level 1 - Observable inputs such as quoted prices for identical instruments in active markets;

Table of Conten t s

• Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;

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Upon the acquisition of Wow, foreign currency forward contracts that are not traded in active markets were assumed.

fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts (Level 2).

The fair values of the available-for-sale securities are generally based on quoted market prices, where available.

These are fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts (Level 2).

The fair values of the AFS securities are generally based on quoted market prices, where available.

These fair values are obtained primarily from third-party pricing services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and disclosures.

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For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or a variety of valuation techniques, incorporating inputs that are currently observable in the markets for similar securities.

The following table summarizes the marketable securities measured at fair value by level within the fair value hierarchy as of March 31, 2023 (in thousands):

The following table summarizes the marketable securities measured at fair value by level within the fair value hierarchy as of June 30, 2023 (in thousands):

Level 1 Level 2 Total Fair Value

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The Company’s marketable securities are considered to be available-for-sale investments as defined under FASB ASC 320, Investments – Debt and Equity Securities .

Neither an impairment or an allowance for credit loss was recorded for the marketable securities as of March 31, 2023 and December 31, 2022.

An allowance for credit loss was not recorded for the marketable securities as of June 30, 2023 and December 31, 2022.

Refer to Note 5 for additional details.

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ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates.

The new model, referred to as the current expected credit loss (“CECL”) model, will apply to:

The new model, referred to as the current expected credit loss (“CECL”) model, applies to:

(1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.

This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.

The CECL model does not apply to available-for-sale (“AFS”) debt securities.

The CECL model does not apply to AFS debt securities.

For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.

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also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses.

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The Company has adopted the ASU as of January 1, 2023.

The adoption did not have a material impact on the Company's condensed consolidated financial statements.

The adoption of this ASU resulted in updated disclosures within our financial statements, but did not impact the financial statements.

Refer to Note 5 for additional details.

The Company has determined that the following acquisition completed by the Company constitutes a business acquisition as defined by ASC 805, Business Combinations (“ASC 805”).

Accordingly, the assets acquired and the liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs

associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805.

The Company’s purchase price allocations were based on an evaluation of the appropriate fair values and represent management's best estimate based on available data at the time of acquisition and during the one year period thereafter.

Fair values were determined based on the requirements of ASC 820, Fair Measurements and Disclosures (“ASC 820”).

Wow Unlimited Media

On April 6, 2022, the Company completed the acquisition of Wow.

On October 26, 2021, the Company’s wholly-owned subsidiary, 1326919 B.C.

LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act.

The Company purchased 100 % of the issued and outstanding shares of Wow, including Wow’s subsidiary Frederator.

The plan of arrangement and final agreement, together with the acquisition of Wow’s Mainframe Studios and its subsidiary Frederator, are referred to as the “Wow Acquisition.”

The final consideration of $ 52.7 million, excluding transaction costs, was paid by the Company at closing.

The consideration consisted of $ 38.3 million in cash, 1,105,708 shares of the Company’s common stock, including 69,126 Exchangeable Shares, with a fair value of $ 11.6 million, 240,952 options granted to employees of Wow, 196,753 of which with a fair value of $ 1.2 million, were previously vested and included in the purchase price and $ 1.6 million in severance and bonuses to executives.

Transaction costs relating to the Wow Acquisition of $ 4.5 million, including bank, legal and accounting fees, were expensed as part of General and Administrative expenses on the Company's fiscal year ended December 31, 2022 consolidated statement of operations.

The Company will also expense the unvested replacement options, with a fair value of $ 0.3 million, as stock-based compensation expense over the remaining requisite service period specified in the agreements.

The Wow Acquisition facilitates the Company’s expansion as a global animation and children’s digital media company.

With Wow’s content, ongoing production projects and the addition of two studios that can also be leveraged for in-house production of the Company’s properties, will drive cost synergies, facilitate further expansion into the global children’s entertainment market and strengthen financial growth.

Frederator, with its owned and operated channels on YouTube, will provide a distribution platform to facilitate the global growth of Kartoon Channel!

The following table summarizes the consideration paid (in thousands):

Cash $ 38,310

Genius Common Stock Issued 10,832

Shares Issued Exchangeable for Genius Common Stock 722

Stock Option Value of Replacement Options- Pre- Combination Vested Options 1,214

Severance Payments 1,044

Total $ 52,651

The Company has completed and finalized the purchase price allocation as of December 31, 2022 and recorded the respective fair values of assets acquired and liabilities assumed on April 6, 2022 as follows (in thousands):

Cash and cash equivalents $ 2,573

Accounts Receivable 34,237

Other Receivable 78

Prepaid Expenses and Other 1,245

Property and Equipment 1,936

ROU Assets 10,311

IP (Productions in Progress) 4,600

IP (Completed Productions) 5,684

Tradename 7,630

Customer Relationships 16,064

Networks and Platforms 803

Goodwill 21,398

Accounts Payable ( 1,547 )

Participations Payable ( 1,380 )

Bank Debt ( 1,475 )

Accrued Liabilities ( 3,825 )

Interim Production Facilities ( 16,930 )

Deferred Revenue ( 18,080 )

Lease Liabilities ( 10,614 )

Other Liabilities ( 57 )

Total Consideration

The identifiable intangible assets acquired of $ 34.8 million is comprised of $ 16.1 million for Customer Relationships, with remaining economic lives of 8 years, $ 10.3 million for IP Content including completed productions and productions in progress, that is included as part of Film and Television Costs, net on the condensed consolidated balance sheet and will be amortized as such, Tradenames for $ 7.6 million, with an indefinite life and Networks and Platforms of $ 0.8 million, with a remaining economic life of 16 years.

The goodwill of $ 21.4 million arising from the acquisition consists largely of the synergies expected from the combined businesses, including the Company’s ability to produce its content in-house utilizing the acquired studios and expansion of the Kartoon Channel!

The goodwill was recorded to the Content Production & Distribution reporting unit and is not deductible for tax purposes.

The fair values of the acquired identifiable intangible assets as described above were determined using the following methods:

Valuation Methodology

The Networks and Platforms were valued by performing a discounted cash flow analysis, specifically the multi-period excess earnings method.

This method involves quantifying the amount of residual (or excess) cash flows generated by the current digital network content, based primarily upon historical revenue and projections over its expected life, and considers the operating expenses and contributory asset charges associated with servicing such network.

Projected cash flows attributable to the networks are discounted to present value at a rate commensurate with the perceived risk.

The significant assumptions used in this model included the customer attrition rate, acquisition rate of new customers, weighted average cost of capital, and expense estimates.

The useful life of the networks is estimated based primarily upon the present value of cash flows attributable to the digital network.

The significant assumptions used in this method included the royalty rate and weighted average cost of capital.

The Tradenames were valued using the relief-from-royalty method.

The relief-from-royalty method is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset are based on the royalty rate the company would have paid for the use of the asset if it did not own it.

Royalty payments are estimated by applying a royalty rate to the prospective revenue attributable to the intangible asset.

The resulting annual royalty payments are tax-affected and then discounted to present value.

Supplemental Pro Forma Information

The following supplemental unaudited pro forma information summarizes the Company’s results of operations as if the acquisitions were completed at the beginning of the periods presented (in thousands, except for share and per share data):

Three Months Ended Three Months Ended

Genius Brands Consolidated

(including WOW Pre-Acquisition Results) Wow Pre-Acquisition

March 31, 2023

March 31, 2022 (1)

Total Revenues $ 14,189 $ 19,517 $ 18,076

Net Income (Loss) Attributable to Genius Brands International, Inc.

$ ( 24,762 ) $ ( 3,520 ) $ 1,011

Net Loss per Share of Common Stock (Basic and Diluted) $ ( 0.77 ) $ ( 0.11 )

Weighted Average Shares Outstanding (Basic and Diluted) 31,978,335 31,483,633

(1) The unaudited historical financial statements of Wow are not adjusted for conversion to U.S.

GAAP from International Financial Reporting Standards, as the adjustments are immaterial to the periods presented.

Variable Interest Entity

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Entertainment, LLC.

(“POW”) in which we agreed to form an entity with POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee.

The entity is called “Stan Lee Universe, LLC.” POW and the Company executed an Operating Agreement for the joint venture, effective as of June 1, 2021.

(“POW”) in which the Company agreed to form an entity with POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee.

The entity is called “Stan Lee Universe, LLC” (“SLU”).

POW and the Company executed an Operating Agreement for the joint venture, effective as of June 1, 2021.

The purpose of the acquisition was to enable the Company to assume the worldwide rights, in perpetuity, to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations (the “Stan Lee Assets”), from which the Company plans to develop and license multiple properties each year.

During the three months ended March 31, 2023, SLU generated $ 0.1 million in net income.

The Company's net investment as of March 31, 2023 of $ 0.8 million, remained the same as compared to December 31, 2022.

There were no changes in facts and circumstances that occurred during the three months ended March 31, 2023 that would result in a re-evaluation of the VIE assessment.

During the three and six months ended June 30, 2023, SLU generated an insignificant amount of net income.

The Company's net investment as of June 30, 2023 of $ 0.8 million remained the same as compared to December 31, 2022.

There were no changes in facts and circumstances that occurred during the six months ended June 30, 2023 that would result in a re-evaluation of the VIE assessment.

Investment in Equity Interest

As of March 31, 2023, the Company owned 6,857,132 shares of YFE.

As of June 30, 2023, the Company owned 6,857,132 shares of YFE.

At the time of the initial investment in 2021, it was determined that based on the Company’s 28.69 % ownership in YFE, the Company had significant influence over the entity.

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Under the fair value option, the investment is remeasured and recorded at fair value each reporting period, with the change recorded through earnings.

As of March 31, 2023, the fair value of the investment was determined to be $ 15.7 million recorded within noncurrent assets on the Company's condensed consolidated balance sheets.

The fair value as of March 31, 2023 decreased $ 0.6 million, as compared to December 31, 2022.

The decrease is comprised of the net impact of a decrease in YFE's stock price, resulting in a loss in fair value of $ 0.9 million and the effect of remeasuring the investment balance from the EURO to USD, resulting in a gain of $ 0.3 million.

The total change in fair value is recorded within Other Income (Expense) on the Company's condensed consolidated statement of operations.

As of March 31, 2023 and December 31, 2022, the Company's ownership in YFE was 44.8 %.

As of June 30, 2023, the fair value of the investment was determined to be $ 20.0 million recorded within noncurrent assets on the Company’s condensed consolidated balance sheets.

The fair value as of June 30, 2023 increased by $ 3.7 million, as compared to December 31, 2022.

The increase is comprised of the net impact of an increase in YFE’s stock price, resulting in a gain in fair value of $ 3.4 million, and the effect of remeasuring the investment balance from the EURO to USD, resulting in a gain of $ 0.3 million.

The total change in fair value is recorded within Other Income (Expense), Net on the Company’s condensed consolidated statement of operations.

As of June 30, 2023 and December 31, 2022, the Company’s ownership in YFE was 44.8 %.

Marketable Securities

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On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326) , which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model.

The credit loss model applicable to AFS debt securities require the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.

The credit loss model applicable to AFS debt securities requires the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.

The adoption of the ASU did not have a material impact on the Company's financial statements.

The investments in marketable securities had an adjusted cost basis of $ 73.9 million and a market value of $ 69.7 million as of March 31, 2023.

The investments in marketable securities had an adjusted cost basis of $ 53.1 million and a market value of $ 49.5 million as of June 30, 2023.

The balances consisted of the following securities (in thousands) :

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Total $ 53,113 $ ( 3,615 ) $ 49,498

Table of Conten t s

The investments in marketable securities as of December 31, 2022 had an adjusted cost basis of $ 90.3 million and a market value of $ 83.7 million.

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Total $ 90,321 $ ( 6,615 ) $ 83,706

The Company holds sixty-eight AFS securities, all of which are in an unrealized loss position and have been in an unrealized loss position for a period greater than twelve months as of March 31, 2023.

The AFS securities held by the Company as of December 31, 2022 have also been in an unrealized loss position for a period greater than twelve months .

The Company reported the net unrealized losses in accumulated other comprehensive (loss) income, a component of stockholders' equity.

As of March 31, 2023 and December 31, 2022, no allowance for credit loss impairment has been recognized as the issuers of these securities have not established a cause for default and various rating agencies have reaffirmed each security's investment grade status.

The fair value of these securities has fluctuated since the purchase date as market interest rates fluctuate.

The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of the securities' amortized cost basis.

Realized losses of $ 1.5 million were recognized in earnings during the three months ended March 31, 2023.

The realized losses were primarily due to the sale of certain mortgage and asset-backed securities prior to their maturities to prevent further losses on the securities due to market conditions during the quarter.

Realized losses of $ 0.1 million were recognized during the three months ended March 31, 2022 due to prepayments of principal on certain mortgage-backed securities.

The contractual maturities of the Company’s marketable investments as of March 31, 2023 were as follows (in thousands):

The Company holds 31 AFS securities, all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than twelve months as of June 30, 2023.

The AFS securities held by the Company as of December 31, 2022 had also been in an unrealized loss position for a period greater than 12 months.

The Company reported the net unrealized losses in accumulated other comprehensive income (loss), a component of stockholders’ equity.

As of June 30, 2023 and December 31, 2022, an allowance for credit loss was not recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $ 0.7 million and $ 2.3 million were recognized in earnings during the three and six months ended June 30, 2023, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities.

In addition, realized losses of $ 44,241 and $ 123,292 were recognized during the three and six months ended June 30, 2022, respectively, due to prepayments of principal on certain mortgage-backed securities.

The contractual maturities of the Company’s marketable investments as of June 30, 2023 were as follows (in thousands):

Due within 1 year $ 13,821

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

Table of Conten t s

Property and Equipment, Net

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Furniture and Equipment $ 180 $ 224

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Property and Equipment, Net $ 2,136 $ 2,400

During the three months ended March 31, 2023 and 2022, the Company recorded depreciation expense of $ 121,607 and $ 37,051 , respectively.

During the three months ended June 30, 2023 and 2022, the Company recorded depreciation expense of $ 0.1 million and $ 0.2 million, respectively.

During the six months ended June 30, 2023 and 2022, the Company recorded depreciation expense of $ 0.2 million for both respective periods.

During the three months ended March 31, 2023, due to changes in the Company’s estimated undiscounted future cash flows, a reassessment of its long-lived assets was performed.

As a result, the carrying value of one of the Company's asset groups property and equipment assets were written down to zero and an Impairment of Property and Equipment of $ 119,727 was recorded within Operating Expenses in the condensed consolidated statement of operations.

As a result, the carrying value of one of the Company’s asset groups property and equipment assets was written down to zero and an Impairment of Property and Equipment of $ 119,727 was recorded within Operating Expenses in the condensed consolidated statement of operations.

Right of Use Leased Asset

Right of use asset consisted of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Office Lease Assets $ 10,313 $ 10,313

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Refer to Note 19 for details on the Company’s lease commitments.

As of March 31, 2023, the weighted-average lease term for the Company's operating leases was 90 months and the weighted-average discount rate was 10.4 %.

As of June 30, 2023, the weighted-average lease term for the Company’s operating leases was 87 months and the weighted-average discount rate was 10.5 %.

As of December 31, 2022, the weighted-average lease term for operating leases was 93 months and the weighted-average discount rate was 10.4 %.

As of March 31, 2023, the weighted-average lease term for the Company's finance leases was 43 months and the weighted-average discount rate was 5.4 %.

As of December 31, 2022, the weighted-average lease term for the Company's finance leases was 35 months and the weighted-average discount rate was 5.3 %.

Operating lease costs during the three months ended March 31, 2023 and 2022 were $ 0.4 million and $ 0.2 million, respectively, recorded within General and Administrative Expenses on the Company's condensed consolidated statement of operations.

