What changed in this filing

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Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 966 added, 483 removed, 319 unchanged (82% of the section changed)

3 unchanged sentences

(in thousands, except share and par value data)

June 30, 2024 December 31, 2023

September 30, 2024

December 31, 2023

Current Assets:

Cash $ 2,741 $ 4,095

Investments in Marketable Securities (amortized cost of $ 4,266 and $ 12,838 , respectively)

Accounts Receivable (net of allowance of $ 241 and $ 189 , respectively)

12,663 18,072

Tax Credits Receivable (net of allowance of $ 610 and $ 527 , respectively)

13,961 20,714

Notes and Accounts Receivable from Related Party

9 unchanged sentences

Intangible Assets, net

Other Assets 123 125

Total Assets $ 89,004 $ 111,436

LIABILITIES AND STOCKHOLDERS’ EQUITY

5 unchanged sentences

Deferred Revenue

Margin Loan 1,056 782

Production Facilities

15 unchanged sentences

Stockholders’ Equity:

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

Preferred Stock, $ 0.001 par value, 10,000,000 shares authorized, as of September 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 September 30, 2024 and December 31, 2023

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

Common Stock, $ 0.001 par value, 190,000,000 shares authorized, 39,630,851 and 35,323,217 shares issued and 39,555,161 and 35,247,744 outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional Paid-in Capital

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 )

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

Accumulated Deficit

5 unchanged sentences

Total Liabilities and Stockholders’ Equity

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

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Kartoon Studios, Inc.

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements

of Operations

(in thousands, except share and per share data)

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

2024 2023 2024 2023

Three Months Ended September 30,

Nine Months Ended September 30,

Production Services

13 unchanged sentences

Interest Expense

Other Expense, net ( 1,016 ) ( 2,858 ) ( 1,583 ) ( 4,570 )

Loss Before Income Tax Benefit (Expense) ( 5,923 ) ( 12,441 ) ( 12,987 ) ( 37,234 )

Other Income (Expense), net

Loss Before Income Tax Benefit

Income Tax Benefit

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

Net Loss Attributable to Non-Controlling Interests

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 5,873 ) $ ( 12,425 ) $ ( 12,918 ) $ ( 36,253 )

Net Loss per Share (Basic)

2 unchanged sentences

Weighted Average Shares Outstanding (Diluted)

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

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Kartoon Studios, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive

(in thousands)

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

2024 2023 2024 2023

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

Three Months Ended September 30,

Nine Months Ended September 30,

Change in Accumulated Other Comprehensive Income (Loss):

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

Change in Unrealized Gain on Marketable Securities

Realized Losses on Marketable Securities Reclassified from AOCI into Earnings

4 unchanged sentences

Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc.

$ ( 5,666 ) $ ( 11,088 ) $ ( 12,734 ) $ ( 32,546 )

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

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Kartoon Studios, Inc.

Condensed Consolidated Statements of Stockholders' Equity

Condensed Consolidated Statements of Stockholders'

(in thousands, except share data)

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

Preferred Stock

Additional Paid-In

Treasury Stock

Accumulated Other Comprehensive

Non- Controlling

Balance, December 31, 2023

$ ( 718,546 )

Issuance of Common Stock for Services

3 unchanged sentences

Currency Translation Adjustment

Net Loss – – – – – – – ( 7,045 ) – ( 19 ) ( 7,064 )

Balance, March 31, 2024

$ ( 725,591 )

Issuance of Common Stock for Services

4 unchanged sentences

Currency Translation Adjustment

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

Balance, June 30, 2024

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

$ ( 731,464 )

Issuance of Common Stock for Services

Reclassification Related to Reverse Stock Split

Share Based Compensation

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

Currency Translation Adjustment

Balance, September 30, 2024

$ ( 733,521 )

Kartoon Studios, Inc.

Condensed Consolidated Statements of Stockholders'

Equity (Continued)

(in thousands, except share data)

Preferred Stock

Additional Paid-In

Treasury Stock

Accumulated Other Comprehensive

Non- Controlling

Balance, December 31, 2022

$ ( 641,443 )

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes

3 unchanged sentences

Currency Translation Adjustment

Net Loss – – – – – – – ( 23,828 ) – ( 31 ) ( 23,859 )

Balance, March 31.

6 unchanged sentences

Currency Translation Adjustment

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

Balance, June 30, 2023

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

$ ( 677,696 )

Issuance of Common Stock for Services

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes

Share Based Compensation

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

Currency Translation Adjustment

Balance, September 30, 2023

$ ( 693,172 )

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Kartoon Studios, Inc.

1 unchanged sentence

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

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

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

9 unchanged sentences

Deferred Income Taxes

Loss on Early Lease Termination

Marketing Expenses in Exchange for Stock

1 unchanged sentence

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

Gain on Warrant Revaluation ( 60 ) ( 6,202 )

Gain on Revaluation of Warrants

Realized Loss on Marketable Securities

4 unchanged sentences

Decrease (Increase) in Operating Assets:

Accounts Receivable, net 5,322 7,217

Accounts Receivable

Other Receivable

Tax Credits Earned (less capitalized)

Tax Credits Received, net 10,251 10,419

Tax Credits Received

Film and Television Costs, net

15 unchanged sentences

Proceeds from Sales and Maturities of Marketable Securities

Investment in Intangible Assets, net ( 7 ) –

Purchase of Property & Equipment

9 unchanged sentences

Debt Issuance Costs

Proceeds from Warrant Exchange, net – 5,299

Shares Withheld for Taxes on Vested Restricted Shares

2 unchanged sentences

Effect of Exchange Rate Changes on Cash

Net Decrease in Cash ( 1,354 ) ( 2,593 )

Net Increase (Decrease) in Cash

Beginning Cash

Ending Cash $ 2,741 $ 4,839

Supplemental Disclosures of Cash Flow Information

3 unchanged sentences

Warrants Issued for Services

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

Warrant Modification

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Kartoon Studios, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2024

September 30, 2024

Organization and Business

1 unchanged sentence

Kartoon Studios, Inc.

(formerly known as Genius Brands International, Inc.;

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

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

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

In the children’s media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment.

With the exception of selected WOW Unlimited Media Inc.

(“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!

and Ameba TV, as well as linear streaming platforms .

These streaming platforms include Comcast, Cox, DISH, Sling TV, Amazon Prime Video, Amazon Fire, Roku, Apple TV, Apple iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, YouTube, YouTube Kids and via KartoonChannel.com, as well as Samsung and LG smart TVs.

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

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

known as Genius Brands International, Inc.;

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.

The Company is a “work for hire” producer for many of the streaming outlets

and animated content intellectual property (“IP”) holders.

In the children’s media sector, the Company’s portfolio

features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment.

With the exception

of selected WOW Unlimited Media Inc.

(“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!

TV, as well as linear streaming platforms .

These streaming platforms include Comcast,

Cox, DISH, Sling TV, Amazon Prime Video, Amazon Fire, Roku, Apple TV, Apple iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, YouTube,

YouTube Kids and KartoonChannel.com, as well as Samsung and LG smart TVs.

The Company's in-house owned and produced animated shows include

Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, and Rainbow

Rangers, KC Pop Quiz and Shaq’s Garage starring Shaquille O’Neal.

The Company’s library titles include the

award-winning Baby Genius , adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret

Millionaires Club , created with and starring iconic investor Warren Buffett, Team Zenko Go!, Reboot , Bee & PuppyCat:

Lazy in Space and Castlevania .

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, Paramount+, Max, Nickelodeon, and satellite, cable and terrestrial broadcasters around 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 established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world.

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, Paramount+,

Max, Samsung TV Plus, LG Smart TVs, Amazon, Nickelodeon, and satellite, cable and terrestrial broadcasters around 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 a leading producer and distributor of high-quality children’s and family programming.

owns and operates one of Europe’s largest channel-independent libraries of around 150 titles and 3,500 half-hour episodes.

Through the ownership of Wow,

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

In addition, Wow owns Frederator Networks Inc.

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

(“Frederator”), the largest animation focused creator network on YouTube with

over 2,500 channels.

Frederator also owns Frederator Studios, focused on developing and producing shorts and series for and with partners.

Over the past 20 years, Frederator Studios has partnered with Nickelodeon, Nick Jr., Netflix, Sony Pictures Animation and Amazon.

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 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.

