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Item 1A. Risk Factors

2025-03-31 compared with 2024-04-09 · 566 added, 291 removed, 38 unchanged (96% of the section changed)

Risk Factor Summary

We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures.

We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky.

These risks and uncertainties include, but are not limited to, the following:

Risks Relating to our Business

• We have incurred net losses since inception.

• If we are not able to obtain sufficient capital, we may not be able to continue our growth.

• Our revenues and results of operations may fluctuate from period to period.

• The value of our investments is subject to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows.

• Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business.

• Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales.

• We face competition from a variety of content creators that sell similar merchandise and have better resources than we do.

• The production of our animated content is accomplished through third-party production and animation studios around the world, and any failure of these third parties could negatively impact our business.

• We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms.

• Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations.

• The failure of others to promote our products may adversely affect our business.

• We may not be able to keep pace with technological advances.

• Failure in our information technology and storage systems could significantly disrupt the operation of our business.

• Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer.

• Loss of key personnel may adversely affect our business.

• Litigation may harm our business or otherwise distract management.

• Our vendors and licensees may be subject to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations.

• Protecting and defending against intellectual property claims may have a material adverse effect on our business.

• Any additional future acquisitions or strategic investments may not be available on attractive terms and would subject us to additional risks.

• We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG.

• We operate internationally, which exposes us to significant risks.

• We are exposed to foreign currency exchange rate risk.

• A decrease in the fair values of our reporting units may result in future goodwill impairments.

Risk Related to our Indebtedness

• We have incurred indebtedness that could adversely affect our operations and financial condition.

Risks Related to Tax Rules and Regulations

• Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible.

• Changes in, or interpretations of, tax rules and regulations, and changes in geographic operating results, may adversely affect our effective tax rates.

Risks Relating to our Common Stock

• Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.

• Our failure to meet the continued listing requirements of New York Stock Exchange American (“NYSE American”) could result in a delisting of our common stock.

• If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock.

• We have identified material weaknesses in our internal control over financial reporting which may, if not effectively remediated, result in additional material misstatements in our financial statements.

• We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

• We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock.

• Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

The following discussion of risk factors contains forward-looking statements.

These risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere.

The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes beginning on Page F-1 of this Annual Report on Form 10-K.

You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

The following discussion

of risk factors contains forward-looking statements.

These risk factors may be important to understanding any statement in this Annual

Report on Form 10-K or elsewhere.

The following information should be read in conjunction with Part II, Item 7, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related

notes beginning on Page F-1 of this Annual Report on Form 10-K.

You should consider carefully

the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including

our consolidated financial statements and related notes.

The risks and uncertainties described below are not the only ones we face.

Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below.

Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition.

Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price.

Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including

but not limited to those described below.

Any one or more of such factors could directly or indirectly cause our actual results of operations

and financial condition to vary materially from past or anticipated future results of operations and financial condition.

factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock

Because of the following

factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered

to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future

RISKS RELATING TO OUR BUSINESS

We have incurred net losses since inception.

We have a history of operating losses and incurred net losses in each fiscal quarter since our inception.

For the year ended December 31, 2023, we generated net revenues of $44.1 million and incurred a net loss of $77.1 million, while for the previous year, we generated net revenue of $62.3 million and incurred a net loss of $45.6 million.

These losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and working capital.

We will need to generate additional revenue and/or reduce costs to achieve profitability.

We are generating revenues derived from our existing properties, properties in production, and new brands being introduced into the marketplace.

However, the ability to sustain these revenues and generate significant additional revenues and reduce our expenses or achieve profitability will depend upon numerous factors some of which are outside of our control.

If we are not able to obtain sufficient capital, we may not be able to continue our growth.

We expect that as our business continues to evolve and grow, we will need additional working capital.

If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to

expand our business, and we will have to modify our business plans accordingly.

We have a history of operating

losses and incurred net losses in each fiscal quarter since our inception.

For the year ended December 31, 2024, we generated net

revenues of $32.6 million and incurred a net loss attributable to Kartoon Studios Inc.

of $20.7 million, while for the previous

year, we generated net revenue of $44.1 million and incurred a net loss attributable to Kartoon Studios Inc.

of $77.1 million.

These losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity,

net current assets and working capital.

We will need to generate additional

revenue and/or reduce costs to achieve profitability.

We are generating revenues derived from our existing properties, properties in production,

and new brands being introduced into the marketplace.

However, the ability to sustain these revenues and generate significant additional

revenues and reduce our expenses or achieve profitability will depend upon numerous factors some of which are outside of our control.

If we are not able to obtain sufficient

capital, we may not be able to continue our growth.

We expect that as our business

continues to evolve and grow, we will need additional working capital.

If adequate additional debt and/or equity financing is not available

on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly.

These factors could have a material adverse effect on our future operating results and our financial condition.

Our revenues and results of operations may fluctuate from period to period.

Cash flow and projections for any entertainment company producing original content can be expected to fluctuate until the animated content and ancillary consumer products are in the market and could fluctuate thereafter even when the content and products are in the marketplace.

There is significant lead time in developing and producing animated content before that content is in the marketplace.

Unanticipated delays in entertainment production can delay the release of the content into the marketplace.

Structured retail windows that dictate when new products can be introduced at retail are also out of our control.

While we believe that we have mitigated this in part by creating a slate of properties at various stages of development or production as well as representing certain established brands which contribute immediately to cash flow, any delays in the production and release of our content and products or any changes in the preferences of our customers could result in lower than anticipated cash flows.

As with our cash flows, our revenues and results of operations depend significantly upon the appeal of our content to our customers, the timing of releases of our products and the commercial success of our products, none of which can be predicted with certainty.

Accordingly, our revenues and results of operations may fluctuate from period to period.

Our revenues and results of operations may

fluctuate from period to period.

Cash flow and projections

for any entertainment company producing original content can be expected to fluctuate until the animated content and ancillary consumer

products are in the market and could fluctuate thereafter even when the content and products are in the marketplace.

There is significant

lead time in developing and producing animated content before that content is in the marketplace.

Unanticipated delays in entertainment

production can delay the release of the content into the marketplace.

Structured retail windows that dictate when new products can be

introduced at retail are also out of our control.

While we believe that we have mitigated this in part by creating a slate of properties

at various stages of development or production as well as representing certain established brands which contribute immediately to cash

flow, any delays in the production and release of our content and products or any changes in the preferences of our customers could result

in lower than anticipated cash flows.

As with our cash flows, our

revenues and results of operations depend significantly upon the appeal of our content to our customers, the timing of releases of our

products and the commercial success of our products, none of which can be predicted with certainty.

Accordingly, our revenues and results

of operations may fluctuate from period to period.

The results of one period may not be indicative of the results of any future period.

Any quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors.

This could cause the price of our common stock to fluctuate.

Production costs will be amortized according to the individual film forecasting methodology.

If estimated remaining revenue is not sufficient to recover the unamortized production costs, the unamortized production costs will be written down to fair value.

In any given quarter, if we lower our previous forecast with respect to total anticipated revenue, we would be required to adjust amortization of related production costs.

These adjustments would adversely impact our business, operating results and financial condition.

The value of our investments is subject to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows.

Our results of operations are affected by the performance of our investment portfolio.

Our excess cash is invested by an external investment management service provider, under the direction of the Company’s management in accordance with the Company’s investment policy.

The investment policy defines constraints and guidelines that restrict the asset classes that we may invest in by type, duration, quality and value.

This could cause

the price of our common stock to fluctuate.

Production costs will be amortized

according to the individual film forecasting methodology.

If estimated remaining revenue is not sufficient to recover the unamortized

production costs, the unamortized production costs will be written down to fair value.

In any given quarter, if we lower our previous

forecast with respect to total anticipated revenue, we would be required to adjust amortization of related production costs.

These adjustments

would adversely impact our business, operating results and financial condition.

The value of our investments is subject

to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may

adversely affect our results of operations, financial condition or cash flows.

Our results of operations

are affected by the performance of our investment portfolio.

Our excess cash is invested by an external investment management service

provider, under the direction of the Company’s management in accordance with the Company’s investment policy.

The investment

policy defines constraints and guidelines that restrict the asset classes that we may invest in by type, duration, quality and value.

Our investments are subject to market-wide risks, and fluctuations, as well as to risks inherent in particular securities.

The failure of any of the investment risk strategies that we employ could have a material adverse effect on our financial condition, results of operations and cash flows.

The value of our investments is exposed to capital market risks, and our consolidated results of operations, financial condition or cash flows could be adversely affected by realized losses, impairments and changes in unrealized positions as a result of:

significant market volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, a reduction in market liquidity, declines in equity prices, changes in national, state/provincial or local laws and the strengthening or weakening of foreign currencies against the U.S.

Levels of write-down or impairment are impacted by our assessment of the intent to sell securities that have declined in value as well as actual losses as a result of defaults or deterioration in estimates of cash flows.

If we reposition or realign portions of the investment portfolio and sell securities in an unrealized loss position, we will incur a credit loss.

Any such loss may have a material adverse effect on our results of operations and business.

For the year ended December 31, 2023, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein.

Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business.

A decrease in economic activity in the United States or in other regions of the world in which we do business could adversely affect demand for our products, thus reducing our revenue and earnings.

of any of the investment risk strategies that we employ could have a material adverse effect on our financial condition, results of operations

and cash flows.

The value of our investments

is exposed to capital market risks, and our consolidated results of operations, financial condition or cash flows could be adversely affected

by realized losses, impairments and changes in unrealized positions as a result of:

significant market volatility, changes in interest

rates, changes in credit spreads and defaults, a lack of pricing transparency, a reduction in market liquidity, declines in equity prices,

changes in national, state/provincial or local laws and the strengthening or weakening of foreign currencies against the U.S.

Levels of write-down or impairment are impacted by our assessment of the intent to sell securities that have declined in value as well

as actual losses as a result of defaults or deterioration in estimates of cash flows.

If we reposition or realign portions of the investment

portfolio and sell securities in an unrealized loss position, we will incur a credit loss.

Any such loss may have a material adverse effect

on our results of operations and business.

For the year ended December

31, 2024, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and

Supplementary Data” included herein.

Changes in the United States, global or

regional economic conditions could adversely affect the profitability of our business.

A decrease in economic activity

in the United States or in other regions of the world in which we do business could adversely affect demand for our products, thus reducing

our revenue and earnings.

A decline in economic conditions could reduce demand for and sales of our products.

In addition, an increase in price levels generally, or in price levels in a particular sector, could result in a shift in consumer demand away from the animated content and consumer products we offer, which could also decrease our revenues, increase our costs, or both.

Further, recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility.

Military conflicts and wars (such as the ongoing conflicts between Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, instability in Venezuela, other geopolitical events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, and supply chain issues can cause exacerbated volatility and disruptions to various aspects of the global economy.

The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations.

Regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, could result in disruption or non-availability of our service or particular content or increased operating costs in the applicable jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property rights.

Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales.

While trends in the toddler to tween sector change quickly, we respond to trends and developments by modifying, refreshing, extending, and expanding our product offerings on an on-going basis.

However, we operate in extremely competitive industries where the ultimate appeal and popularity of content and products targeted to this sector can be difficult to predict.

We believe our focus on “content with a purpose” serves an underrepresented area of the toddler to tween market;

however, if the interests of our audience trend away from our current properties toward other offerings based on current media, movies, animated content or characters, and if we fail to accurately anticipate trends in popular culture, movies, media, fashion, or technology, our products may not be accepted by children, parents, or families and our revenues, profitability, and results of operations may be adversely affected.

We face competition from a variety of content creators that sell similar merchandise and have better resources than we do.

The industries in which we operate are competitive, and our results of operations are sensitive to, and may be adversely affected by, competitive pricing, promotional pressures, additional competitor offerings and other factors, many of which are beyond our control.

Indirectly through our licensing arrangements, we compete for retailers as well as other outlets for the sale and promotion of our licensed merchandise.

Our primary competition comes from competitors such as The Walt Disney Company, Nickelodeon Studios, and the Cartoon Network.

We have sought a competitive advantage by providing “content with a purpose” which are both entertaining and enriching for children and offer differentiated value that parents seek in making purchasing decisions for their children.

While we do not believe that this value proposition is specifically offered by our competitors, our competitors have greater financial resources and more developed marketing channels than we do which could impact our ability, through our licensees, to secure shelf space thereby decreasing our revenues or affecting our profitability and results of operations.

In addition, new technological developments, including the development and use of generative artificial intelligence (“AI”), are rapidly evolving.

If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.

The production of our animated content is accomplished through third-party production and animation studios around the world, and any failure of these third parties could negatively impact our business.

As part of our business model to manage cash flows, we have partnered with a number of third-party production and animation studios around the world for the production of our new content in which these partners fund the production of the content in exchange for a portion of revenues generated in certain territories.

We are reliant on our partners to produce and deliver the content on a timely basis meeting the predetermined specifications for that product.

In addition, an increase

in price levels generally, or in price levels in a particular sector, could result in a shift in consumer demand away from the animated

content and consumer products we offer, which could also decrease our revenues, increase our costs, or both.

Further, recent global events

have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading

to economic downturns, inflation, and increased market volatility.

Military conflicts and wars (such as the ongoing conflicts between

Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, other geopolitical

events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, and supply chain issues

created by tariffs threatened by the current U.S.

Administration on imports can cause exacerbated volatility and disruptions to various

aspects of the global economy.

The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the

potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed

to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and

Regulatory requirements or

government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or

otherwise, could result in disruption or non-availability of our service or particular content or increased operating costs in the applicable

jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues,

may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property

In the past we identified material weaknesses

in our internal controls, and while most have been remediated, internal control over information technology general control remains ineffective.

If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the accuracy and timing

of our financial reporting in future periods may be adversely affected.

The Sarbanes-Oxley Act and

related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting

and assess the effectiveness of our disclosure controls and procedures on a quarterly basis.

Effective internal controls are necessary

for us to provide timely and reliable financial reports and effectively prevent fraud.

Our management assessed the effectiveness of our

internal control over financial reporting as of December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024 and December 31,

We have identified control deficiencies that constituted a material weaknesses in our internal controls and procedures in the past.

Most of these material weaknesses have been remediated, but one material weakness remains in the information technology general controls

Based on its assessment, our

management concluded that, as of December 31, 2024 our internal control over financial reporting was ineffective due to material weakness

resulting from the inadequate design of user access provisioning/deprovisioning controls area.

In the past, our management

concluded that, as of December 31, 2023 and March 31, 2024, our internal control over financial reporting was not effective due to the

following identified material weaknesses(i) inadequate design of user access provisioning/deprovisioning controls and inadequate segregation

of duties on certain controls or processes;

(ii) lack of specialized experts related to income tax areas;

and (iii)inappropriate application

of accounting standards related to warrant modifications.

If we fail to remediate the material weakness that existed as of December 31,

2024 and subsequently maintain adequate internal controls, our financial statements may not accurately reflect our financial condition.

Any material misstatements could require a restatement of our consolidated financial statements, cause us to fail to meet our reporting

obligations or cause investors to lose confidence in our reported financial information, leading to a decline in the market value of our

Inaccurately anticipating changes and trends

in popular culture, media and movies, fashion, or technology can negatively affect our sales.

While trends in the toddler

to tween sector change quickly, we respond to trends and developments by modifying, refreshing, extending, and expanding our product offerings

on an on-going basis.

However, we operate in extremely competitive industries where the ultimate appeal and popularity of content and

products targeted to this sector can be difficult to predict.

We believe our focus on “content with a purpose” serves an underrepresented

area of the toddler to tween market;

however, if the interests of our audience trend away from our current properties toward other offerings

based on current media, movies, animated content or characters, and if we fail to accurately anticipate trends in popular culture, movies,

media, fashion, or technology, our products may not be accepted by children, parents, or families and our revenues, profitability, and

results of operations may be adversely affected.

We face competition from a variety of content

creators that sell similar merchandise and have better resources than we do.

The industries in which we

operate are competitive, and our results of operations are sensitive to, and may be adversely affected by, competitive pricing, promotional

pressures, additional competitor offerings and other factors, many of which are beyond our control.

Indirectly through our licensing arrangements,

we compete for retailers as well as other outlets for the sale and promotion of our licensed merchandise.

Our primary competition comes

from competitors such as The Walt Disney Company, Nickelodeon Studios, and the Cartoon Network.

We have sought a competitive

advantage by providing “content with a purpose” which are both entertaining and enriching for children and offer differentiated

value that parents seek in making purchasing decisions for their children.

While we do not believe that this value proposition is specifically

offered by our competitors, our competitors have greater financial resources and more developed marketing channels than we do which could

impact our ability, through our licensees, to secure shelf space thereby decreasing our revenues or affecting our profitability and results

of operations.

In addition, new technological developments, including the development and use of generative artificial intelligence (“AI”),

are rapidly evolving.

If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results

of operations could be adversely impacted.

The production of our animated content is

accomplished through third-party production and animation studios around the world, and any failure of these third parties could negatively

impact our business.

As part of our business model

to manage cash flows, we have partnered with a number of third-party production and animation studios around the world for the production

of our new content in which these partners fund the production of the content in exchange for a portion of revenues generated in certain

We are reliant on our partners to produce and deliver the content on a timely basis meeting the predetermined specifications

for that product.

The delivery of inferior content could result in additional expenditures by us to correct any problems to ensure marketability.

Further, delays in the delivery of the finished content to us could result in our failure to deliver the product to broadcasters to which it has been pre-licensed.

While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect our profitability.

We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms.

Our business depends on the appeal of our content to distributors and viewers, which is difficult to predict.

Our business depends in part upon viewer preferences and audience acceptance of our original programming content.

These factors are difficult to predict and are subject to influences beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment activities.

Further, delays in the delivery of the finished content to us could result in our failure to deliver the product to broadcasters to which

it has been pre-licensed.

While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and

managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect

our profitability.

We cannot assure you that our original programming

content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from

our distributors’ platforms.

Our business depends on the

appeal of our content to distributors and viewers, which is difficult to predict.

Our business depends in part upon viewer preferences

and audience acceptance of our original programming content.

These factors are difficult to predict and are subject to influences beyond

our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment

We may not be able to anticipate and react effectively to shifts in tastes and interests in markets.

A change in viewer preferences could cause our original programming content to decline in popularity, which could jeopardize renewal of agreements with distributors.

Low ratings or viewership for programming content produced by us may lead to the cancellation, removal or non-renewal of a program and can negatively affect future license fees for such program.

If our original programming content does not gain the level of audience acceptance we expect, or if we are unable to maintain the popularity of our original programming, we may have a diminished negotiating position when dealing with distributors, which could reduce our revenue.

We cannot assure you that we will be able to maintain the success of any of our current original programming content or generate sufficient demand and market acceptance for new original programming content in the future.

A change in viewer preferences

could cause our original programming content to decline in popularity, which could jeopardize renewal of agreements with distributors.

Low ratings or viewership for programming content produced by us may lead to the cancellation, removal or non-renewal of a program and

can negatively affect future license fees for such program.

If our original programming content does not gain the level of audience acceptance

we expect, or if we are unable to maintain the popularity of our original programming, we may have a diminished negotiating position when

dealing with distributors, which could reduce our revenue.

We cannot assure you that we will be able to maintain the success of any of

our current original programming content or generate sufficient demand and market acceptance for new original programming content in the

This could materially adversely impact our business, financial condition, operating results, liquidity and prospects.

Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations.

Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs.

Our ability to sell products is dependent in part upon the success of these programs.

If we or our licensees do not successfully market our products or if media or other advertising or promotional costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations.

The failure of others to promote our products may adversely affect our business.

The availability of retailer programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs, are important with respect to promoting our properties.

In addition, although we may have agreements for the advertising and promotion of our products through our licensees, we will not be in direct control of those marketing efforts and those efforts may not be done in a manner that will maximize sales of our products and may have a material adverse effect on our business and operations.

We may not be able to keep pace with technological advances.

The entertainment industry in general, and the music and motion picture industries in particular, continue to undergo significant changes, primarily due to technological developments, such as AI.

Because of the rapid growth of technology, shifting consumer tastes and the popularity and availability of other forms of entertainment, it is impossible to predict the overall effect these factors could have on potential revenue from, and profitability of, distributing entertainment programming.

As it is also impossible to predict the overall effect these factors could have on our ability to compete effectively in a changing market, if we are not able to keep pace with these technological advances, our revenues, profitability and results from operations may be materially adversely affected.

Failure in our information technology and storage systems could significantly disrupt the operation of our business.

Our ability to execute our business plan and maintain operations depends on the continued and uninterrupted performance of our information technology (“IT”) systems.

IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters.

Moreover, despite network security and back-up measures, some of our and our vendors’ servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems.

Failure to successfully market or advertise

our products could have an adverse effect on our business, financial condition and results of operations.

Our products are marketed

worldwide through a diverse spectrum of advertising and promotional programs.

Our ability to sell products is dependent in part upon the

success of these programs.

If we or our licensees do not successfully market our products or if media or other advertising or promotional

costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations.

The failure of others to promote our products

may adversely affect our business.

The availability of retailer

programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such

programs, are important with respect to promoting our properties.

In addition, although we may have agreements for the advertising and

promotion of our products through our licensees, we will not be in direct control of those marketing efforts and those efforts may not

be done in a manner that will maximize sales of our products and may have a material adverse effect on our business and operations.

We may not be able to keep pace with technological

The entertainment industry

in general, and the music and motion picture industries in particular, continue to undergo significant changes, primarily due to technological

developments, such as AI.

Because of the rapid growth of technology, shifting consumer tastes and the popularity and availability of other

forms of entertainment, it is impossible to predict the overall effect these factors could have on potential revenue from, and profitability

of, distributing entertainment programming.

As it is also impossible to predict the overall effect these factors could have on our ability

to compete effectively in a changing market, if we are not able to keep pace with these technological advances, our revenues, profitability

and results from operations may be materially adversely affected.

Failure in our information technology and

storage systems could significantly disrupt the operation of our business.

Our ability to execute our

business plan and maintain operations depends on the continued and uninterrupted performance of our information technology (“IT”)

IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, malicious

human acts and natural disasters.

Moreover, despite network security and back-up measures, some of our and our vendors’ servers

are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems.

These events could lead to the unauthorized access, disclosure and use of non-public information.

The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world.

As a result, we may not be able to address these techniques proactively or implement adequate preventative measures.

If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business.

Despite precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer.

In the ordinary course of business, our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.

We and many of the third parties we work with rely on open source software and libraries that are integrated into a variety of applications, tools and systems, which may increase our exposure to vulnerabilities.

Additionally, outside parties may attempt to induce employees, vendors, partners, or users to disclose sensitive or confidential information in order to gain access to data.

Any attempt by hackers to obtain our data (including member and corporate information) or intellectual property (including digital content assets), disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive to remedy and damage our reputation.

The techniques used by criminal elements

to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world.

a result, we may not be able to address these techniques proactively or implement adequate preventative measures.

If our computer systems

are compromised, we could be subject to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence

of which could harm our business.

Despite precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained

or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our

Our internal computer systems, or those

of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption

and cause our business and reputation to suffer.

In the ordinary course of

business, our internal computer systems and those of our current and any future collaborators and other contractors or consultants are

vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical

We and many of the third parties we work with rely on open source software and libraries that are integrated into a variety

of applications, tools and systems, which may increase our exposure to vulnerabilities.

Additionally, outside parties may attempt to induce

employees, vendors, partners, or users to disclose sensitive or confidential information in order to gain access to data.

by hackers to obtain our data (including member and corporate information) or intellectual property (including digital content assets),

disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive

to remedy and damage our reputation.

We have implemented certain systems and processes to thwart hackers and protect our data and systems.

However, the techniques used to gain unauthorized access to data and software are constantly evolving, and we may be unable to anticipate, detect or prevent unauthorized access or address all cybersecurity incidents that occur.

Further, access to, disclosure of, loss of and misuse of personal or proprietary information could result in legal claims or proceedings.

Loss of key personnel may adversely affect our business.

Our success greatly depends on the performance of our executive management team, including Andy Heyward, our Chief Executive Officer.

The loss of the services of any member of our core executive management team or other key persons could have a material adverse effect on our business, results of operations and financial condition.

However, the techniques used to gain unauthorized access to data and software are constantly evolving, and we may be unable to anticipate,

detect or prevent unauthorized access or address all cybersecurity incidents that occur.

On December 13, 2024, we experienced a cybersecurity

incident involving unauthorized access to one of our management systems.

The findings indicated that the unauthorized access incurred

due to leaked credentials of an employee from our partner studio.

Although this incident was deemed by us to be immaterial we cannot guarantee

that we can safeguard our assets while maintaining and protecting client trust through robust security measures and risk management practices.

Further, access to, disclosure

of, loss of and misuse of personal or proprietary information could result in legal claims or proceedings.

Loss of key personnel may adversely affect

our business.

Our success greatly depends

on the performance of our executive management team, including Andy Heyward, our Chief Executive Officer.

The loss of the services of

any member of our core executive management team or other key persons could have a material adverse effect on our business, results of

operations and financial condition.

We do not have “key man” insurance coverage for any of our employees.

Litigation may harm our business or otherwise distract management.

Substantial, complex or extended litigation could cause us to incur large expenditures and could distract management.

For example, lawsuits by licensors, consumers, employees or stockholders could be very costly and disrupt business.

While disputes from time to time are not uncommon, we may not be able to resolve such disputes on terms favorable to us.

Our vendors and licensees may be subject to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations.

Our vendors and licensees may operate in a highly regulated environment in the U.S.

Litigation may harm our business or otherwise

distract management.

Substantial, complex or extended

litigation could cause us to incur large expenditures and could distract management.

For example, lawsuits by licensors, consumers, employees

or stockholders could be very costly and disrupt business.

