Kartoon Studios, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three and nine months ended September 30, 2022 and 2021. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed on April 6, 2022 and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire. Overview The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the MD&A contains forward-looking statements that involve risks and uncertainties. Our Business Organization and Nature of Business Genius Brands International, Inc. (“we,” “us,” “our,” or the “Company”) is a publicly traded (NASDAQ:GNUS) 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, we distribute content primarily on streaming platforms and television and we license our properties for a broad range of consumer products based on our characters. We are a leading “work for hire” producer for many of the streaming outlets and IP holders. In the children’s media sector, our portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment. Our programs along with those programs we acquire and/or license, are being broadcast in the United States on our wholly-owned advertisement supported video on demand (“AVOD”) service, Kartoon Channel! , and our subscription video on demand (“SVOD”) distribution outlets, Kartoon Channel! Kidaverse and Ameba TV . These streaming services are available on Apple TV, Apple iOS, Android TV, Android mobile, Amazon Prime, Amazon Fire, Tubi, Roku, Comcast, Cox, Dish/Sling, Zumo, Pluto, Samsung Smart TVs, LG Smart TVs, as well as YouTube, among other popular platforms. Our in-house owned and produced shows include Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC Pop Quiz , and the upcoming Shaq’s Garage starring Shaquille O’Neal, scheduled to debut in the fourth quarter of 2022. Our library titles include the award-winning Baby Genius , adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret Millionaires Club , created with and starring iconic investor Warren Buffett. 47 We license our programs to other services worldwide, in addition to the operation of our own channels, including but not limited to Netflix, HBO Max, Paramount+, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world. Through our recent investment in Germany’s Your Family Entertainment (“YFE”) , a publicly traded company on the Frankfurt Exchange (RTV-Frankfurt), we have gained access to one of the largest animation catalogues in Europe with over 3,000 titles and a global distribution network which currently covers over 60 territories, worldwide and which we are currently in the process of rebranding as Kartoon Channel! Worldwide . We recently acquired WOW Unlimited Media Inc. (“Wow”), and through that acquisition, we established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and its Channel Frederator Network , the largest animation focused multi-channel network on YouTube , with over 2,500 content creators and currently averages over 1 billion views per month. We own a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe (“SLU”), through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”). We plan to launch a Stan Lee Centennial program of merchandise set to coincide with Stan Lee’s 100 th birthday on December 28, 2022. We also own Beacon Media, the largest media buying service for children in North America. Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka, Moose Toys and JAKKS Pacific. In addition, we recently acquired the Canadian company Ameba TV (“Ameba”), which distributes a profitable SVOD channel for kids and is now expected to become the backbone of the newly launched SVOD channel of Kartoon Channel!, Kartoon Channel! Kidaverse . The combination of ourselves, our investment in YFE, our acquired companies Wow, Ameba and Beacon Media provides us with world class animation production studios, a catalogue representing thousands of hours of premium global content for children, a broadcast system for delivering that content and an in-house Consumer Products Licensing infrastructure to fully exploit the content. Environmental, Social and Governance Strategy We are attempting to shape culture, social attitudes and societal outcomes with our animated content and consumer products that touch the lives of young people and their families. As a global content company that reaches millions of people, we aim to be a positive force in the world. We are committed to advancing and strengthening our approach to environmental, social and governance (“ESG”) topics to help serve our partners, audiences, employees and shareholders — and to enhance our success as a business. We are committed to responsible, ethical and inclusionary business practices as outlined below: Human Capital Management As of September 30, 2022, we employed 798 full-time employees and 454 independent contractors. We aim to build a culture that attracts and retains the best employees and a workplace where everyone feels welcome, safe and inspired. Our human capital management strategy is intended to address the following areas: 48 A Culture of Diversity, Equity and Inclusion We seek to foster a culture of diversity, equity and inclusion through a range of partnerships, collaborations, programs and initiatives, some of which are described below. We strive to be an inclusionary workplace because we believe that it strengthens our business. In 2021, we created the role of Chief Diversity Officer. That role is responsible for both helping meet our hiring goals and reviewing the content we create. Preventing Harassment and Discrimination We have enacted policies addressing harassment, discrimination and other behaviors that could create a hostile workplace, some of which are described below. · We make available to our employees, training on preventing sexual harassment, discrimination and retaliation. · We expect employees to report any violations of Company policies, including sexual harassment, they witness. Among other ways, employees can report incidents of harassment using our anonymous complaint and reporting hotline. Social Impact and Corporate Social Responsibility We believe that the content we produce, primarily directed at young people and their families, both reflects and influences how our young viewers perceive and understand important issues. We endeavor to earn our viewers’ trust through a variety of practices, and we are focused on using our platforms to create positive social impacts. By way of just a few examples: in our show Rainbow Rangers , a diverse cast of girls works to save animals and protect the environment, while demonstrating the power of teamwork; in our Llama Llama series, we teach kindness and inclusion, and feature a differently abled character, which we have been told is appreciated by moms and kids who deal with physical challenges. In the earliest days of the COVID-19 pandemic, we spread public service messages to keep our audiences safe and informed with animated shorts featuring the iconic voices from our series including Warren Buffett from The Secret Millionaires Club and Jennifer Garner, the voice of Mama Llama from the Llama Llama series. Our mission statement says it all: “Content with a Purpose.” Social justice, caring about the environment and modeling appropriate and inclusionary behavior for kids has been part of our company for many years and we are constantly seeking ways to improve on what we have already been doing. Acquisition of Wow Unlimited Media Inc. On April 6, 2022, we completed the acquisition of Wow. On October 26, 2021 our wholly-owned subsidiary, 1326919 B.C. LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act . We purchased 100% of Wow’s issued and outstanding shares for $38.3 million in cash and 11,057,085 shares of our common stock. Recent Investments Following the initial equity investment in YFE during the fourth quarter of 2021, we participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, we purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholders were converted into 2,574,000 shares of YFE common stock, 304,631 of which were purchased by us, at 2.00 EUROS per share or $0.6 million. On April 5, 2022, we exercised our subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million, increasing the number of YFE’s outstanding shares to 6,857,132. As of September 30, 2022, our ownership in YFE was 48.0%. 49 Coronavirus (COVID-19) We continue to work with our stakeholders (including customers, employees, consumers, suppliers, business partners and local communities) to responsibly address this global pandemic. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions in an effort to mitigate adverse consequences. We cannot assure you that we will be successful in any such mitigation efforts. The extent to which the COVID-19 pandemic will continue to negatively impact our operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, the emergence of new virus variants, new information which may emerge concerning the severity of the COVID-19 pandemic, outbreaks occurring at any of our facilities, the actions taken to control the spread of COVID-19 or treat its impact, and changes in worldwide and U.S. economic conditions. Further deteriorations in economic conditions, as a result of the COVID-19 pandemic or otherwise, could lead to a further or prolonged decline in demand for our products and services and negatively impact our business. It may also impact financial markets and corporate credit markets which could adversely impact our access to financing or the terms of any such financing. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and its resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in “Item 1A. Risk Factors” and elsewhere in the 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on April 6, 2022, such as our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise. On March 15, 2022, we began implementing our “Return to Office” plan. We continue to be flexible with employee in-office requirements as we adjust to COVID-19 outbreaks and employee preferences for remote work. Results of Operations Our summary results for the three months ended September 30, 2022 and September 30, 2021 are below. Revenues Three Months Ended September 30, 2022 September 30, 2021 Change % Change (in thousands, except percentages) Production Services Revenue $ 9,095 $ – $ 9,095 –% Content Distribution 9,106 599 8,507 1,420% Licensing & Royalties 280 91 189 208% Media Advisory & Advertising Services 1,198 1,182 16 1% Total Revenue $ 19,679 $ 1,872 $ 17,807 951% Production Services revenue is generated specifically by Wow providing animation production services for the three months ended September 30, 2022, since the acquisition of Wow at the start of the second quarter. Content Distribution revenue is generated from the distribution of our properties for broadcast on television, video-on-demand (“VOD”) or SVOD in domestic and international markets and the sale of DVDs for home entertainment through our partners. Content Distribution also includes our advertising sales generated on our digital networks, the Kartoon Channel! in the form of either flat rate promotions or advertising impressions served, SVOD revenues generated by Ameba and revenue generated by Frederator on its multi-channel network. 50 Fluctuations in Content Distribution revenue are based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content or advertisement to the customer. Revenue related to our AVOD and SVOD, including advertising sales during the three months ended September 30, 2022, increased 1,420% as compared to the three months ended September 30, 2021, primarily due to the acquisition of Ameba, Wow and Frederator, increasing revenue by $8.8 million, offset by a $0.3 million decrease. Licensing & Royalties revenues are generated by the items in which we license the rights to our copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent. Revenue related to our licensing and royalties for the three months ended September 30, 2022 increased 208% as compared to the three months ended September 30, 2021, due to entering in an agreement for the licensing of certain Stan Lee Assets. Expenses Three Months Ended September 30, 2022 September 30, 2021 Change % Change (in thousands, except percentages) Marketing and Sales $ 880 $ 1,188 $ (308 ) (26)% Direct Operating Costs 13,875 634 13,241 2,088% General and Administrative 10,363 9,884 479 5% Total Expenses $ 25,118 $ 11,706 $ 13,412 115% Marketing and Sales expenses consist primarily of advertising expenses and certain payments made to our marketing partners. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities. The decrease in marketing and sales expenses for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily due to a decrease in marketing and advertising expenses incurred to promote Kartoon Channel. Salaries and related expenses of the animation production services employees of Mainframe and Frederator make up the majority of our Direct Operating Costs. Channel expenses, licensing and production of content costs, such as participation expenses related to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that have rendered services and amortization, including any impairments of film and television costs, make up the remainder of Direct Operating Costs. The increase in direct operating costs for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily due to the consolidation of Wow and Frederator’s animation production service salaries and channel expenses into our direct operating costs. General and Administrative expenses primarily consist of payroll and related expenses, share-based compensation related to our equity compensation plan, rent, depreciation of our property and equipment and amortization of our intangible assets, as well as professional fees and other general corporate expenses. The $0.5 million increase in general and administrative expenses for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 primarily consisted of a $3.0 million increase in costs associated with the acquisition of Wow and Frederator and a decrease in share-based compensation expense for the three months ended September 30, 2022. Our summary results for the nine months ended September 30, 2022 and September 30, 2021 are below. 51 Revenues Nine months Ended September 30, 2022 September 30, 2021 Change % Change (in thousands, except percentages) Production Services Revenue $ 19,113 $ – $ 19,113 –% Content Distribution 18,049 874 17,175 1,965% Licensing & Royalties 2,816 1,497 1,319 88% Media Advisory & Advertising Services 3,266 2,907 359 12% Total Revenues $ 43,244 $ 5,278 $ 37,966 719% Production Services Revenue is generated specifically by Wow providing animation production services for the nine months ended September 30, 2022. Content Distribution revenue is generated from the distribution of our properties for broadcast on television, video-on-demand (“VOD”) or subscription video-on-demand (“SVOD”) in domestic and international markets and the sale of DVDs for home entertainment through our partners. Content Distribution also includes our advertising sales generated on our digital network, the Kartoon Channel! in the form of either flat rate promotions or advertising impressions served, SVOD revenues generated by Ameba and revenue generated by Frederator on its multi-channel network. Fluctuations in Content Distribution revenue are based on the achievement of revenue recognition criteria such as the start of a license period and the delivery of the content or advertisement to the customer. Revenue related to our AVOD and SVOD, including advertising sales for the nine months ended September 30, 2022, increased 1,965% as compared to the nine months ended September 30, 2021 primarily due to the acquisition of Ameba, Wow and Frederator, increasing revenue by $17.3 million, offset by a $0.1 million decrease. Licensing & Royalties revenues are generated by the items in which we license the rights to our copyrights and trademarks of our brands and those of the brands for which we act as a licensing agent. Revenue related to our licensing and royalties for the nine months ended September 30, 2022 increased 88% as compared to the nine months ended September 30, 2021 primarily due to entering an agreement for the licensing of certain Stan Lee Assets. Media Advisory & Advertising Services revenue is a combination of client retainer fee-based services and media commissions generated by our wholly-owned subsidiary, Beacon Media Group, which we acquired on February 1, 2021. The increase of 12% represents an additional month of revenue recognized during the nine months ended September 30, 2022 as compared the nine months ended September 30, 2021 and new customers acquired, net of churn during the period. 52 Expenses Nine months Ended September 30, 2022 September 30, 2021 Change % Change (in thousands, except percentages) Marketing and Sales $ 2,012 $ 3,331 $ (1,319 ) (40)% Direct Operating Costs 28,865 2,152 26,713 1,241% General and Administrative 36,327 23,932 12,395 52% Total Expenses $ 67,204 $ 29,415 $ 37,789 128% Marketing and Sales expenses consist primarily of advertising expenses and certain payments made to our marketing partners. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities. The decrease in marketing and sales expenses for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily due to a decrease in marketing and advertising expenses incurred to promote the Kartoon Channel! Salaries and related expenses of the animation production services employees of Mainframe and Frederator make up the majority of our Direct Operating Costs. Channel expenses, licensing and production of content costs, such as participation expenses related to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that have rendered services and amortization, including any impairments of film and television costs, make up the remainder of Direct Operating Costs. The increase in direct operating costs for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily due to the consolidation of Wow and Frederator’s animation production service salaries and channel expenses into our direct operating costs. General and Administrative expenses primarily consist of payroll and related expenses, share-based compensation related to our equity compensation plan, rent, depreciation of our property and equipment and amortization of our intangible assets, as well as professional fees and other general corporate expenses. The $12.4 million increase in general and administrative expenses for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 primarily consisted of a $6.1 million increase in costs associated with the acquisition of Wow and Frederator, a $2.5 million increase in professional fees related to costs to acquire Wow and Frederator and a $1.1 million increase related to an increase in salaries and wages, directors’ and officers’ insurance and the consolidation of Wow’s general and administration expenses for the three months ended September 30, 2022. 53 Other Income (Expense), Net Components of other income (expense), net are summarized as follows (in thousands) : Three Months Ended Nine months Ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Gain (Loss) on Warrant Revaluation (a) $ 166 $ 420 $ 434 $ 103 Loss on Foreign Exchange (b) (1,336 ) 5 (2,596 ) (3 ) Loss on Marketable Securities Investments (c) (36 ) (25 ) (160 ) (25 ) Gain (Loss) on Revaluation of Equity Investment in YFE(d) (4,071 ) – (1,170 ) – Interest Income (e) 257 183 759 314 Warrant Incentive Expense (f) – – – (69,139 ) Interest Expense (g) (782 ) (2 ) (1,256 ) (20 ) Net Other Income (Expense) $ (5,802 ) $ 581 $ (3,989 ) $ (68,770 ) (a) The gain on warrant revaluation is related to the change in fair value of outstanding warrants that were determined to be derivative liabilities attached to previously issued and converted convertible notes. (b) For the three and nine months ended September 30, 2022, loss on foreign exchange primarily relates to the foreign exchange loss on the investment in YFE’s equity securities accounted for under the fair value option. For the three and nine months ended September 30, 2021, loss on foreign exchange related to foreign currency denominated monetary transactions. (c) We started investing in marketable securities during the three months ended September 30, 2021. The net realized loss on marketable securities recognized during the three and nine months ended September 30, 2022 reflects the loss in the investments in available-for-sale securities that will not be recovered due to prepayments of principals on certain mortgage-backed securities. We did not incur any realized losses on marketable securities during the three and nine months ended September 30, 2021. (d) The loss on revaluation of the equity investment in YFE is the change in fair value recognized on our investments in YFE accounted for using the fair value option. The loss is a result of the change in YFE’s stock price at the end of the current reporting period. (e) Interest Income received during the three and nine months ended September 30, 2022 and 2021, primarily consists of cash interest received on the investments in marketable securities, net of amortization of premiums. (f) The Warrant Incentive Expense is related to the fair value of new warrants that were issued in 2021 to certain existing warrant holders in exchange for previously issued outstanding warrants. (g) Interest expense during the three and nine months ended September 30, 2022 primarily consists of $0.4 million and $0.6 million, respectively, of interest incurred on our margin loan collateralized by its marketable security investments and $0.3 million and $0.6 million, respectively, of interest incurred on the production facilities loan and bank indebtedness assumed as part of the Wow Acquisition. Liquidity and Capital Resources During the nine months ended September 30, 2022, we had cash, cash equivalents and restricted cash of $7.1 million, which decreased by $3.0 million from December 31, 2021. The decrease was primarily due to cash used in investment activities, inclusive of the Wow and Ameba acquisitions and the YFE investments, of $35.9 million, $24.2 million used for operational activities, offset by $57.4 million of financing from the margin loan and production facilities and bank indebtedness assumed in the Wow Acquisition. 54 As of September 30, 2022, we held marketable securities with a fair value of $89.9 million as available-for-sale, a decrease of $22.7 million as compared to December 31, 2021. The available-for-sale securities, which consist principally of corporate and government debt securities, are also available as a source of liquidity. We borrowed an additional $63.2 million from our investment margin account during the nine months ended September 30, 2022 and repaid $7.8 million with cash received from sales and/or redemptions of its marketable securities. the borrowed amounts were used to finance our additional investments in YFE and the closing of the acquisitions of Ameba and Wow, in each case pledging certain of our marketable securities as collateral. During the three months ended September 30, 2022, the additional borrowings of $4.2 million related to quarterly operational costs. The interest rate for these investment margin account borrowings fluctuates based on the Federal Funds Rate plus 0.65% with interest only payable monthly. The weighted average interest rate was 2.65% on an average margin loan balance of $61.2 million during the three months ended September 30, 2022. The weighted average interest rate was 1.54% on an average margin loan balance of $43.4 million during the nine months ended September 30, 2022. We incurred interest expense of $0.6 million during the nine months ended September 30, 2022. The investment margin account borrowings do not mature but are payable on demand as the custodian can issue a margin call at any time, therefore the margin loan is recorded as a current liability on our condensed consolidated balance sheets. Upon the acquisition of Wow, we assumed certain credit facilities (the “Facilities”) with a Canadian bank. The Facilities are comprised of: (i) a $5.0 million CAD ($3.9 million USD) revolving demand facility, (ii) an $8.0 million CAD ($6.2 million USD) equipment lease line, (iii) a treasury risk management facility of up to $0.5 million CAD ($0.4 million USD) for foreign exchange forward contracts, and (iv) interim financing facilities for specific production titles. The Facilities are guaranteed by us and the security reflects substantially all of our and our subsidiary guarantors tangible and intangible assets subject to permitted encumbrances, including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements. The Facilities are generally repayable on demand and are subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions. Working Capital As of September 30, 2022, we had current assets of $143.6 million, including cash and cash equivalents of $7.1 million and marketable securities of $89.9 million and our current liabilities were $111.2 million. We had working capital of $32.4 million as of September 30, 2022 as compared to working capital of $115.1 million as of December 31, 2021. The decrease of $82.7 million in working capital as compared to December 31, 2021 was primarily due to the $56.0 million increase in our margin loan balance, a $21.4 million increase due to the assumption of Wow’s current debt for interim production facilities and bank loans upon the acquisition and the increase of deferred revenue of $10.4 million. During the nine months ended September 30, 2022 we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. We have the ability to borrow against license contracts, production service contracts, or refundable tax credits receivable, entering into leases, the issuance of debentures, or the issuance of shares. We manage liquidity risk by continuously monitoring actual and forecasted cash flows, using lease financing and by maintaining our revolving credit facilities. We believe that our current cash and cash equivalents balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months. Comparison of Cash Flows for the Nine months Ended September 30, 2022 and September 30, 2021 Our total cash, cash equivalents and restricted cash as of September 30, 2022 and 2021 was $7.1 million and $4.9 million, respectively. 55 Comparison of Cash Flows Nine months Ended September 30, 2022 September 30, 2021 Change % Change (in thousands, except percentages) Cash Used in Operating Activities $ (22,837 ) $ (15,965 ) $ (6,872 ) 43 % Cash Used in Investing Activities (37,362 ) (135,522 ) 98,160 (72)% Cash Provided by Financing Activities 57,419 55,915 1,504 3 % Effect of Exchange Rate Changes on Cash (187 ) – (187 ) – % Decrease in Cash, Cash Equivalents and Restricted Cash $ (2,967 ) $ (95,572 ) $ 92,605 (97)% Operating Activities Cash used in operating activities for the nine months ended September 30, 2022 increased $6.9 million as compared to cash used during the nine months ended September 30, 2021 due to an increase in cash used of $10.5 million for operating liabilities as compared to the prior period, offset by an increase in cash used of $3.2 million, primarily due to the increase in liabilities assumed as part of the acquisition of Wow. Investing Activities Cash used in investing activities for the nine months ended September 30, 2022 decreased $98.2 million as compared to cash used during the nine months ended September 30, 2021. The decrease in cash used for investing was primarily due to a decrease of investment activity in our marketable securities of $141.8 million during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease is partially offset by the increase of $41.2 million in our investment activity related to the acquisitions of Wow and Ameba and investments in YFE, as compared to the acquisition of Beacon in the prior year period. Financing Activities Cash provided by financing activities for the nine months ended September 30, 2022 increased by $1.5 million as compared to cash provided during the nine months ended September 30, 2021. The primary source of cash during the nine months ended September 30, 2022 was the net proceeds borrowed from our margin loan of $55.4 million and $3.5 million from production loans, compared to the primary source of cash during the nine months ended September 30, 2021 of $57.3 million from the warrant exercise during January 2021. Material Cash Requirements We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $101.6 million as of September 30, 2022, of which about $64.5 million, could be owed within one year, if the margin loan and interim production facilities are called. For additional information on our contractual commitments and timing of future payments see Note 21 to the condensed consolidated financial statements included in this Report on Form 10-Q. We plan to utilize our liquidity (as described above) to fund our material cash requirements. As of September 30, 2022, we have $3.1 million in commitments for capital expenditures, related to equipment leases. 56 Critical Accounting Policies The preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2021 Annual Report on Form 10-K, and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2021 Annual Report on Form 10-K describe the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. Off Balance Sheet Arrangements We have no off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.