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

Over the past 20 years, Frederator Studios has partnered with Cartoon Network, Nickelodeon, Nick Jr., Netflix, Sony Pictures Animation

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”).

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

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.

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 3 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

The Company also owns The

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

(“Beacon Communications”) (collectively,

“Beacon”), a 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.

Beacon represents over 20 kids and family clients including Bandai Namco, Moose Toys, Bazooka Candy Brands, Goliath

Games, Playmates Toys, Cepia LLC, Cra-Z-Art, and Zebra Pens.

In addition, the Company owns

the Canadian company Ameba Inc.

(“Ameba”), which distributes SVOD service for kids and has become a focal point of revenue

for TOON Media Networks’ subscription offering.

Recent Transactions

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.

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.

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 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 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

Pursuant to the terms of the SPA, the Investor had 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,

which has since expired.

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.

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”).

The JV 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

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 seasons of episodic series.

Liquidity, Going Concern, and Capital Resources

As of September 30, 2024,

the Company had cash of $ 4.6 million, which increased by $ 0.5 million as compared to December 31, 2023.

The increase was primarily

due to cash provided by investing activities of $ 7.9 million, offset by cash used in financing activities of $ 6.4 million and cash used

for operating activities of $ 1.1 million.

The cash provided by investing activities was primarily due to sales of marketable securities

of $ 8 .0 million.

The cash used in financing activities was primarily due to repayments of the production facilities, finance lease obligations,

and bank indebtedness, net of proceeds from each, resulting in net cash used of $ 10 .0 million, offset by net proceeds from the Offering

of $ 3.3 million and margin loan of $ 0.3 million.

As of September 30, 2024,

the Company held available-for-sale marketable securities with a fair value of $ 4.1 million, a decrease of $ 7.9 million as compared to

December 31, 2023 due to sales and maturities during the nine months ended September 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 September 30, 2024

and December 31, 2023, the Company’s margin loan balance was $ 1.1 million and $ 0.8 million, respectively.

During the nine months

ended September 30, 2024, the Company borrowed an additional $ 9.1 million from its investment margin account and repaid $ 8.8 million

primarily with cash received from sales and maturities of marketable securities.

The borrowed amounts were primarily used for operational

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

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 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.

As a result of the amendment, the revolving demand facility allows for draws of up to CAD 1.0 million to be made by way of CAD prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 200,000 in either CAD or USD and having a term of up to 1 year.

The CAD prime borrowings and overdrafts bear interest at a rate equal to bank prime plus 2.00 % per annum.

The USD base rate borrowings bear interest at a rate equal to bank base rate plus 2.00 % per annum.

In addition, the equipment lease line was terminated, however, the Company has and will continue to make the regular principal and interest payments under the specific financing terms of the existing equipment lease agreements.

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

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

The weighted average interest rates

were 0.46 % and 0.98 %, respectively, on average margin loan balances of $ 1 .0 million and $ 27.4 million as of September 30, 2024 and

December 31, 2023, respectively.

For the three months ended

September 30, 2024 and September 30, 2023, the Company incurred interest expense on the margin loan of $ 11,070 and $ 0.2 million, respectively.

The Company incurred interest expense on the margin loan of $ 42,131 and $ 1.5 million during the nine months ended September 30, 2024

and September 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.

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

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 $ 1.2 million U.S.

dollars (“USD”) or $ 1.6 million

of Canadian dollars (“CAD”).

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

of the amendment, the revolving demand facility allows for draws of up to $ 0.7 million ( CAD 1.0 million)

to be made by way of CAD prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 200,000 in either

CAD or USD and having a term of up to 1 year.

The CAD prime borrowings and overdrafts bear interest at a rate equal to bank prime plus

2.00 % per annum.

The USD base rate borrowings bear interest at a rate equal to bank base rate plus

2.00 % per annum.

In addition, the equipment lease line was terminated, however, the Company has and

will continue to make the regular principal and interest payments under the specific financing terms of the existing equipment lease agreements.

The amendment removed the treasury risk management facility that allowed for advances of up to $ 0.4 million ( CAD 0.5 million).

As of the date of the amendment and December 31, 2023, 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.

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 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.

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 Quarterly Report on Form 10-Q (“the Form 10-Q”).

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

Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim condensed consolidated financial statements of the Company have been prepared in conformity with U.S.

As of September 30, 2024 ,

the Company was not in compliance with a financial covenant to maintain a minimum liquidity threshold.

Due to financial covenant violations

in the second quarter of 2024, the Company’s remaining equipment lease agreements with the lender of $ 0.6 million ( CAD

0.8 million) as of September 30, 2024, are subject to early repayment.

During the three months ended September 30, 2024, the

lender and the Company agreed to a repayment plan for the equipment leases under the equipment lease line to be completed prior to the

end of the fourth quarter of 2024.

On August 30, 2024, the Company paid $ 0.1 million (CAD 0.1 million)

to the lender as part of its early repayment plan for the existing equipment lease line agreements.

Subsequent to September 30, 2024,

the Company paid $ 0.3 million (CAD 0.4 million) to the lender as part of its repayment plan

for the equipment lease line.

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.

In accordance with Accounting

Standards Codification (“ASC”), Presentation of Financial Statements – Going Concern (Subtopic 205-40), the Company

has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a

going concern for at least one year after the date the condensed consolidated financial statements are issued.

Historically,

the Company has incurred net losses.

For the three months ended September 30, 2024 and September 30, 2023, the Company reported

net losses of $ 2.1 million and $ 15.5 million, respectively.

For the nine months ended September 30, 2024 and September 30, 2023, the Company

reported net losses of $ 15.1 million and $ 51.8 million, respectively.

The Company reported net cash used in operating activities of $ 1.1

million and net cash used in operating activities of $ 20.2 million for the nine months ended September 30, 2024 and September 30, 2023,

respectively.

As of September 30, 2024, the Company had an accumulated deficit of $ 733.5 million primarily due to approximately $ 450 million

of expenses related to non-operational warrant and stock option expense recorded in 2020 and 2021, and total stockholders’ equity

of $ 42.8 million.

As of September 30, 2024, the Company had total current assets of $ 37.2 million, including cash of $ 4.6 million

and marketable securities of $ 4.1 million, and total current liabilities of $ 33.7 million.

The Company had working capital of $ 3.5 million

as of September 30, 2024, compared to working capital of $ 11.5 million as of December 31, 2023.

Based on our current expected

level of operating expenditures and the cash and cash equivalents on hand at September 30, 2024, management concludes that there is substantial

doubt about our ability to continue as a going concern for a period of at least 12 months subsequent to the issuance of the accompanying

condensed consolidated financial statements.

Historically, the Company has financed its operations primarily through revenue generated

from operations, loans and sales of its securities, and the Company expects to continue to seek and obtain additional capital in a similar

The Company has filed a registration statement on Form S-3 on December 22, 2023, as amended, registering the sale of up to $ 75 million

of the Company’s securities pursuant to a shelf registration statement, and a registration statement on Form S-1 on September 27,

2024, as amended, in connection with a best efforts public offering of up to $ 8 million of the Company’s securities.

the Company does not have any committed sources of financing at this time, and it is uncertain whether any additional funding will be

available when it needs it on terms that will be acceptable to it, or at all.

The Company’s ability to sell securities registered

on its registration statement on From S-3 is limited until such time that the market value of its voting securities held by non-affiliates

is $ 75 million or more.

In addition, the number of shares of common stock and securities convertible or exercisable for common stock

that the Company can sell, under certain circumstances, will be limited by NYSE American rules and regulations.

There can be no assurance

that the Company will be able to raise funds by selling additional shares of common stock or other securities convertible into common

stock, the ownership interest of its existing shareholders will be diluted.

The issuance of debt can result in restrictive covenants that

limit operations.

If funding is not available or not available at terms acceptable to the Company, the Company will seek to reduce overhead

costs and reduce its weekly cash obligations in the short term as needed.

In addition, the Company can look to divest or bring in equity

partners for our various divisions and bring in near term capital.

Basis of Presentation and Summary of Significant Accounting

The accompanying interim condensed

consolidated financial statements of the Company have been prepared in conformity with U.S.

Generally Accepted Accounting Principles (“U.S.

GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on April 9, 2024.

The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the condensed consolidated financial statements and accompanying disclosures.

These estimates are based on management’s best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances.

GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the

year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on April 9, 2024.

The preparation

of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that

affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the condensed

consolidated financial statements and accompanying disclosures.

