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Item 1A. Risk Factors

2026-03-31 compared with 2025-03-31 · 463 added, 347 removed, 257 unchanged (76% of the section changed)

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

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

notes beginning on F - 5 of this Annual Report on Form 10-K.

You should consider carefully

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

References to past events are provided by way of example only and are not intended to be a complete listing or a representation

as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.

Because of the following

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

RISKS RELATING TO OUR BUSINESS

We have incurred net losses since inception.

RISKS RELATING TO OUR FINANCIAL POSITION

We must raise additional capital to

fund our operations in order to continue as a going concern.

As of December 31, 2025,

we had an accumulated deficit of $763.8 million and total stockholders’ equity of $27.5 million.

As of December 31, 2025, we

had total current assets of $35.8 million, including cash of $2.9 million and marketable securities of $4.0 million, and total current

liabilities of $33.5 million.

We had working capital of $2.3 million as of December 31, 2025, compared to working capital of $1.2

million as of December 31, 2024.

Management has evaluated the significance of these conditions in relation to our ability to meet our

obligations and concluded that there is substantial doubt about our ability to continue as a going concern for a period of at least one

year subsequent to the issuance of the accompanying consolidated financial statements.

In order to address our capital needs, we will

need to raise further capital through the sale of equity or debt securities, financing arrangements or by entering into collaborative,

strategic, and/or licensing transactions.

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

or strategic transactions in a timely manner or on acceptable terms, or at all.

Our ability to continue as a going concern is dependent

upon our ability to generate revenue and raise additional capital.

There can be no assurance that we will be successful in accomplishing

these objectives.

Without such additional capital, we may be required to curtail or cease operations and be required to realize our assets

and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial

portion of their investment.

We have incurred net losses since

We have a history of operating

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net current assets and working capital.

The financial statements included

elsewhere in this Annual Report on Form 10-K have been prepared on a going concern basis, which contemplates the realization of assets

and the satisfaction of liabilities in the normal course of business.

The financial statements do not include any adjustments relating

to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable

to continue as a going concern within one year after the date the financial statements are issued.

We will need to generate additional

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

Limits on our ability to sell securities

under the October 2025 Purchase Agreement may make it difficult for us to procure additional financing.

If we are not able to obtain sufficient

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

We expect that as our business

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

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

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

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

Our revenues and results of operations may

fluctuate from period to period.

Pursuant to the terms of the

Securities Purchase Agreement that we entered into in connection with the registered direct offering and concurrent private placement

that closed on October 22, 2025 (the “October 2025 Purchase Agreement”), we agreed, subject to limited exceptions, for a period

from October 20, 2025 until October 20, 2027, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance

of any shares of our common stock or common stock equivalents involving a variable rate transaction;

provided however, that commencing

October 20, 2026, we are allowed to enter into, and issue shares pursuant to, an “at the market” offering.

The October 2025

Purchase Agreement further provides that the investor thereunder (the “October 2025 Investor”) has the right to participate

in certain subsequent financings by us in an amount equal to 50% of such subsequent financings for 12 months following October 22, 2025.

To the extent we require additional

funding, we will therefore be limited in the types of fundraising transactions that we are able to pursue in compliance with the October

2025 Purchase Agreement.

If we require additional funding while these restrictive covenants remain in effect, we may be unable to effect

a financing transaction on terms acceptable to us, or at all, while also remaining in compliance with the terms of the October 2025 Purchase

Agreement, or we may be forced to seek a waiver from the October 2025 Investor, which the October 2025 Investor is not obligated to grant

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

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

These factors could have a material adverse effect

on our future operating results and our financial condition.

Our revenues and results of operations

may fluctuate from period to period.

Cash flow and projections

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the price of our common stock to fluctuate.

Production costs will be amortized

Production costs are amortized

according to the individual film forecasting methodology.

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The value of our investments is subject

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

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

to capital markets risk as well as other investment risks, which may adversely affect our results of operations, financial condition or

Our results of operations

are affected by the performance of our investment portfolio.

Our excess cash is invested by an external investment management service

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

The investment

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

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

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

and cash flows.

The value of our investments

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

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

significant market volatility, changes in interest

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

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

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

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

If we reposition or realign portions of the investment

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

Any such loss may have a material adverse effect

on our results of operations and business.

may be affected, to a limited extent, by the performance of our investment portfolio.

Our excess cash is invested by an external investment

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

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

quality and concentration.

Our marketable securities portfolio is composed of high-grade, investment-quality securities intended to preserve

capital and maintain liquidity rather than generate significant returns.

As a result, the portfolio is designed to limit exposure to market

These investments remain subject to general market fluctuations and risks inherent in particular securities.

While we do not expect

such risks to have a significant impact, adverse market conditions could affect the value or returns of these investments and may impact

our financial condition, results of operations or cash flows.

If we reposition or realign portions of our investment portfolio and sell

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

Any such loss may have a material adverse effect on our results

of operations and business.

In addition, we maintain an

investment in foreign equity, the securities of YFE that we hold, which is inherently volatile and subject to greater market risk.

value of this investment may be significantly affected by changes in equity market conditions, foreign currency exchange rate movements,

and economic or geopolitical developments in the relevant jurisdictions.

For example, we recognized a loss on revaluation of our equity

investment in YFE of approximately $9.8 million and $1.6 million for the years ended December 31, 2025 and December 31, 2024,

respectively, as a result of decreases in YFE’s stock price during the respective reporting periods.

For the year ended December

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Supplementary Data” included herein.

Changes in the United States, global or

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

A decrease in economic activity

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

our revenue and earnings.

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

In addition, an increase

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

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

Further, recent global events

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

to economic downturns, inflation, and increased market volatility.

Military conflicts and wars (such as the ongoing conflicts between

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

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

created by tariffs threatened by the current U.S.

Administration on imports can cause exacerbated volatility and disruptions to various

aspects of the global economy.

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

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

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

Regulatory requirements or

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

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

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

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

In the past we identified material weaknesses

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

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

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

The Sarbanes-Oxley Act and

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

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

Effective internal controls are necessary

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

Our management assessed the effectiveness of our

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

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

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

Based on its assessment, our

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

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

In the past, our management

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

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

of duties on certain controls or processes;

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

and (iii)inappropriate application

of accounting standards related to warrant modifications.

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

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

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

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

Inaccurately anticipating changes and trends

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

We have incurred indebtedness that

could adversely affect the profitability of our business operations and financial condition.

As of December 31, 2025,

we and our subsidiaries have production loan facility obligations (“production facilities”) of approximately $11.8 million.

Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production

company’s tangible and intangible assets, including primarily federal and provincial tax credits and other government incentives,

as well as production service agreements and license agreements.

As of December 31, 2025, we recorded $16.8

million in tax credit receivables related to Wow’s film and television productions, net of $0.4

million in allowance for credit loss.

If the production entities default on their obligations under the production facilities,

the lender could foreclose on certain assets held by our subsidiaries and related entities that are parties to those facilities;

such foreclosure would only apply to the extent any outstanding amounts exceed the related tax credit receivables securing those obligations.

As the amounts currently outstanding do not exceed the associated tax credit receivables, these assets are not presently at risk.

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

The production facilities and the margin loan

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

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

The loss of one or more significant

customers could have a material adverse effect on us.

A small number of customers

have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period of several

consecutive years.

During the year ended December 31, 2025, four customers each accounted for more than 10% of our total consolidated

These customers accounted for an aggregate of 81.9% of our total revenue.

As of December 31, 2025, we had three customers,

the accounts receivable for each of which exceeded 10% of our total accounts receivable.

These customers accounted for an aggregate of

54.5% of the total accounts receivable as of December 31, 2025.

The loss of business from a significant customer could have a material

adverse effect on our business, financial condition, results of operations and cash flows.

Inaccurately anticipating changes

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

While trends in the toddler

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results of operations may be adversely affected.

We face competition from a variety of content

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

We face competition from a variety

of content creators that sell similar merchandise and have greater resources than we do.

The industries in which we

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

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

of operations.

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

are rapidly evolving.

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

of operations could be adversely impacted.

The production of our animated content is

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

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

and results of operations.

In addition, new technological developments, including the development and use of generative artificial intelligence

(“AI”), are rapidly evolving.

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

and our results of operations could be adversely impacted.

The production of our animated content

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

impact our business.

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

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

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

for that product.

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

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

it has been pre-licensed.

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

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

our profitability.

We cannot assure you that our original programming

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

our distributors’ platforms.

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

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

a specified product.

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

marketability.

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

to which it has been pre-licensed.

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

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

affect our profitability and reputation.

We cannot assure you that our original

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

or removed from our distributors’ platforms.

Our business depends on the

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

Failure to successfully market or advertise

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

Failure to successfully market or

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

Our products are marketed

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

The failure of others to promote our products

may adversely affect our business.

The failure of others to promote our

products may adversely affect our business.

The availability of retailer

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programs, are important with respect to promoting our properties.

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

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

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

We may not be able to keep pace with technological

In addition, although we may have agreements in place for the advertising

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

efforts may not be done in a manner that will maximize sales of our products and may have a material adverse effect on our business and

We may not be able to keep pace with

technological advances.

The entertainment industry

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and results from operations may be materially adversely affected.

Failure in our information technology and

storage systems could significantly disrupt the operation of our business.

Our ability to execute our

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

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

human acts and natural disasters.

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

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

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

The techniques used by criminal elements

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

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

If our computer systems

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

of which could harm our business.

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

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

Our internal computer systems, or those

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

and cause our business and reputation to suffer.

In the ordinary course of

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

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

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

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

Additionally, outside parties may attempt to induce

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

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

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

to remedy and damage our reputation.

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

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

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

On December 13, 2024, we experienced a cybersecurity

incident involving unauthorized access to one of our management systems.

The findings indicated that the unauthorized access incurred

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

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

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

Further, access to, disclosure

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

Loss of key personnel may adversely affect

our business.

Our success greatly depends

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

The loss of the services of

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

operations and financial condition.

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

Litigation may harm our business or otherwise

distract management.

Substantial, complex or extended

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

For example, lawsuits by licensors, consumers, employees

or stockholders could be very costly and disrupt business.

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

such disputes on terms favorable to us.

Our vendors and licensees may be subject

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

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

Our vendors and licensees

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

and international markets.

Federal, state and local governmental entities and

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

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

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

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

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

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

Failure to comply could result in monetary liabilities and other sanctions

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

of operations.

Protecting and defending against intellectual

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

Our ability to compete in

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

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

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

Despite these precautions, existing copyright and trademark

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

It may be possible for unauthorized third parties to copy

and distribute our productions or portions of our productions.

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

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

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

It is an inherent risk in our industry that people

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

If litigation

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

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

Any such litigation could result in substantial

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

We are exposed to investment risk with the

acquisition of an equity interest in Your Family Entertainment AG.

We are exposed to investment risk

with the ownership of an equity interest in Your Family Entertainment AG.

During the year ended December

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

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

We are also exposed

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

31, 2021, we acquired a material equity interest in YFE, a company publicly traded on the Frankfurt Stock Exchange.

With an ownership

stake of 32.5% as of December 31, 2025, we are exposed to the risk of success of the YFE business.

We are also exposed to risk of

adverse reactions to the transaction or changes to business relationships;

competitive responses;

inability to maintain key

personnel and changes in general economic conditions in Germany.

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

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

We operate internationally, which exposes

us to global economic, financial and political risks.

inability to maintain key personnel

and changes in general economic conditions in Germany.

Germany was in a recession for most of 2025 and 2024, largely due to persistent

high inflation and falling household spending.

Continued inflation, volatility or recessionary risks in Germany could adversely affect

YFE’s business, results of operations and stock price.

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

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

For example, the fair value of the investment as of December 31,

2025 decreased by net $9.8 million, as compared to December 31, 2024.

The net decrease is comprised of the net impact of a decrease

in YFE’s stock price, the share sale and exchange transactions completed in the quarter, and the effect of foreign currency remeasurement

from EURO to USD.

The total change in fair value is recorded within Other Income (Expense), net on the Company’s consolidated statements

of operations.

We operate internationally, which

exposes us to global economic, financial and political risks.

We have expanded into international

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

WW and our investment in YFE.

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

Operating in international

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

addition to those we face in the United States.

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

efforts may not be successful.

operations, including as a result of our acquisitions of Wow and Ameba, our launch of Kartoon Channel!

Worldwide and our investment

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

Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic

and political risks in addition to those we face in the United States.

We have limited experience with international operations, and further

international expansion efforts may not be successful.

In addition, we face risks

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

In addition, due to potential

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

than our gross margin for domestic customers.

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

and customer base internationally.

Wow's functional currency

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

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

Fluctuations between

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

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

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

is the Canadian dollar;

therefore their financial results are translated into U.S.

dollars, our reporting currency, upon consolidation

of our financial statements.

We are exposed to more significant currency fluctuation risks as a result of our acquisition of Wow in 2021.

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

dollar, affect the amounts we record

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

Further, each entity conducts

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operating expenses and net income or loss.

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

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

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

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

operating expenses and net income (or loss).

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

A decrease in the fair values of our reporting

units may result in future intangible assets impairments.

A decrease in the fair values of our

reporting units may result in future intangible assets impairments.

When an entity is acquired,

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

RISKS RELATING TO OUR INDEBTEDNESS

We have incurred indebtedness that could

adversely affect our operations and financial condition.

As of December 31, 2024, we

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

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

borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s

tangible and intangible assets, including a combination of federal and provincial tax credits, other government incentives, production

service agreements and license agreements.

As well as those of certain of our subsidiaries and related entities acting as guarantors of

the production facilities.

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

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

In addition, the

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

The production facilities and the margin loan are

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

Our level of debt could have

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

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

acquisitions or other general corporate requirements;

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

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

and other general corporate purposes;

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

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

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

and our industry;

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

increasing our cost of borrowing;

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

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

our debt instruments.

RISKS RELATED TO TAX RULES AND REGULATIONS

Changes in foreign, state and local tax

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

RISKS RELATED TO INTELLECTUAL PROPERTY, LITIGATION

AND CYBERSECURITY

Protecting and defending against intellectual

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

Our ability to compete in

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

We protect our

property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable

companies in specific territories and media for limited durations.

Despite these precautions, existing copyright and trademark laws afford

only limited, or no, practical protection in some jurisdictions, especially jurisdictions outside of the United States.

It may be possible

for unauthorized third parties to copy and distribute our productions or portions of our productions.

In addition, although we own most

of the music and IP included in our products, there are some titles for which the music or other elements are in the public domain and

for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights.

It is an inherent risk

in our industry that people may make ownership or royalty claims with respect to any title already included in our products, whether or

not such claims can be substantiated.

If litigation is necessary in the future to enforce our IP rights, to protect our trade secrets,

to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.

such litigation could result in substantial costs and the resulting diversion of resources could have an adverse effect on our business,

operating results or financial condition.

Failure in our information technology and storage systems

could significantly disrupt the operation of our business.

Our ability to execute our

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

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

human acts and natural disasters.

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

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

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

The techniques used by criminal elements

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

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

If our computer systems

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

of which could harm our business.

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

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

Our internal computer systems, or

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

disruption and cause our business and reputation to suffer.

In the ordinary course of

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

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

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

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

Additionally, outside parties may attempt to induce

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

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

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

to remedy and damage our reputation.

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

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

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

On December 13, 2024, we experienced a cybersecurity

incident involving unauthorized access to one of our management systems.

The findings indicated that the unauthorized access incurred

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

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

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

Further, access to, disclosure of, loss of and

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

Litigation may harm our business or otherwise distract

Substantial, complex or extended

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

For example, lawsuits by licensors, consumers, employees

or stockholders could be very costly and disrupt business.

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

such disputes on terms favorable to us.

RISKS RELATED TO INFLATION, INTEREST RATES,

AND OTHER ADVERSE ECONOMIC CONDITIONS

Changes in the United States, global or regional economic

conditions could adversely affect the profitability of our business.

A decrease in economic activity

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

our revenue and earnings.

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

In addition, an increase

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

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

Further, recent global events

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

to economic downturns, inflation, and increased market volatility.

Military conflicts and wars (such as the ongoing conflicts between

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

events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, trade wars, and supply

chain issues created by tariffs threatened or imposed by the current U.S.

Administration on imports can cause exacerbated volatility and

disruptions to various aspects of the global economy.

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

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

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

our business and operations.

Regulatory requirements or

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

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

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

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

Changes in U.S.

trade policy, including

current and proposed tariffs on foreign-produced content, could adversely impact our business operations, particularly due to our reliance

on animation production services based in Canada and Asia.

government has indicated

its intent to adopt, and in certain cases has implemented, a new approach to trade policy and in some cases to renegotiate, or potentially

terminate, certain existing bilateral or multilateral trade agreements.

It has initiated or is considering the imposition of tariffs on

certain foreign goods.

Changes in U.S.

trade policy could result in one or more U.S.

trading partners adopting responsive trade policies,

making it more difficult or costly for us to conduct our international and domestic operations.

As an example, on May 4, 2025, President

Trump announced an intention to impose tariffs on films made outside of the United States, which he reiterated in September 2025.

our parent company is based in the United States, our primary animation production operations are located in Canada.

The scope and the

extent of the proposed tariffs is not yet finalized and there is a risk that such measures could be extended to include animated content

produced internationally.

Our business operations, financial condition, and results of operations could be significantly affected by such

a measure and the potential expansion of existing tariffs or implementation of new tariffs, trade restrictions, or retaliatory measures

by other countries that could disrupt our established operations.

This in turn could require us to increase prices to our customers, which

may reduce demand, or, if we are unable to increase prices, result in lowering our profit margin on certain services.

We cannot predict future trade

policy or the terms of any renegotiated trade agreements and their impact on our business.

The adoption and expansion of trade restrictions,

the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely

impact demand for our services, our costs, our customers, our suppliers, and the U.S.

economy, which in turn could adversely impact our

business, financial condition, and results of operations.

RISKS RELATED TO REGULATORY MATTERS

Changes in foreign, state and local

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

Original programming requires

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

Changes in, or interpretations of, tax rules

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

Changes in, or interpretations of,

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

We are subject to income taxes

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the market price of our securities to decline.

A shutdown of the U.S.

federal government

may adversely affect our business.

A recurring shutdown of the

federal government may adversely affect our business operations and regulatory compliance.

During such shutdowns, while the SEC’s

EDGAR system remains operational, the unavailability of SEC staff to review filings, issue comments, or declare registration statements

effective may delay our ability to complete public offerings, respond to comment letters, or obtain timely regulatory approvals.

delays could impact our access to capital markets, hinder strategic transactions, and create uncertainty around our disclosure obligations.

Additionally, the lack of interpretive guidance or exemptive relief during a shutdown may increase legal and compliance risks.

be no assurance that any future shutdowns will not materially affect our operations or financial condition.