During the three months ended March 31, 2023 the Company recorded finance lease costs of $ 0.6 million, comprised of ROU amortization of $ 0.5 million recorded within General and Administrative Expenses on the Company's condensed consolidated statement of operations and accretion of interest expense of $ 49,904 recorded within Interest

Expense on the Company's condensed consolidated statement of operations.

The Company did not have finance leases as of March 31, 2022.

Operating lease costs during the three and six months ended June 30, 2023 were $ 0.7 million and $ 0.8 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statement of operations.

During the three and six months ended June 30, 2023 the Company recorded finance lease costs of $ 0.6 million and $ 1.2 million, respectively, comprised of ROU amortization of $ 0.5 million and $ 1.1 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statement of operations and accretion of interest expense of $ 53,533 and $ 103,727 , respectively, recorded within Other Income (Expense) on the Company’s condensed consolidated statement of operations.

Table of Conten t s

Lease costs during the three and six months ended June 30, 2022 were $ 0.6 million and $ 0.7 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statement of operations.

Film and Television Costs, Net

The following table highlights the activity in Film and Television Costs as of March 31, 2023 and December 31, 2022 (in thousands):

The following table highlights the activity in Film and Television Costs as of June 30, 2023 and December 31, 2022 (in thousands):

Film and Television Costs, Net as of December 31, 2021 $ 2,940

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Additions to Film and Television Costs 734

Disposals ( 7 )

Film Amortization Expense ( 474 )

Foreign Currency Translation Adjustment 67

Film and Television Costs, Net as of March 31, 2023 $ 7,909

Film and Television Costs, Net as of June 30, 2023 $ 8,100

Intangible Assets, Net and Goodwill

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Weighted Average Remaining Amortization Period

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Customer Relationships 7.0 $ 17,325 $ 17,325

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(a) Represents the remaining unamortized logo and website intangible assets related to the merger with A Squared.

During the three months ended March 31, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 0.6 million and $ 0.2 million, respectively.

As of March 31, 2023, $ 7.2 million of the Company's intangible assets related to the acquired trade names from the Wow acquisition that have indefinite lives and are not subject to amortization.

The Company did not have any indefinite-lived intangible assets as of March 31, 2022.

During the three months ended June 30, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.9 million, respectively.

During the six months ended June 30, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 1.1 million and $ 0.7 million, respectively.

Pursuant to ASC 350-30, General Intangibles Other than Goodwill , the Company reviews its intangible assets periodically to determine if the value should be retired or impaired due to recent events.

During the three months ended March 31, 2023, due to changes in the Company’s financial projections, the Company reassessed its definite and indefinite-

Table of Conten t s

lived intangible asset values to determine whether impairments existed.

As a result, the Company recorded a total Impairment of Intangible Assets of $ 4.0 million within Operating Expenses in the condensed consolidated statement of operations at March 31, 2023.

The impairment charge consisted of a write-down of definite-lived intangible assets of $ 2.8 million due to a decrease in one of the Company's asset groups estimated undiscounted cash flows.

As a result, the Company recorded a total Impairment of Intangible Assets of $ 4.0 million within Operating Expenses in the condensed consolidated statement of operations.

The impairment charge consisted of a write-down of definite-lived intangible assets of $ 2.8 million due to a decrease in an asset group’s estimated undiscounted cash flows.

In addition, due to a decrease in its estimated present value of cash flows, it was determined that the Frederator tradename, an indefinite-lived intangible asset, was impaired by $ 1.3 million.

Expected future amortization of intangible assets subject to amortization as of March 31, 2023 is as follows (in thousands):

The Company did not incur any impairment charges during the six months ended June 30, 2022.

Expected future amortization of intangible assets subject to amortization as of June 30, 2023 is as follows (in thousands):

Thereafter 8,933

Total $ 18,376

As of June 30, 2023, $ 6.0 million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition have indefinite lives and are not subject to amortization.

In 2013, the Company recognized $ 10.4 million in goodwill as a result of its merger with A Squared, which was allocated to the Content Production and Distribution reporting unit.

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The goodwill resulting from the Ameba and Wow Acquisitions was allocated to the Content Production and Distribution reportable segment.

As Wow's functional currency is the CAD, goodwill will change each period due to currency exchange differences.

As Wow's functional currency is the CAD, goodwill changes each period due to currency exchange differences.

As of December 31, 2022, the goodwill allocated to the Company’s Media Advisory and Advertising Services reporting unit was written down to zero due to impairment.

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As a result, the Company recorded an Impairment of Goodwill of $ 11.3 million within Operating Expenses in its condensed consolidated statement of operations.

Included in the goodwill impairment was $ 0.9 million of goodwill allocated to Ameba.

Due to the write-off of Ameba’s intangible assets and goodwill, the deferred income tax liability balance of $ 0.7 million, recorded as of December 31, 2022 as part of the estimated underlying tax basis of the acquired assets, was reversed and recorded as an income tax benefit on the condensed consolidated statement of operations during the six months ended June 30, 2023.

The Company did not incur any impairment charges during the six months ended June 30, 2022.

Table of Conten t s

The following table summarizes the changes in the carrying amount of goodwill by reporting unit (in thousands):

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Foreign Currency Translation Adjustment 332 – 332

Goodwill as of March 31, 2023 $ 20,520 $ – $ 20,520

Goodwill as of June 30, 2023 $ 20,852 $ – $ 20,852

Deferred Revenue

As of March 31, 2023 and December 31, 2022, the Company had total short term and long term deferred revenue of $ 9.7 million and $ 12.4 million, respectively.

The decrease in deferred revenue is primarily related to productions on various shows nearing completion of the project as of March 31, 2023, compared to the progress as of December 31, 2022.

As of June 30, 2023 and December 31, 2022, the Company had total short term and long term deferred revenue of $ 8.3 million and $ 12.4 million, respectively.

The decrease in deferred revenue is primarily related to productions on various shows nearing completion of the project as of June 30, 2023, compared to the progress as of December 31, 2022.

Wow's deferred revenue balance relates to cash received from customers for productions in progress.

Revenue is fully recognized upon production completion.

Deferred revenue also includes both (i) variable fee contracts with licensees and

customers in which the Company collected advances and minimum guarantees against future royalties and (ii) fixed fee contracts.

Deferred revenue also includes both (i) variable fee contracts with licensees and customers in which the Company collected advances and minimum guarantees against future royalties and (ii) fixed fee contracts.

The Company recognizes revenue related to these contracts when all revenue recognition criteria have been met.

Supplemental Financial Statement Information

Other Income (Expense), Net

Components of other income (expense), net, are summarized as follows (in thousands):

Three Months Ended

March 31, 2023 March 31, 2022

Interest Expense (a) $ ( 1,085 ) $ ( 55 )

Gain on Warrant Revaluation (b) 139 41

Gain (Loss) on Foreign Exchange (c) 320 ( 192 )

Loss on Marketable Securities Investments (d) ( 1,537 ) ( 79 )

Gain (Loss) on Revaluation of Equity Investment in YFE (e) ( 895 ) 5,395

Interest Income (f) 310 248

Finance Lease Interest Expense (g) ( 50 ) –

Other Income (Expense) $ ( 1,712 ) $ 5,413

(a) Interest expense during the three months ended March 31, 2023 primarily consisted of $ 0.7 million of interest incurred on the margin loan collateralized by the marketable security investments and $ 0.4 million of interest incurred on production facilities loans and bank indebtedness assumed as part of the Wow Acquisition.

(b) The gain on warrant revaluation is related to the change in fair value of outstanding warrants that were determined to be derivative liabilities attached to previously issued and converted convertible notes.

(c) The gain on foreign currency exchange during the three months ended March 31, 2023 primarily related to the EURO weakening against the USD compared to the previous reporting period end date of December 31, 2022.

The remeasurement of the investment in YFE’s equity securities resulted in a foreign exchange gain of $ 0.3 million.