These estimates are based on management’s best knowledge of current

events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed

to be reasonable under the circumstances.

On a regular basis, the Company evaluates the assumptions, judgments and estimates.

Actual results may differ from these estimates.

Actual results

may differ from these estimates.

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.

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

of September 30, 2024 , the gross amounts of foreign currency (“FX”) forward contracts

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 sheets.

As of December 31, 2023 , the FX contracts were fully

settled and netted to zero on the Company’s condensed consolidated balance sheets.

the three and nine months ended September 30, 2024 , the Company recorded a realized gain

of $ 35,601 and $ 86,355 , respectively, on FX forward contracts within

Production Services Revenue on the condensed consolidated statements of operations.

For the three and nine months ended September 30,

2023, the Company recorded a realized loss of $ 14,890 and $ 40,294 , respectively, on FX forward contracts

within Production Services Revenue on the condensed consolidated statements of operations.

Trade Accounts Receivable and Allowance for

As of September 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 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.

As of September 30, 2024

and December 31, 2023, $ 12.9 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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Concentration of Risk

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 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 $ 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 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 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.

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.

The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated credit losses.

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

As of September 30, 2024 and December 31, 2023, the Company had twelve and ten bank deposit accounts with an aggregate

uninsured balance of $ 3 .0 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 $ 4.1 million

and $ 12 .0 million as of September 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).

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

As of September 30,

2024 and December 31, 2023, the Company did not have account balances held at this financial institution that exceed the insured

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

September 30, 2024, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers

accounted for 77.2 % of the total revenue.

During the nine months ended

September 30, 2024, the Company had three customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers

accounted for 60.2 % of the total revenue.

As of September 30, 2024, the Company had three customers whose total accounts receivable

exceeded 10% of the total accounts receivable.

These customers accounted for 59.4 % of the total accounts receivable as of September 30,

During 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 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 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,

There is significant financial

risk associated with a dependence upon a small number of customers.

The Company periodically assesses the financial strength of these

customers and establishes allowances for any anticipated credit losses.

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 June 30, 2024 (in thousands):

Level 1 Level 2 Total Fair Value

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,

2024 (in thousands):

Schedule of marketable securities measured at fair value on a recurring basis

Total Fair Value

Investments in Marketable Securities:

2 unchanged sentences

states and municipalities

Total $ 3,142 $ 3,313 $ 6,455

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 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.

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 the Financial Accounting Standards Board (“FASB”) ASC 320, Investments – Debt and Equity

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

Refer to Note 5 for additional details.

New Accounting Standards Issued but Not Yet Adopted

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

New Accounting Standards Issued but Not Yet

In October 2023, the FASB

issued Accounting Standards Update (“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 condensed consolidated financial statements and related disclosures, which is not expected to be material.

In November 2023, the FASB issued ASU No.

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 condensed consolidated financial statements and related disclosures, which is not expected to be

In November 2023, the FASB

issued ASU No.

2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures .

The amendments enhance disclosures of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM), extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported under certain conditions.

The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

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

In December 2023, the FASB issued ASU No.

The amendments enhance disclosures

of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision

maker (CODM), extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported

under certain conditions.

The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim

periods within fiscal years beginning after December 15, 2024.

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

In December 2023, the FASB

issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid.

The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.

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

Improvements to Income Tax Disclosures , which requires that an entity, on an

annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid.

The amendment

in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this ASU are effective

for annual periods beginning after December 15, 2024.

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

and is not expected to be material.

Variable Interest Entity

In July 2020, the Company entered into a binding term sheet with POW!

In July 2020, the Company

entered into a binding term sheet with POW!

Entertainment, LLC.

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

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

POW and the Company

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

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

During the three months ended 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.

(“POW”) in which the Company agreed to form an entity with

POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee.

The entity is

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

POW and the Company executed an operating agreement for the joint venture,

effective as of June 1, 2021.

The purpose of the acquisition was to enable the Company to assume the worldwide rights, in perpetuity,

to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing,

comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations (the “Stan Lee Assets”),

from which the Company plans to develop and license multiple properties each year.

During the three months ended

September 30, 2024 and September 30, 2023, SLU generated a net loss of $ 63,552 and $ 35,846 , respectively.

During the nine months ended

September 30, 2024 and September 30, 2023, SLU generated a net loss of $ 132,750 and $ 83,179 , respectively.

There were no contributions

or distributions during the three and nine months ended September 30, 2024 and September 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 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.

Therefore, under the equity method of accounting, the Company elected to account for the investment at fair value under the fair value option.

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

As of September 30,

2024 and December 31, 2023, the Company owned 6,857,132 shares

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.

Therefore, under the equity method of accounting, the

Company elected to account for the investment at fair value under the fair value option.

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 September 30,

2024, the fair value of the investment was determined to be $ 18 .0

million recorded within noncurrent assets on the Company’s condensed consolidated balance sheets.

YFE shows a considerably

lower trading volume compared to industry standards, especially within the broader media and entertainment sector.

Under ASC 820,

for an asset or liability to qualify as Level 1, it must have quoted prices in an active market.

However, the standard also

addresses situations where trading volume is low.

ASC 820-10-35-41 states that an active market is one in which transactions for the

asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

volume is low, determining whether the market is still active requires judgment.

When considering the use of share price to value an

investment in YFE the company had to weigh the arguments for and against the application of Level 1 inputs under ASC 820.

could remain in Level 1 if there are enough considerations to support that the market is accessible and reflects current pricing

information, despite low volume.

While the low trading volume raises concerns regarding the reliability of using share price as a

Level 1 input under ASC 820, the company will closely monitor the trading volume and financial performance of the investee.

ongoing oversight will help ensure that any updates to the investment's fair value reflect true market conditions as they evolve

over time, considering both the potential growth of the company and fluctuations in trading activity.

The fair value as of September 30, 2024 decreased by net $ 1.1 million,

as compared to December 31, 2023.

The decrease is the effect of foreign currency remeasurement from EURO to USD resulting in a gain

of $ 0.2 million and share price fluctuations resulting in a loss of $ 1.3 million.

The total change in fair value is recorded within Other

Income (Expense), net on the Company’s condensed consolidated statements of operations.

As of September 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.

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) :

Adjusted Cost Unrealized Loss Fair Value

The Company classifies and

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

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 $ 4.3 million and a market value of $ 4.1 million as of September 30, 2024.

The balances consisted

of the following securities (in thousands) :

Schedule of marketable securities

Adjusted Cost

Unrealized Loss

Corporate Bonds

1 unchanged sentence

States and Municipalities

Total $ 6,924 $ ( 469 ) $ 6,455

The investments in marketable securities as of December 31, 2023 had an adjusted cost basis of $ 12.8 million and a market value of $ 12.0 million.

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

Adjusted Cost Unrealized Loss Fair Value

The investments in marketable

securities as of December 31, 2023 had an adjusted cost basis of $ 12.8 million and a market value of $ 12 .0 million.

consisted of the following securities (in thousands) :

Adjusted Cost

Unrealized Loss

Corporate Bonds

Treasury 646 ( 37 ) 609

Agency and Government Sponsored Securities

States and Municipalities

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

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 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 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

September 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 September 30, 2024 and December 31, 2023, an allowance for credit loss was

no t 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 $ 1.9 million were recognized in earnings during the three months ended September 30, 2024 and September 30, 2023, respectively.

losses of $ 0.5 million and $ 4.2 million were recognized in earnings during the nine months ended September 30, 2024 and September 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):

The contractual maturities

of the Company’s marketable investments as of September 30, 2024 were as follows (in thousands):

Schedule of contractual maturities of marketable investments

Due within 1 year

Due after 1 year through 5 years

Total $ 6,455

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.

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.

Property and Equipment, net

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

June 30, 2024 December 31, 2023

The Company has property and

equipment as follows (in thousands):

Schedule of property and equipment, net

September 30, 2024

December 31, 2023

Furniture and Equipment

1 unchanged sentence

Leasehold Improvements

Software 219 192

Property and Equipment, gross

2 unchanged sentences

Property and Equipment, net

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.

During the three months ended

September 30, 2024 and September 30, 2023, the Company recorded depreciation expense of $ 0.1 million and $ 0.1 million, respectively.

the nine months ended September 30, 2024 and September 30, 2023, the Company recorded depreciation expense of $ 0.3 million and $ 0.3 million,

respectively.

