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Item 9A. Controls and Procedures

2025-03-31 compared with 2024-04-09 · 2235 added, 1613 removed, 498 unchanged (89% of the section changed)

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Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’).

Disclosure controls and procedures include, without limitation, controls and procedures

that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the year ended December 31, 2023, in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework).

Based on this assessment, our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), has concluded that, as of December 31, 2023, our internal controls over financial reporting are not effective based on those criteria.

A material weakness is a deficiency, or a 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.

The ineffectiveness of our internal control over financial reporting was due to the following which are observed in many small companies with a small number of accounting and financial reporting staff:

• Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or processes

We maintain disclosure controls

and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under

the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms

and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing

similar functions, as appropriate to allow timely decisions regarding required disclosures.

We carried out an evaluation,

under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,

of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)

under the Exchange Act.

Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end

of the period covered by this report, our disclosure controls and procedures ensuring that information that we are required to disclose

in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified

in the SEC rules and forms, were ineffective, due to a material weakness related to Information Technology General Control area.

Management’s Annual Report on Internal

Control over Financial Reporting

Our management is responsible

for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated

under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial

officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies

and procedures that:

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions

and dispositions of our assets

· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in

accordance with authorizations of our management and directors

· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,

or disposition of our assets that could have a material effect on the financial statements

Because of our inherent limitations,

our internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be

effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the

effectiveness of our internal control over financial reporting as of December 31, 2024.

In making this assessment, management used the

criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated

Framework (2013 Framework).

Our management, with the participation

of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer),

has concluded that, as of December 31, 2024, based on those criteria, our internal controls over financial reporting are ineffective,

due to a material weakness related to Information Technology General Control area.

A material weakness is a deficiency,

or a 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.

Our internal controls over

financial reporting included a process deficiency which is observed in many small companies with a small number of accounting and financial

reporting staff:

· Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or

Our management believes the

financial statements included in this Form 10-K fairly present, in all material respects, our financial condition, results of operations

and cash flows as of and for the periods presented in accordance with GAAP.

Changes in Internal

Control over Financial Reporting

As disclosed in our 2023 Annual

Report for the year ended December 31, 2023, based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded

as of December 31, 2023 that our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f), promulgated under the

Exchange Act were not effective at the reasonable assurance level due to material weaknesses in our internal control over financial reporting.

Specifically, these weaknesses

were identified in the following areas:

· Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or

· Lack of specialized experts related to income tax areas;

· Inappropriate application of accounting standards related to warrant modifications.

Management’s Plan to Remediate the Material Weaknesses

The Company continues to be committed to maintaining a strong internal control environment.

In response to the identified material weaknesses, management has taken comprehensive actions to strengthen its internal controls and has been and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated.

Our plans for remediation include, but are not limited to, the efforts summarized below, which have been or are in the process of being implemented:

In response to the identified

material weaknesses, management has taken comprehensive actions to strengthen its internal controls and has been and continues to implement

measures designed to ensure that control deficiencies contributing to the material weakness are remediated.

Our plans for remediation

included, but were not limited to, the efforts summarized below, which have been implemented:

· Enhanced procedures for formal documented review and approval of journal entries;

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· Performed risk assessment procedures and improved the documentation of internal processes and controls;

• Improved documentation over complex financial transactions

· Improved review and documentation over complex financial transactions;

· Implemented additional procedures over assessment of cybersecurity and information technology general controls;

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· Continue to enhance review over financial reporting, financial operations, internal controls including segregation of duties;

as well as improve tax analysis and fair value estimates

We will not be able to conclude whether these efforts will fully remediate the material weakness until the updated process has operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively.

Changes in Internal Control over Financial Reporting

Other than the remediation efforts described above, there was no change in our internal controls over financial reporting that occurred during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

as improve tax analysis and fair value estimates.

The Company remains committed to improving internal

controls and ongoing enhancements to our financial reporting processes.

Remediation of

a Material weakness in Internal Control over Financial Reporting

We recognize the importance

of the control environment as it sets the overall tone for the Company and serves as the foundation for all other components of internal

Accordingly, we have taken significant steps to enhance our internal control over financial reporting and remediate previously

identified material weaknesses.

As of December 31, 2024, we

have successfully remediated the material weakness related to the income tax area through the engagement of third party tax expertise,

implementing formalized controls and documentation processes over income tax accounting and reporting.

In addition, the material weakness

related to the accounting for complex and non-routine transactions has been remediated through the enhanced technical review procedures

and the involvement of external advisors for significant transactions.

Other remediation efforts, that have been implemented include controls

over segregation of duties (with the ITGC exception noted below) through the use of dedicated systems for period close, accounts payable

and reporting and quarterly review procedures.

As of December 31, 2024 a

material weakness related to our information technology general controls (ITGC) remains.

However, the management has discussed this matter

and developed a remediation plan including transitioning some of the administrative responsibilities to a third-party service provider.

Given, that the plan has not yet been fully implemented, the control remains ineffective as of December 31, 2024.

Beginning in the second quarter

of 2024 and through the remainder of the 2024 fiscal year, all but one of our previously identified material weaknesses were remediated,

with the exception of the ITGC matter noted above.

We remain committed to completing the final phase of our remediation plan and strengthening

our overall control environment.

Inherent Limitations over Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls.

Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Internal control over financial

reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including

the possibility of human error and circumvention by collusion or overriding of controls.

Accordingly, even an effective internal control

system may not prevent or detect material misstatements on a timely basis.

Also, projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance

with the policies or procedures may deteriorate.

Other Information

During the quarter ended December 31, 2023, none of the Company’s directors or officers adopted , modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K).

During the quarter ended December

31, 2024, none of the Company’s directors or officers adopted , modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule

10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K).

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance

Board of Directors, Executive Officers, Promoters and Control Persons

The following table sets forth information about our directors and executive officers as of April 5, 2024:

Name Age Position

Andy Heyward 75 Chief Executive Officer and Chairman of the Board of Directors

Brian Parisi 54 Chief Financial Officer

Jaffa 58 Chief Operating Officer and Corporate Secretary

Joseph “Gray” Davis * 81 Director

Henry Sicignano III * 56 Director

Margaret Loesch * 77 Director

Lynne Segall * 71 Director

Anthony Thomopoulos * 86 Director

Cynthia Turner-Graham * 69 Director

Stefan Piëch 53 Director

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* Denotes directors who are “independent” under applicable SEC and NYSE rules.

Our directors hold office until the earlier of their death, resignation or removal or until their successors have been elected and qualified.

Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with the Company, either directly or indirectly.

Based upon this review, our Board of Directors has determined that the following members of the Board of Directors are “independent directors” as defined by the NYSE standards:

Joseph “Gray” Davis, Henry Sicignano III, Lynne Segall, Margaret Loesch, Anthony Thomopoulos and Dr.

Cynthia Turner-Graham.

Andy Heyward, 75, has been the Company’s Chief Executive Officer since November 2013 and the Company’s Chairman of the Board since December 2013.

Heyward co-founded DIC Animation City in 1983 and served as its Chief Executive Officer until its sale in 1993 to Capital Cities/ ABC, Inc., which was eventually bought by The Walt Disney Company in 1995.

Heyward ran the company while it was owned by The Walt Disney Company until 2000 when Mr.

Heyward purchased DIC Entertainment L.P.

and DIC Productions L.P.

corporate successors to the DIC Animation City business, with the assistance of Bain Capital and served as the Chairman and Chief Executive Officer of their acquiring company DIC Entertainment Corporation, until he took the company public on the AIM.

He sold the company in 2008.

Heyward co-founded A Squared Entertainment LLC in 2009 and has served as its Co-President since inception.

Heyward earned a Bachelor of Arts degree in Philosophy from UCLA and is a member of the Producers Guild of America, the National Academy of Television Arts and the Paley Center (formerly the Museum of Television and Radio).

Heyward gave the Commencement address in 2011 for the UCLA College of Humanities and was awarded the 2002 UCLA Alumni Association’s Professional Achievement Award.

He has received multiple Emmys and other awards for Children’s Entertainment.

He serves on the Board of Directors of the Cedars Sinai Medical Center.

Heyward has produced over 5,000 half hour episodes of award-winning entertainment, among them Inspector Gadget;

The Real Ghostbusters;

Strawberry Shortcake;

Alvin and the Chipmunks;

Hello Kitty’s Furry Tale Theater;

The Super Mario Brothers Super Show;

The Adventures of Sonic the Hedgehog;

Sabrina The Animated Series;

Captain Planet and the Planeteers;

Liberty’s Kids, and many others.

Heyward was chosen as a director because of his extensive experience in children’s entertainment and as co-founder of A Squared Entertainment.

Brian Parisi, 54 , started with the Company as Chief Financial Officer during September 2023.

Parisi brings 30 years of experience across the entertainment, media, and high-tech industries, specializing in finance, accounting, M&A, corporate strategy, and business development.

Before joining Kartoon Studios, he was the Chief Financial Officer at Break the Floor Productions in Hollywood, California, an entertainment production company.

In this role, he notably prepared the company for sale, successfully completing two separate transactions with PE firms.

He managed all finance and accounting functions and effectively reduced the company's overall risk exposure.

Previously, Mr.

Parisi served as the Chief Financial Officer at the NFL Hall of Fame Village (HOFV), where he oversaw a wide range of financial activities including managing construction budgets, assist the company with its IPO, financial reporting, and cash management for the nearly $1 billion investment in a newly designed entertainment complex in Canton, Ohio.

In addition, he served as the Head of Finance for the Festivals Division at Live Nation Entertainment (LYV) where he was responsible for developing strategic plans for Electronic Dance Music festivals in multiple countries with more than 1.3 million fans annually.

Parisi has also held leadership positions at Warner Bros.

Entertainment (WBD) and NBC Universal (CMCSA).

Parisi is a CPA and holds a B.S.

in Accounting from Purdue University, Daniel School of Business, and an M.B.A.

in Strategic Management from the University of Southern California, Marshall School of Business.

Michael Jaffa , 58 , was promoted to Chief Operating Officer and General Counsel on December 7, 2020.

Previously he served as the General Counsel and Corporate Secretary of the Company since April 2018.

From January 2017 through April 2018, Mike served as Thoughtful Media Group’s (TMG) General Counsel and Global Head of Business Affairs.

TMG is a multichannel network focused on Asian markets.

Jaffa oversaw all of TMG’s legal matters, established the framework for TMG’s continued growth in international markets, including a franchise plan, the formation of a regional headquarters in Southeast Asia and assisted with M&A transactions.

From September 2013 through December 2016, Mr.

Jaffa worked as the Head of Business Affairs for DreamWorks Animation Television, and before that served in a similar role at Hasbro Studios from December 2009 through September 2013.

Jaffa has over 20 years of experience handling licensing, production, merchandising, complex international transactions and employment issues for large and small entertainment companies and technology startups.

Joseph “Gray” Davis, 81, has been a Director of the Company since December 2013.

Davis served as the 37th governor of California from 1998 until 2003.

Davis currently serves as “Of Counsel” in the Los Angeles, California office of Loeb & Loeb LLP.

Davis has served on the Board of Directors of DIC Entertainment and was a member of the bipartisan Think Long Committee, a Senior Fellow at the UCLA School of Public Affairs and is Co-Chair of the Southern California Leadership Counsel.

Davis received his undergraduate degree from Stanford University and received his Juris Doctorate from Columbia Law School.

Davis served as lieutenant governor of California from 1995-1998, California State Controller from 1987-1995 and California State Assemblyman from 1982-1986.

Davis was chosen as a director of the Company based on his knowledge of corporate governance.

On September 27, 2023, in recognition of his commitment to education and innovation, Mr.

Davis received the UC President’s Medal – the University of California’s highest honor, from the UC President Michael V.

Henry Sicignano III, 56, was appointed to the Board and as Audit Committee Chairman effective May 22, 2023.

Sicignano is currently the President of Charlie’s Holdings, Inc., a consumer products company with a mission of creating better alternatives to combustible cigarettes, a role which he has held since April 2021.

Since July 12, 2023, he has also served as a Board Member and Audit Committee Chairman of Greenwave Technology Solutions, Inc., a leading operator of metal recycling facilities in Virginia, North Carolina and Cleveland, OH.

Previously, Mr.

Sicignano served as Chief Executive Officer of 22nd Century Group, Inc., a plant-based biotechnology company, from March 3, 2015 through July 26, 2019;

as President from January 25, 2011 through July 26, 2019;

and as a Director from January 25, 2011 through July 26, 2019.

Sicignano previously served on the Board of Directors of Anandia Laboratories, Inc.

and from August 2005 to April 2009, Mr.

Sicignano served as a General Manager and as the Director of Corporate Marketing for NOCO Energy Corp., a petroleum products company.

In addition, from March 2003 to July 2005, Mr.

Sicignano served as Vice President of Kittinger Furniture Company, a fine furniture manufacturer.

Sicignano holds a B.A.

Degree in Government from Harvard College and an M.B.A.

Degree from Harvard University.

Sicignano was chosen to be a director based on his expertise in competitive strategy, his extensive contacts within the investment community and his financial expertise.

Margaret Loesch, 77, has been the Executive Chairman of the Kartoon Channel!

since June 2020 and a Director of the Company since March 2015.

Beginning in 2009 through 2014, Ms.

Loesch, served as Chief Executive Officer and President of The Hub Network, a cable channel for children and families, including animated features.

The Company has, in the past, provided The Hub Network with certain children’s programming.

From 2003 through 2009 Ms.

Loesch served as Co-Chief Executive Officer of The Hatchery, a family entertainment and consumer product company.

From 1998 through 2001 Ms.

Loesch served as Chief Executive Officer of the Hallmark Channel, a family related cable channel.

From 1990 through 1997 Ms.

Loesch served as the Chief Executive Officer of Fox Kids Network, a children’s programming block and from 1984 through 1990 served as the Chief Executive Officer of Marvel Productions, a television and film studio subsidiary of Marvel Entertainment Group.

Loesch obtained her Bachelor of Science from the University of Southern Mississippi.

Loesch was chosen to be a director based on her 40 years of experience at the helm of major children and family programming and consumer product channels.

Lynne Segall, 71, has been a Director of the Company since December 2013.

Segall has served as the Senior Vice President and Publisher of The Hollywood Reporter since June 2011.

From 2010 to 2011, Ms.

Segall was the Senior Vice President of Deadline Hollywood.

From June 2006 to May 2010, Ms.

Segall served as the Vice President of Entertainment, Fashion & Luxury advertising at the Los Angeles Times.

Segall received the Women of Achievement Award from The Hollywood Chamber of Commerce and the Women in Excellence Award from the Century City Chamber of Commerce.

Segall was recognized by the National Association of Women with its Excellence in Media Award.

Segall was chosen to be a director based on her expertise in the entertainment industry.

Anthony Thomopoulos, 86, has been a Director of the Company since February 2014.

Thomopoulos served as the Chairman of United Artist Pictures from 1986 to 1989 and formed Thomopoulos Pictures, an independent production company of both motion pictures and television programs in 1989 and has served as its Chief Executive Officer since 1989.

From 1991 to 1995, Mr.

Thomopoulos was the President of Amblin Television, a division of Amblin Entertainment.

Thomopoulos served as the President of International Family Entertainment, Inc.

from 1995 to 1997.

From June 2001 to January 2004, Mr.

Thomopoulos served as the Chairman and Chief Executive Officer of Media Arts Group, a NYSE listed company.

Thomopoulos served as a state commissioner of the California Service Corps.

under Governor Schwarzenegger from 2005 to 2008.

Thomopoulos is also a founding partner of Morning Light Productions.

Since he founded it in 2008, Mr.

Thomopoulos has operated Thomopoulos Productions and has served as a consultant to BKSems, USA, a digital signage company.

Thomopoulos is an advisor and a member of the National Hellenic Society and holds a degree in Foreign Service from Georgetown University and sat on its Board of Directors from 1978 to 1988.

Thomopoulos was chosen as a director of the Company based on his entertainment industry experience.

Cynthia Turner-Graham, 69, has been a Director of the Company since June 2021.

Turner-Graham is a board-certified psychiatrist and Distinguished Life Fellow of the American Psychiatric Association, who brings over 40 years of experience in the healthcare industry as a practicing psychiatrist, healthcare administrator and community leader.

Since 1988, Dr.

Turner-Graham has been a practicing psychiatrist at an outpatient psychiatry practice.

Since 2004, Dr.

Turner-Graham has served as President and Chief Executive Officer of ForSoundMind Enterprises, Inc., a provider of outpatient psychiatric services and developer of educational workshop experiences focused on promotion of emotional and mental health.

From February 2014 until November 2019, she served as Medical Director for Inner City Family Services in Washington, DC.

Among her accomplishments, Dr.

Turner-Graham is the immediate past president of the Suburban Maryland Psychiatric Society, served as a Director of the Washington Psychiatric Society and has taken the helm of Black Psychiatrists of America, Inc.

She has previously served as Clinical Assistant Professor of Psychiatry at both Vanderbilt University and Howard University Schools of Medicine.

Turner-Graham was chosen as a director of the Company based on her career as a distinguished psychiatrist and her expertise with children.

Stefan Piëch, 53, has been a Director of the Company since June 23 2022.

Since October 2006, Dr.

Stefan Piëch has served as Chief Executive Officer of Your Family Entertainment AG (“YFE”) and Managing Partner of the Austrian company F&M Film und Medien Beteiligungs GmbH (“F&M”) since 2005.

Piëch was a founding member and the CEO of Openpictures AG from 2000 to 2005.

Piëch also serves on the board of several companies, including on the supervisory board of SEAT S.A.

since 2015, on the supervisory board of Porsche Automobil Holding SE since 2018, on the supervisory board of Siemens Aktiengesellschaft Österreich since 2020 and is Member of the board of the German Chamber of Commerce in Austria since 2020.

Piëch obtained his Bachelor of Arts degree in Film & Media from the University of Stirling and his Ph.D.

in Media from the University of Klagenfurt.

Piëch was chosen to be a director based on his experience with YFE and his deep expertise in creating children’s content.

Family Relationships

There are no family relationships between any of our directors and our executive officers.

We believe that good corporate governance is important to ensure that the Company is managed for the long-term benefit of our stockholders.

This section describes key corporate governance practices that we have adopted.

Board Leadership Structure and Role in Risk Oversight

The Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance rather than day-to-day operations.

The primary responsibility of our Board of Directors is to oversee the management of our company and, in doing so, serve the best interests of the company and our shareholders.

The Board of Directors selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors.

It reviews and approves corporate objectives and strategies and evaluates significant policies and proposed major commitments of corporate resources.

Our Board of Directors also participates in decisions that have a potential major economic impact on our company.

Management keeps the directors informed of company activity through regular communication, including written reports and presentations at Board of Directors and committee meetings.

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interest of the Company and its shareholders to combine these roles.

Due to the small size of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officers positions combined.

The Company currently has eight directors, including Mr.

Heyward, its Chairman, who also serves as the Company’s Chief Executive Officer.

Cybersecurity Governance

Oversight responsibility for information security matters is shared by the Board, Chief Financial Officer (“CFO”), VP of Internal Audit and our internal information technology (“IT”) resources.

Our CFO and VP of Internal Audit oversee our cybersecurity risk management, including appropriate risk mitigation strategies, systems, processes, and controls, and receives quarterly updates from IT and the third-party IT service provider on cybersecurity and information security matters.

The CFO communicates quarterly with the Board on the state of our cybersecurity risk management, current and evolving threats, and recommendations for changes.

We have also implemented a cyber incident response plan that provides a protocol to report certain incidents to the CFO with the goal of timely assessment of such incidents, determining applicable disclosure requirements and communicating with the Board for timely and accurate reporting of any material cybersecurity incident.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our officers, directors and any persons who own more than 10% of common stock, to file reports of ownership of, and transactions in, our common stock with the SEC and furnish copies of such reports to us.

Based solely on our reviews of the copies of such forms and amendments thereto furnished to us and on written representations from officers, directors, and any other person whom we understand owns more than 10% of our common stock, we found that during 2023, all Section 16(a) filings were made with the SEC on a timely basis, except that one Form 3 was filed late by Mr.

Sicignano and one Form 4 covering three transactions was filed late for each of Mr.

Sicignano III, Mr.

Thomopoulos and Dr.

Turner-Graham.

Code of Conduct and Ethics

We have adopted a Corporate Code of Conduct and Ethics and Whistleblower Policy that applies to all of our officers, directors and employees.

A copy of the Code of Conduct and Ethics and Whistleblower Policy can be obtained, free of charge by submitting a written request to the Company or on our website at www.kartoonstudios.com.

Disclosure regarding any amendments to, or waivers from, provisions of the code of conduct and ethics that apply to our directors, principal executive and financial officers will be posted on the “Investor Relations-Corporate Governance” section of our website at www.kartoonstudios.com or included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver.

Board Committees

During 2023, our Board of Directors held four meetings.

The following table sets forth the four standing committees of our Board and the members of each committee and the number of meetings held by our Board of Directors and the committees during 2023:

Director Board Audit

Committee Compensation

Committee Nominating Committee Investment Committee

Andy Heyward Chair

Joseph “Gray” Davis X X X X

Henry Sicignano III (2) X Chair X

Margaret Loesch X X

Lynne Segall (3) X X Chair Chair

Anthony Thomopoulos (3) Vice Chair

Cynthia Turner-Graham X

Michael Hirsh (1) X

Meetings in 2023:

__________________

(1) Effective December 14, 2023, Michael Hirsh resigned from the Board of Directors.

(2) Effective May 22, 2023, Henry Sicignano III was elected as a member of our Board of Directors, replacing Clark Hallren.

(3) Effective July 11, 2023, Lynne Segall replaced Anthony Thomopoulos as Chair of the Compensation Committee.

The Board of Directors has adopted a policy under which each member of the Board of Directors makes every effort, but is not required, to attend each annual meeting of our shareholders.

To assist in carrying out its duties, the Board of Directors has delegated certain authority to an Audit Committee, a Compensation Committee, a Nominating Committee and an Investment Committee as the functions of each are described below.

Audit Committee

Davis and Sicignano III and Ms.

Segall serve on our Audit Committee.

Our Audit Committee’s main function is to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial statements.

The Audit Committee’s responsibilities include:

• Selecting, hiring, and compensating our independent auditors

• Evaluating the qualifications, independence and performance of our independent auditors

• Overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters

• Approving the audit and non-audit services to be performed by our independent auditor

• Reviewing with the independent auditor the design, implementation, adequacy and effectiveness of our internal controls and our critical accounting policies

• Preparing the report that the SEC requires in our annual proxy statement

The Board of Directors has adopted an Audit Committee Charter and the Audit Committee reviews and reassesses the adequacy of the Charter on an annual basis.

The Audit Committee members meet NYSE’s financial literacy requirements and are independent under applicable SEC and NYSE rules, and the board has further determined that Mr.

Sicignano is an “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC.

A copy of the Audit Committee’s written charter is publicly available on our website at www.kartoonstudios.com .

Compensation Committee

Segall and Loesch serve on the Compensation Committee and are independent under the applicable SEC and NYSE rules.

Our Compensation Committee’s main functions are assisting our Board of Directors in discharging its responsibilities relating to the compensation of outside directors, the Chief Executive Officer and other executive officers, as well as administering any stock incentive plans, we may adopt.

The Compensation Committee’s responsibilities include the following:

• Reviewing and recommending to our board of directors the compensation of our Chief Executive Officer and other executive officers, and the outside directors

• Conducting a performance review of our Chief Executive Officer

• Reviewing our compensation policies

• If required, preparing the report of the Compensation Committee for inclusion in our annual proxy statement

The Board of Directors has adopted a Compensation Committee Charter and the Compensation Committee reviews and reassesses the adequacy of the Charter on an annual basis.

The Compensation Committee’s policy is to offer our executive officers competitive compensation packages that will permit us to attract and retain highly qualified individuals and to motivate and reward these individuals in an appropriate fashion aligned with the long-term interests of our Company and our shareholders.

Compensation Committee Risk Assessment

We have assessed our compensation programs and concluded that our compensation practices do not create risks that are reasonably likely to have a material adverse effect on us.

A copy of the Compensation Committee’s written charter is publicly available on our website at www.kartoonstudios.com .

Nominating Committee

Davis and Ms.

Segall serve on our Nominating Committee.

The Nominating Committee’s responsibilities include:

• Identifying qualified individuals to serve as members of our Board of Directors

• Review the qualifications and performance of incumbent directors

• Review and consider candidates who may be suggested by any director or executive officer or by a stockholder of the Company

• Review considerations relating to board composition, including size of the board, term and age limits, and the criteria for membership of the board

The Board of Directors has adopted a Nominating Committee charter and the Nominating Committee reviews and reassesses the adequacy of the Charter on an annual basis.

For all potential candidates, the Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity and sound judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate, possible conflicts of interest, diversity, the extent to which the candidate would fill a present need on the Board of Directors, and concern for the long-term interests of our shareholders.

The Nominating Committee considers issues of diversity among its members in identifying and considering nominees for director, and strives, where appropriate, to achieve a diverse balance of backgrounds, perspectives and experience on the Board of Directors and its committees.

A copy of the Nominating Committee’s written charter is publicly available on our website at www.kartoonstudios.com .

Investment Committee

Davis and Sicignano III serve on our Investment Committee.

The primary purpose of the Investment Committee is to assist the Board in reviewing our Investment Policy and strategies and in overseeing our capital and financial resources.

A material investment on behalf of the Company may not be made without the Committee’s approval or the approval of a delegate of the Committee pursuant to an appropriate delegation of the Committee’s authority.

In order to carry out its mission and function, and subject to the terms of the Company’s Articles of Incorporation, the Committee has the authority to:

• Review the investment policy, strategies, transactions and programs of the Company and its subsidiaries to ensure they are consistent with the goals and objectives of the Company

• Evaluate and approve or disapprove each proposed material investment on behalf of the Company

• Determine whether the investment policy is consistently followed and that procedures are in place to ensure that the Company’s investment portfolio is managed in compliance with its policies

• Review the performance of the investment portfolios of the Company and its subsidiaries

• Approve and revise as appropriate, the Company’s investment policies and guidelines

Stockholder Communications to the Board

Generally, shareholders who have questions or concerns should contact our Investor Relations department at 844-589-8760.

However, any stockholders who wish to address questions regarding our business directly with the Board of Directors, or any individual director, should direct his or her questions in writing to Kartoon Studios, Inc., at 190 N.

Canon Drive, 4th Floor, Beverly Hills, California 90210, Attn:

Corporate Secretary or by using the “Contact” page of our website www.kartoonstudios.com/contacts .

Communications will be distributed to the Board of Directors, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the communications.

Items that are unrelated to the duties and responsibilities of the Board of Directors may be excluded, such as:

• Junk mail and mass mailings

• Resumes and other forms of job inquiries

• Solicitations or advertisements

In addition, any material that is unduly hostile, threatening, or illegal in nature may be excluded, provided that any communication that is filtered out will be made available to any outside director upon request.

Information required by this

item is incorporated by reference to our Proxy Statement.

Executive Officer and Director Compensation

Information required by this item is incorporated by reference from information contained under the section “Executive Officer and Director Compensation” in our Proxy Statement for the Annual Meeting of Stockholders.

Information required by this

item is incorporated by reference to our Proxy Statement.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows the beneficial ownership of shares of our common stock as of April 5, 2024, known by us through transfer agent and other records held by:

(i) each person who beneficially owns 5% or more of the shares of common stock then outstanding;

(ii) each of our directors;

(iii) each of our named executive officers;

and (iv) all of our current directors and executive officers as a group.

The information in this table reflects “beneficial ownership” as defined in Rule 13d-3 of the Exchange Act.

To our knowledge and unless otherwise indicated, each stockholder has sole voting power and investment power over the shares listed as beneficially owned by such stockholder, subject to community property laws where applicable.

Percentage ownership is based on 35,367,653 shares of common stock outstanding as of April 5, 2024.

Unless otherwise indicated in

the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o 190 N.

Canon Drive, Floor 4, Beverly Hills, CA 90210.

Name of Beneficial Owner Amount and Nature of Beneficial Ownership

(1) Percent of

Directors and Named Executive Officers

Andy Heyward 2,470,133 (2) 6.98%

Michael Jaffa 150,000 (3) *

Michael Hirsh 81,507 (4) *

Anthony Thomopoulos 20,908 (5) *

Henry Sicignano 16,891 (7) *

Joseph (Gray) Davis 22,812 (5) *

Margaret Loesch 19,215 (5) *

Lynne Segall 26,409 (5) *

Cynthia Turner-Graham 14,731 (6) *

348,127 (8) *

All current executive officers and directors as a group (consisting of 10 persons) 3,170,733 8.97%

____________________

* Indicates ownership less than 1%

(1) Applicable percentage ownership is based on 35,367,653 shares of common stock outstanding as of April 5, 2024, together with securities exercisable or convertible into shares of common stock within 60 days of April 5, 2024.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.

Shares of common stock that a person has the right to acquire beneficial ownership of upon the exercise or conversion of options, convertible stock, warrants or other securities that are currently exercisable or convertible or that will become exercisable or convertible within 60 days of April 5, 2024 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the number of shares beneficially owned and percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Consists of (i) 99,073 shares of common stock held by A Squared Holdings LLC over which Andy Heyward holds sole voting and dispositive power;

(ii) 1,519,375 shares of common stock held by Andy Heyward or issuable upon vested RSUs;

(iii) 351,562 shares of common stock held by AH Gadget IDF LLC an entity controlled by Mr.

Heyward (iv) 123 shares held by Heyward Living Trust;

(v) 500,000 options to acquire shares of common stock issuable upon the exercise of stock options.

that will become exercisable within 60 days of April 5, 2024.

(3) Consists of 50,000 shares of common stock held by Mr.

Jaffa or issuable upon vested RSUs;

and 100,000 shares of common stock issuable upon exercise of stock options granted to Mr.

Jaffa, that will become exercisable within 60 days of April 5, 2024.

(4) Consists of 23,237 shares of common stock and 58,270 shares of Exchangeable shares, exchangeable into shares of common stock granted to Mr.

Hirsh that are exercisable within 60 days of April 5, 2024.

(5) Consists of 15,416 shares of common stock held and 2,000 shares of common stock issuable upon exercise of stock options granted to each that are exercisable within 60 days of April 5, 2024.

In addition, Mr.

Davis held 5,396 shares of common stock, Ms.

Loesch held 1,799 shares of common stock, Ms.

Segall held 8,993 shares of common stock and Mr.

Thomopoulos held 3,480 shares of common stock.

(6) Consists of 8,527 shares of common stock held and 2,000 shares of common stock issuable upon exercise of stock options granted to Dr.

Turner-Graham that will become exercisable within 60 days of April 5, 2024.

(7) Consists of 16,891 shares of common stock held by Mr.

(8) Consists of 348,127 shares of common stock held by Mr.

Equity Compensation Plan Information

The Company adopted the 2020 Incentive Plan (the "2020 Plan") on September 1, 2020, following the approval of the Board of Directors.

The Board of Directors authorized up to an aggregate of 3,000,000 shares of common stock as the maximum number of shares available for issuance, which does not include shares related to acquisitions.

The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”) which had a total number of authorized shares of 216,767.

However, the remaining shares outstanding under the 2015 Plan are still to be governed by that plan.

As of December 31, 2023, 57,800 stock options granted under the 2015 Plan remain outstanding.

Any expired or terminated shares from the 2015 Plan that have not been vested or exercised become available for issuance under the 2020 Plan, resulting in total authorized shares of 3,216,767.

As of December 31, 2023, 3,071,922 are outstanding under the 2020 Plan, which excludes remaining shares outstanding granted as replacement options as part of the Wow acquisition.

The following table reflects compensation plans pursuant to which we are authorized to issue options and restricted stock units, including the number of shares issuable under outstanding options and rights issued under the plans and the number of shares remaining available for issuance under the plans as of December 31, 2023.

Plan category Number of securities to be issued

upon exercise of outstanding options, vesting of restricted stock units and other rights Weighted-average exercise price of

outstanding options (1) Number of securities remaining available

for future issuance under equity

compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by shareholders 57,800 $ 52.40 –

Equity compensation plans not approved by shareholders – – –

Equity compensation plans approved by shareholders 2,146,175 $ 13.04 87,045

Equity compensation plans not approved by shareholders – – –

Total 2,203,975 $ 14.07 87,045

(1) The weighted average exercise price calculation does not take into account any restricted stock units or performance shares.

Information required by this

item is incorporated by reference to our Proxy Statement.

Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

SEC regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest.

A related person is:

(i) an executive officer, director or director

nominee of the Company, (ii) a beneficial owner of more than 5% of our common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial ownership interest or control.

Described below are certain transactions or relationships between us and certain related persons.

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

During the years ended December 31, 2023 and December 31, 2022, Mr.

Heyward earned $343,750 and $775,000 in producer fees, respectively, and earned $220,000 in quarterly bonuses in each year ended.

On August 25, 2022, Mr.

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

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

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

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

During the year ended December 31, 2023, Mr.

Heyward earned $0 in royalties from musical compositions.

On February 27, 2023, Mr.

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

During the year ended December 31, 2023, Mr.

Heyward earned $325,556 in creative development fees.

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

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

The terms and conditions of such license are customary within the industry, and the Company earns an arm-length industry standard royalty on all sales made by AHAA utilizing the licensed content.

During the year ended December 31, 2023, Mr.

Heyward earned $0 in royalties from this agreement.

On December 1, 2021, the Company entered into an Independent Contractor Agreement for two years with F&M Film und Medien Beteiligungs GmbH (“F&M”), an Austrian company controlled by Dr.

Stefan Piëch.

Pursuant to the agreement, F&M received $150,000 annually, paid on a semi-monthly basis.

In addition, Dr.

Piëch was granted 30,000 of the Company's RSUs that vest in three six-month intervals beginning on December 1, 2021.

Review, Approval or Ratification of Transactions with Related Persons

Pursuant to the written charter of our Audit Committee, the Audit Committee is responsible for reviewing and approving all transactions both in which (i) we are a participant and (ii) any parties related to us, including our executive officers, our directors, beneficial owners of more than 5% of our securities, immediate family members of the foregoing persons and any other persons whom our Board of Directors determines may be considered related parties under Item 404 of Regulation S-K, has or will have a direct or indirect material interest.

All the transactions described in this section occurred prior to the adoption of the Audit Committee’s charter.

Corporate Governance

We believe that good corporate governance is important to ensure that the Company is managed for the long-term benefit of our stockholders.

This section describes key corporate governance practices that we have adopted.

Independence of the Board of Directors

Our determination of the independence of our directors is made using the definition of “independent” contained in the listing standards of the NYSE American Capital Market.

On the basis of information solicited from each director, the board has determined that each of Messrs.

Davis, Thomopoulous and Sicignano and Mses.

Loesch, Segall and Turner-Graham are independent directors within the meaning of such rules.

Information required by this

item is incorporated by reference to our Proxy Statement.

Principal Accounting Fees and Services

Current Principal Accountant Fees and Services

WithumSmith+Brown, PC (“Withum”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2023 and has served as our independent registered public accounting firm since January 29, 2024.

There were no fees paid by us to Withum in 2022 or 2023 for audit and other services rendered.

WithumSmith+Brown, PC (“Withum”)

served as our independent registered public accounting firm for the fiscal year ended December 31, 2024 and has served as our independent

registered public accounting firm since January 29, 2024.

The following table sets forth

fees billed to us by Withum for the years ended December 31, 2024 and 2023 for services rendered for the audit of our annual financial

statements, the review of our quarterly financial statements and services rendered in connection with the filing of registration statements:

Audit-Related Fees

Former Principal Accountants Fees and Services

On October 23, 2023 the Audit Committee of the Board of Directors dismissed Baker Tilly US, LLP (“Baker Tilly”) as our independent registered public accounting firm and approved replacing them with Mazars USA LLP (“Mazars”) on October 23, 2023.

The following table sets forth fees billed to us by our independent registered public accounting firm Baker Tilly for the years ended December 31, 2023 and 2022 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Audit Fees $ 581,839 $ 510,019

Baker Tilly US, LLP (“Baker

Tilly”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2022 and until October

The following table sets forth fees billed to us by Baker Tilly for the years ended December 31, 2024 and 2023 for (i) services

rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered

that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees,

and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Audit-Related Fees

Tax Fees 205,474 38,336

Other Fees – –

Total Fees $ 862,408 $ 563,355

On January 24, 2024, our Audit Committee of the Board of Directors dismissed Mazars as our independent registered public accounting firm and approved replacing them with Withum on January 29, 2024.

There were no fees paid by us to Withum in 2023 for audit and other services rendered.

The following table sets forth fees billed to us by our independent registered public accounting firm Mazars for the years ended December 31, 2023 and 2022 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Audit Fees $ 70,720 $ –

Mazars USA LLP (“Mazars”)

served as our independent registered public accounting firm from October 23, 2023 until January 24, 2024.

The following table sets forth

fees billed to us by Mazars for the years ended December 31, 2024 and 2023 for (i) services rendered for the audit of our annual financial

statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance

of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with

tax preparation, compliance, advice and assistance.

Audit-Related Fees

Other Fees – –

Total Fees $ 70,720 $ –

We obtain an engagement letter for all audit and tax services.

The Board pre-approves the services performed by the independent registered public accounting firm.

Pre-Approval Policies and Procedures

We obtain an engagement letter

for all audit and tax services.

The Audit Committee pre-approves the services performed by the independent registered public accounting

These services may include audit services, audit-related services, tax services and other services, as follows:

• Audit services include professional services rendered by the principal accountant for the audit of the annual and review of the quarterly financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.

• Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

• Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

• Other Fees are those associated with services provided by the principal accountant not captured in the other categories.

Exhibits, Financial Statement Schedules

· Audit services include professional services rendered by the principal accountant for the

audit of the annual and review of the quarterly financial statements, as well as work that generally only the independent auditor can

reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial

accounting and/or reporting standards.

· Audit-Related services are for assurance and related services that are traditionally performed

by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures

required to meet certain regulatory requirements.

· Tax services include all services performed by the independent auditor’s tax personnel

except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance,

tax planning, and tax advice.

· Other Fees are those associated with services provided by the principal accountant not captured

in the other categories.

Examples include comfort letters, circle-ups, and related document reviews for company capital raise initiatives.

Exhibits and Financial Statement Schedules

Financial Statements

See Index to Consolidated Financial Statements at Item 8 herein.

Financial Statement Schedules have been omitted as they are either not required, not applicable, or the information is otherwise included.

The financial statements are

filed as part of this Annual Report on Form 10-K under “Item 8.

Financial Statements and Supplementary Data”.

Index to Consolidated Financial

Statements is located herein immediately following the signature page of this Annual Report on Form 10-K.

Financial Statement Schedules

have been omitted as they are either not required, not applicable, or the information is otherwise included.

EXHIBIT INDEX

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and Wow Unlimited Media Inc.

(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2021)

(Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2021)

Agreement and Plan of Merger dated June 21, 2023 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023)

Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 31, 2021)

3.2 Certificate of Change to the Articles of Incorporation of the Company , filed with the Secretary of State of the State of Nevada on February 9, 2023 (Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 10, 2023)

3.3 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.6 to the Company’s Form S-3, filed with the SEC on July 26, 2023)

3.4 Amended and Restated Certificate of Designations, Preferences and Rights of the 0% Series A Convertible Preferred Stock, filed with the Secretary of State of Nevada on November 21, 2019 (Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2019)

3.5 Certificate of Designation of Series B Preferred Stock (Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 12, 2022)

Certificate of Change to the Articles of Incorporation of the Company, filed with the Secretary of State of the State of Nevada on February 9, 2023 (Incorporated by reference to Exhibit 3.1 the Company’s Current Report on Form 8-K, filed with the SEC on February 10, 2023)

of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed

with the SEC on August 19, 2019)

Amended and Restated Certificate of Designations, Preferences and Rights of the 0% Series A Convertible Preferred Stock, filed with the Secretary of State of Nevada on November 21, 2019 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2019)

Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 12, 2022)

Articles of Merger of Kartoon Studios, Inc.

into the Company (incorporated by reference to Exhibit 3.1 to the Compa ny ’s Current Report on Form 8-K filed on June 27, 2023).

into the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023).

Certificate of Designation of Series C Preferred Stock of the Company, dated September 25, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A, filed on September 25, 2023)

1 unchanged sentence

Certificate of Change to the Articles of Incorporation of the Company, filed with the Secretary of State of the State of Nevada on November 9, 2023 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2023)

4.1 Form of Common Stock Purchase Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

4.2 Form of Waiver Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2019)

4.3 Description of Capital Stock (Incorporated by reference to the Company’s Annual Report on Form 10-K, filed with the SEC on March 30, 2020)

4.4 Form of Investor Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2019)

4.5 Form of Reload Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2019)

4.6 Form of New Warrant (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2021)

Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

Form of Waiver Warrant (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2019)

Description of Capital Stock

Form of Investor Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2019)

Form of Reload Warrant (Incorporated by reference to Exhibit 4 .

1 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2019)

Form of New Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2021)

Form of New Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023)

4.8 Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.4 to the Company’s Form S-3, filed with the SEC on December 22, 2023)

4.9 Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit 4.5 to the Company’s Form S-3, filed with the SEC on December 22, 2023)

10.1† Form of Stock Option Grant Notice Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

10.2† Form of Restricted Stock Unit Agreement Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

10.3† 2 015 Incentive Plan of the Company , as amended (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2017)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 19, 2024)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Series A Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Series B Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Stock Option Grant Notice Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

Form of Restricted Stock Unit Agreement Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to Exhibit 10.4 the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

Incentive Plan of the Company, as amended (Incorporated by reference to

Company’s Quarterly Report on Form 10-Q filed on November 14, 2017)

Subscription Agreement dated January 17, 2017 between the Company and Sony DADC USA, Inc.

(Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2017)

10.5 Registration Rights Agreement dated August 17, 2018 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

10.6† 2020 Incentive Plan of the Company (Incorporated by reference to the Company’s Form S-8 filed with the SEC on November 16, 2020)

10.7† Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 7, 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

10.8† Amended and Restated Employment Agreement between the Company and Andrew Heyward, dated December 7, 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

(Incorporated by reference to Exh ibit 10.

1 to the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2017)

Registration Rights Agreement dated August 17, 2018 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

Studios Inc 2020 Incentive Plan

amended and restated March 21, 2024

( Incorporated

by reference to Exhibit 99.1 the Company’s Form S-8 filed with the SEC on June 11, 2024 )

Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 7, 2020 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

Amended and Restated Employment Agreement between the Company and Andrew Heyward, dated December 7, 2020 (Incorporated by reference to Exhibit 10.

1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

Amendment No.

1 unchanged sentence

Amendment No.

2 to the Amended and Restated Employment Agreement between the Co mpany and Andrew Heyward dated June 23, 2021 (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K, filed with the SEC on April 13, 2023)

2 to the Amended and Restated Employment Agreement between the Company and Andrew Heyward dated June 23, 2021 (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K, filed with the SEC on April 13, 2023)

Amendment No.

3 to the Amended and Restated Employment Agreement between the Company and Andrew Heyward dated November 22, 2021 (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K, filed with the SEC on April 13, 2023)

10.12 Share Purchase Agreement, dated of December 1, 2021, by and the Co m pany and F&M Film-und Medien Beteiligungs GmbH (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2021)

10.13 Shareholder Agreement, dated as of December 1, 2021 among the Company and F&M Film-und Medien Beteiligungs GmbH (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2021)

Share Purchase Agreement, dated of December 1, 2021, by and the Company and F&M Film-und Medien Beteiligungs GmbH (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2021)

Shareholder Agreement, dated as of December 1, 2021 among the Company and F&M Film-und Medien Beteiligungs GmbH (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2021)

Amendment No.

1 to the Amended and Restated Employment Agreement between the Company and Michael Jaffa dated December 16, 2021 (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K, filed with the SEC on April 13, 2023)

10.15† Employment Agreement between Wow Unlimited Media Inc.

and Michael Hirsh dated April 7, 2022 (incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K, filed with the SEC on April 13, 2023)

Amendment No.

9 unchanged sentences

Amendment No.

3 to the Amended and Restated Employment Agreement between the Company and Michael Jaffa dated November 13, 2023 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on April 9, 2024)

Securities Purchase Agreement, dated April 18, 2024, by and between Kartoon Studios, Inc.

and each purchaser identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 24, 2024)

Placement Agent Agreement, dated as of April 18, 2024, by and between Kartoon Studios, Inc.

and EF Hutton LLC (incorporated by reference to Exhibit 10.

2 to the Company’s Current Report on Form 8-K filed on April 19, 2024)

Placement Agency Agreement, dated December 16, 2024, by and between Kartoon Studios, Inc.

and Roth Capital Partners, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Amendment Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 21, 2025)

Amendment No.

4 to the Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 6, 2024

Amendment No.

1 to the Amended and Restated 2020 Incentive Plan, effective December 12, 2024

Letter from Baker Tilly US, LLP, dated October 27, 2023 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on October 27, 2023)

16.2 Letter from Mazars USA LLP, dated January 30, 2024 (incorporated by reference to Exhibit 16.

1 to the Company’s Current Report on Form 8-K filed on January 30, 2024)

Letter from Mazars USA LLP, dated January 30, 2024 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on January 30, 2024)

Kartoon Studios, Inc.

Insider Trading Policy

List of Subsidiaries of the Company

Consent of WithumSmith+Brown, PC

23.2* Consent of Baker Tilly US LLP

Section 302 Certification of Chief Executive Officer

3 unchanged sentences

Kartoon Studios, Inc.

Clawback Policy, effective December 1, 2023

101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

Clawback Policy, effective December 1, 2023 (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K filed on April 9, 2024)

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted in inline XBRL and included in exhibit 101).

1 unchanged sentence

** Furnished herewith.

† Management contract or compensatory plan or arrangement.

contract or compensatory plan or arrangement.

Form 10-K Summary

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements

of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto

duly authorized.

Kartoon Studios, Inc.

April 5, 2024 By:

March 31, 2025

/s/ Andy Heyward

Chief Executive Officer (Principal Executive Officer)

April 5, 2024 /s/ Brian Parisi

March 31, 2025

/s/ Brian Parisi

Chief Financial Officer (Principal Financial and Accounting Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andy Heyward and Michael Jaffa, jointly and severally, attorney-in-fact, with the power of substitution in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Andy Heyward April 5, 2024

KNOW ALL PERSONS BY THESE

PRESENTS, that each person whose signature appears below constitutes and appoints Andy Heyward and Michael Jaffa, jointly and severally,

attorney-in-fact, with the power of substitution in any and all capacities, to sign any amendments to this Annual Report on Form 10-K

and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,

hereby ratifying and confirming all that each of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of

the registrant and in the capacities and on the dates indicated.

/s/ Andy Heyward

March 31, 2025

Chief Executive Officer (Principal Executive Officer)

/s/ Brian Parisi April 5, 2024

/s/ Brian Parisi

March 31, 2025

Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Henry Sicignano III April 5, 2024

/s/ Henry Sicignano III

March 31, 2025

Henry Sicignano III

/s/ Joseph “Gray” Davis April 5, 2024

/s/ Joseph “Gray” Davis

March 31, 2025

Joseph “Gray” Davis

/s/ Lynne Segall April 5, 2024

/s/ Anthony Thomopoulos April 5, 2024

/s/ Lynne Segall

March 31, 2025

/s/ Anthony Thomopoulos

March 31, 2025

Anthony Thomopoulos

/s/ Margaret Loesch April 5, 2024

/s/ Margaret Loesch

March 31, 2025

Margaret Loesch

Cynthia Turner-Graham April 5, 2024

Cynthia Turner-Graham

/s/ Stefan Piëch April 5, 2024

March 31, 2025

Cynthia Turner-Graham

KARTOON STUDIOS, INC.

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements for the Years Ended December 31, 2023 and 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

Financial Statements as of and for the Years Ended December 31, 2024 and 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

6 unchanged sentences

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Kartoon Studios, Inc.:

Report of Independent Registered

Public Accounting Firm

To the Board of Directors and Stockholders of

Kartoon Studios, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Kartoon Studios, Inc.

and Subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the December 31, 2022 consolidated balance sheet has been restated to correct a misstatement related to the recording of a deferred tax liability within purchase accounting.

We also have audited the adjustments described in Note 2 that were applied to restate the December 31, 2022 consolidated balance sheet to correct the error.

In our opinion, such adjustment is appropriate and have been properly applied.

We were not engaged to audit, review, or apply any procedures to the 2022 consolidated financial statements of the Company, other than with respect to the adjustment and, accordingly, we do not express an opinion or any other form of assurance on the 2022 consolidated financial statements taken as a whole.

We have audited the accompanying consolidated

balance sheets of Kartoon Studios, Inc.

and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related

consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31,

2024 and 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as

of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years ended December 31, 2024

and 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Emphasis of the Matter – Restatement of Unaudited Interim Financial Statements

As discussed in Note 2 to the consolidated financial statements, the unaudited condensed consolidated balance sheets as of June 30, 2022 and September 30, 2022 and the unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2023, as of and for the three and six months ended June 30, 2023 and as of and for the nine months ended September 30, 2023 has been restated to correct misstatements related to deferred tax liabilities and a warrant modification.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our

opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matters communicated below

are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Complex Equity Transactions

As discussed in Note 16, on June 26, 2023, the Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain holders of the warrants issued by the Company in January 2021 that had an exercise price of $23.70 per share and were exercisable for an aggregate of 2,311,550 shares of the Company’s common stock (the “2021 Warrants”).

Pursuant to the Letter Agreements, the exercising holders and the Company agreed that, subject to any applicable beneficial ownership limitations, the holders would exercise all of their 2021 Warrants for shares of the Company’s common stock at a reduced exercise price of $2.50 per share of common stock in exchange for the issuance of new unregistered warrants (the “Exchange Warrants”) to purchase up to an aggregate of 4,623,100 shares of common stock, equal to 200% of the number of common stock underlying the 2021 Warrants.

The Company calculated the fair value of the 2021 Warrants exercised immediately before the repricing and after the repricing using the Black Scholes option pricing model.

The resulting increase in fair value of $3.5 million, was considered a deemed dividend and reflected within Additional Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The accounting for the transactions required an assessment of the particular features of the warrants, and the impact of those features on the accounting and classifications of the warrants.

The complexities and significant estimates required a high degree of auditor judgement and an increased extent of audit effort, including the involvement of professionals in our firm with expertise in the accounting for financial instruments.

Our audit procedures related to management’s judgements of the accounting treatment for the warrants and classification, as well as the determination of fair value of the transactions.

Our audit procedures included, among others, inspecting the agreements and evaluating the terms and conditions of the agreements and assessing the reasonableness of management’s interpretation and application of the appropriate accounting authoritative guidance.

Our audit procedures also included utilizing personnel with specialized skill and knowledge to assist in assessing the appropriateness of conclusions reached by management by evaluating the underlying terms of the agreements and assessing the appropriateness of management’s application of the authoritative accounting guidance.

In addition, we evaluated the methodologies and assumptions used to estimate the fair value of the warrants.

We recalculated the value of the warrants before and after the modification date and recalculated the amount of the deemed dividend.

Impairment of Goodwill and Intangible Assets

During the year ended December 31, 2023, the Company recorded an impairment charge of $4.4 million to Intangible Assets and an impairment charge of $33.5 million to Goodwill, resulting in a balance of Intangible assets, net of approximately $23 million and a balance of Goodwill of $0 as of December 31, 2023, respectively.

As discussed in Note 2 to the consolidated financial statements, the Company completes the annual goodwill and indefinite-lived intangible asset impairment tests at the end of each fiscal year.

To test for goodwill impairment, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit, of which the Company has two, is less than its carrying value.

If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach.

The fair value of a reporting unit is compared with its carrying amount, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.

If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

Intangible assets have been acquired, either individually or with a group of other assets, and were initially recognized and measured based on fair value.

Subjective auditor judgment was required to evaluate certain key assumptions used to determine the fair value of the reporting units and the intangible assets.

For the reporting units, the key assumptions included the discount rates used in the present value calculations and forecasted revenue growth rates and operational cost trends.

For the intangible assets, the key assumptions included the discount rates used in the present value calculations and the forecasted revenue growth rate and operational cost trends.

Changes to these key assumptions could have had a substantial impact on the fair value of the reporting units and indefinite-lived intangible asset and the amount of the impairment charges.

Additionally, the audit effort associated with the estimates required specialized valuation skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the Company’s third-party specialist and their valuation report and checked it for mathematical accuracy.

As disclosed in Note 13 to the consolidated financial

statements, in April 2024, the Company closed a registered direct offering of the sale of 3,900,000 shares of common stock and pre-funded

warrants to purchase up to 100,000 shares of common stock, at $1.00 per share of common stock and $0.99 per pre-funded warrant.

Additionally,

in connection with the April 2024 Offering, the exercise price of certain warrants to purchase 4,784,909 shares of common stock, previously

issued by the Company in June 2023, was reduced from $2.50 per share to $1.00 per share pursuant to anti-dilution provisions contained

in such warrant agreements.

Following an analysis under applicable accounting guidance, the Company determined that the pre-funded warrants

met the criteria for equity classification.

In December 2024, the Company closed an offering

for 4,375,000 shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736 shares of common stock, Series

A common stock purchase warrants to purchase up to 7,894,736 shares of common stock, and Series B common stock purchase warrants to purchase

up to 7,894,736 shares of common stock.

Each share of common stock and each pre-funded warrant was issued together with one Series A warrant

and one Series B warrant as part of an integrated offering.

The purchase price per share of common stock, together with accompanying Series

A and Series B warrants, was $0.57, while the purchase price per pre-funded warrant was $0.569.

The Company issued warrants to purchase

1,657,895 shares of common stock to the placement agent with an exercise price of $0.71 per share.

Following an analysis under applicable

accounting guidance, the Company determined that the pre-funded warrants and placement agent warrants met the criteria for equity classification,

while the Series A and Series B warrants required classification as liabilities.

The liability-classified warrants were subsequently measured

at fair value, with changes recognized in earnings.

The accounting for the transactions required an

assessment of the particular features of the warrants, and the impact of those features on the accounting and classifications of the warrants.

The complexities and significant estimates required a high degree of auditor judgement and an increased extent of audit effort.

Our audit procedures related to management’s

judgements of the accounting treatment for the warrants and classification, as well as the determination of fair value of the transactions.

Our audit procedures included, among others, inspecting the agreements and evaluating the terms and conditions of the agreements and assessing

the reasonableness of management’s interpretation and application of the appropriate accounting authoritative guidance.

procedures also included utilizing personnel with specialized skill and knowledge to assist in assessing the appropriateness of conclusions

reached by management by evaluating the underlying terms of the agreements and assessing the appropriateness of management’s application

of the authoritative accounting guidance.

We evaluated the methodologies and assumptions used to estimate the fair value of the warrants

on the date of grant as well as of December 31, 2024.

In addition, we evaluated the Company’s footnote disclosures in relation to

the warrants.

Impairment of Intangible Assets

As disclosed in Note 9 to the financial statements,

as of December 31, 2024, the Company had $19.7 million of intangible assets, net.

The Company completes the annual intangible asset impairment

tests at the end of each fiscal year.

Intangible assets have been acquired, either individually or with a group of other assets, and were

initially recognized and measured based on fair value.

Subjective auditor judgment was required to evaluate certain key assumptions used

determine the fair value of the reporting units and the intangible assets.

For the reporting units, the key assumptions included the discount

rates used in the present value calculations and forecasted revenue growth rates and operational cost trends.

For the intangible assets,

the key assumptions included the discount rates used in the present value calculations and the forecasted revenue growth rate and operational

Changes to these key assumptions could have had a substantial impact on the fair value of the reporting units and intangible

asset and the amount of the impairment charges.

Additionally, the audit effort associated with the estimates required specialized valuation

skills and knowledge.

The following are the primary procedures we performed

to address this critical audit matter.

We evaluated the Company’s third-party specialist and their valuation report and checked

it for mathematical accuracy.

We reviewed key valuation inputs and reviewed the comparable company guidelines for reasonableness.

We evaluated the forecasted revenue growth and operational costs for reasonableness by utilizing historical rates to benchmark and also used peer company data.

We evaluated the Company’s discount rates by comparing the assumptions and data used by management to develop the discount rates to publicly available market data and historical experience.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of the valuation method utilized.

/s/ WithumSmith+Brown, PC

the forecasted revenue growth and operational costs for reasonableness by utilizing historical rates to benchmark and also used peer company

We evaluated the Company’s discount rates by comparing the assumptions and data used by management to develop the discount

rates to publicly available market data and historical experience.

In addition, we involved valuation professionals with specialized skills

and knowledge, who assisted in evaluating the appropriateness of the valuation method utilized.

/s/ WithumSmith+Brown,

We have served as the Company’s auditor since 2024.

Whippany, New Jersey

April 5, 2024

March 31, 2025

PCAOB ID Number:

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Genius Brands International, Inc.

(n/k/a Kartoon Studios, Inc.):

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the adjustments to restate the previously issued financial statements described in Note 2, the accompanying consolidated balance sheet of Genius Brands International, Inc.

and subsidiaries (n/k/a Kartoon Studios, Inc.) (the “Company”) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements before the effects of the adjustments to restate the previously issued financial statements described in Note 2 present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to restate the previously issued financial statements described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by other auditors.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Baker Tilly US, LLP

We served as the Company's auditor from 2016 to 2023.

Los Angeles, California

April 12, 2023

Kartoon Studios, Inc.

Consolidated Balance Sheets

(in thousands, except share and par value data)

(in thousands,

except for share data)

As of December 31,

Current Assets:

Cash $ 4,095 $ 7,432

Restricted Cash

Investments in Marketable Securities (amortized cost of $ 2,116 and $ 12,838 , respectively)

11,950 83,706

Accounts Receivable, net 18,072 15,558

Tax Credits Receivable, net 20,714 26,255

Notes and Accounts Receivable from Related Party 1,435 2,844

Accounts Receivable (net of allowance of $ 239 and $ 189 , respectively)

Tax Credits Receivable (net of allowance of $ 187 and $ 527 , respectively)

Other Receivable

5 unchanged sentences

Finance Lease Right-of-Use Assets, net

Notes and Accounts Receivable from Related Party

Film and Television Costs, net

Tax Credits Receivable (net of allowance of $ 421 and $ 0 , respectively)

Investment in Your Family Entertainment AG

Intangible Assets, net

Goodwill – 33,474

Other Assets 125 148

Total Assets $ 111,436 $ 239,585

LIABILITIES AND STOCKHOLDERS’ EQUITY

5 unchanged sentences

Deferred Revenue

Margin Loan 782 60,810

Production Facilities

15,336 18,282

Production Facilities, net

Bank Indebtedness

10 unchanged sentences

Deferred Tax Liability, net

Warrant Liability

Other Noncurrent Liabilities

2 unchanged sentences

Stockholders’ Equity:

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

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

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

Preferred Stock, 10,000,000 shares authorized, 0 shares issued

and outstanding as of December 31, 2024 and December 31, 2023

0% Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized,

0 shares issued and outstanding as of December 31, 2024 and December 31, 2023

Series B Preferred Stock, $ 0.001 par value, 0 and 1 share

authorized, 0 and 1 share issued and outstanding as of December 31, 2024 and December 31, 2023, respectively

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

Common Stock, $ 0.001 par value, 190,000,000 and 40,000,000 shares authorized, 35,323,217 and 31,961,185 shares issued and 35,247,744 and 31,918,552 outstanding as of December 31, 2023 and December 31, 2022, respectively

Common Stock, $ 0.001 par value, 190,000,000 shares authorized;

46,285,078 and 35,323,217 shares issued and 46,209,081 and 35,247,744 outstanding as of December 31, 2024 and December 31, 2023, respectively

Additional Paid-in Capital

Treasury Stock at Cost, 75,997 and 75,473 shares of common stock as of December 31, 2024 and December 31, 2023, respectively

( 339 ) ( 290 )

Accumulated Deficit

5 unchanged sentences

Total Liabilities and Stockholders’ Equity

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

The accompanying notes are

an integral part of these consolidated financial statements.

Kartoon Studios, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

Consolidated Statements

of Operations

(in thousands, except share

and per share data)

Year Ended December 31,

1 unchanged sentence

Content Distribution

Licensing & Royalties 475 2,841

Media Advisory & Advertising Services 4,939 5,091

Licensing and Royalties

Media Advisory and Advertising Services

Total Revenues

9 unchanged sentences

Interest Expense

Other Income (Expense), net ( 2,679 ) 1,625

Loss Before Income Tax Benefit (Expense) ( 78,175 ) ( 44,424 )

Income Tax Benefit (Expense) 973 ( 105 )

Net Loss ( 77,202 ) ( 44,529 )

Net (Income) Loss Attributable to Non-Controlling Interests 99 ( 1,066 )

Other Expense

Loss Before Income Tax Benefit

Income Tax Benefit

Net Loss Attributable to Non-Controlling Interests

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 77,103 ) $ ( 45,595 )

Net Loss per Share - Basic

2 unchanged sentences

Weighted Average Shares Outstanding - Diluted

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

The accompanying notes are

an integral part of these consolidated financial statements.

Kartoon Studios, Inc.

Consolidated Statements of Comprehensive Loss

Consolidated Statements

of Comprehensive Loss

(in thousands)

Year Ended December 31,

Net Loss $ ( 77,202 ) $ ( 44,529 )

Change in Accumulated Other Comprehensive Income (Loss):

Change in Unrealized Gain/(Losses) on Marketable Securities 1,231 ( 5,774 )

Change in Accumulated Other Comprehensive Loss:

Change in Unrealized Gain on Marketable Securities

Realized Losses on Marketable Securities Reclassified from AOCI into Earnings

Foreign Currency Translation Adjustments

Total Change in Accumulated Other Comprehensive Income (Loss) 6,042 ( 8,704 )

Total Change in Accumulated Other Comprehensive Loss

Total Comprehensive Net Loss

Net (Income) Loss Attributable to Non-Controlling Interests 99 ( 1,066 )

Net Loss Attributable to Non-Controlling Interests

Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc.

$ ( 71,061 ) $ ( 54,299 )

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

The accompanying notes are

an integral part of these consolidated financial statements.

Kartoon Studios, Inc.

Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

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

Shares Amount Shares Amount Shares Amount

Consolidated Statements

of Stockholders’ Equity

(in thousands, except share

Additional Paid-In

Accumulated Other

Comprehensive

Non-Controlling

Balance, December 31, 2022

Shares Issued for Wow Acquisition 1,105,708 11 1 – 11,543 – – – – – 11,554

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

$ ( 641,443 )

Issuance of Common Stock for Services

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 404,577 4 – – ( 4 ) 699 ( 5 ) – – – ( 5 )

Repurchased Shares Upon Legal Settlement ( 41,934 ) – – – – 41,934 ( 285 ) – – – ( 285 )

Reclassification of Stock Warrant to a Derivative Liability – – – – ( 1,476 ) – – – – – ( 1,476 )

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

Fractional Shares Issued Upon Reverse

Proceeds From Warrant Exchange, net

Reclassification of Warrant Liability

Share Based Compensation

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – ( 5,361 ) – ( 5,361 )

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Currency Translation Adjustment

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

Net Income (Loss) – – – – – – – ( 45,595 ) – 1,066 ( 44,529 )

Distributions to Non-Controlling

Balance, December 31, 2023

$ ( 718,546 )

Issuance of Common Stock for Services

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 418,648 31 – – ( 32 ) 32,840 ( 49 ) – – – ( 50 )

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

Proceeds From Warrant Exchange, Net 2,311,550 2 – – 4,854 – – – – – 4,856

Reclassification of Warrant Liability to Equity – – – – 2,969 – – – – – 2,969

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

Stock Options Granted to Consultants

Reclassification Related to Reverse Stock Split

Proceeds from Securities Purchase

Agreement, Net

Placement Agent Fee Paid in Cash

Warrant Exercise

Film Financing From External Investor

Share Based Compensation

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – 1 – – – 5,727 – 5,728

Share cancellation

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Currency Translation Adjustment

Net Loss – – – – – – – ( 77,103 ) – ( 99 ) ( 77,202 )

Balance, December 31, 2024

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

$ ( 739,285 )

The accompanying notes are

an integral part of these consolidated financial statements.

Kartoon Studios, Inc.

Consolidated Statements of Cash Flows

Consolidated Statements

of Cash Flows

(in thousands)

1 unchanged sentence

Cash Flows from Operating Activities:

Net Loss $ ( 77,202 ) $ ( 44,529 )

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

Amortization of Film and Television Costs

Depreciation and Amortization of Property, Equipment & Intangible Assets 2,549 2,711

Depreciation and Amortization of Property, Equipment and Intangible Assets

Amortization of Right-of-Use Asset

7 unchanged sentences

Loss on Early Lease Termination

Warrant Expense 12,664 –

Fair Value Of Issued Warrants

Deferred Income Taxes

Marketing Expenses in Exchange for Stock

Gain on Revaluation of Equity Investments in Your Family Entertainment AG ( 2,314 ) ( 1,392 )

Loss (Gain) on Revaluation of Equity Investments in Your Family Entertainment AG

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

Gain on Warrant Revaluation

Loss on Transaction

Realized Loss on Marketable Securities

Write-Off of Contingent Consideration Liability – ( 1,340 )

Write-off of Disputed Trade Payable

Stock Issued for Services

Stock Options Issued for Services

Credit Loss Expense

5 unchanged sentences

Tax Credits Received, net

Employee Retention Tax Credit Receivable

Film and Television Costs, net

2 unchanged sentences

Accounts Payable

Accrued Salaries & Wages ( 592 ) 191

Accrued Salaries and Wages

Accrued Expenses

7 unchanged sentences

Cash Flows from Investing Activities:

Cash Payment for Wow, net of Cash Acquired – ( 37,311 )

Cash Payment for Equity Investment in Your Family Entertainment – ( 9,540 )

Cash Payment for Ameba, net of Cash Acquired – ( 3,893 )

Repayments from/(Loans to) Related Party for Note Receivables 1,333 ( 1,567 )

Repayments from Related Party for Note Receivables

Proceeds from Principal Collections on Marketable Securities

Proceeds from Sales and Maturities of Marketable Securities

Investment in Intangible Assets, net – ( 22 )

Purchase of Property & Equipment ( 72 ) ( 592 )

Net Cash Provided by (Used in) Investing Activities $ 73,858 ( 30,937 )

Purchase of Property and Equipment

Net Cash Provided by Investing Activities

Cash Flows from Financing Activities:

3 unchanged sentences

Repayment of Production Facilities

Proceeds from Bank Indebtedness, net 1,122 225

(Repayments of )/Proceeds from Bank Indebtedness, net

Proceeds from Warrant Exchange, net

1 unchanged sentence

Debt Issuance Costs

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

Repurchase of Common Stock – ( 285 )

Film Financing from External Investors

Placement Agent Fee Paid in Cash

Proceeds from Securities Purchase Agreement, net

Shares Withheld for Taxes on Vested Restricted Shares

Proceeds from Warrant Exercise

Payment for Warrant Put Option Exercise

Net Cash Provided by (Used in) Financing Activities $ ( 60,802 ) 54,444

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash

Net Decrease in Cash ( 3,337 ) ( 2,628 )

Beginning Cash 7,432 10,060

Ending Cash $ 4,095 $ 7,432

Net Increase (Decrease) in Cash and Restricted Cash

Beginning Cash and Restricted Cash

Ending Cash and Restricted Cash

Supplemental Disclosures of Cash Flow Information

6 unchanged sentences

Warrants Issued for Services

Shares Issued for Wow Acquisition $ – $ 11,554

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

Warrant Modification

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

The accompanying notes are

an integral part of these consolidated financial statements.

Kartoon Studios, Inc.

Notes to Consolidated Financial Statements

December 31, 2023

Notes to Consolidated Financial

Organization and Business

1 unchanged sentence

Kartoon Studios, Inc.

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

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

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

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

known as Genius Brands International, Inc.) (the “Company” or “we,” “us” or “our”) is

a global content and brand management company that creates, produces, licenses, and broadcasts educational, multimedia animated content

for children.

Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television,

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

The Company is a “work for

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

In the children’s

media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, providing enrichment

as well as entertainment.

With the exception of selected WOW Unlimited Media Inc.

(“Wow”) titles, the Company’s programs, along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service, its free ad supported TV (“FAST”) channels and subscription video on demand (“SVOD”) outlets, Kartoon Channel!

and Ameba TV, as well as linear streaming platforms .

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

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

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

(“Wow”) titles, the Company’s programs,

along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video

on demand (“AVOD”) service, its free ad supported TV (“FAST”) channels and

subscription video on demand (“SVOD”) outlets, Kartoon Channel!

TV, as well as linear streaming platforms .

These streaming platforms include Comcast,

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

YouTube Kids, and Samsung and LG smart TVs.

The Company’s in-house owned and produced animated shows include Stan Lee’s Superhero

Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC!

Shaq’s Garage starring Shaquille O’Neal.

The Company’s library titles include the award-winning Baby Genius ,

adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret Millionaires Club , created with

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

Lazy in Space and Castlevania .

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

Through the Company’s investments in Germany’s Your Family Entertainment AG (“YFE”), a publicly traded company on the Frankfurt Stock Exchange (RTV-Frankfurt), it has gained access to one of the largest animation catalogues in Europe with over 50 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide.

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

The Company also licenses

its programs to other services worldwide, in addition to the operation of its own channels, including, but not limited to, Netflix, Paramount+,

Max, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.

Through our investments in

Germany’s Your Family Entertainment AG (“YFE”), a publicly traded company on the Frankfurt Stock Exchange (RTV-Frankfurt),

we have gained access to a leading producer and distributor of high-quality children’s and family programming.

YFE owns and operates

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

Through the ownership of Wow,

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

In addition, Wow owns Frederator Networks Inc.

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

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

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

The Company has rights to a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe, LLC (“SLU”), through which it controls the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”).

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

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

Beacon represents over 30 kids and family clients, including Bandai Namco, Moose Toys, Bazooka Candy Brands and Playmobil.

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

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

On June 23, 2023, the Company was renamed Kartoon Studios, Inc.

(“Frederator”) and its Channel Frederator Network , the largest animation

focused creator network on YouTube with over 2,500 channels.

Frederator also owns Frederator Studios, focused on developing and producing

shorts and series for and with partners.

Over the past 20 years, Frederator Studios has partnered with Cartoon Network, Nickelodeon, Nick

Jr., Netflix, Sony Pictures Animation and Amazon.

The Company has rights to

certain select valuable IP, through our ownership of a controlling interest in Stan Lee Universe, LLC (“SLU”), an entity we

control and through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan

Lee Assets”).

The Company also owns The

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

(“Beacon Communications”) (collectively,

“Beacon”), a leading North American media and marketing agency, celebrated for its innovative, tailored strategies and unmatched

expertise in reaching kids, parents, and families with precision and impact.

Beacon represents over 20 kids and family clients, including

Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, Cepia LLC, and Zebra Pens.

In addition, the Company owns

the Canadian company Ameba Inc.

(“Ameba”), which operates a premier subscription-based streaming service specializing in younger

children’s entertainment.

As a cornerstone of our subscription offerings, Ameba delivers a vast library of engaging and educational content,

accessible across multiple platforms.

We believe, that Ameba significantly enhances our digital footprint and revenue streams.

On June 23, 2023, the Company

was renamed Kartoon Studios, Inc.

On June 26, 2023, the Company transferred its listing to NYSE American LLC (“NYSE American”).

In connection with listing on NYSE American, the Company voluntarily delisted from the Nasdaq Capital Market (“Nasdaq”).

The Company’s common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023.

Company’s common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023.

Recent Transactions

Exercise of 2021 Warrants and Issuance of New Warrants

On June 26, 2023, the Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain existing institutional and accredited investors pursuant to which such investors agreed to exercise for cash certain warrants issued by the Company in January 2021 (the “2021 Warrants”) to purchase 2,311,550 shares of common stock (the “Exercise”).

To induce the Exercise by holders of the 2021 Warrants, the Company also amended the exercise price of the 2021 Warrants from $ 23.70 per share (as adjusted pursuant to a 1-for-10 reverse stock split of our outstanding shares of common stock effected on February 10, 2023) to $ 2.50 per share pursuant to the terms of the 2021 Warrants.

In consideration for the Exercise, the exercising holders received warrants to purchase up to 4,623,100 shares of common stock, and The Special Equities Group, LLC, a division of Dawson James Securities, Inc.

(“SEG”) which acted as the warrant solicitation agent for the Exercise, received a warrant to purchase up to 161,809 shares of common stock (collectively, the “Warrants”).

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

Pursuant to the Letter Agreements, the Company filed a registration statement on Form S-3 covering the resale of the shares of common stock issuable upon the exercise of the Warrants on July 26, 2023.

Declaration of Series C Preferred Stock Dividend;

Redemption of Series C Preferred Stock

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

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

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

The outstanding shares of Series C Preferred Stock would vote together with the outstanding shares of common stock as a single class exclusively with respect to the approval of the proposal (the “Share Increase Proposal”) to amend the Company’s Articles of Incorporation to increase the authorized shares of common stock from 40,000,000 shares to 190,000,000 shares with a corresponding increase in the total number of authorized shares of capital stock from 50,000,000 shares to 200,000,000 shares (the “Share Increase Amendment”) and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Share Increase Amendment (the “Adjournment Proposal” and together with the Share Increase Proposal, the “Proposals”).

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

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

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

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

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

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

As of December 31, 2023, the Company had cash of $ 4.1 million, which decreased by $ 3.3 million as compared to December 31, 2022.

The decrease was primarily due to cash used in financing activities of $ 60.8 million and cash used in operating activities of $ 16.1 million, offset by cash provided by investing activities of $ 73.9 million.

The cash used in financing activities was primarily due to repayment of the margin loan, production facilities and bank indebtedness, net proceeds of $ 63.6 million and payments on finance leases of $ 2.2 million, offset by cash received from the warrant

exchange of $ 5.3 million.

The cash provided by investing activities was due to sales and maturities of marketable securities of $ 72.1 million.

As of December 31, 2023, the Company held available-for-sale marketable securities with a fair value of $ 12.0 million, a decrease of $ 71.8 million as compared to December 31, 2022 due to sales and maturities during the year ended December 31, 2023.

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

As of December 31, 2023 and December 31, 2022, the Company’s margin loan balance was $ 0.8 million and $ 60.8 million, respectively.

During the year ended December 31, 2023, the Company borrowed an additional $ 21.2 million from its investment margin account and repaid $ 81.2 million primarily with cash received from sales and maturities of marketable securities.

April 2024 Offering

On April 23, 2024, pursuant

to the terms of a securities purchase agreement, dated April 18, 2024 (the “SPA”), we closed a registered direct offering

of the sale of 3,900,000

shares of our common stock, par value $0.001 per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000

shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the "Investor"), at $1.00 per

share of Common Stock and $0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $ 4,000,000 ,

prior to deducting placement agent fees and other offering expenses.

Additionally, in connection with the April 2024 Offering, the exercise

price of certain warrants to purchase 4,784,909

shares of common stock, previously issued by us in June 2023, was reduced from $ 2.50

per share to $ 1.00

per share pursuant to anti-dilution provisions contained in such warrants.

“Winnie-the-Pooh” Project Financing

On June 21, 2024, we

announced the launch of “Winnie-the-Pooh” on the Kartoon Channel through a $ 30 .0 million

joint venture (the “JV”) with Catalyst Venture Partners (“Catalyst”).

The binding term sheet governing the

JV stipulates after Catalyst recoups its investment with 10% premium, the ownership and profit split between the partners is 60 %

to Kartoon Studios and 40 %

to Catalyst Venture Partners.

“Winnie-the-Pooh” is based on the designs and stories of one of the most successful brands

of all time, A.A.

Milne’s “Winnie-the-Pooh,” a property that has generated over $ 80 billion

in sales over the last four decades and is estimated to currently generate $ 3 -$ 6 billion

Catalyst has agreed to provide the full amount of the production financing with the plan to include an animated holiday

movie, 5 holiday specials and 4 seasons of episodic series.

December 2024 Offering

On December 18, 2024, we

closed an offering (the “December 2024 Offering”) for aggregate gross proceeds of approximately $ 4,496,480

from one institutional investor and issued to such investor 4,375,000

shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736

shares of common stock, Series A common stock purchase warrants to purchase up to 7,894,736

shares of common stock, and Series B common stock purchase warrants to purchase up to 7,894,736

shares of common stock.

Each share of common stock and each pre-funded warrant was issued together with one Series A warrant and one

Series B warrant as part of an integrated offering.

The purchase price per share of common stock, together with accompanying Series

A and Series B warrants, was $ 0.57 ,

while the purchase price per pre-funded warrant was $ 0.569 .

We incurred a placement agent fee of approximately $ 389,754

and issued warrants to purchase 1,657,895

shares of common stock to the placement agent with an exercise price of $ 0.71

Following an analysis under applicable accounting guidance, we determined that the pre-funded warrants and placement

agent warrants met the criteria for equity classification, while the Series A and Series B warrants required classification as

liabilities due to settlement provisions requiring shareholder approval.

The liability-classified warrants will be subsequently

measured at fair value, with changes recognized in earnings.

In accordance with applicable accounting standards, we allocated the

total proceeds among the instruments issued, recognizing the warrants as a liability at their full fair value.

As a result of this

allocation, we recorded a non-cash loss of $ 1 .0

Executing the transaction was driven by several strategic considerations.

The capital injection strengthened our liquidity

position, supporting project development and ongoing operations.

Additionally, while the warrants resulted in a non-cash accounting

loss due to their fair value measurement, they did not impact our cash flows.

Furthermore, our management believes, that the offering

was beneficial from a market visibility perspective.

Liquidity and Capital Resources

As of December 31,

2024, the Company had cash of $ 8.4

million which increased by $ 4.3

million as compared to December 31, 2023.

The increase was primarily due to cash provided by investing activities of $ 10.0

million offset by cash used by operating activities of $ 3.5

million and cash used in financing activities of $ 3.1

The cash provided by investing activities was primarily due to sales of marketable securities of $ 10

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

obligations, and bank indebtedness including margin loan, net of proceeds from each, resulting in net cash used of $ 8.6

million, offset by net proceeds from the Offering of $ 7.5

million and margin loan of $ 0.1

As of December 31, 2024,

the Company held available-for-sale marketable securities with a fair value of $ 2.03 million, a decrease of

$ 9.92 million as compared to December 31, 2023 due to sales and maturities during the year ended December 31, 2024.

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

As of December 31, 2024

and December 31, 2023, the Company’s margin loan balance was $ 0.9 million and $ 0.8 million, respectively.

During the year ended

December 31, 2024, the Company borrowed an additional $ 11 .0 million from its investment margin account and repaid $ 10.9 million primarily

with cash received from sales and maturities of marketable securities.

The borrowed amounts were primarily used for operational costs.

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

The weighted average interest rates were 0.98 % and 1.66 %, respectively, on average margin loan balances of $ 27.4 million and $ 27.1 million as of December 31, 2023 and December 31, 2022, respectively.

The Company incurred interest expense on the loan of $ 1.5 million and $ 1.3 million during the years ended December 31, 2023 and December 31, 2022, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

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

The Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility, revolving equipment lease line and treasury risk management facility that have an aggregate total outstanding balance of $ 4.2 million U.S.

dollars (“USD”) or $ 5.5 million Canadian dollars (“CAD”).

The Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio as of December 31, 2023.

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

The revolving demand facility and the treasury risk management facility can be called at any time by the lender as per the original terms of the facilities.

The risk of the lender demanding repayment can be deemed greater due to the breach of covenants.

Subsequent to December 31, 2023, the Company amended the revolving demand facility, equipment lease line, and treasury risk management facility during March 2024.

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

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

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

The equipment lease line was amended to set the maximum that can be borrowed under the equipment lease line to CAD 1.6 million.

As at December 31, 2023, the Company has drawn down the maximum of CAD 1.6 million under the equipment lease line.

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

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

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

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

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

Historically, the Company has incurred net losses.

For the years ended December 31, 2023 and 2022, the Company reported net losses of $ 77.2 million and $ 44.5 million, respectively.

The Company reported net cash used in operating activities of $ 16.1 million and $ 25.9 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the Company had an accumulated deficit of $ 718.5 million and total stockholders’ equity of $ 53.3 million.

As of December 31, 2023, the Company had current assets of $ 57.1 million, including cash of $ 4.1 million and marketable securities of $ 11.9 million, and current liabilities of $ 45.6 million.

The Company had working capital of $ 11.5 million as of December 31, 2023, compared to working capital of $ 28.6 million as of December 31, 2022.

Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations and noted the Company has sufficient marketable securities and investments to fund operations for the next 12 months.

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

The weighted average interest rates were

0.46 % and 0.98 %, respectively, on average margin loan balances of $ 1 million and $ 27.4 million as of December 31, 2024 and December 31,

2023, respectively.

During the years ended December

31, 2024 and December 31, 2023, the Company incurred interest expense on the margin loan of $ 0.1 million and $ 1.5 million, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian

and the custodian can issue a margin call at any time, effecting a payable on demand loan.

Due to the call option, the margin loan is

recorded as a current liability on the Company’s consolidated balance sheets.

In the second and third quarter

of 2024, the Company was not in compliance with financial covenant calculations.

As a result of these financial covenant violations, the

Company and the lender agreed to an early repayment of the equipment leases under the equipment lease line and the revolving demand facility

in the fourth quarter of 2024.

As of December 31, 2024, the Company is no longer subject to financial and customary affirmative and

negative non-financial covenants on the revolving demand facility and equipment lease agreements that were repaid in full and terminated

in the fourth quarter of 2024.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S.

Generally Accepted Accounting Principles (“GAAP”).

The accompanying consolidated

financial statements have been prepared in conformity with U.S.

Generally Accepted Accounting Principles (“GAAP”) and the

applicable rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

Reclassifications

Certain prior period amounts included within the statement of cash flows have been reclassified or presented to conform with the current period presentation.

Prior period restricted cash

amount included within the balance sheet statement has been reclassified or presented to conform with the current period presentation.

The amounts of restricted cash were presented as current assets, as the related contractual restrictions are expected to expire within

The reclassifications and changes in presentation had no impact on the Company's net loss or balance sheet.

Restatement of Previously Issued 2022 Financial Statements and Unaudited Interim 2023 Financial Statements

During the course of our financial reporting close for the 2023 financial statements, the Company identified various errors associated with its 2022 annual and 2023 previously reported consolidated financial statements as noted below.

The consolidated balance sheet as of December 31, 2022 includes a correction of an error identified during the fourth quarter of fiscal year December 31, 2023.

The error is related to an understatement of Deferred Tax Liability, net of $ 1.7 million with a corresponding increase to goodwill that were omitted from the Company’s business combination accounting associated with the acquisition of Wow and Frederator in April of 2022.

Refer to Note 9 for details related to the goodwill and intangible asset balances and Note 18 related to income taxes.

During the first quarter of 2023, the Frederator indefinite-lived intangible asset was determined to be impaired as previously reported.

In correction of the error in 2022 which established the deferred tax liability balance associated with the tradename, as noted above, the Company would have decreased the deferred tax liability by $ 0.2 million and record a corresponding increase to Income Tax Benefit on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2023.

During the second quarter of 2023, the Company identified an error in the Company’s unaudited condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2023 and the unaudited condensed consolidated balance sheet as of March 31, 2023.

The Company’s Deferred Tax Liability, net and Net Loss for the period ended March 31, 2023 were overstated by $ 0.7 million.

The consolidated statement of operations for the year ended 2023 and the consolidated balance sheet as of December 31, 2023 include the correction of an error identified during the fourth quarter of fiscal year 2023.

The error is related to an overstatement of Warrant Incentive Expense recorded within Other Income (Expense), net and Additional Paid-in-Capital of $ 3.5 million associated with the warrant modification in June 2023.

In accordance with U.S.

Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No.

99, Materiality (“SAB 99”), codified in Financial Accounting Standards Boards’ (“FASB”) Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections (“ASC 250”), the Company evaluated the materiality of the above errors from a quantitative and qualitative perspective and concluded that the errors were material to the Company’s 2022 consolidated financial statements and the 2022 and 2023 condensed interim consolidated financial statements and the financial statements should be restated to present the identified adjustments.

The Company has not filed, and does not intend to file, amendments to the previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2022 and 2023 and September 30, 2022 and 2023 or Annual Report on Form 10-K for 2022, but instead is restating the consolidated financial statements in this Annual Report on Form 10-K.

The following tables show the Company’s 2022 unaudited condensed consolidated balance sheets as of June 30, 2022 and September 30, 2022 and the audited consolidated balance sheet as of December 31, 2022 and the Company’s 2023 unaudited condensed consolidated financial statements as of and for the three month period ended March 31, 2023, as of and for the three and six months period ended June 30, 2023 and as of and for the nine months period ended September 30, 2023 as previously reported, adjustments and as restated for the periods presented:

As of June 30, 2022

As Previously Reported Adjustments As Restated

Total Assets (in thousands)

Goodwill $ 36,720 1,667 $ 38,387

Total Assets $ 272,342 1,667 $ 274,009

Total Liabilities

Deferred Tax Liability $ – 1,667 $ 1,667

Total Liabilities $ 129,255 1,667 $ 130,922

As of September 30, 2022

As Previously Reported Adjustments As Restated

(in thousands)

Goodwill $ 35,748 1,667 $ 37,415

Total Assets $ 253,991 1,667 $ 255,658

Total Liabilities

Deferred Tax Liability $ – 1,667 $ 1,667

Total Liabilities $ 125,533 1,667 $ 127,200

As of December 31, 2022

As Previously Reported Adjustments As Restated

(in thousands)

Goodwill $ 31,807 1,667 $ 33,474

Total Assets $ 237,918 1,667 $ 239,585

Total Liabilities

Deferred Tax Liability $ 705 1,667 $ 2,372

Total Liabilities $ 125,049 1,667 $ 126,716

As of March 31, 2023

As Previously Reported Adjustments As Restated

(in thousands)

Goodwill $ 20,520 1,667 $ 22,187

Total Assets $ 196,560 1,667 $ 198,227

Total Liabilities

Deferred Tax Liability $ 705 733 $ 1,438

Total Liabilities $ 105,213 733 $ 105,946

Stockholders' Equity

Accumulated Deficit $ ( 666,205 ) 934 $ ( 665,271 )

Total Stockholders' Equity $ 91,347 934 $ 92,281

Three Months Ended March 31, 2023

As Previously Reported Adjustments As Restated

(in thousands, except share and per share data)

Net Loss Attributable to Kartoon Studios, Inc.

Income Tax Benefit (Expense) $ – 934 $ 934

Net Loss $ ( 24,793 ) 934 $ ( 23,859 )

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 24,762 ) 934 $ ( 23,828 )

Net Loss per Share (Basic) $ ( 0.77 ) 0.03 $ ( 0.74 )

Net Loss per Share (Diluted) $ ( 0.77 ) 0.03 $ ( 0.74 )

Weighted Average Shares Outstanding (Basic) 31,978,335 31,978,335

Weighted Average Shares Outstanding (Diluted) 31,978,335 31,978,335

As of June 30, 2023

As Previously Reported Adjustments As Restated

(in thousands)

Goodwill $ 20,852 1,667 $ 22,519

Total Assets $ 177,983 1,667 $ 179,650

Total Liabilities

Deferred Tax Liability $ – 1,438 $ 1,438

Total Liabilities $ 90,470 1,438 $ 91,908

Stockholders' Equity

Additional Paid-in-Capital $ 773,377 ( 3,510 ) $ 769,867

Accumulated Deficit $ ( 681,435 ) 3,739 $ ( 677,696 )

Total Stockholders' Equity $ 87,513 229 $ 87,742

Three Months Ended June 30, 2023

As Previously Reported Adjustments As Restated

(in thousands, except share and per share data)

Net Loss Attributable to Kartoon Studios, Inc.

Other Income (Expense) $ ( 6,368 ) 3,510 $ ( 2,858 )

Income Tax Benefit (Expense) $ 705 ( 705 ) $ –

Net Loss $ ( 15,246 ) 2,805 $ ( 12,441 )

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 15,230 ) 2,805 $ ( 12,425 )

Net Loss per Share (Basic) $ ( 0.47 ) 0.09 $ ( 0.38 )

Net Loss per Share (Diluted) $ ( 0.47 ) 0.09 $ ( 0.38 )

Weighted Average Shares Outstanding (Basic) 32,379,852 32,379,852

Weighted Average Shares Outstanding (Diluted) 32,379,852 32,379,852

Six Months Ended June 30, 2023

As Previously Reported Adjustments As Restated

(in thousands, except share and per share data)

Net Loss Attributable to Kartoon Studios, Inc.

Other Income (Expense) $ ( 8,080 ) 3,510 $ ( 4,570 )

Income Tax Benefit (Expense) $ 705 229 $ 934

Net Loss $ ( 40,039 ) 3,739 $ ( 36,300 )

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 39,992 ) 3,739 $ ( 36,253 )

Net Loss per Share (Basic) $ ( 1.24 ) 0.12 $ ( 1.12 )

Net Loss per Share (Diluted) $ ( 1.24 ) 0.12 $ ( 1.12 )

Weighted Average Shares Outstanding (Basic) 32,180,202 32,180,202

Weighted Average Shares Outstanding (Diluted) 32,180,202 32,180,202

As of September 30, 2023

As Previously Reported Adjustments As Restated

(in thousands)

Goodwill $ 20,569 1,667 $ 22,236

Total Assets $ 136,174 1,667 $ 137,841

Total Liabilities

Deferred Tax Liability $ – 1,438 $ 1,438

Total Liabilities $ 62,163 1,438 $ 63,601

Stockholders' Equity

Additional Paid-in-Capital $ 773,885 ( 3,510 ) $ 770,375

Accumulated Deficit $ ( 696,911 ) 3,739 $ ( 693,172 )

Total Stockholders' Equity $ 74,011 229 $ 74,240

Nine Months Ended September 30, 2023

As Previously Reported Adjustments As Restated

(in thousands, except share and per share data)

Net Loss Attributable to Kartoon Studios, Inc.

Other Income (Expense) $ ( 10,293 ) 3,510 $ ( 6,783 )

Income Tax Benefit (Expense) $ 705 229 $ 934

Net Loss $ ( 55,551 ) 3,739 $ ( 51,812 )

Net Loss Attributable to Kartoon Studios, Inc.

$ ( 55,468 ) 3,739 $ ( 51,729 )

Net Loss per Share (Basic) $ ( 1.67 ) 0.11 $ ( 1.56 )

Net Loss per Share (Diluted) $ ( 1.67 ) 0.11 $ ( 1.56 )

Weighted Average Shares Outstanding (Basic) 33,160,228 33,160,228

Weighted Average Shares Outstanding (Diluted) 33,160,228 33,160,228

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

The Company principally operates in two distinct business segments:

the Content Production & Distribution Segment, which produces and distributes children’s content, and the Media Advisory & Advertising Services Segment, which provides media and advertising services.

These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance.

The Company determines its

operating segments on the same basis as it assesses performance and makes operating decisions.

The Company principally operates in two

distinct business segments:

the Content Production and Distribution Segment, which produces and distributes children’s content,

and the Media Advisory and Advertising Services Segment, which provides media and advertising services.

These segments are reflective

of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating

resources and assessing performance.

The Company has identified its Chief Executive Officer as the CODM.

The segments are organized around the products and services provided to customers and represent the Company’s reportable segments.

The accounting policies for each segment are the same as for the Company as a whole.

The segments are organized around

the products and services provided to customers and represent the Company’s reportable segments.

The accounting policies for

each segment are the same as for the Company as a whole.

Refer to Note 21 for additional information.

Principles of Consolidation and Basis of Presentation

The Company’s consolidated financial statements include the accounts of Kartoon Studios, Inc.

The Company’s consolidated

financial statements include the accounts of Kartoon Studios, Inc.

and its wholly-owned subsidiaries.

The Company consolidates all majority-owned subsidiaries and variable interest entities where the Company has been determined to be the primary beneficiary.

The interests in a variable interest entity which the Company does not control are recorded as non-controlling interests.

Non-consolidated investments are accounted for using the equity method or the fair value option and recorded at fair value with changes recognized within Other Income (Expense), net on the consolidated statements of operations and comprehensive income (loss).

All significant intercompany accounts and transactions have been eliminated upon consolidation.

Business Combinations

The Company accounts for transactions that are classified as business combinations in accordance with FASB ASC 805, Business Combinations (“ASC 805”) .

Once a business is acquired, the Company allocates the fair value of the purchase consideration to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

As required, preliminary fair values are determined upon acquisition, with the final determination of the fair values being completed within the one-year measurement period from the date of acquisition.

The valuation of acquired assets and assumed liabilities requires significant judgment and estimates, especially with respect to intangible assets.

The valuation of intangible assets requires that the Company use valuation techniques such as the income approach.

The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires significant estimates such as future expected revenue, expenses, capital expenditures and other costs, and discount rates.

The Company estimates the fair value based upon assumptions that management believes to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Acquisition-related expenses and any related restructuring costs are recognized separately from the business combination and are expensed as incurred.

The Company consolidates all majority-owned

subsidiaries and variable interest entities where the Company has been determined to be the primary beneficiary.

The interests in a variable

interest entity which the Company does not control are recorded as non-controlling interests.

Non-consolidated investments are accounted

for using the equity method or the fair value option and recorded at fair value with changes recognized within Other Income (Expense),

net on the consolidated statements of operations and comprehensive income (loss).

All significant intercompany accounts and transactions

have been eliminated upon consolidation.

Variable Interest Entities

The Company holds an interest in Stan Lee University, LLC (“SLU”), an entity that is considered a variable interest entity (“VIE”).

The variable interest relates to 50 % ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from the Company to continue operations.

The Company holds an interest

in Stan Lee University, LLC (“SLU”), an entity that is considered a variable interest entity (“VIE”).

interest relates to 50 % ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support

from the Company to continue operations.

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

In evaluating whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and the Company’s decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders.

This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether the Company has the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company evaluates all of its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements).

In evaluating whether the

Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers

the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and the Company’s decision-making

role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest

This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s

future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether the

Company has the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company

evaluates all of its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual

arrangements).

This evaluation considers all relevant factors of the entity’s design, including:

the entity’s capital structure, contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have the potential to be economically significant.

The evaluation of each of these factors in reaching a conclusion about the potential significance of the Company’s economic interests is a matter that requires the exercise of professional judgment.

The Company continuously assesses whether it is the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in the Company consolidating its collaborators or partners.

the entity’s capital structure,

contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent

payments, as well as other contractual arrangements that have the potential to be economically significant.

The evaluation of each of

these factors in reaching a conclusion about the potential significance of the Company’s economic interests is a matter that requires

the exercise of professional judgment.

The Company continuously assesses whether it is the primary beneficiary of a variable interest

entity as changes to existing relationships or future transactions may result in the Company consolidating its collaborators or partners.

Use of Estimates

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

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

The preparation of financial

statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets

and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the reporting periods.

Significant estimates in our consolidated financial statements, include, but are

not limited to:

content inventory;

income taxes;

initial valuation and subsequent impairment testing of intangible assets;

of financial instruments;

share-based payment arrangements;

and commitments and contingencies.

Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis.

Foreign Currency

The Company considers the USD to be its functional currency for its United States and certain Canadian based operations.

The CAD is the functional currency of Wow, a wholly-owned subsidiary of the Company.

Accordingly, the financial information is translated from CAD to USD for inclusion in the Company’s consolidated financial statements.

Revenue and expenses are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date.

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

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

The Company considers the

USD to be its functional currency for its United States and certain Canadian based operations.

The CAD is the functional currency of Wow,

a wholly-owned subsidiary of the Company.

Accordingly, the financial information is translated from CAD to USD for inclusion in the Company’s

consolidated financial statements.

Revenue and expenses are translated at average exchange rates prevailing during the period, and assets

and liabilities are translated at exchange rates in effect at the balance sheet date.

Resulting translation adjustments are included as

a component of Accumulated Other Comprehensive Loss, net in stockholders’ equity.

Foreign exchange (“FX”)

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

Foreign Currency Forward Contracts

The Company’s wholly-owned subsidiary, Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar.

Wow uses foreign currency derivatives, specifically foreign currency forward contracts (“FX forwards”), to manage its exposure to fluctuations in the CAD-USD exchange rates.

FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.

The Company’s wholly-owned

subsidiary, Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar.

foreign currency derivatives, specifically foreign currency forward contracts (“FX forwards”), to manage its exposure to fluctuations

in the CAD-USD exchange rates.

FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign

currency on a specified date.

The FX forwards are typically settled in CAD for their fair value at or close to their settlement date.

The Company does not currently designate any of the FX forwards under hedge accounting and therefore reflects changes in fair value as unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged.

The Company does not hold or use these instruments for speculative or trading purposes.

Per FASB ASC 815-10-45, Derivatives and Hedging , the Company has elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative instruments.

Therefore, the Company presents the asset or liability position of the FX forwards that are with the same counterparty net as either an asset or liability in its consolidated balance sheets.

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

The Company recorded a realized gain of $ 0.1 million within Production Services Revenue on the consolidated statement of operations.

The Company does not currently designate any of the FX forwards under hedge accounting and therefore reflects changes in fair value as

unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged.

The Company does not

hold or use these instruments for speculative or trading purposes.

Per FASB ASC 815-10-45, Derivatives

and Hedging , the Company has elected an accounting policy to offset the fair value amounts recognized for eligible forward contract

derivative instruments.

Therefore, the Company presents the asset or liability position of the FX forwards that are with the same counterparty

net as either an asset or liability in its consolidated balance sheets.

As of December 31, 2024,

the gross amounts of foreign currency (“FX”) forward contracts in an asset and liability position subject to a master netting

arrangement resulted in a net liability of $ 0.6 million recorded within Other Current Liabilities on the consolidated balance sheets.

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

For the years ended December

31, 2024 and 2023, the Company recorded a realized loss of $ 0.2 million and $ 0.1 million, respectively, on FX forward contracts within

Production Services Revenue on the consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

As of December 31, 2023 and December 31, 2022, the Company had cash of $ 4.1 million and $ 7.4 million, respectively, that at times could exceed Federal Deposit Insurance Corporation (“FDIC”) or Canadian Deposit Insurance Corporation (“CDIC”) limits.

Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.

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

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

December 31, 2023 and December 31, 2022, the total compensating balance maintained was $ 1.1 million.

The Company considers all

highly liquid debt instruments with initial maturities of three months or less to be cash equivalents.

As of December 31, 2024 and

December 31, 2023, the Company had cash of $ 8.4 million

and $ 4.1 million, respectively, that at times could exceed

Federal Deposit Insurance Corporation (“FDIC”) or Canadian Deposit Insurance Corporation (“CDIC”) limits.

loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results

of operations, and cash flows.

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

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

the consolidated balance sheets.

As of December 31, 2024 and December 31, 2023, the total compensating balance maintained was

$ 0.5 million and $ 1.1

million, respectively.

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

As of December 31, 2024 and

December 31, 2023 the Company held $ 0.5 million in restricted cash.

This balance primarily represents collateral pledged in connection

with one of the subsidiary’s corporate American Express program.

As of December 31, 2024, the Company has no cash minimum

requirements.

Trade Accounts Receivable and Allowance for Credit Loss

Accounts receivables are presented on the consolidated balance sheets, net of estimated uncollectible amounts.

The carrying amounts of trade accounts receivable and unbilled accounts receivable represent the maximum credit risk exposure of these assets.

On a quarterly basis, in accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”) , the Company evaluates the collectability of outstanding accounts receivable balances to determine an allowance for credit loss that reflects its best estimate of the lifetime expected credit losses.

Accounts receivables are presented

on the consolidated balance sheets, net of estimated credit losses.

The carrying amounts of trade accounts receivable and unbilled accounts

receivable represent the maximum credit risk exposure of these assets.

On a quarterly basis, in accordance with FASB ASC 326, Measurement

of Credit Losses on Financial Instruments (“ASC 326”) , the Company evaluates the collectability of outstanding accounts

receivable balances to determine an allowance for credit loss that reflects its best estimate of the lifetime expected credit losses.

The allowance for credit loss is based on an assessment of past events, current economic conditions, and forecasts of future events.

Individual uncollectible accounts are written off against the allowance when collection of the individual accounts does not appear probable.

As of December 31, 2023 and December 31, 2022, the Company recorded an allowance for credit loss of $ 189,245 and $ 65,421 , respectively.

The Company limits its exposure to this credit risk through a credit approval process and credit monitoring procedures.

In addition, Wow’s contracts with customers usually require upfront and milestone payments throughout the production process.

The Company’s customer base is mainly comprised of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and AVOD and SVOD platforms that have been customers for several years.

uncollectible accounts are written off against the allowance when collection of the individual accounts does not appear probable.

December 31, 2024 and December 31, 2023, the Company recorded an allowance for credit loss of $ 239,439 and $ 189,245 , respectively.

The Company limits its exposure

to this credit risk through a credit approval process and credit monitoring procedures.

In addition, Wow’s contracts with customers

usually require upfront and milestone payments throughout the production process.

The Company’s customer base is mainly comprised

of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and AVOD and SVOD platforms that have been

customers for several years.

Tax Credits Receivable

The Canada Revenue Agency (“CRA”) and certain provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.

Estimated amounts receivable in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and television costs when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying expenditures are made and there is reasonable assurance of realization.

Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures.

The Canada Revenue Agency

(“CRA”) and certain provincial governments in Canada provide programs that are designed to assist film and television production

in the form of refundable tax credits or other incentives.

Estimated amounts receivable

in respect of refundable tax credits are recorded as an offset to the related production operating cost, or to investment in film and

television costs when the conditions for eligibility of production assistance based on the government’s criteria are met, the qualifying

expenditures are made and there is reasonable assurance of realization.

Determination of when and if the conditions of eligibility have

been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures.

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

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

The Company continuously reviews the results of these audits to determine if any circumstances arise that in management’s judgment would result in a previously recognized amount to be considered no longer collectible.

The Company classifies the tax credits receivable as current based on their normal operating cycle.

Government assistance, in the form of refundable tax credits, is relied upon as a key component of production financing.

These amounts are claimed from the CRA through the submission of income tax returns and can take up to 18 to 24 months from the date of the first tax credit dollar being earned to being received.

As this financing is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the normal operating cycle for such assets is considered to be a 12 to 24-month period, or the time it takes for the CRA to assess and refund the tax credits earned.

As of December 31, 2023 and December 31, 2022, $ 20.7 million and $ 26.3 million in current tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.5 million and $ 0.2 million, respectively, recorded as an allowance for credit loss.

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

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

The Company continuously reviews the results of these audits to determine if any circumstances arise that in management’s judgment

would result in a previously recognized amount to be considered no longer collectible.

The Company classifies majority

of the tax credits receivable as current based on their normal operating cycle.

Government assistance, in the form of refundable tax credits,

is relied upon as a key component of production financing.

These amounts are claimed from the CRA through the submission of income tax

returns and can take up to 18 to 24 months from the date of the first tax credit dollar being earned to being received.

As this financing

is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the

normal operating cycle for such assets is considered to be a 12 to 24-month period, or the time it takes for the CRA to assess and refund

the tax credits earned.

As of December 31, 2024,

a portion of the Company’s tax credits receivable is presented as a long-term asset due to uncertainty regarding the timing of obtaining

the necessary certifications required to process the tax credits.

Management will continue to monitor the status of the outstanding items

and reclassify the receivable to current when the timing of collection becomes reasonably estimable.

As of December 31,

2024 and December 31, 2023, $ 12.7

million a nd $ 20.7

million in tax credit receivables related to Wow’s film and television productions were recorded, net of $ 0.6

million and $ 0.5

million , respectively, recorded as an allowance for credit loss.

As of December 31, 2024, $2.4

million , in tax credits receivable net of $0.4 million allowance for credit loss was presented as non-current asset.

Company did not have any non-current tax credits receivable as of December 31, 2023.

Employee Retention Tax Credit (ERTC)

In March 2020, the

Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus

measures, including the Employee Retention Tax Credit.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American

Rescue Plan Act of 2021 extended the availability of the ERTC.

The Company accounted for the ERTC as a gain contingency in

accordance with ASC 450-30 - Gain Contingencies.

Under this standard, the ERTC was recognized only after the contingency was

resolved and deemed realizable.

During the year ended

December 31, 2024, we recognized an ER TC benefit totaling $ 1.2

This amount is included in Other Income (Expense) in the consolidated statements of

As of December 31, 2024 we had not received any refunds related to the ERTC and we had an outstanding receivable of $ 1.2

million w hich is recorded in other current assets in the consolidated balance sheet.

Subsequent to December 31, 2024 we received $ 0.2

million of ERTC refunds from the IRS, updating the outstanding receivable to $ 1 .0

The Company did not record any ERTC benefits in the year ended December 31, 2023.

Marketable Debt Securities

The Company purchases high quality, investment grade securities from diverse issuers.

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

Currently, the Company classifies its investments in marketable securities as available-for-sale (“AFS”) and records these investments at fair value.

The securities are available to support current operations and, accordingly, the Company classifies the investments as current assets without regard to their contractual maturity.

Unrealized gains or losses on available-for-sale securities for which the Company expects to fully recover the amortized cost basis are recognized in Accumulated Other Comprehensive Income (Loss), a component of stockholders’

Gains and losses as a result of sales of securities are reclassified from previously unrealized gains and losses on AFS securities in Accumulated Other Comprehensive Income (Loss) to Other Income (Expense), net, in the consolidated statements of operations.

On a quarterly basis, the Company reviews its AFS securities to assess declines in fair value for credit losses.

For each AFS security with an amortized cost that exceeds its fair value, the Company first determines if it intends to sell or is more-likely-than-not required to sell the debt security before the expected recovery of its amortized cost.

If it intends to sell or will more-likely-than-not be required to sell the security, the Company recognizes the impairment as a credit loss in the consolidated statements of operations by writing down the security’s amortized cost to its fair value.

For AFS securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss.

The portion of the decline in fair value that is due to factors other than a credit loss is recognized in Accumulated Other Comprehensive Income (Loss) as an unrealized loss.

The Company reports accrued interest receivable separately from the AFS securities and has elected not to measure an allowance for credit losses for accrued interest receivables.

The Company purchases high

quality, investment grade securities from diverse issuers.

Management determines the appropriate classification of securities at the

time of purchase and reevaluates such designation as of each balance sheet date.

Currently, the Company classifies its investments in

marketable securities as available-for-sale (“AFS”) and records these investments at fair value.

The securities are available

to support current operations and, accordingly, the Company classifies the investments as current assets without regard to their contractual

Unrealized gains or losses

on available-for-sale securities for which the Company expects to fully recover the amortized cost basis are recognized in Accumulated

Other Comprehensive Income (Loss), a component of stockholders’ equity.

Gains and losses as a result of sales of securities are

reclassified from previously unrealized gains and losses on AFS securities in Accumulated Other Comprehensive Loss to Other Income (Expense),

net, in the consolidated statements of operations.

On a quarterly basis, the

Company reviews its AFS securities to assess declines in fair value for credit losses.

For each AFS security with an amortized cost that

exceeds its fair value, the Company first determines if it intends to sell or is more-likely-than-not required to sell the debt security

before the expected recovery of its amortized cost.

If it intends to sell or will more-likely-than-not be required to sell the security,

the Company recognizes the impairment as a credit loss in the consolidated statements of operations by writing down the security’s

amortized cost to its fair value.

For AFS securities that do not meet the aforementioned criteria, the Company evaluates whether the decline

in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair

value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related

to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected

to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected

to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit

The portion of the decline in fair value that is due to factors other than a credit loss is recognized in Accumulated Other Comprehensive

Income Loss as an unrealized loss.

The Company reports accrued

interest receivable separately from the AFS securities and has elected not to measure an allowance for credit losses for accrued interest

Uncollectible accrued interest is written off when the Company determines that no additional interest payments will be received.

Classified within Other Receivables on the consolidated balance sheets, approximately $ 54,642 and $ 0.3 million in interest income were receivable as of December 31, 2023 and December 31, 2022, respectively.

Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums accounted for over the life of the security or, in the case of callable securities, through the first call date, using the level yield method, with no prepayment anticipated.

Classified within Other Receivables on the consolidated balance sheets, approximately $ 8,830 and $ 54,642 in interest income were receivable

as of December 31, 2024 and December 31, 2023, respectively.

Interest earned on investment

securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums accounted

for over the life of the security or, in the case of callable securities, through the first call date, using the level yield method, with

no prepayment anticipated.

Equity-Method Investments

When the Company does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S.

Significant influence generally exists when the firm owns 20% to 50% of the entity’s common stock or in-substance common stock.

In general, the Company accounts for investments acquired at fair value.

See Note 4 for further information about the Company’s investment in YFE’s equity securities accounted for under the fair value option.

When the Company does not

have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial

policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair

value option available under U.S.

Significant influence generally exists when the firm owns 20% to 50% of the entity’s common

stock or in-substance common stock.

In general, the Company accounts

for investments acquired at fair value.

See Note 4 for further information about the Company’s investment in YFE’s equity

securities accounted for under the fair value option.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation.

Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years .

Maintenance, repairs, and renewals, which neither materially add to the value of the assets nor appreciably prolong their lives, are charged to expense as incurred.

Gains and losses from any dispositions of property and equipment are reflected in the consolidated statements of operations.

Whenever events or circumstances change, an assessment is made as to whether there has been impairment to the value of long-lived assets by determining whether projected undiscounted cash flows generated by the applicable asset exceed its net book value as of the assessment date.

Refer to Note 6 for details on the Company’s assessments of fair value during the years ended December 31, 2023 and December 31, 2022.

Property and equipment are

recorded at cost, less accumulated depreciation.

Depreciation on property and equipment is computed using the straight-line method over

the estimated useful lives of the assets, which range from two to seven years.

Maintenance, repairs, and renewals, which neither materially

add to the value of the assets nor appreciably prolong their lives, are charged to expense as incurred.

Gains and losses from any dispositions

of property and equipment are reflected in the consolidated statements of operations.

Whenever events or circumstances change, an assessment

is made as to whether there has been impairment to the value of long-lived assets by determining whether projected undiscounted cash flows

generated by the applicable asset exceed its net book value as of the assessment date.

Refer to Note 6 for details on the Company’s

assessments of fair value as of December 31, 2024 and December 31, 2023.

Right-of-Use Leased Assets

The Company determines at contract inception whether the arrangement is a lease based on its ability to control a physically distinct asset and determines the classification of the lease as either operating or finance under FASB ASC 842, Leases (“ASC 842”) .

For all leases, the Company combines all components of the lease including related nonlease components as a single component.

Operating leases are reflected as Operating Lease Right-of-Use (“ROU”) Assets and Operating Lease Liabilities and finance leases are reflected as Finance Lease ROU assets and Finance Lease Liabilities on the consolidated balance sheets.

Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company estimates the incremental borrowing rate to reflect the profile of collateralized borrowing over the expected term of the leases based on the information available on the lease commencement date or for leases existing upon the date of initial adoption of ASC 842, the date of adoption.

The implicit rates within the Company’s existing finance leases are determinable and therefore used to determine the present value of finance lease payments.

The operating lease ROU assets also include any lease payments made prior to lease commencement date and excludes lease incentives.

Specific lease terms used in computing the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company is reasonably certain that it will exercise the option.

The Company will reassess expected lease terms based on changes in circumstances that indicate options may be more or less likely to be exercised.

Lease expense is recognized on a straight-line basis over the lease term within General and Administrative Expenses on the consolidated statements of operations.

Lease incentives are recognized as a reduction to the lease expense on a straight-line basis over the underlying lease term.

The Company determines at

contract inception whether the arrangement is a lease based on its ability to control a physically distinct asset and determines the classification

of the lease as either operating or finance under FASB ASC 842, Leases (“ASC 842”) .

For all leases, the Company combines

all components of the lease including related nonlease components as a single component.

Operating leases are reflected as Operating Lease

Right-of-Use (“ROU”) Assets and Operating Lease Liabilities and finance leases are reflected as Finance Lease ROU assets and

Finance Lease Liabilities on the consolidated balance sheets.

Lease ROU assets and liabilities

are recognized at commencement date based on the present value of lease payments over the lease term.

As the Company’s operating

leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement

date in determining the present value of lease payments.

The Company estimates the incremental borrowing rate to reflect the profile of

collateralized borrowing over the expected term of the leases based on the information available on the lease commencement date or for

leases existing upon the date of initial adoption of ASC 842, the date of adoption.

The implicit rates within the Company’s existing

finance leases are determinable and therefore used to determine the present value of finance lease payments.

The operating lease ROU assets

also include any lease payments made prior to lease commencement date and excludes lease incentives.

Specific lease terms used in computing

the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company is reasonably certain that

it will exercise the option.

The Company will reassess expected lease terms based on changes in circumstances that indicate options may

be more or less likely to be exercised.

Lease expense is recognized on a straight-line basis over the lease term within General and Administrative

Expenses on the consolidated statements of operations.

Lease incentives are recognized as a reduction to the lease expense on a straight-line

basis over the underlying lease term.

Refer to Notes 7 and 19 for details of the Company’s leases.

Film and Television Costs

The Company capitalizes production costs for episodic series produced in accordance with FASB ASC 926-20, Entertainment-Films - Other Assets - Film Costs .

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

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

The Company capitalizes production

costs for episodic series produced in accordance with FASB ASC 926-20, Entertainment-Films - Other Assets - Film Costs .

production costs are capitalized at actual cost and amortized using the individual-film-forecast method, whereby these costs are amortized,

and participations costs are accrued based on the ratio of the current period’s revenues to management’s estimate of ultimate

revenue expected to be recognized from each production.

There are usually three stages for production projects with different costs incurred

at each stage:

Productions in Development

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

Advances or contributions received from third parties to assist in development are deducted from these costs.

Development costs include

the costs of acquiring film rights to books, scripts or original screenplays and the third-party costs to adapt such projects, including

visual development and design.

Advances or contributions received from third parties to assist in development are deducted from these

Productions in Progress

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

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

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

Capitalized development costs

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

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

benefit to the Company.

Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially

all of the activities necessary to prepare the film or television program for its use intended by management are complete.

Completed Productions

Completed productions are carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired distribution rights, less accumulated amortization and accumulated impairment losses.

Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results.

In addition, in the normal course of business, some titles are more successful or less successful than anticipated.

Management reviews the ultimate revenue and cost estimates on a title-by-title basis, when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost.

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

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

These write-downs are included in amortization expense within Direct Operating Costs on the consolidated statements of operations.

All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes.

Additionally, for episodic series, from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing content.

After the initial release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and periodic alterations to existing products are expensed as incurred.

Completed productions are

carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired

distribution rights, less accumulated amortization and accumulated impairment losses.

Due to the inherent uncertainties

involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and

are likely to differ to some extent in the future from actual results.

In addition, in the normal course of business, some titles are

more successful or less successful than anticipated.

Management reviews the ultimate revenue and cost estimates on a title-by-title basis,

when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost.

result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized

costs of the film or television production to its estimated fair value.

An impairment charge is recorded in the amount by which the unamortized

costs exceed the estimated fair value.

These write-downs are included in amortization expense within Direct Operating Costs on the consolidated

statements of operations.

All capitalized costs that

exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes.

Additionally, for episodic series,

from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing content.

the initial release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and

periodic alterations to existing products are expensed as incurred.

Refer to Note 8 for details.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the estimated fair value of net assets acquired in business combinations accounted for by the acquisition method.

In accordance with FASB ASC 350, Intangibles Goodwill and Other, goodwill and certain intangible assets are presumed to have indefinite useful lives and are thus not amortized, but subject to an impairment test annually or more frequently if indicators of impairment arise.

The Company completes the annual goodwill and indefinite-lived intangible asset impairment tests at the end of each fiscal year.

If impairment is indicated in the qualitative assessment, or, if management elects to initially perform a quantitative assessment of goodwill, the impairment test uses a one-step approach.

The fair value of a reporting unit is compared with its carrying amount, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods.

Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.

Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values.

Intangible assets have been acquired, either individually or with a group of other assets, and were initially recognized and measured based on fair value.

Annual amortization of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset.

Refer to Note 9 for details on the Company’s assessments of fair value during the years ended December 31, 2023 and December 31, 2022.

Debt and Attached Equity-Linked Instruments

The Company measures issued debt on an amortized cost basis, net of debt premium/discount and debt issuance costs amortized using the effective interest rate method or the straight-line method when the latter does not lead to materially different results.

The Company analyzes freestanding equity-linked instruments including warrants attached to debt to determine whether the instrument meets the definition of the derivative and whether it is considered indexed to the Company’s own stock.

If the instrument is not considered indexed to the Company’s stock, it is classified as an asset or liability recorded at fair value.

If the instrument is considered indexed to the Company’s stock, the Company analyzes additional equity classification requirements per FASB ASC 815-40, Contract’s in Entity’s Own Equity .

When the requirements are met, the instrument is recorded as part of the Company’s equity, initially measured based on its relative fair value with no subsequent re-measurement.

When the equity classification requirements are not met, the instrument is recorded as an asset or liability and is measured at fair value with subsequent changes in fair value recorded in earnings.

When required, the Company also considers the bifurcation guidance for embedded derivatives per ASC 815-15, Embedded Derivatives .

Intangible Assets

Intangible assets have been

acquired, either individually or with a group of other assets, and were initially recognized and measured based on fair value.

The Company’s

intangible assets consist of trademarks, trade names, customer relations and other assets.

Annual amortization of these intangible assets

is computed based on the straight-line method over the remaining economic life of the asset.

The useful lives of intangible assets are

reviewed periodically to determine whether adjustments are necessary based on changes in business conditions.

Indefinite-lived intangible

assets are assessed for impairment annually or when a triggering event suggests their fair value may have fallen below their carrying

Impairment analysis of indefinite-lived intangible assets is evaluated using the relief-from-royalty method under the income approach,

incorporating estimated future revenues attributable to the asset, assumed growth and royalty rates, based on comparable industry data,

and an appropriate discount rate, reflecting risk-adjusted returns.

Definite-lived intangible assets are reviewed for impairment when

triggering events occur, using an entity-specific recoverability test based on undiscounted cash flows.

If recoverability is not met,

a fair value analysis is performed.

Changes in future results,

assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in

future periods.

Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable,

thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.

Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the

fair values of its reporting units have fallen below their carrying values.

Refer to Note 9 for details

on the Company’s assessments of fair value as of December 31, 2024 and December 31, 2023.

We measure issued debt at

amortized cost, net of any debt premiums, discounts, and debt issuance costs.

These amounts are amortized over the life of the debt using

the effective interest rate method, ensuring that interest expense reflects the underlying borrowing costs.

In cases where the straight-line

method results in an immaterial difference compared to the effective interest rate method, we may apply the straight-line method.

Equity-Linked Instruments

We analyze freestanding equity-linked

instruments including warrants to conclude whether the instrument meets the definition of the derivative and whether it is considered

indexed to our own stock.

If the instrument is not considered indexed to our stock, it is classified as an asset or liability recorded

at fair value.

If the instrument is considered indexed to our stock, we analyze additional equity classification requirements per ASC

815-40, Contracts in Entity’s Own Equity .

When the requirements are met, the instrument is recorded as part of our equity,

initially measured based on its relative fair value with no subsequent re-measurement.

When the equity classification requirements are

not met, the instrument is recorded as an asset or liability and is measured at fair value with subsequent changes in fair value recorded

When required, we also consider

the bifurcation guidance for embedded derivatives per ASC 815-15, Embedded Derivatives .

Treasury Stock

The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction.

These shares are considered treasury stock, which is a reduction to stockholders’ equity.

The Company records the repurchase

of shares of its common stock at cost on the trade date of the transaction.

These shares are considered treasury stock, which is a reduction

to stockholders’ equity.

Treasury stock is included in authorized and issued shares but excluded from outstanding shares.

Revenue Recognition

The Company accounts for revenue according to FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue is measured based on the consideration specified in a contract with a customer.

Revenue is recognized when a customer obtains control of the products or services in a contract.

Judgment is required in determining the timing of whether the transfer of control occurs at a point in time or over time and is discussed below.

The Company evaluates each contract to identify separate performance obligations as a contract with a customer may have one or more performance obligations.

Consideration in a contract with multiple performance obligations is allocated to the separate performance obligations based on their stand-alone selling prices.

If a stand-alone selling price is not determinable, the Company estimates the stand-alone selling price using an adjusted market assessment approach.

The Company’s main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales.

The Company has identified the following material and distinct performance obligations:

The Company accounts for revenue

according to FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue is measured based

on the consideration specified in a contract with a customer.

Revenue is recognized when a customer obtains control of the products or

services in a contract.

Judgment is required in determining the timing of whether the transfer of control occurs at a point in time or

over time and is discussed below.

The Company evaluates each contract to identify separate performance obligations as a contract with

a customer may have one or more performance obligations.

Consideration in a contract with multiple performance obligations is allocated

to the separate performance obligations based on their stand-alone selling prices.

If a stand-alone selling price is not determinable,

the Company estimates the stand-alone selling price using an adjusted market assessment approach.

The Company’s main sources of

revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and

television programs, advertising revenues, and merchandising and licensing sales.

The Company has identified

the following material and distinct performance obligations:

· Providing animation production services

• Licensing rights to exploit Functional Intellectual Property (“functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired.

Functional IP derives a substantial portion of its utility from its significant standalone functionality)

• Licensing rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual property that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is derived from its association with the entity’s past or ongoing activities, including its ordinary business activities, such as the Company’s licensing and merchandising programs associated with its animated content)

· Licensing rights to exploit Functional Intellectual Property (“functional IP” is defined as

intellectual property that has significant standalone functionality, such as the ability to be played or aired.

Functional IP derives

a substantial portion of its utility from its significant standalone functionality)

· Licensing rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual

property that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is

derived from its association with the entity’s past or ongoing activities, including its ordinary business activities, such as the

Company’s licensing and merchandising programs associated with its animated content)

· Providing media advisory and advertising services to clients

• Fixed and variable fee advertising and subscription-based revenue generated from the Kartoon Studios Kartoon Channel!, Ameba TV, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network, Channel Frederator Network, on YouTube

• Options to renew or extend a contract at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future)

• Options on future seasons of content at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future)

· Fixed and variable fee advertising and subscription-based revenue generated from the Kartoon Studios Kartoon

Channel!, Ameba TV, the Frederator owned and operated YouTube channels and revenues generated from the operation of its creator network,

Channel Frederator Network, on YouTube

· Options to renew or extend a contract at fixed terms (while this performance obligation is not significant

for the Company’s current contracts, it could become significant in the future)

· Options on future seasons of content at fixed terms (while this performance obligation is not significant

for the Company’s current contracts, it could become significant in the future)

Production Services

Animation Production Services

For revenue from animation production services, the customer controls the output throughout the production process.

Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up.

Revenue and the associated costs of such contracts are recognized over time on a percentage of completion basis - i.e., as the project is being produced, prior to it being delivered to the customer.

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

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

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

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

When revenue exceeds milestone billings, the Company recognizes this difference as unbilled accounts receivable within Other Receivable on the Company’s consolidated balance sheets.

Unbilled accounts receivables are transferred to accounts receivable when the Company has an unconditional right to consideration.

When the outcome of an arrangement cannot be estimated reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable.

For revenue from animation

production services, the customer controls the output throughout the production process.

Each production is made to an individual customer’s

specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date,

and for any prepaid commitments made, plus the agreed contractual mark-up.

Revenue and the associated costs of such contracts are recognized

over time on a percentage of completion basis - i.e., as the project is being produced, prior to it being delivered to the customer.

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

Changes in revenue

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

Invoices related

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

The difference between

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

When revenue exceeds

milestone billings, the Company recognizes this difference as unbilled accounts receivable within Other Receivable on the Company’s

consolidated balance sheets.

Unbilled accounts receivables are transferred to accounts receivable when the Company has an unconditional

right to consideration.

When the outcome of an arrangement

cannot be estimated reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable.

Content Distribution

Film and Television Licensing

The Company recognizes revenue related to licensed rights to exploit functional IP in two ways;

for minimum guarantees, the Company recognizes fixed revenue upon delivery of content and the start of the license period and for functional IP contracts with a variable component, the Company estimates revenue such that it is probable there will not be a material reversal of revenue in future periods.

The Company recognizes revenue related to licensed rights to exploit symbolic IP substantially similarly to functional IP.

Although it has a different recognition pattern from functional IP, the valuation method is substantially the same, depending on the nature of the license.

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

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

When revenue exceeds milestone billings, the Company recognizes this difference as unbilled accounts receivable within Other Receivable on the Company’s consolidated balance sheets.

The Company recognizes revenue

related to licensed rights to exploit functional IP in two ways;

for minimum guarantees, the Company recognizes fixed revenue upon delivery

of content and the start of the license period and for functional IP contracts with a variable component, the Company estimates revenue

such that it is probable there will not be a material reversal of revenue in future periods.

The Company recognizes revenue related to

licensed rights to exploit symbolic IP substantially similarly to functional IP.

Although it has a different recognition pattern from

functional IP, the valuation method is substantially the same, depending on the nature of the license.

Invoices related to these

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

The difference between contractual

payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue.

When revenue exceeds milestone

billings, the Company recognizes this difference as unbilled accounts receivable within Other Receivable on the Company’s consolidated

balance sheets.

Unbilled accounts receivables are transferred to accounts receivable when the Company has an unconditional right to consideration.

Advertising Revenues

The Company sells advertising and subscriptions on its wholly-owned AVOD service, Kartoon Channel!

, and its SVOD distribution outlets, Kartoon Channel!

Kidaverse and Ameba TV .

Advertising sales are generated in the form of either flat rate promotions or advertising impressions served.

For flat rate promotions with a fixed term, revenue is recognized when all five revenue recognition criteria under ASC 606 are met.

For impressions served, the Company delivers a certain minimum number of impressions on the channel to the advertiser for which the advertiser pays a contractual cost per 1000 (mille) impressions (“CPM”).

Impressions served are reported on a monthly basis, and revenue is reported in the month the impressions are served.

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

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

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

Receivables are usually collectable within 30 days.

Licensing & Royalties

The Company received advertising

revenue through its wholly-owned VOD services, Kartoon Channel!

and Ameba TV .

Additionally, advertising revenue is derived

from Kartoon Channel!

branded channels on Free Ad Supported Streaming TV services.

Advertising sales are generated on advertising

impressions served.

For impressions served, the Company delivers a certain minimum number of impressions on the channel to the advertiser

for which the advertiser pays a contractual cost per 1000 (mille) impressions (“CPM”).

Impressions served are reported on

a monthly basis, and revenue is reported in the month the impressions are served.

Upon the acquisition of Wow,

the Company generates advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from

the operation of its creator network, Channel Frederator Network, on YouTube.

Revenue is recognized when services are provided in accordance

with the Company’s agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable.

Receivables related to the advertising services are usually collectable within 30 days, which is shorter collection period compared to

the Company’s average for the year ended December 31, 2024.

Licensing and Royalties

Merchandising and Licensing

The Company enters into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s intellectual property.

For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the license period commencing on the date at which the licensees can use and benefit from the licensed content.

Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured.

Invoices are issued based on the contractual terms of an agreement and are usually payable within 30 - 45 days.

The Company enters into

merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s

intellectual property.

For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the

license period commencing on the date at which the licensees can use and benefit from the licensed content.

Variable consideration

in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the

amounts are known and become due provided collectability is reasonably assured.

Invoices are issued based on the contractual terms

of an agreement and are usually payable within 30 - 45

days, which is a shorter collection period compared to the Company’s average for the year ended December 31, 2024.

Product Sales

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

Media Advisory & Advertising Services

The Company provides media advisory and advertising consulting services to clients.

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

When the Company purchases advertising for clients on

linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.

The Company recognizes revenue

related to product sales (e.g., apparel and collectibles) when the Company completes its performance obligation, which is when the goods

are transferred to the buyer.

Media Advisory and Advertising Services

The Company provides media

advisory and advertising consulting services to clients.

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

monthly retainer.

When the Company purchases advertising for clients on linear and across digital and streaming platforms and receives

a commission, the commissions are recognized as revenue in the month the advertising is displayed.

Gross Versus Net Revenue Presentation

The Company evaluates individual arrangements with third parties to determine whether the Company acts as principal or agent under the terms.

To the extent that the Company acts as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial statement line items.

To the extent that the Company acts as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services.

Determining whether the Company acts as principal or agent is based on an evaluation of which party has substantial risks and rewards of ownership under the terms of an arrangement.

The most significant factors that the Company considers include identification of the primary obligor, as well as which party has credit risk, general and inventory risk and the latitude or ability in establishing prices.

The Company evaluates individual

arrangements with third parties to determine whether the Company acts as principal or agent under the terms.

To the extent that the Company

acts as the principal in an arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in

their respective financial statement line items.

To the extent that the Company acts as the agent in an arrangement, revenues are reported

on a net basis, resulting in revenues being presented net of any expenses incurred in providing agency services.

Determining whether the

Company acts as principal or agent is based on an evaluation of which party has substantial risks and rewards of ownership under the terms

of an arrangement.

The most significant factors that the Company considers include identification of the primary obligor, as well as which

party has credit risk, general and inventory risk and the latitude or ability in establishing prices.

Direct Operating Costs

Direct operating costs include costs of the Company’s product sales, non-capitalizable film costs, film and television cost amortization expense, impairment expenses related to film and television costs, and participation expense related to agreements with various animation studios, post-production studios, writers, directors, musicians or other creative talent with which the Company is obligated to share net profits of the properties on which they have rendered services.

Upon the acquisition of Wow, the Company also includes the salaries and related service production employee costs of Wow as part of its direct operating costs.

Direct operating costs include

costs of the Company’s product sales, non-capitalizable film costs, film and television cost amortization expense, impairment expenses

related to film and television costs, and participation expense related to agreements with various animation studios, post-production

studios, writers, directors, musicians or other creative talent with which the Company is obligated to share net profits of the properties

on which they have rendered services.

Upon the acquisition of Wow, the Company also includes the salaries and related service production

employee costs of Wow as part of its direct operating costs.

Share-Based Compensation

The Company issues stock-based awards to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”).

The Company issues stock-based

awards to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”).

Share-based compensation cost is recorded for all options and RSUs based on the grant-date fair value of the award.

The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model, which requires management to make assumptions with respect to the fair value on the grant date.

The fair value of stock options

is estimated at the date of grant using the Black-Scholes-Merton (“BSM”) option pricing model, which requires management to

make assumptions with respect to the fair value on the grant date.

The assumptions are as follows:

(i) the expected term assumption of the award is based on the Company’s historical exercise and post-vesting behavior (ii) the expected volatility assumption is based on historical and implied volatilities of the Company’s common stock calculated based on a period of time generally commensurate with the expected term of the award;

(i) the expected term assumption of

the award is based on the Company’s historical exercise and post-vesting behavior (ii) the expected volatility assumption is based

on historical and implied volatilities of the Company’s common stock calculated based on a period of time generally commensurate

with the expected term of the award;

(iii) the risk-free interest rates are based on the implied yield available on U.S.

treasury zero-coupon issues with an equivalent expected term;

(iv) and the expected dividend yields of the Company’s stock are based on history and expectations of future dividends payable.

In the case of RSUs, the fair value is calculated based on the Company’s underlying common stock on the date of grant.

The Company recognizes compensation expense over the requisite service period ratably, using the graded attribution method, which is in-substance, recognizing multiple awards based on the vesting schedule.

treasury zero-coupon

issues with an equivalent expected term;

(iv) and the expected dividend yields of the Company’s stock are based on history and expectations

of future dividends payable.

In the case of RSUs, the fair value is calculated based on the Company’s underlying common stock on

the date of grant.

The Company recognizes compensation

expense over the requisite service period ratably, using the graded attribution method, which is in-substance, recognizing multiple awards

based on the vesting schedule.

The Company has elected to account for forfeitures when they occur.

The Company issues authorized shares available for issuance under the Company’s 2020 Incentive Plan upon employees’ exercise of their stock options.

The Company issues authorized shares

available for issuance under the Company’s 2020 Incentive Plan upon employees’ exercise of their stock options.

Debt Issuance Costs

Debt issuance costs relate to the issuance of Wow’s Production Facilities and are recorded as a reduction to the carrying amount of debt and amortized to interest expense using the effective interest method over the respective terms of the facilities.

Debt issuance costs directly attributable to the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended use or sale.

Debt issuance costs as of December 31, 2023 and December 31, 2022 were insignificant.

Debt issuance costs relate

to the issuance of Wow’s Production Facilities and are recorded as a reduction to the carrying amount of debt and amortized to interest

expense using the effective interest method over the respective terms of the facilities.

Debt issuance costs directly attributable to

the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for

their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended

Earnings Per Share

Basic earnings (loss) per share of common stock (“EPS”) is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

Diluted EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding, plus the assumed exercise of all dilutive securities using the treasury stock or “as converted” method, as appropriate.

During periods of net loss, all common stock equivalents are excluded from the diluted EPS

calculation because they are antidilutive.

For the years ended December 31, 2023 and 2022, all shares were deemed antidilutive.

Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.

At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets and records a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

Basic earnings (loss) per

share of common stock (“EPS”) is calculated by dividing net income (loss) applicable to common stockholders by the weighted

average number of shares of common stock outstanding for the period.

Diluted EPS is calculated by dividing net income (loss) applicable

to common stockholders by the weighted average number of shares of common stock outstanding, plus the assumed exercise of all dilutive

securities using the treasury stock or “as converted” method, as appropriate.

During periods of net loss, all common stock

equivalents are excluded from the diluted EPS calculation because they are antidilutive.

For the years ended December 31, 2024 and 2023,

all shares were deemed antidilutive.

Deferred income tax assets

and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently

enacted tax rates.

At each balance sheet date, the Company evaluates the available evidence about future taxable income and other possible

sources of realization of deferred tax assets and records a valuation allowance that reduces the deferred tax assets to an amount that

represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.

Concentration of Risk

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

Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD 0.1 million.

As of December 31, 2023 and December 31, 2022, the Company had ten and twelve bank deposit accounts with an aggregate uninsured balance of $ 2.5 million and $ 3.4 million, respectively.

The Company has a managed account with a financial institution.

The managed account maintains its investments in marketable securities of approximately $ 12.0 million and $ 83.7 million as of December 31, 2023 and December 31, 2022, respectively.

Assets in the managed account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

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

As of December 31, 2023 and December 31, 2022, the Company did not have account balances held at this financial institution that exceed the insured balances.

The Company’s investment portfolio consists of investment-grade securities diversified among security types, industries and issuers.

The Company’s policy limits the amount of credit exposure to any one security issue or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

At December 31, 2023, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers accounted for 74.4 % of the total revenue.

As of December 31, 2023, the Company had three customers whose total accounts receivable exceeded 10% of the total accounts receivable.

The Company maintains its

cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the

Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts.

Balances on interest bearing deposits at banks in

the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD

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

uninsured balance of $ 6.7 million and $ 2.5 million, respectively.

The Company has a managed

account with a financial institution.

The managed account maintains its investments in marketable securities of approximately $ 2.0 million

and $ 12 .0 million as of December 31, 2024 and December 31, 2023, respectively.

Assets in the managed account are protected by

the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

In addition, the

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

As of December 31,

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

The Company’s investment

portfolio, consists of investment-grade securities and, although reduced in size compared to prior year, remains reasonably diversified

among security types, industries and issuers.

The Company’s policy limits the amount of credit exposure to any one security issue

or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

During year ended December 31,

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

These customers accounted for

75.7 % of the total revenue.

As of December 31, 2024, the Company had three customers whose total accounts receivable exceeded 10%

of the total accounts receivable.

These customers accounted for 53.2 % of the total accounts receivable as of December 31, 2024.

At December 31, 2022, the Company had four customers whose total revenue exceeded 10% of the total consolidated revenue.

During year ended December 31,

2023, the Company had four customers w hose total revenue exceeded 10% of the total consolidated

These customers accounted for 74 % of the total revenue.

As of December 31, 2022, the Company had two customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 26.1 % of the total accounts receivable as of December 31, 2022.

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

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

As of December 31, 2023, the Company had three customers whose total

accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 63 % of the total accounts receivable

as of December 31, 2023.

There is significant financial

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

The Company periodically assesses the financial strength of these

customers and establishes allowances for any anticipated credit losses.

Fair Value of Financial Instruments

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

Fair value is defined as the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date.

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

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

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements)

and the lowest priority to unobservable inputs (level 3 measurements).

These tiers include:

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

• Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active

• Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

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

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

Refer to Note 16 for additional details.

· Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable

such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that

are not active

· Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity

to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant

value drivers are unobservable

The carrying amounts of cash,

restricted cash, receivables, payables, accrued liabilities, bank indebtedness and the margin loan approximate fair value due to the short-term

nature of the instruments.

The Company used the fair values of the liability-classified derivative warrants revalued at the end of each

reporting period determined using the BSM option pricing model (Level 2) with standard valuation inputs.

Refer to Note 16 for additional

The investment in YFE is also revalued at the end of each reporting period based on the trading price of YFE (Level 2).

Refer to Note 4 for additional details.

Upon the acquisition of Wow, foreign currency forward contracts that are not traded in active markets were assumed.

These are fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts (Level 2).

The fair values of the AFS securities are generally based on quoted market prices, where available.

These fair values are obtained primarily from third-party pricing services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and disclosures.

Level 2 securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities, United States Government securities, foreign government securities, and certain other asset-backed securities.

For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or a variety of valuation techniques, incorporating inputs that are currently observable in the markets for similar securities.

The following table summarizes the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2023 (in thousands):

Level 1 Level 2 Total Fair Value

to Note 4 for additional details.

Upon the acquisition of Wow, foreign currency forward contracts that are not traded in active markets

were assumed.

These are fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding

to the maturity of the contracts (Level 2).

The fair values of the AFS

securities are generally based on quoted market prices, where available.

These fair values are obtained primarily from third-party pricing

services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and

Level 2 securities primarily include corporate securities, securities from states, municipalities and political subdivisions,

mortgage-backed securities, United States Government securities, foreign government securities, and certain other asset-backed securities.

For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or a variety of valuation

techniques, incorporating inputs that are currently observable in the markets for similar securities.

The following table summarizes

the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31,

2024 (in thousands):

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

Total Fair Value

Investments in Marketable Securities:

Corporate Bonds

Treasury 609 – 609

agency and government sponsored securities

states and municipalities

Total $ 6,517 $ 5,433 $ 11,950

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

The Company’s marketable securities are considered to be available-for-sale investments as defined under FASB ASC 320, Investments – Debt and Equity Securities .

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

Fair values were determined

for each individual security in the investment portfolio.

The Company’s marketable securities are considered to be available-for-sale

investments as defined under FASB ASC 320, Investments – Debt and Equity Securities .

An allowance for credit loss was not

recorded for the marketable securities as of December 31, 2024 and December 31, 2023.

Refer to Note 5 for additional details.

Financial and nonfinancial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs and include the Company’s goodwill, intangible assets and film and television costs.

Financial and nonfinancial

assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs and

include the Company’s intangible assets and film and television costs.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) .

ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates.

The new model, referred to as the current expected credit loss (“CECL”) model, applies to:

(1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.

This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.

The CECL model does not apply to AFS debt securities.

For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

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

2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses.

On October 16, 2019, the FASB approved a proposal to change the effective date of ASU No.

2016-13 for smaller reporting companies, such as the Company, delaying the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods.

Early adoption is permitted for interim and annual reporting periods.

The Company has adopted the ASU as of January 1, 2023.

The adoption of this ASU resulted in updated disclosures within our financial statements, but did not impact the consolidated financial statements.

Refer to Note 5 for additional details.

In November 2023, the FASB

issued ASU No.

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

The amendments enhance disclosures

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

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

under certain conditions.

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

periods within fiscal years beginning after December 15, 2024.

Early adoption of the amendment is permitted, including adoption in any

interim periods for which financial statements have not been issued.

The adoption of this ASU in the year ended December 31, 2024, resulted

in updated disclosures within our financial statements, but did not impact the consolidated financial statements.

Refer to Note 21 for

additional details.

New Accounting Standards Issued but Not Yet Adopted

In October 2023, the FASB issued ASU No.

In October 2023, the FASB

issued ASU No.

2023-06, Disclosure Improvements .

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

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

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

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

In November 2023, the FASB issued ASU No.

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

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

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

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

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

In December 2023, the FASB issued ASU No.

The new guidance clarifies or improves disclosure and presentation requirements

on a variety of topics in the codification.

The amendments will align the requirements in the FASB Accounting Standard Codification with

the SEC’s regulations.

The amendments are effective prospectively on the date each individual amendment is effectively removed from

Regulation S-X or Regulation S-K.

The Company is in the process of evaluating the impact that the adoption of this ASU will have to the

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

In December 2023, the FASB

issued ASU No.

2023-09, Income Taxes (Topic 740):

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

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

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

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

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

The amendment

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

The amendments in this Update are

effective for annual periods beginning after December 15, 2024.

The Company is in the process of evaluating the impact that the adoption

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

In March 2024, the FASB issued

ASU 2024-01, Scope Application of Profits Interests and Similar Awards .

The ASU is intended to help entities determine whether

profits interest and similar awards are in the scope of ASC 718, Stock Compensation.

The ASU solely focuses on scope and does not address

guidance on recognition, classification, attribution, or measurement.

For PBEs, it is effective for annual periods beginning after December

15, 2024 and interim periods within those annual periods.

For all other entities, it is effective for annual periods beginning after December

Early adoption is permitted for both interim and annual financial statements.

The amendments would be applied either retrospectively

to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified

on or after the date at which the entity first applies the amendments.

The Company is in the process of evaluating the impact that the

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

In November, 2024 the FASB

issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expense.

This update mandates that public companies provide more detailed information about specific

expenses in their financial statement notes.

The effective date for this guidance is annual reporting periods beginning after December

15, 2026, with interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is in the process

of evaluating the impact that the adoption of this ASU will have to the consolidated financial statements and related disclosures, which

is expected to result in enhanced disclosures.

Variable Interest Entity

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

Entertainment, LLC.

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

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

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

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

During the year ended December 31, 2023, SLU generated an insignificant amount of net income.

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

In July 2020, the Company

entered into a binding term sheet with POW!

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

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

The entity is

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

POW and the Company executed an Operating Agreement for the joint venture,

effective as of June 1, 2021.

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

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

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

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

During the year ended December 31,

2024, SLU generated an insignificant amount of net income.

There were no contributions or distributions during the year ended December 31,

2024 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

During the year ended December 31,

2023, SLU generated an insignificant amount of net income.

There were no contributions or distributions during the year ended December 31,

2023 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

Investment in Equity Interest

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

At the time of the initial investment in 2021, it was determined that based on the Company’s 28.69 % ownership in YFE, the Company had significant influence over the entity.

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

Under the fair value option, the investment is remeasured and recorded at fair value each reporting period, with the change recorded through earnings.

As of December 31, 2023, the fair value of the investment was determined to be $ 19.1 million recorded within noncurrent assets on the Company’s consolidated balance sheets.

The fair value as of December 31, 2023 increased by net $ 2.8 million, as compared to December 31, 2022.

The net increase is comprised of the net impact of an increase in YFE’s stock price, resulting in a gain in fair value of $ 2.3 million, and the effect of foreign currency remeasurement from EURO to USD, resulting in a gain of $ 0.5 million.

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

As of December 31, 2023 and December 31, 2022, the Company’s ownership in YFE was 44.8 %.

As of December 31,

2024, the Company owned 6,857,132

shares of YFE.

At the time of the initial investment in 2021, it was determined that based on the Company’s 29 %

ownership in YFE, the Company had significant influence over the entity.

Therefore, under the equity method of accounting, the

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

Under the fair value option, the investment

is remeasured and recorded at fair value each reporting period, with the change recorded through earnings.

As of December 31,

2024, the fair value of the investment was determined to be $ 16.4

million recorded within noncurrent assets on the Company’s consolidated balance sheets and as of December 31, 2023 was $ 19.1

The fair value as of December 31, 2024 decreased by net $ 2.7

million, as compared to December 31, 2023.

The net decrease is comprised of the net impact of a decrease in YFE’s stock

price, and the effect of foreign currency remeasurement from EURO to USD.

The total change in fair value is recorded within Other

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

As of December 31, 2024 and

December 31, 2023, the Company’s ownership in YFE was 44.8 %.

Marketable Securities

The Company classifies and accounts for its marketable debt securities as AFS and the securities are stated at fair value.

On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326) , which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model.

The credit loss model applicable to AFS debt securities requires the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.

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

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

The Company classifies and

accounts for its marketable debt securities as AFS and the securities are stated at fair value in accordance with ASC 326 Financial

Instruments - Credit Losses .

The investments in marketable

securities had an adjusted cost basis of $ 2.1

million and a market value of $ 2.0 million

as of December 31, 2024.

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

Adjusted Cost Unrealized Gain/(Loss) Fair Value

Schedule of marketable securities

Adjusted Cost

Unrealized Gain/(Loss)

Corporate Bonds

Treasury 646 ( 37 ) 609

Agency and Government Sponsored Securities

States and Municipalities

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

The investments in marketable securities as of December 31, 2022 had an adjusted cost basis of $ 90.3 million and a market value of $ 83.7 million.

The investments in marketable

securities as of December 31, 2023 had an adjusted cost basis of $ 12.8

million and a market value of $ 12 .0 million.

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

Adjusted Cost Unrealized Gain/(Loss) Fair Value

Adjusted Cost

Unrealized Gain/(Loss)

Corporate Bonds

Treasury 20,869 ( 1,313 ) 19,556

Mortgage-Backed 5,980 ( 606 ) 5,374

Agency and Government Sponsored Securities

States and Municipalities

Asset-Backed 67 ( 1 ) 66

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

The Company holds 10 AFS securities, all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of December 31, 2023.

The AFS securities held by the Company as of December 31, 2022 had also been in an unrealized loss position for a period greater than 12 months.

The Company reported the net unrealized losses in accumulated other comprehensive income (loss), a component of stockholders’ equity.

As of December 31, 2023 and December 31, 2022, an allowance for credit loss was not recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $ 4.5 million and $ 0.4 million were recognized in earnings during the years ended December 31, 2023 and 2022, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities.

The contractual maturities of the Company’s marketable investments as of December 31, 2023 were as follows (in thousands):

The Company holds 5 AFS securities,

all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of

December 31, 2024.

The AFS securities held by the Company as of December 31, 2023 had also been in an unrealized loss position

for a period greater than 12 months.

The Company reported the net unrealized losses in accumulated other comprehensive income (loss),

a component of stockholders’ equity.

As of December 31, 2024 and December 31, 2023, an allowance for credit loss was no t

recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security’s

investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $ 0.6 million

and $ 4.5 million were recognized in earnings during the years ended December 31, 2024 and 2023, respectively, primarily due to selling

securities prior to maturity to prevent further market condition losses on the securities.

The contractual maturities

of the Company’s marketable investments as of December 31, 2024 were as follows (in thousands):

Schedule of contractual maturities of marketable investments

Due within 1 year

Due after 1 year through 5 years

Total $ 11,950

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

The Company may sell certain

of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit

risk, duration and asset allocation.

Property and Equipment, net

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

The Company has property

and equipment as follows (in thousands):

Schedule of property and equipment, net

As of December 31,

2 unchanged sentences

Leasehold Improvements

Software 192 263

Production Equipment – 23

Property and Equipment, Gross

2 unchanged sentences

Property and Equipment, net

During the years ended December 31, 2023 and 2022, the Company recorded depreciation expense of $ 0.4 million for both respective periods.

The Company terminated its New Jersey office lease effective August 1, 2023.

The property and equipment that would no longer be utilized was written down to zero, resulting in a $ 0.1 million loss, recorded as Loss on Lease Termination within Other Income (Expense), net on the consolidated statement of operations in the year ended December 31, 2023.

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

As a result, a loss of $ 0.1 million was recorded as an Impairment of Property and Equipment within Operating Expenses on the consolidated statement of operations in the year ended December 31, 2023.

The Company did not incur any impairment charges or write-downs during the year ended December 31, 2022.

During the years ended December 31,

2024 and December 31, 2023, the Company recorded depreciation expense of $ 0.3 million and $ 0.4 million, respectively.

The Company terminated its

New Jersey office lease effective August 1, 2023.

The property and equipment that would no longer be utilized was written down to zero,

resulting in a $ 0.1 million loss, recorded as Loss on Lease Termination within Other Income (Expense), net on the consolidated statement

of operations in the year ended December 31, 2023.

The Company did no t incur

any impairment charges or write-downs during the year ended December 31, 2024.

In the year ended December 31, 2023, a reassessment

of the Company’s long-lived assets was performed due to changes in its estimated undiscounted future cash flows and the Company

recognized an impairment loss of $ 0.1 million.

Leased Right-of-Use Assets, net

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

Leased right-of-use assets

consisted of the following (in thousands):

Schedule of leased right of use assets

As of December 31,

Operating Lease

Office Lease Assets

Accumulated Amortization

Finance Lease

Equipment Lease Assets

Right-of-Use Assets, Gross 14,797 14,241

Accumulated Amortization

Right-of-Use Assets, Gross

Foreign Currency Translation Adjustment

Leased Right-of-Use Assets, net

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

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

As of December 31, 2022, the weighted-average lease term for operating leases was 93 months and the weighted-average discount rate was 10.4 %.

Operating lease costs during the years ended December 31, 2023 and 2022 were $ 1.6 million and $ 1.4 million, respectively, recorded within General and Administrative Expenses on the Company’s consolidated statements of operations.

On August 2, 2023, Beacon Media, signed a Termination of Lease Agreement (the “Lease Termination”), effective August 1, 2023 (the “Effective Date”), related to the office space in Lyndhurst, NJ.

The Lease Termination requires Beacon Media to pay an aggregate of $ 0.1 million in consideration of terminating the lease, payable in four equal installments, starting on the cease-use date of August 1, 2023.

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

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

Refer to Note 19 for details

on the Company’s lease commitments.

As of December 31, 2024,

the weighted-average lease term for the Company’s operating leases was 73 months and the weighted-average discount rate was 11.1 %.

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

Operating lease costs during

the years ended December 31, 2024 and December 31, 2024 were $ 1.6 million and $ 1.6 million, respectively, recorded within General

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

On August 2, 2023, Beacon

Media, signed a Termination of Lease Agreement (the “Lease Termination”), effective August 1, 2023 (the “Effective Date”),

related to the office space in Lyndhurst, NJ.

The Lease Termination requires Beacon Media to pay an aggregate of $ 0.1 million in consideration

for terminating the lease.

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

Including fees, the Company recorded a total loss on lease termination of $ 0.3 million within Other Income (Expense), net on the Company’s consolidated statement of operations during the year ended December 31, 2023.

Starting from November 1, 2023, the Company's lease for their Vancouver office underwent modifications, which included rent concessions and deferrals for rent payments.

However, these changes do not cover common area maintenance (“CAM”) costs.

The landlord abated November 1, 2023 and December 1, 2023 rent payments in the amount of CAD 0.2 million and granted deferral of January-April 1, 2024 rent payments in the amount of CAD 0.4 million.

The deferral balance is required to be repaid in 8 equal payments of CAD 0.1 million by way of adding the payment to the originally scheduled payments starting on May 1, 2024.

In addition, the lease was amended to give the landlord the right to terminate the lease at any time with no less than twelve months’ notice.

The Company accounted for the changes as a modification under ASC 842.

Per ASC 842, the Company remeasured the lease liability using a discount rate as of the effective date of modification on the basis of the remaining lease term and payments.

Based on the modified lease payment terms, the discount rate was determined to be 11.7 %.

The remeasured lease liability as of November 1, 2023 was USD 5.4 million (CAD 7.1 million).

The difference of USD 0.2 million (CAD 0.3 million) compared to the lease liability balance pre-modification was recorded as a reduction to the corresponding right-of-use asset.

The remaining lease costs of USD 8.3 million (CAD 11.0 million) will be recognized on a straight-line basis over the remaining lease term .

During the year ended December 31, 2023 the Company recorded finance lease costs of $ 2.1 million comprised of ROU amortization of $ 1.9 million and $ 0.2 million of interest accretion.

During the year ended December 31, 2022 the Company recorded finance lease costs of $ 1.5 million comprised of ROU amortization of $ 1.3 million and $ 0.1 million of interest accretion.

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

Including fees, the Company recorded a total loss on lease termination of $ 0.3 million within Other Income (Expense), net on the

Company’s consolidated statement of operations during the year ended December 31, 2023.

Effective November 1, 2023,

the Company’s Vancouver office lease was modified and the landlord abated rent payments for November 1, 2023 and December 1, 2023 (CAD

0.2 million) and deferred January–April 2024 rent (CAD 0.4 million), to be repaid in 8 equal installments of CAD 0.1 million starting

Additionally, the landlord may terminate the lease with at least twelve months’ notice.

The Company accounted for the

changes as a lease modification under ASC 842, remeasuring the lease liability using an 11.7 % discount rate.

As of November 1, 2023, the

remeasured lease liability was $ 5.4 million (CAD 7.1 million), with a $ 0.2 million (CAD 0.3 million) reduction to the right-of-use

During the year ended December 31,

2024 the Company recorded finance lease costs of $ 1.7 million comprised of ROU amortization of $ 1.6 million and $ 0.1 million of interest

During the year ended December 31, 2023 the Company recorded finance lease costs of $ 2.1 million comprised of ROU amortization

of $ 1.9 million and $ 0.2 million of interest accretion.

ROU amortization is recorded within General and Administrative Expenses and accretion

of interest expense is recorded within Other Income (Expense), net on the Company’s consolidated statements of operations.

Film and Television Costs, net

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

The following table highlights

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

Schedule of film and television costs activity

Film and Television Costs, net as of December 31, 2022

Additions to Film and Television Costs

Disposals ( 11 )

Film Amortization Expense & Impairment Losses ( 12,996 )

Film Amortization Expense and Impairment Losses

Foreign Currency Translation Adjustment

1 unchanged sentence

Additions to Film and Television Costs

Disposals ( 41 )

Film Amortization Expense & Impairment Losses ( 7,536 )

Film Amortization Expense

Foreign Currency Translation Adjustment

Film and Television Costs, net as of December 31, 2024

During the year ended December 31, 2023, the Company recorded amortization expense of $ 7.5 million, which includes impairment charges of $ 6.9 million.

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

During the year ended December 31, 2022, the Company recorded amortization expense of

$ 13.0 million, which includes impairment charges of $ 6.8 million comprised of $ 1.0 million related to the write-off of the license rights to YFE titles and $ 5.8 million related to production costs.

During the year ended December 31,

2024, the Company recorded amortization expense of $ 0.2 million, During the year ended December 31, 2023, the Company recorded amortization

expense of $ 0.6 million.

The Company did no t incur

any film and television impairment write-downs during the year ended December 31, 2024.

For the year ended December 31, 2023, the

Company recorded film and television impairment write-downs of $ 6.9 million.

Intangible Assets, net and Goodwill

Intangible Assets, net

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

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

Intangible Assets, net

Weighted Average Remaining Amortization Period As of December 31,

Schedule of intangible asset

Weighted Average Remaining Amortization

As of December 31,

Customer Relationships

Digital Networks

Trade Names 67.4 9,970 11,783

Technology – – 293

Other Intangible Assets (a) – – 325

Intangible Assets, gross

2 unchanged sentences

Intangible Assets, net

_______________________

(a) Represents the logo and website intangible assets related to the merger with A Squared that has been fully amortized during the year ended December 31, 2023.

During the years ended December 31, 2023 and 2022, the Company recorded intangible asset amortization expense of $ 2.1 million and $ 2.3 million, respectively.

Pursuant to ASC 350-30, General Intangibles Other than Goodwill , the Company reviews its intangible assets periodically to determine if the value should be retired or impaired due to recent events.

During the year ended December 31, 2023, due to changes in the Company’s financial projections, the Company reassessed its definite and indefinite-lived intangible asset values to determine whether impairments existed.

As a result, the Company recorded a total impairment of $ 4.4 million as Impairment of Intangible Assets within Operating Expenses in the consolidated statement of operations.

The impairment charge consisted of a write-down of definite-lived intangible assets of $ 2.8 million, due to a decrease in an asset group’s estimated undiscounted cash flows and an impairment of the Frederator Tradename, an indefinite-lived intangible asset, of $ 1.7 million due to a decrease in its estimated present value of cash flows.

During the year ended December 31, 2022, as a result of the Company’s annual impairment testing, the Company recorded an impairment charge of $ 4.1 million related to Beacon’s Non-Compete Agreements and Customer Relationships.

Expected future amortization of intangible assets subject to amortization as of December 31, 2023 is as follows (in thousands):

Thereafter 6,836

Total $ 17,336

As of December 31, 2023, $ 5.7 million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives and are not subject to amortization.

The following table summarizes the changes in the carrying amount of goodwill remaining in one of its reporting units (in thousands):

Content Production & Distribution

Goodwill as of December 31, 2022 (1) $ 33,474

Goodwill Impairment ( 33,534 )

Foreign Currency Translation Adjustment 60

Goodwill as of December 31, 2023 $ –

(1) The December 31, 2022 balance is adjusted to include the correction of error as noted in Note 2 within the Restatement of Previously Issued 2022 Financial Statements and Unaudited Interim 2023 Financial Statements section.

As Wow's functional currency is the CAD, goodwill changes each period due to currency exchange differences.

During the year ended December 31, 2022, the Company recorded a goodwill impairment charge of $ 4.9 million that resulted in a remaining balance of $ 0 related to the goodwill allocated to its Media Advisory & Advertising Services reporting unit.

During the year ended December 31, 2023, the Company reassessed its remaining goodwill allocated to the Content Production and Distribution reporting unit for impairment.

As a result, the Company wrote the total goodwill balance to $ 0 and recorded an Impairment of Goodwill of $ 33.5 million within Operating Expenses in its consolidated statement of operations.

During the years ended December 31,

2024 and 2023, the Company recorded intangible asset amortization expense of $ 2 .0 million and $ 2.1 million, respectively.

During the year ended December

31, 2023, as a result of the Company’s annual impairment testing, the Company recorded an impairment charge of $ 4.4 million related

to Beacon’s Non-Compete Agreements and Customer Relationships.

Expected future amortization

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

Schedule of expected future intangible asset amortization

As of December 31, 2024,

$ 5.3 million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives

and are not subject to amortization.

During the year ended December

31, 2023, the Company conducted its annual goodwill impairment assessment in accordance with applicable accounting standards.

this evaluation, it was determined that the carrying amount of goodwill exceeded its recoverable amount due to changes in market conditions

and business performance.

As a result, the Company has recognized a full impairment charge of $ 33.5 million, reducing the goodwill balance

Deferred Revenue

As of December 31, 2023 and December 31, 2022, the Company had aggregate short term and long term deferred revenue of $ 6.6 million and $ 12.4 million, respectively.

The decrease in deferred revenue is primarily related to productions on various shows nearing completion of the project as of December 31, 2023, compared to the progress as of December 31, 2022.

Wow's deferred revenue balance relates to cash received from customers for productions in progress.

As of December 31, 2024

and December 31, 2023, the Company had aggregate short term and long term deferred revenue of $ 9.4 million and $ 6.6 million, respectively.

The increase in deferred revenue is primarily related to productions on various shows nearing completion of the project as of December 31,

2024, compared to the progress as of December 31, 2023.

Wow’s deferred revenue balance relates to cash received from customers for

productions in progress.

Revenue is fully recognized upon production completion.

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

Deferred revenue also includes both (i) variable fee

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

fixed fee contracts.

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

As of December 31, 2023 and December 31, 2022, the Company’s margin loan balance was $ 0.8 million and $ 60.8 million, respectively.

During the year ended December 31, 2023, the Company borrowed an additional $ 21.2 million

from its investment margin account and repaid $ 81.2 million primarily with cash received from sales and maturities of marketable securities.

As of December 31, 2024

and December 31, 2023, the Company’s margin loan balance was $ 0.9 million and $ 0.8 million, respectively.

During the year ended

December 31, 2024, the Company borrowed an additional $ 11 .0 million from its investment margin account and repaid $ 10.9 million primarily

with cash received from sales and maturities of marketable securities.

The borrowed amounts were primarily used for operational costs.

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

The Company incurred interest expense on the loan of $ 1.5 million and $ 1.3 million during the years ended December 31, 2023 and December 31, 2022, respectively.

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

The weighted average interest rates were

0.46 % and 0.98 %, respectively, on average margin loan balances of $ 1 .0 million and $ 27.4 million as of December 31, 2024 and December 31,

During the years ended

December 31, 2024 and December 31, 2023, the Company incurred interest expense on the margin loan of $ 0.1

million and $ 1.5

million, respectively.

The investment margin account borrowings do not

mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at

any time, effecting a payable on demand loan.

Due to the call option, the margin loan is recorded as a current liability on the

Company’s consolidated balance sheets.

Bank Indebtedness and Production Facilities

Upon the acquisition of Wow, the Company assumed certain credit facilities (together, the “Facilities”).

The Facilities are comprised of the following:

The Company has certain credit

facilities that are comprised of the following:

Revolving Demand Facility

As of December 31, 2023 and December 31, 2022, the Company had an outstanding balance of USD 2.9 million USD (CAD 3.8 million) and USD 1.7 million (CAD 2.4 million), respectively, on the revolving demand facility by way of bank prime rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s consolidated balance sheets.

Subsequent to December 31, 2023, the Company amended the revolving demand facility during March 2024.

In the first quarter of 2024,

the Company amended the revolving demand facility to allow for draws of up to $ 0.7 million (CAD 1 .0 million) to be made by way of CAD

prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 200,000 in either CAD or USD and having

a term of up to 1 year.

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

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

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

As of December 31, 2023, the revolving

demand facility allowed for draws of up to $ 5.6 million (CAD 8 .0 million).

On December 19, 2024,

the Company fully repaid its outstanding revolving demand facility balance and its revolving demand facility with the lender was terminated.

The final payment to close out the revolving demand facility was $ 0.6 million (CAD 0.8 million).

As of December 31, 2023,

the Company had an outstanding balance of $ 2.9 million (CAD 3.8 million) on the revolving demand facility by way of bank prime

rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s consolidated balance sheets.

Equipment Lease Line

On March 17, 2023, the Company amended the terms of its equipment lease line.

Under the equipment lease line, the Company may borrow up to CAD 4.0 million.

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

The finance rates for these equipment leases range from 3.94 % to 7.18 % with remaining lease terms of 2 - 34 months.

As of December 31, 2023 and December 31, 2022, the Company had drawn down a total of USD 1.2 million (CAD 1.6 million) and USD 2.4 million (CAD 3.3 million), respectively, under the equipment lease line.

As of December 31, 2023 and December 31, 2022, the outstanding balances, net of repayments, were included within current and noncurrent Finance Lease Liabilities on the Company’s consolidated balance sheets.

Subsequent to December 31, 2023, the Company amended the equipment lease line during March 2024.

The equipment lease line was amended to set the maximum that can be borrowed under the equipment lease line to CAD 1.6 million.

As of December 31, 2023, the Company has drawn down the maximum of CAD 1.6 million under the equipment lease line.

Under the equipment lease

line, the Company could borrow up to $ 2.8 million (CAD 4 .0 million) in total for equipment leases.

Each transaction under the equipment

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

first quarter of 2024, the equipment lease line was terminated, however, the Company continued to make the regular principal and interest

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

In the third quarter of 2024, the lender and the

Company reached an agreement for the early repayment of certain equipment leases under the equipment lease line to be completed within

the fourth quarter of 2024.

On November 29, 2024, the Company made equipment lease line repayments of $ 0.6 million (CAD 0.8 million)

in total to extinguish the remaining equipment lease line obligations.

As of December 31, 2023,

the Company had an outstanding balance of $ 1.2 million (CAD 1.6 million) under the equipment lease line, included within current and noncurrent

Finance Lease Liabilities on the Company’s consolidated balance sheets.

Treasury Risk Management Facility

Advances of up to CAD 0.5 million available under the treasury risk management facility are subject to market rates as determined by the lender’s treasury department or derivatives group at the time of the drawdown request.

The maximum term for foreign exchange forward contracts and interest rate swaps is one year .

The treasury risk management facility is payable on demand at any time.

As of December 31, 2023 and December 31, 2022, there were no outstanding amounts drawn under the treasury risk management facility.

Subsequent to December 31, 2023, an amendment was entered into that removed the treasury risk management facility.

Production Facilities

The production facilities are used for financing specific productions.

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

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

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

As of December 31, 2023 and December 31, 2022, the Company had an outstanding balance of USD 15.3 million (CAD 20.3 million), including USD 1.4 million (CAD 1.9 million) of interest and USD 18.3 million (CAD 24.8 million), including USD 1.1 million (CAD 1.5 million) of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s consolidated balance sheets.

The treasury risk management

facility allows for advances of up to $ 0.3 million (CAD 0.5 million) for foreign exchange forward contracts and interest rate swaps.

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

As of December 31, 2024 and December 31,

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

Production Facilities, net

The production

facilities are used for financing specific productions.

The Company’s production facilities bear interest at rates ranging

from bank prime plus 1.00 %

The production facilities are generally repayable on demand.

Any 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

As of December 31, 2024

and December 31, 2023, the Company had an outstanding net balance of $ 9.2 million (CAD 13.3 million), including $ 0.8 million (CAD

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

as Production Facilities, net within current liabilities on the Company’s consolidated balance sheets.

As of December 31, 2024

and December 31, 2023, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production

facilities of $ 0.1 million, which were included as a reduction to the carrying amount of production facilities.

Equipment Lease Facility

Separate from the equipment lease line described above, the Company entered into an equipment lease agreement with a Canadian bank.

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

Each equipment lease is for a term of three years and will have specific financing terms such as finance amount and the bank’s lease base rate.

As of December 31, 2023 and December 31, 2022, the Company had drawn USD 0.8 million (CAD 1.1 million) and USD 0.5 million (CAD 0.7 million), respectively, under the equipment lease facility.

As of December 31, 2023 and December 31, 2022, the outstanding balances, net of repayments, were included within current and noncurrent Finance Lease Liabilities, net on the Company’s consolidated balance sheets.

In the fourth quarter of 2022,

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

This additional equipment lease facility allows the Company

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

Each transaction under the equipment lease facility has

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

As of December 31, 2024,

the Company has two leases remaining under this facility with finance rates of 7.52 % and 8.20 %, and remaining lease terms of 11 months

and 20 months.

As of December 31, 2024

and December 31, 2023, the outstanding balances, net of repayments, of $ 0.3 million (CAD 0.4 million) and $ 0.6 million (CAD 0.8 million),

respectively, were included within current and noncurrent Finance Lease Liabilities, net on the Company’s consolidated balance sheets.

Loan Covenants, Violations and Waiver

The Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt to EBITDA ratio as of December 31, 2023.

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

The revolving demand facility and the treasury risk management facility can be called at any time by the lender as per the original terms of the facilities.

The risk of the lender demanding repayment can be deemed greater due to the breach of covenants.

Subsequent to December 31, 2023, an amendment was entered into that introduced revised financial covenants that are effective as of March 15, 2024.

As of December 31, 2022, the Company met all required financial and non-financial covenants.

The Company was subject to

financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease agreements.

In the second and third quarter of 2024, the Company was not in compliance with financial covenant calculations.

As a result of these

financial covenant violations, the Company and the lender agreed to an early repayment of the equipment leases under the equipment lease

line and the revolving demand facility in the fourth quarter of 2024.

As of December 31, 2024, the Company is no longer subject to

financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease agreements

that were repaid in full and terminated in the fourth quarter of 2024.

As of December 31, 2023,

the Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt

to EBITDA ratio as part of its loan covenants for the revolving demand facility, equipment lease line, and treasury risk management facility.

Stockholders’ Equity

On February 6, 2023, the Company’s board of directors approved a 1-for-10 reverse stock split of the Company’s outstanding shares of common stock.

February 6, 2023, the Company’s board of directors approved a 1-for-10 reverse stock split of the Company’s outstanding shares

of common stock.

The reverse stock split was effected on February 10, 2023 at 5:00 p.m.

Eastern time.

At the effective time, every 10 issued and outstanding shares of the Company’s common stock were converted into one share of common stock.

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

At the effective time, every 10

issued and outstanding shares of the Company’s common stock were converted into one share of common stock.

Any fractional shares

of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no stockholders received

cash in lieu of fractional shares.

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

The reverse stock split proportionately reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000 shares.

The reverse stock split also applied to common stock issuable upon the exercise of the Company’s then outstanding warrants and stock options.

The reverse stock split proportionately

reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000

The reverse stock split also applied to common stock issuable upon the exercise of the Company’s

then outstanding warrants and stock options.

The reverse stock split did not affect the authorized preferred stock of 10,000,000 shares.

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

As of December 31, 2023 and December 31, 2022, there were 35,247,744 and 31,918,552 shares of common stock outstanding, respectively.

During the year ended December 31, 2023, the Company issued 481,850 shares of common stock for services.

Included in the issued shares were 400,000 shares of common stock valued at $ 1.0 million, or $ 2.47 per share, issued to the Company's lawyers and recorded as a prepaid retainer fee within Prepaid Expenses and Other Assets on the consolidated balance sheet.

The prepaid fee is reduced as the Company incurs lawyer fees.

As of December 31, 2023, the balance in the prepaid retainer fee account has been depleted.

As of December 31, 2024

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

As of December 31, 2024

and December 31, 2023, there were 46,209,081 and 35,247,744 shares of common stock outstanding, respectively.

During the year ended December 31,

2024, the Company issued 362,568 shares of common stock for services.

During the year ended December 31,

2024, the Company issued 166,033 shares of common stock in connection with vested restricted stock units (RSUs), net of shares withheld

for tax obligations.

On April 23, 2024,

pursuant to the terms of a securities purchase agreement, dated April 18, 2024 (the “SPA”), the Company closed a

registered direct offering of the sale of 3,900,000

shares of our common stock, par value $ 0.001

per share (the “Common Stock”), and pre-funded warrants to purchase up to 100,000

shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the “Investor”), at $ 1.00

per share of Common Stock and $ 0.99

per Pre-funded Warrant, for aggregate gross proceeds of approximately $ 4,000,000 ,

prior to deducting placement agent fees and other offering expenses.

Additionally, in connection with the April 2024 Offering, the exercise price of certain

warrants to purchase 4,784,909

shares of common stock, previously issued by us in June 2023, was reduced from $ 2.50

per share to $ 1.00

per share pursuant to anti-dilution provisions contained in such warrants.

On December 18, 2024 the

Company closed an offering resulting an aggregate gross proceeds of approximately $ 4,496,480

from one institutional investor and issued to such investor 4,375,000

shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736

shares of common stock, Series A common stock purchase warrants to purchase up to 7,894,736

shares of common stock, and Series B common stock purchase warrants to purchase up to 7,894,736

shares of common stock.

Each share of common stock and each pre-funded warrant was issued together with one Series A warrant and one

Series B warrant as part of an integrated offering.

The purchase price per share of common stock, together with accompanying Series A

and Series B warrants, was $ 0.57 ,

while the purchase price per pre-funded warrant was $ 0.569 .

We incurred a placement agent fee of approximately $ 389,754

and issued warrants to purchase 1,657,895

shares of common stock to the placement agent with an exercise price of $ 0.71

Following an analysis under applicable accounting guidance, we determined that the pre-funded warrants and placement agent

warrants met the criteria for equity classification, while the Series A and Series B warrants required classification as liabilities

due to settlement provisions requiring shareholder approval.

The liability-classified warrants will be subsequently measured at fair

value, with changes recognized in earnings.

In accordance with applicable accounting standards, we allocated the total proceeds among

the instruments issued, recognizing the warrants as a liability at their full fair value.

As a result of this allocation, we recorded

a non-cash loss of $ 1 .0

Executing the transaction was driven by several strategic considerations.

The capital injection strengthened our liquidity position,

supporting project development and ongoing operations.

Additionally, while the warrants resulted in a non-cash accounting loss due to

their fair value measurement, they did not impact our cash flows.

Furthermore, our management believes, that the offering was beneficial

from a market visibility perspective.

On December 26, 2024, the

Company issued 2,057,736 shares of common stock to investor Armistice Capital Master Fund Ltd.

upon the exercise of outstanding pre-funded

The warrants were exercised at a price of $ 0.001 per share, which represented par value, resulting in total proceeds of $ 2,058 .

The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

Preferred Stock

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

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

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2023 and December 31, 2022, there were 0 shares of Series A Convertible Preferred Stock outstanding.

As of December 31, 2023 and December 31, 2022, there was 1 share of Series B Preferred Stock outstanding.

As of December 31, 2023 and December 31, 2022, there were 0 shares of Series C Preferred Stock outstanding.

The Company has 10,000,000

shares of preferred stock authorized with a par value of $ 0.001

per share including 9,943,999

shares of undesignated preferred stock, 6,000

shares designated as 0% Series A Convertible Preferred Stock and 50,000

shares as Series C Preferred Stock.

The board of directors is authorized, subject to any limitations prescribed by law, without further

vote or action by the Company’s stockholders, to issue from time-to-time shares of preferred stock in one or more series.

series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative

rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights,

liquidation preferences, conversion rights and preemptive rights.

In connection with the Company’s

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

in the capital of the Wow Exchange Co.

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

they were otherwise entitled.

The shares of ExchangeCo were

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

Holders of the ExchangeCo shares were entitled

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

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

(“CallCo”) and Computershare Trust

Company of Canada (the “Voting Trustee”).

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

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

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

pursuant to the tender of ExchangeCo shares.

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

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

not exercise voting rights with respect to the applicable shares.

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

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

Accordingly, the shares of ExchangeCo are no longer

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

of the shares of ExchangeCo or the Special Voting Share.

As of December 31, 2024

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

As of December 31, 2024 and

December 31, 2023, there was 0 and 1 share of Series B Preferred Stock outstanding, respectively.

As of December 31, 2024 and

December 31, 2023, there were 0 shares of Series C Preferred Stock outstanding.

Treasury Stock

During the years ended December 31, 2023 and December 31, 2022, 32,840 and 699 shares of common stock with a cost of $ 48,845 and $ 4,807 , respectively, were withheld to cover taxes owed by certain employees, all of which were included as treasury stock outstanding and recorded at cost within Treasury Stock on the consolidated balance sheets.

In addition, during 2022, the Company settled a lawsuit by agreeing to purchase 41,934 shares of its common stock held by the other party.

The shares were purchased at the market price of $ 6.80 per share, plus a premium of $ 13.10 per share, for a total cost of $ 0.8 million.

The market based cost of $ 0.3 million was recorded within Treasury Stock on the consolidated balance sheet as of December 31, 2022 and the cost in excess of market of $ 0.5 million was recorded as a legal expense within General and Administrative expenses on the Company’s consolidated statement of operations.

During the years ended December 31,

2024 and December 31, 2023, 524 and 32,840 shares of common stock with a cost of $ 504 and $ 48,845 , respectively, were withheld to

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

on the consolidated balance sheets.

Stock Options

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

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

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

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

As of December 31, 2023, 57,800 stock options granted under the 2015 Plan remain outstanding.

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

During the years ended December 31, 2023 and December 31, 2022, the Company granted options to purchase 25,000 and 441,981 shares of common stock with weighted-average grant-date fair market values of $ 9,007 and $ 259,235 , respectively.

The fair value of the options granted during the years ended December 31, 2023 and December 31, 2022 were calculated using the BSM option pricing model based on the following assumptions:

On August 27, 2020, the Company’s

stockholders approved the adoption of the Kartoon Studios, Inc.

2020 Equity Incentive Plan (as amended, the ”2020 Plan”).

2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”).

The maximum number of shares available for

issuance was initially equal to the sum of (i) 3,000,000 shares of common stock and (ii) the number of shares of common stock remaining

available for issuance under the 2015 Plan, which was then equal to 216,767 shares.

On May 23, 2023, the Company’s stockholders

approved the adoption of an Amended and Restated 2020 Equity Incentive Plan, which provided for the maximum number of shares of common

stock available for issuance under the 2020 Plan to be increased by 5,000,000

The remaining 12,000

outstanding stock options granted under the 2015 Plan, as of December 31, 2024, remain to be governed under such plan.

During the years ended December 31,

2024 and December 31, 2023, the Company granted options to purchase 35,000 and 25,000 shares of common stock with weighted-average

grant-date fair market values of $ 24,210 and $ 9,007 , respectively.

The fair value of the options

granted during the years ended December 31, 2024 and December 31, 2023 were calculated using the BSM option pricing model based

on the following assumptions:

Schedule of assumptions used

Year Ended December 31,

1 unchanged sentence

Dividend Yield

Volatility 98.78 % 100 % - 123 %

Risk-free interest rate

Expected life of options 5.0 years 3.0 - 5.0 years

The following table summarizes the stock option activity during the years ended December 31, 2023 and 2022:

Number of Shares Weighted- Average Remaining Contractual

Life Weighted- Average Exercise Price

Expected life of options

The following table summarizes

the stock option activity during the years ended December 31, 2024 and 2023:

Schedule of option activity

Number of Shares

Weighted-Average Remaining Contractual

Weighted- Average Exercise Price

Outstanding at December 31, 2022

Granted 441,981 4.49 $ 10.59

Exercised – – $ –

Forfeited/Cancelled

Expired – – $ –

Outstanding at December 31, 2023

Granted 25,000 4.96 $ 1.43

Exercised – – $ –

Forfeited/Cancelled

Expired ( 17,016 ) – $ –

Outstanding at December 31, 2024

1 unchanged sentence

Vested and exercisable December 31, 2024

During the year ended December 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the employees pursuant to their employment agreements.

This resulted in 98,850 options becoming immediately vested on the separation date and $ 0.2 million in expense recognized by the Company.

During the years ended December 31, 2023 and 2022, the Company recognized $ 1.2 million and $ 1.7 million, respectively, in share-based compensation expense related to stock options included in General & Administrative Expense on the Company’s consolidated statements of operations.

The unrecognized share-based compensation expense as of December 31, 2023 was $ 0.2 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The outstanding shares as of December 31, 2023 had an aggregated intrinsic value of zero .

During the years ended December 31,

2024 and December 31, 2023, the Company recognized $ 0.2 million and $ 1.2 million ,

respectively, in share-based compensation expense related to stock options included in General and Administrative Expense on the Company’s

consolidated statements of operations.

The unrecognized share-based compensation expense as of December 31, 2024 was $ 0.02 million

which will be recognized through the 2025 assuming the underlying grants are not cancelled or forfeited.

The outstanding shares as of

December 31, 2024 had an aggregated intrinsic value of zero .

During the year ended December 31,

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

to their employment agreements.

This resulted in 98,850 options becoming immediately vested on the separation date and $ 0.2 million

in expense recognized by the Company.

Restricted Stock Units

RSUs are granted under the Company’s 2020 Plan.

During the year ended December 31, 2023, the Company granted 148,937 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $ 0.3 million and 40,000 shares of RSUs to employees with a fair value of $ 57,200 that vest evenly over three years .

An aggregate of 418,648 shares of common stock were issued during the year ended December 31, 2023 as a result of vested RSUs held by employees.

The following table summarizes the Company’s RSU activity during the years ended December 31, 2023 and 2022:

Restricted Stock Units Weighted-

RSUs are granted under

the Company’s 2020 Plan.

During the year ended December 31, 2024, the Company granted 372,745 fully vested RSUs to the

Company’s board members and consultants, with a fair value of $ 0.4 million.

There was no RSUs to granted to employees during

the year ended December 31, 2024.

An aggregate of 166,033 shares

of common stock were issued during the year ended December 31, 2024 as a result of vested RSUs held by employees.

The following table summarizes

the Company’s RSU activity during the years ended December 31, 2024 and 2023:

Schedule of RSU activity

Restricted Stock Units

Average Grant Date Fair Value per Share

Unvested at December 31, 2022

Granted 158,667 $ 7.21

Vested ( 545,047 ) $ 12.59

Forfeited/Cancelled

Unvested at December 31, 2023

Granted 188,937 $ 1.69

Vested ( 358,256 ) $ 8.18

Forfeited/Cancelled

Unvested at December 31, 2024

During the year ended December 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested shares held by such employees pursuant to their employment agreements.

This resulted in 60,910 shares becoming immediately vested and issued on the separation dates and $ 0.2 million in expense recognized by the Company.

During the years ended December 31, 2023 and 2022, the Company recognized $ 1.5 million and $ 9.2 million, respectively, in share-based compensation expense related to RSU awards included in General & Administrative Expense on the Company’s consolidated statements of operations.

The unvested share-based compensation as of December 31, 2023 was $ 0.4 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the year ended December 31, 2023 was $ 2.9 million.

The following table summarizes the activity in the Company’s outstanding warrants during the years ended December 31, 2023 and 2022:

Warrants Outstanding Number of

Shares Weighted Average Remaining

Contractual Life Weighted Average Exercise Price Per

During the years ended December 31,

2024 and December 31, 2023, the Company recognized $ 0.5 million and $ 1.5 million, respectively, in share-based compensation

expense related to RSU awards included in General and Administrative Expense on the Company’s consolidated statements of operations.

The unvested share-based compensation as of December 31, 2024 was $ 0.02 million which will be recognized through the second

quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the year ended

December 31, 2024 was $ 1.8 million.

The following table summarizes

the activity in the Company’s outstanding warrants during the years ended December 31, 2024 and December 31, 2023:

Schedule of warrant activity

Warrants Outstanding Number of Shares

Weighted Average Remaining

Contractual Life

Weighted Average Exercise Price Per

Balance at December 31, 2022

Granted – – $ –

Exercised – – $ –

Expired ( 67,604 ) – $ –

Forfeitures ( 50,000 ) – $ –

( 2,311,550 )

Balance at December 31, 2023

Granted 4,784,909 4.84 $ 2.50

Exercised ( 2,311,550 ) 2.59 $ 23.70

Expired ( 4,000 ) – $ –

Forfeitures ( 50,000 ) – $ –

( 2,057,736 )

Balance at December 31, 2024

Exercisable December 31, 2024

Exercisable December 31, 2022 4,433,593 4.77 $ 22.50

As of December 31, 2023, 89,286 derivative warrants classified as a liability as issued with convertible notes in 2020 to purchase shares of the Company’s common stock remained outstanding and are revalued each reporting period.

of December 31, 2023, the warrants were revalued at approximately $ 0.1 million, resulting in a decrease of $ 0.2 million in liability as compared to December 31, 2022.

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

The fair value of the outstanding derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31, 2023:

Registered Direct Offering

On April 23, 2024

the Company issued pre-funded warrants to purchase up to 100,000

shares of Common Stock to an institutional investor at $ 0.99

per Pre-funded Warrant.

Additionally, in connection with the April 2024 Offering, the exercise price of certain warrants to purchase 4,784,909

shares of common stock, previously issued by the Company in June 2023, was reduced from $ 2.50

per share to $ 1.00

per share pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price reduced the

Weighted-Average Exercise Price per Share from $ 8.19

before the reprice to $ 7.14

after the reprice.

Since the Warrants are classified as equity, they are not remeasured after initial recognition, in accordance

with ASC 815, as outlined in the “Warrants Exchange” section below.

December 2024 Offering

On December 18, 2024, we

closed an offering (the “December 2024 Offering”) for aggregate gross proceeds of approximately $ 4,496,480

from one institutional investor and issued to such investor 4,375,000

shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736

shares of common stock, Series A common stock purchase warrants to purchase up to 7,894,736

shares of common stock, and Series B common stock purchase warrants to purchase up to 7,894,736

shares of common stock.

Each share of common stock and each pre-funded warrant was issued together with one Series A warrant and one

Series B warrant as part of an integrated offering.

The purchase price per share of common stock, together with accompanying Series

A and Series B warrants, was $ 0.57 ,

while the purchase price per pre-funded warrant was $ 0.569 .

We incurred a placement agent fee of approximately $ 389,754

and issued warrants to purchase 1,657,895

shares of common stock to the placement agent with an exercise price of $ 0.71

Following an analysis under applicable accounting guidance, we determined that the pre-funded warrants and placement

agent warrants met the criteria for equity classification, while the Series A and Series B warrants required classification as

liabilities due to settlement provisions requiring shareholder approval.

The liability-classified warrants will be subsequently

measured at fair value, with changes recognized in earnings.

In accordance with applicable accounting standards, we allocated the

total proceeds among the instruments issued, recognizing the warrants as a liability at their full fair value.

As a result of this

allocation, we recorded a non-cash loss of $ 1 .0

Executing the transaction was driven by several strategic considerations.

The capital injection strengthened our liquidity

position, supporting project development and ongoing operations.

Additionally, while the warrants resulted in a non-cash accounting

loss due to their fair value measurement, they did not impact our cash flows.

Furthermore, our management believes, that the

offering was beneficial from a market visibility perspective Additionally, in connection with the December 2024 Offering, the

exercise price of certain warrants to purchase 4,784,909

shares of common stock, previously issued by us in June 2023, was reduced from $ 1.00

per share to $ 0.57

per shares pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price reduced the

Weighted-Average Exercise Price per Share from $ 7.14

before the reprice to $ 6.85

after the reprice.

Since the Warrants are classified as equity, they are not remeasured after initial recognition, in accordance

with ASC 815, as outlined in the “Warrants Exchange” section below.

The fair value of the outstanding

Series A derivative warrants at issuance date was determined by using the BSM option pricing model based on the following assumptions:

of assumptions

December 18, 2024

Market Price $ 1.39

Exercise Price

Dividend Yield

Volatility 149 %

Risk-free Interest Rate

Expected Life of Warrants 1.2 years

On February 16, 2023, the Company received a notification of exercise from the holder of the remaining 50,000 warrants with a put option.

The put option was exercised for a fixed rate of $ 250,000 .

Warrant Exchange

On June 26, 2023, the Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain holders of the warrants issued by the Company in January 2021 that had an exercise price of $ 23.70 per share and were exercisable for an aggregate of 2,311,550 shares of the Company’s common stock (the “2021 Warrants”).

Pursuant to the Letter Agreements, the exercising holders and the Company agreed that, subject to any applicable beneficial ownership limitations, the holders would exercise all of their 2021 Warrants for shares of the Company’s common stock at a reduced exercise price of $ 2.50 per share of common stock in exchange for the issuance of new unregistered warrants (the “Exchange Warrants”) to purchase up to an aggregate of 4,623,100 shares of common stock, equal to 200 % of the number of common stock underlying the 2021 Warrants.

Upon issuance of the Exchange Warrants, the Company did not have a sufficient number of underlying common stock that would be required to deliver based on its existing outstanding shares and commitments and the maximum number of shares that would be required to be delivered upon exercise of the Exchange Warrants.

The Company held a special meeting of stockholders on November 1, 2023, at which, among other things, a proposal to amend the Company’s Articles of Incorporation to increase the authorized shares of common stock from 40,000,000 shares to 190,000,000 shares with a corresponding increase in the total number of authorized shares of capital stock of the Company from 50,000,000 shares to 200,000,000 shares (the “Share Increase Amendment”) was approved by the stockholders.

Pursuant to the Letter Agreements, the Company filed a registration statement on Form S-3 covering the resale of the shares of common stock issuable upon the exercise of the 2021 Warrants on July 26, 2023.

The Exchange Warrants have an exercise price of $ 2.50 per share and a term of exercise of five years from November 1, 2023 (i.e., the date on which the Share Increase Amendment was approved by the stockholders).

The Company received approximately $ 5.8 million in gross proceeds recorded as an increase to Additional Paid-in Capital.

The Special Equities Group, a division of Dawson James Securities, Inc.

(“SEG”), acted as warrant solicitation agent and received a cash fee of $ 0.4 million, equal to 7.0 % of the total gross proceeds, and warrants with a value of $ 0.4 million on the issuance date to purchase up to 161,809 of the Company’s common stock at $ 2.50 per share (the “SEG Warrants”).

In addition, through issuance of the Company’s common stock, the Company paid lawyer fees of $ 0.1 million for costs directly attributable to the warrant re-pricing and exchange.

The total issuance costs of $ 0.5 million were netted against the proceeds received and recorded as a reduction to Additional Paid-in Capital on the Company's consolidated balance sheet.

As the 2021 Warrants were repriced prior to exercising, the Company utilized ASC 815 to account for the modification.

As per ASC 815, an entity shall treat a modification of the terms or conditions or an exchange of a freestanding equity classified written call option as an exchange of the original instrument for a new instrument.

The effect of a modification or an exchange shall be measured as the excess, if any, of the fair value of the modified or exchanged

instrument over the fair value of that instrument immediately before it is modified or exchanged (the “incremental expense”).

The Company calculated the fair value of the 2021 Warrants exercised immediately before the repricing using the BSM option pricing model.

The calculation used the original exercise price of $ 23.70 per share and the BSM assumptions as of June 26, 2023 to calculate the fair value immediately before the repricing and calculated the fair value of the 2021 Warrants exercised utilizing the modified exercise price of $ 2.50 per share and the same BSM assumptions as of June 26, 2023.

The resulting increase in fair value of $ 3.5 million, was considered a deemed dividend and reflected within Additional Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The fair value of the aggregate total of 4,784,909 Exchange Warrants and the SEG Warrants (collectively, the “Warrants”) on the issuance date of June 26, 2023 was determined to be $ 13.1 million, or $ 2.74 per share, as calculated using the BSM option pricing model based on the following assumptions:

June 26, 2023

Market Price $ 3.30

Expected Life of Warrants

The fair value of the outstanding

Series B derivative warrants at issuance date determined by using the BSM option pricing model based on the following assumptions:

of assumptions

December 18, 2024

Exercise Price

Dividend Yield

Volatility 110 %

Risk-free Interest Rate

Expected Life of Warrants 5.0 years

The fair value of the Exchange Warrants of $ 12.7 million was recorded as a Warrant Expense within Other Income (Expense), net on the consolidated statement of operations.

The fair value of the SEG Warrants of $ 0.4 million was recorded as a reduction to Additional Paid-in Capital on the consolidated balance sheet.

At the time of grant, when taking into consideration the Company’s then existing outstanding common stock and future commitments to issue common stock, including the newly granted Warrants, the Company did not have a sufficient number of authorized and unissued shares required to net share or physically settle the equity instruments without stockholder approval to increase the authorized shares.

Therefore, per ASC 815, the Company classified the Warrants as a liability and revalued the warrants at each reporting period with the change in fair value recorded as a Gain on Warrant Revaluation within Other Income (Expense), net.

As noted above, the Company held a special meeting of stockholders on November 1, 2023, at which, among other things, the Share Increase Amendment was approved by the stockholders.

Consequently, the Company had a sufficient number of authorized and unissued shares required to settle all outstanding equity instruments, including the Warrants.

Per ASC 815, as a result of events during the period, the classification of an instrument shall be reclassified as of the date of the event that caused the reclassification by revaluing the instrument immediately prior to reclassification and any gains or losses should be recognized.

The fair value of the Warrants was determined to be $ 3.0 million, using the BSM option pricing model based on the following assumptions on October 31, 2023:

Expected Life of Warrants

The fair value of the outstanding

Series A derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

of assumptions

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

The fair value of the outstanding

Series B derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

of assumptions

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

On December 26, 2024,

of the pre-funded warrants were exercised at a price of $ 0.001

per share, which represented par value, resulting in total proceeds of $ 2,058 .

The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

As of December 31, 2024,

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

common stock remained outstanding and are revalued each reporting period.

As of December 31, 2024, the warrants were revalued at

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

The change in value was

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

the Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities on the consolidated statements of cash flows.

The fair value of the outstanding

derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31, 2024:

Schedule of assumptions

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

Warrant Exchange

On June 26, 2023, the

Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain holders of the warrants

issued by the Company in January 2021 that had an exercise price of $ 23.70 per share and were exercisable for an aggregate of 2,311,550

shares of the Company’s common stock (the “2021 Warrants”).

Pursuant to the Letter Agreements, the exercising holders

and the Company agreed that, subject to any applicable beneficial ownership limitations, the holders would exercise all of their 2021

Warrants for shares of the Company’s common stock at a reduced exercise price of $ 2.50 per share of common stock in exchange for

the issuance of new unregistered warrants (the “Exchange Warrants”) to purchase up to an aggregate of 4,623,100 shares of

common stock, equal to 200 % of the number of common stock underlying the 2021 Warrants.

The Exchange Warrants had an exercise price of

$ 2.50 per share and a term of exercise of five years from November 1, 2023.

The Company received approximately

$ 5.8 million in gross proceeds recorded as an increase to Additional Paid-in Capital.

The Special Equities Group, a division of Dawson

James Securities, Inc.

(“SEG”), acted as warrant solicitation agent and received a cash fee of $ 0.4 million, equal to

7.0 % of the total gross proceeds, and warrants with a value of $ 0.4 million on the issuance date to purchase up to 161,809 of the

Company’s common stock at $ 2.50 per share (the “SEG Warrants”).

In addition, through issuance of the Company’s

common stock, the Company paid lawyer fees of $ 0.1 million for costs directly attributable to the warrant re-pricing and exchange.

The total issuance costs of $ 0.5 million were netted against the proceeds received and recorded as a reduction to Additional Paid-in

Capital on the Company’s consolidated balance sheet.

As the 2021 Warrants were

repriced prior to exercising, the Company utilized ASC 815 to account for the modification.

The Company calculated the fair value of the

2021 Warrants exercised immediately before the repricing using the BSM option pricing model.

The calculation used the original exercise

price of $ 23.70 per share and the BSM assumptions as of June 26, 2023 to calculate the fair value immediately before the repricing

and calculated the fair value of the 2021 Warrants exercised utilizing the modified exercise price of $ 2.50 per share and the same BSM

assumptions as of June 26, 2023.

The resulting increase in fair value of $ 3.5 million, was considered a deemed dividend and reflected

within Additional Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The fair value of the aggregate total

of 4,784,909 Exchange Warrants and the SEG Warrants (collectively, the “Warrants”) on the issuance date of June 26, 2023

was determined to be $ 13.1 million, or $ 2.74 per share, as calculated using the BSM option pricing model.

The fair value of the Exchange

Warrants of $ 12.7 million was recorded as a Warrant Expense within Other Income (Expense), net on the consolidated statement of operations

in the year ended December 31, 2023.

The fair value of the SEG Warrants of $ 0.4 million was recorded as a reduction to Additional

Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The Company held a special

meeting of stockholders on November 1, 2023, at which, among other things, the stockholders approved an increase in the number of authorized

shares of common stock.

Consequently, the Company had a sufficient number of authorized and unissued shares required to settle all outstanding

equity instruments, including the Warrants.

Per ASC 815, as a result of events during the period, the classification of an instrument

shall be reclassified as of the date of the event that caused the reclassification by revaluing the instrument immediately prior to reclassification

and any gains or losses should be recognized.

The fair value of the Warrants was determined to be $ 3 .0 million,

using the BSM option pricing model based on the following assumptions on October 31, 2023:

Schedule of assumptions

October 31, 2023

Market Price $ 0.99

Exercise Price

Dividend Yield

Volatility 98 %

Risk-free interest rate

Expected Life of Warrants 5.0 years

The decrease in value of $ 1.4 million was recorded as a Gain on Revaluation of Warrant within Other Income (Expense), net on the consolidated statement of operations and a decrease in liability.

The remaining liability of $ 3.0 million was then reclassed from Warrant Liability to Additional Paid-in-Capital within stockholders’ equity on the consolidated balance sheet.

Expected Life of Warrants

The decrease in value of $ 1.4

million was recorded as a Gain on Revaluation of Warrant within Other Income (Expense), net on the consolidated statement of operations

and a decrease in liability in the year ended December 31, 2023.

The remaining liability of $ 3 .0 million was then reclassified

from Warrant Liability to Additional Paid-in-Capital within stockholders’ equity on the consolidated balance sheet.

Supplemental Financial Statement Information

Other Income (Expense), net

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

Components of Other Income (Expense), net, are

summarized as follows (in thousands):

Schedule of other income expense, net

Year Ended December 31,

2 unchanged sentences

Gain on Revaluation of Warrants (c)

Gain on Revaluation of Equity Investment in YFE (d) 2,314 1,392

Realized Loss on Marketable Securities Investments (e) ( 4,496 ) ( 413 )

Gain (Loss) on Foreign Exchange (f) 641 ( 2,161 )

Interest Income (g) 622 1,015

Loss on Early Lease Termination (h) ( 258 ) –

Finance Lease Interest Expense (i) ( 189 ) ( 116 )

Gain on Contingent Consideration Revaluation (j) – 1,345

Other (k) 978 6

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

Loss on transaction (e)

Realized Loss on Marketable Securities Investments (f)

Gain (Loss) on Foreign Exchange (g)

Interest Income (h)

Loss on Early Lease Termination (i)

Finance Lease Interest Expense (j)

Other Income (Expense), net

(a) Interest Expense during the year ended December 31, 2023 primarily consisted of $ 1.5 million of interest incurred on the margin loan and $ 1.5 million of interest incurred on production facilities loans and bank indebtedness.

(b) The Warrant Expense is related to the $ 12.7 million fair value of Exchange Warrants that were issued during the year ended December 31, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants.

(c) The Gain on Revaluation of Warrants during the year ended December 31, 2023 is primarily related to the changes in fair value of the Exchange Warrants of $ 10.1 million recorded prior to the warrants being reclassified to stockholder’s equity.

The decrease in fair value was due to decreases in market price.

(d) As accounted for using the fair value option, the Gain on Revaluation of Equity Investment in YFE is a result of the increases or decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period.

Interest Expense during the year ended

December 31, 2024 primarily consisted of $ 0.1 million of interest incurred on the margin loan and $ 0.7 million of interest incurred

on production facilities and bank indebtedness.

Interest Expense during the year ended December 31, 2023 primarily consisted

of $ 1.5 million of interest incurred on the margin loan and $ 1.5 million of interest incurred on production facilities and bank indebtedness.

During the year ended December 31, 2023

we recorded a warrants expense of $ 12.7 million related to the fair value of Exchange Warrants that were issued during the

year ended December 31, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants.

The Gain on Revaluation of Warrants recorded

during the year ended December 31, 2024 is

related to the remeasurement of 89,286 outstanding

liability warrants expiring in March 2025 The Gain on Revaluation of Warrants during the year

ended December 31, 2023 is primar ily related to the changes in fair value of the Exchange Warrants of $ 10.4

million recorded prior to the warrants being reclassified to stockholder’s equity.

The decrease in fair value was due to

decreases in market price.

As accounted for using the fair value option, the

Loss on Revaluation of Equity Investment in YFE of $ 1.6 million recorded in the year ended

December 31, 2024, is a result of the decreases in YFE’s stock price as of the current reporting period when compared

to the prior reporting period.

This excludes the impact of foreign currency recorded separately.

(e) The Realized Loss on Marketable Securities Investments reflects the loss that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities.

(f) The Gain (Loss) on Foreign Exchange during the year ended December 31, 2023 primarily related to the revaluation of the YFE investment, resulting in a gain of $ 0.5 million due to the EURO weakening against the USD as compared to the prior reporting period when a loss of $ 1.4 million was recognized.

(g) Interest Income during the year ended December 31, 2023 primarily consisted of interest income of $ 0.5 million, net of premium amortization expense, recorded for the investments in marketable securities, respectively.

The Loss on Early Lease Termination is due to early termination of the Lyndhurst, NJ office lease, effective August 1, 2023.

The loss includes fees of $ 0.2 million and the write-down of assets and liabilities resulting in a net $ 0.1 million loss.

The Finance Lease Interest Expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

(j) The Gain on Contingent Consideration Revaluation recorded during the year ended December 31, 2022 is related to the write-off of the contingent earn-out liability related to the earn-out arrangement with the sellers of the Beacon entities acquired during 2021 due to cancellation of the arrangement.

(k) The Company wrote-off a liability in the amount of $ 0.9 million that had legally expired during the fourth quarter of 2023 under the statute of limitations on debt collection, resulting in an increase in other income at December 31, 2023.

Supplemental Pro Forma Information

On January 13, 2022, the Company completed the acquisition of Ameba, at which Ameba’s financial information was consolidated into the Company’s financials.

On April 6, 2022, the Company completed the acquisition of Wow.

Wow’s financial information was consolidated into the Company’s financials starting April 1, 2022.

The following unaudited supplemental pro forma information summarizes the Company’s results of operations as if the Company completed the Wow and Ameba acquisitions at the beginning of the annual period 2022, when acquired (in thousands, except for share and per share data):

Supplemental pro forma information is as follows:

Year Ended December 31,

Total Revenues $ 80,404

Net Loss Attributable to Kartoon Studios, Inc.

Net Loss per Share (Basic and Diluted) $ ( 1.42 )

Weighted Average Shares Outstanding (Basic and Diluted) 31,388,277

The unaudited pro forma combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that the Company would have reported had the acquisitions been completed as of the date and for the periods presented and should not be taken as representative of the Company’s consolidated results of operations or financial condition following the acquisition.

In addition, the unaudited pro forma combined financial information is not intended to project the future financial position or results of operations of the combined company.

The unaudited pro forma financial information was prepared using the acquisition method of accounting under existing US GAAP.

For financial reporting purposes, Loss Before Income Tax Benefit (Expense) includes the following components (in thousands):

The Company allocated the total December 2024

offering transaction proceeds among the instruments issued, recognizing the warrants as a liability at their full fair value.

result of this allocation, the Company recorded a non-cash loss of $ 1 .0

The Realized Loss on Marketable Securities Investments

of $ 0.6 million recorded in the year ended December 31, 2024, reflects the loss

that will not be recovered from the investments due to selling securities and issuers’ prepayments of principals on certain

mortgage-backed securities.

The Loss on Foreign Exchange during the year ended

December 31, 2024 primarily related to the revaluation of the YFE investment, resulting in a loss of $ 2.2 million due to the

euro strengthening against the U.S.

dollar as compared to year ended December 31, 2023 in which a gain of $ 0.5 million was recognized.

Interest Income during the year ended December 31,

2024 primarily consisted of interest income of $ 0.1 million, net of premium amortization expense, recorded for the investments in

marketable securities.

Interest Income during the year ended December 31, 2023 primarily consisted of interest income of $ 0.4 million,

net of premium amortization expense, recorded for the investments in marketable securities.

The Loss on Early Lease Termination is due to early

termination of the Lyndhurst, NJ office lease, effective August 1, 2023.

The loss includes fees of $ 0.2 million and the write-down

of assets and liabilities resulting in an additional $ 0.1 million loss.

The Finance Lease Interest Expense represents the

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

During the year ended December 31, 2024, we recorded

$ 1.2 million in other income related to Employee Retention Tax Credit (“ERTC”) Receivable, $ 0.6 million late fees

contract interest income and $ 0.1 million domain sale income.

During the year ended December 31, 2023, we wrote-off a liability in

the amount of $ 0.9 million that had legally expired during the fourth quarter of 2023 under the statute of limitations on debt collection,

resulting in an increase in other income.

For financial reporting purposes, Loss Before

Income Tax Benefit (Expense) includes the following components (in thousands):

Schedule of loss before income tax benefit expense

Year Ended December 31,

United States

Foreign ( 32,658 ) ( 2,170 )

Loss Before Income Tax Benefit (Expense)

The significant components of Income Tax Benefit (Expense) are as follows (in thousands):

The significant components

of Income Tax Benefit (Expense) are as follows (in thousands):

Schedule of components

of income tax benefit

Year Ended December 31,

Federal $ – $ –

Foreign – ( 150 )

Federal 152 –

Foreign 705 45

Current expense

Deferred benefit

Income Tax Benefit (Expense)

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred taxes are provided

on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit

carry forwards and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences

between the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance

when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Deferred Tax Liability, net consists of the following components (in thousands):

Tax Liability, net consists of the following components (in thousands):

Schedule of deferred tax liability

As of December 31,

3 unchanged sentences

Stock Compensation

Warrants 18 153

Marketable Securities

Other 2,519 1,924

Total Gross Deferred Tax Assets

6 unchanged sentences

Deferred Tax Liability, net

The income tax provision differs from the amount of income tax determined by applying the U.S.

federal tax rate to pretax income from continuing operations due to the following (in thousands):

The income tax provision

differs from the amount of income tax determined by applying the U.S.

federal tax rate to pretax income from continuing operations due

to the following (in thousands):

Schedule of income tax provision

Year Ended December 31,

2 unchanged sentences

Stock Compensation

Contingent Earn Out – 282

Goodwill Impairment

Warrants ( 583 ) 53

Other ( 729 ) ( 960 )

operations 858 94

Valuation Allowance

Income Tax Benefit (Expense)

At December 31, 2023, the Company had Federal, state, and foreign net operating loss carry forwards of approximately $ 125.8 million, $ 126.2 million, and $ 50.5 million, respectively, that may be offset against future taxable income and will begin to expire in 2027, if not utilized.

No tax benefit has been reported in the December 31, 2023 financial statements since the potential tax benefit from net operating loss carryforward is offset by a valuation allowance of the same amount.

At December 31, 2023, the Company had gross realized capital loss carryforwards of $ 5.1 million, which expire beginning in 2027 if not utilized.

A full valuation allowance has been recorded against this amount.

For the years ending December 31, 2023 and 2022, the Company reflects a deferred tax liability in the amount of $ 1.4 million and $ 2.4 million (after the correction of the error identified as described in Note 2), respectively, due to the future tax liability from assets with indefinite lives known as a “naked credit.” The future tax liability created by this indefinite lived asset can be offset by up to 80% of net operating loss carryforwards created after 2017.

The remaining portion of the future tax liability from indefinite lived assets cannot be used to offset definite lived deferred tax assets.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations.

At December 31,

2024, the Company had Federal, state, and foreign net operating loss carry forwards of approximately $ 135.4 million, $ 137.4 million,

and $ 54.7 million, respectively, that may be offset against future taxable income and will begin to expire in 2027, if not utilized.

No tax benefit has been reported in the December 31, 2024 financial statements since the potential tax benefit from net operating

loss carryforward is offset by a valuation allowance of the same amount.

At December 31, 2024, the Company had gross realized

capital loss carryforwards of $ 6 million, which expire beginning in 2027 if not utilized.

A full valuation allowance has been

recorded against this amount.

For the years ending December 31,

2024 and 2023, the Company reflects a deferred tax liability in the amount of $ 1.3 million and $ 1.4 million r espectively,

due to the future tax liability from assets with indefinite lives known as a “naked credit.” The future tax liability created

by this indefinite lived asset can be offset by up to 80% of net operating loss carryforwards created after 2017.

The remaining portion

of the future tax liability from indefinite lived assets cannot be used to offset definite lived deferred tax assets.

The Company did not record

foreign withholding taxes on undistributed earnings of its foreign subsidiaries based on its intention to permanently reinvest those earnings

at December 31, 2024 or 2023.

Due to the change in ownership

provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual

Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

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

The Company accounts for income

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

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

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

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

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

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

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes.

As of December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions.

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

ASC 740 provides guidance

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

ASC 740 requires a company to

determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of

the position.

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

in the consolidated financial statements.

The Company includes interest

and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes.

As of December 31,

2024, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company files income tax

returns in the U.S.

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

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

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

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

The Company is currently subject to U.S.

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

state and local and foreign tax examinations by tax authorities.

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

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

federal, state, local

or foreign authorities for years prior to 2020.

Kartoon Studios, Inc.

and its wholly-owned U.S.

its wholly-owned U.S.

subsidiaries are subject to U.S.

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

The Beacon Communications Group, Ltd., Ameba Inc.

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

Communications Group, Ltd., Ameba Inc.

and WOW Unlimited Media Inc.

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

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

separate tax returns in Canada.

Commitments and Contingencies

The following is a schedule of future minimum cash contractual obligations as of December 31, 2023 (in thousands):

2024 2025 2026 2027 2028 Thereafter Total

The following is a schedule

of future minimum cash contractual obligations as of December 31, 2024 (in thousands):

Schedule of future minimum lease payments

Operating Leases

2 unchanged sentences

Consulting Contracts

Debt 19,023 – – – – – 19,023

$ 26,264 $ 3,478 $ 1,954 $ 1,437 $ 1,093 $ 3,455 $ 37,681

On January 30, 2019, the Company entered into an operating lease for 5,838 square feet of general office space at 190 N.

Canon Drive, Suite 400, Beverly Hills, CA 90210 pursuant to a 96-month lease that commenced on August 1, 2019.

The Company pays rent of $ 0.4 million annually, subject to annual escalations of 3.5 %.

On February 1, 2021, as part of the acquisition of Beacon Communications, the Company assumed an operating lease that was entered into on May 19, 2019 for 6,845 square feet of general office space located at 245 Fairview Mall Drive, Suites 202 and 301, Toronto, Ontario M2J 4T1 pursuant to an 84-month lease which commenced on October 1, 2019.

Contractual obligation

On January 30, 2019, the Company

entered into an operating lease for 5,838 square feet of general office space at 190 N.

Canon Drive, Suite 400, Beverly Hills, CA 90210

pursuant to a 96 -month lease that commenced on August 1, 2019.

The Company pays rent of $ 0.4 million annually, subject to annual

escalations of 3.5 %.

On February 1, 2021, as part

of the acquisition of Beacon Communications, the Company assumed an operating lease that was entered into on May 19, 2019 for 6,845 square

feet of general office space located at 245 Fairview Mall Drive, Suites 202 and 301, Toronto, Ontario M2J 4T1 pursuant to an 84 -month

lease which commenced on October 1, 2019.

The Company pays rent of $ 95,830 annually, subject to annual escalations of 5 % to 7 %.

On March 2, 2021, the Company entered into an operating lease for 4,765 square feet of general office space located at 1050 Wall Street West, Suite 665, Lyndhurst, NJ 07071 pursuant to an 89-month lease which commenced on October 1, 2021.

The Company paid rent of $ 115,154 annually, subject to annual escalations of 2.5 %.

Effective August 1, 2023, the Company terminated the lease.

On April 6, 2022, as part of the Wow acquisition, the Company assumed an operating lease for 45,119 square feet of general office space located at 2025 West Broadway, Suite 200, Vancouver, B.C., V6J 1Z6 which had a remaining lease term of 117 months and payments of $ 81,769 per month, subject to escalations of 7 % each of the third and fifth years.

In addition, the Company also assumed a parking lease for 80 parking spaces which had a remaining lease term of 117 months and payments of $ 6,091 per month.

Effective November 1, 2023, the Vancouver office lease was modified to include rent concessions and rent payment deferrals.

The landlord granted an abatement of CAD 0.2 million for the rent payments on November 1, 2023, and December 1, 2023.

Additionally, rent payments from January to April 1, 2024, totaling CAD 0.4 million, will be deferred.

The Company will repay the deferred amount through 8 equal payments of CAD 0.1 million, starting on May 1, 2024.

Also, as part of the Wow acquisition, the Company assumed various equipment finance leases, the majority of which are under equipment lease financing arrangements with certain banking institutions and had remaining lease terms of 10 - 33 months and monthly payments of $ 1,346 -$ 57,362 .

The present value discount of the minimum operating lease payments above was $ 3.3 million which when deducted from the cash commitments for the leases included in the table above, equates to the lease liabilities of $ 7.6 million recorded as of December 31, 2023 on the Company’s consolidated balance sheet.

On April 6, 2022, as part

of the Wow acquisition, the Company assumed an operating lease for 45,119 square feet of general office space located at 2025 West Broadway,

Suite 200, Vancouver, B.C., V6J 1Z6 which had a remaining lease term of 117 months and payments of $ 81,769 per month, subject to escalations

of 7 % each of the third and fifth years.

In addition, the Company also assumed a parking lease for 80 parking spaces which had a remaining

lease term of 117 months and payments of $ 6,091 per month.

The present value discount

of the minimum operating lease payments above was $ 2.3 million which when deducted from the cash commitments for the leases included in

the table above, equates to the operating lease liabilities of $ 6.4 million recorded as of December 31, 2024 on the Company’s

consolidated balance sheet.

Employment contracts

The Company has entered into

employment agreements with certain key executives, which remain in effect for fixed terms.

Under these agreements, the executives receive

a base salary, subject to potential reviews at the discretion of the Board of Directors.

Some of these agreements also include provisions

for severance benefits in certain circumstances.

As a result, the Company’s commitments under these agreements represent future salary

or severance payments obligations.

Other Funding Commitments

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

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

directors, musicians or other creative talent for which the Company is obligated to share with these service providers a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement.

The Company is not a party to any material legal proceedings and is not aware of any material pending or threatened claims except for those cases described in Part I Item 3 Legal Proceedings within this Annual Form 10-K.

From time to time however, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

The Company enters into various

agreements associated with its individual properties.

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

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

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

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

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

The Company is not a party

to any material legal proceedings and is not aware of any material pending or threatened claims except for those cases described in Part

I Item 3 Legal Proceedings within this Annual Form 10-K.

From time to time however, the Company may be subject to various legal

proceedings and claims that arise in the ordinary course of its business activities.

Related Party Transactions

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

During the years ended December 31, 2023 and December 31, 2022, Mr.

Heyward earned and was paid $ 0.3 million and $ 0.8 million in executive producer fees, respectively.

Pursuant to his employment

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

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

During the year ended December 31, 2024 Mr.

did no t earn any producer fees and during the year ended December 31, 2023, Mr.

Heyward earned and was paid $ 0.3 million in executive

producer fees.

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

On August 25, 2022, Mr.

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

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

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

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

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

Heyward for all musical compositions in which he provides

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

royalties for that musical composition.

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

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

to acquire the additional royalties.

During the years ended December 31, 2024 and December 31, 2023, Mr.

Heyward has not earned royalties from musical compositions.

Heyward has no t earned

royalties from musical compositions.

On February 27, 2023, Mr.

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

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

the first quarter of 2023.

During the year ended December 31, 2024, Mr.

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

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

The terms and conditions of such license are customary within the industry, and the Company earns an arm-length industry standard royalty on all sales made by AHAA utilizing the licensed content.

Heyward earned and was paid $ 400,000 in creative producer fees.

During the year ended December 31, 2023, Mr.

Heyward earned and was paid $ 325,556 in creative producer fees.

On July 21, 2020, the Company

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

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

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

and conditions of such license are customary within the industry, and the Company earns an industry standard royalty on all sales made

by AHAA utilizing the licensed content.

During the years ended December 31, 2024 and December 31, 2023, Mr.

Heyward has not earned royalties from this agreement.

On September 30, 2021, the Company entered into a Loan Agreement and Promissory Note with POW, its joint venture partner in SLU, in the amount of $ 1,250,000 included within Note and Accounts Receivable from Related Party as of December 31, 2022, which was fully repaid by POW in April 2023.

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

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

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

On December 1, 2021, the Company entered into an Independent Contractor Agreement for a term of two years with F&M Film and Medien Beteiligungs GmbH (“F&M”), an Austrian company controlled by Dr.

Stefan Piëch.

Pursuant to the agreement, F&M received $ 150,000 annually, paid on a semi-monthly basis.

In addition, F&M was granted 30,000 shares of common stock.

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

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

The monthly payment is $ 595 and recorded within Other Income (Expense), net in the Company's consolidated statements of operations.

Heyward has no t

earned royalties from this agreement.

On September 30, 2021,

the Company entered into a Loan Agreement and Promissory Note with POW, its joint venture partner in SLU, in the amount of $ 1,250,000

included within Note and Accounts Receivable from Related Party as of December 31, 2022, which was fully repaid by POW in April 2023.

On July 19, 2022, the Company

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

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

The principal plus interest must be

repaid by no later than June 30, 2026.

As of December 31, 2024, $ 1.4 million is included within Notes and Accounts Receivable

from Related Party on the Company’s consolidated balance sheets.

During 2022, the Company entered

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

Canon Drive, Suite 400, Beverly

Hills, CA 90210.

The monthly payment is $ 595 and recorded within Other Income (Expense), net in the Company’s consolidated statements

of operations.

On September 25, 2024 the Company entered into an agreement with a related party to provide services valued at $ 595 per

month, instead of a cash payment settlement.

During the quarter ended September 30,

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

space interior design services.

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

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

of operations.

Segment Reporting

The Company’s CODM uses revenue and net earnings to evaluate the profitability and performance of each operating segment.

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

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

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

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

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

ASC Topic 280 Segment Reporting

establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic

areas, and major customers.

Operating segments are defined as components of an enterprise that engage in business activities from which

it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by

the Company’s chief operating decision maker, or group, in deciding how to allocate resources and assess performance.

The Company’s CODM uses

revenue and net income (loss) to evaluate the profitability and performance of each operating segment.

The CODM does not evaluate the

operating segments using asset information and it is therefore not disclosed.

Segment operating expenses include operating expenses directly

attributable to the segment as well as certain shared corporate administration services and other costs which are allocated to the reportable

segments, such as legal expenses, human resources expenses, accounting expenses, insurance expenses, and corporate facilities expenses.

Segment operating expenses exclude certain non-recurring items and other costs, such as interest expense, interest income, share-based

compensation expense and taxes.

Our CODM evaluates the performance of each reportable segment based on segment operating income (loss)

because it provides insight to operational leverage and other operational metrics for each segment.

The Company has identified

two operating segments based on the nature of the products and services offered:

Content Production and Distribution

segment includes the operations of Kartoon Studios, Inc, Mainframe Studios, and Frederator Studios.

These entities are aggregated due

to their similar economic characteristics, nature of products and services, production processes, customer types, and distribution methods.

This segment is focused on the creation, production, and distribution of animated and live-action content, as well as licensing and royalty

revenue from intellectual property.

Media Advisory and Advertising

Services segment includes The Beacon Media Group and The Beacon Communications Group.

These entities provide media advisory and advertising

services and marketing services.

The CEO (CODM) primarily reviews

revenue and net operating results, as allocated based on the nature of the business activity.

The following table presents

the revenue and net income (loss) within the Company’s two

operating segments (in thousands):

Schedule of segment information by revenues and net earnings

Year Ended December 31,

Total Revenues:

Content Production & Distribution $ 39,146 $ 57,211

Media Advisory & Advertising Services 4,939 5,088

Content Production and Distribution

Media Advisory and Advertising Services

Total Revenues

Content Production & Distribution $ ( 76,004 ) $ ( 36,862 )

Media Advisory & Advertising Services ( 1,099 ) ( 8,733 )

Total Net Loss $ ( 77,103 ) $ ( 45,595 )

Content Production and Distribution

Media Advisory and Advertising Services

Total Net Loss Attributable to Kartoon Studios, Inc

Geographic Information

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

Schedule of segments by geographic area

Year Ended December 31,

1 unchanged sentence

United States

Canada 7,957 13,113

United Kingdom

Other 645 356

Total Revenues

Additional considerations

include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator and Kartoon Studios at the entity level.

The additional financial information prepared by the segment managers is discussed at length in meetings with the CODM.

The Company determines

that the revenue information reviewed by the CODM, combined with the financial information discussed with the segment managers is sufficiently

detailed to allow the CODM to assess each component’s performance and make resource allocation decisions.

Kartoon Studios, Frederator

and Mainframe Studios are separate entities although according to ASC 280-10-50-11 all criteria are met in order to present result in

When evaluating the Company’s

performance and making key decisions regarding resource allocation, the CODM reviews several metrics included in net income or loss, which

also include the following:

December 31, 2024

Content Production and Distribution

Media Advisory and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Other Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Stock Based Compensation

Tax provision

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

December 31, 2023

Content Production and Distribution

Media Advisory and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Other Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Stock Based Compensation

Tax provision

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

All other segment items included

in net income or loss are reported on the consolidated statements of operations and described within their respective disclosures.

Subsequent Events