(d) The net realized loss on marketable securities reflects the loss that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities.

(e) The fair value revaluation of the investment in YFE accounted for using the fair value option as of March 31, 2023, resulted in a $ 0.9 million loss, excluding the impact of foreign currency recorded separately as a Gain on Foreign Exchange.

The loss is a result of the decrease in YFE’s stock price as of March 31, 2023, as compared to December 31, 2022.

(f) Interest Income during the three months ended March 31, 2023 primarily consisted of cash interest received of $ 0.4 million from the investments in marketable securities, net of premium amortization expense of $ 0.2 million.

The remaining increase is due to interest accrued on the Notes Receivable from Related Parties.

(g) The finance lease interest expense represents the interest portion of the finance lease obligations assumed as part of the Wow Acquisition for equipment purchased under an equipment lease line.

Prior to the acquisition of Wow, the Company did not have any finance leases.

During the six months ended June 30, 2023, the borrowed amounts were primarily used for operational costs.

The interest rates for the borrowings fluctuate based on the Federal Funds Rate plus 0.65 %.

The weighted average interest rates were 0.67 % and 1.66 % on average margin loan balances of $ 44.2 million and $ 27.1 million as of June 30, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 0.6 million and $ 0.2 million during the three months ended June 30, 2023 and June 30, 2022, respectively.

The Company incurred interest expense on the loan of $ 1.3 million and $ 0.2 million during the six months ended June 30, 2023 and June 30, 2022, respectively.

Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the Company’s margin loan balances were $ 27.6 million and $ 60.8 million, respectively.

Bank Indebtedness and Production Facilities

Upon the acquisition of Wow, the Company assumed certain credit facilities (the “Facilities”).

Upon the acquisition of Wow, the Company assumed certain credit facilities (together the “Facilities”).

The Facilities are comprised of the following:

Revolving Demand Facility

On December 15, 2022, the Company amended the Facility.

Draws of up to $ 8.0 million CAD (previously $ 5.0 million CAD) under a revolving demand facility can be made in Canadian or US dollars at the option of the Company by way of bank prime rate loans, Canadian Bankers’ Acceptances, Secured Overnight Financing Rate (“SOFR”) or letters of credit.

On December 15, 2022, the Company amended the revolving demand facility.

Draws of up to $ 8.0 million CAD (previously $ 5.0 million CAD) under the revolving demand facility can be made in Canadian or US dollars at the option of the Company by way of bank prime rate loans, Canadian Bankers’ Acceptances, Secured Overnight Financing Rate (“SOFR”) or letters of credit.

Canadian or US dollar bank prime borrowings bear interest at a rate equal to bank prime plus 2.00 % per annum.

For other draws under the revolving facility, the respective loans bear interest at a rate equal to Canadian Bankers’ Acceptances or SOFR plus 3.75 % per annum.

As of March 31, 2023, the Company had an outstanding balance of $ 3.9 million USD ($ 5.2 million CAD) on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the Company had an outstanding balance of $ 4.8 million USD ($ 6.3 million CAD) and $ 1.7 million USD ($ 2.4 million CAD), respectively, on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s condensed consolidated balance sheets.

Table of Conten t s

Equipment Lease Line

On March 17 2023, the Company amended the terms of the equipment lease line under the Facility.

Under the equipment lease line, the Company may borrow up to $ 4.0 million CAD (previously $ 4.3 million CAD) under a revolving demand equipment lease line.

On March 17, 2023, the Company amended the terms of its equipment lease line.

Under the equipment lease line, the Company may borrow up to $ 4.0 million CAD (previously $ 4.3 million CAD).

Each transaction under the equipment lease line has specific financing terms in respect of the leased equipment such as term, finance amount, rate, and payment terms.

The finance rates for these equipment leases range from 3.94 % - 7.18 % with remaining lease terms of 5 - 40 months.

The Company has recorded finance lease right of use assets and finance lease liabilities for the leased equipment acquired in respect of these draws.

As of March 31, 2023, the Company has drawn down a total of $ 2.1 million USD ($ 2.9 million CAD) under the equipment lease line.

These outstanding balances as of March 31, 2023, net of repayments, are included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

The finance rates for these equipment leases range from 3.94 % to 7.18 % with remaining lease terms of 2 - 37 months.

As of June 30, 2023 and December 31, 2022, the Company has drawn down a total of $ 2.0 million USD ($ 2.6 million CAD) and $ 2.4 million USD ($ 3.3 million CAD), respectively, under the equipment lease line.

As of June 30, 2023 and December 31, 2022, the outstanding balances, net of repayments, were included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Treasury Risk Management Facility

1 unchanged sentence

The maximum term for foreign exchange forward contracts and interest rate swaps is one year .

As of March 31, 2023, there were no outstanding amounts drawn under the treasury risk management facility.

As of March 31, 2023, the Company was in compliance with all covenants under the Facility.

The treasury risk management facility is payable on demand at anytime.

As of June 30, 2023 and December 31, 2022, there were no outstanding amounts drawn under the treasury risk management facility.

Production Facilities

As part of the acquisition of WOW, the Company assumed production facilities for financing specific productions.

The production facilities are used for financing specific productions.

The Company’s production facilities bear interest at rates ranging from bank prime plus 1.00 % - 1.25 % per annum.

The production facilities are generally repayable on demand and are guaranteed and secured by the Company.

The production facilities are generally repayable on demand and are guaranteed and secured by the Company with no limitations for maximum potential future payments.

The security reflects substantially all of the 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 of March 31, 2023, the Company had an outstanding balance of $ 16.7 million USD ($ 22.6 million CAD), including $ 0.8 million USD ($ 1.1 million CAD of interest), recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the Company had an outstanding balance of $ 17.8 million USD ($ 22.5 million CAD), including $ 0.8 million USD ($ 1.1 million CAD) of interest and $ 18.3 million USD ($ 24.8 million CAD), including $ 1.1 million USD ($ 1.5 million CAD) of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

Equipment Lease Facility

Separate from the Facility's equipment lease line, a subsidiary of the Company entered into an equipment lease agreement with a Canadian bank.

Separate from the equipment lease line described above, the Company entered into an equipment lease agreement with a Canadian bank.

This additional equipment lease facility allows the Company to finance equipment purchases of up to $ 1.4 million CAD in total.

Each equipment lease is for a term of three years and will have specific financing terms such as finance amount and the bank’s lease base rate.

The Company has recorded finance lease right of use assets and finance lease liabilities for the leased equipment acquired in respect of these draws.

The outstanding balance as of March 31, 2023, net of repayments, is $ 0.5 million USD ($ 0.7 million CAD) and is included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

During the three months ended March 31, 2023, the borrowed amounts were primarily used for operational costs.

The interest rates for the borrowings fluctuate based on the Federal Funds Rate plus 0.65 % with interest only payable monthly.

The weighted average interest rates were 0.89 % and 1.66 % on average margin loan balances of $ 46.2 million and $ 27.1 million as of March 31, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 0.7 million and $ 21,846 during the three months ended March 31, 2023 and March 31, 2022, respectively.

The investment

margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

Due to the call option, the margin loan is recorded as a current liability on the Company’s condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the Company's margin loan balance was $ 48.9 million and $ 60.8 million, respectively.

The outstanding balance as of June 30, 2023 and December 31, 2022, net of repayments, was $ 0.5 million USD ($ 0.7 million CAD) for both respective periods and is included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Loan Covenants, Violations and Waiver

The Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt to EBITDA ratio as of June 30, 2023.

The Company has continued to make its regular principal and interest payments in a timely basis since the effective borrowing date.

The revolving demand facility and the treasury risk management facility can be called at anytime by the lender as per the original terms of the facilities.

The risk of the lender demanding repayment can be deemed greater due to the breach

Table of Conten t s

of covenants, however, at the time the financial statements were available for issuance, the lender has not provided the Company with a formal notification of a covenant breach.

As of December 31, 2022, the Company met all required financial and non-financial covenants.