The Company did no t incur

any impairment charges on its property and equipment during the three and nine months ended September 30, 2024.

Due to a 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 Income (Expense), net on the condensed consolidated statement of operations during the three and nine months ended September 30,

In addition, during the first quarter of 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.

Leased Right-of-Use Assets, net

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

June 30, 2024 December 31, 2023

Leased right-of-use assets

consisted of the following (in thousands):

Schedule of leased right of use assets

September 30, 2024

December 31, 2023

Office Lease Assets

4 unchanged sentences

Leased Right-of-Use Assets, net

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 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.

As of September 30, 2024,

the weighted-average lease term for the Company’s operating leases was 76 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

Operating lease costs during

the three months ended September 30, 2024 and September 30, 2023 were $ 0.9 million and $ 0.4 million, respectively, recorded within General

and Administrative Expenses on the Company’s condensed consolidated statements of operations.

Operating lease costs during the nine

months ended September 30, 2024 and September 30, 2023 were $ 1.2 million and $ 1.2 million, respectively, recorded within General and Administrative

Expenses on the Company’s condensed consolidated statements of operations.

During the three and nine

months ended September 30, 2024, the Company recorded right-of-use (“ROU”) amortization of $ 0.2 million and $ 1 .0 million,

respectively.

During the three and nine months ended September 30, 2023, the Company recorded ROU amortization of $ 0.5 million and

$ 1.6 million, respectively.

ROU amortization is recorded within General and Administrative Expenses and accretion of interest expense

is recorded within Other Income (Expense), net on the Company’s condensed consolidated statements 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 for terminating the lease.

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.

Film and Television Costs, net

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

Additions to Film and Television Costs 1,078

Disposals ( 41 )

Film Amortization Expense & Impairment Losses ( 7,536 )

Foreign Currency Translation Adjustment 14

The following table highlights

the activity in Film and Television Costs as of September 30, 2024 and December 31, 2023 (in thousands):

Schedule of film and television costs activity

Film and Television Costs, net as of December 31, 2023

Additions to Film and Television Costs

Disposals ( 10 )

Film Amortization Expense & Impairment Losses ( 152 )

Film Amortization Expense

Foreign Currency Translation Adjustment

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.

Film and Television Costs, net as of September 30, 2024

During the three months ended

September 30, 2024 and September 30, 2023, the Company recorded film amortization expense of $ 61,672 and $ 0.1 million, respectively.

the nine months ended September 30, 2024 and September 30, 2023, the Company recorded amortization expense of $ 0.2 million and

$ 0.5 million, respectively.

For the three and nine months

ended September 30, 2023, the Company recorded film and television impairment write-downs of $ 6.2 million.

The Company did no t incur

any film and television impairment write-downs during the three and nine months ended September 30, 2024.

Intangible Assets, net

The Company had the following intangible assets (in thousands) with their weighted average remaining amortization period (in years) :

The Company had the following

intangible assets (in thousands) with their weighted average remaining amortization period (in years) :

Intangible Assets, net

Weighted Average Remaining Amortization Period As of

June 30, 2024 December 31, 2023

Schedule of intangible asset

Weighted Average Remaining Amortization

September 30, 2024

December 31, 2023

Customer Relationships

Digital Networks

Trade Names 66.9 9,957 9,970

Intangible Assets, gross

Less Accumulated Amortization ( 4,909 ) ( 3,794 )

Accumulated Amortization

Foreign Currency Translation Adjustment

Intangible Assets, net

_______________________

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.

During the three months ended

September 30, 2024 and September 30, 2023, the Company recorded intangible asset amortization expense of $ 0.5 million for each reporting

During the nine months ended September 30, 2024 and September 30, 2023, the Company recorded intangible asset amortization expense

of $ 1.5 million and $ 1.6 million, respectively.

The Company did no t incur

any impairment charges on its definite and indefinite-lived intangible assets during the three and nine months ended September 30,

During the nine months ended

September 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, net of $ 0.6 million in accumulated depreciation, due to a decrease in an asset group’s estimated undiscounted

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 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.

Expected future amortization

of intangible assets subject to amortization as of September 30, 2024 is as follows (in thousands):

Schedule of expected future intangible asset amortization

2024 (remainder of year)

As of September 30, 2024, $ 5.6 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 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.

As of September 30, 2024

and December 31, 2023, the Company had aggregate short term and long term deferred revenue of $ 8.4 million and $ 6.6 million, respectively.

The increase in deferred revenue is primarily related to the stage of progress of various productions as of September 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

Revenue is fully recognized upon production completion.

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

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

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

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

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

As of September 30, 2024 and December 31,

2023, the Company’s margin loan balance was $ 1.1 million and $ 0.8 million, respectively.

During the nine months ended September 30,

2024, the Company borrowed an additional $ 9.1 million from its investment margin account and repaid $ 8.8 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 0.82 % 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.

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

The weighted average interest rates were 0.46 %

and 0.98 %, respectively, on average margin loan balances of $ 1 .0 million and $ 27.4 million as of September 30, 2024 and December 31,

2023, respectively.

For the three months ended

September 30, 2024 and September 30, 2023, the Company incurred interest expense on the margin loan of $ 11,070 and $ 0.2 million, respectively.

The Company incurred interest expense on the margin loan of $ 42,131 and $ 1.5 million during the nine months ended September 30, 2024 and

September 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.

Bank Indebtedness and Production Facilities

The Company has certain credit facilities (together, the “Facilities”) that are comprised of the following:

The Company has certain credit

facilities (together, the “Facilities”) that are comprised of the following:

Revolving Demand Facility

As of June 30, 2024 and December 31, 2023 , the Company had an outstanding balance of $ 0.4 million (CAD 0.6 million) and $ 2.9 million (CAD 3.8 million), respectively, on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s condensed consolidated balance sheets.

During March 2024, the Company amended the revolving demand facility.

As a result of the amendment, the revolving demand facility allows for draws of up to CAD 1.0 million to be made by way of CAD prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 0.2 million in either CAD or USD and having a term of up to 1 year .

The CAD prime borrowings and overdrafts bear interest at a rate equal to bank prime plus 2.00 % per annum.

The USD base rate borrowings bear interest at a rate equal to bank base rate plus 2.00 % per annum.

of September 30, 2024 and December 31, 2023 , the Company

had an outstanding balance of $ 0.6 million (CAD 0.8 million) and $ 2.9 million (CAD 3.8 million),

respectively, on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities

on the Company’s condensed consolidated balance sheets.

March 2024, the Company amended the revolving demand facility.

As a result of the amendment, the revolving demand facility allows for

draws of up to $ 0.7 million ( CAD 1 .0 million) to be made by way of CAD prime rate loans,

CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 0.2 million in either

CAD or USD and having a term of up to 1 year .

The CAD prime borrowings and overdrafts bear interest

at a rate equal to bank prime plus 2.00 % per annum.

The USD base rate borrowings bear interest at

a rate equal to bank base rate plus 2.00 % per annum.

Treasury Risk Management Facility

During March 2024, an amendment was entered into that removed the treasury risk management facility.

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

2024, an amendment was entered into that removed the treasury risk management facility.

As of the date of the amendment and December 31,

2023, there were no outstanding amounts drawn under the treasury risk management facility.

Production Facilities

The production facilities are used for financing specific productions.

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

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

The security reflects substantially all of the Company's tangible and intangible assets including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements.

As of June 30, 2024 and December 31, 2023, the Company had an outstanding balance of $ 9.8 million (CAD 13.5 million), including $ 1.3 million (CAD 1.8 million) of interest, and $ 15.3 million (CAD 20.3 million), including

$ 1.4 million (CAD 1.9 million) of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

production facilities are used for financing specific productions.

The Company’s production facilities bear interest at rates ranging

from bank prime plus 1.00 % - 1.25 % per annum.

The production facilities

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

The security reflects substantially all of the Company's tangible and intangible assets including a combination of federal and provincial

tax credits, other government incentives, production service agreements and license agreements.

of September 30, 2024 and December 31, 2023, the Company had an outstanding balance of $ 8.7

million (CAD 11.8 million), including $ 1.3 million (CAD 1.7 million)

of interest, and $ 15.3 million (CAD 20.3 million), including $ 1.4 million (CAD 1.9 million)

of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated

balance sheets.

Equipment Lease Line

During March 2024, the equipment lease line was terminated, however, the Company continued to make the regular principal and interest payments under the specific financing terms of the existing equipment lease agreements.

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

The finance rates for these equipment leases range from 4.19 % to 7.18 % with remaining lease terms of 1 - 25 months as of June 30, 2024 .

As of June 30, 2024 , the outstanding balance of $ 0.9 million (CAD 1.2 million) was included within current Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

March 2024, the equipment lease line was terminated, however, the Company continued to make the regular principal and interest payments

under the specific financing terms of the existing equipment lease agreements.

Each existing transaction under the equipment lease line

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

The finance rates

for these equipment leases range from 4.49 % to 7.18 % with remaining

lease terms of 1 - 2 months as of September 30, 2024 .

of September 30, 2024 , the outstanding balance of $ 0.6 million (CAD 0.8 million)

was included within current Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Equipment Lease Facility

The Company also entered into an equipment lease agreement with a Canadian bank.

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

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

As of June 30, 2024 , the Company has leases remaining under this facility with finance rates of 7.52 % to 8.20 % and remaining lease terms of 17 - 25 months .

As of June 30, 2024 , the outstanding balance of $ 0.4 million (CAD 0.6 million) was included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Loan Covenants, Violations and Waiver

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 equipment lease line can be called at any time by the lender as per the original and amended terms of the facilities.

The Company was not in compliance with two financial covenants as of June 30, 2024 .

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.

Company also entered into an equipment lease agreement with a Canadian bank.

This additional equipment lease facility allows the Company

to finance equipment purchases of up to $ 1 .0 million ( CAD 1.4 million) in total.

Each transaction

under the equipment lease facility has specific financing terms in respect of the leased equipment such as term, finance amount, rate,

and payment terms.

As of September 30, 2024 , the Company has leases remaining under this facility

with finance rates of 7.52 % to 8.20 % and remaining lease terms

of 14 - 23 months .

of September 30, 2024 , the outstanding balance of $ 0.4 million (CAD 0.5 million)

was included within current and noncurrent Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Loan Covenants, Violations

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 $ 1.2 million (CAD 1.6 million).

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

revolving demand facility and the equipment lease line can be called at any time by the lender as per the original and amended terms of

the facilities.

As of September 30, 2024, t he Company was not in compliance with a financial

covenant to maintain a minimum liquidity threshold.

Due to financial covenant violations in the second quarter of 2024, the Company’s

remaining equipment lease agreements with the lender of $ 0.6 million (CAD 0.8 million) as of September 30,

2024, are subject to early repayment.

During the three months ended September 30, 2024 ,

the lender and the Company reached an agreement in principle for a repayment plan for the equipment leases under the equipment lease line.

On August 30, 2024, the Company paid $ 0.1 million ( CAD 0.1 million) to the lender as part

of its early repayment plan for the existing equipment lease line agreements.

Subsequent to September 30, 2024, the Company paid

$ 0.3 million (CAD 0.4 million) to the lender as part of its repayment plan for the equipment

The Company expects to enter into a written agreement with the lender prior to the end of the fourth quarter of 2024 to amend

the revolving demand facility and equipment lease line.

Stockholders’ Equity

As of June 30, 2024 and December 31, 2023 the total number of authorized shares of common stock was 190,000,000 .

As of June 30, 2024 and December 31, 2023, there were 39,463,517 and 35,247,744 shares of common stock outstanding, respectively.

As of September 30, 2024

and December 31, 2023, the total number of authorized shares of common stock was 190,000,000 .

As of September 30, 2024

and December 31, 2023, there were 39,555,161 and 35,247,744 shares of common stock outstanding, respectively.

Preferred Stock

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

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

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

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

(“ExchangeCo”) instead of shares of the Company’s common stock to which they were otherwise entitled.

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

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

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

The Voting Trustee holds a single share of Series B Preferred Stock in the capital of the Company (the “Special Voting Share”), which grants the Voting Trustee that number of votes at the meetings of the Company’s stockholders as is equal to the number of shares of the Company’s common stock that at such time have not been delivered pursuant to the tender of ExchangeCo shares.

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

As of June 30, 2024 and December 31, 2023, there were 0 shares of Series A Convertible Preferred Stock outstanding.

As of June 30, 2024 and December 31, 2023, there was 1 share of Series B Preferred Stock outstanding.

As of June 30, 2024 and December 31, 2023, there were 0 shares of Series C Preferred Stock outstanding.

The Company has 10,000,000

shares of preferred stock authorized with a par value of $ 0.001 per share.

The board of directors is authorized, subject to any limitations

prescribed by law, without further vote or action by the Company’s stockholders, to issue from time-to-time shares of preferred

stock in one or more series.

Each series of preferred stock will have such number of shares, designations, preferences, voting powers,

qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among

others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

In connection with the Company’s

acquisition of Wow, certain eligible Canadian stockholders, noteholders and optionholders of Wow elected to receive the Exchangeable Shares

in the capital of the Wow Exchange Co.

(“ExchangeCo”) instead of shares of the Company’s common stock to which

they were otherwise entitled.

The shares of ExchangeCo were

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

Holders of the ExchangeCo shares were entitled

to defined voting rights (the “Voting Rights”) in the Company pursuant to a voting and exchange trust agreement (the “Voting

Agreement”) dated April 6, 2022 among the Company, ExchangeCo, 1329258 B.C.

(“CallCo”) and Computershare Trust

Company of Canada (the “Voting Trustee”).

The Voting Trustee holds a single share of Series B Preferred Stock in the capital

of the Company (the “Special Voting Share”), which granted the Voting Trustee that number of votes at the meetings of the

Company’s stockholders as is equal to the number of shares of the Company’s common stock that at such time have not been delivered

pursuant to the tender of ExchangeCo shares.

The Voting Trustee was required to exercise each vote attached to the Special Voting Share

only as directed by the relevant holder of the underlying Company shares of common stock and, in the absence of any instructions, would

not exercise voting rights with respect to the applicable shares.

On August 16, 2024, CallCo acquired the balance of the remaining exchangeable

shares of ExchangeCo in consideration for shares in the Company’s common stock.

Accordingly, the shares of ExchangeCo are no longer

held by the public and therefore, (i) the Voting Agreement automatically terminated, and (ii) there are no longer Voting Rights in respect

of the shares of ExchangeCo or the Special Voting Share.

As of September 30, 2024

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

As of September 30, 2024 and

December 31, 2023, there was 1 share of Series B Preferred Stock outstanding.

As of September 30, 2024 and December 31,

2023, there were 0 shares of Series C Preferred Stock outstanding.

Treasury Stock

During the nine months ended

September 30, 2024 and September 30, 2023, 217 and 8,306 shares of common stock with a cost of $ 252 and $ 24,700 , respectively, were withheld

to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury

Stock on the condensed consolidated balance sheet.

Stock Options

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

On September 1, 2020, the

Company adopted the Kartoon Studios, Inc.

2020 Incentive Plan (the “2020 Plan”) as voted by the Board of Directors.

The Board of Directors approved the maximum number of shares available for issuance up to an aggregate of 3,000,000 shares of common stock, which does not include shares that the Company may issue related to acquisitions.

On May 23, 2024, the Board of Directors approved the maximum number of shares available for issuance up to an aggregate of 5,000,000 shares from 3,000,000 shares of common stock in the initial 2020 Plan.

The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”) that had a total number of authorized shares of 216,767 , however the remaining 12,000 outstanding shares granted under the 2015 Plan, as of June 30, 2024, remain to be governed under such plan.

All expired or terminated shares granted under the 2015 Plan, that have not been vested or exercised, reverts to and again becomes available for issuance under the 2020 Plan.

During the six months ended June 30, 2024 and June 30, 2023, the Company granted options to purchase 35,000 and no options, respectively.

The 35,000 options to purchase common stock had a weighted-average grant date fair market value of $ 24,210 .

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

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

The fair value of the options granted during the six months ended June 30, 2024 were calculated using the Black-Scholes Merton (“BSM”) option pricing model based on the following assumptions:

of Directors approved the maximum number of shares available for issuance up to an aggregate of 3,000,000 shares of common stock, which

does not include shares that the Company may issue related to acquisitions.

On May 23, 2024, the Board of Directors approved the maximum

number of shares available for issuance up to an aggregate of 5,000,000 shares from 3,000,000 shares of common stock in the initial 2020

The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”) that had a total number of authorized

shares of 216,767 , however the remaining 12,000 outstanding shares granted under the 2015 Plan, as of September 30, 2024, remain

to be governed under such plan.

All expired or terminated shares granted under the 2015 Plan, that have not been vested or exercised,

reverts to and again becomes available for issuance under the 2020 Plan.

During the nine months ended

September 30, 2024 and September 30, 2023, the Company granted options to purchase 35,000 and no options, respectively.

The 35,000 options

to purchase common stock had a weighted-average grant date fair market value of $ 24,210 .

The fair value of the options

granted during the nine months ended September 30, 2024 were calculated using the Black-Scholes Merton (“BSM”) option

pricing model based on the following assumptions:

Schedule of assumptions used

Exercise Price

Dividend Yield

Volatility 92.1 %

Risk-free interest rate

Expected life of options 5.0 years

The following table summarizes the Company’s option activity:

Stock Options Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price per Share

Expected life of options

The following table summarizes

the Company’s option activity:

Schedule of option activity

Stock Options

Weighted-Average Remaining Contractual Life

Weighted-Average Exercise Price per Share

Outstanding at December 31, 2023

Granted 35,000 4.97 $ 0.95

Exercised – – $ –

Forfeited/Cancelled

Expired ( 5,800 ) – $ 19.90

Outstanding at June 30, 2024 958,806 5.27 $ 12.81

Unvested at June 30, 2024 107,349 4.48 $ 4.40

Vested and exercisable at June 30, 2024 851,457 5.37 $ 13.87

During the three months ended June 30, 2024 and June 30, 2023, the Company recognized $ 40,317 and $ 0.3 million, respectively, in share-based compensation expense related to stock options.

During the six months ended June 30, 2024 and June 30, 2023, the Company recognized $ 0.1 million and $ 0.7 million, respectively, in share-based compensation expense related to stock options..

Share-based compensation expense is included in General and Administrative Expense on the Company’s condensed consolidated statements of operations.

The unrecognized share-based compensation expense at June 30, 2024 was $ 0.1 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The outstanding shares as of June 30, 2024 had an aggregated intrinsic value of zero .

Outstanding at September 30, 2024

Unvested at September 30, 2024

Vested and exercisable at September 30, 2024

During the nine months ended

September 30, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the

employees pursuant to their employment agreements.

This resulted in 55,816 options becoming immediately vested on the separation date

and $ 0.1 million in expense recognized by the Company.

During the three months ended

September 30, 2024 and September 30, 2023, the Company recognized $ 23,804 and $ 0.2 million, respectively, in share-based compensation

expense related to stock options.

During the nine months ended September 30, 2024 and September 30, 2023, the Company recognized $ 0.1

million and $ 0.9 million, respectively, in share-based compensation expense related to stock options.

Share-based compensation expense

is included in General and Administrative Expense on the Company’s condensed consolidated statements of operations.

The unrecognized

share-based compensation expense at September 30, 2024 was $ 48,503 which will be recognized through the second quarter of 2025 assuming

the underlying grants are not cancelled or forfeited.

The outstanding shares as of September 30, 2024 had an aggregated intrinsic

value of zero .

Restricted Stock Units

Restricted stock units (“RSUs”) are granted under the Company’s 2020 Plan.

During the six months ended June 30, 2024 and June 30, 2023, the Company granted 194,680 and 34,431 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $ 0.2 million and $ 0.1 million, respectively.

An aggregate of 215,773 shares of common stock were issued during the six months ended June 30, 2024 as a result of RSUs vested during the current and prior periods.

The following table summarizes the Company’s RSU activity:

Restricted Stock Units Weighted-

Restricted stock units (“RSUs”)

are granted under the Company’s 2020 Plan.

During the nine months ended September 30, 2024 and September 30, 2023, the Company granted

286,324 and 76,508 fully vested RSUs to the Company’s board members, employees, and consultants, with a fair market value of $ 0.3 million

and $ 0.2 million, respectively.

An aggregate of 307,417 shares

of common stock were issued during the nine months ended September 30, 2024 as a result of RSUs vested during the current and prior

The following table summarizes

the Company’s RSU activity:

Schedule of RSU activity

Restricted Stock Units

Average Grant Date Fair Value per Share

Unvested at December 31, 2023

Granted 194,680 $ 1.23

Vested ( 199,805 ) $ 1.65

Forfeited – $ –

Unvested at June 30, 2024 977,500 $ 13.35

During the three months ended June 30, 2024 and June 30, 2023, the Company recognized $ 0.1 million and $ 0.4 million, respectively, in share-based compensation expense related to RSUs.

During the six months ended June 30, 2024 and June 30, 2023, the Company recognized $ 0.3 million and $ 0.9 million, respectively, in share-based compensation expense related to RSU awards included in General and Administrative Expense on the Company’s condensed consolidated statements of operations.

The unvested share-based compensation as of June 30, 2024 was $ 0.2 million which will be recognized through the fourth quarter of 2026 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the six months ended June 30, 2024 was $ 0.3 million.

The following table summarizes the Company’s warrant activity:

Warrants Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price per Share

Unvested at September 30, 2024

During the three months ended

September 30, 2024 and September 30, 2023, the Company recognized $ 0.1 million and $ 0.3 million, respectively, in share-based compensation

expense related to RSUs.

During the nine months ended September 30, 2024 and September 30, 2023, the Company recognized $ 0.4 million and

$ 1.2 million, respectively, in share-based compensation expense related to RSU awards included in General and Administrative Expenses

on the Company’s condensed consolidated statements of operations.

The unvested share-based compensation as of September 30,

2024 was $ 0.1 million which will be recognized through the fourth quarter of 2026 assuming the underlying grants are not cancelled or

The total fair value of shares vested during the nine months ended September 30, 2024 was $ 0.4 million.

The following table summarizes

the Company’s warrant activity:

Schedule of warrant activity

Weighted-Average Remaining Contractual Life

Weighted-Average Exercise Price per Share

Outstanding at December 31, 2023

Granted 100,000 – $ 1.00

Exercised – – $ –

Expired ( 26,000 ) – $ 26.88

Forfeitures – – $ –

Outstanding at June 30, 2024 6,926,952 3.70 $ 6.98

Exercisable at June 30, 2024 6,926,952 3.70 $ 6.98

Outstanding at September 30, 2024

Exercisable at September 30, 2024

Exercisable at December 31, 2023

As of June 30, 2024, 89,286 derivative warrants classified as a liability as issued with convertible notes in 2020 to purchase shares of the Company’s common stock remained outstanding and are revalued each reporting period.

As of June 30, 2024, the warrants were revalued at approximately $ 2,606 , resulting in a $ 0.1 million decrease in the liability as compared to December 31, 2023.

The change in value was recorded as a Gain on Revaluation of Warrants within Other Expense, net on the condensed consolidated statements of operations and within the Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities on the condensed consolidated statements of cash flows.

The Company has 4,784,909 warrants as of December 31, 2023 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.

The reduction in exercise price reduced the Weighted-Average Exercise Price per Share from $ 8.19 before the reprice to $ 7.14 after the reprice.

The fair value of the outstanding derivative warrants was determined by using the Black-Scholes Merton option pricing model based on the following assumptions as of June 30, 2024:

Market Price $ 1.03

As of September 30, 2024,

89,286 derivative warrants classified as a liability as issued with convertible notes in 2020 to purchase shares of the Company’s

common stock remained outstanding and are revalued each reporting period.

As of September 30, 2024, the warrants were revalued at

approximately $ 291 , resulting in a $ 0.1 million decrease in the liability as compared to December 31, 2023.

The change in value was

recorded as a Gain on Revaluation of Warrants within Other Income (Expense), net on the condensed consolidated statements of operations

and within the Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities on the condensed consolidated statements of

The Company has 4,784,909

warrants as of December 31, 2023 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.

The reduction in exercise price reduced the Weighted-Average Exercise Price per Share from

$ 8.19 before the reprice to $ 7.14 after the reprice.

The fair value of the outstanding

derivative warrants was determined by using the Black-Scholes Merton option pricing model based on the following assumptions as of September 30,

Schedule of assumptions

Exercise Price

Dividend Yield

Volatility 60 %

Risk-free Interest Rate

Expected Life of Warrants 0.71 years

Expected Life of Warrants

Supplemental Financial Statement Information

Other Expense, net

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

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

2024 2023 2024 2023

Other Income (Expense), net

Components of Other Income (Expense), net, are

summarized as follows (in thousands):

Schedule of other income expense, net

Three Months Ended September 30,

Nine Months Ended September 30,

Interest Expense (a)

1 unchanged sentence

Gain on Revaluation of Warrants (c)

Loss on Revaluation of Equity Investment in YFE (d) ( 881 ) 4,322 ( 881 ) 3,427

Gain (Loss) on Revaluation of Equity Investment in YFE (d)

Realized Loss on Marketable Securities Investments (e)

1 unchanged sentence

Interest Income (g)

Finance Lease Interest Expense (h) ( 24 ) ( 54 ) ( 54 ) ( 104 )

Other (i) 370 2 534 3

Other Expense, net

$ ( 1,016 ) $ ( 2,858 ) $ ( 1,583 ) $ ( 4,570 )

Three Months and Six Months Ended June 30, 2024

(a) Interest Expense during the three and six months ended June 30, 2024 primarily consisted of $ 0.2 million and $ 0.1 million, respectively, primarily due to interest incurred on bank indebtedness.

(b) There was no warrant incentive expense in 2024.

(c) The Gain on Revaluation of Warrants during the three and six months ended June 30, 2024 is primarily related to the changes in fair value of the remaining outstanding warrant classified as a liability due to decreases in market price.

(d) As accounted for using the fair value option, the loss on the YFE investment revaluation during the three and six months ended June 30, 2024, excluding the impact of foreign currency recorded separately, is a result of a decrease in YFE’s stock price as of June 30, 2024.

(e) The Realized Loss on Marketable Securities Investments during the three and six months ended June 30, 2024 reflects the loss that will not be recovered from the investments due to selling securities prior to maturity.

(f) The Gain (Loss) on Foreign Exchange during the three and six months ended June 30, 2024 primarily related to the revaluation of the YFE investment, resulting in a loss of $ 0.2 million and $ 0.6 million, respectively due to the EURO fluctuation to USD as compared to the prior reporting period.

Loss on Early Lease Termination (h)

Finance Lease Interest Expense (i)

Other Income (Expense), net

Three Months and Nine Months Ended September 30, 2024

Interest Expense during the three and nine months ended September 30, 2024 primarily consisted of $ 0.2 million and $ 0.6 million, respectively, primarily due to interest incurred on production facilities and bank indebtedness.

There was no warrant incentive expense in 2024.

The Gain on Revaluation of Warrants during the three and nine months ended September 30, 2024 is primarily related to the changes in fair value of the remaining outstanding warrant classified as a liability due to decreases in market price.

As accounted for using the fair value option, the loss on the YFE investment revaluation during the three and nine months ended September 30, 2024, excluding the impact of foreign currency recorded separately, is a result of a decrease in YFE’s stock price as of September 30, 2024.

The Realized Loss on Marketable Securities Investments during the three and nine months ended September 30, 2024 reflects the loss that will not be recovered from the investments due to selling securities prior to maturity.

The Gain on Foreign Exchange during the three and nine months ended September 30, 2024 primarily related to the revaluation of the YFE investment, resulting in a gain of $ 0.8 million and $ 0.2 million, respectively due to the EURO fluctuation to USD as compared to the prior reporting period.

The remaining balance is related to remeasurements of transactions made in foreign currencies that are outstanding as of the condensed consolidated balance sheet date.

(g) Interest Income during the three and six months ended June 30, 2024 primarily consisted of interest income, net of premium amortization expense, recorded for the investments in marketable securities.

(h) The Finance Lease Interest Expense during the three and six months ended June 30, 2024 represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

(i) Other during the three and six months ended June 30, 2024 is primarily related to late fees from select clients on a payment plan.

Three Months and Six Months Ended June 30, 2023

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

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

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

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

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

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

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

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

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

(i) Other during the three and six months ended June 30, 2023 is primarily related to late fees from select clients on a payment plan.

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

Interest Income during the three and nine months ended September 30, 2024 primarily consisted of interest income, net of premium amortization expense, recorded for the investments in marketable securities.

There was no gain or loss on lease termination in 2024.

The Finance Lease Interest Expense during the three and nine months ended September 30, 2024 represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

Other during the three and nine months ended September 30, 2024 is primarily related to late fees from select clients on a payment plan.

Three Months and Nine Months Ended September 30, 2023

Interest expense during the three and nine months ended September 30, 2023 primarily consisted of $ 0.2 million and $ 1.5 million of interest incurred on the margin loan, respectively, and $ 0.5 million and $ 1.3 million, respectively, of interest incurred on production facilities loans and bank indebtedness.

The Warrant Incentive Expense is related to the $ 12.7 million fair value of Exchange Warrants that were issued during the three months ended June 30, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants.

The gain on warrant revaluation during the three months ended September 30, 2023 is primarily related to the $ 2.7 million change in fair value as of the end of the current reporting period of the Exchange Warrants and SEG Warrants compared to the fair value as of the end of the prior reporting period due to a decrease in market price.

The gain on warrant revaluation during the nine months ended September 30, 2023 is primarily related to the $ 8.8 million change in fair value as of the end of the current reporting period of the Exchange Warrants and SEG Warrants compared to the fair value as of the issuance date due to a decrease in market price.

As accounted for using the fair value option, the gain or loss on the YFE investment revaluation, excluding the impact of foreign currency recorded separately, is a result of the increases or decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period.

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

The loss on foreign currency exchange during the three and nine months ended September 30, 2023 primarily related to the EURO weakening against the USD when compared to the prior reporting period.

Interest Income during the three and nine months ended September 30, 2023 primarily consisted of interest income of $ 0.1 million and $ 0.4 million, net of premium amortization expense, recorded for the investments in marketable securities, respectively.

The loss on early termination of lease is due to early termination of the Lyndhurst, NJ office lease, effective August 1, 2023.

The loss includes fees of $ 0.1 million and the write-down of assets and liabilities resulting in net, $ 0.1 million of loss.

The finance lease interest expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

Other during the three and nine months ended September 30, 2023 is primarily related to late fees from select clients on a payment plan.

The Company accounts for income

taxes in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax liabilities and assets at currently

enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns.

A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.

ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s condensed consolidated financial statements.

ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.

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

Income tax benefit was $ 0.9 million for the six months ended June 30, 2023, which related to impairments of certain intangible assets during the first quarter of 2023 resulting in a decrease to the Deferred Tax Liability, net, balance.

There were no activities during the three and six months ended June 30, 2024 that affected the Deferred Tax Liability, net, balance.

ASC 740 provides guidance

on the accounting for uncertainty in income taxes recognized in a company’s condensed consolidated financial statements.

requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the

technical merits of the position.

If the more-likely-than-not threshold is met, a company must measure the tax position to determine the

amount to recognize in the condensed consolidated financial statements.

Income tax benefit was $ 0.9

million for the nine months ended September 30, 2023, which related to impairments of certain intangible assets during the first

quarter of 2023 resulting in a decrease to the Deferred Tax Liability, net, balance.

There were no activities during the three and nine

months ended September 30, 2024 that affected the Deferred Tax Liability, net, balance.

Kartoon Studios, Inc.

and its wholly-owned U.S.

its wholly-owned U.S.

subsidiaries are subject to U.S.

income taxes and file a consolidated tax return in the U.S.

The Beacon Communications Group, Ltd., Ameba Inc.

The Beacon Communications

Group, Ltd., Ameba Inc.

and WOW Unlimited Media Inc.

are subject to Canadian income taxes on a stand-alone basis and file separate tax returns in Canada.

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

are subject to Canadian income taxes on a stand-alone basis and file separate tax

returns in Canada.

The Company files income tax

returns in the U.S.

federal jurisdiction and in the states of California, Florida, Massachusetts, New Jersey, New York, as well as Canada.

To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward to make adjustments up to the amount of the net operating losses.

To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated

and carried forward to make adjustments up to the amount of the net operating losses.

The Company is currently subject to U.S.

federal, state and local and foreign tax examinations by tax authorities.

state and local and foreign tax examinations by tax authorities.

The Company is no longer subject to audits by U.S.

federal, state, local or foreign authorities for years prior to 2019.

federal, state, local

or foreign authorities for years prior to 2019.

Kartoon Studios, Inc.

and its wholly-owned U.S.

its wholly-owned U.S.

subsidiaries are subject to U.S.

income taxes and file a consolidated tax return in the U.S.

The Beacon Communications Group, Ltd., Ameba Inc.

