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Item 9A. Controls and Procedures

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This section is long enough that the comparison stopped early. What follows is partial, and the remainder is not necessarily unchanged.

11 unchanged sentences

Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end

of the period covered by this report, our disclosure controls and procedures ensuring that information that we are required to disclose

in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified

in the SEC rules and forms, were ineffective, due to a material weakness related to Information Technology General Control area.

of the period covered by this report, our disclosure controls and procedures, as defined in Rules 13a-15e and 15d-15(e), were effective

at the reasonable assurance level.

Management’s Annual Report on Internal

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or disposition of our assets that could have a material effect on the financial statements

Because of our inherent limitations,

our internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be

effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that

the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the

effectiveness of our internal control over financial reporting as of December 31, 2024.

In making this assessment, management used the

criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated

Framework (2013 Framework).

Because of its inherent limitations,

internal control over financial reporting may not prevent or detect errors or misstatements in our financial statements.

Therefore, even

those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of

changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation

of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer),

has concluded that, as of December 31, 2024, based on those criteria, our internal controls over financial reporting are ineffective,

due to a material weakness related to Information Technology General Control area.

A material weakness is a deficiency,

or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material

misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our internal controls over

financial reporting included a process deficiency which is observed in many small companies with a small number of accounting and financial

reporting staff:

· Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or

Our management believes the

financial statements included in this Form 10-K fairly present, in all material respects, our financial condition, results of operations

and cash flows as of and for the periods presented in accordance with GAAP.

Changes in Internal

Control over Financial Reporting

As disclosed in our 2023 Annual

Report for the year ended December 31, 2023, based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded

as of December 31, 2023 that our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f), promulgated under the

Exchange Act were not effective at the reasonable assurance level due to material weaknesses in our internal control over financial reporting.

Specifically, these weaknesses

were identified in the following areas:

· Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or

· Lack of specialized experts related to income tax areas;

· Inappropriate application of accounting standards related to warrant modifications.

In response to the identified

material weaknesses, management has taken comprehensive actions to strengthen its internal controls and has been and continues to implement

measures designed to ensure that control deficiencies contributing to the material weakness are remediated.

Our plans for remediation

included, but were not limited to, the efforts summarized below, which have been implemented:

· Enhanced procedures for formal documented review and approval of journal entries;

· Reorganized the accounting team members to ensure proper segregation of duties;

· Implemented core financial reporting and financial close software systems;

· Performed risk assessment procedures and improved the documentation of internal processes and controls;

· Improved review and documentation over complex financial transactions;

· Implemented additional procedures over assessment of cybersecurity and information technology general controls;

· Increase the extent of oversight and verification checks included in operation of user access controls and processes;

· Continue to enhance review over financial reporting, financial operations, internal controls including segregation of duties;

as improve tax analysis and fair value estimates.

The Company remains committed to improving internal

controls and ongoing enhancements to our financial reporting processes.

Remediation of

a Material weakness in Internal Control over Financial Reporting

We recognize the importance

of the control environment as it sets the overall tone for the Company and serves as the foundation for all other components of internal

Accordingly, we have taken significant steps to enhance our internal control over financial reporting and remediate previously

identified material weaknesses.

As of December 31, 2024, we

have successfully remediated the material weakness related to the income tax area through the engagement of third party tax expertise,

implementing formalized controls and documentation processes over income tax accounting and reporting.

In addition, the material weakness

related to the accounting for complex and non-routine transactions has been remediated through the enhanced technical review procedures

and the involvement of external advisors for significant transactions.

Other remediation efforts, that have been implemented include controls

over segregation of duties (with the ITGC exception noted below) through the use of dedicated systems for period close, accounts payable

and reporting and quarterly review procedures.

As of December 31, 2024 a

material weakness related to our information technology general controls (ITGC) remains.

However, the management has discussed this matter

and developed a remediation plan including transitioning some of the administrative responsibilities to a third-party service provider.

Given, that the plan has not yet been fully implemented, the control remains ineffective as of December 31, 2024.

Beginning in the second quarter

of 2024 and through the remainder of the 2024 fiscal year, all but one of our previously identified material weaknesses were remediated,

with the exception of the ITGC matter noted above.

We remain committed to completing the final phase of our remediation plan and strengthening

our overall control environment.

of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting

as of December 31, 2025.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations

of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework).

Based on the assessment using

this framework, our management concluded that, as of December 31, 2025, our internal control over financial reporting was effective.

Changes in Internal Control Over Financial Reporting

There was no change in our

internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended

December 31, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations over Internal Controls

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Other Information

(a) Disclosure in Lieu

of Current Report on Form 8-K

Ratification of Equity Awards

On March 30, 2026, the Board

adopted, pursuant to Section 78.0296 of the Nevada Revised Statutes (“NRS Section 78.0296”), resolutions ratifying the issuance

of certain restricted stock unit awards (the “Ratification”).

Notice of such Ratification to the Company’s stockholders

of record, as required by NRS Section 78.0296 is attached to this Annual Report on Form 10-K as Exhibit 99.1.

Amendment to Amended and

Restated 2020 Incentive Plan

On March 30, 2026, the Board

adopted an amendment (the “2020 Plan Amendment”) to the Amended and Restated 2020 Incentive Plan which provides that the Board,

as well as the Committee, may, in its discretion, delegate authority to one or more officers of the Company with respect to the granting

of awards to other individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act, provided that

any such delegation shall include a limitation as to the maximum number of shares of common stock with respect to which awards may be

granted during the period of the delegation.

A copy of the 2020 Plan Amendment is attached as an exhibit to this Annual Report on Form

(b) Rule 10b5-1 Trading

During the quarter ended December

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Directors, Executive Officers and Corporate Governance

Information required by this

item is incorporated by reference to our Proxy Statement.

Executive Officers and Directors

The following table sets forth

the names, ages, and positions of our executive officers and directors as of March 31, 2026.

There are no arrangements or understandings

between any director, executive officer and any other person pursuant to which any director or executive officer was or is to be selected

as a director or executive officer of the Company, as applicable.

Chief Executive Officer and Chairman of the Board of Directors

Chief Financial Officer

Chief Operating Officer, General Counsel and Corporate Secretary

Joseph “Gray” Davis

Margaret Loesch

Anthony Thomopoulos

Cynthia Turner-Graham

Jeffrey Schlesinger

Andy Heyward, Chief Executive Officer and Chairman of the Board

Heyward has served as

the Company’s Chief Executive Officer since November 2013 and Chairman of the Company’s Board of Directors since December

Heyward co-founded DIC Animation City in 1983 and served as its Chief Executive Officer until its sale in 1993 to Capital Cities/

ABC, Inc., which was eventually bought by The Walt Disney Company in 1995.

Heyward ran the company while it was owned by The Walt

Disney Company until 2000 when Mr.

Heyward purchased DIC Entertainment L.P.

and DIC Productions L.P., corporate successors to the DIC

Animation City business, with the assistance of Bain Capital and served as the Chairman and Chief Executive Officer of their acquiring

company DIC Entertainment Corporation, until he took the company public on the AIM.

He sold the company in 2008.

Heyward co-founded

A Squared Entertainment LLC in 2009 and has served as its Co-President since inception.

Heyward earned a Bachelor of Arts degree in

Philosophy from UCLA and is a member of the Producers Guild of America, the National Academy of Television Arts and the Paley Center (formerly

the Museum of Television and Radio).

Heyward gave the Commencement address in 2011 for the UCLA College of Humanities and was awarded

the 2002 UCLA Alumni Association’s Professional Achievement Award.

He has received multiple Emmys and other awards for Children’s

Entertainment.

He serves on the Board of Directors of the Cedars Sinai Medical Center.

Heyward has produced over 5,000 half hour episodes

of award-winning entertainment, among them Inspector Gadget;

The Real Ghostbusters;

Strawberry Shortcake;

Alvin and the Chipmunks;

Hello Kitty’s Furry Tale Theater;

The Super Mario Brothers Super Show;

The Adventures of Sonic the Hedgehog;

Sabrina The Animated

Captain Planet and the Planeteers;

Liberty’s Kids, and many others.

Heyward was chosen as a director because of his

extensive experience in children’s entertainment and as co-founder of A Squared Entertainment.

Heyward was chosen as a director because of

his extensive experience in children’s entertainment and as co-founder of A Squared Entertainment.

Brian Parisi, Chief Financial Officer

Parisi joined the Company

as its Chief Financial Officer during September 2023.

Parisi brings over 30 years of experience across the entertainment, media, and

high-tech industries, specializing in finance, accounting, mergers and acquisitions, corporate strategy, and business development.

joining Kartoon Studios, starting in 2019 he served as the Chief Financial Officer at Break the Floor Productions, an entertainment production

In this role, he notably prepared the company for sale, successfully completing two separate sale transactions with private equity

Previously, from 2017 to 2019, Mr.

Parisi served as the Chief Financial Officer at the NFL Hall of Fame Village, where he oversaw

a wide range of financial activities including raising capital from numerous public and private sources, managing construction budgets,

assisting the company with its IPO, financial reporting, and cash management for the newly designed entertainment complex in Canton, Ohio.

In addition, he served as a finance executive at Live Nation Entertainment from 2009 to 2016, including his most recent role as the Head

of Finance for the Festivals Division at the company where he was responsible for managing all financial, strategic, and treasury functions

for Electronic Dance Music festivals in multiple countries with more than 1.3 million fans annually.

Parisi has also held leadership

positions at Warner Bros.

Entertainment and NBC Universal.

Parisi is a CPA and holds a B.S.

in Accounting

from Purdue University, Daniel School of Business, and an M.B.A.

from the University of Southern California, Marshall School of Business.

He was recently awarded the 2024 Public Company CFO of the year by the Los Angeles Business Journal.

Michael Jaffa , Chief Operating Officer,

General Counsel and Corporate Secretary

Jaffa was promoted to

Chief Operating Officer, General Counsel and Corporate Secretary of the Company on December 7, 2020, prior to which he served as the General

Counsel and Corporate Secretary of the Company since April 2018.

From January 2017 through April 2018, Mr.

Jaffa served as Thoughtful

Media Group’s (TMG) General Counsel and Global Head of Business Affairs.

TMG is a multichannel network focused on Asian markets.

Jaffa oversaw all of TMG’s legal matters, established the framework for TMG’s continued growth in international

markets, including a franchise plan, the formation of a regional headquarters in Southeast Asia and assisted with M&A transactions.

From September 2013 through December 2016, Mr.

Jaffa worked as the Head of Business Affairs for DreamWorks Animation Television, and before

that served in a similar role at Hasbro Studios from December 2009 through September 2013.

Jaffa has over 20 years of experience handling

licensing, production, merchandising, complex international transactions and employment issues for large and small entertainment companies

and technology startups.

Joseph “Gray” Davis, Director

Davis has served as a

director of the Company since December 2013.

Davis served as the 37th governor of California from 1998 until 2003.

Davis currently

serves as “Of Counsel” in the Los Angeles, California office of Loeb & Loeb LLP and has served in such role since 2004.

Davis has served on the board of directors of DIC Entertainment and is a member of the bipartisan Think Long Committee, a Senior Fellow

at the UCLA School of Public Affairs and Co-Chair of the Southern California Leadership Counsel.

Davis received his undergraduate

degree from Stanford University and received his Juris Doctorate from Columbia Law School.

Davis served as lieutenant governor of

California from 1995-1998, California State Controller from 1987-1995 and California State Assemblyman from 1982-1986.

Davis was chosen as a

director of the Company based on his knowledge of corporate governance.

Jeffrey Schlesinger, Director

Schlesinger has served

as a director of the Company since October 2025.

In January 2022, Mr.

Schlesinger founded Former Bros.

Media LLC, a company that provides

strategic advisory services to global media companies.

Prior to that, from September 1989 to August 2020, Mr.

Schlesinger worked for Warner

Worldwide Television Distribution, where he served in various executive roles, including President of Warner Bros.

from May 2013

to August 2020.

He brings more than three decades of operational, strategic, financial, and deal-making expertise, having built Warner

Bros.’ worldwide television business into a division spanning more than 220 territories and thousands of content partnerships.

his leadership, Warner Bros.

generated recurring revenue in syndication, licensing, and streaming from some of the most valuable television

properties of all time, including Friends, The Big Bang Theory, Two and a Half Men, The West Wing, and Game of Thrones,

as well as directing the international expansion of Warner Bros.

Animation, managing the world’s largest animation library of over

10,000 episodes, featuring Looney Tunes, Hanna-Barbera, Merrie Melodies, MGM Animation, as well as countless iconic properties including

Scooby-Doo, The Flintstones, Justice League , among many others.

Beyond the distribution of television series, Mr.

Schlesinger oversaw

the global rollout and monetization of the WB new releases and library feature films to all linear and non-linear outlets worldwide, including

the Batman, Harry Potter , and The Lord of the Rings franchises.

Schlesinger graduated from the film school at New York

University in 1977.

Schlesinger was chosen as a director based

on his three decades of operational, strategic, financial, and sales expertise.

Margaret Loesch, Director

Loesch has served as a

Director of the Company since March 2015.

Ms Loesch previously held the positions of Executive Chairman of the Kartoon Channel!

2020 till December 31, 2022 and Executive Chairman of the Toon Media Networks from December 2016 until December 31, 2022.

From 2009 through

Loesch, served as Chief Executive Officer and President of The Hub Network, a cable channel for children and families, including

animated features.

The Company has, in the past, provided The Hub Network with certain children’s programming.

From 2003 through

Loesch served as Co-Chief Executive Officer of The Hatchery, a family entertainment and consumer product company.

From 1998 through

Loesch served as Chief Executive Officer of the Hallmark Channel, a family related cable channel.

From 1990 through 1997 Ms.

Loesch served as the Chief Executive Officer of Fox Kids Network, a children’s programming block and from 1984 through 1990 served

as the Chief Executive Officer of Marvel Productions, a television and film studio subsidiary of Marvel Entertainment Group.

obtained her Bachelor of Science from the University of Southern Mississippi.

Loesch was chosen to be

a director based on her 40 years of experience at the helm of major children and family programming and consumer product channels.

Lynne Segall, Director

Segall has served as a

Director of the Company since December 2013.

Segall works as Publisher for Ankler Media, a role she has held since January 2026, where

she guides sales and revenue strategy, including for direct advertising, live events, podcasts, video and its subscription newsletter

From September 2020 to January 2026, she served as Chief Revenue Officer of TheWrap News.

Prior to that, from June 2011 to September

Segall served as the Senior Vice President and Group Publisher of The Hollywood Reporter and Billboard;

from August 2010 to

June 2011, Ms.

Segall served as the Senior Vice President of Deadline Hollywood;

and from June 2006 to May 2010, Ms.

Segall served as

the Vice President of Entertainment, Fashion & Luxury advertising at the Los Angeles Times.

Segall received the Women

of Achievement Award from The Hollywood Chamber of Commerce and the Women in Excellence Award from the Century City Chamber of Commerce.

Segall was recognized by the National Association of Women with its Excellence in Media Award.

Segall received a Bachelor

of Arts in Advertising and Marketing from Endicott College.

Segall was chosen to be a director based on

her expertise in the entertainment industry.

Anthony Thomopoulos, Director

Thomopoulos has served

as a Director of the Company since February 2014.

Thomopoulos is a veteran entertainment executive with a distinguished career spanning

broadcast, film, and television.

Thomopoulos previously held executive positions in ABC, where he rose through the ranks to become

President of the Broadcast Group, overseeing all network divisions including News and Sports, and he greenlit films such as Rain Man

and Child’s Play .

Thomopoulos served as the Chairman of United Artist Pictures from 1986 to 1989.

Thomopoulos formed

Thomopoulos Pictures, an independent production company of both motion pictures and television programs, in 1989, and has served as its

Chief Executive Officer since 1989.

From 1991 to 1995, Mr.

Thomopoulos served as the President of Amblin Television, a division of Amblin

Entertainment, and he served as the President of International Family Entertainment, Inc.

from 1995 to 1997.

During this time, he drove

major programming successes including NBC’s ER and The Family Channel’s ratings growth.

From June 2001 to January 2004, Mr.

Thomopoulos served as the Chairman and Chief Executive Officer of Media Arts Group, a NYSE listed company, where he led a successful turnaround

and privatization.

Thomopoulos also co-founded Camp Axios for underserved youth, and served as a state commissioner of the California

Service Corps.

under Governor Schwarzenegger from 2005 to 2008.

Thomopoulos is also a founding partner of Morning Light Productions.

Since he founded it in 2008, Mr.

Thomopoulos has operated Thomopoulos Productions and has served as a consultant to BKSems, USA, a digital

signage company.

Thomopoulos is an advisor and a member of the National Hellenic Society and holds a degree in Foreign Service from

Georgetown University and sat on its Board of Directors from 1978 to 1988.

Thomopoulos is deeply involved in philanthropic efforts

in Los Angeles.

Thomopoulos was chosen

as a director of the Company based on his entertainment industry experience.

Cynthia Turner-Graham, Director

Turner-Graham has served

as a Director of the Company since June 2021.

Turner-Graham is a board-certified psychiatrist, Distinguished Life Fellow of the American

Psychiatric Association, and a member of the American College of Psychiatry who brings almost 40 years of experience in the healthcare

industry as a practicing psychiatrist serving the needs of children, adolescents, adults and families.

She has also served as healthcare

administrator, having held several administrative positions in Tennessee, Maryland and Washington, D.C.

Since 1988, Dr.

Turner-Graham

has served as a practicing psychiatrist in private and public outpatient settings, retiring from clinical practice in March of 2024.

the relationship between mental health, spiritual health and quality of relationships, she has combined these interests to promote emotional

literacy among professional and lay audiences.

As founding President of The Company ForSoundMinds, her focus has been to develop educational

workshop experiences and lectures for the purpose of improving relationships.