Stockholders’ Equity

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Eastern time.

At the effective time, every 10 issued and outstanding shares of the Company's common stock were converted into 1 share of common stock.

At the effective time, every 10 issued and outstanding shares of the Company’s common stock were converted into one share of common stock.

Any fractional shares of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of fractional shares.

1 unchanged sentence

The reverse stock split proportionately reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000 shares.

The reverse stock split also applied to common stock issuable upon the exercise of the Company's outstanding warrants and stock options.

The reverse stock split also applied to common stock issuable upon the exercise of the Company’s then outstanding warrants and stock options.

The reverse stock split did not affect the authorized preferred stock of 10,000,000 shares.

As of March 31, 2023, the total number of authorized shares of common stock was 40,000,000 .

As of March 31, 2023 and December 31, 2022, there were 32,113,784 and 31,918,552 shares of common stock outstanding, respectively.

As of June 30, 2023, the total number of authorized shares of common stock was 40,000,000 .

As of June 30, 2023 and December 31, 2022, there were 35,054,573 and 31,918,552 shares of common stock outstanding, respectively.

During the six months ended June 30, 2023, the Company issued 404,251 shares of common stock for services.

Included in the issued shares were 400,000 shares of common stock valued at $ 1.0 million, or $ 2.47 per share, issued to the Company's lawyers and recorded as a prepaid retainer fee within Prepaid Expenses and Other Assets on the condensed consolidated balance sheet.

The prepaid fee is reduced as the Company incurs lawyer fees.

As of June 30, 2023, the remaining prepaid expense balance was $ 0.7 million.

Preferred Stock

The Company has 10,000,000 shares of preferred stock authorized with a par value of $ 0.001 per share.

The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time-to-time shares of preferred stock in one or more series.

Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by our shareholders, to issue from time-to-time shares of preferred stock in one or more series.

Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

In connection with the Company’s acquisition of Wow, certain eligible Canadian shareholders, noteholders and optionholders of Wow elected to receive the Exchangeable Shares in the capital of the Wow Exchange Co.

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The shares of ExchangeCo are exchangeable into shares of the Company’s common stock in accordance with their terms.

Holders of the ExchangeCo shares are entitled to defined voting rights (the “Voting Rights”) in the Company pursuant to a voting and exchange trust agreement (the “Voting Agreement”) dated April 6, 2022 between the Company, ExchangeCo, 1329258 B.C.

and Computershare Trust Company of Canada (the “Voting Trustee”).

1 unchanged sentence

The Voting Trustee is required to exercise each vote attached to the Special Voting Share only as directed by the relevant holder of the underlying Company shares of common stock and, in the absence of any instructions, will not exercise voting rights with respect to the applicable shares.

As of March 31, 2023 and December 31, 2022, there were 0 shares of Series A Convertible Preferred Stock outstanding.

As of March 31, 2023 and December 31, 2022, there was 1 share of Series B Preferred Stock outstanding.

As of June 30, 2023 and December 31, 2022, there were 0 shares of Series A Convertible Preferred Stock outstanding.

As of June 30, 2023 and December 31, 2022, there was 1 share of Series B Preferred Stock outstanding.

Treasury Stock

During the three months ended March 31, 2023, 3,700 shares of common stock with a cost of $ 9.435 were withheld to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury Stock on the condensed consolidated balance sheet.

Table of Conten t s

During the six months ended June 30, 2023, 5,865 shares of common stock with a cost of $ 15,930 were withheld to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury Stock on the condensed consolidated balance sheet.

Stock Options

On September 18, 2015, the Company adopted the Genius Brands International, Inc.

On September 18, 2015, the Company adopted the Kartoon Studios, Inc.

2015 Incentive Plan (the “2015 Plan”).

The total number of shares that can be issued under the 2015 Plan is 216,767 shares.

On September 1, 2020, the Company adopted the Genius Brands International, Inc.

On September 1, 2020, the Company adopted the Kartoon Studios, Inc.

2020 Incentive Plan (the “2020 Plan”).

On August 4, 2020, the Board of Directors voted to adopt the 2020 Plan.

The shares available for issuance under the 2020 Plan were approved by stockholders on August 27, 2020.

The 2020 Plan as approved by the stockholders increased the maximum number of shares available for issuance up to an aggregate of 3,000,000 shares of common stock, which does not include shares that the Company may issue related to acquisitions.

The following table summarizes the stock option activity during the three months ended March 31, 2023:

The shares available for issuance under the 2020 Plan were approved by shareholders on August 27, 2020.

The 2020 Plan as approved by the shareholders increased the maximum number of shares available for issuance up to an aggregate of 3,000,000 shares of common stock, which does not include shares that the Company may issue related to acquisitions.

The following table summarizes the stock option activity during the six months ended June 30, 2023:

Number of Shares Weighted- Average Remaining Contractual

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Expired ( 17,016 ) – $ 29.95

Outstanding at March 31, 2023 1,347,321 6.26 $ 15.05

Unvested at March 31, 2023 312,877 5.92 $ 13.23

Vested and exercisable March 31, 2023 1,034,444 6.36 $ 15.59

During the three months ended March 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the employee per the original employment agreement.

Outstanding at June 30, 2023 1,215,441 6.01 $ 14.84

Unvested at June 30, 2023 236,637 5.47 $ 9.95

Vested and exercisable June 30, 2023 978,804 6.14 $ 16.03

During the six months ended June 30, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the employees pursuant to their employment agreements.

This resulted in 55,816 options becoming immediately vested on the separation date and $ 0.1 million in expense recognized by the Company.

During the three months ended March 31, 2023 and 2022, the Company recognized $ 0.4 million and $ 0.4 million, respectively, in share-based compensation expense related to stock options.

The unrecognized share-based compensation expense as of March 31, 2023 was $ 0.9 million and will be recognized over a weighted average remaining contractual life of 6.26 years.

The outstanding shares as of March 31, 2023 have an aggregated intrinsic value of $ 0 .

During the three months ended June 30, 2023 and 2022, the Company recognized $ 0.3 million and $ 0.4 million, respectively, in share-based compensation expense related to stock options.

During the six months ended June 30, 2023 and 2022, the Company recognized $ 0.7 million and $ 0.8 million, respectively, in share-based compensation expense related to stock options.

The unrecognized share-based compensation expense as of June 30, 2023 was $ 0.6 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The outstanding shares as of June 30, 2023 had an aggregated intrinsic value of zero .

Restricted Stock Units

On March 17, 2023, the Company granted 11,070 fully vested RSUs to the Company's board members with a fair market value of $ 30,000 .

The RSUs expire five years from date of grant.

An aggregate of 593,358 shares of common stock were issued as a result of vested RSUs.

The following table summarizes the Company’s RSU activity during the three months ended March 31, 2023:

During the six months ended June 30, 2023, the Company granted 34,431 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $ 0.1 million.

The RSUs expire five years from the date of grant.

An aggregate of 303,076 shares of common stock were issued during the six months ended June 30, 2023 as a result of vested RSUs.

The following table summarizes the Company’s RSU activity during the six months ended June 30, 2023:

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Restricted Stock Units Weighted-

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Forfeited/Cancelled – – $ –

Unvested at March 31, 2023 1,135,909 3.17 $ 13.63

During the three months ended March 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested shares held by the employee per the original employment agreement.

This resulted in 24,243 shares becoming immediately vested and issued on the separation date and $ 0.1 million in expense recognized by the Company.

During the three months ended March 31, 2023 and 2022, the Company recognized $ 0.5 million and $ 4.1 million, respectively, in share-based compensation expense related to RSU awards.

The unvested share-based compensation as of March 31, 2023 is $ 1.2 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the three months ended March 31, 2023 was $ 0.4 million.

The following table summarizes the activity in the Company's outstanding warrants during the three months ended March 31, 2023:

Unvested at June 30, 2023 1,102,576 2.91 $ 13.74

During the six months ended June 30, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested shares held by such employees pursuant to their employment agreements.

This resulted in 27,576 shares becoming immediately vested and issued on the separation dates and $ 0.1 million in expense recognized by the Company.

During the three months ended June 30, 2023 and 2022, the Company recognized $ 0.4 million and $ 3.9 million, respectively, in share-based compensation expense related to RSUs.

During the six months ended June 30, 2023 and 2022, the Company recognized $ 0.9 million and $ 7.9 million, respectively, in share-based compensation expense related to RSU awards.

The unvested share-based compensation as of June 30, 2023 was $ 0.9 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the six months ended June 30, 2023 was $ 0.8 million.

The following table summarizes the activity in the Company’s outstanding warrants during the six months ended June 30, 2023:

Warrants Outstanding Number of

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Forfeitures ( 50,000 ) 7.69 $ 13.90

Balance at March 31, 2023 4,379,593 3.08 $ 22.59

Exercisable March 31, 2023 4,379,593 3.08 $ 22.59

Balance at June 30, 2023 6,852,952 4.54 $ 8.19

Exercisable June 30, 2023 2,068,043 3.10 $ 21.35

Exercisable December 31, 2022 4,433,593 4.77 $ 22.50

The warrants to purchase shares of the Company’s common stock outstanding as of March 31, 2023 and December 31, 2022 had a total value of $ 72.4 million and $ 73.3 million, respectively.

As of March 31, 2023, 89,286 liability classified derivative warrants to purchase shares of the Company’s common stock remained outstanding and are revalued each reporting period.

As of March 31, 2023, the warrants were revalued at $ 0.2 million, resulting in a decrease of $ 0.1 million in liability as compared to December 31, 2022.

The change in value is recorded within net other income (expense) on the condensed consolidated statements of operations.

The warrants to purchase shares of the Company’s common stock outstanding as of June 30, 2023 and December 31, 2022 had a total value of $ 39.2 million and $ 73.3 million, respectively.

As of June 30, 2023, 89,286 liability classified derivative warrants to purchase shares of the Company’s common stock remained outstanding and are revalued each reporting period.

As of June 30, 2023, the warrants were revalued at $ 0.1 million, resulting in a decrease of $ 0.2 million in liability as compared to December 31, 2022.

The change in value was recorded within Other Income (Expense), Net on the condensed consolidated statements of operations and Gain on Warrant Revaluation within the condensed consolidated statement of cash flows.

The fair value of the outstanding derivative warrants was determined by using the Black-Scholes option pricing model (“BSM”) based on the following assumptions:

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Exercise Price $ 2.10

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Risk-free interest rate 4.71 %

Expected life of options 2.0 years

Expected Life of Warrants 1.7 years

On February 16, 2023, the Company received a notification of exercise from the holder of the remaining 50,000 warrants with a put option.

The put option was exercised for a fixed rate of $ 250,000 .

Warrant Exchange

On June 26, 2023, the Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain holders of the warrants issued by the Company in January 2021 that had an exercise price of $ 23.70 per share and were exercisable for an aggregate of 2,311,550 shares of the Company’s common stock (the “2021 Warrants”).

Pursuant to the Letter Agreements, the exercising holders and the Company agreed that, subject to any applicable beneficial ownership limitations, the holders would exercise all of their 2021 Warrants for shares of the Company’s common stock at a reduced exercise price of $ 2.50 per share of common stock in exchange for the issuance of new unregistered warrants (the “Exchange Warrants”) to purchase up to an aggregate of 4,623,100 shares of common stock, equal to 200 % of the number of common stock underlying the 2021 Warrants.

The aggregate number of shares of common stock issuable pursuant to the Exchange Warrants, together with the shares of common stock issued pursuant to the repriced 2021 Warrants, exceeds 19.99 % of the outstanding shares of common stock of the Company (determined as of the date of, and without regard for, the issuance of the Exchange Warrants and the shares issued upon exercise of the repriced 2021 Warrants).

In addition, upon issuance of the Exchange Warrants, the Company will not have a sufficient number of underlying common stock that would be required to deliver based on its existing outstanding shares and commitments and the maximum number of shares that would be required to be delivered upon exercise of the Exchange Warrants.

The Company is holding its annual shareholder meeting on August 25, 2023, during which the shareholders will be asked to (a) approve an amendment to the articles of incorporation to increase the authorized shares of common stock from 40,000,000 shares to 190,000,000 shares with a corresponding increase in the total number of authorized shares of capital stock of the Company from 50,000,000 shares to 200,000,000 shares (the “Share Increase Proposal”) and (b) approve, in accordance with 713(A) of the NYSE American Company Guide, the issuance of more than 19.99 % of the Company’s outstanding common stock upon the exercise of the Warrants (the “Warrant Exercise Proposal” and together with the Share Increase Proposal, the “Proposals” and the “Shareholder Approvals”).

The Exchange Warrants have an exercise price of $ 2.50 per share and a term of five years from the date of the Shareholder Approvals.

Consequently, the exercise of the Exchange Warrants in full is subject to Shareholder Approvals.

If the Company does not obtain the Shareholder Approvals during the 2023 annual meeting, the Company has agreed to call a meeting of shareholders every 90 days thereafter to seek shareholder approval until the Shareholder Approvals are obtained.

The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends and stock splits, subsequent equity sales, subsequent rights offerings, pro rata distributions and certain fundamental transactions affecting the shares of common stock.

A holder will not have the right to exercise any portion of the Exchange Warrant if the holder would beneficially own in excess of 4.99 % (or, at the election of the holder, 9.99 %) of the outstanding common stock immediately after exercise, except that upon notice from the holder to the Company, the holder may increase or decrease the beneficial ownership limitation up to 9.99 % of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Exchange Warrants, provided that any increase in such beneficial ownership limitation shall not be effective until 61 days following notice from the holder to the Company.

The Company received approximately $ 5.8 million in gross proceeds recorded as an increase to Additional Paid-in Capital.

The Special Equities Group, a division of Bradley Woods & Co.

(“SEG”), acted as warrant solicitation agent and received a cash fee of $ 0.4 million, equal to 7.0 % of the total gross proceeds, and warrants with a value of $ 0.4 million on the issuance date to purchase up to 161,809 of the Company’s common stock at $ 2.50 per share (the “SEG Warrants”).

In addition, through issuance of the Company’s common stock, the Company paid lawyer fees of $ 0.1 million for costs directly attributable to the warrant re-pricing and exchange.

The total issuance costs of $ 0.9 million were netted against the

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proceeds received and recorded as a reduction to Additional Paid in Capital on the Company's condensed consolidated balance sheet.

As the 2021 Warrants were repriced prior to exercising, the Company utilized ASC 815 to account for the modification.

As per ASC 815, an entity shall treat a modification of the terms or conditions or an exchange of a freestanding equity classified written call option as an exchange of the original instrument for a new instrument.

The effect of a modification or an exchange shall be measured as the excess, if any, of the fair value of the modified or exchanged instrument over the fair value of that instrument immediately before it is modified or exchanged (the “incremental expense”).

The Company calculated the fair value of the 2021 Warrants exercised immediately before the repricing using the Black-Scholes option pricing model (“BSM”).

The calculation used the original exercise price of $ 23.70 per share and the BSM assumptions as of June 26, 2023 to calculate the fair value immediately before the repricing and calculated the fair value of the 2021 Warrants exercised utilizing the modified exercise price of $ 2.50 per share and the same BSM assumptions as of June 26, 2023.

The resulting difference of $ 3.5 million, was recorded as an incremental expense as a Warrant Incentive Expense within Other Income (Expense), Net on the condensed consolidated statement of operations and as an increase to Additional Paid-in Capital on the condensed consolidated balance sheet as of June 30, 2023.