The Beacon Communications

Group, Ltd., Ameba Inc.

and WOW Unlimited Media Inc.

are subject to Canadian income taxes on a stand-alone basis and file separate tax returns in Canada.

are subject to Canadian income taxes on a stand-alone basis and file separate tax

returns in Canada.

Commitments and Contingencies

The following is a schedule of future minimum cash contractual obligations as of June 30, 2024 (in thousands):

2024 2025 2026 2027 2028 Thereafter Total

The following is a schedule

of future minimum cash contractual obligations as of September 30, 2024 (in thousands):

Schedule of future minimum lease payments

Operating Leases

2 unchanged sentences

Consulting Contracts

Debt 422 9,847 – – – – 10,269

$ 6,286 $ 15,811 $ 2,627 $ 1,403 $ 1,058 $ 3,346 $ 30,531

The present value discount of the minimum operating lease payments above was $ 2.8 million which when deducted from the cash commitments for the leases included in the table above, equates to the lease liabilities of $ 7.3 million recorded as of June 30, 2024 on the Company’s condensed consolidated balance sheet.

Contractual obligation

The present value discount

of the minimum operating lease payments above was $ 2.7 million which when deducted from the cash commitments for the leases included in

the table above, equates to the operating lease liabilities of $ 7 .0 million recorded as of September 30, 2024 on the Company’s

condensed consolidated balance sheet.

Other Funding Commitments

The Company enters into various agreements associated with its individual properties.

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

The Company enters into various

agreements associated with its individual properties.

Some of these agreements call for the potential future payment of royalties or “profit”

participations for either (i) the use of third party intellectual property, in which the Company is obligated to share net profits with

the underlying rights holders on a certain basis as defined in the respective agreements, or (ii) services rendered by animation studios,

post-production studios, writers, directors, musicians or other creative talent for which the Company is obligated to share with these

service providers a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement.

Related Party Transactions

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

During the six months ended June 30, 2024, Mr.

Heyward did not earn any executive producer fees.

During the six months ended June 30, 2023 Mr.

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

Heyward also earned his $ 55,000 quarterly bonus during each of the quarters in 2024 and 2023.

Pursuant to his employment

agreement dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an executive producer fee of $ 12,500 per one-half

hour episode for each episode he provides services as an executive producer .

During the nine months ended September 30, 2024,

Heyward did no t earn any executive producer fees.

During the nine months ended September 30, 2023, Mr.

Heyward earned and was

paid $ 0.3 million in executive producer fees.

Heyward also earned his $ 55,000 quarterly bonus during each of the quarters in 2024

On August 25, 2022, Mr.

Heyward’s employment agreement was amended to include assignment of music royalties to Mr.

Heyward for all musical compositions in which he provides services as a composer for or on behalf of the Company, in the event that the Company acquires up to 50 % of the writer's share of the royalties for that musical composition.

If the Company acquires more than 50 % of the writer's share of the royalties on musical compositions Mr.

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

During the six months ended June 30, 2024 and June 30, 2023, Mr.

Heyward has not earned royalties from musical compositions.

employment agreement was amended to include assignment of music royalties to Mr.

Heyward for all musical compositions in which he provides

services as a composer for or on behalf of the Company, in the event that the Company acquires up to 50 % of the writer's share of the

royalties for that musical composition.

If the Company acquires more than 50 % of the writer's share of the royalties on musical compositions

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

to acquire the additional royalties.

During the nine months ended September 30, 2024 and September 30, 2023, Mr.

Heyward has no t earned

royalties from musical compositions.

On February 27, 2023, Mr.

Heyward’s employment agreement was further amended to provide him a creative producer fee of $ 100,000 per quarter, prorated for the three months ended March 31, 2023 and earned the full $ 100,000 in three months ended June 30, 2023, for services rendered to Wow.

During the six months ended June 30, 2024, Mr.

Heyward earned $ 100,000 during each of the quarters.

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

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

The terms and conditions of such license are customary within the industry, and the Company earns an arm’s-length industry standard royalty on all sales made by

AHAA utilizing the licensed content.

During the six months ended June 30, 2024 and June 30, 2023, Mr.

Heyward has not earned royalties from this agreement.

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

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

As of June 30, 2024 and December 31, 2023 $ 1.4 million is included within Notes and Accounts Receivable from Related Party on the Company’s condensed consolidated balance sheets.

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

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

The monthly payments were $ 595 for the three and six months ended June 30, 2024 and June 30, 2023 and recorded within Other Expense, net in the Company's condensed consolidated statements of operations.

Heyward’s employment agreement was further amended to provide him a creative producer fee of $ 100,000 per quarter, prorated for

the first quarter of 2023.

During the nine months ended September 30, 2023, Mr.

Heyward earned and was paid $ 0.2 million in creative

producer fees.

During the nine months ended September 30, 2024, Mr.

Heyward earned and was paid $ 0.1 million during each of the quarters.

On July 21, 2020, the Company

entered into a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward.

The Company entered into a customary merchandise license agreement with AHAA for the use of characters and logos related to Warren Buffett’s

Secret Millionaires Club and Stan Lee’s Mighty 7 in connection with certain products to be sold by AHAA.

and conditions of such license are customary within the industry, and the Company earns an arm’s-length industry standard royalty

on all sales made by AHAA utilizing the licensed content.

During the nine months ended September 30, 2024 and September 30, 2023, Mr.

Heyward has no t earned royalties from this agreement.

On July 19, 2022, the Company

entered into a Shareholder Loan Agreement with YFE in the amount of $ 1.5 million (EURO 1.3 million), accruing interest at the fixed annualized

rate of 5 %, with successive interest periods of three months due on the last day of each calendar quarter.

The principal plus interest

must be repaid by no later than June 30, 2026.

As of September 30, 2024 and December 31, 2023, $ 1.5 million and $ 1.4 million,

respectively, is included within Notes and Accounts Receivable from Related Party on the Company’s condensed consolidated balance

During 2022, the Company entered

into a sublease agreement with a related party to lease one office in the general office space at 190 N.

Canon Drive, Suite 400, Beverly

Hills, CA 90210.

The monthly sublease payments were $ 595 for the three and nine months ended September 30, 2024 and September 30, 2023

and recorded within Other Income (Expense), net in the Company's condensed consolidated statements of operations.

During the quarter ended September 30,

2024, the Company entered into a one year consulting agreement with a related party for office

space interior design services.

The agreement is subject to an initial fee of $ 6,545 and a monthly fee of $ 595 that commenced on September

The interior design service fees are recorded within General and Administrative expenses in the Company's condensed consolidated

statements of operations.

Segment Reporting

The Company’s Chief Operating Decision Maker (“CODM”) uses revenue and net earnings to evaluate the profitability and performance of each operating segment.

The Company’s Chief

Operating Decision Maker (“CODM”) uses revenue and net earnings to evaluate the profitability and performance of each operating

All other financial information is reviewed by the CODM on a condensed consolidated basis.

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

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

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

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

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

2024 2023 2024 2023

The CODM does not evaluate the operating

segments using asset information and it is therefore not disclosed.

All expenses directly attributable to each reportable segment are

included in the operating results for each segment.

However, the CODM does not evaluate the expenses by operating segment and, therefore,

it is not separately presented.

The following table presents

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

Schedule of segment information by revenues and net earnings

Three Months Ended September 30,

Nine Months Ended September 30,

Total Revenues:

5 unchanged sentences

Total Net Loss Attributable to Kartoon Studio, Inc.

$ ( 5,873 ) $ ( 12,425 ) $ ( 12,918 ) $ ( 36,253 )

Geographic Information

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

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

2024 2023 2024 2023

The following table provides

information about disaggregated revenue by geographic area (in thousands):

Schedule of segments by geographic area

Three Months Ended September 30,

Nine Months Ended September 30,

Total Revenues:

United States

Canada 1,808 1,871 1,948 5,426

United Kingdom

Other 32 58 230 209

Total Revenues

Subsequent Events

Subsequent to June 30, 2024, the Company sold marketable securities and received proceeds of $ 1.6 million and incurred a realized loss of $ 0.1 million.

As of August 14, 2024, there were no additional subsequent events to report.

Subsequent to

September 30, 2024, the Company sold marketable securities and received proceeds of $ 1.6

million and incurred a realized loss of $ 0.1 million .

As of November 14, 2024,

there were no additional subsequent events to report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements