What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-14 · 218 added, 320 removed, 86 unchanged (86% of the section changed)

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and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with

our financial statements and related notes for the three and nine months ended September 30, 2024 and September 30, 2023 .

Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission

(the “SEC”), in our press releases and in statements made by or with the approval of authorized personnel constitute forward

looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange

Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby.

Forward-looking statements reflect intent,

belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future

events and financial trends affecting us.

Words such as “anticipates,” “expects,” “intends,” “plans,”

“believes,” “seeks,” “estimates,” “may,” “will” and variations of these words

or similar expressions are intended to identify forward looking statements.

In addition, any statements that refer to expectations, projections

or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements.

we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance

and are subject to certain risks, uncertainties and assumptions that are difficult to predict.

Therefore, our actual results could differ

materially and adversely from those expressed in any forward-looking statements as a result of various factors.

These differences can

arise as a result of the risks described in the section entitled “Risk Factors” below in this Quarterly Report on Form 10-Q

(the “Form 10-Q”) and in the section entitled “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the

year ended December 31, 2023, which was filed with the SEC on April 9, 2024 (the “2023 Annual Report”), and elsewhere in this

report, as well as other factors that may affect our business, results of operations, or financial condition.

Forward-looking statements

in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of

the date of those documents.

Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking

statements, whether as a result of new information, future events or otherwise.

In light of these risks and uncertainties, we cannot assure

you that the forward-looking statements contained in this report will, in fact, transpire.

References to “we”, “us”,”our”,

and the “Company” refer to Kartoon Studios, Inc.

our financial statements and related notes for the three months ended March 31, 2025 and 2024.

Certain statements made or incorporated

by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements

made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities

Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the

safe harbor created thereby.

Forward-looking statements reflect intent, belief, current expectations, estimates or projections about,

among other things, our industry, management’s beliefs, and future events and financial trends affecting us.

Words such as “anticipates,”

“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,”

“may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including

any underlying assumptions, are forward looking statements.

Although we believe the expectations reflected in any forward-looking statements

are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions

that are difficult to predict.

Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking

statements as a result of various factors.

These differences can arise as a result of the risks described in the section entitled “Item

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March

31, 2025 (“The 2024 Annual Report”), and elsewhere in this report, as well as other factors that may affect our business,

results of operations, or financial condition.

Forward-looking statements in this report speak only as of the date hereof, and forward-looking

statements in documents incorporated by reference speak only as of the date of those documents.

Unless otherwise required by law, we undertake

no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or

In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report

will, in fact, transpire.

Management’s Discussion

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statements that involve risks and uncertainties.

Our Content Distribution business

is focused on achieving scale across our networks, including Kartoon Channel!

, Frederator, Ameba, and Kartoon Channel!

Revenue growth will be driven by the continued focus on licensed content and exploitation of our current content such as Stan Lee, Shaq's

Garage , Rainbow Rangers and many more.

Continued profit growth will be realized the more we can scale the business across our

In addition, we are looking at artificial intelligence (“AI”) tools to reduce the cost of operating distribution

expenses such as dubbing expenses, video resolution upscaling and converting between 2D and 3D.

Our production services business

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division, the main driver of this business, is exploring more ways to improve operations by adopting a more flexible and efficient approach.

This includes collaborating with outsource partners and utilizing AI technology to streamline processes and drive efficiencies within

the organization.

Our Licensing & Royalties

business has the most upside and potential for the Company.

We are looking to take advantage of our incredible set of Stan Lee assets

to drive consumer products - both digitally and physically.

We will be focused on utilizing all of our IP assets further in 2024 and beyond.

Our Media Advisory & Advertising

This includes collaborating with outsource partners and utilizing artificial intelligence (“AI”) technology to streamline

processes and drive efficiencies within the organization.

With over 1,200 episodes, 70 movies, and three feature films to its credit,

the division has partnered with major industry players to produce acclaimed series such as " Barbie Dreamhouse Adventures ,"

Above & Beyond, " “Cocomelon” , and " Unicorn Academy ."

Our content distribution business

is focused on achieving scale across our networks, including Kartoon Channel!

, Frederator, Ameba, and Kartoon Channel!

Revenue growth is expected to be driven by the continued focus on licensed content and exploitation of our current content such as with

our Stan Lee brand, Shaq's Garage, Rainbow Rangers and many more.

Continued profit growth is expected to be realized the more we

can scale the business across our platforms.

In addition, we have implemented and are continuing to look at AI tools to reduce the cost

of operating distribution expenses such as dubbing expenses, video resolution upscaling and converting between 2D and 3D.

We believe that our licensing

and royalties business has the most upside and potential for us of all our business lines.

We are looking to take advantage of our incredible

set of Stan Lee assets to drive consumer products - both digitally and physically.

We plan to focus on utilizing all of our IP assets

further in 2025 and beyond.

Our media advisory and advertising

services business is focused on driving deal flow opportunities and winning annuity business through retainers and projects.

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The team has expanded

their reach recently by leveraging their relationships with influencers to promote products and provide bespoke marketing initiatives

for the clients.

their reach over the past 12-18 months by leveraging their relationships with influencers to promote products and provide bespoke marketing

initiatives for the clients.

Results of Operations

Our summary results for the

three months ended September 30, 2024 and 2023 are below:

Three Months Ended September 30,

three months ended March 31, 2025 and 2024 are below:

Three Months Ended March 31,

(in thousands, except percentages)

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Content Distribution

Licensing & Royalties

Media Advisory & Advertising Services

Licensing and Royalties

Media Advisory and Advertising Services

Total Revenue

Production Services revenue

was generated specifically by Wow providing animation production services.

Revenue for production services is recognized over time on

a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of

costs incurred cumulatively to total expected costs.

was generated specifically by Mainframe Studios providing animation production services.

Revenue for production services is recognized

over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion

of costs incurred cumulatively to total expected costs.

Consequently, less revenue is recognized during the periods in which the projects

are near completion or completed.

Revenue for Wow production services for the three months ended September 30, 2024 was 23% lower

than the Wow production services revenue recognized during three months ended September 30, 2023 primarily due to a lower volume

of active service production projects in the current period versus the prior year period.

Revenue for the three months ended March 31, 2025 was higher than the Mainframe Studios’

production services revenue recognized during three months ended March 31, 2024 primarily due to the number of active projects in

the current quarter.

Revenue related to Content

Distribution on advertisement supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including

advertising sales for the three months ended September 30, 2024, decreased by 8% as compared to the three months ended September 30,

This was primarily due to a decrease in Frederator’s creator network revenue of $0.2 million from YouTube due to reduced advertising

spending and a decline in revenue per mille (“RPM”) advertising rates.

Distribution on AVOD and SVOD, including advertising sales for the three months ended March 31, 2025, decreased by 15% as compared

to the three months ended March 31, 2024.

The decrease of $0.3 million was due to a decrease of $0.2 million in Frederator’s

creator network revenue from YouTube driven by overall less viewership as compared to the prior year period, and a decrease in Kartoon

Studios’ content distribution revenue of $0.1 million related to lower volume of licensing agreements signed by the Kartoon Channel!

Worldwide division for the broadcast of the channel.

Revenue related to Licensing

& Royalties for the three months ended September 30, 2024 decreased by 76% as compared to the three months ended September 30,

2023 primarily due to higher royalties earned in the prior year for owned IP and music royalties.

and Royalties for the three months ended March 31, 2025 decreased by 16% as compared to the three months ended March 31, 2024

primarily due to lower amounts earned from our license deals related to our consumer products agreements and music licensing agreements.

Revenue generated by Media

Advisory & Advertising services for the three months ended September 30, 2024 increased by 43% as compared to the three months

ended September 30, 2023 primarily due to higher net renewal activity and media purchases from clients.

Three Months Ended September 30,

Advisory and Advertising services for the three months ended March 31, 2025 decreased by 2% as compared to the three months ended

March 31, 2024 primarily due to lower net renewal activity and media purchases from clients.

Three Months Ended March 31,

(in thousands, except percentages)

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The decrease in Marketing

and Sales expenses for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was

primarily due to a decrease of $0.3 million in marketing expenses associated with company brand development.

Direct Operating Costs during

the three months ended September 30, 2024 consisted primarily of salaries and related expenses for the animation production services

employees of Wow and Frederator.

Channel expenses, licensing and production of content costs, such as participation expenses related to

profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent

that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of Direct Operating

The decrease was primarily due to $6.3 million of film cost impairments and write-down of development projects for the three months

ended September 30, 2023, a $1.1 million reduction in salary costs, net of tax credits, from a decline in headcount as a result of

lower volumes of service production projects for the three months ended September 30, 2024, compared to the same period of the prior

year, and a reduction of $0.2 million in participation estimates related to Wow owned IP.

The decrease in General and

Administrative expenses for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023

was primarily due to a decrease in expenses of $1.9 million related to cost saving initiatives, a decrease of $0.6 million in litigation

expenses mainly due to a litigation insurance provision recognized in the three months ended September 30, 2024, a decrease of $0.4

million in annual shareholder meeting expenses of holding the annual shareholder meeting during the quarter ended September 30, 2024

as opposed to earlier in the prior year, and lower depreciation expense of $0.3 million for the three months ended September 30,

2024 as compared to the three months ended September 30, 2023.

During the three months ended

September 30, 2023, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible

assets and our remaining goodwill for impairment.

As a result, we concluded that impairment charges to those assets were required.

concluded that there were no indications or triggering events that would further impair the assets during the three months ended September 30,

Our summary results for the

nine months ended September 30, 2024 and 2023 are below:

Nine Months Ended September 30,

(in thousands, except percentages)

Production Services

Content Distribution

Licensing & Royalties

Media Advisory & Advertising Services

Total Revenue

Production Services revenue

was generated specifically by Wow providing animation production services.

Revenue for production services is recognized over time on

a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of

costs incurred cumulatively to total expected costs.

Consequently, less revenue is recognized during the periods in which the projects

are near completion or completed.

Revenue for Wow production services for the nine months ended September 30, 2024 was 45% lower

than the Wow production services revenue recognized during nine months ended September 30, 2023 primarily due to a lower volume of

active service production projects in the current period versus the prior year period.

Revenue related to Content

Distribution on AVOD and SVOD, including advertising sales for the nine months ended September 30, 2024, decreased by 21% as compared

to the nine months ended September 30, 2023.

This was primarily due to a decrease in Frederator’s creator network revenue of

$1.7 million from YouTube due to reduced advertising spending and a decline in RPM advertising rates.

Revenue related to Licensing

& Royalties for the nine months ended September 30, 2024 decreased by 35% as compared to the nine months ended September 30,

2023 primarily due to higher royalties earned in the prior year for music royalties.

Revenue generated by Media

Advisory & Advertising services for the nine months ended September 30, 2024 increased by 13% as compared to the nine months

ended September 30, 2023 primarily due to higher net renewal activity, client fees, and media purchases from clients.

Nine Months Ended September 30,

(in thousands, except percentages)

Marketing and Sales

and Sales expenses for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily

due to a decrease in advertising efforts aimed at promoting the Kartoon Studios branding.

Direct Operating Costs

General and Administrative

Impairment of Property and Equipment

Impairment of Intangible Assets

Impairment of Goodwill

Total Expenses

The decrease in Marketing

and Sales expenses for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was

primarily due to expenses incurred for stock issued for services of $1.3 million related to our Shaq’s Garage series that was not

incurred during the current nine months ended September 30, 2024, and a decrease of $0.3 million in marketing expenses associated

with company brand development

Direct Operating Costs during

the nine months ended September 30, 2024 consisted primarily of salaries and related expenses for the animation production services

employees of Wow and Frederator.

Channel expenses, licensing and production of content costs, such as participation expenses related to

profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent

that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of Direct Operating

The decrease of 54% as compared to the nine months ended September 30, 2023 was primarily due to a $11.5 million reduction

in salary costs, net of tax credits, as a result in a reduction in headcount due to a lower volume of service production projects for

the nine months ended September 30, 2024, compared to the same period of the prior year, and $6.5 million of film cost impairments

and write-down of development projects for the nine months ended September 30, 2024.

during the three months ended March 31, 2025 consisted of salaries and related expenses for animation production services

employees of Mainframe Studios and Frederator.

The remainder of Direct Operating Costs consisted of creator network channel

expenses, content licensing, and production costs, including participation expenses related to profit-sharing obligations with

various animation studios, post-production studios, writers, directors, musicians, and other creative talent, as well as

amortization and any write-downs of film and television costs.

The increase during the three months ended March 31, 2025 was

primarily due to an increase in salary costs and headcount included in Production Services related to new projects that began in the

current quarter compared to the same period of the prior year.

The decrease in General and

Administrative expenses for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023

was primarily due to a decrease of $2.0 million as a result of decreased use in equipment rentals and software licenses, a decrease of

$1.5 million in share-based compensation expense, a decrease of $1.5 million in payroll related expenses, a decrease of $0.9 million in

depreciation related to equipment leases that had ended prior to the current period, and a decrease of $0.6 million in general administrative

expenses related to additional cost saving initiatives.

During the nine months ended

September 30, 2023, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible

assets and our remaining goodwill for impairment.

As a result, we concluded that impairment charges to those assets were required.

concluded that there were no indications or triggering events that would further impair the assets during the nine months ended September 30,

Administrative expenses for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily

due to a decrease of $0.6 million in depreciation expense related to the property and equipment impairment recorded in prior year, a reduction

of $1.4 million in overhead costs primarily due to cost-saving initiatives, and a $0.1 million decrease in share-based compensation expense.

During the three months ended

March 31, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible

assets for impairment.

As a result, we concluded that impairment charges to those assets were not required.

Furthermore, we concluded

that no indicators of impairment or triggering events were identified during the period.

Other Expense, net

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as follows (in thousands):

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, we 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, we recorded a loss of approximately $0.9 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.

Liquidity, Going Concern, and Capital Resources

As of September 30, 2024,

we 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 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.

The cash provided by investing activities was primarily due to sales

of marketable securities of $8.0 million.

As of September 30, 2024,

we 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.

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

Liquidity and Capital Resources

As of March 31, 2025,we

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

The decrease 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,

we 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, our margin loan balance was $0.4 million and $0.9 million, respectively.

During the nine months ended September 30,

During the three months ended March 31,

2025, we borrowed an additional $2.7 million from our investment margin account and repaid $3.2 million primarily with cash

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The weighted average interest rates were 0.32% and

0.98%, respectively, on average margin loan balances of $7.5 million and $27.4 million as of September 30, 2024 and December 31,

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.

For three months ended September

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

We 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 our condensed consolidated balance sheets.

are 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).

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

As a result of the

amendment, the revolving demand facility allows for draws of up to $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, we have 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 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 , we are not in compliance with a financial covenant to maintain a minimum liquidity threshold.

to financial covenant violations in the second quarter of 2024, our remaining equipment lease agreements with the lender of $0.6 million

(CAD 0.8 million) are subject to early repayment.

During the three months ended September 30, 2024,

the lender 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, we paid $0.1 million (CAD 0.1 million) to the

lender as part of our repayment plan for the existing equipment lease line agreements.

Subsequent to September 30, 2024, we paid

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

The amendment and covenant violation did not have any impact on our production facilities that are separate from the revolving

demand facility and are used for financing specific productions.

We 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.

Due to the call option, the margin

loan is recorded as a current liability on our condensed consolidated balance sheets.

Over the next 12 months, we

expect to use cash primarily to fund ongoing operations, content production, and strategic growth initiatives.

Management believes that

the future cash needs can be addressed through a combination of actions within its control, including cost reductions, optimization of

working capital, and securing licensing and distribution advances.

Other potential sources of liquidity that are outside of our control

include receipt of IRS Employee Retention Tax Credits, warrant redemptions, or proceeds from capital raises.

Any of these could help

improve our liquidity position and depend on external factors such as IRS processing timelines, market conditions, and investor participation.

Based on current cash balances and the ability to execute on planned initiatives, management believes it has sufficient liquidity to meet

its obligations for at least the next 12 months.

Working Capital

As of September 30, 2024,

we had total current assets of $37.2 million, including cash of $4.6 million and marketable securities of $4.1 million, and our total

current liabilities were $33.7 million.

We had working capital of $3.5 million as of September 30, 2024 as compared to working capital

of $11.5 million as of December 31, 2023.

The decrease of $8.0 million was primarily due to sales of marketable securities of $8.0

million, a decrease in accounts receivable and tax credits receivable of $14.0 million, partially offset by a decrease in accounts payable

of $4.8 million and a decrease in production facilities and bank indebtedness of $8.9 million.

During the nine months ended September 30,

2024, we met our immediate cash requirements through existing cash balances and through the sale of marketable securities.

Additionally,

we used equity and equity-linked instruments to pay for services and compensation.

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

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.

Comparison of Cash Flows for the Nine Months Ended September 30,

2024 and September 30, 2023

Our total cash as of September 30,

2024 and September 30, 2023 was $4.6 million and $3.9 million, respectively.

Nine Months Ended September 30,

As of March 31, 2025,

we 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 our total current liabilities were $26.8 million.

We had negative working capital of $1.7 million as of March 31,

2025 as compared to working capital of $1.2 million as of December 31, 2024.

of $2.9 million was du e to a decrease of $9.5

million in current assets and a decrease of $6.6 million in current liabilities compared to the prior period.

A decrease in current assets

is primarily driven by a decrease of $5.6 million in cash, a decrease of $4.4 million in accounts receivable and a decrease of $2.0 million

in production tax credit receivable position, offset by an increase of $1.2 million in marketable securities investments, an increase

of $0.4 million in related party notes receivable balance and an increase $0.7 million in prepaid balance.

The decrease in current liabilities

is primarily driven by a decrease of $6.0 million in accounts payable, a decrease by $1.8 million in production facilities and a decrease

of $0.5 million in margin loan balance, offset by an increase of $1.3 million in accrued expenses and an increase of $0.5 million in accrued

During the three months ended

March 31, 2025, we met our immediate cash requirements through existing cash balances.

Additionally, we used equity and equity-linked

instruments to pay for services and compensation.

We believe that our current cash balances and our investments in available for sale

marketable securities are sufficient to support our operations for at least the next twelve months.

To meet our short and long-term liquidity

needs, we expect to use existing cash and marketable securities balances.

Comparison of Cash Flows for the Three Months Ended March 31,

2025 and March 31, 2024

Our total cash as of March 31,

2025 and March 31, 2024 was $2.3 million and $7.9 million, respectively.

Three Months Ended March 31,

(in thousands)

Net Cash Used in Operating Activities

Net Cash Provided by Investing Activities

Net Cash Provided by (Used in) Operating Activities

Net Cash Provided by (Used in) Investing Activities

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash

Net Increase (Decrease) in Cash

Decrease in Cash

Net Non-cash Expenses

Items necessary to reconcile

from net loss to cash used in operating activities included net non-cash expenses of $5.9 million for the nine months ended September 30,

2024 as compared to net non-cash expenses of $37.6 million for the nine months ended September 30, 2023.

The net decrease of $31.7

million in non-cash expenses was primarily due to the absence of the recognition of $21.6 million in impairment expenses of film and television

costs, long-lived assets, intangible assets and goodwill, a decrease in warrant incentive expense of $12.7 million, a decrease of realized

losses from marketable securities of $3.6 million, and a decrease in share-based compensation of $1.5 million.

The decreases were partially

offset by the nine months ended September 30, 2023 reconciling non-cash items of $8.9 million related to gains from revaluations

from net loss to cash used in operating activities included net non-cash expenses of $4.6 million for the three months ended March 31,

2025 as compared to net non-cash expenses of $2.1 million for the three months ended March 31, 2024.

The majority of the increase

of $2.5 million was primarily due to loss of $3.6 million on the revaluation of our equity investment in YFE securities and a loss of

$0.9 million relating to Related Party Notes Receivable settlement agreement that was considered probable during the three months ended

March 31, 2025.

The increase is offset by an increase of $1.1 million of FX impact on the value of the equity investment in YFE,

an increase of $0.4 million in gain related to revaluation of the warrants, a decrease of $0.3 million in amortization of Right-of-Use

assets, a decrease of $0.1 million in stock-based compensation expense and a decrease of $0.1 million in realized loss on marketable securities

due to the lower sales of our marketable securities prior to their maturity date.

Change in Operating Activities

The net change in operating

asset and liability activities provided by operating activities of $8.1 million as of September 30, 2024 compared to the net change

in operating asset and liability activities used by operating activities of $6.0 million as of September 30, 2023 was primarily due

to an increase in net receipts of tax credits during the current year of $7.4 million as credits were received for production completed

in the prior year, a decrease in deferred revenue of $8.0 million, an increase in accounts receivable, net of $2.6 million and a $2.9

million increase in accounts payable due to timing.

asset and liability activities from cash used of $8.8 million as of March 31, 2024 to cash used of $0.2 million as of March 31,

2025 was due to a decrease of $6.8 million in operating assets activity and a decrease of $1.8 million in operating liabilities activity.

A decrease of in operating assets activity was primarily due to a decrease of $6.1 million in net receipts tax credits during the current

year related to completed projects and an increase of $1.0 million in net Film and Television Cost expenditures, offset by a decrease

of $0.3 million in outstanding balance of the ERTC receivable.

A decrease of in operating liability activity was primarily due to an increase

in accounts payable of $1.1 million due to certain legal expenditures being subject to extended payment terms related to potential insurance

recovery and a decrease of $0.5 million in deferred revenue, representing less cash received in advance for projects not yet recognized.

Change in Investing Activities

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by investing activities of $3.7 million was primarily due to a decrease in proceeds from the sales and maturities of marketable securities

of $60.1 million during the nine months ended September 30, 2024 as a result of selling less marketable securities during the current

of $2.0 million during the three months ended March 31, 2025 reflecting fewer sales during the current period.

In addition, we made

a purchase of additional securities of $1.8 million during the three months ended March 31, 2025.

Change in Financing Activities

The decrease in cash used

in financing activities of $46.4 million was primarily due to a decrease in repayments of our margin loan of $67.4 million, partially

offset by less proceeds drawn from the margin loan and production facilities of $13.2 million, higher repayments during the current period,

compared to proceeds from bank indebtedness during the prior year period, resulting in a net increase of cash used in financing of $2.8

million, and higher repayments of production facilities in the current year of $3.7 million.

in financing activities of $5.3 million was primarily due to a decrease in repayments of our production facilities of $4.8 million, a

decrease of bank indebtedness repayment of $2.8 million and a decrease in lease payments of $0.3 million, offset by increase in repayments

of margin loan of $2.3 million along with a decrease in borrowings from our margin loan of $0.4 million during the three months ended

March 31, 2025 as compared to the three months ended March 31, 2024.

Material Cash Requirements

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The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately

$25.3 million as of September 30, 2024, of which $5.0 million could be owed within one year.

Included in the amount that could be

due within one year is the margin loan current balance of $1.1 million and revolving demand facility current balance of $0.6 million.

$24.2 million as of March 31, 2025, of which about $14.3 million could be owed within one year.

Included in the amount that could

be due within one year is the margin loan current balance of $0.4 million and production facilities of $7.5 million.

We plan to utilize our liquidity

(as described above) to fund our material cash requirements.

As of September 30, 2024,

As of March 31, 2025,

we had $0.2 million in commitments for capital expenditures, related to equipment leases.

Critical Accounting Estimates

Critical Accounting Policies and Estimates

The preparation of the financial

statements and related disclosures in conformity with U.S.

Generally Accepted Accounting Principles (“GAAP”) and our discussion

and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that

affect the amounts reported.

Management bases its estimates on historical experience and on various other assumptions it believes to be

reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results may differ from these estimates, and such differences may be material.

generally accepted accounting principles and our discussion and analysis of

our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts

Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

results may differ from these estimates, and such differences may be material.

Note 2, “Summary of

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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 2. Management’s Discussion and Analysis