From February 2014 until November 2019, she served as Medical

Director for Inner City Family Services in Washington, DC in addition to running a private practice.

Among her accomplishments, Dr.

Turner-Graham

is a past president of the Suburban Maryland Psychiatric Society, a Director of the Washington Psychiatric Society and is the immediate

past president of Black Psychiatrists of America, Inc.

She has previously served as Clinical Assistant Professor of Psychiatry at both

Vanderbilt University and Howard University Schools of Medicine and currently is Adjunct Clinical Professor at Morehouse School of Medicine,

Department of Psychiatry in Atlanta, Georgia where she now resides.

Turner-Graham was chosen

as a director of the Company based on her career as a distinguished psychiatrist and her expertise with children.

Directors’ Term of Office

Directors hold office until

the next annual meeting of shareholders and until a successor is duly elected and qualified or until his or her earlier retirement, resignation

Board Committees

The following table sets forth

the four standing committees of our Board and the current members of each committee:

Nominating Committee

Educational Committee

Joseph “Gray” Davis

Margaret Loesch (1)

Lynne Segall (1) (2)

Anthony Thomopoulos (2) (3)

Cynthia Turner-Graham (1)

Jeffrey Schlesinger (2) (3)

__________________

(1) Effective October 22, 2025, Margaret Loesch was elected as Chair of the Nominating Committee, replacing

Lynne Segall.

Lynne Segall was elected as a member of the Nominating Committee, replacing Joseph “Gray” Davis and Cynthia

Turner-Graham.

(2) Effective October 22, 2025, Jeffrey Schlesinger was elected as Chair of the Compensation Committee, replacing

Lynne Segall, and Anthony Thomopoulos was elected as a member of the Compensation Committee, replacing Margaret Loesch.

(3) Effective October 22, 2025, Anthony Thomopoulos was elected as Chair of the Audit Committee, replacing

Henry Sicignano III, who resigned from the Board of Directors on December 10, 2025.

Effective October 22, 2025, Jeffrey Schlesinger was

elected as a member of the Audit Committee, replacing Lynne Segall.

To assist in carrying out

its duties, the Board of Directors has delegated certain authority to an Audit Committee, a Compensation Committee, a Nominating Committee,

and an Educational Committee as the functions of each are described below.

Audit Committee

Davis, Thomopoulos

and Schlesinger serve on our Audit Committee.

Our Audit Committee’s main function is to oversee our accounting and financial reporting

processes, internal systems of control, independent auditor relationships and the audits of our financial statements.

The Audit Committee’s

responsibilities include:

• selecting, hiring, and compensating our independent auditors;

• evaluating the qualifications, independence and performance of our independent auditors;

• overseeing and monitoring the integrity of our financial statements and our compliance with legal and

regulatory requirements as they relate to financial statements or accounting matters;

• approving the audit and non-audit services to be performed by our independent auditor;

• reviewing with the independent auditor the design, implementation, adequacy and effectiveness of our internal

controls and our critical accounting policies;

• preparing the report that the SEC requires in our annual proxy statement.

The Board has adopted an Audit

Committee charter, and the Audit Committee reviews and reassesses the adequacy of the charter on an annual basis.

The Board has determined

that (i) each director who served as a member of the Audit Committee during 2025 met, and (ii) each director who currently serves as a

member of the Audit Committee meets, the NYSE American’s financial literacy requirements and is independent under applicable SEC

and NYSE American rules, and the Board has further determined that Mr.

Thomopoulos is an “audit committee financial expert”

as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC.

A copy of the Audit Committee’s

written charter is publicly available on our website at www.kartoonstudios.com .

Compensation Committee

Schlesinger and Thomopoulos

serve on the Compensation Committee and the Board has determined that (i) each director who served as a member of the Compensation Committee

during 2025 were, and (ii) each director who currently serves as a member of the Compensation Committee is, independent under the applicable

NYSE American rules.

Our Compensation Committee’s main functions are assisting our Board in discharging its responsibilities relating

to the compensation of outside directors, the Chief Executive Officer and other executive officers, as well as administering any equity

incentive plans we may adopt.

The Compensation Committee’s responsibilities include the following:

• reviewing and recommending to our Board of directors the compensation of our Chief Executive Officer and

other executive officers, and the outside directors;

• conducting a performance review of our Chief Executive Officer;

• reviewing our compensation policies;

• if required, preparing the report of the Compensation Committee for inclusion in our annual proxy statement.

The Compensation Committee

may delegate matters within its responsibility to subcommittees composed of certain of its members.

The Board has adopted a Compensation

Committee charter and the Compensation Committee reviews and reassesses the adequacy of the charter on an annual basis.

The Compensation Committee’s

policy is to offer our executive officers competitive compensation packages that will permit us to attract and retain highly qualified

individuals and to motivate and reward these individuals in an appropriate fashion aligned with the long-term interests of our Company

and our shareholders.

A copy of the Compensation

Committee’s written charter is publicly available on our website at www.kartoonstudios.com .

Nominating Committee

Loesch and Segall serve

on our Nominating Committee.

The Nominating Committee’s responsibilities include:

• identifying qualified individuals to serve as members of our Board;

• review the qualifications and performance of incumbent directors;

• review and consider candidates who may be suggested by any director or executive officer or by a stockholder

of the Company;

• review considerations relating to board composition, including size of the board, term and age limits,

and the criteria for membership of the Board.

The Board has adopted a Nominating

Committee charter, and the Nominating Committee reviews and reassesses the adequacy of the Charter on an annual basis.

For all potential

candidates, the Nominating Committee may consider all factors it deems relevant, such as a candidate’s personal integrity and sound

judgment, business and professional skills and experience, independence, knowledge of the industry in which we operate, possible conflicts

of interest, diversity, the extent to which the candidate would fill a present need on the Board, and concern for the long-term interests

of our stockholders.

The Nominating Committee will consider potential candidates recommended by our stockholders.

Any such potential candidates

will be evaluated using the same criteria as candidates identified by any director or executive officer.

The Nominating Committee considers

issues of diversity among its members in identifying and considering nominees for director, and strives, where appropriate, to achieve

a diverse balance of backgrounds, perspectives and experience on the Board of Directors and its committees.

A copy of the Nominating Committee’s

written charter is publicly available on our website at www.kartoonstudios.com .

Loesch and Dr.

Turner-Graham

serve on our Educational Committee.

The primary purpose of the Educational Committee is to assist the Board in overseeing the integrity,

scientific accuracy, age-appropriateness, and overall educational quality of the content the Company produces or licenses for its youth

The Committee ensures that such content is aligned with current child-development science, reflects positive messaging, and

upholds the Company’s values regarding the well-being of children.

As a newly formed committee, the Educational Committee

will hold ad hoc meetings as needed, depending on the volume, sensitivity, and developmental relevance of works under review.

to carry out its mission and function, and subject to the terms of the Company’s Articles of Incorporation, the Committee has the

authority to:

• evaluate content that materially impacts the Company’s youth audience, including new series, special

initiatives, and major content acquisitions;

• review the performance and impact of the Company’s educational content, including audience feedback,

expert assessments, content-impact studies, and alignment with recognized child-development standards.

Code of Business

Conduct and Ethics

We have adopted a Corporate

Code of Conduct and Ethics and Whistleblower Policy that applies to all of our officers, directors and employees.

A copy of the Code of

Conduct and Ethics and Whistleblower Policy can be obtained, free of charge by submitting a written request to the Company or on our website

at www.kartoonstudios.com.

Disclosure regarding any amendments to, or waivers from, provisions of the code of conduct and ethics

that apply to our directors, principal executive and financial officers will be posted on the “Investor Relations - Corporate Governance”

section of our website at www.kartoonstudios.com or included in a Current Report on Form 8-K within four business days following

the date of the amendment or waiver.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange

Act requires our officers, directors and any persons who own more than 10% of common stock, to file reports of ownership of, and transactions

in, our common stock with the SEC and furnish copies of such reports to us.

Based solely on our reviews of the copies of such forms and

amendments thereto furnished to us and on written representations from officers, directors, and any other person whom we understand owns

more than 10% of our common stock, we found that during 2025, all Section 16(a) filings were made with the SEC on a timely basis, except

that a Form 4 covering one transaction was filed late for Mr.

Thomopoulos on each of January 17, 2025 and May 7, 2025;

a Form 4 covering

one transaction was filed late for Mr.

Parisi on December 17, 2025;

a Form 4 covering one transaction was filed late for Mr.

December 3, 2025;

a Form 4 covering one transaction was filed late for Henry Sicignano III, a former director of the Company, on September

and a Form 3 was filed late for Mr.

Schlesinger on November 17, 2025.

Insider Trading Policy

We have adopted an insider

trading policy (the “Trading Policy”) that is designed to promote compliance with federal and state securities laws and regulations,

as well as the rules and regulations of the NYSE American.

The Trading Policy provides our standards on trading and causing the trading

of our securities while in possession of material nonpublic information.

It prohibits trading in certain circumstances and applies to

all of our directors, officers and employees as well as independent contractors or consultants who have access to material nonpublic information

obtained through involvement with our company.

Additionally, our Trading Policy imposes special additional trading restrictions applicable

to all of our directors and executive officers and to such persons’ family members who live in such persons’ households.

Trading Policy also requires us to comply with all insider trading laws, rules and regulations, and any applicable listing standards when

engaging in transactions in our own securities.

Executive Officer and Director Compensation

Information required by this

item is incorporated by reference to our Proxy Statement.

This section describes the

material elements of compensation awarded to, earned by or paid to (i) all individuals who served as our principal executive officer during

2025, (ii) our two most highly compensated executive officers (other than the principal executive officer) who were serving as executive

officers of the Company as of December 31, 2025 and (iii) up to two former executive officers who would have been among our two most highly

compensated executive officers for 2025 but for the fact that they did not serve as executive officers as of December 31, 2025 (the “named

executive officers”).

Our Compensation Committee reviews and approves the compensation of our executive officers and oversee our

executive compensation programs and initiatives.

Summary Compensation Table

for the Year Ended December 31, 2025

The table below summarizes

all compensation awarded to, earned by, or paid to our named executive officers for all services rendered in all capacities to us during

the fiscal years noted below:

Name and Principal Position

Andy Heyward (2)

Chief Executive Officer

Chief Operating Officer, General Counsel and Corporate Secretary

Brian Parisi (6)

Chief Financial Officer

Represents the grant date fair value of awards determined in accordance with FASB ASC Topic 718.

Stock awards granted in 2025 consisted of time-based restricted stock units.

We calculated the estimated fair value of the time-based restricted stock unit awards using the closing price per share of our common stock on the grant date.

For a discussion of the assumptions used in calculating these values, see Note 15 to our consolidated financial statements included elsewhere in this Annual Report.

On August 25, 2025, Mr.

Heyward entered into a new three-year employment agreement, which replaced and superseded all prior employment agreements.

Pursuant to his new employment agreement, Mr.

Heyward’s annual base salary was increased from $440,000 to $1,060,000, as of August 15, 2025.

See “Narrative Disclosure to Summary Compensation Table - Employment Agreements” for a description of potential future increases in Mr.

Heyward’s annual base salary.

Amounts reflected in All Other Compensation column

Heyward in 2025 are composed of $300,000 in creative producer fees, $15,384 related to the insurance policy paid by the Company

pursuant to his prior employment agreement and $1,222 related to health and retirement benefits.

On November 24, 2025, Mr.

Jaffa entered into a new three-year employment agreement, which replaced and superseded his prior employment agreement.

Pursuant to his new employment agreement, Mr.

Jaffa’s annual base salary was set at $450,000 as of November 14, 2025, subject to a 5% increase on each anniversary of the effective date of the new employment agreement.

The amount reflected in All Other Compensation column for Mr.

Jaffa in 2025 represents retirement plan contributions.

During 2025, Mr.

Parisi was entitled to an annual base salary of $350,000.

See “Narrative Disclosure to Summary Compensation Table - Employment Agreements” for a description of future increases to Mr.

Parisi’s annual base salary pursuant to his new employment agreement.”

The amount reflected in All Other Compensation column for Mr.

Parisi in 2025 represents retirement plan contributions.

Narrative Disclosure to

Summary Compensation Table

Elements of the Company’s

Executive Compensation Program

The main elements of our executive

compensation program in 2025 are outlined in the table below:

Compensation Element

Intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, and responsibilities

Bonus Compensation

Rewards achievement of pre-determined qualitative or quantitative performance measures

(performance, discretionary, contractual)

To reward an executive for significant contributions to the Company or when the executive has performed at a level above what

was expected, or other similar circumstances

productivity and enhance loyalty

Equity Based Incentive Awards

Aligns executives’

interests with the long-term interests of our stockholders

Motivates and rewards the achievement for stock price growth

Promotes executive retention and stock ownership, and focuses executives on enhancing stockholder value

Promotes health and wellness

Provides financial protection

in the event of disability or death

Provides tax-beneficial

ways for executives to save towards their retirement

executive officers receive a base salary to compensate them for services rendered to our Company.

Base salaries are used to recognize

experience, skills, knowledge and responsibilities required of all of our employees, including our executive officers.

Each of our named

executive officers’ annual base salaries were negotiated in connection with their respective employment agreements, each of which

were renegotiated in 2025.

See “- Employment Agreements.”

Bonus Compensation.

Our named executive officers are eligible to receive an annual bonus based upon the terms of their employment agreements and discretionary

bonuses based on their respective performance.

Heyward was paid a discretionary bonus of $165,000 pursuant to the terms of

his prior employment agreement and Mr.

Jaffa was paid a guaranteed bonus of $50,000 pursuant to the terms of his new employment agreement.

Based Incentive Awards .

We believe that equity grants provide our executives with a strong link to our long-term performance, create

an ownership culture and help to align the interests of our executives and our stockholders.

In addition, we believe that equity grants

with a time-based vesting feature promote executive retention because this feature incentivizes our named executive officers to remain

in our employment during the vesting period.

Accordingly, our compensation committee and Board periodically review the equity incentive

compensation of our named executive officers and from time to time may grant additional equity incentive awards to them in the form of

stock options or restricted stock units.

During 2025, each of Mr.

Heyward and Mr.

Jaffa entered into new employment agreements.

to the terms of each of their respective new employment agreements, Mr.

Heyward and Mr.

Jaffa received equity grants of 2,000,000 and

750,000 RSUs, respectively, which were to vest in three equal annual installments.

Subsequent to entering into the new employment agreement

Heyward in August 2025, the Company and Mr.

Heyward determined to revisit the terms of his equity grant.

The Company and Mr.

Heyward have not yet made a determination regarding the revised terms of such equity grant.

As a result, the RSUs issuablepursuant

Heyward’s new employment agreement were not issued to Mr.

Heyward during the year ended December 31, 2025.

Jaffa received

an equity grant of 750,000 RSUs on November 14, 2025.

The equity award vests in three equal annual installments on each anniversary of

the grant date.

Similarly, during 2025, Mr.

Parisi entered into a new employment agreement.

Pursuant to the terms of his new employment

agreement, Mr.

Parisi received an equity grant of 500,000 RSUs on January 1, 2026.

The equity award vests in three equal annual installments

on each anniversary of the grant date.

During the year ended December 31, 2025, no awards held by our named executive officers have been

modified or repriced.

Retirement Benefits.

of December 31, 2025, we did not provide our employees, including our executives, with a defined benefit pension plan, any supplemental

executive retirement plans or retiree health benefits, except as required by local law or custom for employees outside the United States.

Our executives may participate on the same basis as other U.S.

employees in our 401(k) Plan with a Company-sponsored match component.

All Other Compensation.

Pursuant to his prior employment agreement, Mr.

Heyward was entitled to an executive producer fee of $12,500 per one-half hour episode

for each episode for which he provides services as an executive producer and creative producer fees of $100,000 per quarter.

year ended December 31, 2025, Mr.

Heyward did not earn any executive producer fees.

During the year ended December 31, 2025, Mr.

earned $300,000 in creative producer fees.

Other compensation includes also retirement benefits and insurance premiums paid by the Company

Heyward’s behalf during the year ended December 31, 2025.

Other compensation paid to Messrs.

Jaffa and Parisi during the

year ended December 31, 2025 includes health benefits and retirement benefits.

Employment Agreements

Old CEO Employment Agreement

On December 7, 2020, the Company

entered into an amended and restated employment agreement, as further amended on each of February 22, 2021, June 23, 2021, November 22,

2021, August 25, 2022 and February 27, 2023 (the “Old CEO Employment Agreement”), with Andy Heyward.

Pursuant to the Old CEO Employment

Agreement, Mr.

Heyward agreed to serve as the Company’s Chief Executive Officer for a period of five years, subject to renewal,

in consideration for an annual salary of $440,000, and an award of 500,000 stock options and 1,500,000 RSUs.

During the year ended December

31, 2024 and through August 25, 2025, Mr.

was also eligible to be paid (i) a producing fee equal to $12,500 per one-half hour episode

for each series produced, controlled and distributed by the Company, and for which he provided material production services provided as

the executive producer for up to 52 one-half hour episodes, (ii) a creative producer fee of $100,000 per quarter for services rendered

Additionally, under the terms of the Old CEO Employment Agreement, Mr.

Heyward was eligible for a quarterly discretionary bonus

of $55,000 per fiscal quarter if the Company met certain criteria, as established by the Board.

Heyward was also entitled to reimbursement

of reasonable expenses incurred in connection with his employment and the Company may take out and maintain during the term of his tenure

a life insurance policy in the amount of $1,000,000.

During the term of his employment and under the terms of the Old CEO Employment Agreement,

Heyward was also entitled to be designated as composer on all music contained in the programming produced by the Company and to receive

composer’s royalties from applicable performing rights societies.

Furthermore, the August 25, 2022 amendment provided for the assignment

of music royalties to Mr.

Heyward for all musical compositions in which he provided services as a composer for or on behalf of the Company,

in the event that the Company acquired up to 50% of the writer's share of the royalties for that musical composition.

