What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 296 added, 202 removed, 506 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except share and par value data)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current Assets:

3 unchanged sentences

12,663 18,072

Tax Credits Receivable, net 11,955 20,714

Tax Credits Receivable (net of allowance of $ 570 and $ 527 , respectively)

13,961 20,714

Notes and Accounts Receivable from Related Party 1,389 1,435

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Stockholders’ Equity:

Preferred Stock, 9,943,999 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

0 % Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Series B Preferred Stock, $ 0.001 par value, 1 share authorized, 1 share issued and outstanding as of March 31, 2024 and December 31, 2023

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Common Stock, $ 0.001 par value, 190,000,000 and 190,000,000 shares authorized, 35,426,663 and 35,323,217 shares issued and 35,351,190 and 35,247,744 outstanding as of March 31, 2024 and December 31, 2023, respectively

Preferred Stock, 9,943,999 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

0 % Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Series B Preferred Stock, $ 0.001 par value, 1 share authorized, 1 share issued and outstanding as of June 30, 2024 and December 31, 2023

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common Stock, $ 0.001 par value, 190,000,000 shares authorized, 39,539,207 and 35,323,217 shares issued and 39,463,517 and 35,247,744 outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional Paid-in Capital 777,883 773,986

Treasury Stock at Cost, 75,473 shares of common stock as of March 31, 2024 and December 31, 2023

Treasury Stock at Cost, 75,690 and 75,473 , respectively, shares of common stock as of June 30, 2024 and December 31, 2023

( 339 ) ( 339 )

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(in thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Production Services $ 5,095 $ 7,033 $ 7,858 $ 16,919

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(in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net Loss $ ( 5,923 ) $ ( 12,441 ) $ ( 12,987 ) $ ( 36,300 )

Change in Accumulated Other Comprehensive Income (Loss):

Change in Unrealized Gain on Marketable Securities 20 830

Change in Unrealized Gain (Loss) on Marketable Securities 43 ( 87 ) 63 743

Realized Losses on Marketable Securities Reclassified from AOCI into Earnings 216 720 357 2,257

Foreign Currency Translation Adjustments ( 52 ) 704 ( 236 ) 707

Total Change in Accumulated Other Comprehensive Income (Loss) ( 23 ) 2,370

Total Change in Accumulated Other Comprehensive Loss 207 1,337 184 3,707

Total Comprehensive Net Loss ( 5,716 ) ( 11,104 ) ( 12,803 ) ( 32,593 )

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Shares Amount Shares Amount Shares Amount

December 31, 2023 35,247,744 $ 352 1 $ – $ 773,986 75,473 $ ( 339 ) $ ( 718,546 ) $ ( 3,883 ) $ 1,691 $ 53,261

Balance, December 31, 2023 35,247,744 $ 352 1 $ – $ 773,986 75,473 $ ( 339 ) $ ( 718,546 ) $ ( 3,883 ) $ 1,691 $ 53,261

Issuance of Common Stock for Services 53,497 – – – 74 – – – – – 74

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Balance, March 31, 2024 35,351,190 $ 352 1 $ – $ 774,286 75,473 $ ( 339 ) $ ( 725,591 ) $ ( 3,906 ) $ 1,672 $ 46,474

December 31, 2022 31,918,552 $ 319 1 $ – $ 762,418 42,633 $ ( 290 ) $ ( 641,443 ) $ ( 9,925 ) $ 1,790 $ 112,869

Issuance of Common Stock for Services 73,745 — — – 83 — — — — – 83

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 38,582 – – – 25 217 – – – – 25

Proceeds from Securities Purchase Agreement, Net 4,000,000 4 – – 3,325 – – – – – 3,329

Share Based Compensation – – – – 164 – – – – – 164

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – 259 – 259

Currency Translation Adjustment – – – – – – – – ( 52 ) – ( 52 )

Net Loss – – – – – – – ( 5,873 ) – ( 50 ) ( 5,923 )

Balance, June 30, 2024 39,463,517 $ 356 1 $ – $ 777,883 75,690 $ ( 339 ) $ ( 731,464 ) $ ( 3,699 ) $ 1,622 $ 44,359

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, 2022 31,918,552 $ 319 1 $ – $ 762,418 42,633 $ ( 290 ) $ ( 641,443 ) $ ( 9,925 ) $ 1,790 $ 112,869

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 78,088 1 – – ( 1 ) 3,700 ( 9 ) – – – ( 9 )

Fractional Shares Issued Upon Reverse Stock Split 117,144 – – – – – – – – – –

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Balance, March 31.

2023 32,113,784 $ 320 1 $ – $ 763,327 46,333 $ ( 299 ) $ ( 665,271 ) $ ( 7,555 ) $ 1,759 $ 92,281

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 – – 4,855 – – – – – 4,857

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

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

Currency Translation Adjustment – – – – – – – – 704 – 704

Net Loss – – – – – – – ( 12,425 ) – ( 16 ) ( 12,441 )

Balance, June 30, 2023 35,054,573 $ 351 1 $ — $ 769,867 48,498 $ ( 305 ) $ ( 677,696 ) $ ( 6,218 ) $ 1,743 $ 87,742

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

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(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

Net Loss $ ( 12,987 ) $ ( 36,300 )

Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

Amortization of Film and Television Costs 144 474

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Share-Based Compensation Expense 390 1,627

Impairment of Film and Television Costs 17 –

Impairment of Intangible Assets – 4,023

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Deferred Income Taxes – ( 934 )

Loss on Revaluation of Equity Investments in Your Family Entertainment AG – 895

Marketing Expenses in Exchange for Stock – 1,195

(Gain) Loss on Revaluation of Equity Investments in Your Family Entertainment AG 881 ( 3,427 )

Unrealized (Gain) Loss on Foreign Currency of Equity Investments in Your Family Entertainment AG 596 ( 295 )

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Realized Loss on Marketable Securities 357 2,257

Warrant Incentive Expense – 12,664

Stock Issued for Services 158 997

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Other Liabilities ( 19 ) ( 24 )

Net Cash Provided by (Used in) Operating Activities $ 3,845 $ ( 5,165 )

Net Cash Used in Operating Activities $ ( 2,654 ) $ ( 10,587 )

Cash Flows from Investing Activities:

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Proceeds from Sales and Maturities of Marketable Securities 5,514 34,169

Investment in Intangible Assets, net ( 7 ) –

Purchase of Property & Equipment ( 34 ) ( 38 )

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(Repayments of )/Proceeds from Bank Indebtedness, net ( 2,628 ) 2,931

Proceeds from Securities Purchase Agreement 3,329 –

Principal Payments on Finance Lease Obligations ( 389 ) ( 1,216 )

Debt Issuance Costs ( 48 ) ( 45 )

Proceeds from Warrant Exchange, net – 5,299

Shares Withheld for Taxes on Vested Restricted Shares 25 ( 15 )

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Ending Cash $ 2,741 $ 4,839

Supplemental Disclosures of Cash Flow Information

Cash Paid for Interest $ 75 $ 285

Non-Cash Financing and Investing Activities

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

Warrants Issued for Services $ – $ 443

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

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Notes to Condensed Consolidated Financial Statements

March 31, 2024

June 30, 2024

Organization and Business

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Kartoon Studios, Inc.

(formerly known as Genius Brands International, Inc.) (the “Company” or “we,” “us” or “our”) is a global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children.

(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 licenses properties for a broad range of consumer products based on the Company’s characters.

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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”).

Known by his signature phrase “Excelsior!”, Stan Lee is one of the most prolific and legendary creators of all time.

As Marvel's editor-in-chief, Stan "The Man" Lee helped build a universe of interlocking continuity, one where fans felt as if they could turn a street corner and run into a superhero from Spider-Man to the Fantastic Four, Thor, Iron Man, the Hulk, the X-Men, and more.

Stan went on to become Marvel’s editorial director and publisher in 1972 and was eventually named chairman emeritus.

He was the co-creator of characters appearing in 4 of the top 10 box office movies of all time, which featured Spider-Man, Iron Man, the Hulk, Thor, Guardians of the Galaxy, Black Panther, and of course the Avengers, accounting for billions of dollars of revenue for Marvel and the Walt Disney Company.

The Company also owns The Beacon Media Group, LLC (“Beacon Media”) and The Beacon Communications Group, 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 kids and family clients, including Bandai Namco, Moose Toys, Bazooka Candy Brands and Playmobil.

(“Beacon Communications”) (collectively, “Beacon”), a leading North American marketing and media agency specializing in creating impactful connections between consumers and brands across various industries.

With a focus on in-depth research and analysis the agency equips brands with a deep understanding of media landscapes, trends, and platform patterns across generations along with developing highly effective media strategies that deliver results for clients.

represents over 30 kids and family clients including Bandai Namco, Moose Toys, Bazooka Candy Brands, Goliath Games, Playmates Toys, Cra-Z-Art, and Zebra Pens.

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

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Recent Transactions

Subsequent to March 31, 2024, the Company announced the initial closing of its registered direct offering of up to $ 7,000,000 (the “Offering”) on April 23, 2024.

In the initial closing, the Company sold 3,900,000 shares of its common

stock, par value $ 0.001 per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the "Investor"), at $ 1.00 per share of Common Stock and $ 0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $ 4,000,000 , prior to deducting placement agent fees and other offering expenses, pursuant to a securities purchase agreement, dated April 18, 2024 (the “SPA”).

The Company announced the initial closing of its registered direct offering of up to $ 7,000,000 (the “Offering”) on April 23, 2024.

In the initial closing, the Company sold 3,900,000 shares of its common stock, par value $ 0.001 per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the "Investor"), at $ 1.00 per share of Common Stock and $ 0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $ 4,000,000 , prior to deducting placement agent fees and other offering expenses, pursuant to a securities purchase agreement, dated April 18, 2024 (the “SPA”).

Pursuant to the terms of the SPA, the Investor has the sole option to purchase up to an additional 3,000,000 shares of Common Stock and/or Pre-funded Warrants as part of the Offering, at $ 1.00 per share of Common Stock and $ 0.99 per Pre-Funded Warrant, in up to three subsequent closings during the 180-day period following the date of the SPA in which each subsequent closing is equal to no less than $ 1,000,000 , whereby the Company would receive additional aggregate gross proceeds of up to $ 3,000,000 (together with the gross proceeds from the initial closing, up to a total of $ 7,000,000 ), prior to deducting placement agent fees and other offering expenses.

Additionally, the Company has 4,784,909 warrants with a reprice option that was triggered by the registered direct offering which reduced the exercise price from $ 2.50 per share to $ 1.00 per share.

As of March 31, 2024, the Company had cash of $ 2.8 million, which decreased by $ 1.3 million as compared to December 31, 2023.

The decrease was primarily due to cash used in financing activities of $ 7.9 million, offset by cash provided by operating activities of $ 3.8 million and investing activities of $ 2.6 million.

The cash used in financing activities was primarily due to the net repayment of the production facilities and bank indebtedness, partially offset by the net proceeds from the margin loan, resulting in cash used of $ 7.5 million, and payments on finance leases of $ 0.4 million.

On June 21, 2024, the Company announced the launch of “Winnie-the-Pooh” on the Kartoon Channel through a $ 30.0 million joint venture with Catalyst Venture Partners.

The JV partnership stipulates after Catalyst Venture Partners recoup their investment, the ownership and profit split between the partners is 60 % to Kartoon Studios and 40 % to Catalyst Venture Partners.

“Winnie-the-Pooh” is based on the designs and stories of one of the most successful brands of all time, A.A.

Milne’s “Winnie-the-Pooh,” a property that has generated over $ 80 billion in sales over the last four decades and is estimated to currently generate $ 3 -$ 6 billion per year for The Walt Disney Company.

Catalyst Venture Partners will provide the full amount of the production finance with the plan to include an animated holiday movie, five holiday specials and 4 year episode series.

As of June 30, 2024, the Company had cash of $ 2.7 million, which decreased by $ 1.4 million as compared to December 31, 2023.

The decrease was primarily due to cash used in financing activities of $ 4.8 million and cash used for operating activities of $ 2.7 million, offset by cash provided by investing activities of $ 5.5 million.

The cash used in financing activities was primarily due to repayments of the production facilities, margin loan and bank indebtedness, net of proceeds from each, resulting in net cash used of $ 7.7 million, offset by proceeds from the Offering of $ 3.3 million.

The cash provided by investing activities was due to sales of marketable securities of $ 5.5 million.

The cash provided by operating activities of $ 3.8 million is driven primarily by the collection of production tax credits of $ 8.3 million and depreciation and amortization of $ 1.2 million, offset by the $ 7.1 million net loss in the period .

As of March 31, 2024, the Company held available-for-sale marketable securities with a fair value of $ 9.4 million, a decrease of $ 2.6 million as compared to December 31, 2023 due to sales and maturities during the three months ended March 31, 2024.

As of June 30, 2024, the Company held available-for-sale marketable securities with a fair value of $ 6.5 million, a decrease of $ 5.5 million as compared to December 31, 2023 due to sales and maturities during the six months ended June 30, 2024.

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

As of March 31, 2024 and December 31, 2023, the Company’s margin loan balance was $ 2.9 million and $ 0.8 million, respectively.

During the three months ended March 31, 2024, the Company borrowed an additional $ 3.1 million from its investment margin account and repaid $ 0.9 million primarily with cash received from sales and maturities of marketable securities.

As of June 30, 2024 and December 31, 2023, the Company’s margin loan balance was $ 1.1 million and $ 0.8 million, respectively.

During the six months ended June 30, 2024, the Company borrowed an additional $ 6.3 million from its investment margin account and repaid $ 6.0 million primarily with cash received from sales and maturities of marketable securities.

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 0.95 % and 0.98 %, respectively, on average margin loan balances of $ 14.2 million and $ 27.4 million as of March 31, 2024 and December 31, 2023, respectively.

The Company incurred interest expense on the loan of $ 18,632 and $ 0.7 million during the three months ended March 31, 2024 and 2023, 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.

The weighted average interest rates were 0.82 % and 0.98 %, respectively, on average margin loan balances of $ 9.8 million and $ 27.4 million as of June 30, 2024 and December 31, 2023, respectively.

For the three months ended June 30, 2024 and June 30, 2023, the Company incurred interest expense on the loan of $ 12,429 and $ 0.6 million, respectively.

The Company incurred interest expense on the loan of $ 31,061 and $ 1.3 million during the six months ended June 30, 2024 and June 30, 2023, 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.

The Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and the revolving equipment lease line that have an aggregate total outstanding balance of $ 1.0 million U.S.

dollars (“USD”) or $ 1.4 million Canadian dollars (“CAD”).

The Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease agreements that have an aggregate total outstanding balance of $ 1.3 million U.S.

dollars (“USD”) or $ 1.7 million of Canadian dollars (“CAD”).

During March 2024, the Company amended the revolving demand facility, equipment lease line, and treasury risk management facility.

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The amendment removed the treasury risk management facility that allowed for advances of up to CAD 0.5 million.

As of March 31, 2024 and the date of the amendment, there were no outstanding amounts drawn under the treasury risk management facility.

As of the date of the amendment and June 30, 2024 there were no outstanding amounts drawn under the treasury risk management facility.

The amendment also introduced revised financial covenants that are effective as of March 15, 2024.

The Company was in compliance with its covenants as of March 31, 2024.

amendment did not have any impact on the Company’s existing production facilities that are separate from the revolving demand facility and are used for financing specific productions.

As of June 30, 2024 , the Company was not in compliance with two financial covenants.

The financial covenants required the Company to maintain a minimum liquidity threshold and to complete a minimum equity raise by June 30, 2024.

As a result of the covenant violations, the Company’s remaining equipment lease agreements with the lender of CAD 1.2 million are subject to repayment.

As of August 14, 2024, the lender and the Company have agreed to a repayment plan for the equipment leases to be completed within the fourth quarter of 2024.

The amendment and covenant violation did not have any impact on the Company’s production facilities that are separate from the revolving demand facility and are used for financing specific productions.

Historically, the Company has incurred net losses.

For the three months ended March 31, 2024 and 2023, the Company reported net losses of $ 7.1 million and $ 23.9 million, respectively.

The Company reported net cash provided by operating activities of $ 3.8 million and cash used in operating activities of $ 5.2 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company had an accumulated deficit of $ 725.6 million and total stockholders’ equity of $ 46.5 million.

As of March 31, 2024, the Company had total current assets of $ 41.0 million, including cash of $ 2.8 million and marketable securities of $ 9.4 million, and total current liabilities of $ 34.9 million.

The Company had working capital of $ 6.1 million as of March 31, 2024, compared to working capital of $ 11.5 million as of December 31, 2023.

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 from the issuance date of this 10-Q.

For the three months ended June 30, 2024 and June 30, 2023, the Company reported net losses of $ 5.9 million and $ 12.4 million, respectively.

For the six months ended June 30, 2024 and June 30, 2023, the Company reported net losses of $ 13.0 million and $ 36.3 million, respectively.

The Company reported net cash used in operating activities of $ 2.7 million and cash used in operating activities of $ 10.6 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

As of June 30, 2024, the Company had an accumulated deficit of $ 731.5 million and total stockholders’ equity of $ 44.4 million.

As of June 30, 2024, the Company had total current assets of $ 38.8 million, including cash of $ 2.7 million and marketable securities of $ 6.5 million, and total current liabilities of $ 33.6 million.

The Company had working capital of $ 5.2 million as of June 30, 2024, compared to working capital of $ 11.5 million as of December 31, 2023.

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

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Actual results may differ from these estimates.

Interim results are not necessarily indicative of financial results for a full year.

The information included in this Form 10-Q should be read in conjunction with the Company’s 2023 Annual Report.

Prior Periods and Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Such reclassifications had no impact on the Company’s reported total revenues, expenses, net loss, current assets, total assets, current liabilities, total liabilities, stockholders’ equity, non-controlling interests or cash flows.

No reclassifications of prior period balances were material to the unaudited condensed consolidated financial statements.

Interim results are not necessarily indicative of financial results for a full year or any other period.

The information included in this Form 10-Q should be read in conjunction with the Company’s 2023 Annual Report on Form 10-K.

The following is provided to update the Company’s significant accounting policies previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Foreign Currency Forward Contracts

As of March 31, 2024, the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement resulted in a net liability of $ 0.2 million recorded within Other Current Liabilities on the condensed consolidated balance sheet.

The total net change in fair value of $ 0.2 million and an insignificant realized loss for the three months ended March 31, 2024 is recorded as an unrealized loss within Production Services Revenue on the condensed consolidated statement of operations.

As of June 30, 2024 , the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement resulted in a net liability of $ 0.3 million recorded within Other Current Liabilities on the condensed consolidated balance sheets.

As of December 31, 2023 , the FX contracts were fully settled and netted to zero on the Company’s condensed consolidated balance sheets.

For the three and six months ended June 30, 2024 , the Company recorded a a realized loss of $ 0.1 million and $ 0.3 million, respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements of operations.

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

Trade Accounts Receivable and Allowance for Credit Loss

As of March 31, 2024 and December 31, 2023, the Company recorded an allowance for credit loss of $ 0.2 million and $ 0.2 million, respectively.

As of June 30, 2024 and December 31, 2023, the Company recorded an allowance for credit loss of $ 0.2 million and $ 0.2 million, respectively.

Tax Credits Receivable

As of March 31, 2024 and December 31, 2023, $ 12.0 million and $ 20.7 million, respectively, in current tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.5 million and $ 0.5 million, respectively, recorded as an allowance for credit loss.

As of June 30, 2024 and December 31, 2023, $ 14.0 million and $ 20.7 million, respectively, in current tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.6 million and $ 0.5 million, respectively, recorded as an allowance for credit loss.

It is estimated that the Company will collect the receivables balance;

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The Company maintains its cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts.

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 CAD 100,000.

As of March 31, 2024 and December 31, 2023, the

Company had eleven and ten bank deposit accounts with an aggregate uninsured balance of $ 1.6 million and $ 2.5 million, respectively.

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 Canadian Dollar (“CAD”) 100,000.

As of June 30, 2024 and December 31, 2023, the Company had nine and ten bank deposit accounts with an aggregate uninsured balance of $ 1.5 million and $ 2.5 million, respectively.

The Company has a managed account with a financial institution.

The managed account maintains its investments in marketable securities of approximately $ 9.4 million and $ 12.0 million as of March 31, 2024 and December 31, 2023, respectively.

The managed account maintains its investments in marketable securities of approximately $ 6.5 million and $ 12.0 million as of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the Company did not have account balances held at this financial institution that exceed the insured balances.

As of June 30, 2024 and December 31, 2023, 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, 2024, the Company had two customers, whose total revenue exceeded 10% of the total condensed consolidated revenue.

During the three months ended June 30, 2024, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 80.9 % of the total revenue.

As of March 31, 2024, the Company had two customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 52.8 % of the total accounts receivable as of March 31, 2024.

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

During the six months ended June 30, 2024, the Company had three customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 66.7 % of the total revenue.

As of June 30, 2024, the Company had three customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 66.0 % of the total accounts receivable as of June 30, 2024.

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.

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

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Fair Value of Financial Instruments

The following table summarizes the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2024 (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 June 30, 2024 (in thousands):

Level 1 Level 2 Total Fair Value

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Fair values were determined for each individual security in the investment portfolio.

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 March 31, 2024 and December 31, 2023.

The Company’s marketable securities are considered to be available-for-sale investments as defined under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, Investments – Debt and Equity Securities .

An allowance for credit loss was not recorded for the marketable securities as of June 30, 2024 and December 31, 2023.

Refer to Note 5 for additional details.

New Accounting Standards Issued but Not Yet Adopted

In October 2023, the FASB issued ASU No.

In October 2023, the FASB issued Accounting Standards Update (“ASU”) No.

2023-06, Disclosure Improvements .

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Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statements have not been issued.

The Company is in the process of

evaluating the impact that the adoption of this ASU will have to the condensed consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

The Company is in the process of evaluating the impact that the adoption of this ASU will have to the condensed consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

In December 2023, the FASB issued ASU No.

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The amendments in this Update are effective for annual periods beginning after December 15, 2024.

Variable Interest Entity

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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.

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, 2024 and 2023, SLU generated an insignificant amount of net income.

There were no contributions or distributions during the three months ended March 31, 2024 and 2023 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

During the three months ended June 30, 2024 and June 30, 2023, SLU generated net loss of $ 49,895 and net income of $ 15,911 , respectively.

During the six months ended June 30, 2024 and June 30, 2023, SLU generated net loss of $ 69,199 and net income $ 47,334 , respectively.

There were no contributions or distributions during the three and six months ended June 30, 2024 and June 30, 2023, and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

Investment in Equity Interest

As of March 31, 2024 and December 31, 2023, the Company owned 6,857,132 shares of YFE.

As of June 30, 2024 and December 31, 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, 2024, the fair value of the investment was determined to be $ 18.7 million recorded within noncurrent assets on the Company’s consolidated balance sheets.

The fair value as of March 31, 2024 decreased by net $ 0.4 million, as compared to December 31, 2023.

The decrease is the effect of foreign currency remeasurement from EURO to USD, resulting in a loss of $ 0.4 million.

As of June 30, 2024, the fair value of the investment was determined to be $ 17.6 million recorded within noncurrent assets on the Company’s condensed consolidated balance sheets.

The fair value as of June 30, 2024 decreased by net $ 1.5 million, as compared to December 31, 2023.

The decrease is the effect of foreign currency remeasurement from EURO to USD resulting in a loss of $ 0.6 million and share price fluctuations resulting in a loss of $ 0.9 million.

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

As of March 31, 2024 and December 31, 2023, the Company’s ownership in YFE was 44.8 %.

As of June 30, 2024 and December 31, 2023, the Company’s ownership in YFE was 44.8 %.

Marketable Securities

The Company classifies and accounts for its marketable debt securities as available-for-sale securities (“AFS”) and the securities are stated at fair value.

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

The investments in marketable securities had an adjusted cost basis of $ 10.1 million and a market value of $ 9.4 million as of March 31, 2024.

Per ASC 326, the Company is required to recognize an allowance for credit losses on its AFS debt securities and recognize a credit loss expense once securities become impaired.

The investments in marketable securities had an adjusted cost basis of $ 6.9 million and a market value of $ 6.5 million as of June 30, 2024.

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

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Total $ 12,838 $ ( 888 ) $ 11,950

The Company holds 9 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 March 31, 2024.

The Company holds 5 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 June 30, 2024.

The AFS securities held by the Company as of December 31, 2023 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 March 31, 2024 and December 31, 2023, 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 $ 0.1 million and $ 1.5 million were recognized in earnings during the three months ended March 31, 2024 and 2023, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities.

The contractual maturities of the Company’s marketable investments as of March 31, 2024 were as follows (in thousands):

As of June 30, 2024 and December 31, 2023, 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 $ 0.2 million and $ 0.7 million were recognized in earnings during the three months ended June 30, 2024 and June 30, 2023, respectively.

Realized losses of $ 0.4 million and $ 2.3 million were recognized in earnings during the six months ended June 30, 2024 and June 30, 2023, respectively.

The losses were due to selling securities prior to maturity to prevent further market condition losses on the securities.

The contractual maturities of the Company’s marketable investments as of June 30, 2024 were as follows (in thousands):

Due within 1 year $ 186

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Furniture and Equipment $ 118 $ 117

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Property and Equipment, net $ 1,680 $ 1,877

During the three months ended March 31, 2024 and 2023, the Company recorded depreciation expense of $ 0.1 million for both respective periods.

The Company did not incur any impairment charges on its property and equipment during the three months ended March 31, 2024.

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.

During the three months ended June 30, 2024 and June 30, 2023, the Company recorded depreciation expense of $ 0.1 million for both respective periods.

During the six months ended June 30, 2024 and June 30, 2023, the Company recorded depreciation expense of $ 0.2 million for both respective periods.

The Company did not incur any impairment charges on its property and equipment during the three and six months ended June 30, 2024.

During the six months ended June 30, 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 group’s property and equipment assets were written down to zero and an Impairment of Property and Equipment of $ 0.1 million was recorded within Operating Expenses in the condensed consolidated statement of operations.

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Leased right-of-use assets consisted of the following (in thousands):

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Office Lease Assets $ 9,437 $ 9,437

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Leased Right-of-Use Assets, net $ 7,743 $ 8,943

As of March 31, 2024, the weighted-average lease term for the Company’s operating leases was 81 months and the weighted-average discount rate was 11.1 %.

As of June 30, 2024, the weighted-average lease term for the Company’s operating leases was 78 months and the weighted-average discount rate was 11.1 %.

As of December 31, 2023, the weighted-average lease term for operating leases was 83 months and the weighted-average discount rate was 11.1 %.

Operating lease costs during the three months ended March 31, 2024 and 2023 were $ 0.4 million and $ 0.4 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statements of operations.

During the three months ended March 31, 2024, the Company recorded finance lease costs of $ 0.4 million primarily comprised of ROU amortization of $ 0.4 million.

During the three months ended March 31, 2023, the Company recorded finance lease costs of $ 0.6 million primarily comprised of ROU amortization of $ 0.5 million.

Operating lease costs during the three months ended June 30, 2024 and June 30, 2023 were $ 0.7 million and $ 0.7 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statements of operations.

Operating lease costs during the six months ended June 30, 2024 and June 30, 2023 were $ 0.8 million and $ 0.8 million, respectively, recorded within General and Administrative Expenses on the Company’s condensed consolidated statements of operations.

During the three and six months ended June 30, 2024, the Company recorded finance lease costs of $ 0.3 million and $ 0.7 million, respectively, primarily comprised of ROU amortization of $ 0.3 million and $ 0.6 million, respectively.

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, primarily comprised of ROU amortization of $ 0.5 million and $ 1.1 million, respectively.

ROU amortization is recorded within General and Administrative Expenses and accretion of interest expense is recorded within Other Expense, net on the Company’s condensed consolidated statements of operations.

Film and Television Costs, net

The following table highlights the activity in Film and Television Costs as of March 31, 2024 and December 31, 2023 (in thousands):

The following table highlights the activity in Film and Television Costs as of June 30, 2024 and December 31, 2023 (in thousands):

Film and Television Costs, net as of December 31, 2022 $ 7,780

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Additions to Film and Television Costs 441

Disposals ( 10 )

Film Amortization Expense & Impairment Losses ( 152 )

Foreign Currency Translation Adjustment ( 8 )

Film and Television Costs, net as of March 31, 2024 $ 1,389

During the three months ended March 31, 2024 and 2023,, the Company recorded amortization expense of $ 0.1 million and $ 0.2 million, respectively.

The Company did not write-down or record any significant impairment charges on film costs during the three months ended March 31, 2024 and 2023.

Film and Television Costs, net as of June 30, 2024 $ 1,566

The Company had a write-down of $ 7,832 and a disposal of $ 9,509 for the three months ended June 30, 2024, and did not record any significant impairment charges on film costs during the three months ended June 30, 2023.

During the six months ended June 30, 2024 and June 30, 2023, the Company recorded amortization expense of $ 0.2 million and $ 0.5 million, respectively.

There were no additional write downs or disposals within the six months ended June 30, 2024 and June 30, 2023.

Intangible Assets, net

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Weighted Average Remaining Amortization Period As of

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Customer Relationships 6.0 $ 17,429 $ 17,325

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_______________________

During the three months ended March 31, 2024 and 2023, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.6 million, respectively.

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 for the three months ended March 31, 2023.

Expected future amortization of intangible assets subject to amortization as of March 31, 2024 is as follows (in thousands):

During the three months ended June 30, 2024 and June 30, 2023 the Company recorded intangible asset amortization expense of $ 0.5 million for each reporting period.

During the six months ended June 30, 2024 and June 30, 2023, the Company recorded intangible asset amortization expense of $ 1.0 million and $ 1.1 million, respectively.

The Company did not incur any impairment charges on its definite and indefinite-lived intangible assets during the three and six months ended June 30, 2024.

During the six months ended June 30, 2023, 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.

Furthermore, 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 June 30, 2024 is as follows (in thousands):

Thereafter 6,764

Total $ 15,951

As of March 31, 2024, $ 5.5 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.

As of June 30, 2024, $ 5.5 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.

Deferred Revenue

As of March 31, 2024 and December 31, 2023, the Company had aggregate short term and long term deferred revenue of $ 7.2 million and $ 6.6 million, respectively.

The increase in deferred revenue is primarily related to productions on various shows nearing completion of the project as of March 31, 2024, compared to the progress as of December 31, 2023.

As of June 30, 2024 and December 31, 2023, the Company had aggregate short term and long term deferred revenue of $ 8.2 million and $ 6.6 million, respectively.

The increase in deferred revenue is primarily related to the stage of progress of various productions as of June 30, 2024, compared to the progress as of December 31, 2023.

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.