What changed in this filing

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Item 1. Financial Statements

2023-11-17 compared with 2023-08-14 · 373 added, 351 removed, 885 unchanged (45% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

June 30, 2023 December 31, 2022

(in thousands, except share and par value data)

September 30, 2023 December 31, 2022

Current Assets:

Cash and Cash Equivalents $ 4,839 $ 7,432

Investments in Marketable Securities (amortized cost of $ 53,113 )

Cash $ 3,887 $ 7,432

Investments in Marketable Securities (amortized cost of $ 17,706 and $ 90,321 , respectively)

16,152 83,706

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Margin Loan 2,228 60,810

Production Facilities, net 17,793 18,282

Production Facilities

21,092 18,282

Bank Indebtedness 2,311 1,741

14 unchanged sentences

Stockholders’ Equity:

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

Preferred Stock, 9,943,999 and 9,993,999 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

0 % Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

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

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Common Stock, $ 0.001 par value, 40,000,000 shares authorized, 35,094,542 and 31,875,919 shares issued and 35,145,481 and 31,918,552 outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional Paid-in Capital 773,885 762,418

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

Treasury Stock at Cost, 50,939 and 42,633 shares of common stock as of September 30, 2023 and December 31, 2022, respectively

( 314 ) ( 290 )

6 unchanged sentences

Total Liabilities and Stockholders’ Equity $ 136,174 $ 237,918

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

Table of Conten t s

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

Kartoon Studios, Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Production Services $ 6,360 $ 9,095 $ 23,279 $ 19,113

13 unchanged sentences

Interest Expense ( 672 ) ( 740 ) ( 2,777 ) ( 1,184 )

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

Other Expense, Net

( 2,236 ) ( 5,062 ) ( 10,293 ) ( 2,805 )

Loss Before Income Tax Benefit ( 15,512 ) ( 11,241 ) ( 56,256 ) ( 27,949 )

8 unchanged sentences

Weighted Average Shares Outstanding (Diluted) 35,088,333 31,728,277 33,160,228 31,224,344

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

Table of Conten t s

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

Kartoon Studios, Inc.

1 unchanged sentence

(in thousands)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Net Loss $ ( 15,512 ) $ ( 11,241 ) $ ( 55,551 ) $ ( 27,949 )

3 unchanged sentences

Foreign Currency Translation Adjustments ( 550 ) ( 2,354 ) 157 ( 3,794 )

Total Change in Accumulated Other Comprehensive Loss 1,337 ( 2,528 ) 3,707 ( 5,912 )

Total Change in Accumulated Other Comprehensive Income (Loss) 1,511 ( 4,284 ) 5,218 ( 10,196 )

Total Comprehensive Net Loss $ ( 14,001 ) $ ( 15,525 ) $ ( 50,333 ) $ ( 38,145 )

2 unchanged sentences

$ ( 13,965 ) $ ( 15,502 ) $ ( 50,250 ) $ ( 39,284 )

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

Table of Conten t s

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

Kartoon Studios, Inc.

8 unchanged sentences

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

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

Currency Translation Adjustment – – – – – – – – 3 – 3

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

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

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

Currency 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

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Issuance of Common Stock for Services 26,152 – – – 43 – – – – – 43

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 64,756 – – – – 2,441 ( 9 ) – – – ( 9 )

Share Based Compensation – – – – 465 – – – – – 465

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – 2,061 – 2,061

Currency Translation Adjustment – – – – – – – – ( 550 ) – ( 550 )

Net Loss – – – – – – – ( 15,476 ) – ( 36 ) ( 15,512 )

Balance, September 30, 2023 35,145,481 $ 351 1 $ – $ 773,885 50,939 $ ( 314 ) $ ( 696,911 ) $ ( 4,707 ) $ 1,707 $ 74,011

Common Stock Preferred Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest Total

Shares Amount Shares Amount Shares Amount

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

2 unchanged sentences

Share Based Compensation – – – – 4,491 – – – – – 4,491

Unrealized Loss on Marketable Securities – – – – – – – – ( 3,421 ) – ( 3,421 )

Foreign Translation Adjustment – – – – – – – – 37 – 37

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – ( 3,421 ) – ( 3,421 )

Currency Translation Adjustment – – – – – – – – 37 – 37

Net Loss – – – – – – – ( 4,531 ) – ( 31 ) ( 4,562 )

5 unchanged sentences

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

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

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

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – ( 1,051 ) – ( 1,051 )

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

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

1 unchanged sentence

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.

Table of Conten t s

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 86,216 1 – – ( 1 ) 699 ( 3 ) – – – ( 3 )

Purchase of Treasury Stock Not Yet Settled – – – – ( 285 ) – – – – – ( 285 )

Share Based Compensation – – – – 1,182 – – – – – 1,182

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – ( 1,930 ) – ( 1,930 )

Currency Translation Adjustment – – – – – – – – ( 2,354 ) – ( 2,354 )

Net Loss – – – – – – – ( 11,216 ) – ( 23 ) ( 11,239 )

Balance, September 30, 2022 31,809,732 $ 318 1 $ — $ 762,633 699 $ ( 3 ) $ ( 624,936 ) $ ( 11,417 ) $ 1,863 $ 128,458

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

Kartoon Studios, Inc.

1 unchanged sentence

(in thousands)

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Cash Flows from Operating Activities:

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Share Based Compensation Expense 2,091 9,918

Impairment Loss of Intangible Assets 4,023 –

Impairment of Intangible Assets 4,023 –

Impairment of Goodwill 11,287 –

Impairment of Property and Equipment 120 –

Loss on Early Lease Termination 232 –

Warrant Incentive Expense 16,174 –

1 unchanged sentence

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) Loss on Revaluation of Equity Investments in Your Family Entertainment AG ( 1,102 ) 1,170

Unrealized Loss on Foreign Currency of Equity Investments in Your Family Entertainment AG 205 2,584

Gain on Warrant Revaluation ( 8,999 ) ( 434 )

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Repayments of Margin Loan ( 76,182 ) ( 6,612 )

(Repayments of)/Proceeds from Production Facilities, net ( 1,494 ) 2,495

Proceeds from Production Facilities 11,161 7,455

Repayment of Production Facilities ( 9,451 ) ( 3,984 )

Proceeds from Bank Indebtedness, net 573 760

2 unchanged sentences

Principal Payments on Finance Lease Obligations ( 1,555 ) ( 920 )

Debt Issuance Costs ( 18 ) ( 33 )

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

1 unchanged sentence

Payment for Warrant Put Option Exercise ( 250 ) –

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

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

Ending Cash, Cash Equivalents and Restricted Cash $ 4,839 $ 7,816

Net Cash Provided by (Used in) Financing Activities ( 52,829 ) 58,609

Effect of Exchange Rate Changes on Cash 34 ( 187 )

Net Decrease in Cash ( 3,545 ) ( 2,967 )

Beginning Cash 7,432 10,060

Ending Cash $ 3,887 $ 7,093

Schedule of Non-Cash Financing and Investing Activities

3 unchanged sentences

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

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

Table of Conten t s

Liability for Treasury Stock Not Yet Settled $ – $ 285

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

Kartoon Studios, Inc.

And Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2023

Organization and Business

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("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 Shaq’s Garage starring Shaquille O’Neal.

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The Company also licenses its programs to other services worldwide, in addition to the operation of its own channels, including but not limited to Netflix, HBO Max, Paramount+, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.

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

Through the Company’s investments in Germany’s Your Family Entertainment AG (“YFE”), a publicly traded company on the Frankfurt Stock 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, the Company has established an affiliate relationship with Mainframe Studios Inc.

(“Mainframe”), which is one of the largest animation producers in the world.

In addition, Wow owns Frederator Networks Inc.

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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.

The Company also owns Beacon Media Group, LLC (“Beacon Media”) and Beacon Communications, Ltd.

(“Beacon Communications”) (collectively, “Beacon”), a leading North American marketing and media agency and its first-class media research, planning and buying division.

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

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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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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.

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

The par value of each share of common stock remained unchanged.

6 unchanged sentences

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.

(“SEG”) 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”).

The Warrants are exercisable at any time beginning on November 1, 2023 (i.e., the date stockholder approval was received as described therein) (the “Initial Exercise Date”) and ends on the fifth anniversary of the Initial Exercise Date at a price per share of $ 2.50 .

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 is currently pending with the Securities Exchange Commission (“SEC”).

The fair value for the newly issued liability-classified Exchange Warrants of $ 12.7 million and the increase in fair value of $ 3.5 million for the repriced 2021 Warrants prior to exercise of the equity instruments was recorded as a loss to Warrant Incentive Expense within Other Income (Expense), Net on the condensed consolidated statement of operations.

Refer to Note 17 for additional information.

Declaration of Series C Preferred Stock Dividend;

Redemption of Series C Preferred Stock

On September 21, 2023, the Company’s board of directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock, par value $ 0.001 per share (“Series C Preferred Stock”), for each outstanding share of the Company’s common stock, par value $ 0.001 per share to stockholders of record on October 2, 2023 (the “Record Date”).

Each share of Series C Preferred Stock would entitle the holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of Series C Preferred Stock would have a ratable number of votes).

Thus, each one-thousandth of a share of Series C Preferred Stock would entitle the holder thereof to 1,000 votes.

The outstanding shares of Series C Preferred Stock would vote together with the outstanding shares of common stock of the Company as a single class exclusively with respect to the approval of the proposal (the “Share Increase Proposal”) to amend the Company’s 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 Amendment”) and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Share Increase Amendment (the “Adjournment Proposal” and together with the Share Increase Proposal, the “Proposals”).

The Series C Preferred Stock would not be entitled to vote on any other matter, except to the extent required under Chapter 78 of the Nevada Revised Statues.

The Company held a special meeting of stockholders on November 1, 2023 (the “Special Meeting”), at which both Proposals were approved by the stockholders.

All shares of Series C Preferred Stock that had not been duly voted by proxy prior to the opening of the Special Meeting were automatically redeemed in whole, but not in part, by the Company as of immediately prior to the opening of

such meeting.

Any outstanding shares of Series C Preferred Stock that had not been redeemed prior to the opening of the Special Meeting were redeemed in whole, but not in part, automatically upon the approval of the Share Increase Proposal by the stockholders.

Each share of Series C Preferred Stock was redeemed in consideration for the right to receive an amount equal to $ 0.01 in cash for each ten whole shares of Series C Preferred Stock that had been held as of immediately prior to the applicable redemption.

However, the redemption consideration in respect of the shares of Series C Preferred Stock (or fractions thereof) would only be payable to such owners on the number of shares owned and redeemed pursuant to the redemptions rounded down to the nearest whole number that is a multiple of ten (such, that for example, an owner of 25 shares of Series C Preferred Stock redeemed pursuant to any redemption would be entitled to receive cash payment only on redemption of 20 shares of Series C Preferred Stock).

As of September 30, 2023, the Company had cash of $ 3.9 million, which decreased by $ 3.5 million as compared to December 31, 2022.

The decrease was primarily due to cash used in financing activities of $ 52.8 million, primarily due to repayment of the margin loan, net proceeds, offset by the cash received from the warrant exchange and $ 20.2 million used in operating activities.

The cash used was offset by cash provided by sales and maturities of marketable securities of $ 67.6 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.