While disputes from time to time are not uncommon, we may not be able to resolve

such disputes on terms favorable to us.

Our vendors and licensees may be subject

to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased

costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations.

Our vendors and licensees

may operate in a highly regulated environment in the U.S.

and international markets.

Federal, state and local governmental entities and foreign governments may regulate aspects of their businesses, including the production or distribution of our content or products.

These regulations may include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax laws and revised tax law interpretations), product safety and other safety standards, trade restrictions, regulations regarding financial matters, environmental regulations, advertising directed toward children, product content, and other administrative and regulatory restrictions.

While we believe our vendors and licensees take all the steps necessary to comply with these laws and regulations, there can be no assurance that they are compliant or will be in compliance in the future.

Failure to comply could result in monetary liabilities and other sanctions which could increase our costs or decrease our revenue resulting in a negative impact on our business, financial condition and results of operations.

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our ability to compete in the animated content and entertainment industry depends, in part, upon successful protection of our proprietary and intellectual property.

We protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable companies in specific territories and media for limited durations.

Despite these precautions, existing copyright and trademark laws afford only limited, or no, practical protection in some jurisdictions.

It may be possible for unauthorized third parties to copy and distribute our productions or portions of our productions.

In addition, although we own most of the music and intellectual property included in our products, there are some titles which the music or other elements are in the public domain and for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights.

It is an inherent risk in our industry that people may make such claims with respect to any title already included in our products, whether or not such claims can be substantiated.

If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of

infringement or invalidity.

Any such litigation could result in substantial costs and the resulting diversion of resources could have an adverse effect on our business, operating results or financial condition.

Any additional future acquisitions or strategic investments may not be available on attractive terms and would subject us to additional risks.

Much of our growth is attributable to acquisitions.

In an effort to implement our business strategies, we may from time to time in the future attempt to pursue other acquisition or expansion opportunities, including strategic investments.

To the extent we can identify attractive opportunities, these transactions could involve acquisitions of entire businesses or investments in start-up or established companies and could take several forms.

These types of transactions may present significant risks and uncertainties, including the difficulty of identifying appropriate companies to acquire or invest in on acceptable terms, potential violations of covenants in our debt instruments, insufficient revenue acquired to offset liabilities assumed, unexpected expenses, inadequate return of capital, regulatory or compliance issues, potential infringements, difficulties integrating the new properties into our operations, and other unidentified issues not discovered in due diligence.

In addition, the financing of any future acquisition completed by us could adversely impact our capital structure.

Except as required by law or applicable securities exchange listing standards, we do not expect to ask our shareholders to vote on any proposed acquisition.

We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG.

During the year ended December 31, 2021, we acquired an equity interest in Your Family Entertainment AG (“YFE”).

We are exposed to the risk of success of the YFE business.

We are also exposed to risk of adverse reactions to the transaction or changes to business relationships;

Federal, state and local governmental entities and

foreign governments may regulate aspects of their businesses, including the production or distribution of our content or products.

regulations may include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax laws and

revised tax law interpretations), product safety and other safety standards, trade restrictions, regulations regarding financial matters,

environmental regulations, advertising directed toward children, product content, and other administrative and regulatory restrictions.

While we believe our vendors and licensees take all the steps necessary to comply with these laws and regulations, there can be no assurance

that they are compliant or will be in compliance in the future.

Failure to comply could result in monetary liabilities and other sanctions

which could increase our costs or decrease our revenue resulting in a negative impact on our business, financial condition and results

of operations.

Protecting and defending against intellectual

property claims may have a material adverse effect on our business.

Our ability to compete in

the animated content and entertainment industry depends, in part, upon successful protection of our proprietary and intellectual property.

We protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements

with reputable companies in specific territories and media for limited durations.

Despite these precautions, existing copyright and trademark

laws afford only limited, or no, practical protection in some jurisdictions.

It may be possible for unauthorized third parties to copy

and distribute our productions or portions of our productions.

In addition, although we own most of the music and intellectual property

included in our products, there are some titles which the music or other elements are in the public domain and for which it is difficult

or even impossible to determine whether anyone has obtained ownership or royalty rights.

It is an inherent risk in our industry that people

may make such claims with respect to any title already included in our products, whether or not such claims can be substantiated.

If litigation

is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope

of the proprietary rights of others or to defend against claims of infringement or invalidity.

Any such litigation could result in substantial

costs and the resulting diversion of resources could have an adverse effect on our business, operating results or financial condition.

We are exposed to investment risk with the

acquisition of an equity interest in Your Family Entertainment AG.

During the year ended December

31, 2021, we acquired a material equity interest in a company publicly traded on the Frankfurt Stock Exchange, Your Family Entertainment

With an ownership stake of 44.8%, we are exposed to the risk of success of the YFE business.

We are also exposed

to risk of adverse reactions to the transaction or changes to business relationships;

competitive responses;

inability to maintain key personnel and changes in general economic conditions in Germany.

If YFE fails to perform to our expectations, it could have a material adverse effect on our results of operations or financial condition.

We operate internationally, which exposes us to significant risks.

We have expanded into international operations, including the acquisitions of Wow and Ameba, our launch of Kartoon Channel!

inability to maintain key

personnel and changes in general economic conditions in Germany.

If YFE fails to perform to our expectations, it could have a material

adverse effect on our results of operations or financial condition and liquidity.

We operate internationally, which exposes

us to global economic, financial and political risks.

We have expanded into international

operations, including the acquisitions of Wow and Ameba, our launch of Kartoon Channel!

WW and our investment in YFE.

As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion.

Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States.

We have limited experience with international operations, and further international expansion efforts may not be successful.

In addition, we face risks in doing business internationally that could adversely affect our business, including:

• Fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk

• Currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S.

our growth strategy, we will continue to evaluate potential opportunities for further international expansion.

Operating in international

markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in

addition to those we face in the United States.

We have limited experience with international operations, and further international expansion

efforts may not be successful.

In addition, we face risks

in doing business internationally that could adversely affect our business, including:

· Fluctuations in currency exchange rates, which could increase the price of our products outside of the

United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk

· Currency control regulations, which might restrict or prohibit our conversion of other currencies into

· Restrictions on the transfer of funds

• Difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations

· Difficulties in managing and staffing international operations, including difficulties related to the

increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations

· Our ability to effectively price our products in competitive international markets

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· The continued threat of terrorism and the impact of military and other action

• Adverse consequences relating to the complexity of operating in multiple international jurisdictions with different laws, regulations and case law which are subject to interpretation by taxpayers, including us.

In addition, due to potential costs from our international expansion efforts outside of the United States, our gross margin for international customers may be lower than our gross margin for domestic customers.

As a result, our overall gross margin may fluctuate as we further expand our operations and customer base internationally.

Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our business, results of operations and financial condition.

Exchange rate fluctuations could result in significant foreign currency gains and losses and affect our business results.

Wow's functional currency is the Canadian dollar, therefore their financial results are translated into USD, our reporting currency, upon consolidation of our financial statements.

· Adverse consequences relating to the complexity of operating in multiple international jurisdictions with

different laws, regulations and case law which are subject to interpretation by taxpayers, including us.

In addition, due to potential

costs from our international expansion efforts outside of the United States, our gross margin for international customers may be lower

than our gross margin for domestic customers.

As a result, our overall gross margin may fluctuate as we further expand our operations

and customer base internationally.

Wow’s functional currency

is the Canadian dollar, therefore their financial results are translated into USD, our reporting currency, upon consolidation of our financial

We are then exposed to more significant currency fluctuation risks as a result of the Wow Acquisition.

Fluctuations between the foreign exchange rates, in particular the Canadian dollar and the U.S.

dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.

Further, each entity conducts a growing portion of their businesses in currencies other than such entity's own functional currency.

Therefore, in addition to the foreign currency translation risk, we face exposure to adverse movements in currency exchange rates with each transaction made outside of the entities' functional currency, including our investment in YFE.

If the functional currency of the entity weakens against the foreign currencies in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income (or loss).

However, if the functional currency of the entity weakens against the foreign currencies in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income (or loss).

As exchange rates vary, sales and other operating results, when remeasured, may differ materially from expectations.

We continue to review potential hedging strategies that may reduce the effect of fluctuating currency rates on our business, but there can be no assurances that we will implement such a hedging strategy or that once implemented, such a strategy would accomplish our objectives or not result in losses.

A decrease in the fair values of our reporting units may result in future goodwill impairments.

When we acquire an entity, the excess of the purchase price over the fair value of the net identifiable assets acquired is allocated to goodwill.

We conduct impairment tests on our goodwill at least annually based upon the fair value of the reporting unit to which such goodwill relates, including the determination of expected future cash flows and/or profitability of such reporting units, and we take into account market value multiples and/or cash flows of entities that we deem to be comparable in nature, scope or size to our reporting units.

A goodwill impairment is created if the estimated fair value of one or more of our reporting units decreases, causing the carrying value of the net assets assigned to the reporting unit — which includes the value of the assigned goodwill — to exceed the fair value of such net assets.

If we determine such an impairment exists, we adjust the carrying value of goodwill allocated to that reporting unit by the amount of fair value in excess of the carrying value.

Fluctuations between

the foreign exchange rates, in particular the Canadian dollar and the U.S.

dollar, affect the amounts we record for our foreign assets,

liabilities, revenues and expenses, and could have a negative effect on our financial results.

Further, each entity conducts

a growing portion of their businesses in currencies other than such entity’s own functional currency.

Therefore, in addition to the foreign

currency translation risk, we face exposure to adverse movements in currency exchange rates with each transaction made outside of the

entities’ functional currency, including our investment in YFE.

If the functional currency of the entity weakens against the foreign currencies

in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in increased revenue,

operating expenses and net income (or loss).

However, if the functional currency of the entity weakens against the foreign currencies

in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in decreased revenue,

operating expenses and net income (or loss).

As exchange rates vary, sales and other operating results, when remeasured, may differ materially

from expectations.

We continue to review potential hedging strategies that may reduce the effect of fluctuating currency rates on our

business, but there can be no assurances that we will implement such a hedging strategy or that once implemented, such a strategy would

accomplish our objectives or not result in losses.

Our failure to manage any

of these risks successfully could harm our international operations, and adversely affect our business, results of operations and financial

A decrease in the fair values of our reporting

units may result in future intangible assets impairments.

When an entity is acquired,

a portion of the purchase price may be allocated to intangible assets.

We conduct impairment tests on our intangible assets at least annually

based upon the fair value.

We assess intangible assets for impairment whenever events or changes in circumstances indicate that their

carrying amounts may not be recoverable.

This evaluation considers factors such as expected future cash flows, profitability, market conditions,

and industry trends.

If we determine such an impairment exists, we adjust the carrying value of the asset by the amount of fair value

in excess of the carrying value.

The impairment charge is recorded in our income statement in the period in which the impairment is determined.

If we are required in the future to record additional goodwill impairments, our financial condition and results of operations would be negatively affected.

In connection with fair value measurements and the accounting for goodwill, the use of generally accepted accounting principles requires management to make certain estimates and assumptions.

Significant judgment is required in making these estimates and assumptions, and actual results may ultimately be materially different from such estimates and assumptions.

If we are required in the future to record additional asset impairments, our financial condition and results of operations would be negatively

In connection with fair value measurements and the accounting for intangible assets, the use of generally accepted accounting

principles requires management to make certain estimates and assumptions.

Significant judgment is required in making these estimates and

assumptions, and actual results may ultimately be materially different from such estimates and assumptions.

RISKS RELATING TO OUR INDEBTEDNESS

We have incurred indebtedness that could adversely affect our operations and financial condition.

As of December 31, 2023, we and our subsidiaries have production loan facility obligations of approximately $15.3 million and advances outstanding of $2.9 million under our senior secured revolving credit facility.

We have incurred indebtedness that could

adversely affect our operations and financial condition.

As of December 31, 2024, we

and our subsidiaries have production loan facility obligations (“production facilities”) of approximately $9.2 million.

We also had an outstanding margin loan of $0.9 million secured by our marketable investment securities as of December 31, 2024.

The facilities are guaranteed by us and the security reflects substantially all of our tangible and intangible assets including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements.

The facilities and the margin loan are generally repayable on demand and are subject to customary default provisions, representations and warranties and other terms and conditions.

Our level of debt could have adverse consequences on our business, such as making it more difficult for us to satisfy our obligations with respect to our other debt;

limiting our ability to refinance such indebtedness or to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production 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 well as those of certain of our subsidiaries and related entities acting as guarantors of

the production facilities.

If the production entities default on those obligations, the lender under the production facilities could foreclose

on certain of our assets held by our subsidiaries and related entities who are parties to those production facilities.

In addition, the

existence of these security interests may adversely affect our financial flexibility.

The production facilities and the margin loan are

generally repayable on demand and are subject to customary default provisions, representations and warranties and other terms and conditions.

Our level of debt could have

adverse consequences on our business, such as making it more difficult for us to satisfy our obligations with respect to our other debt;

limiting our ability to refinance such indebtedness or to obtain additional financing to fund future working capital, capital expenditures,

acquisitions or other general corporate requirements;

requiring a substantial portion of our cash flows to be dedicated to debt service

payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions

and other general corporate purposes;

increasing our vulnerability to economic downturns and adverse developments in our business;

exposing us to the risk of increased interest rates as certain of our borrowings are at fixed long term rates and or variable rates of interest;

limiting our flexibility in planning for, and reducing our flexibility in reacting to, changes in the conditions of the financial markets and our industry;

us to the risk of increased interest rates as certain of our borrowings are at fixed long term rates and or variable rates of interest;

limiting our flexibility in planning for, and reducing our flexibility in reacting to, changes in the conditions of the financial markets

and our industry;

placing us at a competitive disadvantage compared to other, less leveraged competitors;

increasing our cost of borrowing;

and restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness and exposing us to potential events of default (if not cured or waived) under covenants contained in our debt instruments.

and restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our

existing and future indebtedness and exposing us to potential events of default (if not cured or waived) under covenants contained in

our debt instruments.

RISKS RELATED TO TAX RULES AND REGULATIONS

Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible.

Original programming requires substantial financial commitment, which can occasionally be offset by foreign, state or local tax incentives.

However, there is a risk that the tax incentives will not remain available for the duration of a series.

If tax incentives are no longer available or reduced substantially, it may result in increased costs for us to complete the production, or make the production of additional seasons more expensive.

If we are unable to produce original programming content on a cost effective basis our business, financial condition and results of operations would be materially adversely affected.

Further we are subject to ordinary course audits from the Canada Revenue Agency (“CRA”) and Provincial agencies.

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

We continuously review the results of these audits to determine if any circumstances arise that in management’s judgment would result in previously recognized tax credit receivables to be considered no longer collectible.

While we believe our estimates are reasonable, we cannot assure you that final determinations from any review will not be materially different from those reflected in our financial statements.

Any adverse outcome from any examinations may have an adverse effect on our business and operating results, which could cause the market price of our securities to decline.

Changes in, or interpretations of, tax rules and regulations, and changes in geographic operating results, may adversely affect our effective tax rates.

We are subject to income taxes in Canada, the U.S.

Changes in foreign, state and local tax

incentives may increase the cost of original programming content to such an extent that they are no longer feasible.

Original programming requires

substantial financial commitment, which can occasionally be offset by foreign, state or local tax incentives.

However, there is a risk

that the tax incentives will not remain available for the duration of a series.

If tax incentives are no longer available or reduced substantially,

it may result in increased costs for us to complete the production, or make the production of additional seasons more expensive.

are unable to produce original programming content on a cost effective basis our business, financial condition and results of operations

would be materially adversely affected.

Further we are subject to

ordinary course audits from the Canada Revenue Agency (“CRA”) and Provincial agencies.

Changes in administrative policies

by the CRA or subsequent review of eligibility documentation may impact the collectability of these estimates.

We continuously review

the results of these audits to determine if any circumstances arise that in management’s judgment would result in previously recognized

tax credit receivables to be considered no longer collectible.

While we believe our estimates are reasonable, we cannot assure you that

final determinations from any review will not be materially different from those reflected in our financial statements.

Any adverse outcome

from any examinations may have an adverse effect on our business and operating results, which could cause the market price of our securities

Changes in, or interpretations of, tax rules

and regulations, and changes in geographic operating results, may adversely affect our effective tax rates.

We are subject to income taxes

in Canada, the U.S.

and foreign tax jurisdictions.

We also conduct business and financing activities between our entities in various jurisdictions and we are subject to complex transfer pricing regulations in the countries in which we operate.

Although uniform transfer pricing standards are emerging in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity in complying with these rules.

In addition, due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change.

Our future effective tax rates could be affected by changes in tax laws or regulations or the interpretation thereof, (including those affecting the allocation of profits and expenses to differing jurisdictions), by changes in the amount of revenue or earnings that we derive from international sources in countries with high or low statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, by changes in the expected timing and amount of the release of any tax valuation allowance, or by the tax effects of stock-based compensation.

We also conduct business and financing activities between our entities in various jurisdictions

and we are subject to complex transfer pricing regulations in the countries in which we operate.

Although uniform transfer pricing standards

are emerging in many of the countries in which we operate, there is still a relatively high degree of uncertainty and inherent subjectivity

in complying with these rules.

In addition, due to economic and political conditions, tax rates in various jurisdictions may be subject

to significant change.

Our future effective tax rates could be affected by changes in tax laws or regulations or the interpretation thereof,

(including those affecting the allocation of profits and expenses to differing jurisdictions), by changes in the amount of revenue or

earnings that we derive from international sources in countries with high or low statutory tax rates, by changes in the valuation of our

deferred tax assets and liabilities, by changes in the expected timing and amount of the release of any tax valuation allowance, or by

the tax effects of stock-based compensation.

Unanticipated changes in our effective tax rates could affect our future results of operations.

Further, we may be subject to examination of our income tax returns by federal, state, and foreign tax jurisdictions.

We regularly assess the likelihood of outcomes resulting from possible examinations to determine the adequacy of our provision for income taxes.

In making such assessments, we exercise judgment in estimating our provision for income taxes.

While we believe our estimates are reasonable, we cannot assure you that final determinations from any examinations will not be materially different from those reflected in our historical income tax provisions and accruals.

Any adverse outcome from any examinations may have an adverse effect on our business and operating results, which could cause the market price of our securities to decline.

Further, we may be subject

to examination of our income tax returns by federal, state, and foreign tax jurisdictions.

We regularly assess the likelihood of outcomes

resulting from possible examinations to determine the adequacy of our provision for income taxes.

In making such assessments, we exercise

judgment in estimating our provision for income taxes.

While we believe our estimates are reasonable, we cannot assure you that final

determinations from any examinations will not be materially different from those reflected in our historical income tax provisions and

Any adverse outcome from any examinations may have an adverse effect on our business and operating results, which could cause

the market price of our securities to decline.

RISKS RELATING TO OUR COMMON STOCK

Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.

Our common stock currently trades on NYSE American.

Our stock price may be subject to substantial

volatility, and stockholders may lose all or a substantial part of their investment.

Our common stock currently

trades on NYSE American.

There is limited public float, and trading volume historically has been low and sporadic.

As a result, the market price for our common stock may not necessarily be a reliable indicator of our fair market value.

The price at which our common stock trades may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new releases by us or competitors, the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry and the economy as a whole.

Our failure to meet the continued listing requirements of NYSE American could result in a delisting of our common stock.

If we fail to satisfy the continued listing requirements of NYSE American, such as minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements, the NYSE may take steps to delist our common stock.

Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.

In the event of a delisting, we would expect to take actions to restore our compliance with NYSE American’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NYSE minimum bid price requirement, or prevent future non-compliance with NYSE’s listing requirements.

If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.

Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

The OTC Bulletin Board does not meet such requirements and if the price of our common stock is less than $5.00 and our common stock is no longer listed on a national securities exchange such as the NYSE, our stock may be deemed a penny stock.

The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified information and to obtain from the customer a signed and date acknowledgment of receipt of that document.

In addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive:

(i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement;

As a result, the market

price for our common stock may not necessarily be a reliable indicator of our fair market value.

The price at which our common stock trades

may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations

in our operating results, actual or anticipated announcements of new releases by us or competitors, the gain or loss of significant customers,

changes in the estimates of our operating performance, market conditions in our industry and the economy as a whole.

Our failure to meet the continued listing

requirements of NYSE American could result in a delisting of our common stock.

If we fail to satisfy the

continued listing requirements of NYSE American, such as minimum financial and other continued listing requirements and standards, including

those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements, NYSE American

may take steps to delist our common stock.

Such a delisting would likely have a negative effect on the price of our common stock and would

impair your ability to sell or purchase our common stock when you wish to do so.

In the event of a delisting, we would expect to take

actions to restore our compliance with NYSE American’s listing requirements, but we can provide no assurance that any such action

taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock,

prevent our common stock from dropping below the NYSE American minimum bid price requirement of $0.10, or prevent future non-compliance

with NYSE American’s listing requirements.

If our common stock becomes subject to the

penny stock rules, it may be more difficult to sell our common stock.

The SEC has adopted rules

that regulate broker-dealer practices in connection with transactions in penny stocks.

Penny stocks are generally equity securities with

a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain

automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided

by the exchange or system).

The OTC Bulletin Board does not meet such requirements and if the price of our common stock is less than $5.00

and our common stock is no longer listed on a national securities exchange such as the NYSE, our stock may be deemed a penny stock.

penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny stock not otherwise exempt from

those rules, to deliver to the customer a standardized risk disclosure document containing specified information and to obtain from the

customer a signed and date acknowledgment of receipt of that document.

In addition, the penny stock rules require that prior to effecting

any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that

the penny stock is a suitable investment for the purchaser and receive:

(i) the purchaser’s written acknowledgment of the receipt

of a risk disclosure statement;

(ii) a written agreement to transactions involving penny stocks;

and (iii) a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

We have identified material weaknesses in our internal control over financial reporting which may, if not effectively remediated, result in additional material misstatements in our financial statements.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

As disclosed in Item 9A, “Controls and Procedures” in this Annual Report on Form 10-K, management identified material weaknesses in our internal control over financial reporting.

The related control deficiencies resulted in material misstatements in our previously issued audited consolidated financial statements in the annual report for the year ended December 31, 2022, including the unaudited interim periods ended June 30, 2022 and September 30, 2022 and the unaudited interim periods ended March 31, 2023, June 30, 2023 and September 30, 2023.

A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of the material weakness, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management is actively engaged in developing a remediation plan designed to address these material weaknesses.

If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results.

We cannot assure you that any measures we may take in the near future will be sufficient to remediate these material weaknesses or avoid potential future material weaknesses.

In addition, we may suffer adverse regulatory or other consequences, as well as negative market reaction, as a result of any material weaknesses, and we will incur additional costs as we seek to remediate these material weaknesses.

If not remediated, these material weaknesses could result in additional material misstatements to our annual or interim consolidated financial statements that might not be prevented or detected on a timely basis, or in delayed filing of required periodic reports.

If we are unable to assert that our internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by NYSE, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm.

The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards.

We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis.

We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of blank check preferred stock.

Any additional preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock.

In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock.

In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.

Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock.

We do not currently anticipate paying cash dividends in the foreseeable future.

The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as our Board of Directors may consider relevant.

Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts.

There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors.

If we do not pay dividends, our common stock may be less valuable because the return on investment will only occur if its stock price appreciates.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall.

The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to us being current in our periodic reports filed with the SEC.

As of April 5, 2024, approximately 33,147,900 shares of common stock of the 35,367,653 shares of common stock issued are outstanding and freely trading.

As of December 31, 2023, there were 6,852,952 warrants outstanding.

Lastly, as of December 31, 2023, there are 1,183,908 shares of common stock underlying outstanding options granted, 1,020,067 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 87,045 shares reserved for issuance under our Kartoon Studios, Inc.

and (iii) a signed and dated copy of

a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market

for our common stock, and therefore stockholders may have difficulty selling their shares.

We are authorized to issue “blank

check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

Our Articles of Incorporation

authorize us to issue up to 10,000,000 shares of blank check preferred stock without seeking approval of our shareholders.

Any additional

preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend priority or liquidation premiums and

may have greater voting rights than our common stock.

In addition, such preferred stock may contain provisions allowing those shares to

be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect

the market price, if any, of our common stock.

In addition, the preferred stock could be utilized, under certain circumstances, as a method

of discouraging, delaying or preventing a change in control of our company.

Although we have no present intention to issue any additional

shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

We do not expect to pay dividends in the

future and any return on investment may be limited to the value of our common stock.

We do not currently anticipate

paying cash dividends in the foreseeable future.

The payment of dividends on our common stock will depend on earnings, financial condition

and other business and economic factors affecting it at such time as our Board of Directors may consider relevant.

Our current intention

is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts.

can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in

any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors.

If we do not pay dividends, our

common stock may be less valuable because the return on investment will only occur if its stock price appreciates.

Offers or availability for sale of a substantial

number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial

amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued

upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang”

and, in anticipation of which, the market price of our common stock could fall.

The existence of an overhang, whether or not sales have

occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related

securities in the future at a time and price that we deem reasonable or appropriate.

In general, under Rule 144, a non-affiliated person

who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to

us being current in our periodic reports filed with the SEC.

As of March 31, 2025,

approximately 45,486,535 shares of common stock of the 47,784,964 shares of common stock issued are outstanding and freely trading.

of December 31, 2024, there were 25,834,752 warrants outstanding.

Lastly, as of December 31, 2024, there are 952,140 shares of common

stock underlying outstanding options granted, 2,468,676 shares of common stock underlying outstanding restricted stock units (“RSUs”)

and 4,881,094 shares reserved for issuance under our Kartoon Studios, Inc.

2020 Incentive Plan.

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-K

Item 1A. Risk Factors