The fair value of the aggregate total of 4,784,909 Exchange Warrants and the SEG Warrants (collectively, the “Warrants”) on the issuance date of June 26, 2023 was determined to be $ 13.1 million, or $ 2.74 per share, as calculated using the BSM based on the following assumptions:

June 26, 2023

Market Price $ 3.30

Exercise Price $ 2.50

Dividend Yield 0 %

Volatility 110 %

Risk-free interest rate 3.96 %

Expected Life of Warrants 5.0 years

The fair value of the Exchange Warrants of $ 12.7 million was recorded as a Warrant Incentive Expense within Other Income (Expense), Net on the condensed consolidated statement of operations.

The fair value of the SEG Warrants was recorded as a reduction to Additional Paid-in Capital on the condensed consolidated balance sheet.

Per review of ASC 815 to determine the classification of the Warrants as either assets or liabilities the Company must evaluate whether it has a sufficient number of authorized and unissued shares at the classification assessment date to control settlement by delivering shares.

As noted above, when taking into consideration the Company’s existing outstanding common stock and future commitments to issue common stock prior to the issuance of the Warrants, the Company does not have a sufficient number of common stock underlying its commitments, when including the Warrants, with a calculated deficit of 4,240,784 shares as of June 26, 2023.

In addition, ASC 815 states that if an entity could be required to obtain shareholder approval to increase the entity’s authorized shares to net share or physically settle a contract, share settlement is not controlled by the entity, therefore would be liability classified.

As the Company does not have a sufficient number of authorized and unissued shares required to be delivered upon settlement of equity instruments and is required to obtain the Shareholder Approvals to increase the authorized shares, the settlement is not considered controlled by the Company.

Consequently, the Warrants are required to be classified as a liability and revalued at each reporting period end date.

The fair value of the Warrants as of June 30, 2023 was determined to be $ 7.1 million, or $ 1.48 per share, using the BSM based on the following assumptions:

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June 30, 2023

Market Price $ 1.91

Exercise Price $ 2.50

Dividend Yield 0 %

Volatility 110 %

Risk-free interest rate 4.13 %

Expected Life of Warrants 5.0 years

The value of the Warrants decreased by $ 6.0 million as of June 30, 2023 compared to the issuance date of June 26, 2023.

The change in fair value reduced the initial warrant liability balance to $ 7.1 million and the change in fair value was recorded as a gain within Other Income (Expense), Net on the condensed consolidated statement of operations.

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Supplemental Financial Statement Information

Other Income (Expense), Net

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

Three Months Ended

Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Interest Expense (a) $ ( 1,020 ) $ ( 388 ) $ ( 2,105 ) $ ( 443 )

Warrant Incentive Expense (b) ( 16,174 ) – ( 16,174 ) –

Gain on Revaluation of Warrants (c) 6,063 227 6,202 269

Gain (Loss) on Revaluation of Equity Investment in YFE (d) 4,322 ( 2,494 ) 3,427 2,901

Realized Loss on Marketable Securities Investments (e) ( 720 ) ( 44 ) ( 2,257 ) ( 123 )

Gain (Loss) on Foreign Exchange (f) 35 ( 1,073 ) 355 ( 1,262 )

Interest Income (g) 158 253 468 501

Finance Lease Interest Expense (h) ( 54 ) ( 30 ) ( 104 ) ( 30 )

Other 2 – 3 –

Other Income (Expense) $ ( 6,368 ) $ ( 3,161 ) $ ( 8,080 ) $ 2,256

(a) Interest expense during the three and six months ended June 30, 2023 primarily consisted of $ 0.6 million and $ 1.3 million of interest incurred on the margin loan, respectively, and $ 0.4 million and $ 0.8 million, respectively, of interest incurred on production facilities loans and bank indebtedness assumed as part of the Wow Acquisition.

(b) The Warrant Incentive Expense is related to the $ 12.7 million fair value of Exchange Warrants that were issued during the three months ended June 30, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants and $ 3.5 million recorded as the incremental expense of the 2021 Warrants immediately before and after the repricing.

(c) The gain on warrant revaluation during the three and six months ended June 30, 2023 is primarily related to the $ 6.0 million change in fair value as of the end of the reporting period of the Exchange and SEG Warrants compared to the fair value at issuance date.

(d) As accounted for using the fair value option, the gain on the YFE investment revaluation during the three and six months ended June 30, 2023, excluding the impact of foreign currency recorded separately, is a result of an increase in YFE’s stock price as of June 30, 2023 when compared to the three and six months ended prior period.

(e) The net realized loss on marketable securities reflects the loss that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities.

(f) The gain on foreign currency exchange during the three and six months ended June 30, 2023 primarily related to the EURO weakening against the USD compared to the three and six months ended prior period.

(g) Interest Income during the three and six months ended June 30, 2023 primarily consisted of cash interest received of $ 0.3 million and $ 0.7 million from the investments in marketable securities, respectively, net of premium amortization expense of $ 0.2 million and $ 0.3 million, respectively.

(h) The finance lease interest expense represents the interest portion of the finance lease obligations assumed as part of the Wow Acquisition for equipment purchased under an equipment lease line.

Prior to the acquisition of Wow, finance leases did not exist.

Supplemental Pro forma information

On January 13, 2022, the Company completed the acquisition of Ameba, at which Ameba’s financial information was consolidated into the Company’s financials.

On April 6, 2022, the Company completed the acquisition of Wow.

Wow’s financial information was consolidated into the Company’s financials starting April 1, 2022.

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The following unaudited supplemental pro forma information summarizes the Company’s results of operations as if the Company completed the Wow and Ameba acquisitions at the beginning of the annual period 2022, when acquired (in thousands, except for share and per share data):

Supplemental pro forma information is as follows:

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2022

Total Revenues $ 22,124 41,667

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 13,343 ) ( 16,926 )

Net Loss per Share (Basic and Diluted) $ ( 0.42 ) $ ( 0.55 )

Weighted Average Shares Outstanding (Basic and Diluted) 31,551,991 30,968,201

The unaudited pro forma combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that the Company would have reported had the acquisitions been completed as of the date and for the periods presented and should not be taken as representative of the Company’s consolidated results of operations or financial condition following the acquisition.

In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company.

The unaudited pro forma financial information was prepared using the acquisition method of accounting under existing US GAAP.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns.

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If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

As part of the Ameba purchase price allocation, a $ 0.7 million deferred tax liability was previously recorded.

Due to the impairment write-off of the related intangible assets, the deferred income tax liability was reversed and recorded as an income tax benefit during the six months ended June 30, 2023.

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes.

As of March 31, 2023 and December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions.

As of June 30, 2023 and December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company files income tax returns in the U.S.

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Beacon Communications, Wow and Ameba are corporations operating in Canada and are subject to Canadian income taxes on their stand-alone taxable income.

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Commitments and Contingencies

The following is a schedule of future minimum contractual obligations as of March 31, 2023 (in thousands):

The following is a schedule of future minimum contractual obligations as of June 30, 2023 (in thousands):

2023 2024 2025 2026 2027 Thereafter Total

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As the rates were implicit in the leases, the Company determined that the carrying value of the leases as of the acquisition date equaled the fair value.

With the implicit rates in the leases range from 3.7 %- 14.5 %, remaining lease terms of 10 - 33 months and monthly payments of $ 1,346 -$ 57,362 as of the Wow Acquisition date, the finance lease obligations were determined to be $ 3.5 million and recorded as current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheet upon consolidation.

The present value discount of the minimum operating lease payments above was $ 3.9 million as of March 31, 2023.

With the implicit rates in the leases ranging from 3.7 % to 14.5 %, remaining lease terms of 10 - 33 months and monthly payments of $ 1,346 -$ 57,362 , the finance lease obligations were determined to be $ 3.5 million as of the Wow Acquisition date and recorded as current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheet upon consolidation.

The present value discount of the minimum operating lease payments above was $ 3.7 million as of June 30, 2023.

Other Funding Commitments

1 unchanged sentence

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

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Related Party Transactions

Pursuant to his employment agreements dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an Executive Producer fee of $ 12,500 per one-half hour episode for each episode he provides services as an executive producer .

During the three months ended March 31, 2023 and March 31, 2022, Mr.

Heyward earned and was paid $ 162,500 and $ 612,155 in producer fees, respectively.

Heyward also earned his $ 55,000 quarterly bonus during the three months ended March 31, 2023.

Pursuant to his employment agreement dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an executive producer fee of $ 12,500 per one-half hour episode for each episode he provides services as an executive producer .

During the six months ended June 30, 2023 and June 30, 2022, Mr.

Heyward earned and was paid $ 0.3 million and $ 0.6 million in executive producer fees, respectively.

Heyward also earned his $ 55,000 quarterly bonus during each of the quarters in 2023 and 2022.

An unpaid balance of $ 55,000 is recorded as Due to Related Party on the Company's condensed consolidated balance sheet.

On August 25, 2022, Mr.

3 unchanged sentences

Heyward provided services for, he has the option to purchase the additional royalties from the Company at the price the Company paid to acquire the additional royalties.

During the three months ended March 31, 2023, Mr.

During the six months ended June 30, 2023 and June 30, 2022, Mr.

Heyward has not earned royalties from musical compositions.

Pursuant to his employment agreement dated April 7, 2022, Michael Hirsh, CEO of Wow and its Frederator and Mainframe Studio subsidiaries, is entitled to an executive producer fee of $ 12,400 per one-half hour for each episode of any audio-visual production produced by Wow and any of its subsidiaries during the term of his employment, up to 52 episodes per year .

During the three months ended March 31, 2023, Mr.

Hirsh has not earned producer fees under the employment agreement.

During the six months ended June 30, 2023 and June 30, 2022, Mr.

Hirsh has not earned executive producer fees under the employment agreement.

On July 21, 2020, the Company entered into a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward.

The Company entered into a customary merchandise license

agreement with AHAA for the use of characters and logos related to Warren Buffett’s Secret Millionaires Club and Stan Lee’s Mighty 7 in connection with certain products to be sold by AHAA.

The Company entered into a customary merchandise license agreement with AHAA for the use of characters and logos related to Warren Buffett’s Secret Millionaires Club and Stan Lee’s Mighty 7 in connection with certain products to be sold by AHAA.

The terms and conditions of such license are customary within the industry, and the Company earns an arm-length industry standard royalty on all sales made by AHAA utilizing the licensed content.

During the three months ended March 31, 2023 and March 31, 2022, Mr.

During the six months ended June 30, 2023 and June 30, 2022, Mr.

Heyward has not earned royalties from this agreement.

On September 30, 2021, the Company entered into a Loan Agreement and Promissory Note with POW in the amount of $ 1,250,000 , accruing simple interest at the annualized rate of 9 %.

The loan has accrued interest of $ 0.2 million and $ 0.1 million as of March 31, 2023 and December 31, 2022, respectively, recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheets.

The loan accrued interest of $ 0.2 million and $ 0.1 million as of June 30, 2023 and December 31, 2022, respectively, recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheets.

In addition, pursuant to its joint venture with POW and formation of the entity Stan Lee Universe, LLC, the Company included within Note Receivable from Related Party the amount owed to the Company related to the 50 % non-controlling interest held by POW.

On November 1, 2022, POW failed to repay the Loan as set forth in the applicable loan agreement and the Company had not received any payment as of March 31, 2023.

As the Library secures repayment, the Company initiated a public sale of the Stan Lee Library owned by POW during February 2023, however, POW has since repaid the loan during April 2023 and the auction has been cancelled.

POW has since repaid the loan during April 2023.

On July 19, 2022, the Company entered into a Shareholder Loan Agreement with YFE in the amount of EURO 1.3 million, accruing interest at the fixed annualized rate of 5 %, with successive interest periods of three months due on the last day of each calendar quarter.

The entire principal sum was required to be remitted to YFE within 5 days of the effective date.

The entire principal sum was required to be remitted to YFE within five days of the effective date.

The principal plus interest must be repaid by no later than June 30, 2026.

The loan has accrued interest of USD $ 44,701 as of March 31, 2023 recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheet.

On December 1, 2021, the Company entered into an Independent Contractor Agreement for two years with F&M Film and Medien Beteiligungs GmbH ("F&M"), a company controlled by Dr.

The loan accrued interest of USD $ 44,701 as of June 30, 2023 recorded with the principal balance within Note Receivable from Related Party on the Company’s condensed consolidated balance sheet.

On December 1, 2021, the Company entered into an Independent Contractor Agreement for a term of two years with F&M Film and Medien Beteiligungs GmbH (“F&M”), a company controlled by Dr.

Stefan Piëch.

Pursuant to the agreement, F&M will receive $ 150,000 annually, paid on a semi-monthly basis.

In addition, Dr.

Piëch was granted 30,000 of the Company's RSUs that vest in three six-month intervals beginning on December 1, 2021.

Pursuant to the agreement, F&M would receive $ 150,000 annually, paid on a semi-monthly basis.

In addition, F&M was granted 30,000 of the Company's RSUs that would vest in three six-month intervals beginning on December 1, 2021.

During 2022, the Company entered into a sublease agreement with a related party to lease one office in the general office space at 190 N.

Canon Drive, Suite 400, Beverly Hills, CA 90210.

The sublease payment is $ 595 per month and recorded to Other Income in the Company's condensed consolidated statement of operations.

The monthly payment is $ 395 and recorded to Other Income in the Company's condensed consolidated statement of operations.

Segment Reporting

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The CODM does not evaluate the operating segments using asset information and it is therefore not disclosed.

All expenses directly attributable to each reportable segment are included in the operating results for each segment.

All expenses directly attributable

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to each reportable segment are included in the operating results for each segment.

However, the CODM does not evaluate the expenses by operating segment and, therefore, it is not separately presented.

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

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Total Revenues:

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Media Advisory & Advertising Services ( 533 ) ( 520 ) ( 1,087 ) ( 1,012 )

Total Operating Loss $ ( 24,762 ) $ ( 4,531 )

Total Net Loss $ ( 15,230 ) $ ( 13,343 ) $ ( 39,992 ) $ ( 17,872 )

Geographic Information

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

Three Months Ended

March 31, 2023 March 31, 2022

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Total Revenues:

2 unchanged sentences

United Kingdom 1,747 974 3,591 974

Other 58 — 209 —

Total Revenue $ 11,038 $ 22,124 $ 25,227 $ 23,563

Subsequent Events

During April 2023, the Company received the principal, plus interest accrued, payment due of $ 1.4 million related to the Loan Agreement and Promissory Note with POW.

On August 2, 2023, the Company's subsidiary, Beacon Media, signed a Termination of Lease Agreement (the “Lease Termination”), effective August 1, 2023 (the “Effective Date”), related to the office space in Lyndhurst NJ.

The Lease Termination requires Beacon Media to pay an aggregate of $ 98,185 in consideration of terminating the lease, which is to be paid in four equal installments, starting on the cease-use date of August 1, 2023.

If the Company fails to pay the any installment within five days of being due, Beacon Media would be responsible for the full exposure on the lease of $ 0.6 million.

As of June 30, 2023, the lease had a remaining ROU asset balance of $ 0.5 million and an operating lease liability balance of $ 0.6 million.

Beacon Media Group has also agreed to waive reimbursement of the security deposit in the amount of $ 26,208 and leave the furniture and fixtures and any leasehold improvements that had a carrying value of $ 88,569 as of June 30, 2023.

On the Effective Date, the Company will write off the ROU asset, lease liability and deposit and record the difference as a loss of $ 104,704 within Other Income (Expense), Net on the condensed consolidated statement of operations.

In addition, the Company will dispose of the fixed assets by writing them down to zero and recording it the carrying value as a Loss on Fixed Asset Disposal on the condensed consolidated statement of operations.

During July 2023, the Company sold AFS marketable securities and received proceeds of $ 27.0 million, including accrued interest received on the sold securities, and incurred a realized loss of $ 1.5 million.

The proceeds were used to pay down $ 27.0 million of the margin loan.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements