What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-05-15 · 260 added, 169 removed, 135 unchanged (76% of the section changed)

2 unchanged sentences

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 months ended March 31, 2025 and 2024.

our financial statements and related notes for the three and six months ended June 30, 2025 and 2024.

Certain statements made or incorporated

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statements that involve risks and uncertainties.

Production Services

Our production services business

is focused on creating high-quality original and for hire content in the most efficient way possible.

To achieve this, our Mainframe Studios

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 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.

is centered on delivering original and third-party commissioned animated content with a focus on production efficiency and scalability.

Mainframe Studios, our primary production entity, is undertaking operational enhancements through the adoption of flexible production

workflows, strategic outsourcing, and the integration of new technologies.

These initiatives aim to optimize cost structures and streamline

the production pipeline.

To date, Mainframe has produced over 1,200 television episodes, 70 movies, and three feature films, including

titles such as Barbie Dreamhouse Adventures , Octonauts:

Above & Beyond , Cocomelon , SuperKitties , and Unicorn

Academy , in partnership with leading global media companies.

Content Distribution

Our content distribution strategy

is focused on scaling audience reach and monetization across our proprietary networks, including Kartoon Channel!, Frederator, Ameba,

and Kartoon Channel!

We hope to grow our revenue through expanded licensing activity and increased utilization of existing

IP assets such as Stan Lee brands, Shaq’s Garage , Rainbow Rangers , and many more.

To support margin expansion, we

are actively implementing AI-driven tools designed to reduce operating costs in areas such as language dubbing, video resolution enhancement,

and 2D-to-3D conversion.

Licensing and Royalties

We believe the licensing and

royalties business presents the most significant long-term growth opportunity.

Strategic emphasis is being placed on the commercialization

of the Stan Lee intellectual property portfolio, with a focus on both digital and physical consumer products.

We intend to expand the

use of our broader IP catalog in licensing programs beginning throughout 2025 and beyond.

Media Advisory and Advertising Services

Our media advisory and advertising

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

continues to focus on the toy business, but also expansion into tangential industries such as family and travel.

The team has expanded

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.

segment is focused on developing recurring revenue through a mix of retainer and project-based engagements.

The group continues to build

upon its established presence in the toy industry while expanding into adjacent sectors, including family entertainment and travel.

the past two years, the team has broadened its client engagement capabilities by integrating influencer-driven marketing strategies and

custom campaign development.

Results of Operations

Our summary results for the

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

Three Months Ended March 31,

three months ended June 30, 2025 and 2024 are below:

Three Months Ended June 30,

(in thousands, except percentages)

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are near completion or completed.

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 for the three months ended June 30, 2025 was higher than the Mainframe Studios’ production

services revenue recognized during three months ended June 30, 2024 primarily due to the number of active projects in the current

Revenue related to Content

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.

Distribution on AVOD and SVOD, including advertising sales for the three months ended June 30, 2025, decreased by 17% as compared

to the three months ended June 30, 2024.

The decrease of $0.4 million was due to a decrease in Frederator’s creator network

revenue from YouTube driven by overall less viewership as compared to the prior year period.

Revenue related to Licensing

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.

and Royalties for the three months ended June 30, 2025 increased by 219% as compared to the three months ended June 30, 2024

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

Additionally, we executed new licensing agreements related to Stan Lee Universe, LLC assets.

Revenue generated by Media

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,

Advisory and Advertising services for the three months ended June 30, 2025 decreased by 3% as compared to the three months ended

June 30, 2024 primarily due to lower net renewal activity and media purchases from clients.

Three Months Ended June 30,

(in thousands, except percentages)

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The decrease in Marketing

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

and Sales expenses for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was primarily

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

Direct Operating Costs during

the three months ended June 30, 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

The increase during the three months ended June 30, 2025 was primarily due to an increase in salary costs and headcount included

in Production Services related to new projects that advanced in the current quarter compared to the same period of the prior year.

The decrease in General and

Administrative expenses for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was primarily

due to a decrease of $0.5 million in professional fees reflecting lower legal expenses and reduced use of external consulting services,

a decrease of $0.1 million in depreciation expense related to the property and equipment impairment recorded in prior year and a net reduction

of $0.1 million in overhead costs primarily due to cost-saving initiatives.

During the three months ended

June 30, 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.

Our summary results for the

six months ended June 30, 2025 and 2024 are below:

Six Months Ended June 30,

(in thousands, except percentages)

Production Services

Content Distribution

Licensing and Royalties

Media Advisory and Advertising Services

Total Revenue

Production Services revenue

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 the six months ended June 30, 2025 was higher than the Mainframe Studios’ production

services revenue recognized during six months ended June 30, 2024 primarily due to the number of active projects in the current quarter.

Revenue related to Content

Distribution on AVOD and SVOD, including advertising sales for the six months ended June 30, 2025, decreased by 16% as compared to

the six months ended June 30, 2024.

The decrease of $0.8 million was due to a decrease of $0.6 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 $0.2 million related to lower volume of licensing agreements signed by the Kartoon Channel!

division for the broadcast of the channel.

Revenue related to Licensing

and Royalties for the six months ended June 30, 2025 increased by 34% as compared to the six months ended June 30, 2024 primarily

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

Additionally, we executed new licensing agreements related to Stan Lee Universe, LLC assets.

Revenue generated by Media

Advisory and Advertising services for the six months ended June 30, 2025 decreased by 2% as compared to the six months ended June 30,

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

Six Months Ended June 30,

(in thousands, except percentages)

Marketing and Sales

Direct Operating Costs

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.

General and Administrative

Total Expenses

The decrease in Marketing

and Sales expenses for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 was primarily due

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

Direct Operating Costs during

the six months ended June 30, 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

The increase during the six months ended June 30, 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 year compared to the same period of the prior year.

The decrease in General and

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.

Administrative expenses for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 was primarily

due to a decrease of $1.2 million in professional fees reflecting lower legal expenses and reduced use of external consulting services,

decrease of $0.7 million in overhead costs primarily due to cost-saving initiatives, decrease of $0.4 million in depreciation expense

related to the property and equipment impairment recorded in prior year, and a $0.3 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

June 30, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible

assets for impairment.

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as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest Expense (a)

Gain on Revaluation of Warrants (b)

Gain (Loss) on Revaluation of Warrants (b)

Loss on Revaluation of Equity Investment in YFE (c)

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

Realized Loss on Marketable Securities Investments (d)

Gain (Loss) on Foreign Exchange (e)

2 unchanged sentences

Finance Lease Interest Expense (h)

Gain on Lease Termination (i)

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.

Three Months and Six Months Ended June 30, 2025

Interest Expense during the three and six months ended June 30, 2025 consisted of $0.2 million and $0.3 million respectively, primarily due to interest incurred on production facilities.

The Loss on Revaluation of Warrants during the three months ended June 30, 2025 is related to the remeasurement occurred immediately before reclassification of the outstanding 7,894,736 Series A warrants and 7,894,736 Series B warrants from liability to equity.

The Loss on Revaluation of Warrants during the six months ended June 30, 2025 consists of $0.7 million Loss recorded at remeasurement offset by a $0.4 million fair value gain in the period ended March 31, 2025 of the outstanding 7,894,736 Series A warrants and 7,894,736 Series B warrants.

These Warrants were classified as a liability in the period ended March 31, 2025 and change in their Fair Value resulted in a recorded gain due to a decrease of expiration period.

As accounted for using the fair value option, the Loss on Revaluation of Equity Investment in YFE of $3.8 million and $7.4 million, respectively, recorded in the three and six months ended June 30, 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.

The Realized Loss on Marketable Securities Investments of $32,145 recorded during the three months ended June 30, 2025 is related to the Loss of $37,197 on sale of certain securities prior to the maturity date, offset by the Gain of $5,053 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.

The Realized Loss on Marketable Securities Investments of $27,691 recorded during the six months ended June 30, 2025 is related to the Loss of $37,197 on sale of certain securities prior to the maturity date, offset by the Gain of $9,507 attributable to the sale of U.S.

Treasury Securities.

The Gain on Foreign Exchange during the three and six months ended June 30, 2025 primarily related to the revaluation of the YFE investment, resulting in a gain of $1.7 million and $2.4 million, respectively, due to the depreciation of the U.S.

dollar against the Euro relative to prior periods..

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.

Interest Income during the three and six months ended June 30, 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 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 March 31, 2025

and December 31, 2024, our margin loan balance was $0.4 million and $0.9 million, respectively.

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

received from sales and maturities of marketable securities.

The borrowed amounts were primarily used for operational costs.

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.

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.

In April 1, 2025, a 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.

This transaction resulted in a gain of $4,253 on lease modification recorded during the period ended June 30, 2025.

During the three months ended June 30, 2025, a net loss of $0.1 million

was recognized in connection with the reversal of previously accrued other income related to Employee Retention Tax Credit (ERTC) claims.

Other income had initially been recorded based on anticipated recoveries from submitted claims.

Recent legislative developments reduced

the expected recoverable amounts, resulting in a partial reversal of the accrued other income.

The amount also included $11,991 of other

income, primarily consisting of late fees from select clients on payment plans.

For the six months ended June 30, 2025, other income

primarily related to such late fees totaled $50,197.

Three Months and Six Months Ended June 30, 2024

Interest Expense during the three and six months ended June 30, 2024 consisted of $0.2 million and $0.4 million, respectively, primarily due to interest incurred on production facilities and bank indebtedness.

The Gain on Revaluation of Warrants recorded during the three and six months ended June 30, 2024 was 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 $0.9 million recorded in the three and six months ended June 30, 2024, was a result of the decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period.

This excluded the impact of foreign currency recorded separately.

The Realized Loss on Marketable Securities Investments during the three and six months ended June 30, 2024 reflected the loss that was not recovered from the investments due to selling securities prior to maturity.

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

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

No loss on settlement of debt was recorded during the three and six months ended June 30, 2024.

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

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

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

Liquidity, Going Concern, and Capital Resources

As of June 30, 2025,

the Company had cash and restricted cash of $2.6 million, which decreased by $5.8 million as compared to December 31, 2024.

was primarily due to cash used in operating activities of $6.3 million, cash used in financing activities of $0.3 million, reduction of

$0.5 million in the value of our cash due to changes in foreign exchange rates, offset by cash provided by investing activities of $1.3

The cash used in operating activities was primarily due to net loss of $12.9 million and net change in operating asset and liabilities

of $2.9 million, partially offset by net change in non-cash adjustments of $9.5 million.

The cash used in financing activities was primarily

due to payments of lease obligations of $0.2 million and repayments of the production facilities and margin loan, net of proceeds from

each, resulting in net cash used of $0.1 million.

The cash provided by investing activities of $1.3 million was primarily due to proceeds

from the sale and maturities of marketable securities of $3.2 million, offset by the investment in marketable securities of $1.8 million.

As of June 30,

2025, we held available-for-sale marketable securities with a fair value of $0.7 million, a decrease of $1.3 million as compared to

December 31, 2024, due to a sale of securities during the six months ended June 30, 2025.

The available-for-sale

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

Working Capital

As of March 31, 2025,

As of June 30, 2025,

we had total current assets of $25.5 million, including cash of $2.1 million, restricted cash of $0.5 million and marketable securities

of $0.7 million, and our total current liabilities were $30.4 million.

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

We had negative working capital of $4.9 million as of June 30,

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

3 unchanged sentences

is primarily driven by a decrease of $5.8 million in cash, a decrease of $4.9 million in accounts receivable and a decrease of $1.3 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.

in marketable securities investments, offset by an increase of $2.0 million in production tax credit receivable position, an increase

$0.7 million in prepaid balance and an increase of $0.1 million in other receivables.

The decrease in current liabilities is primarily

driven by a decrease of $5.2 million in accounts payable, a decrease of $0.8 million in margin loan balance, a decrease of $0.3 million

in accrued participation cost balance and a decrease of $0.3 million in other current liabilities, offset by an increase by $1.4 million

in production facilities, an increase of $0.9 million in accrued expenses, an increase of $0.7 million in accrued salaries, and an increase

of $0.5 million in deferred revenue balance.

During the six months ended

June 30, 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,

Going Concern

Based on our current expected

level of operating expenditures and the cash and cash equivalents on hand at June 30, 2025, management concludes that there is substantial

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

condensed consolidated financial statements.

Historically, we have financed our operations primarily through revenue generated from operations,

loans and sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner.

In order to address

our capital needs, we intend to consider multiple alternatives, including, but not limited to, the sale of equity or debt securities,

financing arrangements or entering into collaborative, strategic, and/or licensing transactions.

We do not have any committed sources

of financing at this time, and it is uncertain whether any additional funding will be available when we need it on terms that will be

acceptable to us, or at all.

Our ability to sell securities registered on our registration statement on Form S-3 is limited until such

time that the market value of our 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 we can sell, under certain circumstances, will be limited

by NYSE American rules and regulations.

If we are able to raise funds by selling additional shares of Common Stock or other securities

convertible into Common Stock, the ownership interest of our existing shareholders will be diluted.

The issuance of debt can result in

restrictive covenants that limit operations.

There can be no assurance that we will be able to complete any such financing, collaborative

or strategic transaction in a timely manner or on acceptable terms.

As a result, we may have to significantly limit our operations and

its business, financial condition and results of operations would be materially harmed.

In parallel, management also

plans to preserve liquidity, as needed, by implementing cost saving measures.

For example, subsequent to the period ending June 30,

2025, in order to improve liquidity, we sold certain assets, including CARES Act Employee Retention Tax Credit receivables and 1,500,000

While management is taking these steps to improve liquidity, due to the uncertainty surrounding the successful execution and

timing of these plans, substantial doubt continues to exist regarding our ability to meet our obligations as they become due within one

year after the date the accompanying condensed consolidated financial statements are issued.

Comparison of Cash Flows for the Six Months Ended June 30,

2025 and June 30, 2024

Our total cash as of June 30,

2025 and June 30, 2024 was $2.1 million and $7.9 million, respectively.

Six Months Ended June 30,

(in thousands)

Net Cash Provided by (Used in) Operating Activities

Net Cash Provided by (Used in) Investing Activities

Net Cash Used in Operating Activities

Net Cash Provided by Investing Activities

Net Cash Used in Financing Activities

Effect of Exchange Rate Changes on Cash

Decrease in Cash

Decrease in Cash and Restricted Cash

Net Non-cash Expenses

Items necessary to reconcile

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.

from net loss to cash used in operating activities included net non-cash expenses of $9.5 million for the six months ended June 30,

2025 as compared to net non-cash expenses of $4.8 million for the six months ended June 30, 2024.

The majority of the increase of

$4.7 million was primarily due to loss of $6.5 million on the revaluation of our equity investment in YFE securities and a loss of $1.3

million relating to Related Party Notes Receivable settlement agreement, and a net loss of $0.3 million related to revaluation of the

The increase is offset by an increase of $2.4 million of FX impact on the value of the equity investment in YFE, a decrease

of $0.4 million in amortization of Right-of-Use assets, a decrease of $0.3 million in stock-based compensation expense and a decrease

of $0.3 million in realized loss on marketable securities due to the lower sales of our marketable securities prior to their maturity

Change in Operating Activities

The net change in operating

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.

The decrease in net change

in operating asset and liability activities used by operating activities of $2.9 million as of June 30, 2025, compared to the net

change in operating asset and liability activities provided by operating activities of $5.5 million as of June 30, 2024, was due

to a decrease of $8.8 million in operating assets activity and a increase of $0.4 million in operating liabilities activity.

of in operating assets activity was primarily due to a decrease of $6.9 million in net receipts tax credits during the current year related

to completed projects and an increase of $1.5 million in net Film and Television Cost expenditures, a decrease of $0.3 million in accounts

receivable net receipts and a decrease of $0.2 million in prepaid expenses, offset by a increase of $0.1 million in outstanding balance

of other receivable.

An increase in operating liability activity was primarily due to a decrease in accounts payable of $1.4 million due

to certain legal expenditures being subject to extended payment terms related to potential insurance recovery, an decrease of $0.6 million

in accrued salaries and wages, a decrease of $0.5 million in accrued expenses, offset by a increase of $1.5 million in deferred revenue,

representing more cash received in advance for projects not yet recognized, and an increase of $0.6 million in accrued production costs.

Change in Investing Activities

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by investing activities of $4.2 million was primarily due to a decrease in proceeds from the sales and maturities of marketable securities

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

of $2.4 million during the six months ended June 30, 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.

a purchase of additional securities of $1.8 million during the six months ended June 30, 2025.

Change in Financing Activities

The decrease in cash used

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.

in financing activities of $4.5 million was primarily due to a decrease in repayments of our production facilities of $5.2 million, an

increase of $0.9 million in proceeds drawn from the production facilities, a decrease of bank indebtedness repayment of $2.6 million and

a decrease in lease payments of $0.2 million, offset by a decrease in proceeds from financing of $3.3 million, and a decrease in borrowings

from our margin loan of $1.1 million during the six months ended June 30, 2025 as compared to the six months ended June 30,

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

$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.

$27.1 million as of June 30, 2025, of which $16.2 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 $0.1 million and production facilities of $10.7 million.

We plan to utilize our liquidity

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

As of March 31, 2025,

As of June 30, 2025,

we had $0.5 million in commitments for capital expenditures, related to equipment leases.

14 unchanged sentences

arrangements.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market

As a “smaller reporting

1 unchanged sentence

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