What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-31 compared with 2025-03-31 · 550 added, 584 removed, 237 unchanged (83% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion

and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our consolidated

financial statements with the perspectives of management.

This should allow the readers of this report to obtain a comprehensive understanding

This management’s

Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our

consolidated financial statements with the perspectives of management.

This should allow the readers of this report to obtain an understanding

of our businesses, strategies, current trends, and future prospects.

It should be noted that the MD&A contains forward-looking statements

that involve risks and uncertainties.

Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements”

immediately preceding Part I for important information to consider when evaluating such statements.

It should be noted that the following MD&A contains forward-looking

statements that involve risks and uncertainties.

Please refer to the section entitled “Cautionary Note Regarding Forward-Looking

Statements” immediately preceding Part I for important information to consider when evaluating such statements.

This section of this Annual

Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.

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 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 ,” “ Octonauts:

Above & Beyond, ”

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 Stan

Lee, Shaq’s Garage, Rainbow Rangers and many more.

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

our platforms.

In addition, we have implemented and are continuing to look at artificial intelligence (“AI”) tools to reduce

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

We believe that our licensing

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

We are looking to take advantage of our incredible

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

We plan to focus on utilizing all of our IP assets

further in 2025 and beyond.

Our media advisory and advertising

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

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.

April 2024 Offering

On April 23, 2024,

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

direct offering of the sale of 3,900,000 shares of our common stock, par value $0.001 per share (the “Common Stock”),

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

investor (the "Investor"), at $1.00 per share of Common Stock and $0.99 per Pre-funded Warrant, for aggregate gross

proceeds of approximately $4,000,000, prior to deducting placement agent fees and other offering expenses.

Additionally, in

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

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

contained in such warrants.

“Winnie-the-Pooh” Project Financing

On June 21, 2024, we announced

the launch of “Winnie-the-Pooh” on the Kartoon Channel through a $30.0 million joint venture (the “JV”) with

Catalyst Venture Partners (“Catalyst”).

The binding term sheet governing the JV stipulates after Catalyst recoups its investment

with 10% premium, the ownership and profit split between the partners is 60% to Kartoon Studios and 40% to Catalyst Venture Partners.

“Winnie-the-Pooh” is based on the designs and stories of one of the most successful brands of all time, A.A.

“Winnie-the-Pooh,” a property that has generated over $80 billion in sales over the last four decades and is estimated

to currently generate $3-$6 billion per year.

Catalyst has agreed to provide the full amount of the production financing with the

plan to include an animated holiday movie, 5 holiday specials and 4 seasons of episodic series.

December 2024 Offering

On December 18, 2024, we closed

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

investor and issued to such investor 4,375,000 shares of common stock, pre-funded common stock purchase warrants to purchase up to 3,519,736

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

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

Each share of common stock and each pre-funded warrant was

issued together with one Series A warrant and one Series B warrant as part of an integrated offering.

The purchase price per share of

common stock, together with accompanying Series A and Series B warrants, was $0.57, while the purchase price per pre-funded warrant was

We incurred a placement agent fee of approximately $389,754 and issued warrants to purchase 1,657,895 shares of common stock to

the placement agent with an exercise price of $0.71 per share.

Following an analysis under applicable accounting guidance, we determined

that the pre-funded warrants and placement agent warrants met the criteria for equity classification, while the Series A and Series B

warrants required classification as liabilities due to settlement provisions requiring shareholder approval.

The liability-classified

warrants will be subsequently measured at fair value, with changes recognized in earnings.

In accordance with applicable accounting standards,

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

of this allocation, we recorded a non-cash loss of $1.0 million.

Executing the transaction was driven by several strategic considerations.

The capital injection strengthened our liquidity position, supporting project development and ongoing operations.

Additionally, while

the warrants resulted in a non-cash accounting loss due to their fair value measurement, they did not impact our cash flows.

our management believes, that the offering was beneficial from a market visibility perspective.

“Andrew The Big BIG Unicorn” Owned IP Project

On August 28, 2024, Mainframe

Studios, our affiliate, announced that it is co-producing Andrew the Big BIG Unicorn, an animated children’s series, in collaboration

with Pirate Size Productions (Australia) and Infinite Studios (Singapore/Indonesia).

The series (40 episodes, seven minutes each) is targeted

at preschool audiences and follows the adventures of a young rhino living as a very big unicorn.

The project is targeted for delivery

in March 2026.

The production is commissioned by ABC (Australia), CBC (Canada), and SRC (Canada), with Kartoon Studios retaining international

distribution, licensing, and merchandising rights.

The series will premiere on ABC Kids and ABC iview in Australia and on CBC Kids, Radio-Canada,

CBC Gem, and ICI TOU.TV in Canada.

The project reflects our ongoing commitment to expanding its global content production footprint and

leveraging strategic partnerships in key international markets.

We are a global content and

brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children.

Our main sources of revenue are derived from animation

production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising

revenues, and merchandising and licensing sales.

Production Services

Animation Production Services:

Our production services business 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

Film and Television Licensing:

We recognize revenue by licensing rights to exploit functional IP (IP that has significant standalone functionality, such as the ability

to be played or aired).

Our content distribution strategy is focused on scaling audience reach and monetization across a network of branded

destinations, including Kartoon Channel!

, Kartoon Channel!

Worldwide , Frederator, and Ameba.

We plan to grow revenue through

expanded licensing activity and increased utilization of owned IP assets such as Rainbow Rangers, Stan Lee brands, Shaq’s Garage ,

and many more.

To support margin expansion, we are actively implementing AI-driven tools designed to reduce operating costs in areas such

as localization and video resolution enhancement.

Advertising Revenue:

receive advertising revenue through our wholly-owned VOD services, Kartoon Channel!

and Ameba, and Frederator’s owned and

operated YouTube channels as well as revenues generated from the operation of Federator’s creator network, Channel Frederator

Additionally, advertising revenue is derived from Kartoon Channel!

branded channels on Free Ad Supported Streaming

Licensing and Royalties

Merchandising and Licensing :

The Company enters into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s

symbolic IP (IP that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic

IP is derived from its association with the entity’s past or ongoing activities, such as a brand or logo).

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 and the launch of the Hundred Acre Wood:

Winnie & Friends property, with a

focus on both digital and physical consumer products, as well as location-based fan experiences.

We intend to expand the use of our broader

IP catalog in licensing programs beginning in 2026 and beyond.

Media Advisory and Advertising Services

Beacon, our specialized media

and marketing agency, provides media advisory and advertising consulting services to clients.

Revenue is recognized when the services

are performed or are paid through a monthly retainer.

Our media advisory and advertising operations are structured to generate recurring

and diversified revenue through a combination of retainer-based engagements and commission-driven media planning and buying.

revenue model affords client flexibility and supports margin optimization through efficient resource utilization.

Beacon has continued

to invest in higher-value service offerings, including influencer-driven marketing programs, data-informed media planning, and customized

campaign development.

These capabilities have increased the scope and duration of client engagements and strengthened customer retention.

As these services scale, we expect to benefit from operating leverage, as incremental revenue can be generated with comparatively limited

increases in fixed costs.

The group continues to build upon its established presence in the toy industry while expanding into adjacent

sectors, including family entertainment and travel.

Recent Developments

October Financing

On October 22, 2025, pursuant

to the terms of the October 2025 Purchase Agreement, we closed a registered direct offering (the “Registered Direct Offering”)

of 3,000,000 shares (the ”October 2025 Shares”) of our common stock, and pre-funded warrants (the “October 2025 Pre-Funded

Warrants”) to purchase up to 6,903,049 shares of common stock to the October 2025 Investor.

In a concurrent private placement (the

“Concurrent Private Placement” and, together with the Registered Direct Offering, the “October Offerings”), pursuant

to the October 2025 Purchase Agreement, we also sold to the October 2025 Investor unregistered warrants (the “October 2025 Common

Warrants”) to purchase up to 9,903,049 shares of common stock (the “October 2025 Common Warrant Shares”), with an exercise

price of $0.738 per share.

Each October 2025 Share and privately placed October 2025 Common Warrant was sold at a combined public offering

price of $0.738, and each October 2025 Pre-Funded Warrant and privately placed October 2025 Common Warrant was sold at a combined public

offering price of $0.737, for aggregate gross proceeds at closing of approximately $7.3 million, prior to deducting placement agent fees

and other offering expenses.

In connection with the October Offerings, we paid to the placement agent a cash fee equal to 7% of the aggregate

gross proceeds from the sale of the securities sold in this offering, plus $75,000 as a reimbursement of certain out-of-pocket expenses.

The placement agent is also entitled to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common

Warrants, if any.

In addition, we issued warrants (the “Placement Agent Warrants”) to purchase 693,213 shares of common stock

to the placement agent and its designees with an exercise price of $0.8118 per share.

Pursuant to the terms of the

October 2025 Purchase Agreement, until January 31, 2026, we agreed that neither we nor any of our subsidiaries would issue (or enter into

any agreement to issue) any shares of common stock or common stock equivalents (as defined in the October 2025 Purchase Agreement) or

file any registration statement or any amendment or supplement thereto, subject to certain limited exceptions, including (i) the prospectus

supplement relating to the registered direct offering, and (ii) the Resale Registration Statement (as defined below).

We further agreed,

subject to limited exceptions, for a period from the date of the October 2025 Purchase Agreement until October 20, 2027, not to issue,

enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents

involving a Variable Rate Transaction (as defined in the October 2025 Purchase Agreement);

provided however that commencing October 20,

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

Pursuant to the October 2025

Purchase Agreement, we agreed to file, as soon as practicable (and in any event within thirty (30) calendar days of the date of the October

2025 Purchase Agreement), a registration statement (the “Resale Registration Statement”) providing for the resale by the October

2025 Investor of the October 2025 Common Warrant Shares.

We filed the Resale Registration Statement on November 19, 2025 and it was declared

effective by the SEC on December 9, 2025.

We agreed to use commercially reasonable efforts to keep the Resale Registration Statement effective

at all times until the October 2025 Investor does not own any October 2025 Common Warrants or October 2025 Common Warrant Shares.

Section 3(a)(10) Accounts Payable Settlement

On August 27, 2025, we entered

into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with Continuation Capital, Inc.

to settle $1.8 million of outstanding accounts payable, in exchange for issuing 3,148,535 shares of common stock.

Under the terms of the

agreement, CCI made payments to our vendors in cash and, in exchange, we issued shares of common stock to CCI.

The settlement was valued

at 1.75 share of common stock per $1.00 of accounts payable, pursuant to the terms of the agreement.

The transaction was approved by a

court after a public hearing on the fairness of the terms and conditions.

The transaction was carried out in stages and as of December 31,

2025, we had completed the arrangement, settling a total of $1.8 million, and issued 3,148,535 shares of common stock.

We recognized a

loss of $0.7 million on the settlement, representing the difference between the carrying value of liabilities extinguished and the fair

value of shares issued, included in Other Income (Expense), Net, on our consolidated statements of operations.

On November 18, 2025, we entered

into a second agreement with CCI to settle an additional $1.0 million of accounts payable under Section 3(a)(10) of the Securities Act,

in exchange for issuing 1,695,072 shares of common stock.

The terms were consistent with the original arrangement.

During the three months

ended December 31, 2025 we settled $0.4 million of accounts payable by issuing 717,712 shares of common stock to CCI.

We recognized

a loss of $0.1 million on the settlement, representing the difference between the carrying value of liabilities extinguished and the fair

value of shares issued, included in Other Income (Expense), Net, on the Company’s consolidated statements of operations.

Results of Operations

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Total Revenue

Production Services

Production services revenue

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are near completion or completed.

The production services revenue for the year ended December 31, 2024 was 33% lower than the production

The production services revenue for the year ended December 31, 2025 was 50% higher than the production

services revenue recognized during the year ended December 31, 2024.

The decrease was primarily due to a lower volume of animation production

services projects in progress during the year ended December 31, 2024 as compared to the prior year period.

The increase was primarily due to several projects commencing toward

the end of 2024 and progressing into more advanced production stages in early 2025, resulting in higher revenue recognized under the percentage-of-completion

method, reflecting a significant portion of the production activities and related costs.

Content Distribution

Revenue related to content

distribution on AVOD and SVOD, including advertising sales for the year ended December 31, 2024, decreased by 18% as compared to

the year ended December 31, 2023.

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

on YouTube of $1.7 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease in

Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period.

the decline in content distribution revenue was partially due to a decrease in Wow’s IP production revenue of $0.3 million, as there

were no new IP projects delivered during the year ended December 31, 2024.

distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including

advertising sales for the year ended December 31, 2025, decreased by 17% as compared to the year ended December 31, 2024.

was primarily due to a decrease in content revenue from Frederator’s creator network on YouTube of $2.2 million for the year ended

December 31, 2025 as compared to the year ended December 31, 2024.

The decrease in Frederator’s creator network revenue

from YouTube was due to overall less viewership as compared to the prior year period.

In addition, reduced worldwide content distribution

activities resulted in a $0.1 million decrease attributable to that division.

The decline in content distribution revenue was partially

offset by an increase in Wow’s IP related revenue of $0.7 million, as there were episodes of a new IP project delivered during the

year ended December 31, 2025.

Licensing and Royalties

Revenue related to our licensing

and royalties for the year ended December 31, 2024 decreased by 54% as compared to the year ended December 31, 2023, primarily

due to lower amounts earned from our license deals related to our consumer products agreements and music licensing agreements, which decreased

by $0.3 million.

and royalties for the year ended December 31, 2025 increased by 30% as compared to the year ended December 31, 2024, primarily

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

and certain new executed licensing agreements related to Stan Lee Universe, LLC assets.

Media Advisory and Advertising Services

Revenue generated by media

advisory and advertising services for the year ended December 31, 2025 decreased by 14% as compared to the year ended December 31,

2023, primarily due to lower net renewal activity and fewer media purchases from clients during the year ended December 31, 2024.

2024, primarily due to lower net renewal activity and media purchases from clients, which were impacted by the new U.S.

tariffs legislative

Year Ended December 31,

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General and Administrative

Impairment of Property and Equipment

Impairment of Intangible Assets

Impairment of Goodwill

Total Expenses

Marketing and Sales

The 45% decrease in marketing

and sales expenses for the year ended December 31, 2025, as compared to the year ended December 31, 2024, was primarily due

to cost saving efforts during the year ended December 31, 2024 and the recognition of marketing expenses related to stock issued

for services of $1.2 million for our Shaq’s Garage series in the year ended December 31, 2023, which were not incurred during the

current year period.

to changes in the Company’s corporate awareness initiatives, which resulted in reduced spending on advertising campaigns.

Direct Operating Costs

Direct operating costs during

the year ended December 31, 2025 consisted primarily of salaries and related expenses for the animation production services employees

of Wow and Frederator.

Creator network channel expenses, licensing and production of content costs, such as participation expenses related

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

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

Operating Costs.

The decrease was primarily due to a $7.4 million reduction in Wow’s animation production services costs for the

year ended December 31, 2024, as compared to the prior year.

The decrease was mainly from a reduction in salary costs, net of tax

credits, as a result of a reduction in headcount on a lower volume of service production projects in the current year, as compared to

the year ended December 31, 2023.

The decrease was also due to a reduction in film amortization expense recognized during the year

ended December 31, 2024 of $7.3 million as compared to the year ended December 31, 2023 as a result of less film and television

production and no impairment recognized during the current year.

In addition, costs associated with Frederator’s creator network

and licensing and royalties for the year ended December 31, 2024 decreased by $2.4 million compared to the prior year period.

decrease was mainly due to a reduction in payments to our creator network members and aligned with the decline in Frederator creator network

Creator network channel expenses, licensing and production of content costs, such as participation expenses related to profit

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

had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of direct operating

The 16% increase was primarily due to higher salary costs by $5.6 million due to higher headcount included in Production Services

related to new projects that progressed into more advanced production stages in the current year compared to the same period of the prior

In addition, an increase of $0.2 million in operating costs is attributable to higher participation expenses arising from existing

contractual agreements due to an increase in royalties and licensing revenue.

The increase in direct operating costs was partially offset

by a $2.1 million decrease of costs associated with Frederator’s creator network and licensing and royalties for the year ended

December 31, 2025 compared to the year ended December 31, 2024.

The decrease was mainly due to a reduction in payments to our

creator network members in relation to the decline in Frederator creator network revenue.

General and Administrative

The $1.2 million decrease

in general and administrative expenses for the year ended December 31, 2025 as compared to the year ended December 31, 2024

was driven by a decrease of $2.0 million in stock-based compensation expense and a decrease of $1.2 million in depreciation and amortization

mainly due to impairment related asset reductions in prior period.

Additionally, we observed a reduction of $6.8 million in overhead costs

primarily due to cost-saving initiatives.

was driven by a decrease of $0.8 million in salaries and wages, a decrease of $0.5 million in depreciation expense which reflected completion

of certain equipment lease terms, a decrease of $0.5 million in professional fees reflecting lower legal expenses including legal insurance

reimbursements and reduced use of external consulting services, a decrease of $0.3 million in share-based compensation expense due to

awards that were fully vested and recognized in the prior year, and a decrease of $0.2 million in rent expense due to currency translation

of our foreign office rent expense and lease reassignment agreement.

The decrease was partially offset by an increase of $0.8 million

in certain expenses primarily related to higher development expenses, and an additional charge of $0.3 million in bad debt expense for

accounts receivable deemed unrecoverable.

Impairment Charge

During the year ended December 31,

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intangible assets.

Based on the results of our impairment testing, we concluded that the carrying amounts of our intangible assets remained

recoverable, and no impairment charge was required.

During the year ended December 31, 2023, we reassessed our nonfinancial assets,

including our definite-lived intangible assets, our indefinite-lived intangible assets and our remaining goodwill for impairment.

result, we recorded an impairment charge to our property and equipment of $0.1 million, our definite-lived intangible assets of $2.8 million,

our indefinite-lived intangible assets of $1.7 million and our goodwill recorded within the Content Production and Distribution reporting

unit of $33.5 million in our consolidated statement of operations.

Pursuant to ASC 350-30, General Intangibles Other than Goodwil l, we evaluate our intangible assets periodically

to determine whether events or changes in circumstances indicate that their carrying values may not be recoverable.

Based on this analysis,

we recorded an impairment charge of $0.8 million, recognized as an impairment of intangible assets within operating expenses in the consolidated

statement of operations.

The impairment related to the Frederator and Wow Tradenames, which are indefinite-lived intangible assets, due

to a reduction in the estimated present value of their expected future cash flows.

No impairment charges were

recognized in the prior year ended December 31, 2024.

Other Income (Expense), net

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Interest Expense (a)

Warrant Expense (b)

Gain on Revaluation of Warrants (c)

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

Gain (Loss) on Revaluation of Warrants (b)

Loss on Revaluation of Equity Investment in YFE (c)

Loss on Partial Disposal of Equity Investment and Share Exchange (d)

Loss on Transaction (e)

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Gain (Loss) on Foreign Exchange (g)

Interest Income (h)

Loss on Early Lease Termination (i)

Loss on Debt Settlement (h)

Interest Income (i)

Finance Lease Interest Expense (j)

Other Income (Expense), net

Interest Expense during the year ended

December 31, 2024 primarily consisted of $0.1 million of interest incurred on the margin loan and $0.7 million of interest incurred

on production facilities and bank indebtedness.

Interest Expense during the year ended December 31, 2023 primarily consisted

of $1.5 million of interest incurred on the margin loan and $1.5 million of interest incurred on production facilities and bank indebtedness.

During the year ended December 31, 2023 we recorded a warrants expense of $12.7 million related to the fair value of Exchange Warrants that were issued during the year

ended December 31, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants.

The Gain on Revaluation of Warrants recorded

during the year ended December 31, 2024 is related to the remeasurement of 89,286 outstanding liability warrants

expiring in March 2025 The Gain on Revaluation of Warrants during the year ended December 31, 2023 is primarily related to the

changes in fair value of the Exchange Warrants of $10.4 million recorded prior to the warrants being reclassified to

stockholder’s equity.

The decrease in fair value was due to decreases in market price.

As accounted for using the fair value option, the

Loss on Revaluation of Equity Investment in YFE of $1.6 million recorded in the year ended December 31, 2024, is a result of

the decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period.

This excludes

the impact of foreign currency recorded separately.

The Company allocated the total December 2024

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

result of this allocation, the Company recorded a non-cash loss of $1.0 million

The Realized Loss on Marketable Securities Investments

of $0.6 million recorded in the year ended December 31, 2024, reflects the loss that will not be recovered from the investments

due to selling securities and issuers’ prepayments of principals on certain mortgage-backed securities.

The Loss on Foreign Exchange during the year ended

December 31, 2024 primarily related to the revaluation of the YFE investment, resulting in a loss of $2.2 million due to the

euro strengthening against the U.S.

dollar as compared to year ended December 31, 2023 in which a gain of $0.5 million was recognized.

Interest Income during the year ended December 31,

2024 primarily consisted of interest income of $0.1 million, net of premium amortization expense, recorded for the investments in

marketable securities.

Interest Income during the year ended December 31, 2023 primarily consisted of interest income of $0.5 million,

net of premium amortization expense, recorded for the investments in marketable securities.

The Loss on Early Lease Termination is due to early

termination of the Lyndhurst, NJ office lease, effective August 1, 2023.

The loss includes fees of $0.2 million and the write-down

of assets and liabilities resulting in an additional $0.1 million loss.

The Finance Lease Interest Expense represents the

interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

During the year ended December 31, 2024, we recorded

$1.2 million in other income related to Employee Retention Tax Credit (“ERTC”) Receivable, $0.6 million late fees

contract interest income and $0.1 million domain sale income.

During the year ended December 31, 2023, we wrote-off a liability in

the amount of $0.9 million that had legally expired during the fourth quarter of 2023 under the statute of limitations on debt collection,

resulting in an increase in other income.

Gain on Lease Modification (k)

Other Expense, net

Interest expense during the year ended December 31, 2025 primarily consisted of $0.1 million of interest incurred on the factoring liability and $0.5 million of interest incurred on production facilities.

Interest expense during the year ended December 31, 2024 primarily consisted of $0.1 million of interest incurred on the margin loan and $0.7 million of interest incurred on production facilities and bank indebtedness.

The loss on revaluation of warrants during the year ended December 31, 2025 consists of a $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 issued in December 2024.

These warrants were classified as a liability in the quarter ended March 31, 2025 and a change in their fair value resulted in a recorded gain due to a decrease of the expiration period.

In the quarter ended June 2025, these warrants were reclassified to equity.

During the year ended December 31, 2024, the recorded gain on revaluation of warrants was related to the remeasurement of 89,286 outstanding warrants classified as liability, which expired in March 2025.

As the investment in YFE is accounted for under the fair value option, the Company recognized a loss on revaluation of its 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.

The loss reflected decreases in YFE’s stock price during the current reporting periods compared to the respective prior reporting periods.

The impact of foreign currency translation is excluded and presented separately.

The $1.8 million loss consists of a $1.5 million loss recognized on the disposal of 1,500,000 shares of YFE completed on July 14, 2025, and a $0.3 million loss recognized in connection with the share exchange executed on September 25, 2025.

The Company allocated the total December 2024 offering transaction proceeds among the instruments issued, recognizing the Series A and Series B warrants as a liability at their full fair value.

As a result of this allocation, the Company recorded a non-cash loss of $1.0 million.

The realized loss on marketable securities investments of $36,674 recorded in the year ended December 31, 2025, reflects the loss on the sale of marketable securities prior to maturity date.

The realized loss on marketable securities investments of $0.6 million recorded in the year ended December 31, 2024, reflected 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 year ended December 31, 2025 primarily related to the remeasurement of the YFE investment, resulting in a gain of $1.8 million, due to the depreciation of the U.S.

dollar against the Euro relative to prior periods.

The remaining balance of $0.5 million represents the remeasurement of foreign currency transactions of the Company’s non-U.S.

subsidiary that remained outstanding as of the consolidated balance sheet date.

The loss on Foreign Exchange during the year ended December 31, 2024 primarily related to the revaluation of the YFE investment, resulting in a loss of $1.0 million due to the Euro depreciating against the U.S.

dollar as compared to prior period and a loss of $1.1 million due to the remeasurement of foreign currency transactions of the Company’s non-U.S.

The loss on debt settlement recorded during the year ended December 31, 2025 includes a loss of $0.9 million related to the loan settlement agreement with YFE finalized in April 2025 and a loss of $0.8 million arising from the Section 3(a)(10) transaction completed during the year.

Interest income during the year ended December 31, 2025 primarily consisted of income from investments in marketable securities, net of premium amortization expense, as well as other transactions, including interest income related to an Employee Retention Tax Credit (“ERTC”) receivable and interest income related to the shareholder loan (se Note 20 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K).

Each of these sources was individually immaterial.

Interest income during the year ended December 31, 2024 primarily consisted of interest income of $0.1 million, net of premium amortization expense, recorded for the investments in marketable securities, and $0.1 million related to the shareholder loan.

The finance lease interest expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

On April 1, 2025, Beacon 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 year ended December 31, 2025.

During the year ended December 31, 2025, a net loss of $0.1 million was recognized in connection with the reversal of previously accrued other income related to 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 approximately $0.1 million of other income, primarily consisting of late fees from select clients on payment plans and credit card rewards.

The difference between these amounts is reflected in the net balance presented in thousands.

During the year ended December 31, 2024, we recorded $1.2 million in other income related to the ERTC receivable, $0.6 million late fees contract interest income, $0.1 million domain sale income, and $0.1 million income related to credit card rewards and other rebates.

Liquidity and Capital Resources

We have a history of operating

losses and incurred net losses in each fiscal quarter since our inception.

To date, we have funded our operations from cash flows we have

generated from our operations, proceeds from the sale of our securities and loans.

For the years ended December 31, 2025 and December 31,

2024, we reported net losses of $24.7 million and $20.9 million, respectively.

We reported net cash used in operating activities of $11.4

million, and cash used in operating activities of $3.5 million for the years ended December 31, 2025 and December 31, 2024,

respectively.

As of December 31, 2025, we had an accumulated deficit of $763.8 million and total stockholders’ equity of $27.5

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.

As of December 31, 2025,

we had cash of $8.4 million, which increased by $4.3 million as compared to December 31, 2023.

The increase was primarily due to

cash provided by investing activities of $10.0 million, the effect of exchange rate of $0.9 million, offset by cash used in operating

activities of $3.5 million and cash used in financing activities of $3.1 million.

The cash used in financing activities was primarily

due to repayment of the production facilities and bank indebtedness $8.6 million, and payments on finance leases of $1.7 million, offset

by the proceeds received from the securities purchase agreement of $7.5 million.

The cash provided by investing activities was primarily

due to sales and maturities of marketable securities of $10.0 million.

During the year ended December 31,

2024, 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.

we had cash of $2.9 million, which decreased by $5.4 million as compared to December 31, 2024.

The decrease was primarily due to

cash used in operating activities of $11.4 million, cash used in investing activities of $1.6 million, and the effect of exchange rate

of $0.6 million, offset by cash provided by financing activities of $8.1 million.

The cash used in investing activities was primarily

due to investment of financing proceeds in marketable securities of $6.7 million, and purchase of property and equipment of $0.2 million,

offset by the proceeds received from sales of marketable securities of $4.8 million and proceeds of $0.4 million from repayment of a loan

from related party.

The cash provided by financing activities was primarily due to the net proceeds of $6.5 million, from the October

Offerings, proceeds of $0.8 million received from sale of equity investment, drawdowns, net of repayments and debt issuance costs, of

$1.6 million from production facilities, and proceeds of $0.5 million received from our ERTC factoring transaction, offset by the net

margin loan repayment of $0.9 million and finance lease payments of $0.4 million.

During the year ended December 31,

2025, we derived a significant amount of funds from the sale of our equity securities and loans.

On April 23, 2024, we closed the April

2024 Offering selling 3,900,000 shares of our common stock, par value $0.001 per share (the “Common Stock”), and pre-funded

warrants to purchase up to 100,000 shares of Common Stock (the “Pre-funded Warrants”), at $1.00 per share of Common Stock

and $0.99 per Pre-funded Warrant, for aggregate gross proceeds of approximately $4,000,000, prior to deducting placement agent fees and

other offering expenses.

On December 18, 2024, we closed the December 2024 Offering, raising aggregate gross proceeds of approximately

$4,496,480 and issuing 4,375,000 shares of Common Stock, pre-funded common stock purchase warrants to purchase up to 3,519,736 shares

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

purchase warrants to purchase up to 7,894,736 shares of Common Stock.

of December 31, 2024, we held available-for-sale marketable securities with a fair value of $2.0 million, a decrease of $9.9 million

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

The available-for-sale

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

of December 31, 2024 and December 31, 2023, our margin loan balance was $0.9 million and $0.8 million, respectively.

the year ended December 31, 2024, we borrowed an additional $11.0 million from our investment margin account and repaid $10.9 million

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

The borrowed amounts were primarily used for operational

On October 22, 2025 we closed the October

Offerings, selling 3,000,000 shares of our common stock, the October 2025 Pre-Funded Warrants to purchase up to 6,903,049 shares of common

stock, and the October 2025 Common Warrants to purchase up to 9,903,049 shares of common stock for aggregate gross proceeds at closing

of approximately $7.3 million, prior to deducting placement agent fees and other offering expenses.

Net proceeds from the October Offerings

were $6.5 million.

As of December 31, 2025,

we held available-for-sale marketable securities with a fair value of $4.0 million, an increase of

$2 million as compared to December 31, 2024 due to the investment of the net

proceeds from the October Offerings during the year ended December 31, 2025.

The available-for-sale securities consist principally

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

of December 31, 2025, we had no outstanding margin loan balance.

As of December 31, 2024 the margin loan balance was $0.9 million.

During the year ended December 31, 2025, we borrowed an additional $5.9 million from our investment margin account and repaid $6.8

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

The borrowed amounts were primarily used for

operational costs.

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

The weighted average interest rates

were 0.46% and 0.98% on average margin loan

balances of $ 1.02 million and $27.4 million as

of December 31, 2024 and December 31, 2023, respectively.

We incurred interest expense on the loan of $0.1 million and

$1.5 million during the years ended December 31, 2024 and December 31, 2023, respectively.

The investment margin account borrowings

do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call

at any time, effecting a payable on demand loan.

Due to the call option, the margin loan is recorded as a current liability on our consolidated

balance sheets.

In the second and third quarter

of 2024, we were not in compliance with financial covenant calculations related to the revolving demand facility and equipment lease line.

As a result of these financial covenant violations, we and the lender agreed to an early repayment of the equipment leases under the equipment

lease line and the revolving demand facility in the fourth quarter of 2024.

As of December 31, 2024, we are no longer subject to

financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease agreements

that were repaid in full and terminated in the fourth quarter of 2024.

Over the next 12 months, the

Company expects 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 the Company's

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

will help improve the Company's 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.

The weighted average

interest rates were 0.20% and 0.46% on average

margin loan balances of $0.2 million and $1.0 million as of December 31, 2025 and December 31, 2024, respectively.

interest expense on the loan of $8,392 and $0.1 million during the years ended December 31,

2025 and December 31, 2024, respectively.

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

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

the call option, the margin loan is recorded as a current liability on our consolidated balance sheets.

During the year ended December 31,

2025, we met our immediate cash requirements through existing cash balances, including cash raised from the October Offerings.

Additionally,

we issued equity and equity-linked instruments to certain companies and individuals as payment for services and compensation.

Going Concern

Based on our current expected

level of operating expenditures and the cash and cash equivalents on hand at December 31, 2025, management concluded 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 going forward.

During the year ended December 31, 2025, we were successful in raising net proceeds of $6.5 million in connection

with the October Offerings, which closed on October 22, 2025, strengthening our cash position.

Despite this, macroeconomic conditions

continue to present challenges in the animation and advertising industries, primarily due to ongoing government tariffs and intensified

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.

to sell securities registered under 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.

Additionally, the October 2025 Purchase Agreement includes certain limitations on our ability to raise working capital through certain

types of transactions for a period of time.

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

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

Working Capital

As of December 31, 2025,

we had current assets of $34.7 million, including cash of $7.9 million, restricted cash of $0.5 million and marketable securities of $2.0

million, and our current liabilities were $33.4 million.

We had working capital of $1.2 million as of December 31, 2024 as compared

to working capital of $10.0 million as of December 31, 2023.

These balances exclude the related party note receivable of $1.4 million,

which has been reclassified from current to noncurrent assets.

The decrease of $8.8 million

was due to a decrease of $21.0 million in current assets and a decrease of $12.2 million

in current liabilities compared to prior year.

A decrease in current assets is primarily driven by a decrease of $9.9 million in marketable

securities investments, a decrease of $10.4 million in production tax credit receivable position,

a decrease of $6.1 million in accounts receivable, offset by an increase in cash of

$4.3 million and an increase of $1.3 million in other receivable related to ERTC A decrease in current liabilities is primarily driven

by a decrease of $6.1 million in production facilities, a decrease by $4.9 million in accounts payable, a decrease of $2.9 million in

bank indebtedness, partially offset by an increase of $2.9 million in deferred revenue.

we had current assets of $35.8 million, including cash of $2.9 million and marketable securities of $4.0 million, and our current liabilities

were $33.5 million.

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

as of December 31, 2024.

The increase of $1.1 million was

due to an increase of $1.1 million in current assets compared to the prior year.

The increase in current assets is primarily driven

by an increase of $6.5 million in production tax credit receivable position due to recognized credits

for the ongoing projects, an increase of $2.0 million in marketable securities investments due to the investment of a portion of

the financing proceeds in securities, an increase of $0.2 million in prepaid expense balance, and an increase of $0.2 million in other

receivables related to ERTC, offset by a decrease in cash of $5.4 million, and a decrease

of $2.4 million in accounts receivable related to the timing of contractual billing milestones in production projects.

Current liabilities

as of December 31, 2025 were unchanged compared to the prior year, reflecting offsetting changes related to an increase of $2.6 million

in production facilities due to advance stages of production projects, and an increase of $0.3 million in accrued expenses, offset by

a decrease of $1.6 million in deferred revenue related to revenue recognized under the percentage-of-completion method on production projects,

a decrease of $0.9 million in margin loan balance due to repayment of the balance, and a decrease of $0.4 million in participation payable.

Comparison of Cash Flows for the Years Ended December 31,

2025 and December 31, 2024

Our total cash for the years

ended December 31, 2024 and December 31, 2023 was $7.9 million and $4.1 million, respectively.

Our total cash and restricted

cash as of the years ended December 31, 2025 and December 31, 2024 was $2.9 million and $8.4 million, respectively.

Year Ended December 31,

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Net Cash Used in Operating Activities

Net Cash Provided by Investing Activities

Net Cash Used in Financing Activities

Net Cash (Used in) Provided by Investing Activities

Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash

Increase (Decrease) in Cash

(Decrease) Increase in Cash

Change in Operating Activities

2 unchanged sentences

2025, as compared to net noncash expenses of $9.9 million for the year ended December 31, 2024.

The majority of the decrease of $49.4

million was primarily due to the absence of prior impairment expenses of our long-lived assets, intangible assets and goodwill of $45.0

million recorded during the year ended December 31, 2023 and decrease of fair value of the warrant liability by $12.7 million compared

to the prior year.

In addition, the Company observed a decrease in realized loss on marketable securities by $3.9 million due to the lower

sales of our marketable securities prior to their maturity date, a decrease in our stock-based compensation of $2.0 million due to the

absence of accelerations in vesting that occurred in the prior year, a decrease in the amortization of Right-of-Use Assets of $1.0 million

due to prior year impairments, a decrease of $1.2 million in marketing expenses paid by stock that only occurred in the prior year and

a decrease of $0.9 million in write-offs of disputed accounts payable that also occurred only in the prior year.

Additionally, the Company

observed a decrease in the amortization of film and television costs of $0.4 million.

The decrease is offset by an increase of $10.3 million

related to revaluation of the warrants, an increase of $1.0 million related to loss on financing transaction, an increase of $1.0 million

related to the deferred tax balance and an increase related to the change of $5.5 million in the total fair value of the equity investment

in YFE which consist of market valuation and FX impact.

Items necessary to reconcile

from net loss to cash provided by operating activities included operating asset and liability activities of $7.6 million in the year ended

December 31, 2024 and $1.8 million as of December 31, 2023.

The net decrease of $5.8 million in operating asset and liability

activities to cash provided by operating activities was primarily due to a decrease of $6.0 million in operating assets activity.

was primarily due to an increase of $8.5 million in net receipts of outstanding accounts receivable due to completion of multiple projects,

and an increase in net receipts tax credits during the current year of $1.1 million related to completed projects, partially offset by

a decrease in prepaids balance of $0.5 million, a decrease of $1.2 million representing the outstanding balance of the ERTC receivable

as of December 31, 2024, and a reduction in other receivables of $1.1 million.

A increase in operating liabilities activity was $0.3

million, primarily due to a decrease in accounts payable of $10.2 million, offset by an increase of $9.0 million in deferred revenue,

representing cash received in advance for projects not yet recognized.

The increase of $10.3 million in

noncash expenses compared to prior year was primarily due to an increase of $5.4 million in loss of the total fair value of the equity

investment in YFE which consist of market valuation and foreign exchange impact, a loss of $1.8 million on debt settlement related to

repayment agreement of the loan from related party and accounts payable settlement discount, a loss of $1.5 million on partial disposal

of the equity investment in YFE, an impairment of intangible assets of $0.8 million, an increase in warrants revaluation loss of $0.3

million due to Series A and Series B warrants fair value adjustments, and a loss of $0.3 million related to YFE for the TOON share exchange

Additionally, we recorded a noncash reduction of $2.2 million in accounts payable due to corresponding stock issuances to

These movements were offset by the absence of a $1.0 million loss on a financing transaction that closed in the prior year, a decrease

of $0.6 million in realized loss on marketable securities due to the fewer sales of our marketable securities prior to their maturity

date, a decrease of $0.3 million in stock-based compensation expense due to completed amortization of the portion of certain equity awards,

and a gain of $0.1 million related to the deferred tax provision.

Change in cash used in operating

activities also includes fluctuations in working capital, including movements in operating assets and liabilities.

Working capital adjustments

reflect timing differences between the recognition of revenues and expenses and the related cash receipts or payments.

Operating asset

and liability activities resulted in a decrease of $6.9 million in cash in the year ended December 31, 2025 and an increase of $7.6

million in cash as of December 31, 2024.

The net decrease of $14.5 million in operating asset and liability cashflows was primarily

due to an increase of $14.4 million in operating assets activity, which resulted in a higher use of cash.

This was primarily due to lower

net receipts tax credits during the current year by $9.3 million, a decrease of $3.8 million in net receipts of outstanding accounts receivable

primarily due to contractual milestones in invoicing production projects, higher capitalized costs related to ongoing productions by $2.1

million, and an increase of $0.4 million in prepaid balance representing cash paid for future services, offset by an absence of a $1.2

million ERTC receivable recorded in the prior year.

The remaining variance of approximately $0.1 million was attributable to a net decrease

in operating liabilities which had unfavorable impact on operating cash flows.

This was primarily due to a decrease of $5.0 million in

deferred revenue balance representing cash received in advance for projects not yet recognized, and a decrease $1.4 million in accrued

production costs including timing of Mainframe production costs accruals and production advance from external partner received in prior

year, offset by a $5.0 million favorable movement in accounts payable primarily reflecting the settlement of a significant portion of

payables in stock and larger vendor payments recorded in the prior year, favorable movements in accrued salaries of $0.7 million due to

timing of salaries, and an increase of $0.6 million in accrued expenses representing additional costs recognized during the period that

were outstanding as of December 31, 2025.

Change in Investing Activities

The decrease of $63.8 million

in cash provided by investing activities to $10.0 million at December 31, 2024 from cash provided by investing of $73.8 million at

December 31, 2023 was primarily due to a decrease in proceeds from the sales and maturities of marketable securities of $62.6 million

during the year ended December 31, 2024.

The net cash used in investing

activities decreased by $11.6 million, from cash provided by investing activities of $10.0 million in the year ended December 31,

2024, to cash used by investing activities of $1.6 million in the year ended December 31, 2025.

The decrease was primarily due to

investment of the portions of the financing proceeds from the October Offerings and prior year offering in the marketable securities totaling

to $6.7 million and a decrease in proceeds received from the sales and maturities of marketable securities of $5.2 million during the

year ended December 31, 2025, offset by an increase in proceeds received from the repayment of loan from related party of $0.3 million.

Change in Financing Activities

The decrease in cash used

in financing activities of $57.7 million was primarily due to a decrease in repayments of our margin loan and production facilities of

$73.2 million, and increase in proceeds from securities purchase agreement of $7.5 million;

partially offset by less proceeds drawn from

the margin loan and production facilities of $14.2 million, an absence of warrant exchange proceeds of $5.3 million received in prior

year, and an increase in repayments of bank indebtedness for $3.9 million.

The increase in cash used

in financing activities of $11.3 million was primarily due to an increase of $10.3 million in production facilities drawdowns, net of

repayments and issuance costs, a decrease of $1.3 million in finance lease obligations due to concluding several lease commitments in

prior year, proceeds of $0.8 million received from the partial disposal of our equity investment in YFE, and proceeds of $0.5 million

related to the ERTC factoring transaction, offset by a reduction in cash of $1.0 million related to margin loan balance representing repayments

net borrowings, and a decrease in cash proceeds received from financing transactions compared to prior year by $0.6 million.

Material Cash Requirements

5 unchanged sentences

$31.1 million as of December 31, 2025, of which about $20.9 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 $0.9 million and production facilities of $9.3 million.

The balance that could be due

within one year includes production facilities of $11.9 million.

We plan to utilize our liquidity

2 unchanged sentences

we had $0.3 million in commitments for capital expenditures, related to equipment leases.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Our consolidated financial

statements are prepared in conformity with U.S.

generally accepted accounting principles, or GAAP.

This requires our management to make

estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures.

following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions

generally accepted accounting principles (“GAAP”).

This requires our management

to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures.

The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions

made by management.

1 unchanged sentence

For additional

information about these policies, see Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report.

we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time.

results may differ significantly from these estimates under different assumptions, judgments or conditions.

information about these policies, see Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form

Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the

Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Variable Interest Entities

4 unchanged sentences

to continue operations.

We are considered the primary beneficiary and are required to consolidate the VIE.

In evaluating whether we have

the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which

the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities

that significantly determine the entity’s economic performance as compared to other economic interest holders.

This evaluation requires

consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise

of professional judgment in deciding which decision-making rights are most important.

In determining whether we

have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all

of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements).

This evaluation considers all relevant factors of the entity’s design, including the entity’s capital structure, contractual

rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other

contractual arrangements that have the potential to be economically significant.

The evaluation of each of these factors in reaching a

conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future

transactions may result in us consolidating its collaborators or partners.

Foreign Currency Forward Contracts

Our wholly-owned subsidiary,

Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar.

Wow uses foreign currency

derivatives, specifically foreign currency forward contracts (“FX forwards”), to manage its exposure to fluctuations in the

CAD-USD exchange rates.

FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency

on a specified date.

The FX forwards are typically settled in CAD for their fair value at or close to their settlement date.

currently designate any of the FX forwards under hedge accounting and therefore reflect changes in fair value as unrealized gains or losses

immediately in earnings as part of the revenue generated from the transactions hedged.

We do not hold or use these instruments for speculative

or trading purposes.

Per FASB ASC 815-10-45, Derivatives

and Hedging , we have elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative

Therefore, we present the asset or liability position of the FX Forwards that are with the same counterparty net as either

an asset or liability in our consolidated balance sheets.

For each entity, we evaluate

our ownership interest and contractual arrangements to determine whether we should consolidate the entity or account for our interest

as an investment at inception and upon reconsideration events.

This estimate is critical because it determines whether an entity is consolidated

into our consolidated financial statements, which has significant impact on our reported results.

As part of this evaluation, we determined,

that the SLU entity is a VIE.

Management evaluated key considerations through a qualitative and quantitative analysis in determining whether

an entity is a VIE including whether (i) the entity has sufficient equity to finance its activities without additional financial support

from other parties, (ii) the ability or inability to make significant decisions about the entity’s operations, and (iii) the proportionality

of voting rights of investors relative to their obligations to absorb the expected losses (or receive the expected returns) of the entity.

We used judgment in determining if we are the primary beneficiary and are thus required to consolidate the entity.

In making this determination,

we evaluated whether we or another party involved with the VIE, (i) has the power to direct the activities of the VIE that most significantly

impact the VIE’s economic performance and (ii) has the obligation to absorb losses of or receive benefits from the VIE that could

be significant to the VIE.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its

economic performance, we considered the purpose for which the VIE was created, the importance of each of the activities in which it is

engaged and our decision-making role, if any, in those activities that significantly affect the entity’s economic performance as

compared to other economic interest holders.

This evaluation required consideration of all facts and circumstances relevant to decision-making

that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights

are most important.

We concluded, that we are considered the primary beneficiary and are required to consolidate the VIE.

We continuously assess whether

we are the primary beneficiary of a VIE as changes to existing relationships or future transactions may result in us consolidating its

collaborators or partners.

Our assessment is sensitive to changes in contractual arrangements such as decision-making authority or funding

Changes in these factors could result in a different consolidation conclusion and materially affect our financial statements.

We evaluated reconsideration events during the year ended December 31, 2025 and concluded there were no changes to our consolidation

Tax Credits Receivable

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and provincial agencies.

Changes in administrative policies by the CRA or subsequent review of eligibility documentation may impact the

collectability of these estimates.

We continuously review the results of these audits to determine if any circumstances arise that in

management’s judgment would result in a previously recognized amount to be considered no longer collectible.

The amounts recognized are sensitive to changes in assumptions regarding eligibility, qualifying expenditures,

and interpretations applied by the CRA and provincial agencies.

Changes in administrative policies by the CRA or subsequent review of

eligibility documentation may impact the collectability of these estimates.

We continuously review the results of these audits to determine

if any circumstances arise that in management’s judgment would result in a previously recognized amount to be considered no longer

We classify the majority of

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As of December 31, 2025

2024 and December 31, 2023, $12.7 million a nd $20.7 million in tax credit

receivables related to Wow’s film and television productions were recorded, net of $0.6 million and $0.5 million,

respectively, recorded as an allowance for credit loss.

As of December 31, 2024, $2.4

million , in tax credits receivable net of $0.4 million allowance for credit loss was presented as non-current asset.

Company did not have any non-current tax credits receivable as of December 31, 2023.

Employee Retention Tax Credit (ERTC)

In March 2020, the Coronavirus

Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the

Employee Retention Tax Credit.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended

the availability of the ERTC.

The Company accounted for the ERTC as a gain contingency in accordance with ASC 450-30 - Gain Contingencies .

Under this standard, the ERTC was recognized only after the contingency was resolved and deemed realizable.

During the year ended

December 31, 2024, we recognized an ER TC benefit totaling $1.2 million .

This amount is included in Other Income (Expense) in the consolidated statements of operations.

As of December 31, 2024 we had

not received any refunds related to the ERTC and we had an outstanding receivable of $1.2 million w hich

is recorded in other current assets in the consolidated balance sheet.

Subsequent to December 31, 2024 we received $0.2 million of

ERTC refunds from the IRS, updating the outstanding receivable to $1.0 million.

The Company did not record any ERTC benefits in the

year ended December 31, 2023.

and December 31, 2024, $16.8 million a nd $12.7

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

million and $0.6 million , respectively, recorded as an allowance for credit loss.

We did not have any non-current tax credits receivable as of December 31, 2025.

December 31, 2024, $2.4 million , in tax credits receivable net of $0.4

million allowance for credit loss was presented as non-current asset.

Film and Television Costs

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Advances or contributions received from third parties to assist in development are deducted from these

Productions in Progress

Capitalized development costs

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Capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic

benefit to the Company.

Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially

all of the activities necessary to prepare the film or television program for its use intended by management are complete.

Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities

necessary to prepare the film or television program for its use intended by management are complete.

Completed Productions

Completed productions are

carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired

distribution rights, less accumulated amortization and accumulated impairment losses.

Due to the inherent uncertainties

involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and

are likely to differ to some extent in the future from actual results.

In addition, in the normal course of business, some titles are

more successful or less successful than anticipated.

Management reviews the ultimate revenue and cost estimates on a title-by-title basis,

when an event or change in circumstances indicates that the fair value of the production may be less than its unamortized cost.

result in a change in the rate of amortization of film costs and participations and/or a write-down of all or a portion of the unamortized

costs of the film or television production to its estimated fair value.

An impairment charge is recorded in the amount by which the unamortized

costs exceed the estimated fair value.

These write-downs are included in amortization expense within Direct Operating Expenses on the

consolidated statements of operations.

carried at the cost of proprietary film and television programs which have been produced by us or to which we have acquired distribution

rights, less accumulated amortization and accumulated impairment losses.

The amounts capitalized and

the related amortization, and accrued participation costs are sensitive to changes in key assumptions such as ultimate revenues per production,

production costs, audience reception, market conditions, and contractual obligations for participations.

Changes in these factors could

materially affect amortization and potential impairment charges.

Due to the inherent uncertainties involved in making such estimates of

ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent

in the future from actual results.

In addition, in the normal course of business, some titles are more successful or less successful than

Management reviews the ultimate revenue and cost estimates on a title-by-title basis, when an event or change in circumstances

indicates that the fair value of the production may be less than its unamortized cost.

This may result in a change in the rate of amortization

of film costs and participations and/or a write-down of all or a portion of the unamortized costs of the film or television production

to its estimated fair value.

An impairment charge is recorded in the amount by which the unamortized costs exceed the estimated fair value.

These write-downs are included in amortization expense within Direct Operating Expenses on the consolidated statements of operations.

During the year ended December 31, 2025, key assumptions remained consistent with those applied in the prior year.

All capitalized costs that

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Additionally, for episodic series,

from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing content.

the initial release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and

periodic alterations to existing products are expensed as incurred.

from time to time, we develop additional content, improved animation and bonus songs/features for its existing content.

After the initial

release of the episodic series, the costs of significant improvement to existing products are capitalized while routine and periodic alterations

to existing products are expensed as incurred.

Intangible Assets

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date may lead to an outcome where impairment charges would be required in future periods.

Specifically, results may vary from the Company’s

forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions

may differ in reflection of prevailing market conditions.

An impairment loss could have a material and adverse impact on the Company's

consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows.

Further, continued adverse

market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting

units have fallen below their carrying values.

We measure issued debt at

amortized cost, net of any debt premiums, discounts, and debt issuance costs.

These amounts are amortized over the life of the debt using

the effective interest rate method, ensuring that interest expense reflects the underlying borrowing costs.

In cases where the straight-line

method results in an immaterial difference compared to the effective interest rate method, we may apply the straight-line method.

Equity-Linked Instruments

We analyze freestanding equity-linked

instruments including warrants to conclude whether the instrument meets the definition of the derivative and whether it is considered

indexed to our own stock.

If the instrument is not considered indexed to our stock, it is classified as an asset or liability recorded

at fair value.

If the instrument is considered indexed to our stock, we analyze additional equity classification requirements per ASC

815-40, Contracts in Entity’s Own Equity .

When the requirements are met, the instrument is recorded as part of our equity,

initially measured based on its relative fair value with no subsequent re-measurement.

When the equity classification requirements are

not met, the instrument is recorded as an asset or liability and is measured at fair value with subsequent changes in fair value recorded

When required, we also consider

the bifurcation guidance for embedded derivatives per ASC 815-15, Embedded Derivatives .

Results may vary from our forecasts and such

variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in

reflection of prevailing market conditions.

An impairment loss could have a material and adverse impact on our consolidated balance sheets,

consolidated statements of operations, and consolidated statements of cash flows.

During the year ended December 31, 2025, we did

not make any material changes to the key assumptions underlying the estimates.

During the year ended December 31,

2025, changes in the Company’s financial projections triggered a reassessment of both its definite- and indefinite-lived intangible

assets for potential impairment.

Based on this analysis, the Company recorded an impairment charge of $0.8 million, recognized as Impairment

of Intangible Assets within Operating Expenses in the consolidated statement of operations.

The impairment related to the Frederator and

Wow Tradenames, which are indefinite-lived intangible assets, due to a reduction in the estimated present value of their expected future

Revenue Recognition

We account for revenue according

to standard FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”).

to FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue is measured based

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services in a contract.

Judgment is required in determining the timing of whether the transfer of control occurs at a point in time or

over time and is discussed below.

The application of ASC 606 requires us to make significant judgments, that materially affect the amount and timing

of revenue recognized, including estimates of total expected costs for production service contracts, stand-alone selling prices, determinations

of whether we act as principal or agent in customer arrangements, and determinations of the timing of whether the transfer of control

occurs at a point in time or over time.

We evaluate each contract to identify separate performance obligations as a contract with a customer

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stand-alone selling price using an adjusted market assessment approach.

Our main sources of revenue are derived from animation production

services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues,

and merchandising and licensing sales.

We have identified the following

material and distinct performance obligations:

· Providing animation production services

· Licensing rights to exploit Functional Intellectual Property (“functional IP” is defined as

intellectual property that has significant standalone functionality, such as the ability to be played or aired.

Functional IP derives

a substantial portion of its utility from its significant standalone functionality)

· Licensing rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual

property that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is

derived from its association with the entity’s past or ongoing activities, including its ordinary business activities, such as the

Company’s licensing and merchandising programs associated with its animated content)

· Providing media and advertising services to clients

· Fixed and variable fee advertising and subscription-based revenue generated from the Kartoon Studios Kartoon

Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its creator network, Channel

Frederator Network, on YouTube

· Options to renew or extend a contract at fixed terms (while this performance obligation is not significant

for the Company’s current contracts, it could become significant in the future)

· Options on future seasons of content at fixed terms (while this performance obligation is not significant

for the Company’s current contracts, it could become significant in the future)

Production Services

Our main sources of revenue

are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television

programs, advertising revenues, and merchandising and licensing sales.

During the year ended December 31, 2025, there were no material

changes to the revenue recognition policies, methods, or significant judgments applied under ASC 606.

Animation Production Services

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Each production is made to an individual customer’s

specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date,

and for any prepaid commitments made, plus the agreed contractual mark-up.

Revenue and the associated costs of such contracts are recognized

over time on a percentage of completion basis - i.e., as the project is being produced, prior to it being delivered to the customer.

percentage-of-completion is calculated based upon the proportion of costs incurred cumulatively to total expected costs.

Changes in revenue

recognized as a result of adjustments to total expected costs are recognized in profit or loss on a prospective basis.

Invoices related

to these projects are issued based on the achievement of milestones during the project or other contractual terms.

The difference between

contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue.

When revenue exceeds

milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheet.

Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration.

When the outcome of an arrangement cannot be estimated

reliably, revenue is recognized only to the extent of the expenses incurred that are recoverable.

specifications and if the contract is terminated by the customer, we are entitled to be reimbursed for any costs incurred to date, and

for any prepaid commitments made, plus the agreed contractual mark-up.

Revenue from animation production

services is sensitive to changes in estimates of total expected production costs, project timelines, and the achievement of contractual

Because revenue is recognized over time using a percentage-of-completion method, changes in cost estimates or production delays

may result in changes to the amount and timing of revenue recognized in a given period.

The percentage-of-completion is calculated based

upon the proportion of costs incurred cumulatively to total expected costs.

Changes in revenue recognized as a result of adjustments to

total expected costs are recognized in profit or loss on a prospective basis.

Invoices related to these projects are issued based on the

achievement of milestones during the project or other contractual terms.

The difference between contractual payments received and revenue

recognized is recorded as deferred revenue when receipts exceed revenue.

When revenue exceeds milestone billings, we recognize this difference

as unbilled accounts receivable within Other Receivable on our consolidated balance sheet.

Unbilled accounts receivables are transferred

to accounts receivable when we have an unconditional right to consideration.

When the outcome of an arrangement cannot be estimated reliably,

revenue is recognized only to the extent of the expenses incurred that are recoverable.

Production service revenues represent a significant

portion of our operating revenues.

These estimates are subject to uncertainty due to the complexity and length of production cycles, and

unforeseen production challenges, which may cause actual results to differ from management’s estimates.

Content Distribution

Film and Television Licensing

We recognize revenue related

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is substantially the same, depending on the nature of the license.

Invoices related to these projects are issued based

on the achievement of milestones during the project or other contractual terms.

The difference between contractual payments received and

revenue recognized is recorded as deferred revenue when receipts exceed revenue.

When revenue exceeds milestone billings, we recognize

this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheets.

Unbilled accounts receivables

are transferred to accounts receivable when we have an unconditional right to consideration.

Advertising revenues

Invoices related to these projects are issued based on the achievement

of milestones during the project or other contractual terms.

The difference between contractual payments received and revenue recognized

is recorded as deferred revenue when receipts exceed revenue.

We sell advertising and subscriptions

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Upon the acquisition of Wow

we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation

of its creator network, Channel Frederator Network, on YouTube.

Revenue is recognized when services are provided in accordance

with our agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable.

are usually collectable within 30 days.

in 2021, we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from

the operation of its creator network, Channel Frederator Network, on YouTube.

Revenue is recognized when services are provided

in accordance with our agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable.

Receivables are usually collectable within 30 days.

Revenue generated from content

distribution and creator network is not significantly dependent on management estimates and assumptions, as revenue is recognized based

on reports provided by customers and platform owners reflecting actual advertising impressions, views, and related metrics for the period.

However, reported revenue is sensitive to changes in audience engagement, content performance, advertising demand, and third-party platform

While these factors may result in variability in revenue from period to period, such variability reflects changes in actual

performance rather than changes in accounting assumptions or estimates.

Revenue is also subject to uncertainty arising from reliance on

third-party reporting and platform-specific monetization practices.

Licensing and Royalties

Merchandising and licensing

We enter into merchandising

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Invoices are issued based on the contractual terms of an agreement and are usually payable within 30-45 days.

Product Sales

We recognize revenue related

to product sales (e.g., apparel and collectibles) when the Company completes its performance obligation, which is when the goods are transferred

to the buyer.

Media Advisory and

Advertising Services

Media and Advertising Services

recognize revenue related to product sales (e.g., apparel and collectibles) when we complete our performance obligation, which is when

the goods are transferred to the buyer.

Royalty revenue is not significantly affected by management estimates, as amounts are recognized

based on sales reports received from licensees and contractual royalty rates.

Accordingly, changes in royalty revenue primarily reflect

changes in actual consumer demand for licensed products rather than changes in accounting assumptions.

However, reported royalty revenue

is subject to uncertainty related to the timing, accuracy, and completeness of licensee sales reports, as well as collectability considerations.

In addition, royalty revenue may fluctuate due to factors such as retail performance, product mix, seasonality, and macroeconomic conditions

affecting consumer spending, all of which are outside of our direct control.

Media Advisory and Advertising

We provide media and advertising

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Revenue is recognized when the services are performed or as paid through the monthly retainer.

purchase advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized

purchase advertising for clients on linear and across digital and streaming platforms and receive a commission, the commissions are recognized

as revenue in the month the advertising is displayed.

Gross Versus Net Revenue

We evaluate individual arrangements

with third parties to determine whether we act as principal or agent under the terms.

To the extent that we act as the principal in an

arrangement, revenues are reported on a gross basis, resulting in revenues and expenses being classified in their respective financial

statement line items.

To the extent that we act as the agent in an arrangement, revenues are reported on a net basis, resulting in revenues

being presented net of any expenses incurred in providing agency services.

Determining whether we act as principal or agent is based on

an evaluation of which party has substantial risks and rewards of ownership under the terms of an arrangement.

The most significant factors

that we consider include identification of the primary obligor, as well as which party has credit risk, general and inventory risk and

the latitude or ability in establishing prices.

Share-Based Compensation

We issue stock-based awards

to employees and non-employees that are generally in the form of stock options or restricted stock units (“RSUs”).

compensation cost is recorded for all options and awards of non-vested stock based on the grant-date fair value of the award.

The fair value of stock options

is estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make assumptions with respect

to the fair value on the grant date.

The assumptions are as follows:

(i) the expected term assumption of the award is based on our historical

exercise and post-vesting behavior (ii) the expected volatility assumption is based on historical and implied volatilities of our common

stock calculated based on a period of time generally commensurate with the expected term of the award;

(iii) the risk-free interest rates

are based on the implied yield available on U.S.

treasury zero-coupon issues with an equivalent expected term;

(iv) and the expected dividend

yields of our stock are based on history and expectations of future dividends payable.

In the case of RSUs the fair value is calculated

based on our underlying common stock on the date of grant.

We recognize compensation

expense over the requisite service period ratably, using the graded attribution method, which is in-substance, recognizing multiple awards

based on the vesting schedule.

We have elected to account for forfeitures when they occur.

We issue authorized shares available for issuance

under our 2020 Incentive Plan upon employees’ exercise of their stock options.

Marketing contracts specify applicable fees or rates, and marketing spend is driven

by customer-authorized campaign activity.

Revenue and expenses are recognized based on actual services performed, with minimal reliance

on management estimates.

While revenue amounts are based on contractual rates and actual media spend supported by third-party reports,

management judgment is required in evaluating contract terms under ASC 606, determining principal versus agent presentation, and ensuring

appropriate cutoff and completeness of revenue recognition.

Deferred income tax assets

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impact our deferred tax liabilities and future income tax expense.

Fair value of Financial Instruments

Fair value is defined as the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date.

ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements)

and the lowest priority to unobservable inputs (level 3 measurements).

These tiers include:

· Level 1 - Observable inputs such as quoted prices for identical instruments in active markets

· Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable

such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that

are not active

· Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity

to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant

value drivers are unobservable

The carrying amounts of cash,

restricted cash, receivables, payables, accrued liabilities, bank indebtedness and the margin loan approximate fair value due to the short-term

nature of the instruments.

We use the fair values of the liability-classified derivative warrants revalued at the end of each reporting

period determined using the BSM option pricing model (Level 2) with standard valuation inputs.

Refer to Note 16 of the consolidated financial

statements included elsewhere in this Annual Report on Form 10-K for additional details.

The investment in YFE is also revalued at the

end of each reporting period based on the trading price of YFE (Level 2).

Refer to Note 4 of consolidated the financial statements included

elsewhere in this Annual Report on Form 10-K for additional details.

Upon the acquisition of Wow, foreign currency forward contracts that

are not traded in active markets were assumed.

These are fair valued using observable forward exchange rates at the measurement dates

and interest rates corresponding to the maturity of the contracts (Level 2).

The fair values of the AFS

securities are generally based on quoted market prices, where available.

These fair values are obtained primarily from third-party pricing

services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and

Level 2 securities primarily include corporate securities, securities from states, municipalities and political subdivisions,

mortgage-backed securities, United States Government securities, foreign government securities, and certain other asset-backed securities.

For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or a variety of valuation

techniques, incorporating inputs that are currently observable in the markets for similar securities.

Recent Accounting Pronouncements

For a description of recent

accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 to the

financial statements in Item 8 of this Annual Report.

accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 of the

Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Off Balance Sheet Arrangements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis