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Item 1. Financial Statements

2025-05-15 compared with 2024-11-14 · 738 added, 824 removed, 461 unchanged (77% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share and par value data)

September 30, 2024

December 31, 2023

(in thousands, except for share data)

Current Assets:

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

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

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

Restricted Cash

Investments in Marketable Securities (amortized cost

of $ 3,283 and $ 2,116 , respectively)

Accounts Receivable (net of allowance of $ 204 and $ 239 ,

respectively)

Tax Credits Receivable (net of allowance of $ 210 and

$ 187 , respectively)

Notes and Accounts Receivable from Related Party

6 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 $ 433 and

$ 421 , respectively)

Investment in Your Family Entertainment AG

Intangible Assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’

Current Liabilities:

4 unchanged sentences

Deferred Revenue

Production Facilities

Bank Indebtedness

Production Facilities, net

Current Portion of Operating Lease Liabilities

Current Portion of Finance Lease Liabilities

Warrant Liability

Due to Related Party

6 unchanged sentences

Deferred Tax Liability, net

Warrant Liability

Other Noncurrent Liabilities

2 unchanged sentences

Stockholders’ Equity:

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

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

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

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

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

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

issued and outstanding as of March 31, 2025 and December 31, 2024

0% Series A Convertible Preferred Stock, $ 0.001 par

value, 6,000 shares authorized, 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024

Series B Preferred Stock, $ 0.001 par value, 0 shares

authorized, 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024

Series C Preferred Stock, $ 0.001 par value, 50,000

shares authorized, 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024

Common Stock, $ 0.001 par value, 190,000,000

and 190,000,000 shares authorized, 47,861,379 and 46,285,078 shares issued and 47,785,248 and 46,209,081 outstanding as of March 31,

2025 and December 31, 2024, respectively

Additional Paid-in Capital

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

Treasury Stock at Cost, 76,131 and

75,997 shares of common stock as of March 31, 2025 and December 31, 2024, respectively

Accumulated Deficit

Accumulated Other Comprehensive Loss

Other Comprehensive Loss

Total Kartoon Studios, Inc.

Stockholders' Equity

Non-Controlling Interests in Consolidated Subsidiaries

Non-Controlling Interests in Consolidated

Total Stockholders' Equity

Total Liabilities and Stockholders’ Equity

Total Liabilities and Stockholders’

The accompanying notes are an integral part of

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Kartoon Studios, Inc.

Condensed Consolidated Statements

of Operations

(in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Condensed Consolidated Statements of Operations

(in thousands, except for share data)

Three Months Ended March 31,

Production Services

Content Distribution

Licensing & Royalties

Media Advisory & Advertising Services

Licensing and Royalties

Media Advisory and Advertising Services

Total Revenues

3 unchanged sentences

General and Administrative

Impairment of Property and Equipment

Impairment of Intangible Assets

Impairment of Goodwill

Total Operating Expenses

1 unchanged sentence

Interest Expense

Other Income (Expense), net

Loss Before Income Tax Benefit

Income Tax Benefit

Other Expense, net

Loss Before Income Tax Benefit (Expense)

Income Tax Benefit (Expense)

Net Loss Attributable to Non-Controlling Interests

9 unchanged sentences

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Change in Accumulated Other Comprehensive Income (Loss):

Change in Unrealized Gain on Marketable Securities

Realized Losses on Marketable Securities Reclassified from AOCI into Earnings

Realized (Gain) Loss on Marketable Securities Reclassified from AOCI into Earnings

Foreign Currency Translation Adjustments

Total Change in Accumulated Other Comprehensive Loss

Total Change in Accumulated Other Comprehensive Income (Loss)

Total Comprehensive Net Loss

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Condensed Consolidated Statements of Stockholders'

(in thousands, except share data)

Preferred Stock

(in thousands, except for share data)

Additional Paid-In

Treasury Stock

Accumulated Other Comprehensive

Non-Controlling

Balance, December 31, 2023

December 31, 2024

$ ( 739,286 )

Issuance of Common Stock for Services

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

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

Share Based Compensation

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

Stock Options Granted to Consultants

Warrant Exercise

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Currency Translation Adjustment

1 unchanged sentence

$ ( 745,812 )

Issuance of Common Stock for Services

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

Proceeds from Securities Purchase Agreement, Net

Share Based Compensation

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

Currency Translation Adjustment

Balance, June 30, 2024

December 31, 2023

$ ( 718,546 )

Issuance of Common Stock for Services

Reclassification Related to Reverse Stock Split

Share Based Compensation

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

Currency Translation Adjustment

Balance, September 30, 2024

$ ( 733,521 )

Kartoon Studios, Inc.

Condensed Consolidated Statements of Stockholders'

Equity (Continued)

(in thousands, except share data)

Preferred Stock

Additional Paid-In

Treasury Stock

Accumulated Other Comprehensive

Non- Controlling

Balance, December 31, 2022

$ ( 641,443 )

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

Fractional Shares Issued Upon Reverse Stock Split

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

Share-Based Compensation

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

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Currency Translation Adjustment

1 unchanged sentence

$ ( 725,591 )

Issuance of Common Stock for Services

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

Proceeds From Warrant Exchange, net

Share Based Compensation

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

Currency Translation Adjustment

Balance, June 30, 2023

$ ( 677,696 )

Issuance of Common Stock for Services

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

Share Based Compensation

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

Currency Translation Adjustment

Balance, September 30, 2023

$ ( 693,172 )

The accompanying notes are an integral part of

3 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Months Ended March 31,

Cash Flows from Operating Activities:

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

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

Amortization of Film and Television Costs

Depreciation and Amortization of Property, Equipment & Intangible Assets

Depreciation and Amortization of Property, Equipment

and Intangible Assets

Amortization of Right-of-Use Asset

1 unchanged sentence

Share-Based Compensation Expense

Impairment of Film and Television Costs

Impairment of Intangible Assets

Impairment of Goodwill

Impairment of Property and Equipment

Deferred Income Taxes

Loss on Early Lease Termination

Marketing Expenses in Exchange for Stock

(Gain) Loss 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 Revaluation of Warrants

Realized Loss on Marketable Securities

Warrant Incentive Expense

Loss on Settlement of Related Party Note

Loss 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

Realized (Gain) Loss on Marketable Securities

Stock Issued for Services

Credit Loss Expense

Stock Options Issued for Services

Credit Loss (Recovery) Expense

Other Non-Cash Items

3 unchanged sentences

Tax Credits Earned (less capitalized)

Tax Credits Received

Tax Credits Received, net

Film and Television Costs, net

2 unchanged sentences

Accounts Payable

Accrued Salaries & Wages

Accrued Salaries and Wages

Accrued Expenses

5 unchanged sentences

Other Liabilities

Net Cash Used in Operating Activities

Net Cash Provided by (Used in) Operating Activities

Cash Flows from Investing Activities:

Repayments from/(Loans to) Related Party for Note Receivables

Proceeds from Principal Collections on Marketable Securities

Proceeds from Sales and Maturities of Marketable Securities

Purchase of Property & Equipment

Net Cash Provided by Investing Activities

Repayments from Related Party for Notes Receivable

Proceeds from Sales and Maturities of Marketable

Investment in Marketable Securities

Purchase of Property and Equipment

Net Cash Provided by (Used in) Investing Activities

Cash Flows from Financing Activities:

3 unchanged sentences

Repayment of Production Facilities

(Repayments of )/Proceeds from Bank Indebtedness, net

Proceeds from Securities Purchase Agreement

Repayments of Bank Indebtedness, net

Principal Payments on Finance Lease Obligations

Debt Issuance Costs

Shares Withheld for Taxes on Vested Restricted Shares

Payment for Warrant Put Option Exercise

Proceeds from Warrant Exercise

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash

Net Increase (Decrease) in Cash

Beginning Cash

Net Decrease in Cash and Restricted Cash

Beginning Cash and Restricted Cash

Ending Cash and Restricted Cash

Supplemental Disclosures of Cash Flow Information

Cash Paid for Interest

Non-Cash Financing and Investing Activities

Leased Assets Obtained in Exchange for New Finance Lease Liabilities

Warrants Issued for Services

Warrant Modification

Cash Paid for Taxes

The accompanying notes are an integral part of

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

September 30, 2024

March 31, 2025

Organization and Business

1 unchanged sentence

Kartoon Studios, Inc.

known as Genius Brands International, Inc.;

the “Company”) is a global content and brand management company that creates,

produces, licenses, and broadcasts timeless and educational, multimedia animated content for children.

Led by experienced industry personnel,

the Company distributes its content primarily on streaming platforms and television, and licenses properties for a broad range of consumer

products based on the Company’s characters.

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

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

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

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

With the exception

of selected WOW Unlimited Media Inc.

(“Wow”) titles, the Company’s programs, along with licensed programs, are being

broadcast in the United States on the Company’s wholly-owned advertisement supported video on demand (“AVOD”) service,

its free ad supported TV (“FAST”) channels and subscription

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

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!

TV, as well as linear streaming platforms .

1 unchanged sentence

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

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

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

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

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

The Company’s library titles include the

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

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

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!

Pop Quiz, and

Shaq’s Garage starring Shaquille O’Neal.

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

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

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

Lazy in Space and Castlevania .

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

Max, Samsung TV Plus, LG Smart TVs, Amazon, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.

Through the Company’s

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

(RTV-Frankfurt), it has gained access to a leading producer and distributor of high-quality children’s and family programming.

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

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,

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In addition, Wow owns Frederator Networks Inc.

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

over 2,500 channels.

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

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

(“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

a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe, LLC (“SLU”), through which

it controls the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”).

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

editor-in-chief, Stan "The Man" Lee helped build a universe of interlocking continuity, one where fans felt as if they could

turn a street corner and run into a superhero from Spider-Man to the Fantastic Four, Thor, Iron Man, the Hulk, the X-Men, and more.

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

He was the co-creator

of characters appearing in 3 of the top 10 box office movies of all time, which featured Spider-Man, Iron Man, the Hulk, Thor, Guardians

of the Galaxy, Black Panther, and of course the Avengers, accounting for billions of dollars of revenue for Marvel and the Walt Disney

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

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(“Beacon Communications”) (collectively,

“Beacon”), a North American marketing and media agency specializing in creating impactful connections between consumers and

brands across various industries.

With a focus on in-depth research and analysis the agency equips brands with a deep understanding of

media landscapes, trends, and platform patterns across generations along with developing highly effective media strategies that deliver

results for clients.

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

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

“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 distributes SVOD service for kids and has become a focal point of revenue

for TOON Media Networks’ subscription offering.

(“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.

The Company's common stock

is listed on the NYSE American LLC (“NYSE American”) exchange, under the symbol “TOON”.

Recent Transactions

The Company announced the

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

In the initial

closing, the Company sold 3,900,000 shares of its common stock, par value $ 0.001 per share (the “Common Stock”), and pre-funded

warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”) to an institutional investor (the "Investor"),

at $ 1.00 per share of Common Stock and $ 0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $ 4,000,000 , prior to

deducting placement agent fees and other offering expenses, pursuant to a securities purchase agreement, dated April 18, 2024 (the

Pursuant to the terms of the SPA, the Investor had the sole option to purchase up to an additional 3,000,000 shares

of Common Stock and/or Pre-funded Warrants as part of the Offering, at $ 1.00 per share of Common Stock and $ 0.99 per Pre-Funded Warrant,

which has since expired.

Additionally, the Company has 4,784,909 warrants with a reprice option that was triggered by the registered direct

offering which reduced the exercise price from $ 2.50 per share to $ 1.00 per share.

On June 21, 2024, the Company

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

Venture Partners (the “JV”).

The JV stipulates after Catalyst Venture Partners recoup their investment, the ownership and

profit split between the partners is 60 % to Kartoon Studios and 40 % to Catalyst Venture Partners.

“Winnie-the-Pooh” is based

on the designs and stories of one of the most successful brands of all time, A.A.

Milne’s “Winnie-the-Pooh,” a property

that has generated over $ 80 billion in sales over the last four decades and is estimated to currently generate $ 3 -$ 6 billion

Catalyst Venture Partners will provide the full amount of the production finance with the plan to include an animated holiday

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

Liquidity, Going Concern, and Capital Resources

As of September 30, 2024,

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

The increase was primarily

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

for operating activities of $ 1.1 million.

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

of $ 8 .0 million.

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

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

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

As of September 30, 2024,

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

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

"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 project stipulates after Catalyst recoups its investment,

the ownership and profit split between the partners is 35 % to Kartoon Studios and 65 % to Catalyst Venture Partners.

In addition, Kartoon

Studios is entitled to receive a 25 % agency fee for licensing and distribution from gross proceeds, which is payable prior to the distribution

of net proceeds.

Under the terms, Kartoon Studios maintains operational control and oversees the production process.

Winnie-the-Pooh

is based on the designs and stories of one of the most successful and enduring brands of all time, A.A.

Milne’s Winnie-the-Pooh .

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.

As of March 31, 2025,

the Company had cash and restricted cash of $ 2.8 million, which decreased by $ 5.6 million as compared to December 31, 2024.

was primarily due to cash used in financing activities of $ 2.6 million, cash used in operating activities of $ 1.8 million and cash used

in investing activities of $ 1.2 million.

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

and margin loan, net of proceeds from each, resulting in net cash used of $ 2.5 million, and payments of lease obligations of $ 0.1 million.

The cash used in operating activities was primarily due to net loss of $ 6.6 million partially offset by net change in non-cash adjustments

of $ 4.6 million, and net change in operating asset and liabilities of $ 0.2 million.

The cash used in investing activities was

due to purchase of marketable securities of $ 1.8 million.

As of March 31, 2025,

the Company held available-for-sale marketable securities with a fair value of $ 3.2 million.

An increase of $ 1.2 million as compared to

December 31, 2024 was due to a purchase transaction during the three months ended March 31, 2025.

The available-for-sale securities

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

As of September 30, 2024

As of March 31, 2025

and December 31, 2024, the Company’s margin loan balance was $ 0.4 million and $ 0.9 million, respectively.

During the nine months

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

During the three

months ended March 31, 2025, the Company borrowed an additional $ 2.7 million from its investment margin account and repaid $ 3.2 million

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

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The weighted average interest rates

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

December 31, 2023, respectively.

For the three months ended

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

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

and September 30, 2023, respectively.

were 0.32 % and 0.46 %, respectively, on average margin loan balances of $ 0.1 million and $ 1 .0 million as of March 31, 2025

and December 31, 2024, respectively.

The Company incurred interest expense on the loan of $ 1,806 and $ 18,632 during the three months

ended March 31, 2025 and 2024, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable

securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

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

Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment

lease agreements that have an aggregate total outstanding balance of $ 1.2 million U.S.

dollars (“USD”) or $ 1.6 million

of Canadian dollars (“CAD”).

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

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

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

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

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

2.00 % per annum.

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

2.00 % per annum.

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

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

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

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

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

As of September 30, 2024 ,

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

Due to financial covenant violations

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

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

During the three months ended September 30, 2024, the

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

end of the fourth quarter of 2024.

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

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

Subsequent to September 30, 2024,

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

for the equipment lease line.

The amendment and covenant violation did not have any impact on the Company’s production facilities

that are separate from the revolving demand facility and are used for financing specific productions.

In accordance with Accounting

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

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

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

Historically,

the Company has incurred net losses.

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

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

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

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

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

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

respectively.

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

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

of $ 42.8 million.

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

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

The Company had working capital of $ 3.5 million

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

Based on our current expected

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

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

condensed consolidated financial statements.

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

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

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

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

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

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

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

The Company’s ability to sell securities registered

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

is $ 75 million or more.

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

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

There can be no assurance

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

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

The issuance of debt can result in restrictive covenants that

limit operations.

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

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

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

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

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

Historically, the Company

has incurred net losses.

For the three months ended March 31, 2025 and 2024, the Company reported net losses of $ 6.6 million and $ 7.1

million, respectively.

The Company reported net cash used in operating activities of $ 1.8 million, and cash used in operating activities

of $ 3.8 million for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, the Company had an accumulated

deficit of $ 745.8 million and total stockholders’ equity of $ 30.1 million.

As of March 31, 2025, the Company had total current

assets of $ 25.1 million, including cash of $ 2.3 million, restricted cash of $ 0.5 million, and marketable securities of $ 3.2 million,

and total current liabilities of $ 26.8 million.

The Company had negative working capital of $ 1.7 million as of March 31, 2025, compared

to working capital of $ 1.2 million as of December 31, 2024.

Management has evaluated the significance of these conditions in relation

to the Company’s ability to meet its obligations and noted the Company has sufficient marketable securities and investments to fund

operations for the next 12 months from the issuance date of this 10-Q.

Basis of Presentation and Summary of Significant Accounting

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

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

year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025.

The preparation

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may differ from these estimates.

Prior Periods and Reclassifications

Certain prior year amounts

have been reclassified to conform to the current year presentation.

Such reclassifications had no impact on the Company’s reported

total revenues, expenses, net loss, current assets, total assets, current liabilities, total liabilities, stockholders’ equity,

non-controlling interests or cash flows.

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

financial statements.

Interim results are not necessarily

indicative of financial results for a full year or any other period.

The information included in this Form 10-Q should be read in conjunction

with the Company’s 2023 Annual Report on Form 10-K.

The accompanying combined

interim financial statements are unaudited, but in the opinion of management, contain all adjustments (which include normal recurring

adjustments) considered necessary to present fairly the interim financial statements.

Interim results are not necessarily indicative of

financial results for a full year.

The information included in this Form 10-Q should be read in conjunction with the Company’s 2024

Annual Report.

The following is provided

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the year ended December 31, 2024.

Reclassifications

The Company identified a disclosure

error in the presentation of the Note 6 Property and Equipment, net reported in the Form 10-K for the year ended December 31, 2024.

While the balance sheet correctly reflected the net book value of property and equipment, the footnote disclosure overstated by $ 0.7 million

both the gross asset cost and accumulated depreciation as of December 31, 2024.

The disclosure error did not impact the total net carrying

amount of property and equipment or the consolidated financial statements as a whole.

The comparative balances as of December 31, 2024

in Note 6 have been revised to reflect the correct gross cost and accumulated depreciation amounts.

The outstanding warrant balance

as of December 31, 2024, previously included 100,000 warrants that had been exercised in April 2024.

This exercised amount was identified

in the Q1 2025 review and the prior period balance has been corrected accordingly.

The correction was not material to the financial statements,

did not result in any adjusting entry, and had no impact on the Company’s results of operations or financial position.

Foreign Currency Forward Contracts

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

in an asset and liability position subject to a master netting arrangement resulted in a net liability of

$ 0.2 million recorded within Other Current Liabilities on the

condensed consolidated balance sheets.

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

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

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

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

Production Services Revenue on the condensed consolidated statements of operations.

For the three and nine months ended September 30,

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

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

As of March 31, 2025

and December 31, 2024, the gross amounts of FX forwards in an asset and liability position subject to a master netting arrangement

resulted in a net liability of $ 0.5 million and $ 0.6 million, respectively, recorded within Other Current Liabilities on the condensed

consolidated balance sheets.

For the three months ended March 31, 2025 and 2024, the Company recorded a realized loss of $ 139,424 and

$ 15,507 , respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements of operations.

Trade Accounts Receivable and Allowance for

As of September 30, 2024

As of March 31, 2025

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

The following table summarizes

the activity in the allowance for credit losses related to trade accounts receivable as of March 31, 2025 and December 31, 2024

(in thousands):

Schedule of allowance for credit losses trade accounts receivable

Balance, net as of December 31, 2023

Charged to costs and expenses

Balance, net as of December 31, 2024

Balance, net as of March 31, 2025

Tax Credits Receivable

As of September 30, 2024

and December 31, 2023, $ 12.9 million and $ 20.7 million, respectively, in current tax credit receivables related to Wow’s film

and television productions were recorded, net of $ 0.6 million and $ 0.5 million, respectively, recorded as an allowance for credit loss.

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

therefore, no additional reserve was recorded.

The Company classifies majority

of its tax credits receivable as current based on their normal operating cycle.

As of March 31, 2025, 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 March 31, 2025

and December 31, 2024, $ 10.8 million a nd $ 12.7 million in tax credit receivables related

to Wow’s film and television productions were recorded, net of $ 0.6 million and $ 0.6 million, respectively, recorded as an allowance

for credit loss.

As of March 31, 2025, $ 2.5 million in tax credits receivable net of $ 0.4 million allowance for credit loss was presented

as non-current asset.

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.

Concentration of Risk

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the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD

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

As of March 31, 2025 and December 31, 2024, the Company had ten and twelve bank deposit accounts with an aggregate

uninsured balance of $ 0.8 million and $ 6.7 million, respectively.

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The managed account maintains its investments in marketable securities of approximately $ 3.2 million

and $ 12 .0 million as of September 30, 2024 and December 31, 2023, respectively.

Assets in the managed account are protected

by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

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

As of September 30,

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

and $ 2 .0 million as of March 31, 2025 and December 31, 2024, respectively.

Assets in the managed account are protected by the

Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

In addition, the financial

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

As of March 31, 2025 and

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

The Company’s investment

portfolio consists of investment-grade securities diversified among security types, industries and issuers.

The Company’s policy

limits the amount of credit exposure to any one security issue or issuer and the Company believes no significant concentration of credit

risk exists with respect to these investments.

During the three months ended

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

These customers

accounted for 77.2 % of the total revenue.

During the nine months ended

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

These customers

accounted for 60.2 % of the total revenue.

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

exceeded 10% of the total accounts receivable.

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

portfolio, consists of investment-grade securities and, although reduced in size compared to prior years, 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 the three months ended

September 30, 2023, the Company had four customers whose total revenue exceeded 10% of the total consolidated revenue.

These customers

accounted for 73.1 % of the total revenue.

During the nine months ended

September 30, 2023, the Company had four customers, whose total revenue exceeded 10% of the total consolidated revenue.

These customers

accounted for 79.3 % of the total revenue.

As of September 30, 2023, the Company had three customers whose total accounts receivable

exceeded 10% of the total accounts receivable.

These customers accounted for 55.6 % of the total accounts receivable as of September 30,

March 31, 2025, the Company had four customers, whose total revenue exceeded 10% of the total condensed consolidated revenue.

customers accounted for 85.1 % of the total revenue.

During the three months ended March 31, 2024, the Company had two customers whose

total revenue exceeded 10% of the total condensed consolidated revenue.

These customers accounted for 61.7 % of the total revenue.

As of March 31, 2025,

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 March 31, 2025.

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.

There is significant financial

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The following table summarizes

the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30,

the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2025

(in thousands):

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States and Municipalities

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):

Total Fair Value

Investments in Marketable Securities:

Corporate Bonds

Agency and Government Sponsored Securities

States and Municipalities

Fair values were determined

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The Company’s marketable securities are considered to be available-for-sale

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

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

investments as defined under FASB ASC 320, Investments – Debt and Equity Securities .

An allowance for credit loss was not

recorded for the marketable securities as of March 31, 2025 and December 31, 2024.

Refer to Note 5 for additional details.

New Accounting Standards Issued but Not Yet

In October 2023, the FASB

issued Accounting Standards Update (“ASU”) No.

2023-06, Disclosure Improvements .

The new guidance clarifies or improves

disclosure and presentation requirements on a variety of topics in the codification.

The amendments will align the requirements in the

FASB Accounting Standard Codification with the SEC’s regulations.

The amendments are effective prospectively on the date each individual

amendment is effectively removed from Regulation S-X or Regulation S-K.

The Company is in the process of evaluating the impact that the

adoption of this ASU will have to the condensed consolidated financial statements and related disclosures, which is not expected to be

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 condensed consolidated financial statements and related disclosures, which is expected to result in enhanced

In December 2023, the FASB

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The Company is in the process of evaluating the impact that the adoption of this

ASU will have to the condensed consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures

and is not expected to be material.

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 public business entities, 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 15, 2025.

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 disclosures.

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

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During the three months ended

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

During the nine months ended

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

There were no contributions

or distributions during the three and nine months ended September 30, 2024 and September 30, 2023, and there were no changes

in facts and circumstances that would result in a re-evaluation of the VIE assessment.

March 31, 2025 and 2024, SLU generated an insignificant amount of net loss.

There were no contributions or distributions during the

three months ended March 31, 2025 and 2024 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 September 30,

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

As of March 31, 2025,

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 September 30,

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

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

YFE shows a considerably

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

Under ASC 820,

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

However, the standard also

addresses situations where trading volume is low.

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

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

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

When considering the use of share price to value an

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

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

information, despite low volume.

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

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

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

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

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

as compared to December 31, 2023.

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

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

The total change in fair value is recorded within Other

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

As of September 30, 2024 and December 31,

2023, the Company’s ownership in YFE was 44.8 %.

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 March 31, 2025, the fair value

of the investment was determined to be $ 13.4 million recorded within noncurrent assets on the Company’s consolidated balance sheet.

The fair value as of March 31, 2025 decreased by net $ 3 .0 million, as compared to December 31, 2024.

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.

change in fair value is recorded within Other Income (Expense), net on the Company’s consolidated statement of operations.

March 31, 2025 and December 31, 2024, the Company’s ownership in YFE was 44.8 %.

Marketable Securities

The Company classifies and

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

Per ASC 326, the Company is required to recognize an allowance for credit losses on its AFS debt securities and recognize a credit

loss expense once securities become impaired.

The Company classifies its

marketable debt securities as available-for-sale (“AFS”) and reports them at fair value in accordance with ASC Topic 326,

Measurement of Credit Losses on Financial Instruments .

The investments in marketable

securities had an adjusted cost basis of $ 4.3 million and a market value of $ 4.1 million as of September 30, 2024.

securities had an adjusted cost basis of $ 3.3 million and a market value of $ 3.2 million as of March 31, 2025.

The balances consisted

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Adjusted Cost

Unrealized Loss

Corporate Bonds

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securities as of December 31, 2024 had an adjusted cost basis of $ 2.1 million and a market value of $ 2 .0 million.

consisted of the following securities (in thousands) :

The balances consisted

of the following securities (in thousands) :

Adjusted Cost

Unrealized Loss

Corporate Bonds

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The Company holds 7 AFS securities,

all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of

September 30, 2024.

5 of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of

March 31, 2025.

The AFS securities held by the Company as of December 31, 2024 had also been in an unrealized loss position

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a component of stockholders’ equity.

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

no t recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's

As of March 31, 2025 and December 31, 2024, an allowance for credit loss was no t

recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's

investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $ 0.1 million

and $ 1.9 million were recognized in earnings during the three months ended September 30, 2024 and September 30, 2023, respectively.

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

2023, respectively.

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

Realized gain of $ 4,454 and

losses of $ 141,174 were recognized in earnings during the three months ended March 31, 2025 and 2024, respectively, primarily due to selling

securities prior to maturity in Q1 2024 to prevent further market condition losses on the securities.

The contractual maturities

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

of the Company’s marketable investments as of March 31, 2025 were as follows (in thousands):

Schedule of contractual maturities of marketable investments

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Schedule of property and equipment, net

September 30, 2024

March 31, 2025

December 31, 2024

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During the three months ended

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

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

respectively.

The Company did no t incur

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

Due to a lease termination

effective August 1, 2023, $ 0.1 million of property and equipment was written down to zero and recorded in loss on lease termination within

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

In addition, during the first quarter of 2023, due to changes in the Company's estimated undiscounted future cash flows, a reassessment

of its long-lived assets was performed.

As a result, the carrying value of one of the Company's asset group’s property and equipment

assets were written down to zero and an Impairment of Property and Equipment of $ 0.1 million was recorded within Operating Expenses in

the condensed consolidated statement of operations.

March 31, 2025 and 2024, the Company recorded depreciation expense of $ 0.1 million.

During the three months ended

March 31, 2025 and 2024, the Company did no t incur any impairment charges on its property and equipment.

Leased Right-of-Use Assets, net

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Schedule of leased right of use assets

September 30, 2024

March 31, 2025

December 31, 2024

Operating Lease

Office Lease Assets

Accumulated Amortization

Finance Lease

Equipment Lease Assets

Right-of-Use Assets, Gross

Accumulated Amortization

Right-of-Use Assets, Gross

Foreign Currency Translation Adjustment

Leased Right-of-Use Assets, net

As of September 30, 2024,

As of March 31, 2025,

the weighted-average lease term for the Company’s operating leases was 70 months and the weighted-average discount rate was 11.1 %.

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Operating lease costs during

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

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

Operating lease costs during the nine

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

the three months ended March 31, 2025 and 2024 were $ 0.4 million and $ 0.4 million, respectively, recorded within General and Administrative

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

During the three and nine

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

respectively.

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

$ 1.6 million, respectively.

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

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

On August 2, 2023, Beacon

Media, signed a Termination of Lease Agreement (the “Lease Termination”), effective August 1, 2023 (the “Effective Date”),

related to the office space in Lyndhurst, NJ.

The Lease Termination requires Beacon Media to pay an aggregate of $ 0.1 million in

consideration for terminating the lease.

The Company wrote off the ROU asset, lease liability, prepaid deposit and fixed assets on the

Effective Date.

Including fees, the Company recorded a total loss on lease termination of $ 0.2 million within Other Income (Expense),

net on the Company’s condensed consolidated statement of operations during the three months ended September 30, 2023.

During the three months ended

March 31, 2025, the Company recorded finance lease costs of $ 0.1 million primarily comprised of ROU amortization of $ 0.1 million.

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

amortization.

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

Other Expense, net on the Company’s condensed consolidated statements of operations.

Film and Television Costs, net

The following table highlights

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

the activity in Film and Television Costs as of March 31, 2025 and December 31, 2024 (in thousands):

Schedule of film and television costs activity

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Foreign Currency Translation Adjustment

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

Film and Television Costs, net as of December 31, 2024

Additions to Film and Television Costs

Film Amortization Expense

Foreign Currency Translation Adjustment

Film and Television Costs, net as of March 31, 2025

During the three months ended

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

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

$ 0.5 million, respectively.

For the three and nine months

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

The Company did no t incur

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

March 31, 2025 and 2024, the Company recorded amortization expense of $ 0.1 million and $ 0.1 million, respectively.

The Company did no t

write-down or record any significant impairment charges on film costs during the three months ended March 31, 2025 and 2024.

Intangible Assets, net

5 unchanged sentences

Weighted Average Remaining Amortization

September 30, 2024

March 31, 2025

December 31, 2024

2 unchanged sentences

Intangible Assets, gross

Accumulated Amortization

Less Accumulated Amortization

Foreign Currency Translation Adjustment

1 unchanged sentence

During the three months ended

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

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

of $ 1.5 million and $ 1.6 million, respectively.

The Company did no t incur

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

During the nine months ended

September 30, 2023, the Company recorded a total Impairment of Intangible Assets of $ 4 .0 million within Operating Expenses in the

condensed consolidated statement of operations.

The impairment charge consisted of a write-down of definite-lived intangible assets of

$ 2.8 million, net of $ 0.6 million in accumulated depreciation, due to a decrease in an asset group’s estimated undiscounted

Furthermore, it was determined that the Frederator tradename, an indefinite-lived intangible asset, was impaired by $ 1.3 million.

March 31, 2025 and 2024, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.5 million, respectively.

Expected future amortization

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

of intangible assets subject to amortization as of March 31, 2025 is as follows (in thousands):

Schedule of expected future intangible asset amortization

2024 (remainder of year)

As of September 30, 2024, $ 5.6 million of

the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives and are not subject

As of March 31, 2025, $ 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.

Deferred Revenue

As of September 30, 2024

As of March 31, 2025

and December 31, 2024, the Company had aggregate short term and long term deferred revenue of $ 9.5 million and $ 9.4 million, respectively.

The increase in deferred revenue is primarily related to the stage of progress of various productions as of September 30, 2024, compared

to the progress as of December 31, 2023.

Wow's deferred revenue balance relates to cash received from customers for productions in

The increase in deferred revenue is insignificant and primarily related to productions on various shows nearing completion of the project

as of March 31, 2025, similar to the progress as of December 31, 2024.

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.

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

As of September 30, 2024 and December 31,

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

During the nine months ended September 30,

2024, the Company borrowed an additional $ 9.1 million from its investment margin account and repaid $ 8.8 million primarily with

cash received from sales and maturities of marketable securities.

The borrowed amounts were primarily used for operational costs.

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

The weighted average interest rates were 0.46 %

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

2023, respectively.

For the three months ended

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

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

September 30, 2023, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable securities

held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

Due to the call

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

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 March 31, 2025

and December 31, 2024, the Company’s margin loan balance was $ 0.4 million and $ 0.9 million, respectively.

During the three

months ended March 31, 2025, the Company borrowed an additional $ 2.7 million from its investment margin account and repaid $ 3.2 million

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

The borrowed amounts were primarily used for operational

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

The weighted average interest rates

were 0.32 % and 0.46 %, respectively, on average margin loan balances of $ 0.1 million and $ 1 .0 million as of March 31, 2025

and December 31, 2024, respectively.

The Company incurred interest expense on the loan of $ 1,806 and $ 18,632 during the three months

ended March 31, 2025 and 2024, respectively.

The investment margin account borrowings do not mature but are collateralized by the marketable

securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan.

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

Bank Indebtedness and Production Facilities

The Company has certain credit

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

Revolving Demand Facility

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

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

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

on the Company’s condensed consolidated balance sheets.

March 2024, the Company amended the revolving demand facility.

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

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

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

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

The CAD prime borrowings and overdrafts bear interest

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

The USD base rate borrowings bear interest at

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

Treasury Risk Management Facility

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

As of the date of the amendment and December 31,

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

Production Facilities

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.

facilities that are comprised of the following:

Production Facilities, net

The production facilities

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

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

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

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

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

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

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

balance sheets.

Equipment Lease Line

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

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

Each existing transaction under the equipment lease line

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

The finance rates

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

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

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

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

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.

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 facilities.

As of March 31, 2025

and December 31, 2024, the Company had an outstanding net balance of USD 7.4 million (CAD 10.6 million), including USD 0.6 million

(CAD 0.8 million) of interest, and USD 9.2 million (CAD 13.3 million), including USD 0.8 million (CAD 1.2 million) of interest, respectively,

recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

As of March 31, 2025

and December 31, 2024, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production

facilities of $ 127,040 and $ 122,973 , respectively, which were included as a reduction to the carrying amount of production facilities.

Equipment Lease Facility

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

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

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

of 14 - 23 months .

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

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

Loan Covenants, Violations

Company is subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment

lease agreements that have an aggregate total outstanding balance of $ 1.2 million (CAD 1.6 million).

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

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

the facilities.

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

covenant to maintain a minimum liquidity threshold.

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

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

2024, are subject to early repayment.

During the three months ended September 30, 2024 ,

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

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

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

Subsequent to September 30, 2024, the Company paid

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

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

the revolving demand facility and equipment lease line.

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 March 31, 2025,

the Company has two leases remaining under this facility with finance rates of 7.52 % and 8.20 %, and remaining lease terms of 8 months

and 17 months.

As of March 31, 2025

and December 31, 2024, the outstanding balances, net of repayments, of $ 0.2 million (CAD 0.3 million) and $ 0.3 million (CAD 0.4 million),

respectively, were included within current and noncurrent Finance Lease Liabilities, net on the Company’s consolidated balance sheets.

Stockholders’ Equity

As of September 30, 2024

As of March 31, 2025

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

As of September 30, 2024

As of March 31, 2025

and December 31, 2024, there were 47,785,248 and 46,209,081 shares of common stock outstanding, respectively.

During the three months ended

March 31, 2025 and 2024, the Company issued 14,990

and 53,497 shares of common stock for services, respectively.

During the three months ended

March 31, 2025 and 2024, the Company issued 99,177

shares of common stock in connection with vested restricted stock units (RSUs), net of shares withheld for tax obligations, respectively.

On March 5, 2025, the Company

issued 1,462,000 shares of common stock to investor Armistice Capital Master Fund Ltd.

upon the exercise of outstanding pre-funded warrants.

The warrants were exercised at a price of $ 0.001 per share, which represented par value, resulting in total proceeds of $ 1,462 .

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 the Company’s stockholders, to issue from time-to-time shares of preferred

stock in one or more series.

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

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

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

In connection with the Company’s

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

in the capital of the Wow Exchange Co.

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

they were otherwise entitled.

The shares of ExchangeCo were

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

Holders of the ExchangeCo shares were entitled

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

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

(“CallCo”) and Computershare Trust

Company of Canada (the “Voting Trustee”).

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

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

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

pursuant to the tender of ExchangeCo shares.

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

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

not exercise voting rights with respect to the applicable shares.

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

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

Accordingly, the shares of ExchangeCo are no longer

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

of the shares of ExchangeCo or the Special Voting Share.

As of September 30, 2024

shares of preferred stock authorized with a par value of $ 0.001 per share including 9,944,000 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 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.

As of March 31, 2025

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

As of September 30, 2024 and

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

As of September 30, 2024 and December 31,

As of March 31, 2025 and December 31,

2024, there were 0 shares of Series C Preferred Stock outstanding.

Treasury Stock

During the nine months ended

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

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

Stock on the condensed consolidated balance sheet.

During the three months ended

March 31, 2025, 134 shares of common stock with a cost of $ 252 were withheld to cover taxes owed by certain employees, all of which

were included as treasury stock outstanding and recorded at cost within Treasury Stock on the condensed consolidated balance sheet.

Stock Options

On September 1, 2020, the

Company adopted the Kartoon Studios, Inc.

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

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

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

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

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

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

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

to be governed under such plan.

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

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

During the nine months ended

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

The 35,000 options

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

The fair value of the options

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

pricing model based on the following assumptions:

Schedule of assumptions used

Exercise Price

Dividend Yield

Risk-free interest rate

Expected life of options

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.

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

As of March 31, 2025 the maximum number of shares available for issuance was 8,216,767 .

The remaining 12,000

outstanding stock options granted under the 2015 Plan, as of March 31, 2025, remain to be governed under such plan.

2025, the Company’s stockholders approved an amendment to the 2020 Plan.

Refer to Note 22 Subsequent Events for additional

During the three months ended

March 31, 2025 and 2024, the Company did no t grant any stock options.

The following table summarizes

6 unchanged sentences

Forfeited/Cancelled

Outstanding at September 30, 2024

Unvested at September 30, 2024

Vested and exercisable at September 30, 2024

During the nine months ended

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

employees pursuant to their employment agreements.

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

and $ 0.1 million in expense recognized by the Company.

Outstanding at March 31, 2025

Unvested at March 31, 2025

Vested and exercisable at March 31, 2025

During the three months ended

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

expense related to stock options.

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

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

Share-based compensation expense

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

March 31, 2025 and 2024, the Company recognized $ 18,213 and $ 69,965 , respectively, in share-based compensation expense related to stock

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

The unrecognized

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

share-based compensation expense at March 31, 2025 was $ 20,156 which will be recognized through the second quarter of 2025 assuming

the underlying grants are not cancelled or forfeited.

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

value of zero .

The outstanding shares as of March 31, 2025 had an aggregated intrinsic value

Restricted Stock Units

1 unchanged sentence

are granted under the Company’s 2020 Plan.

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

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

and $ 0.2 million, respectively.

During the three months ended March 31, 2025 and 2024, the Company granted 110,968 and

95,229 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $ 65,375 and $ 131,379 , respectively.

An aggregate of 110,968 shares

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

of common stock were issued during the three months ended March 31, 2025 as a result of RSUs vested during the current and prior

The following table summarizes

4 unchanged sentences

Unvested at December 31, 2024

Unvested at September 30, 2024

Unvested at March 31, 2025

During the three months ended

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

expense related to RSUs.

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

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

on the Company’s condensed consolidated statements of operations.

The unvested share-based compensation as of September 30,

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

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

March 31, 2025 and 2024, the Company recognized $ 0.1 million and $ 0.2 million, respectively, in share-based compensation expense related

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

unvested share-based compensation as of March 31, 2025 was $ 17,545 which will be recognized through the fourth quarter of 2026 assuming

the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the three months ended March 31,

2025 was $ 0.1 million.

The following table summarizes

the Company’s warrant activity:

the activity in the Company’s outstanding warrants during the three months ended March 31, 2025:

Schedule of warrant activity

2 unchanged sentences

Outstanding at December 31, 2024

Outstanding at September 30, 2024

Exercisable at September 30, 2024

Exercisable at December 31, 2023

As of September 30, 2024,

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

common stock remained outstanding and are revalued each reporting period.

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

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

The change in value was

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

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

The Company has 4,784,909

warrants as of December 31, 2023 with a reprice option that was triggered by the registered direct offering which reduced the exercise

price from $ 2.50 per share to $ 1.00 per share.

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

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

( 1,462,000 )

Outstanding at March 31, 2025

Exercisable at March 31, 2025

On March 13, 2025, 89,286

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

stock expired and were no longer outstanding as of March 31, 2025.

In addition, 18,000 warrants previously classified as equity expired

during the three months ended March 31, 2025.

On March 5, 2025, 1,462,000

of the pre-funded warrants were exercised at a price of $ 0.001 per share, which represented par value, resulting in total proceeds of

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 March 31, 2025,

7,894,736 Series A derivative warrants and 7,894,736 Series B derivative warrants, which were issued in connection with the public offering

on December 18, 2024 and are classified as liabilities, remained outstanding.

These warrants, which are exercisable for shares of the

Company’s common stock, are remeasured at fair value at each reporting period.

As of March 31, 2025, the warrants were revalued

at approximately $5.0 million, resulting in a $0.4 million decrease in the liability as compared to December 31, 2024.

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 Black-Scholes Merton option pricing model based on the following assumptions as of September 30,

Series A derivative warrants was determined by using the Black-Scholes Merton option pricing model based on the following assumptions

as of March 31, 2025:

Schedule of assumptions

March 31, 2025

Exercise Price

2 unchanged sentences

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,

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 Black-Scholes Merton option pricing model based on the following assumptions

as of March 31, 2025:

Schedule of assumptions

March 31, 2025

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,

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

Supplemental Financial Statement Information

Other Income (Expense), net

Components of Other Income (Expense), net, are

summarized as follows (in thousands):

Other Expense, net

Components of Other Expense, net, are summarized

as follows (in thousands):

Schedule of other income expense, net

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Interest Expense (a)

Warrant Incentive Expense (b)

Gain on Revaluation of Warrants (c)

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

Realized Loss on Marketable Securities Investments (e)

Gain (Loss) on Foreign Exchange (f)

Gain on Revaluation of Warrants (b)

Loss on Revaluation of Equity Investment in YFE (c)

Realized Gain (Loss) on Marketable Securities Investments (d)

Gain (Loss) on Foreign Exchange (e)

Loss on Debt Settlement (f)

Interest Income (g)

Loss on Early Lease Termination (h)

Finance Lease Interest Expense (i)

Other Income (Expense), net

Three Months and Nine Months Ended September 30, 2024

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

There was no warrant incentive expense in 2024.

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

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

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

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

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

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

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

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

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

Three Months and Nine Months Ended September 30, 2023

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

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

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

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

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

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

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

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

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

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

Finance Lease Interest Expense (h)

Other Expense, net

Interest Expense during the three months ended March 31, 2025 primarily consisted of $ 0.1 million of interest incurred on production facilities and bank indebtedness.

Interest Expense during the three months ended March 31, 2024 primarily consisted of $ 0.2 million of interest incurred on production facilities and bank indebtedness.

The Gain on Revaluation of Warrants during the three months ended March 31, 2025 is related to the changes in fair value of the outstanding 7,894,736 Series A and 7,894,736 Series B warrants classified as a liability due to a decrease of expiration period.

The Gain on Revaluation of Warrants recorded during the three months ended March 31, 2024 is related to the remeasurement of 89,286 outstanding liability warrants which expired in March 2025.

As accounted for using the fair value option, the Loss on Revaluation of Equity Investment in YFE of $ 3.6 million recorded in the three months ended March 31, 2025, 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.

The Realized Gain on Marketable Securities Investments of $ 4,454 recorded during the three months ended March 31, 2025 is attributable to the sale of U.S.

Treasury securities.

The Realized Loss on Marketable Securities Investments of $ 0.1 million recorded during the three months ended March 31, 2024, reflects the loss that was not recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities.

The Gain on Foreign Exchange during the three months ended March 31, 2025 primarily related to the revaluation of the YFE investment, resulting in a gain of $ 0.7 million due to the depreciation of U.S.

dollar as compared to three months ended March 31, 2024 in which a loss of $ 0.6 million was recognized.

In April 2025, the Company entered into a settlement agreement with YFE related to the Shareholder Loan Agreement.

As the settlement was considered probable and the loss reasonably estimable as of March 31, 2025, the Company recorded a loss of approximately $ 1 million during the three months ended March 31, 2025.

Interest Income during the three months ended March 31, 2025 and 2024 primarily consisted of income from investments in marketable securities, net of premium amortization expense, as well as other transactions, including interest income related to Employee Retention Tax Credit (“ERTC”) receivable and interest income related to the Shareholder Loan.

Each of these sources was individually immaterial.

The Finance Lease Interest Expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

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

Other Income is primarily related to late fees from select clients on a payment plan.

The Company accounts for income

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ASC 740 provides guidance

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

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

technical merits of the position.

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

amount to recognize in the condensed consolidated financial statements.

Income tax benefit was $ 0.9

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

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

There were no activities during the three and nine

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

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.

For the three months

ended March 31, 2025, the effective tax rate was 0%.

The effective tax rate differed from the U.S.

federal statutory rate

primarily due to state income taxes, a foreign tax rate differential, and a change in valuation allowance.

For the three months

ended March 31, 2024, the effective tax rate was 0%.

The effective tax rate differed from the U.S.

federal statutory rate primarily

due to state income taxes, a foreign tax rate differential, and a change in valuation allowance.

During the three months

ended March 31, 2025 the Company did no t

record an income tax expense.

As of March 31, 2025 and December 31, 2024, net deferred liability was $ 1.3 million and $ 1.3 million , respectively.

Kartoon Studios, Inc.

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The following is a schedule

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

of future minimum cash contractual obligations as of March 31, 2025 (in thousands):

Schedule of future minimum lease payments

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Consulting Contracts

Production Financing

Contractual obligation

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of the minimum operating lease payments above was $ 2.2 million which when deducted from the cash commitments for the leases included in

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

condensed consolidated balance sheet.

the table above, equates to the lease liabilities of $ 6.2 million recorded as of March 31, 2025 on the Company’s condensed

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

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

In May 2024, the Company entered

into a license agreement for the animated television series Andrew the Big BIG Unicorn , under which it committed to provide a non-refundable

advance to one of the co-producers.

As of March 31, 2025, approximately $0.5 million of the committed advance remains unpaid

and is expected to be funded in 2025.

The advance is recoupable from future distribution and licensing revenues generated within the Company’s

licensed territories.

Related Party Transactions

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

During the nine months ended September 30, 2024,

During the three months ended March 31, 2025 and 2024,

Heyward did no t earn any executive producer fees.

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

Heyward earned and was

paid $ 0.3 million in executive producer fees.

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

Heyward also earned his $ 55,000 quarterly bonus during the three months ended

March 31, 2025 and 2024.

On August 25, 2022, Mr.

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to acquire the additional royalties.

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

Heyward has no t earned

royalties from musical compositions.

During the three months ended March 31, 2025 and 2024, Mr.

Heyward has no t earned royalties from

musical compositions.

On February 27, 2023, Mr.

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

the first quarter of 2023.

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

Heyward earned and was paid $ 0.2 million in creative

producer fees.

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

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

the three months ended March 31, 2024, for services rendered to Wow.

During the three months ended March 31, 2025 and 2024,

Heyward earned $ 100,000 in creative producer fees.

On July 21, 2020, the Company

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

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

on all sales made by AHAA utilizing the licensed content.

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

Heyward has no t earned royalties from this agreement.

On July 19, 2022, the Company

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

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

The principal plus interest

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

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

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

During 2022, the Company entered

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

Canon Drive, Suite 400, Beverly

Hills, CA 90210.

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

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

During the quarter ended September 30,

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

space interior design services.

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

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

statements of operations.

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 three months ended March 31, 2025 and 2024, Mr.

Heyward has no t earned royalties from

this agreement.

On July 19, 2022, the

Company entered into a Shareholder Loan Agreement with YFE in the amount of 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 were to be repaid by no later than June 30, 2026.

On April 27, 2025, the Company entered into a settlement agreement with YFE to resolve the outstanding Shareholder Loan Agreement.

Pursuant to the settlement, the Company accepted a reduced repayment amount of $ 0.4 million,

payable in two installments no later than June 2025, in full satisfaction of the loan balance.

Although the settlement agreement

became effective in April 2025, the Company recorded an adjustment to the balance of the loan and recognized a loss of

approximately $0.9 million during the three months ended March 31, 2025, as the negotiations were at an advanced stage and the

transaction was considered probable and reasonably estimable.

As of March 31, 2025, $ 0.4 million

is included within current assets on the Company’s condensed consolidated balance sheets.

During 2022, the Company

entered into a sublease agreement with a related party to lease one

office in the general office space at 190 N.

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

The monthly income was $ 595

during the three months ended March 31, 2025 and 2024 and recorded within Other Expense, net in the Company's condensed

consolidated statements of operations.

During the quarter ended

September 30, 2024, the Company entered into a one year consulting agreement with a

related party for office space interior design services.

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

The monthly expense was $ 595 and $ 0 during the three months ended March 31, 2025 and 2024, respectively,

and was recorded within General and Administrative expenses in the Company's condensed consolidated statements of operations.

Segment Reporting

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 chief

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

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

The CODM does not evaluate the operating

segments using asset information and it is therefore not disclosed.

All expenses directly attributable to each reportable segment are

included in the operating results for each segment.

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

it is not separately presented.

The following table presents

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

operating decision maker (“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.

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.

The Company’s 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) reviews revenue

and net operating results, as allocated based on the nature of the business activity.

The following table presents the revenue and net

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

Schedule of segment information by revenues and net earnings

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total Revenues:

Content Production & Distribution

Media Advisory & Advertising Services

Content Production and Distribution

Media Advisory and Advertising Services

Total Revenues

Content Production & Distribution

Media Advisory & Advertising Services

Total Net Loss Attributable to Kartoon Studio, Inc.

Content Production and Distribution

Media Advisory and Advertising Services

Total Net Loss Attributable to Kartoon Studios, Inc.

Geographic Information

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Schedule of segments by geographic area

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total Revenues:

2 unchanged sentences

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:

Schedule of segment

Three Months Ended March 31, 2025

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 Loss Attributable to Kartoon Studios, Inc.

Three Months Ended March 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 Loss Attributable to Kartoon Studios, Inc.

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

Subsequent to

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

million and incurred a realized loss of $ 0.1 million .

As of November 14, 2024,

there were no additional subsequent events to report.

Subsequent to March 31,

2025, the Company sold marketable securities and received proceeds of $1.0 million.

Additionally, the Company redeemed marketable securities

and received proceeds of $0.3 million.

Subsequent to March 31,

2025, the fair value of the Company’s investment in YFE experienced a decline due to a decrease in YFE’s stock price.

of May 14, 2025, the share price of YFE was €1.19 compared to €1.81 as of March 31, 2025.

The Company will continue

to monitor the investment for any further developments and assess any potential accounting implications.

Effective April 1, 2025, the

Company’s subsidiary, Beacon Communications, executed a rent reassignment agreement relinquishing one floor of its office space

in Toronto to a new tenant who assumed the lease obligation for that floor, and completed the sale of related furniture assets.

On May 14, 2025, at the Company’s

2025 Annual Meeting of Stockholders (the “2025 Annual Meeting”), the Company’s stockholders approved an amendment to

the 2020 Plan to increase the aggregate number of shares of the Company’s common stock available for awards under the 2020 Plan

by 5,000,000 shares.

The Company’s stockholders also approved the issuance of up to an aggregate of 17,447,366 shares of the Company’s

Common Stock upon the exercise of the Series A Common Stock Purchase Warrants, Series B Common Stock Purchase Warrants, and the Placement

Agent Common Stock Purchase Warrants issued in connection with the offering that closed on December 18, 2024.

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

What changed 10-Q

Item 1. Financial Statements