As of September 30, 2023, the Company held available-for-sale marketable securities with a fair value of $ 16.2 million, which decreased by $ 67.6 million as compared to December 31, 2022 due to sales and maturities during the nine months ended September 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 $ 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 0.67 % 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 Company borrowed an additional $ 17.6 million from its investment margin account during the nine months ended September 30, 2023 and repaid $ 76.2 million primarily with cash received from sales and maturities of marketable securities.

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

The interest rates for the borrowings fluctuate based on the Fed Funds Upper Target plus 0.60 %.

The weighted average interest rates were 1.13 % and 1.66 % on average margin loan balances of $ 34.0 million and $ 27.1 million as of September 30, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 0.2 million and $ 0.4 million during the three months ended September 30, 2023 and September 30, 2022, respectively, and $ 1.5 million and $ 0.6 million during the nine months ended September 30, 2023 and September 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 June 30, 2023 and December 31, 2022, the Company’s margin loan balances were $ 27.6 million and $ 60.8 million, respectively.

As of September 30, 2023 and December 31, 2022, the Company’s margin loan balance was $ 2.2 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 $ 3.8 million USD ($ 5.2 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 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 September 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.

The revolving demand facility and the treasury risk management facility can be called at any time 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.

As of November 17, 2023, there has been no demands for repayment.

Historically, the Company has incurred net losses.

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.

For the three months ended September 30, 2023 and September 30, 2022, the Company reported net losses of $ 15.5 million and $ 11.2 million, respectively.

For the nine months ended September 30, 2023 and September 30, 2022, the Company reported net losses of $ 55.6 million and $ 29.1 million, respectively.

The Company reported net cash used in operating activities of $ 20.2 million and $ 24.0 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

As of September 30, 2023, the Company had an accumulated deficit of $ 696.9 million and total stockholders’ equity of $ 74.0 million.

As of September 30, 2023, the Company had current assets of $ 61.4 million, including cash of $ 3.9 million and marketable securities of $ 16.2 million, and current liabilities of $ 49.6 million.

The Company had working capital of $ 11.8 million as of September 30, 2023, compared to working capital of $ 28.6 million as of December 31, 2022.

Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations and noted the Company has sufficient

marketable securities and investments to fund operations for the next 12 months.

In addition, the Company has the ability to reduce operating costs and use equity and equity-linked instruments to pay for services and compensation.

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.

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

The Company principally operates in two distinct business segments:

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

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Resulting translation adjustments are included as a component of Accumulated Other Comprehensive Income (Loss), net in stockholders’ equity.

Foreign exchange transaction gains and losses are included in Other Income (Expense), Net on the condensed consolidated statements of operations.

Foreign exchange (“FX”) transaction gains and losses are included in Other Income (Expense), Net on the condensed consolidated statements of operations.

Foreign Currency Forward Contracts

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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 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.

As of September 30, 2023, the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement resulted in a net liability of $ 26,539 recorded within Other Current Liabilities on the condensed consolidated balance sheet.

The net change in fair value is recorded as an unrealized loss 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 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.

As of September 30, 2023 and December 31, 2022, the Company had cash of $ 3.9 million and $ 7.4 million, respectively, that at times could exceed Federal Deposit Insurance Corporation (“FDIC”) or Canadian Deposit Insurance Corporation (“CDIC”) limits.

The availability of certain short-term lines of credit is dependent on the Company maintaining compensating balances.

The compensating balances are not legally restricted and may be withdrawn, therefore the Company classifies them as cash on the condensed consolidated balance sheets.

As of September 30, 2023 and December 31, 2022, the total compensating balance maintained was $ 0.5 million.

The Company did not have any cash equivalents as of the periods presented.

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

As of September 30, 2023 and December 31, 2022, the Company recorded an allowance for doubtful accounts of $ 32,922 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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Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures.

The ultimate collection of previously recorded estimates is subject to ordinary course audits from the CRA and provincial agencies.

The ultimate collection of previously recorded estimates is subject to ordinary course audits from the Canada Revenue Agency (“CRA”) and provincial agencies.

Changes in administrative policies by the CRA or subsequent review of eligibility documentation may impact the collectability of these estimates.

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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 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.

As of September 30, 2023 and December 31, 2022, $ 26.1 million and $ 26.3 million in current tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.5 million and $ 0.2 million recorded as an allowance for doubtful accounts, respectively.

It is estimated that the Company will collect the receivables balance, therefore no additional reserve was recorded.

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

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

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 $ 0.2 million and $ 0.3 million in interest income were receivable as of June 30, 2023 and December 31, 2022, respectively.

Classified within Other Receivables on the condensed consolidated balance sheets, approximately $ 0.1 million and $ 0.3 million in interest income were receivable as of September 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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Gains and losses from any dispositions of property and equipment are reflected in the condensed consolidated statement of operations.

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.

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.

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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Accordingly, production costs are capitalized at actual cost and amortized using the individual-film-forecast method, whereby these costs are amortized, and participations costs are accrued based on the ratio of the current period’s revenues to management’s estimate of ultimate revenue expected to be recognized from each production.

There are usually three stages for production projects with different costs incurred at each stage:

Productions in Development

Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences.

Development costs include the costs of acquiring film rights to books, scripts or original screenplays and the third-party costs to adapt such projects, including visual development and design.

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Productions in Progress

For the Company’s film and television programs in progress, capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to the Company.

Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences.

Capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to the Company.

Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.

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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

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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.

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

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

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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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• 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).

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The percentage-of-completion is calculated based upon the proportion of costs incurred cumulatively to total expected costs.

Changes in revenue recognized as a result of adjustments to total expected costs are recognized in profit or loss on a prospective basis.

Changes in revenue recognized as a result of adjustments to total expected costs are recognized in profit or loss on a

prospective basis.

Invoices related to these projects are issued based on the achievement of milestones during the project or other contractual terms.

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

When revenue exceeds milestone billings, the Company recognizes this

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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 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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For subscription-based revenue, revenue is recognized when a customer downloads the mobile device application and their credit card is charged.

Upon the acquisition of Wow, the Company generates advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its multi-channel network on YouTube .

Revenue is recognized when services are provided in accordance with the Company’s agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable.

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Product Sales

The Company recognizes revenue related to product sales when the Company completes its performance obligation, which is when the goods are transferred to the buyer.

The Company recognizes revenue related to product sales (e.g., apparel and collectibles) when the Company completes its performance obligation, which is when the goods are transferred to the buyer upon .

Media Advisory & Advertising Services

Media and Advertising Services

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The Company provides media and advertising services to clients.

Revenue is recognized when the services are performed.

The Company provides media and advertising consulting services to clients.

Revenue is recognized when the services are performed or as paid through the monthly retainer.

When the Company purchases advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.

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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 June 30, 2023 and December 31, 2022 were insignificant.

Debt issuance costs as of September 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”

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method, as appropriate.

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

For the three and nine months ended September 30, 2023 and 2022, all shares were deemed 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.

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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 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.

As of September 30, 2023 and December 31, 2022, the Company had 11 and 12 bank deposit accounts with an aggregate uninsured balance of $ 2.2 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.

The managed account maintains its investments in marketable securities of $ 16.2 million and $ 83.7 million as of September 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 June 30, 2023 and December 31, 2022, the Company did not have account balances held at this financial institution that exceed the insured balances.

As of September 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 June 30, 2023, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

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

These customers accounted for 73.1 % 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.

At the nine months ended September 30, 2023, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 79.3 % 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.

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

These customers accounted for 55.6 % of the total accounts receivable as of September 30, 2023.

At the three months ended September 30, 2022, the Company had four customers whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 83.0 % 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.

At the nine months ended September 30, 2022, the Company had four customers whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 74.0 % 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.

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

These customers accounted for 28.0 % of the total accounts receivable as of September 30, 2022.

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

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.

ASC 820 establishes a three-tier fair value hierarchy

which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

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

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• 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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The carrying amounts of cash, restricted cash, receivables, payables, accrued liabilities, bank indebtedness and the margin loan approximate fair value due to the short-term nature of the instruments.

The Company used the fair values of the liability-classified derivative warrants revalued at the end of each reporting period determined using the BSM model (Level 2) with standard valuation inputs.

The Company used the fair values of the liability-classified derivative warrants revalued at the end of each reporting period determined using the BSM option pricing model (Level 2) with standard valuation inputs.

Refer to Note 16 for additional details.

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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 June 30, 2023 (in thousands):

The following table summarizes the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 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 .

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

An allowance for credit loss was not recorded for the marketable securities as of September 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, applies 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.

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

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2016-13 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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Refer to Note 5 for additional details.

Accounting Standards Issued but Not Yet Adopted

In October 2023, the FASB issued ASU No.

2023-06, Disclosure Improvements .

The new guidance clarifies or improves disclosure and presentation requirements on a variety of topics in the codification.

The amendments will align the requirements in the FASB Accounting Standard Codification with the SEC’s regulations.

The amendments are effective prospectively on the date each individual amendment is effectively removed from Regulation S-X or Regulation S-K.

The Company is in the process of evaluating the impact that the adoption of this ASU will have to the financial statements and related disclosures, which is not expected to be material.

Variable Interest Entity

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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 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.

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

The Company's net investment as of September 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 nine months ended September 30, 2023 that would result in a re-evaluation of the VIE assessment.

Investment in Equity Interest

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

As of September 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 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.

As of September 30, 2023, the fair value of the investment was determined to be $ 17.1 million recorded within noncurrent assets on the Company’s condensed consolidated balance sheets.

The fair value as of September 30, 2023 increased by net $ 0.9 million, as compared to December 31, 2022.

The net increase is comprised of the net impact of an increase in YFE’s stock price, resulting in a gain in fair value of $ 1.1 million, and the effect of foreign currency remeasurement from EURO to USD, resulting in a loss of $ 0.2 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 %.

As of September 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 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 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 $ 53.1 million and a market value of $ 49.5 million as of June 30, 2023.

The investments in marketable securities had an adjusted cost basis of $ 17.7 million and a market value of $ 16.2 million as of September 30, 2023.

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

5 unchanged sentences

Total $ 17,706 $ ( 1,554 ) $ 16,152

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.

8 unchanged sentences

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

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 Company holds 11 AFS securities, all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of September 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):

As of September 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 $ 1.9 million and $ 4.2 million were recognized in earnings during the three and nine months ended September 30, 2023, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities.

Realized losses of $ 36,332 and $ 159,624 were recognized during the three and nine months ended September 30, 2022, respectively, due to prepayments of principal on certain mortgage-backed securities.

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

Due within 1 year $ —

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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):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Furniture and Equipment $ 117 $ 224

7 unchanged sentences

Property and Equipment, Net $ 1,949 $ 2,400

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 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.

During the three months ended September 30, 2023 and 2022, the Company recorded depreciation expense of $ 0.1 million for both respective periods.

During the nine months ended September 30, 2023 and 2022, the Company recorded depreciation expense of $ 0.3 million and $ 0.2 million, respectively.

Due to the lease termination effective August 1, 2023, $ 0.1 million of property and equipment was written down to zero and recorded in Loss on Lease Termination within Other Expense, net on the condensed consolidated statement of operations during the three and nine months ended September 30, 2023.

In addition, during the first quarter of 2023, a reassessment of the Company’s long-lived assets was performed due to changes in its estimated undiscounted future cash flows.

As a result, a loss of $ 0.1 million was recorded as an Impairment of Property and Equipment within Operating Expenses on the condensed consolidated statement of operations during the nine months ended September 30, 2023.

The Company did not incur any impairment charges or write-downs during the nine months ended September 30, 2022.

Right of Use Leased Asset

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Office Lease Assets $ 9,657 $ 10,313

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

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 September 30, 2023, the weighted-average lease term for the Company’s operating leases was 86 months and the weighted-average discount rate was 10.6 %.

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 %.

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.

Operating lease costs during the three and nine months ended September 30, 2023 were $ 0.4 million and $ 1.2 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statement of operations.

On August 2, 2023, 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 $ 0.1 million in consideration of terminating the lease, payable in four equal installments, starting on the cease-use date of August 1, 2023.

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

The Lease Termination included waiver of the security deposit in the amount of $ 26,208 and an agreement to leave the furniture, fixtures and leasehold improvements with a carrying value of $ 0.1 million on the Effective Date.

The Company wrote off the ROU asset, lease liability, prepaid deposit and fixed assets on the Effective Date.

Including fees, the Company recorded a total loss on lease termination of $ 0.2 million within Other Income (Expense), net on the Company’s condensed consolidated statement of operations during the three months ended September 30, 2023.

During the three months ended September 30, 2023 the Company recorded finance lease costs of $ 0.5 million comprised of ROU amortization of $ 0.5 million and $ 47,871 of interest accretion.

During the nine months ended September 30, 2023 the Company recorded finance lease costs of $ 1.7 million comprised of ROU amortization of $ 1.6 million and $ 0.2 million of interest accretion.

ROU amortization is recorded within General and Administrative Expenses on the Company’s condensed consolidated statement of operations and accretion of interest expense is recorded within Other Income (Expense) on the Company’s condensed consolidated statement of operations.

Lease costs during the three and nine months ended September 30, 2022 were $ 0.7 million and $ 1.3 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 June 30, 2023 and December 31, 2022 (in thousands):

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

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

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Disposals ( 75 )

Film Amortization Expense ( 474 )

Film Amortization Expense & Impairment Losses ( 6,784 )

Foreign Currency Translation Adjustment 9

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

Film and Television Costs, Net as of September 30, 2023 $ 1,784

The Company recorded film and television costs write-downs of $ 6.2 million during the nine months ended September 30, 2023.

The write-downs were as a result of inactive projects, projects not advancing to the production stage due to a lack of interest from potential partners and an overall economic downturn affecting customers in the entertainment industry.

There were no write-downs recorded during the nine months ended September 30, 2022.

Intangible Assets, Net and Goodwill

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Weighted Average Remaining Amortization Period

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Customer Relationships 6.7 $ 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 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.

(a) Represents the logo and website intangible assets related to the merger with A Squared that has been fully amortized during the nine months ended September 30, 2023.

During the three months ended September 30, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.7 million, respectively.

During the nine months ended September 30, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 1.6 million and $ 1.7 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.

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

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.

The impairment charge consisted of a write-down of definite-lived intangible assets of $ 2.8 million, net of $ 0.6 million in accumulated depreciation, 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.

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):

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

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

Thereafter 8,858

Total $ 17,630

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.

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

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

Content Production & Distribution Media Advisory & Advertising Services Total

Goodwill as of December 31, 2022 $ 31,807 $ – $ 31,807

Goodwill Impairment ( 11,287 ) – ( 11,287 )

Foreign Currency Translation Adjustment 49 – 49

Goodwill as of September 30, 2023 $ 20,569 $ – $ 20,569

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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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):

Content Production & Distribution Media Advisory & Advertising Services Total

Goodwill as of December 31, 2022 $ 31,807 $ – $ 31,807

Goodwill Impairment ( 11,287 ) – ( 11,287 )

Foreign Currency Translation Adjustment 332 – 332

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

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

Deferred Revenue

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.

As of September 30, 2023 and December 31, 2022, the Company had aggregate short term and long term deferred revenue of $ 6.3 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 September 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.

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