If the Company acquired

more than 50% of the writer's share of the royalties on musical compositions Mr.

Heyward provided services for, he had the option to purchase

the additional royalties from the Company at the price the Company paid to acquire the additional royalties.

The options granted to Mr.

Heyward were fully vested on the date of grant.

The initial vesting terms of the RSUs granted to Mr.

Heyward on December 7, 2020 consisted

of the following:

750,000 of the RSUs were to vest over time subject to Mr.

Heyward’s continued employment (time-based), and 750,000

of the RSUs were to vest in equal installments on the first, second, third and fourth anniversaries of the date of grant, subject to the

achievement of certain performance criteria (performance-based), to be determined by the Compensation Committee, and subject to Mr.

continued employment.

On June 23, 2021, the Compensation

Committee amended the vesting terms of the RSU award granted to Mr.

Heyward on December 7, 2020.

According to the amended terms, 375,000

of the RSUs would continue to vest over time subject to Mr.

Heyward’s continued employment.

The remaining unvested 1,125,000 RSUs

were modified to vest as follows:

(i) 375,000 RSUs vest when the closing sale price of the Company’s common stock equals or exceeds

$3.00 per share or the Company’s market capitalization equals or exceeds $903,000,000 for 20 consecutive trading days;

RSUs vest when the closing sale price of the Company’s common stock equals or exceeds $3.50 per share or the Company’s market

capitalization equals or exceeds $1,053,500,000 for 20 consecutive trading days, and (iii) 375,000 RSUs vest when the closing sale price

of the Company’s common stock equals or exceeds $3.75 per share or the Company’s market capitalization equals or exceeds $1,128,750,000

for 20 consecutive trading days.

In the event of a change in control of the Company, the Compensation Committee will determine the extent

to which the stock price and market capitalization vesting conditions set forth above are achieved based on the value of the consideration

per share paid to the Company's stockholders in the change in control transaction.

The award agreement further

provides that in addition to vesting based on the stock price and market capitalization vesting conditions set forth above, the 1,125,000

RSUs had the opportunity to vest in four equal installments on the first, second, third and fourth anniversaries of December 7, 2020,

if not otherwise vested pursuant to the stock price and market capitalization vesting conditions, based on the achievement of certain

operating performance-based vesting conditions established by the Compensation Committee and communicated to the Participant and subject

Heyward’s continued employment.

Pursuant to an amendment dated January 19, 2022, the Compensation Committee determined that

Heyward would satisfy the operating performance conditions as it related to 281,250 RSUs upon the execution of final definitive agreements

to acquire WOW and a final definitive agreement related to the Company’s investment in YFE.

On April 7, 2022, 281,250 of the 1,125,000

RSUs vested upon the achievement of completing the WOW and Ameba acquisitions.

As of December 7, 2025, the fourth anniversary of the grant

date, none of the stock price, market capitalization or any of the further operating performance conditions had been satisfied.

December 31, 2025, 843,750 of Mr.

Heyward’s RSUs remain outstanding and unvested.

The Old CEO Employment Agreement

also entitled Mr.

Heyward to separation payments in certain circumstances.

In the event Mr.

Heyward’s employment terminated due

to his death or retirement after the age of 65, in addition to accrued base salary and vacation and expense reimbursement, he would have

been entitled to receive (i) any unpaid quarterly bonus for the fiscal quarter preceding the fiscal quarter in which such termination

occurred and (ii) if earned, a pro-rated quarterly bonus for the fiscal quarter in which such termination occurred.

In the event Mr.

employment terminated due to his permanent disability, in addition to accrued base salary and expense reimbursement, he would have been

entitled to receive (i) any unpaid quarterly bonus for the fiscal quarter preceding the fiscal quarter in which such termination occurred,

(ii) if earned, a pro-rated quarterly bonus for the fiscal quarter in which such termination occurred and (iii) for a period of six months

(or for the remaining months of the term of his employment, if less than six months), monthly payments equal to the amount, if any, of

his monthly base salary in excess of any disability benefits being received by Mr.

Heyward, provided that he would not have been be entitled

to any compensation under (i), (ii) or (iii) unless he signed a release of claims against the Company.

New CEO Employment Agreement

On August 25, 2025, the Company

Heyward entered into a new employment agreement (the “New CEO Employment Agreement”), which superseded and replaced

the Old CEO Employment Agreement in full, pursuant to which he agreed to continue to serve as the Company’s Chief Executive Officer

for a period of three years, subject to renewal.

Pursuant to the New CEO Employment Agreement, as compensation for his services as CEO,

Heyward shall be entitled to receive an annual base salary $1,060,000 per annum for the term of the agreement, provided that, after

December 31, 2026, on each anniversary of the effective date of the New CEO Employment Agreement, if and only if the Company had a positive

net income in the preceding year, he will receive an annual increase of 2.5% on his base salary.

In addition, the agreement provides that

Heyward was eligible to receive a performance bonus for calendar year 2025 as follows:

if on December 31, 2025:

(i) the Company has a market capitalization of at least $80,000,000, and (ii) the Company's net income, as reflected

on the income statement of the Company, is at least $1.00, Mr.

Heyward will be paid a bonus in 2026 of:

$100,000 on each of January 1,

April 1, 2026;

July 1, 2026;

and October 1, 2026.

if on December 31;

(i) the Company has a market capitalization of at least $100,000,000, and (ii) the Company's net income, as

reflected on the income statement of the Company, is at least $3,000,000, Mr.

Heyward will be paid a bonus in 2026 of:

$250,000 on each

of January 1, 2026;

April 1, 2026;

July 1, 2026;

and October 1, 2026;

if on December 31, 2025:

(i) the Company has a market capitalization of at least $150,000,000, and (ii) the Company's net income, as

reflected on the income statement of the Company, is at least $7,000,000, Mr.

Heyward will be paid a bonus in 2026 of:

$500,000 on each

of January 1, 2026;

April 1, 2026;

July 1, 2026;

and October 1, 2026.

As of December 31, 2025, the

targets were not met and, as a result, no bonus was paid for the year.

The targets set forth above were set for compensation purposes

only and do not constitute, and should not be viewed as, management’s projection of future results.

For the calendar years 2026

and 2027, the New CEO Employment Agreement provides that the Board will re-set Mr.

Heyward’s annual bonus targets in much the same

structure outlined above, based on the Company’s prior year results, the Company’s common stock performance, and on any other

factors that the Compensation Committee of the Board deems relevant.

The Heyward Employment Agreement

further provides that Mr.

Heyward will receive an award of 2,000,000 RSUs under the Company’s Amended and Restated 2020 Incentive

Plan (the “2020 Plan”) and shall not be eligible to receive any other equity-based awards during the employment term.

to entering into the new employment agreement, the Company and Mr.

Heyward determined to revisit the terms of his equity grant.

Heyward have not yet made a determination regarding the revised terms of such equity grant.

Therefore, no equity grant was

issued to Mr.

Heyward during the year ended December 31, 2025.

In addition, the agreement

provides that Mr.

Heyward may be paid a producing fee of up to $12,500 per episode for up to maximum of 52 episodes per calendar year,

subject to certain exceptions, including that Mr.

Heyward will not earn fee for Mainframe or Frederator productions, Mr.

render material production services as an executive producer of a pilot, episode, or production, any producer fees, inuring to him, must

be entirely financed by a third party, without any funds originating from the Company and each production, pilot or episode must total

no fewer than six cumulative minutes of program content.

Heyward may elect to be designated Composer for certain Company music, provided

that any compensation inuring to him as a result thereof must be financed by a third party.

The Company will retain ownership, copyright,

and music publishing control of all Company music.

Moreover, the agreement provides that the Company shall not pay Mr.

Heyward any royalty,

profit participation or any other cash compensation related to “traditional industry creator fees” and Mr.

Heyward irrevocably

waives any claim thereto.

Heyward would also be

eligible to participate in other employee benefit plans or arrangements generally available to our senior executives from time to time.

The Company also may take out and maintain a term life insurance policy in the amount of $1.0 million for the benefit of Mr.

The New CEO Employment Agreement

may be terminated by us with “Cause” or by Mr.

Heyward for “Good Reason”, as such terms are defined in the agreement.

Pursuant to the New CEO Employment Agreement, Mr.

Heyward is also to separation payments in certain circumstances.

In the event Mr.

employment terminates due to his death during the term of the agreement or retirement after the age of 80, in addition to accrued base

salary and vacation and expense reimbursement, he will be entitled to receive (i) any earned but unpaid bonus and (ii) any unvested equity-based

awards outlined in the agreement that are still subject to forfeiture under the 3-year vesting schedule.

In the event Mr.

employment terminated due to his permanent disability, in addition to accrued base salary and expense reimbursement, he will be entitled

to receive (i) any earned but unpaid bonus, (ii) any unvested equity-based awards outlined in the agreement that are still subject to

forfeiture under the 3-year vesting schedule, and (iii) for a period of six months (or for the remaining months of the term of his employment,

if less than six months), monthly payments equal to the amount, if any, of his monthly base salary in excess of any disability benefits

being received by Mr.

Heyward, provided that he would not have been be entitled to any compensation under (i), (ii) or (iii) unless he

signed a release of claims against the Company.

Additionally, the New CEO

Employment Agreement contains certain restrictive covenants regarding confidential information, intellectual property, non-competition

and non-solicitation.

Old COO and General Counsel

Employment Agreement

On November 7, 2020, the Company

entered into an amended and restated agreement, as further amended on each of December 16, 2021, January 8, 2023, November 13, 2023, and

November 6, 2024 (the “Old COO and General Counsel Employment Agreement”) with Michael A.

Pursuant to the Old COO and

General Counsel Employment Agreement, Mr.

Jaffa assumed the role of Chief Operating Officer (“COO”) and General Counsel commencing

on December 7, 2020.

The term of the agreement, as amended, was five years.

Pursuant to the Old COO and General Counsel Employment Agreement,

as consideration for his services as COO and General Counsel, Mr.

Jaffa was entitled to receive (i) an annual base salary of $325,000

for the first year of the term, $375,000 for the second year of the term and $450,000 for the third, fourth and fifth years of the term;

(ii) discretionary annual bonuses determined in the sole discretion of the Board’s Compensation Committee, and (iii) he was eligibility

to receive renewal bonuses of $50,000 beginning within 60 days following the effective date of the Old COO and General Counsel Employment

Agreement and each anniversary thereafter during the term, subject to Mr.

Jaffa’s continued employment.

Pursuant to the agreement,

Jaffa was granted 100,000 stock options and 50,000 RSUs.

The options granted to Mr.

Jaffa were partially vested on the date of grant,

and vested with respect to the unvested amounts in substantially equal installments on the first three anniversaries of the grant date,

subject to continued employment.

The RSUs granted to Mr.

Jaffa vested in three equal installments on the first three anniversaries of

the date of grant, subject to continued employment.

The Old COO and General Counsel

Employment Agreement also entitled Mr.

Jaffa to separation payments in certain circumstances.

In the event Mr.

Jaffa’s employment

terminated due to his death or retirement after the age of 65, in addition to accrued base salary and vacation and expense reimbursement,

he would have been entitled to receive any unpaid annual bonus for the fiscal year preceding the fiscal year in which such termination

In the event Mr.

Jaffa’s employment terminated due to his permanent disability, in addition to accrued base salary and

expense reimbursement, he would have been entitled to receive (i) any unpaid annual bonus for the fiscal year preceding the fiscal year

in which such termination occurred, and (ii) for a period of two months (or for the remaining months of the term of his employment, if

less than six months), monthly payments equal to the amount, if any, of his monthly base salary in excess of any disability benefits being

received by Mr.

Jaffa, provided that he would not have been entitled to any compensation under (i) or (ii) unless he signed a release

of claims against the Company.

Additionally, the COO and

General Counsel Employment Agreement contained certain restrictive covenants regarding confidential information, intellectual property,

non-competition and non-solicitation.

New COO and General Counsel

Employment Agreement

On November 24, 2025, the

Company and Mr.

Jaffa entered into a new employment agreement (the “New COO and General Counsel Employment Agreement”), with

an effective date of November 24, 2025, which superseded and replaced the Old COO and General Counsel Employment Agreement in full, pursuant

to which he agreed to continue to serve as the Company’s COO and General Counsel for a period of three years, subject to renewal.

Pursuant to the New COO and General Counsel Employment Agreement, as compensation for his services as COO and General Counsel, Mr.

shall be entitled to receive an annual base salary $450,000 per annum, provided that on each anniversary of the effective date of the

New COO and General Counsel Employment Agreement, he will receive an annual increase of 5.0% on his base salary.

In addition, the agreement

provides that Mr.

Jaffa shall receive a $50,000 guaranteed bonus in December 2025, and shall receive an annual performance bonus of $50,000

for each fiscal year during the term of the agreement in which Company EBIDA exceeds $2,000,000.

The New COO and General Counsel

Employment Agreement further provides that Mr.

Jaffa will receive an award of 750,000 RSUs under the 2020 Plan.

The 750,000 RSUs were

issued to Mr.

Jaffa on November 14, 2025 and will vest as follows:

250,000 shares on November 14, 2026, 250,000 shares on November 14,

2027, and 250,000 shares on November 14, 2028, subject to Mr.

Jaffa’s continued employment.

Jaffa would also be eligible

to participate in other employee benefit plans or arrangements generally available to our senior executives from time to time.

The New COO and General Counsel

Employment Agreement may be terminated by us with “Cause” or by Mr.

Jaffa for “Good Reason”, as such terms are

defined in the agreement.

Pursuant to the New COO and General Counsel Employment Agreement, Mr.

Jaffa is also to separation payments in

certain circumstances.

In the event Mr.

Jaffa’s employment terminates due to his death during the term of the agreement, in addition

to accrued base salary and vacation and expense reimbursement, he will be entitled to receive (i) any earned but unpaid bonus and (ii)

full vesting of any unvested equity-based awards that are still subject to forfeiture.

In the event Mr.

Jaffa’s employment terminated

due to his permanent disability, in addition to accrued base salary and expense reimbursement, he will be entitled to receive, for a period

of six months (or for the remaining months of the term of his employment, if less than six months), monthly payments equal to the amount,

if any, of his monthly base salary in excess of any disability benefits being received by Mr.

Jaffa, provided that he would not have been

be entitled to any such additional compensation unless he signed a release of claims against the Company.

Jaffa is terminated without

cause or resigns for good reason following a change of control, he will be entitled to receive (i) a lump-sum payment equal to two times

his base salary;

(ii) full vesting of any unvested equity-based awards that are still subject to forfeiture;

(iii) continued Company-paid

health benefits for 18 months.

Additionally, the New COO

and General Counsel Employment Agreement contains certain restrictive covenants regarding confidential information, intellectual property,

non-competition and non-solicitation.

Old CFO Employment Agreement

Effective September 27, 2023,

the Company entered into an employment agreement with Brian Parisi (the “Old CFO Employment Agreement”), whereby Mr.

agreed to serve as the Chief Financial Officer for a one year period in consideration for an annual salary of $325,000.

also eligible to receive for a discretionary bonus for each fiscal year as determined by the Company.

In addition, on December 14, 2023,

Parisi was granted 35,000 RSUs with a fair value of $50,050 that vest annually over three years.

The Company had the option to extend

the Old CFO Employment Agreement for an additional one-year period in consideration of an annual salary of $350,000, which the Company

exercised on September 22, 2024.

In connection with such extension, the Company agreed to pay Mr.

Parisi a discretionary bonus of $15,000

upon receipt of funds from a fundraising in which its net proceeds exceeded $4 million.

The Old CFO Employment Agreement

also entitled Mr.

Parisi to separation payments in certain circumstances.

In the event Mr.

Parisi’s employment terminated due to

his death or retirement after the age of 65, in addition to accrued base salary and vacation and expense reimbursement, he would have

been entitled to receive any unpaid discretionary bonus for the fiscal year preceding the fiscal year in which such termination occurred.

The Company had the right

to terminate the Old CFO Employment Agreement in the event Mr.

Parisi became disabled and as a result was unable to perform substantially

all duties and responsibilities for thirty consecutive days or an aggregate of sixty days during any period of one hundred and eighty

two consecutive calendar days.

The Company had the right to designate another employee to act in Mr.

Parisi’s place during any period

of such disability.

Notwithstanding any such designation, while Mr.

Parisi was employed by the Company and had not yet become eligible

for disability income benefits under any disability income plan maintained by the Company, Mr.

Parisi would have continued to receive

his base salary and benefits.

Upon becoming so eligible, and until the termination of Mr.

Parisi’s employment because of disability,

the Company would have been required to pay Mr.

Parisi, at his regular pay periods, an amount equal to the excess, if any, of Mr.

monthly base compensation in effect at the time of eligibility (i.e.

1/12th of the base salary) over the amounts of disability income

benefits that Mr.

Parisi was otherwise eligible to receive.

Upon termination of the Old CFO Employment Agreement because of disability,

the Company would have been required to pay Mr.

Parisi (i) any base salary earned but unpaid through the date of termination, (ii) any

discretionary bonus for the fiscal year preceding the year of termination that was earned but unpaid, and (iii) reimbursement of any reasonable

expenses incurred in the performance of duties in accordance with the customary policies of the Company.

During the 2 month period (or

the remaining months of the term if less than 6 months) following the termination of employment because of disability, the Company would

have been required to pay Mr.

Parisi, at his regular pay periods, an amount equal to the excess, if any, of his monthly base compensation

in effect at the time of termination (i.e.

1/12th of the base salary) over the amounts of disability income benefits that Mr.

otherwise eligible to receive pursuant to the above-referenced disability income plan in respect of such period, provided that Mr.

signs an employee release.

Additionally, the Old CFO Employment Agreement

contained certain restrictive covenants regarding confidential information, intellectual property, non-competition and non-solicitation.

New CFO Employment Agreement

On November 24, 2025, the

Company and Mr.

Parisi entered into a new employment agreement (the “New CFO Employment Agreement”) with an effective date

of January 1, 2026, which superseded and replaced the Old CFO Employment Agreement in full, pursuant to which he agreed to continue to

serve as the Company’s CFO for a period of two years, subject to renewal.

Pursuant to the New CFO Employment Agreement, as compensation

for his services as CFO, Mr.

Parisi shall be entitled to receive an annual base salary $375,000 per annum in the first year and $400,000

in the second year of the term.

In addition, the agreement provides that Mr.

Parisi shall receive an annual performance bonus of $50,000

for each fiscal year during the term of the agreement in which Company EBITDA exceeds $2,000,000.

The New CFO Employment Agreement

further provides that Mr.

Parisi will receive an award of 500,000 RSUs under the 2020 Plan.

The 500,000 RSUs were issued to Mr.

on January 1, 2026 and will vest as follows:

166,666 shares on January 1, 2027, 166,666 shares on January 1, 2028, and 166,668 shares

on January 11, 2029, subject to Mr.

Parisi’s continued employment.

Parisi would also be eligible

to participate in other employee benefit plans or arrangements generally available to our senior executives from time to time.

The New CFO Employment Agreement

may be terminated by us with “Cause” or by Mr.

Parisi for “Good Reason”, as such terms are defined in the agreement.

Pursuant to the New CFO Employment Agreement, Mr.

Parisi is also to separation payments in certain circumstances.

In the event Mr.

employment terminates due to his death during the term of the agreement, in addition to accrued base salary and vacation and expense reimbursement,

he will be entitled to receive (i) any earned but unpaid bonus and (ii) full vesting of any unvested equity-based awards that are still

subject to forfeiture.

In the event Mr.

Parisi’s employment terminated due to his permanent disability, in addition to accrued base

salary and expense reimbursement, he will be entitled to receive, for a period of six months (or for the remaining months of the term

of his employment, if less than six months), monthly payments equal to the amount, if any, of his monthly base salary in excess of any

disability benefits being received by Mr.

Parisi, provided that he would not have been be entitled to any such additional compensation

unless he signed a release of claims against the Company.

Additionally, the New CFO Employment Agreement

contains certain restrictive covenants regarding confidential information, intellectual property, non-competition and non-solicitation.

Potential Payments upon

Termination or Change-in-Control

Payments upon Termination

Our employment agreements

with our named executive officers provide incremental compensation in the event of termination, as described above under “Employment

Agreements”, above.

Further, our equity incentive

plan has provisions for payments to our named executive officers if they are terminated as a result of death or disability.

2020 Plan, if a grantee is terminated due to death or disability, the Compensation Committee may, in its sole discretion, make the following

adjustments to such grantee’s awards:

(i) termination of restrictions in any award agreements (ii) acceleration of any or all installments

and rights, and/or (iii) payment of the grantee’s aggregated accelerated payments in a lump sum to the grantee (or the grantee’s

estate, beneficiaries or representative, as applicable).

Payments upon Change in

Certain of our employment

agreements with our named executive officers provide incremental compensation in the event of termination in connection with a change

in control, as described above under “Employment Agreements,” above.

Under our 2020 Plan, upon

a Change in Control, the Compensation Committee may, but is not required to, provide for one or more of the following:

(i) assumption

of the 2020 Plan and outstanding awards by the surviving entity or its parent, (ii) issuance of substitute awards that substantially preserve

the terms of the original awards, (iii) notice to holders of vested options and rights that such options and rights shall be exercisable

prior to such Change in Control and then be terminated following the Change in Control, (iv) settlement of the intrinsic value of outstanding

vested options and rights in cash, cash equivalence or equity (regardless of vesting status), (v) cancellation of all unvested or unexercisable

awards, or (vi) any other action with respect to the awards as the Compensation Committee determines to be appropriate in its discretion;

provided that in connection with an assumption or substitution awards under (i) or (ii), the awards so assumed or substituted shall continue

to vest or become exercisable pursuant to the terms of the original award, except to the extent such terms are otherwise rendered inoperative.

Under our 2020 Plan, “Change

in Control” is defined to mean any of the following events:

(a) any “person” within the meaning of Section 13(d)(3)

or 14(d)(2) of the Exchange Act (other than the Company or any company owned, directly or indirectly, by the stockholders of the Company

in substantially the same proportions as their ownership of stock of the Company) becomes the “beneficial owner” within the

meaning of Rule 13d-3 promulgated under the Act of 30% or more of the combined voting power of the then outstanding securities of the

Company entitled to vote generally in the election of directors;

excluding, however, any circumstance in which such beneficial ownership

resulted from any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or by any corporation

controlling, controlled by, or under common control with, the Company or the Company itself;

(b) a change in the composition of the board

since the date of stockholder approval, such that the individuals who, as of such date, constituted the Board (the “Incumbent Board”)

cease for any reason to constitute at least a majority of such board;

provided that any individual who becomes a director of the Company

subsequent to date of stockholder approval whose election, or nomination for election by the Company’s stockholders, was approved

by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board;

and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened

election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened

solicitation of proxies or consents by or on behalf of any person or entity other than the Board shall not be deemed a member of the Incumbent

(c) a reorganization, recapitalization, merger, consolidation or similar form of corporate transaction, or the sale, transfer,

or other disposition of all or substantially all of the assets of the Company to an entity that is not an Affiliate (each of the foregoing

events, a “Corporate Transaction”) involving the Company, unless securities representing 60% or more of the combined voting

power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company or the corporation

resulting from such Corporate Transaction, including a corporation that, as a result of such transaction owns all or substantially all

of the Company’s assets (or the direct or indirect parent of such corporation), are held immediately subsequent to such transaction

by the person or persons who were the beneficial holders of the outstanding voting securities entitled to vote generally in the election

of directors of the Company immediately prior to such Corporate Transaction, in substantially the same proportions as their ownership

immediately prior to such Corporate Transaction;

or (d) the liquidation or dissolution of the Company or stockholder approval of such

liquidation or dissolution, unless such liquidation or dissolution is part of a transaction or series of transactions described in clause

Clawback Policy

Effective December 1, 2023,

we adopted an executive officer incentive compensation clawback policy which requires the clawback of erroneously awarded incentive-based

compensation of past or current executive officers awarded during the three full fiscal years preceding the date on which the issuer is

required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement

under the federal securities laws.

Specifically, in the event of an accounting restatement, we must recover, reasonably promptly, erroneously

awarded compensation in amounts determined pursuant to the policy.

Compensation that may be recoverable under the policy includes cash

or equity-based compensation for which the grant, payment or vesting (or any portion thereof) is or was predicated upon the achievement

of specified financial results that are impacted by the financial restatement, and the amount of compensation that may be impacted by

the clawback policy is the difference between the amount paid or granted, and the amount that should have been paid or granted, if calculated

on the restated financial results.

Recovery under the policy with respect to an executive officer will not require the finding of any

misconduct by such executive officer or such executive officer being found responsible for the accounting error leading to an accounting

Our Clawback Policy is filed

as Exhibit 97.1 to this Annual Report on Form 10-K.

Outstanding Equity Awards

at Fiscal Year-End

The following table sets forth

outstanding equity awards as of December 31, 2025 held by each of the named executive officers.

Option Awards

Number of securities underlying unexercised options (#) exercisable

Number of securities underlying unexercised options (#) unexercisable

Option exercise price

Option expiration date

Number of shares or units of stock that have not yet vested

Market Value of shares or units of stock that have not yet vested ($) (3)

Equity incentive plan awards:

number of unearned shares, units or other rights that have not yet vested

Equity incentive plan awards:

market or payout value of unearned shares, units or other rights that have not vested ($) (3)

(1) These options were fully vested upon the grant date.

(2) These RSUs are subject to stock price and market capitalization vesting conditions.

See “Executive

Officer and Director Compensation - Narrative Disclosure to Summary Compensation Table -Employment Agreements - Old CEO Employment Agreement”

for more information.

(3) Market value was calculated by multiplying the closing price per share of the Company’s common stock

on December 31, 2025, $0.72, by the number of shares.

(4) These options were fully vested as of December 7, 2023.

(5) On November 14, 2025, Mr.

Jaffa was granted 750,000 RSUs, which will vest as follows:

250,000 shares on

November 14, 2026, 250,000 shares on November 14, 2027, and 250,000 shares on November 14, 2028, subject to Mr.

Jaffa’s continued

(6) On December 14, 2023, Mr.

Parisi was granted 35,000 RSUs that vest annually over three years.

Company Policies and Practices

Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information

The Company does no t have

a formal policy on the timing of awards of options in relation to the disclosure of material nonpublic information by the Company.

Compensation Committee does not seek to time equity grants to take advantage of information, either positive or negative, about our company

that has not been publicly disclosed.

Option grants are generally effective on the date the award determination is made by the Compensation

Committee, and the exercise price of options is the closing market price of our Common Stock on the date of the grant or, if the grant

is made on a weekend or holiday, on the prior business day.

During the year ended December 31, 2025, we did

not grant stock options (or similar awards) to any of our named executive officers during the period beginning four business days before

and ending one business day after the filing of any Company periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of

any Company Form 8-K that disclosed any material non-public information.

Director Compensation

Non-Employee Director Compensation Program

Our director compensation

program is designed to provide compensation to attract and retain high-quality non-employee directors.

Our Compensation Committee periodically

reviews and makes recommendations to the Board regarding director compensation.

As part of this review, the Compensation Committee may

solicit the input of outside compensation consultants.

For the year ended December 31, 2025, our non-employee

directors were compensated with a combination of cash and stock awards, with an aggregate value as follows:

• $10,000 for each quarterly Board meeting attended;

• $10,000 per annum for service as Chair of the Board’s Compensation, Audit or Nominating Committees;

• $5,000 per annum for service as members of any such committees.

The Board’s Compensation

Committee determines the portions of each director’s compensation that will be paid in cash and in stock awards.

To the extent that

an individual serves as a director, committee member or committee chair for a portion of the quarter or year, as applicable, they shall

be entitled to a pro rata portion of the compensation set forth above for the portion of the quarter or year, as applicable, that they

serve in such role.

Director Compensation

Table for the Year Ended December 31, 2025

Heyward, our Chief Executive

Officer, receives no compensation for his service as a director, and is not included in the table below.

See “Summary Compensation

Table for Fiscal 2025” for information regarding Mr.

Heyward’s compensation for fiscal 2025.

The following table sets forth

certain information regarding the compensation earned by or awarded to each of our non-employee directors who served on our Board during

the fiscal year ended December 31, 2025:

Fees Earned or Paid in Cash

Joseph “Gray” Davis

Henry Sicignano III (3)

Margaret Loesch

Anthony Thomopoulos (4)

Cynthia Turner-Graham

Jeffrey Schlesinger

Stefan Piëch (5)

______________________

Represents the grant date fair value of awards determined in accordance with FASB ASC Topic 718.

We calculated the estimated fair value of restricted stock unit awards using the closing price per share of our common stock on the grant date.

For a discussion of the assumptions used in calculating these values, see Note 15 to our consolidated financial statements included elsewhere in this Annual Report.

None of the non-employee directors who served on our Board during the fiscal year ended December 31, 2025 held any outstanding equity awards as of December 31, 2025.

Sicignano resigned from the Board and the Audit Committee effective as of December 12, 2025.

In addition to the compensation he received for Board services in the year ended December 31, 2025, Mr.

Sicignano received a fully vested restricted stock awards of $77,000 market value as compensation for consulting services rendered to the Company pursuant to a Consulting Agreement entered into by and between the Company and Mr.

Sicignano as of December 12, 2025.

The amount reflected in the All Other Compensation column for Mr.

Thomopoulos in 2025 represents consulting fees for services rendered prior to his appointment to the Audit Committee.

Stefan Piëch resigned from the Board effective as March 5, 2025.

Effective October 22, 2025, the following changes

were made to the composition of the committees of our Board:

• Margaret Loesch was appointed as a Chair of the Nominating Committee, replacing Lynne Segall;

• Lynne Segall was appointed as a member of the Nominating Committee, replacing Joseph “Gray”

Davis and Cynthia Turner-Graham;

• Jeffrey Schlesinger was appointed as a Chair of the Compensation Committee, replacing Lynne Segall;

• Anthony Thomopoulos was appointed as a member of the Compensation Committee, replacing Margaret Loesch;

• Anthony Thomopoulos was appointed as a Chair of the Audit Committee, replacing Henry Sicignano III;

• Jeffrey Schlesinger was appointed as a member of the Audit Committee, replacing Lynne Segall;

Additionally, as discussed

Sicignano III resigned from his position as a director and a member of the Audit Committee effective December 12, 2025 and

Piëch resigned from his position as a director effective March 5, 2025.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this

item is incorporated by reference to our Proxy Statement.

The following table shows

the beneficial ownership of shares of our Common Stock as of March 31, 2026, known by us through our transfer agent and other records,

(i) each person who beneficially owns 5% or more of the shares of our common stock then outstanding;

(ii) each of our current

(iii) each of our named executive officers;

and (iv) all of our current directors and executive officers as a group.

The information in this table

reflects “beneficial ownership” as defined in Rule 13d-3 of the Exchange Act.

Percentage ownership is based on 56,336,035

shares of Common Stock outstanding as of March 31, 2026.

Unless otherwise indicated in the footnotes to the following table, each

person named in the table has sole voting and investment power and that person’s address is c/o 190 N.

Canon Drive, 4th Floor, Beverly

Hills, California 90210.

Name of Beneficial Owner

Amount and Nature of Beneficial Ownership

Directors and Named Executive Officers

Andy Heyward (2)

Michael Jaffa (3)

Brian Parisi (4)

Anthony Thomopoulos (5)

Jeffrey Schlesinger (5)

Joseph (Gray) Davis (5)

Margaret Loesch (5)

Lynne Segall (5)

Cynthia Turner-Graham (5)

All current executive officers and directors as a group (consisting of 9 persons)

5% Stockholders Other Than Executive officers and Directors

Anson Funds Management LP (6)

* Indicates ownership less than 1%

(1) The securities “beneficially owned” by a person are determined in accordance with the definition

of “beneficial ownership” set forth in the regulations of the SEC and, accordingly, may include securities owned by or for,

among others, the spouse, children or certain other relatives of such person as well as other securities as to which the person has or

shares voting or investment power.

The same shares may be beneficially owned by more than one person.

Shares of common stock currently

issuable or issuable within 60 days of March 31, 2026 upon the exercise of options or vesting of restricted stock units are deemed

to be outstanding in computing the beneficial ownership and percentage of beneficial ownership of the person holding such securities,

but they are not deemed to be outstanding in computing the percentage of beneficial ownership of any other person.

Beneficial ownership

does not include stock options and restricted stock units which have not vested as of, and will not vest within 60 days of, the record

Beneficial ownership may be disclaimed as to certain of the securities.

(2) Consists of (i) 99,073 shares of common stock held by A Squared Holdings LLC over which Mr.

Heyward holds

sole voting and dispositive power;

(ii) 1,484,126 shares of common stock held by Mr.

Heyward and 187,500 issuable pursuant to vested RSUs

held by Andy Heyward;

(iii) 257,813 shares of common stock held by AH Gadget IDF LLC an entity controlled by Mr.

Heyward, (iv) 123 shares

held by Heyward Living Trust;

(v) 500,000 shares of common stock issuable pursuant to a stock option which is exercisable within 60 days

of March 31, 2026.

(3) Consists of 57,002 shares of common stock held by Mr.

Jaffa, and 100,000 shares of common stock issuable

pursuant to a stock option which is exercisable within 60 days of March 31, 2026.

(4) Consists of 23,601 shares of common stock held by Mr.

Parisi, and 5,833 shares of common stock issuable

upon vested RSUs a s of March 31, 2026.

Thomopoulos held 150,015 shares of common stock, Mr.

Schlesinger held 17,048 shares of common stock,

Davis held 92,339 shares of common stock, Ms.

Loesch held 74,075 shares of common stock, Ms.

Segall held 117,289 shares of common

stock, and Dr.

Turner-Graham held 68,230 shares of common stock.

(6) Based upon Company records as of March 31, 2026 and, in part, information included in a Schedule

13G filed with the SEC on February 17, 2026, consists of (i) 3,000,000 shares of common stock held by Anson Investments Master Fund LP

(the “Anson Funds”) and (ii) 4,241,071 shares of common stock underlying pre-funded warrants held by the Anson Funds, all

of which are exercisable.

Does not include (i) 2,661,978 shares of common stock issuable upon the exercise of pre-funded warrants and

(ii) 9,903,049 shares of common stock issuable upon the exercise of warrants, because the Anson Funds and its affiliates are prohibited

from exercising such pre-funded warrants and other warrants, if, as a result of such exercise, they would beneficially own more than 9.99%

of the total number of shares of common stock then issued and outstanding immediately after giving effect to the exercise.

13G was filed by (i) Anson Funds Management LP (the “AFML”), (ii) Anson Management GP LLC (“AMGL”), (iii) Tony

Moore, the principal of AMFL and AMGL, (iv) Anson Advisors Inc.

(“AAI”), (v) Amin Nathoo, a director of AAI, and (vi) Moez

Kassam, a director of AAI.

AFML and AAI serve as co-investment advisors for the Anson Funds and therefore they may be deemed to beneficially

own such shares.

As the general partner of AFML, AMGL may also be deemed to beneficially own the shares held by the Anson Funds.

principal of AFML and AMGL, Mr.

Moore may also be deemed to beneficially own the shares held by the Anson Funds.

As directors of AAI,

Nathoo and Kassam may also be deemed to beneficially own the shares held by the Anson Funds.

The address for AFML is 16000 Dallas

Parkway, Suite 800, Dallas, Texas 75248.

Equity Compensation Plan Information

The following table provides

certain information with respect to compensation plans under which our equity securities are authorized for issuance as of December 31,

Plan category

Number of securities to be issued upon exercise of outstanding options, vesting of restricted stock units and other rights

Weighted-average exercise price of outstanding options

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by shareholders:

Equity compensation plans not approved by shareholders:

Certain Relationships and Related Transactions, and Director Independence

Information required by this

item is incorporated by reference to our Proxy Statement.

Certain Relationships and Related Person

SEC regulations define the

related person transactions that require disclosure to include any transaction, arrangement or relationship in which the amount involved

exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years in which we

were or are to be a participant and in which a related person had or will have a direct or indirect material interest.

A related person

(i) an executive officer, director or director nominee of the Company, (ii) a beneficial owner of more than 5% of our common stock,

(iii) an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5% of our common

stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial

ownership interest or control.

Described below are certain transactions or relationships between us and certain related persons.

The following is a summary

of transactions since January 1, 2024 to which we have been a party in which the amount involved exceeded $120,000 and in which any of

our executive officers, directors or beneficial holders of more than five percent of our capital stock had or will have a direct or indirect

material interest, other than compensation arrangements which are described in Item 11 of this Annual Report “Executive Officer

and Director Compensation.”

On July 19, 2022, the Company

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

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

The principal plus interest

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

On April 27, 2025, the Company entered into a settlement agreement with YFE to resolve

the outstanding obligation under the Shareholder Loan Agreement.

Pursuant to the settlement agreement, the Company accepted a reduced

repayment amount of $0.4 million, payable in two installments no later than June 2025, in full satisfaction of the loan balance.

The settlement agreement became effective in April 2025 and the Company recorded an adjustment to the balance of the loan and recognized

a loss of approximately $0.9 million.

As of December 31, 2025, all terms of the settlement agreement were fulfilled.

As of December

31, 2025 and December 31, 2024, $0 and $1.4 million, respectively, is included within Notes and Accounts Receivable from Related Party

on the Company’s consolidated balance sheets.

During the years ended December

31, 2025 and December 31, 2024, YFE paid $16,940 and $70,429, respectively, in interest.

Stefan Piëch, a Director of the Company

from June 23, 2022 until March 5, 2025, served as the Chief Executive Officer of YFE.

Stefan Piëch, a director

of the Company from June 23, 2022 until March 5, 2025, served as the Chief Executive Officer of YFE.

Review, Approval or Ratification of Transactions with Related

Pursuant to the written charter

of our Audit Committee, the Audit Committee is responsible for reviewing and approving all transactions both in which (i) we are a participant

and (ii) any parties related to us, including our executive officers, our directors, beneficial owners of more than 5% of our securities,

immediate family members of the foregoing persons and any other persons whom our Board determines may be considered related parties under

Item 404 of Regulation S-K, has or will have a direct or indirect material interest.

Certain of the transactions described in this section

occurred prior to the adoption of the Audit Committee’s charter on June 26, 2023.

All of the transactions described in this section

that occurred after such date were approved by the Audit Committee.

Director Independence

The Board has determined that

the following current directors, constituting a majority of the members of the Board, are “independent directors” as defined

by the NYSE American Company Guide:

Davis, Messrs.

Schlesinger and Thomopoulos, Mses.

Loesch and Segall and Dr.

Turner-Graham.

Sicignano III, a director of the Company from May 22, 2023 until his resignation from the Board on December 12, 2025 was also determined

by the Board to be an “independent director” as defined by the NYSE American Company Guide.

Each director who served as

a member of the Audit, Compensation, and Nominating Committees during 2025 was, and each current member of the Audit, Compensation, and

Nominating Committees is, an independent director pursuant to all applicable NYSE American listing standards.

In addition, (i) each director

who served as a member of the Audit Committee during 2025 also met, and each current member of the Audit Committee also meets, the additional

independence standards for audit committee members established by the SEC, and (ii) each director who served as a member of the Compensation

Committee during 2025 also qualified, and each current member of the Compensation Committee also qualifies, as a “non-employee director”

as defined in Rule 16b-3 of the Exchange.

Principal Accounting Fees and Services

Current Principal Accountant Fees and Services

WithumSmith+Brown, PC (“Withum”)

served as our independent registered public accounting firm for the fiscal year ended December 31, 2024 and has served as our independent

registered public accounting firm since January 29, 2024.

The following table sets forth

fees billed to us by Withum for the years ended December 31, 2024 and 2023 for services rendered for the audit of our annual financial

statements, the review of our quarterly financial statements and services rendered in connection with the filing of registration statements:

Audit-Related Fees

Former Principal Accountants Fees and Services

Baker Tilly US, LLP (“Baker

Tilly”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2022 and until October

The following table sets forth fees billed to us by Baker Tilly for the years ended December 31, 2024 and 2023 for (i) services

rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered

that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees,

and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

Audit-Related Fees

Mazars USA LLP (“Mazars”)

served as our independent registered public accounting firm from October 23, 2023 until January 24, 2024.

Withum served as our independent

registered public accounting firm for the fiscal year ended December 31, 2025 and has served as our independent registered public

accounting firm since January 29, 2024.

The following table sets forth

fees billed to us by Mazars for the years ended December 31, 2024 and 2023 for (i) services rendered for the audit of our annual financial

statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance

of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with

tax preparation, compliance, advice and assistance.

aggregate fees billed to us by Withum for professional services for the years ended December 31, 2025 and December 31, 2024:

Audit-Related Fees

The aggregate fees included in each of the categories

are fees billed in the fiscal years.

Audit fees billed in 2025 and 2024 include fees

for (i) the audit of our annual financial statements for the fiscal years ended December 31, 2025, and 2024 included in this Annual Reports

on Form 10-K, (ii) the review of our interim period financial statements for the 2025 and 2024 years included in our Quarterly Reports

on Form 10-Q, and (iii) related services that are normally provided in connection with regulatory filings or engagements, such as reviewing

financial information included in certain registration statements that was also included in the Company’s quarterly and annual financial

Audit-related fees billed in 2024 primarily related

to procedures performed in connection with the Company’s Form S-8 registration statement, that are closely aligned with the audit

but not classified as audit fees.

Pre-Approval Policies and Procedures

We obtain an engagement letter

for all audit and tax services.

The Audit Committee pre-approves the services performed by the independent registered public accounting

These services may include audit services, audit-related services, tax services and other services, as follows:

for all audit and non-audit services proposed to be performed during the year.

The Audit Committee pre-approves the services performed

by the independent registered public accounting firm.

These services may include audit services, audit-related services, tax services

and other services, as follows:

• Audit services include professional services rendered by the principal accountant for the

audit of the annual and review of the quarterly financial statements, as well as work that generally only the independent auditor can

reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial

accounting and/or reporting standards.

reasonably be expected to provide, including comfort letters related directly to audit procedures, statutory audits, and attest services

and consultation regarding financial accounting and/or reporting standards.

• Audit-Related services are for assurance and related services that are traditionally performed

6 unchanged sentences

in the other categories.

Examples include comfort letters, circle-ups, and related document reviews for company capital raise initiatives.

Examples include comfort letters related to other procedures, circle-ups, and related document reviews for company

capital raise initiatives.

Exhibits and Financial Statement Schedules

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EXHIBIT INDEX

Arrangement Agreement dated as of October 26, 2021 among the Company, 1326919 B.C.

and Wow Unlimited Media Inc.

(Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2021)

Agreement and Plan of Merger dated June 21, 2023 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023)

Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K, filed with the SEC on March 31, 2021)

Certificate of Change to the Articles of Incorporation of the Company, filed with the Secretary of State of the State of Nevada on February 9, 2023 (Incorporated by reference to Exhibit 3.1 the Company’s Current Report on Form 8-K, filed with the SEC on February 10, 2023)

of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed

with the SEC on August 19, 2019)

of Change to the Articles of Incorporation of the Company, filed with the Secretary of State of the State of Nevada on February 9,

2023 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February

Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 19, 2019)

Amended and Restated Certificate of Designations, Preferences and Rights of the 0% Series A Convertible Preferred Stock, filed with the Secretary of State of Nevada on November 21, 2019 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2019)

5 unchanged sentences

Certificate of Change to the Articles of Incorporation of the Company, filed with the Secretary of State of the State of Nevada on November 9, 2023 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2023)

Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

Form of Waiver Warrant (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2019)

Description of Capital Stock

Form of Investor Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2019)

Form of Reload Warrant (Incorporated by reference to Exhibit 4 .

1 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2019)

Description of Capital Stock (Incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 9, 2024)

Form of New Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2021)

Form of New Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 19, 2024)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Series A Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

1 unchanged sentence

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 21, 2025)

Form of Common Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 21, 2025)

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 21, 2025)

Form of Stock Option Grant Notice Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

Form of Restricted Stock Unit Agreement Pursuant to the Company's 2020 Incentive Plan (Incorporated by reference to Exhibit 10.4 the Company's Current Report on Form 8-K filed with the SEC on December 11, 2020)

Incentive Plan of the Company, as amended (Incorporated by reference to

Company’s Quarterly Report on Form 10-Q filed on November 14, 2017)

Subscription Agreement dated January 17, 2017 between the Company and Sony DADC USA, Inc.

(Incorporated by reference to Exh ibit 10.

1 to the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2017)

Registration Rights Agreement dated August 17, 2018 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 17, 2018)

Studios Inc 2020 Incentive Plan

amended and restated March 21, 2024

( Incorporated

by reference to Exhibit 99.1 the Company’s Form S-8 filed with the SEC on June 11, 2024 )

2015 Incentive Plan of the Company, as amended (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2017)

Kartoon Studios Inc 2020 Incentive Plan amended and restated March 21, 2024 (Incorporated by reference to Exhibit 99.1 the Company’s Form S-8 filed with the SEC on June 11, 2024)

Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 7, 2020 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

Amended and Restated Employment Agreement between the Company and Andrew Heyward, dated December 7, 2020 (Incorporated by reference to Exhibit 10.

1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

Amended and Restated Employment Agreement between the Company and Andrew Heyward, dated December 7, 2020 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2020)

Amendment No.

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Form of Letter Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 27, 2023)

Termination of Lease Agreement, dated July 26, 2023 by and between Lyndhurst Investments, LLC.

and Beacon Media Group (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed with the SEC on August 14, 2023)

Employment Agreement dated as of September 15, 2023, by and between the Company and Brian Parisi, effective as of September 27, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2023)

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Placement Agent Agreement, dated as of April 18, 2024, by and between Kartoon Studios, Inc.

and EF Hutton LLC (incorporated by reference to Exhibit 10.

2 to the Company’s Current Report on Form 8-K filed on April 19, 2024)

and EF Hutton LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 19, 2024)

Placement Agency Agreement, dated December 16, 2024, by and between Kartoon Studios, Inc.

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Amendment No.

4 to the Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 6, 2024

4 to the Amended and Restated Employment Agreement between the Company and Michael Jaffa, dated November 6, 2024 (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2025)

Amendment No.

1 to the Amended and Restated 2020 Incentive Plan, effective December 12, 2024

Letter from Baker Tilly US, LLP, dated October 27, 2023 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on October 27, 2023)

Letter from Mazars USA LLP, dated January 30, 2024 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on January 30, 2024)

1 to the Amended and Restated 2020 Incentive Plan, effective December 12, 2024 (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2025

Form of Amendment Agreement to Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 21, 2025)

Amendment No.

2 to the Amended and Restated 2020 Incentive Plan, effective May 14, 2025 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 16, 2025)

Employment Agreement between the Company and Andrew Heyward dated August 25, 2025 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K, filed with the SEC on August 29, 2025)

Agreement and Stipulation between the Company and Continuation Capital, Inc., dated as of August 27, 2025 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 5, 2025)

Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 21, 2025)

Employment Agreement between Kartoon Studios, Inc.

and Brian Parisi, dated November 24, 2025 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K, filed with the SEC on November 28, 2025)

Employment Agreement between Kartoon Studios, Inc.

and Michael Jaffa, dated November 24, 2025 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on 8-K, filed with the SEC on November 28, 2025)

The Agreement and Stipulation between the Company and Continuation Capital, Inc., dated as of November 18, 2025 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on 8-K, filed with the SEC on November 28, 2025)

Consulting Agreement between Kartoon Studios, Inc.

and Henry Sicignano, effective as of December 12, 2025 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K, filed with the SEC on December 16, 2025)

Amendment No.

3 to the Amended and Restated 2020 Incentive Plan, effective March 30, 2026

Kartoon Studios, Inc.

Insider Trading Policy

List of Subsidiaries of the Company

Insider Trading Policy (Incorporated by reference to Exhibit 19.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on April 9, 2024)

List of Subsidiaries of the Company (Incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2025)

Consent of WithumSmith+Brown, PC

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Clawback Policy, effective December 1, 2023 (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K filed on April 9, 2024)

Letter to Stockholders in Accordance with NRS 78.0296

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

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contract or compensatory plan or arrangement.

# Exhibits and Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

The Company agrees

to furnish supplementally a copy of any omitted exhibit and schedule to the SEC upon request.

Form 10-K Summary

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attorney-in-fact, with the power of substitution in any and all capacities, to sign any amendments to this Annual Report on Form 10-K

and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,

hereby ratifying and confirming all that each of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue

and to file the same, with exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and confirming

all that each of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements

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March 30, 2026

Chief Executive Officer (Principal Executive Officer)

Chief Executive Officer (Principal Executive Officer and Chairman of the Board)

/s/ Brian Parisi

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Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Henry Sicignano III

March 31, 2025

Henry Sicignano III

/s/ Joseph “Gray” Davis

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Joseph “Gray” Davis

/s/ Margaret Loesch

March 30, 2026

Margaret Loesch

/s/ Jeffrey Schlesinger

March 30, 2026

Jeffrey Schlesinger

/s/ Lynne Segall

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Anthony Thomopoulos

/s/ Margaret Loesch

March 31, 2025

Margaret Loesch

Cynthia Turner-Graham

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Notes to Consolidated Financial Statements

Report of Independent Registered

Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

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and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related

consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31,

2024 and 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as

of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years ended December 31, 2024

and 2023, in conformity with accounting principles generally accepted in the United States of America.

consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the

related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial

statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024,

and the consolidated results of its operations and its cash flows for the years ended December 31, 2025 and 2024, in conformity with accounting

principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue

as a Going Concern

The accompanying consolidated financial statements

have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements,

the Company has suffered recurring losses and negative cash flows from operations since inception and expects to continue incurring losses

and negative cash flows in the future.

These matters raise substantial doubt about the Company’s ability to continue as a going

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include

any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Accounting for Complex Equity Transactions

As disclosed in Note 13 to the consolidated financial

statements, in April 2024, the Company closed a registered direct offering of the sale of 3,900,000 shares of common stock and pre-funded

warrants to purchase up to 100,000 shares of common stock, at $1.00 per share of common stock and $0.99 per pre-funded warrant.

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 the Company in June 2023, was reduced from $2.50 per share to $1.00 per share pursuant to anti-dilution provisions contained

in such warrant agreements.

Following an analysis under applicable accounting guidance, the Company determined that the pre-funded warrants

met the criteria for equity classification.

In December 2024, the Company closed an offering

for 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 $0.569.

The Company 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, the Company 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.

The liability-classified warrants were subsequently measured

at fair value, with changes recognized in earnings.

As disclosed in Notes 13 and 16 to the consolidated

financial statements, on May 14, 2025, there were changes in facts and circumstances impacting the Company's warrant agreement associated

with the Company’s December 2024 offering.

Based on these changes in facts and circumstances, the Company reevaluated the classification

of the warrants under ASC 815-40 and determined that equity classification is appropriate.

The warrants were remeasured to fair value

immediately before the reclassification.

As of May 13, 2025, the warrants were revalued at approximately $5.7 million, resulting in a

recognition of a $0.7 million decrease in the liability.

The change in value was recorded as a Gain on Revaluation of Warrants within

Other Income (Expense), net on the consolidated statements of operations.

Subsequently, the total liability of approximately $5.7 million

was reclassified to additional paid-in capital.

On October 22, 2025, pursuant to the terms of

the October 2025 Purchase Agreement, the Company closed the registered direct offering of the 3,000,000 October 2025 Shares and the October

2025 Pre-Funded Warrants to purchase up to 6,903,049 shares of common stock to the October 2025 Investor.

In the Concurrent Private Placement,

pursuant to the October 2025 Purchase Agreement, the Company also sold to the October 2025 Investor unregistered October 2025 Common Warrants

to purchase up to 9,903,049 shares of common stock, 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 addition, the Company issued 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

The warrants were deemed to be equity classified.

The accounting for the transactions required an

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We evaluated the methodologies and assumptions used to estimate the fair value of the warrants

on the date of grant as well as of December 31, 2024.

In addition, we evaluated the Company’s footnote disclosures in relation to

the warrants.

on the date of grant as well as the date of the reclassification of the warrants originally issued with the December 2024 offering.

addition, we evaluated the Company’s footnote disclosures in relation to the warrants.

Impairment of Intangible Assets

As disclosed in Note 9 to the financial statements,

as of December 31, 2024, the Company had $19.7 million of intangible assets, net.

The Company completes the annual intangible asset impairment

tests at the end of each fiscal year.

Intangible assets have been acquired, either individually or with a group of other assets, and were

initially recognized and measured based on fair value.

Subjective auditor judgment was required to evaluate certain key assumptions used

determine the fair value of the reporting units and the intangible assets.

For the reporting units, the key assumptions included the discount

rates used in the present value calculations and forecasted revenue growth rates and operational cost trends.

For the intangible assets,

the key assumptions included the discount rates used in the present value calculations and the forecasted revenue growth rate and operational

Changes to these key assumptions could have had a substantial impact on the fair value of the reporting units and intangible

asset and the amount of the impairment charges.

Additionally, the audit effort associated with the estimates required specialized valuation

skills and knowledge.

As disclosed in Note 9 to the consolidated financial

statements, as of December 31, 2025, the Company had $17.6 million of intangible assets, net.

During the year ended December 31, 2025,

the Company recorded an impairment charge of approximately $0.8 million related to the Frederator and Wow tradenames due to a reduction

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

The Company completes the annual intangible asset impairment tests

at the end of each fiscal year.

Intangible assets have been acquired, either individually or with a group of other assets, and were initially

recognized and measured based on fair value.

Subjective auditor judgment was required to evaluate certain key assumptions used to determine

the fair value of the intangible assets.

For the intangible assets, the key assumptions included the discount rates used in the present

value calculations and the forecasted revenue growth rate and operational cost trends.

Changes to these key assumptions could have had

a substantial impact on the fair value of the intangible assets and the amount of the impairment charges.

Additionally, the audit effort

associated with the estimates required specialized valuation skills and knowledge.

The following are the primary procedures we performed

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In addition, we involved valuation professionals with specialized skills

and knowledge, who assisted in evaluating the appropriateness of the valuation method utilized.

/s/ WithumSmith+Brown,

and knowledge, who assisted in evaluating the appropriateness of the valuation method utilized, specific inputs used in the valuation

as well as performing a parallel analysis for reasonableness.

/s/ WithumSmith+Brown, PC

We have served as the Company's auditor since 2024.

Whippany, New Jersey

March 30, 2026

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Consolidated Balance Sheets

(in thousands,

except for share data)

(in thousands, except for

As of December 31,

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Production Facilities, net

Bank Indebtedness

Current Portion of Operating Lease Liabilities

Current Portion of Finance Lease Liabilities

Warrant Liability

Due to Related Party

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Deferred Tax Liability, net

Factoring Liability

Warrant Liability

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Stockholders’ Equity:

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

and outstanding as of December 31, 2024 and December 31, 2023

0% Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized,

0 shares issued and outstanding as of December 31, 2024 and December 31, 2023

Series B Preferred Stock, $ 0.001 par value, 0 and 1 share

authorized, 0 and 1 share issued and outstanding as of December 31, 2024 and December 31, 2023, respectively

Preferred Stock, 10,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024

0% Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized, 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024

Series B Preferred Stock, $ 0.001 par value, 0 shares authorized, 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024

Common Stock, $ 0.001 par value, 190,000,000 shares authorized;

46,285,078 and 35,323,217 shares issued and 46,209,081 and 35,247,744 outstanding as of December 31, 2024 and December 31, 2023, respectively

55,282,150 and 46,285,078 shares issued and 54,857,000 and 46,209,081 shares outstanding as of December 31, 2025 and December 31, 2024, respectively

Additional Paid-in Capital

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General and Administrative

Impairment of Property and Equipment

Impairment of Intangible Assets

Impairment of Goodwill

Total Operating Expenses

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(in thousands, except share

Preferred Stock

Additional Paid-In

Accumulated Other

Comprehensive

Treasury Stock

Accumulated Other Comprehensive

Non-Controlling

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Issuance of Common Stock for Services

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

Fractional Shares Issued Upon Reverse

Proceeds From Warrant Exchange, net

Reclassification of Warrant Liability

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

Stock Option Granted to Consultants

Reclassification Related to Reverse Stock Split

Proceeds from Securities Purchase Agreement, Net

Placement Agent Fee Paid in Cash

Warrant Exercise

Share cancellation

Share-Based Compensation

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

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

Currency Translation Adjustment

Distributions to Non-Controlling

Balance, December 31, 2024

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Issuance of Common Stock for Services

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

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

Issuance of Common Stock for Accounts Payable Settlement

Stock Options Granted to Consultants

Reclassification Related to Reverse Stock Split

Proceeds from Securities Purchase

Agreement, Net

Non-cash Share Exchange

Proceeds from Securities Purchase Agreement, Net

Placement Agent Fee Paid in Cash

Warrant Exercise

Film Financing From External Investor

Share-Based Compensation

Share cancellation

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Warrant Reclassification

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

Currency Translation Adjustment

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Impairment of Intangible Assets

Impairment of Goodwill

Unrealized Loss on Foreign Currency for Goodwill

Impairment of Property and Equipment

Loss on Early Lease Termination

Fair Value Of Issued Warrants

Loss on Debt Settlement

Gain on Early Lease Termination

Loss on Share Exchange

Deferred Income Taxes

Marketing Expenses in Exchange for Stock

Loss (Gain) on Revaluation of Equity Investments in Your Family Entertainment AG

Loss on Partial Disposal of Equity Investment in Your Family Entertainment AG

Loss on Revaluation of Equity Investments in Your Family Entertainment AG

Unrealized (Gain) Loss on Foreign Currency of Equity Investments in Your Family Entertainment AG

Gain on Warrant Revaluation

Loss (Gain) on Warrant Revaluation

Accounts Payable Balance Settled in Stock

Loss on Transaction

Realized Loss on Marketable Securities

Write-off of Disputed Trade Payable

Non-cash Interest Expense

Stock Issued for Services

Stock Options Issued for Services

Stock Options Issued to Consultants

Credit Loss Expense

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Decrease (Increase) in Operating Assets:

Accounts Receivable, net

Accounts Receivable

Other Receivable

Tax Credits Earned (less capitalized)

Tax Credits Received, net

Tax Credits Received

Employee Retention Tax Credit Receivable

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Repayments from Related Party for Note Receivables

Proceeds from Principal Collections on Marketable Securities

Proceeds from Sales and Maturities of Marketable Securities

Investment in Marketable Securities

Purchase of Property and Equipment

Net Cash Provided by Investing Activities

Net Cash (Used in) Provided by Investing Activities

Cash Flows from Financing Activities:

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Proceeds from Production Facilities

Repayment of Production Facilities

(Repayments of )/Proceeds from Bank Indebtedness, net

Proceeds from Warrant Exchange, net

Repayments of Production Facilities

Repayments of Bank Indebtedness, net

Proceeds from Factoring Transaction

Principal Payments on Finance Lease Obligations

Debt Issuance Costs

Film Financing from External Investors

Proceeds from Sale of Investment

Placement Agent Fee Paid in Cash

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Proceeds from Warrant Exercise

Payment for Warrant Put Option Exercise

Net Cash Used in Financing Activities

Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash

Net Increase (Decrease) in Cash and Restricted Cash

Net (Decrease) Increase in Cash and Restricted Cash

Beginning Cash and Restricted Cash

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Leased Assets Obtained in Exchange for New Finance Lease Liabilities

Warrants Issued for Services

Warrant Modification

The accompanying notes are

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Kartoon Studios, Inc.

Notes to Consolidated Financial

Notes to Consolidated

Financial Statements

Organization and Business

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Kartoon Studios, Inc.

known as Genius Brands International, Inc.) (the “Company” or “we,” “us” or “our”) is

a global content and brand management company that creates, produces, licenses, and broadcasts educational, multimedia animated content

for children.

Led by experienced industry personnel, the Company distributes its content primarily on streaming platforms and television,

and license properties for a broad range of consumer products based on the Company’s characters.

The Company is a “work for

hire” producer for many of the streaming outlets and animated content intellectual property (“IP”) holders.

In the children’s

media sector, the Company’s portfolio features “content with a purpose” for toddlers to tweens, providing enrichment

as well as entertainment.

With the exception of selected WOW Unlimited Media Inc.

(“Wow”) titles, the Company’s programs,

along with licensed programs, are being broadcast in the United States on the Company’s wholly-owned advertisement supported video

on demand (“AVOD”) service, its free ad supported TV (“FAST”) channels and

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

TV, as well as linear streaming platforms .

These streaming platforms include Comcast,

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

YouTube Kids, and Samsung and LG smart TVs.

The Company’s in-house owned and produced animated shows include Stan Lee’s Superhero

Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC!

Shaq’s Garage starring Shaquille O’Neal.

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

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

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

Genius Brands International, Inc.) (the “Company,” “Kartoon Studios,” “we,” “us” or “our”)

is a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated

content for children.

Led by experienced industry personnel, the Company’s core business includes original intellectual property

(“IP”) development, third-party IP production services, media agency, and content monetization through licensing and owned

distribution platforms.

Kartoon Studios’ owned

and produced titles include Stan Lee’s Superhero Kindergarten (starring Arnold Schwarzenegger), Llama Llama (starring

Jennifer Garner), Rainbow Rangers , KC!

Pop Quiz , and Shaq’s Garage (starring Shaquille O’Neal).

The Company’s

library also includes titles such as Baby Genius , Thomas Edison’s Secret Lab , Warren Buffett’s Secret Millionaires

Club , Team Zenko Go!

, Reboot , Bee & PuppyCat:

Lazy in Space , and Castlevania .

The Company also licenses

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

Max, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.

Through our investments in

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

we have gained access to a leading producer and distributor of high-quality children’s and family programming.

YFE owns and operates

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

Through the ownership of Wow,

the Company established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world.

The Company maintains

a strategy of leveraging owned IP and third-party relationships to expand distribution and consumer product licensing.

Kartoon Studios also owns

Wow Unlimited Media Inc.

(“Wow”), through which the Company operates Mainframe Studios - one of the largest animation

production studios globally.

Mainframe Studios is a producer-for-hire for several major streaming platforms and IP holders.

To date, Mainframe

has produced over 1,200 television episodes, 70 movies, and 3 feature films, including titles such as Barbie Dreamhouse Adventures ,

Above & Beyond , Cocomelon , SuperKitties , It’s Andrew!, and Unicorn Academy , in

partnership with leading global media companies.

In addition, Wow owns Frederator Networks Inc.

(“Frederator”) and its Channel Frederator Network , the largest animation

focused creator network on YouTube with over 2,500 channels.

Frederator also owns Frederator Studios, focused on developing and producing

shorts and series for and with partners.

Over the past 20 years, Frederator Studios has partnered with Cartoon Network, Nickelodeon, Nick

Jr., Netflix, Sony Pictures Animation and Amazon.

The Company has rights to

certain select valuable IP, through our ownership of a controlling interest in Stan Lee Universe, LLC (“SLU”), an entity we

control and through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan

Lee Assets”).

(“Frederator”).

operates a leading animation-focused creator network, Channel Frederator Network, on YouTube encompassing over 2,500 channels.

Studios has developed and produced original programming in partnership with Cartoon Network, Nickelodeon, Nick Jr., Netflix, Sony Pictures

Animation, and Amazon.

The Company distributes its

content across streaming platforms, linear television, and its ad-supported and subscription-based video-on-demand (“VOD”)

services and apps, including Kartoon Channel!

and Ameba TV .

Distribution partners include YouTube, YouTube Kids, Amazon

Prime Video, Amazon Fire, Roku, Apple TV, iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, Samsung TV Plus, Google TV, Cox, DISH,

Sling TV, KartoonChannel.com, and smart TVs from Samsung and LG.

The Company also licenses content to third-party networks and streaming

services globally, including Netflix, Paramount+, HBO Max, and Nickelodeon.

The Company also owns The

Beacon Media Group, LLC (“Beacon Media”) and The Beacon Communications Group, Ltd.

(“Beacon Communications”) (collectively,

“Beacon”), a leading North American media and marketing agency, celebrated for its innovative, tailored strategies and unmatched

expertise in reaching kids, parents, and families with precision and impact.

Beacon represents over 20 kids and family clients, including

Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, Cepia LLC, and Zebra Pens.

In addition, the Company owns

the Canadian company Ameba Inc.

(“Ameba”), which operates a premier subscription-based streaming service specializing in younger

children’s entertainment.

As a cornerstone of our subscription offerings, Ameba delivers a vast library of engaging and educational content,

accessible across multiple platforms.

We believe, that Ameba significantly enhances our digital footprint and revenue streams.

On June 23, 2023, the Company

was renamed Kartoon Studios, Inc.

On June 26, 2023, the Company transferred its listing to NYSE American LLC (“NYSE American”).

In connection with listing on NYSE American, the Company voluntarily delisted from the Nasdaq Capital Market (“Nasdaq”).

Company’s common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023.

Beacon Media Group, LLC and The Beacon Communications Group, Ltd.

(collectively, “Beacon”), a specialized media and marketing

agency focused on children’s and family audiences.

Beacon represents over 20 established and emerging brands across the toy, consumer

products, and family entertainment sectors, including Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, and Cepia

The agency has developed a strong reputation within the toy industry, supported by long-standing client relationships, deep category

expertise, and a consistent track record of campaign execution.

The Company believes that Beacon’s positioning within a niche, relationship-driven

market provides barriers to entry and supports durable demand for its services.

The Company owns Ameba Inc.

which operates Ameba TV, a subscription streaming service with a focus on educational and entertainment content for younger children.

As a cornerstone of the Company’s subscription offerings, Ameba delivers a vast library of engaging and educational content, accessible

across multiple platforms.

Through its investment in

Germany-based Your Family Entertainment AG (“YFE”), a publicly listed company on the Frankfurt Stock Exchange (RTV:

the Company holds a strategic interest in one of Europe’s leading independent children’s content providers, with a catalog

of approximately 150 titles and 3,500 half-hour episodes.

The Company holds a controlling

interest in Stan Lee Universe, LLC (“SLU”), which owns the IP rights to Stan Lee’s name, likeness, signature, and associated

Recent Transactions

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.

Milne’s “Winnie-the-Pooh,” a property that has generated over $ 80 billion

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

Catalyst 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 $ 0.569 .

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

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.

As a result of this

allocation, we recorded a non-cash loss of $ 1 .0

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.

Furthermore, our management believes, that the offering

was beneficial from a market visibility perspective.

On July 31, 2025, the Company

entered into an agreement to sell its rights to its $ 0.9 million outstanding Employee Retention Tax Credit (“ERTC”) refund

claims to a third party in exchange for cash consideration.

Under the agreement, the Company received an upfront payment of $ 0.5 million

equal to 55 % of the claim amount upon execution, with an additional payment of $ 0.1 million equal to 15 % to be paid

upon collection from the IRS.

The Company is entitled to receive any interest earned on the 15% claim amount if it is collected from the

IRS within nine months of signing the agreement.

Any interest received from the IRS after the nine-month period will be retained by the

Pursuant to the agreement, the Company retains legal title and remains obligated in the event of any disallowance, modification,

or reduction of the claim by the IRS.

The arrangement includes a recourse provision under which the Company remains obligated to repay

amounts advanced in the event of any disallowance, modification, or reduction of the claim by the IRS.

October Financing

On October 22, 2025, pursuant

to the terms of a securities purchase agreement (the “October 2025 Purchase Agreement”) entered into with an institutional

investor (the “October 2025 Investor”), the Company closed a registered direct offering (the “Registered Direct Offering”)

of 3,000,000 shares (the ”October 2025 Shares”) of its 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, the Company 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, 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, the Company 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, the Company

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.

Section 3(a)(10) Accounts Payable Settlement

On August 27, 2025, the Company

entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities

Act”) with Continuation Capital, Inc.

(“CCI”), 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 makes payments to the Company’s vendors in cash

and, in exchange, the Company issues shares of common stock to CCI.

The settlement was valued at 1.75 shares of common stock per $ 1 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, the Company had completed the

arrangement, settling a total of $ 1.8 million, and issuing an aggregate of 3,148,535 shares of common stock.

The Company 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 the Company’s consolidated statements of operations.

On November 18, 2025, the

Company entered into a new agreement to settle an additional $ 1 .0 million of accounts payable under Section 3(a)(10) of the Securities

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

The terms were consistent with the original arrangement.

the three months ended December 31, 2025 the Company settled $ 0.4 million of accounts payable and issued 717,712 shares of common

stock to CCI.

The Company 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.

Liquidity and Capital Resources

As of December 31, 2025,

2024, the Company 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 offset by cash used by operating activities of $ 3.5

million and cash used in financing activities of $ 3.1

The cash provided by investing activities was primarily due to sales of marketable securities of $ 10

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

obligations, and bank indebtedness including margin loan, net of proceeds from each, resulting in net cash used of $ 8.6

million, offset by net proceeds from the Offering of $ 7.5

million and margin loan of $ 0.1

the Company 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 proceeds of $ 6.5 million, net of placement agent

fees and other offering expenses, received 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 factoring transaction, offset by the margin loan repayment of $ 0.9 million and finance lease payments of $ 0.4 million.

As of December 31, 2025,

the Company held available-for-sale marketable securities with a fair value of $ 2.03 million, a decrease of

$ 9.92 million as compared to December 31, 2023 due to sales and maturities during the year ended December 31, 2024.

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

the Company held available-for-sale marketable securities with a fair value of $ 4 .0 million, an increase of

$ 1.9 million as compared to December 31, 2024 due to the investment of a portion

of the net proceeds from 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.

As of December 31,

and December 31, 2023, the Company’s margin loan balance was $ 0.9 million and $ 0.8 million, respectively.

During the year ended

December 31, 2024, the Company borrowed an additional $ 11 .0 million from its 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 costs.

2025 the Company had no

outstanding margin loan balance.

As of December 31, 2024, the Company’s margin loan balance was $ 0.9

During the year ended December 31, 2025, the Company borrowed an additional $ 5.9

million from its 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 0.20 %

0.46 % and 0.98 %, respectively, on average margin loan balances of $ 1 million and $ 27.4 million as of December 31, 2024 and December 31,

2023, respectively.

respectively, on average margin loan balances of $ 0.2

million and $ 1 .0

million as of December 31, 2025 and December 31, 2024

During the years ended December 31,

31, 2024 and December 31, 2023, the Company incurred interest expense on the margin loan of $ 0.1 million and $ 1.5 million, respectively.

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

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

Due to the call option, the margin loan is

recorded as a current liability on the Company’s consolidated balance sheets.

In the second and third quarter

of 2024, the Company was not in compliance with financial covenant calculations.

As a result of these financial covenant violations, the

Company 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, the Company is 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.

2025 and December 31, 2024, the Company incurred interest expense on the margin loan of $ 8,392 and $ 0.1 million, respectively.

investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and

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

Due to the call option, the margin loan is recorded

as a current liability on the Company’s consolidated balance sheets.

Going Concern

In accordance with Accounting

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

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

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

Historically, the Company

has incurred net losses.

For the years ended December 31, 2025 and December 31, 2024, the Company reported net losses of $ 24.7

million and $ 20.9 million, respectively.

The Company 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, the Company had an accumulated deficit of 763.8 million and total stockholders’ equity of $ 27.5 million.

As of December 31,

2025, the Company 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.

The Company had working capital of $ 2.3 million as of December 31, 2025, compared

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

Management has evaluated the significance of these conditions in relation

to the Company’s ability to meet its obligations and concluded, that there is substantial doubt about our ability to continue as

a going concern for a period of at least one year subsequent to the issuance of the accompanying condensed consolidated financial statements.

Historically, the Company has financed its operations primarily through revenue generated from operations, loans and sales of its securities,

and the Company expects to continue to seek and obtain additional capital in a similar manner.

In order to address the Company’s

capital needs, the Company intends 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.

There can be no assurance that the Company

will be able to complete any such financing, collaborative or strategic transaction in a timely manner or on acceptable terms.

the Company may have to significantly limit its operations and its business, financial condition and results of operations would be materially

During the year ended December 31,

2025, the Company was successful in raising net proceeds of $ 6.5 million in connection with the October Offerings, which closed on October

22, 2025, strengthening its cash position.

Despite this, macroeconomic conditions continue to present challenges in the animation and

advertising industries, primarily due to ongoing government tariffs and intensified competition.

In parallel, management also plans to

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

For example, during the year ended December 31, 2025, in order

to improve liquidity, the Company sold certain assets, including ERTC receivables and 1,500,000 YFE shares, and settled $ 2.2 million of

outstanding accounts payable in a transaction under Section 3(a)(10) of the Securities Act.

While management is taking

these steps to improve liquidity, due to the uncertainty surrounding the successful execution and timing of these plans, substantial doubt

continues to exist regarding the Company’s ability to meet its obligations as they become due within one year after the date the

financial statements are issued.

Summary of Significant Accounting Policies

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financial statements have been prepared in conformity with U.S.

Generally Accepted Accounting Principles (“GAAP”) and the

applicable rules and regulations of the U.S.

Generally Accepted Accounting Principles (“U.S.

the applicable rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

Reclassifications

Prior period restricted cash

amount included within the balance sheet statement has been reclassified or presented to conform with the current period presentation.

The amounts of restricted cash were presented as current assets, as the related contractual restrictions are expected to expire within

The reclassifications and changes in presentation had no impact on the Company's net loss or balance sheet.

Principles of Consolidation and Basis of Presentation

The Company’s consolidated

financial statements include the accounts of Kartoon Studios, Inc.

and its wholly-owned subsidiaries.

The Company also consolidates all

majority-owned subsidiaries and variable interest entities where the Company has been determined to be the primary beneficiary.

The interests

in a variable interest entity which the Company does not control are recorded as non-controlling interests.

Non-consolidated investments

are accounted for using the equity method or the fair value option and recorded at fair value with changes recognized within Other Income

(Expense), net on the consolidated statements of operations and comprehensive loss.

All significant intercompany accounts and transactions

have been eliminated upon consolidation.

The Company determines its

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Refer to Note 21 for additional information.

Principles of Consolidation and Basis of Presentation

The Company’s consolidated

financial statements include the accounts of Kartoon Studios, Inc.

and its wholly-owned subsidiaries.

The Company consolidates all majority-owned

subsidiaries and variable interest entities where the Company has been determined to be the primary beneficiary.

The interests in a variable

interest entity which the Company does not control are recorded as non-controlling interests.

Non-consolidated investments are accounted

for using the equity method or the fair value option and recorded at fair value with changes recognized within Other Income (Expense),

net on the consolidated statements of operations and comprehensive income (loss).

All significant intercompany accounts and transactions

have been eliminated upon consolidation.

Variable Interest Entities

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hold or use these instruments for speculative or trading purposes.

Per FASB ASC 815-10-45, Derivatives

and Hedging , the Company has elected an accounting policy to offset the fair value amounts recognized for eligible forward contract

derivative instruments.

Therefore, the Company presents the asset or liability position of the FX forwards that are with the same counterparty

net as either an asset or liability in its consolidated balance sheets.

Per Financial Accounting Standards

Board (“FASB”) ASC 815-10-45, Derivatives and Hedging , the Company has elected an accounting policy to offset the fair

value amounts recognized for eligible forward contract derivative instruments.

Therefore, the Company presents the asset or liability

position of the FX forwards that are with the same counterparty net as either an asset or liability in its consolidated balance sheets.

As of December 31, 2025

the gross amounts of foreign currency (“FX”) forward contracts in an asset and liability position subject to a master netting

arrangement resulted in a net liability of $ 0.6 million recorded within Other Current Liabilities on the consolidated balance sheets.

As of December 31, 2023, the FX contracts were fully settled and netted to zero on the Company’s consolidated balance sheets.

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

resulted in a net liability of $ 43,438 and $ 0.6 million, respectively, recorded within Other Current Liabilities on the consolidated balance

For the years ended December 31,

31, 2024 and 2023, the Company recorded a realized loss of $ 0.2 million and $ 0.1 million, respectively, on FX forward contracts within

Production Services Revenue on the consolidated statements of operations.

2025 and December 31, 2024, the Company recorded a realized loss of $ 0.3 million and $ 0.2 million, respectively, on FX forward contracts

within Production Services Revenue on the consolidated statements of operations.

Cash and Cash Equivalents

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As of December 31, 2025 and

December 31, 2023, the Company had cash of $ 8.4 million

and $ 4.1 million, respectively, that at times could exceed

Federal Deposit Insurance Corporation (“FDIC”) or Canadian Deposit Insurance Corporation (“CDIC”) limits.

loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results

of operations, and cash flows.

The availability of certain short-term lines of credit is dependent on the Company maintaining compensating

The compensating balances are not legally restricted and may be withdrawn, therefore the Company classifies them as cash on

the consolidated balance sheets.

As of December 31, 2024 and December 31, 2023, the total compensating balance maintained was

$ 0.5 million and $ 1.1

million, respectively.

December 31, 2024, the Company had cash and restricted cash of $ 2.9 million and cash and restricted cash of $ 8.4 million, respectively,

that at times could exceed Federal Deposit Insurance Corporation (“FDIC”) or Canadian Deposit Insurance Corporation (“CDIC”)

Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition,

results of operations, and cash flows.

The availability of certain short-term lines of credit is dependent on the Company maintaining

compensating balances.

The compensating balances are not legally restricted and may be withdrawn;

therefore, the Company classifies them

as cash on the consolidated balance sheets.

The Company did not hold any compensating balance as of December 31, 2025.

As of December 31,

2024, the total compensating balance maintained was $ 0.5 million.

The Company did not have any cash equivalents as of the periods presented.

As of December 31, 2024 and

December 31, 2023 the Company held $ 0.5 million in restricted cash.

This balance primarily represents collateral pledged in connection

with one of the subsidiary’s corporate American Express program.

As of December 31, 2024, the Company has no cash minimum

requirements.

As of December 31, 2025, the Company did not hold any restricted cash balance.

As of December 31, 2024 the Company held $ 0.5

million in restricted cash.

This balance primarily represented collateral pledged in connection with the Company’s subsidiary’s

corporate American Express program.

As of December 31, 2025, the Company has no cash minimum requirements.

Trade Accounts Receivable and Allowance for Credit Loss

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uncollectible accounts are written off against the allowance when collection of the individual accounts does not appear probable.

December 31, 2024 and December 31, 2023, the Company recorded an allowance for credit loss of $ 239,439 and $ 189,245 , respectively.

As of December 31, 2025

and December 31, 2024, the Company had net accounts receivable balances of $ 9.6 million and $ 12 .0 million, respectively.

The beginning

balance of net accounts receivable as of January 1, 2024 was $18.1 million.

As of December 31, 2025 and December 31, 2024, the

Company recorded an allowance for credit loss of $ 2,956 and $ 0.2 million, respectively.

The following table summarizes

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

2024 (in thousands):

Schedule of allowance for credit losses trade accounts receivable

Balance, net as of December 31, 2023

Charged to costs and expenses

Balance, net as of December 31, 2024

Charged to costs and expenses

Balance, net as of December 31, 2025

The Company limits its exposure

3 unchanged sentences

The Company’s customer base is mainly comprised

of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and AVOD and SVOD platforms that have been

customers for several years.

of major Canadian, American, and worldwide studios, distributors, broadcasters, toy companies and advertising-supported video on demand

(“AVOD”) and subscription video on demand (“SVOD”) platforms that have been customers for several years.

Tax Credits Receivable

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would result in a previously recognized amount to be considered no longer collectible.

The Company classifies majority

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

The Company classifies the

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

Government assistance, in the form of refundable tax credits,

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As of December 31, 2025

a portion of the Company’s tax credits receivable is presented as a long-term asset due to uncertainty regarding the timing of obtaining

the necessary certifications required to process the tax credits.

Management will continue to monitor the status of the outstanding items

and reclassify the receivable to current when the timing of collection becomes reasonably estimable.

As of December 31,

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.

and December 31, 2024, the Company had $ 16.8 million a nd

$ 12.7 million in tax credit receivables related to Wow’s film and television productions, respectively, net of corresponding

allowance for credit loss of $ 0.4 million and $ 0.6 million, respectively.

The Company did not

have any non-current tax credits receivable as of December 31, 2025.

As of December 31,

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.

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

million allowance for credit loss was presented as non-current asset due to uncertainty regarding the timing of obtaining the necessary

certifications required to process the tax credits.

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.

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

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

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

This amount was included in Other Income (Expense) ,

net in the consolidated statements of operations for the year ended December 31, 2024 .

During the year ended 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 was recorded in other current assets in the consolidated balance sheet.

During the year ended December 31, 2025, we received $ 0.2

million of ERTC refunds from the IRS.

As of December 31, 2025, the outstanding ERTC receivable balance was $ 1 .0

The Company did not record any ERTC benefits in the year ended December 31, 2025.

Factoring Liability

On July 31, 2025, the Company

entered into an arrangement to transfer its ERTC refund claim (“ERTC receivable”) of $ 0.9 million to a financing counterparty

on a recourse basis.

Because the Company retained exposure to the transferred asset through the recourse provisions and otherwise did

not relinquish control, the transaction did not qualify for sale accounting under ASC 860 , Transfers and Servicing , and has been

accounted for as a secured borrowing.

Accordingly, the ERTC receivable remains recognized in Other Receivables, and a corresponding liability

is recognized for the cash proceeds received (net of any direct issuance costs).

The related factoring liability of $ 0.7 million represents

approximately 75% of the ERTC underlying receivable amount and is presented in the consolidated balance sheet within Noncurrent Liabilities.

Management does not anticipate any repayment obligation within twelve months and expects full collection of the ERTC refund by the financing

counterparty.

No gain or loss was recognized at inception.

The ERTC receivable serves as collateral for the borrowing.

The difference

between the ERTC receivable and the cash proceeds was recorded as borrowing discount, which is deferred and accreted to interest expense

using the effective interest method (26.84%) over the expected term of the borrowing.

Collections on the ERTC receivable are remitted

to the lender pursuant to the agreement and reduce the outstanding loan principal when applied.

The Company evaluates the ERTC receivable

for collectability each reporting period.

Marketable Debt Securities

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quality, investment grade securities from diverse issuers.

Management determines the appropriate classification of securities at the

time of purchase and reevaluates such designation as of each balance sheet date.

Currently, the Company classifies its investments in

marketable securities as available-for-sale (“AFS”) and records these investments at fair value.

The securities are available

to support current operations and, accordingly, the Company classifies the investments as current assets without regard to their contractual

Management determines the appropriate classification of securities at the time

of purchase and reevaluates such designation as of each balance sheet date.

Currently, the Company classifies its investments in marketable

securities as available-for-sale (“AFS”) and records these investments at fair value.

The securities are available to support

current operations and, accordingly, the Company classifies the investments as current assets without regard to their contractual maturity.

Unrealized gains or losses

on available-for-sale securities for which the Company expects to fully recover the amortized cost basis are recognized in Accumulated

Other Comprehensive Income (Loss), a component of stockholders’ equity.

Gains and losses as a result of sales of securities are

reclassified from previously unrealized gains and losses on AFS securities in Accumulated Other Comprehensive Loss to Other Income (Expense),

net, in the consolidated statements of operations.

Other Comprehensive Loss, a component of stockholders’ equity.

Gains and losses as a result of sales of securities are reclassified

from previously unrealized gains and losses on AFS securities in Accumulated Other Comprehensive Loss to Other Income (Expense), net,

in the consolidated statements of operations.

On a quarterly basis, the

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The portion of the decline in fair value that is due to factors other than a credit loss is recognized in Accumulated Other Comprehensive

Income Loss as an unrealized loss.

Loss as an unrealized loss.

The Company reports accrued

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Uncollectible accrued interest is written off when the Company determines that no additional interest payments will be received.

Classified within Other Receivables on the consolidated balance sheets, approximately $ 8,830 and $ 54,642 in interest income were receivable

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

Classified within Other Receivables on the consolidated balance sheets, no interest income was receivable as of December 31, 2025,

compared to approximately $ 8,830 as of December 31, 2024.

Interest earned on investment

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See Note 4 for further information about the Company’s investment in YFE’s equity

securities accounted for under the fair value option.

securities, which is accounted for under the fair value option.

Property and Equipment

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Upon the acquisition of Wow

the Company generates 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 the Company’s agreement with YouTube, the price is fixed or determinable, and collection of the related receivable is probable.

Receivables related to the advertising services are usually collectable within 30 days, which is shorter collection period compared to

the Company’s average for the year ended December 31, 2024.

in 2021, the Company generates 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 the Company’s agreement with YouTube, the price is fixed or determinable, and collection of the related receivable

Receivables related to the advertising services are usually collectable within 30 days.

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

intellectual property.

For minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the

license period commencing on the date at which the licensees can use and benefit from the licensed content.

Variable consideration

in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the

amounts are known and become due provided collectability is reasonably assured.

Invoices are issued based on the contractual terms

of an agreement and are usually payable within 30 - 45

days, which is a shorter collection period compared to the Company’s average for the year ended December 31, 2024.

The Company enters into merchandising

and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s intellectual property.

minimum guaranteed amounts that make up a contract, revenue is recognized over time, over the term of the license period commencing on

the date at which the licensees can use and benefit from the licensed content.

Variable consideration in excess of non-refundable guaranteed

amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided

collectability is reasonably assured.

Invoices are issued based on the contractual terms of an agreement and are usually payable within

Product Sales

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To the extent that the Company

acts 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 the Company acts 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 the

Company acts 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 the Company considers 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.

acts 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 the Company acts 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.

whether the Company acts 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 the Company considers 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.

Direct Operating Costs

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employee costs of Wow as part of its direct operating costs.

Sales and Marketing

Sales and marketing expenses

consist of primarily costs associated with promotional and advertising activities, including digital advertising, social media promotion,

publicity initiatives, cooperation with public relations service providers and costs related to promotional events.

Marketing and advertising

costs are expensed as incurred.

Share-Based Compensation

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Debt issuance costs relate

to the issuance of Wow’s Production Facilities and are recorded as a reduction to the carrying amount of debt and amortized to interest

expense using the effective interest method over the respective terms of the facilities.

Debt issuance costs directly attributable to

the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for

their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended

to the issuance of Wow’s Production Facilities and are recorded as a reduction to the carrying amount of debt and amortized to

interest expense using the effective interest method over the respective terms of the facilities.

Debt issuance costs directly attributable

to the acquisition or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready

for their intended use or sale, are added to the cost of those assets, until such time the assets are substantially ready for their intended

Earnings Per Share

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securities using the treasury stock or “as converted” method, as appropriate.

During periods of net loss, all common stock

equivalents are excluded from the diluted EPS calculation because they are antidilutive.

For the years ended December 31, 2024 and 2023,

all shares were deemed antidilutive.

For purposes of the calculation of dilutive

net loss per share applicable to common stockholders, stock options, unvested restricted stock units, and warrants are considered to be

common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their

effect would be anti-dilutive;

therefore, basic and diluted net loss per share applicable to common stockholders were the same for all

periods presented.

The 6,903,049 October 2025

Pre-Funded Warrants issued in the October Offerings and outstanding as of December 31, 2025 were included in the calculation of basic

and diluted net loss per share.

The following common stock

equivalents were excluded from the calculation of diluted net loss per share applicable to common stockholders for the periods indicated

because including them would have had an anti-dilutive effect:

Schedule of antidilutive shares

Stock Options

Restricted Stock Units

Deferred income tax assets

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

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

$0.1 million.

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

uninsured balance of $ 1.9 million and $ 6.7 million, respectively.

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2025 and December 31, 2024, the Company did not have account balances held at this financial institution that exceed the insured

The Company’s investment

portfolio, consists of investment-grade securities and, although reduced in size compared to prior year, remains reasonably diversified

among security types, industries and issuers.

The Company’s policy limits the amount of credit exposure to any one security issue

or issuer and the Company believes no significant concentration of credit risk exists with respect to these investments.

During year ended December 31,

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

As of December 31, 2025 the Company’s investment portfolio consisted exclusively of U.S.

Treasury bonds.

this results in concentration by security type and issuer, U.S.

Treasury bonds are considered investment-grade securities with minimal

credit risk, and the Company does not believe this concentration represents a significant credit risk.

During the year ended December 31,

2025, four customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers accounted for

75.7 % of the total revenue.

As of December 31, 2024, the Company had three customers whose total accounts receivable exceeded 10%

of the total accounts receivable.

These customers accounted for 53.2 % of the total accounts receivable as of December 31, 2024.

During year ended December 31,

2023, the Company had four customers w hose total revenue exceeded 10% of the total consolidated

These customers accounted for 74 % of the total revenue.

As of December 31, 2023, the Company had three customers whose total

accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted for 63 % of the total accounts receivable

an aggregate of 81.9 % of the Company’s total revenue.

As of December 31, 2025, the Company had three customers, the accounts

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

These customers accounted for an aggregate of 54.5 % of the

total accounts receivable as of December 31, 2025.

During the year ended December 31,

2024, four customers each accounted for more than 10% of the Company’s total consolidated

These customers accounted for an aggregate of 75.7 % of the Company’s total revenue.

As of December 31, 2024, the Company

had three customers, the accounts receivable for each of which exceeded 10% of our total accounts receivable.

These customers accounted

for an aggregate of 53.2 % of the total accounts receivable as of December 31, 2024.

The table below presents

each customer’s balance as a proportion of the total accounts receivable balance:

Schedules of concentration of risk

As of December 31,

* Less than 10%

There is significant financial

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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.

The Company used 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 for additional

The investment in YFE is also revalued at the end of each reporting period based on the trading price of YFE (Level 2).

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

the instruments.

The investment in YFE is revalued at the end of each reporting period based on the trading price of YFE (Level 2).

to Note 4 for additional details.

Upon the acquisition of Wow, foreign currency forward contracts that are not traded in active markets

were assumed.

Upon the acquisition of Wow in 2021, 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

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Investments in Marketable Securities:

Corporate Bonds

agency and government sponsored securities

states and municipalities

Investment in Equity Interest:

Investment in YFE

Foreign Currency Forward Contracts:

Foreign Currency Forward Contracts, net:

Fair values were determined

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

An allowance for credit loss was not

recorded for the marketable securities as of December 31, 2024 and December 31, 2023.

An allowance for credit loss was not recorded

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

Refer to Note 5 for additional details.

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Recently Adopted Accounting Pronouncements

In November 2023, the FASB

issued ASU No.

2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures .

The amendments enhance disclosures

of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision

maker (CODM), extend certain annual disclosures to interim periods, and permit more than one measure of segment profit or loss to be reported

under certain conditions.

The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim

periods within fiscal years beginning after December 15, 2024.

Early adoption of the amendment is permitted, including adoption in any

interim periods for which financial statements have not been issued.

The adoption of this ASU in the year ended December 31, 2024, resulted

in updated disclosures within our financial statements, but did not impact the consolidated financial statements.

Refer to Note 21 for

additional details.

New Accounting Standards Issued but Not Yet Adopted

In October 2023, the FASB

issued ASU No.

2023-06, Disclosure Improvements .

The new guidance clarifies or improves disclosure and presentation requirements

on a variety of topics in the codification.

The amendments will align the requirements in the FASB Accounting Standard Codification with

the SEC’s regulations.

The amendments are effective prospectively on the date each individual amendment is effectively removed from

Regulation S-X or Regulation S-K.

The Company is in the process of evaluating the impact that the adoption of this ASU will have to the

consolidated financial statements and related disclosures, which is not expected to be material.

In December 2023, the FASB

issued ASU No.

issued Accounting Standard Update (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires that an entity, on an

annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid.

The amendment

in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this Update are

effective for annual periods beginning after December 15, 2024.

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

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

In March 2024, the FASB issued

ASU 2024-01, Scope Application of Profits Interests and Similar Awards .

The ASU is intended to help entities determine whether

profits interest and similar awards are in the scope of ASC 718, Stock Compensation.

The ASU solely focuses on scope and does not address

guidance on recognition, classification, attribution, or measurement.

For PBEs, it is effective for annual periods beginning after December

15, 2024 and interim periods within those annual periods.

For all other entities, it is effective for annual periods beginning after December

Early adoption is permitted for both interim and annual financial statements.

The amendments would be applied either retrospectively

to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified

on or after the date at which the entity first applies the amendments.

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

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

Improvements to Income Tax Disclosures ,

which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation

and income taxes paid.

The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this ASU are effective for annual periods beginning after December 15, 2024.

The adoption of this ASU in the year ended

December 31, 2024, resulted in updated disclosures within our consolidated financial statements, but did not impact the consolidated financial

Refer to Note 18 for additional details.

New Accounting Standards Issued but Not Yet Adopted

In November, 2024 the FASB

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is expected to result in enhanced disclosures.

In December 2025, the FASB

issued ASU 2025-10, Government Grants (Topic 832) :

Accounting for Government Grants Received by Business Entities , which

establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants.

Under ASU 2025-10,

government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant will

The ASU provides specific accounting models for grants related to assets and grants related to income, including options

to recognize government grants as deferred income or as a reduction of the asset’s cost basis.

The ASU also requires enhanced disclosures

regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the

financial statements.

ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those

fiscal years, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2025-10.

Variable Interest Entity

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entered into a binding term sheet with POW!

Entertainment, LLC (“POW”) in which the Company agreed to form an entity with

POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee.

The entity is

called “Stan Lee Universe, LLC” (“SLU”).

POW and the Company executed an Operating Agreement for the joint venture,

effective as of June 1, 2021.

Entertainment, LLC.

(“POW”) pursuant to which the Company agreed to form an entity

with POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee.

is called “Stan Lee Universe, LLC” (“SLU”).

POW and the Company executed an Operating Agreement for the joint

venture, effective as of June 1, 2021.

The purpose of the acquisition was to enable the Company to assume the worldwide rights, in perpetuity,

to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing,

comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations (the “Stan Lee Assets”),

from which the Company plans to develop and license multiple properties each year.

During the year ended December 31,

2024, SLU generated an insignificant amount of net income.

There were no contributions or distributions during the year ended December 31,

2024 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

During the year ended December 31,

2023, SLU generated an insignificant amount of net income.

There were no contributions or distributions during the year ended December 31,

2023 and there were no changes in facts and circumstances that would result in a re-evaluation of the VIE assessment.

comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations, from which the Company plans to develop

and license multiple properties each year.

During the years ended December 31,

2025 and December 31, 2024, SLU generated a net loss of $ 0.3 million and $ 0.4 million, respectively.

There were no contributions

or distributions during the years ended December 31, 2025 and 2024, and there were no changes in facts and circumstances that would

result in a re-evaluation of the VIE assessment.

Investment in Equity Interest

When the Company does not

have a controlling financial interest in an entity but has the ability to exert significant influence over the entity’s operating

and financial policies, the investment is accounted for under the equity method or, if elected, at fair value pursuant to the fair value

option under U.S.

Significant influence is generally presumed to exist when the Company owns 20 % to 50 % of the common stock or in-substance

common stock of the investee.

At the time of the initial investment in 2021, it was determined that the Company had significant influence

over the entity.

Therefore, under the equity method of accounting, the Company elected to account for the investment at fair value under

the fair value option.

Under the fair value option, the investment is remeasured and recorded at fair value each reporting period, with

the change recorded through earnings.

On July 14, 2025, the Company

sold 1,500,000 YFE shares to a single foreign investor for total proceeds of € 750,000 ($ 0.8 million) as part of its ongoing strategy

to optimize its portfolio of assets.

Subsequently, the Company’s ownership in YFE decreased from 44.8 % to 35.0 %.

Before the transaction,

the Company owned 6,857,132 shares of YFE.

On September 25, 2025, the

Company executed a share exchange agreement with F&M Film und Medien Beteiligungs GmbH (“F&M”), pursuant to which

the Company agreed to transfer 348,127 shares of YFE previously held by the Company, to F&M, in exchange for 348,127 shares of the

Company’s common stock previously held by F&M, on a one-for-one basis.

Subsequently, the Company’s ownership in YFE decreased

from 35.0 % to 32.7 % as of transaction date.

Management concluded that the Company continues to exercise significant influence over the

investee and, therefore, continues to account for the investment at fair value under the fair value option.

As of December 31, 2025,

2024, the Company owned 6,857,132

shares of YFE.

At the time of the initial investment in 2021, it was determined that based on the Company’s 29 %

ownership in YFE, the Company had significant influence over the entity.

Therefore, under the equity method of accounting, the

Company elected to account for the investment at fair value under the fair value option.

Under the fair value option, the investment

is remeasured and recorded at fair value each reporting period, with the change recorded through earnings.

the Company owned 5,009,005 shares of YFE.

As of December 31, 2025,

the fair value of the investment was determined to be $ 5.5

million recorded within noncurrent assets on the Company’s consolidated balance sheets and as of December 31, 2023 was $ 19.1

The fair value as of December 31, 2024 decreased by net $ 2.7

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

As of December 31, 2024, the fair value

of the investment was determined to be $ 16.4

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

The fair value as of December 31, 2025

decreased by net $ 10.9

million, as compared to December 31, 2024.

The net decrease is comprised of the net impact of a decrease in YFE’s stock

price, and the effect of foreign currency remeasurement from EURO to USD.

The total change in fair value is recorded within Other

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

As of December 31, 2024 and

December 31, 2023, the Company’s ownership in YFE was 44.8 %.

The net decrease is comprised of the net impact of a decrease in YFE’s stock price,

the share sale and exchange transactions completed in the quarter, and the effect of foreign currency remeasurement from EURO to USD.

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

As of December 31, 2025

and December 31, 2024, the Company’s ownership in YFE was 32.5 % and 44.8 %, respectively.

Marketable Securities

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securities had an adjusted cost basis of $ 4

million and a market value of $ 2.0 million

as of December 31, 2024.

million and a market value of $ 4

million as of December 31, 2025.

The balances consisted of the following securities (in thousands) :

Schedule of marketable securities

Adjusted Cost

Amortized Cost

Unrealized Gain/(Loss)

Corporate Bonds

Agency and Government Sponsored Securities

States and Municipalities

The investments in marketable

securities as of December 31, 2023 had an adjusted cost basis of $ 12.8

million and a market value of $ 12 .0 million.

The balances consisted of the following securities (in thousands) :

Adjusted Cost

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

The balances consisted

of the following securities (in thousands) :

Amortized Cost

Unrealized Gain/(Loss)

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States and Municipalities

The Company holds 5 AFS securities,

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

December 31, 2024.

The AFS securities held by the Company as of December 31, 2023 had also been in an unrealized loss position

for a period greater than 12 months.

The Company reported the net unrealized losses in accumulated other comprehensive income (loss),

a component of stockholders’ equity.

Company holds two AFS securities, all of which were in an unrealized gain position and none had been in an unrealized loss position

for a period longer than 12 months as of December 31, 2025 .

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

than 12 months.

The Company reported the net unrealized losses in accumulated other comprehensive loss, a component of

stockholders’ equity.

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

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

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

Realized losses of $ 0.6 million

and $ 4.5 million were recognized in earnings during the years ended December 31, 2024 and 2023, respectively, primarily due to selling

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

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

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

Realized losses of $ 36,674

and $ 0.6 million were recognized in earnings during the years ended December 31, 2025 and December 31, 2024, respectively, primarily

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

The contractual maturities

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Due within 1 year

Due after 1 year through 5 years

The Company may sell certain

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Property and Equipment, net

The Company identified a disclosure

error in the presentation of the Note 6 Property and Equipment, net reported in its Annual Report on Form 10-K for the year ended

December 31, 2024.

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

by $ 0.7 million both the gross asset cost and accumulated depreciation as of December 31, 2024.

The disclosure error did not impact the

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

The comparative balances as of

December 31, 2024 have been revised to reflect the correct gross cost and accumulated depreciation amounts.

During the years ended December 31,

2025 and December 31, 2024, the Company recorded depreciation expense of $ 0.6 million and $ 0.3 million, respectively.

The Company terminated its

New Jersey office lease effective August 1, 2023.

The property and equipment that would no longer be utilized was written down to zero,

resulting in a $ 0.1 million loss, recorded as Loss on Lease Termination within Other Income (Expense), net on the consolidated statement

of operations in the year ended December 31, 2023.

The Company did no t incur

any impairment charges or write-downs during the year ended December 31, 2024.

In the year ended December 31, 2023, a reassessment

of the Company’s long-lived assets was performed due to changes in its estimated undiscounted future cash flows and the Company

recognized an impairment loss of $ 0.1 million.

During the years ended December 31,

2025 and December 31, 2024, the Company did no t incur any impairment charges or write-downs.

Leased Right-of-Use Assets, net

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As of December 31, 2024, the weighted-average lease term for operating leases was 73 months and the weighted-average discount rate

Effective April 1, 2025, the

Company executed a lease reassignment agreement with the landlord for its Toronto office, resulting in the reassignment of one of its

suites to a new tenant.

The Company continues to lease and occupy the remaining space under the original terms of the lease agreement.

The reassignment reduced the Company’s leased space from 570 square feet to 74 square feet, and reduced the associated rent obligations,

but did not change any other conditions of the lease.

The modification was accounted for as a partial termination of the lease under ASC 842.

Accordingly, the Company remeasured the lease liability as of the effective date of the modification using the discount rate based on

the remaining lease term and payments.

Based on the modified lease payment terms, the discount rate was determined to be 8.96%,

and the remeasured lease liability was $ 16,042 .

This represented a reduction of $ 0.1 million compared to the pre-modification

lease liability.

The Company adjusted the right-of-use asset based on the proportion of the reduction in the remeasured lease liability,

resulting in a reduction of $ 0.1 million.

The Company recognized a gain on lease modification of $ 4,253 in the condensed consolidated

statements of operations.

The remaining lease costs of $ 16,770 is recognized on a straight-line basis over the remaining lease term.

Operating lease costs during

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

On August 2, 2023, Beacon

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

related to the office space in Lyndhurst, NJ.

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

for terminating the lease.

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

Including fees, the Company recorded a total loss on lease termination of $ 0.3 million within Other Income (Expense), net on the

Company’s consolidated statement of operations during the year ended December 31, 2023.

Effective November 1, 2023,

the Company’s Vancouver office lease was modified and the landlord abated rent payments for November 1, 2023 and December 1, 2023 (CAD

0.2 million) and deferred January–April 2024 rent (CAD 0.4 million), to be repaid in 8 equal installments of CAD 0.1 million starting

Additionally, the landlord may terminate the lease with at least twelve months’ notice.

The Company accounted for the

changes as a lease modification under ASC 842, remeasuring the lease liability using an 11.7 % discount rate.

As of November 1, 2023, the

remeasured lease liability was $ 5.4 million (CAD 7.1 million), with a $ 0.2 million (CAD 0.3 million) reduction to the right-of-use

During the year ended December 31,

2024 the Company recorded finance lease costs of $ 1.7 million comprised of ROU amortization of $ 1.6 million and $ 0.1 million of interest

2025, the Company recorded finance lease costs of $ 0.4 million, comprised of ROU amortization of $ 0.3 million and $ 21,612 of interest

During the year ended December 31, 2024, the Company recorded finance lease costs of $ 1.7 million comprised of ROU amortization

8 unchanged sentences

Additions to Film and Television Costs

Film Amortization Expense and Impairment Losses

Film Amortization Expense

Foreign Currency Translation Adjustment

1 unchanged sentence

Additions to Film and Television Costs

Film Amortization Expense

Film Amortization Expense and Impairment Losses

Foreign Currency Translation Adjustment

1 unchanged sentence

During the year ended December 31,

2024, the Company recorded amortization expense of $ 0.2 million, During the year ended December 31, 2023, the Company recorded amortization

expense of $ 0.6 million.

The Company did no t incur

any film and television impairment write-downs during the year ended December 31, 2024.

For the year ended December 31, 2023, the

Company recorded film and television impairment write-downs of $ 6.9 million.

Intangible Assets, net and Goodwill

2025, the Company recorded amortization expense of $ 0.9 million, which included impairment charges of $ 28,239 .

During the year ended December 31,

2024, the Company recorded amortization expense of $ 0.2 million and did not record any impairment charges.

For the years ended December 31,

2025 and December 31, 2024, the Company recorded film and television cost write-downs of $ 0.1 million and $ 0.1 million, respectively.

These write-downs were recognized following executive management review of inactive projects that were not advancing to the production

stage, primarily due to limited interest from potential partners and the broader economic environment affecting the entertainment industry.

Intangible Assets, net

Company had the following intangible assets (in thousands) with their weighted average remaining amortization period (in years):

10 unchanged sentences

During the years ended December 31,

2024 and 2023, the Company recorded intangible asset amortization expense of $ 2 .0 million and $ 2.1 million, respectively.

During the year ended December

31, 2023, as a result of the Company’s annual impairment testing, the Company recorded an impairment charge of $ 4.4 million related

to Beacon’s Non-Compete Agreements and Customer Relationships.

2025 and December 31, 2024, the Company recorded intangible asset amortization expense of $ 2 .0 million and $ 2 .0 million, respectively.

Pursuant to ASC 350-30 ,

General Intangibles Other than Goodwill , the Company evaluates its intangible assets periodically to determine whether events or

changes in circumstances indicate that their carrying values may not be recoverable.

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 cash flows.

No impairment charges were recognized in the prior year ended December 31, 2024.

Expected future amortization

2 unchanged sentences

As of December 31, 2025,

$ 5.3 million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives

and are not subject to amortization.

During the year ended December

31, 2023, the Company conducted its annual goodwill impairment assessment in accordance with applicable accounting standards.

this evaluation, it was determined that the carrying amount of goodwill exceeded its recoverable amount due to changes in market conditions

and business performance.

As a result, the Company has recognized a full impairment charge of $ 33.5 million, reducing the goodwill balance

million of the Company’s intangible assets related to the acquired trade names from the Wow acquisition had indefinite lives and

are not subject to amortization.

Deferred Revenue

As of December 31, 2025

and December 31, 2023, the Company had aggregate short term and long term deferred revenue of $ 9.4 million and $ 6.6 million, respectively.

The increase in deferred revenue is primarily related to productions on various shows nearing completion of the project as of December 31,

and December 31, 2024, the Company had deferred revenue of $ 7.8 million and $ 9.4 million, respectively.

The decrease in deferred

revenue is primarily related to production on various shows advancing to later stages of execution of the projects as of December 31,

2025, compared to the progress as of December 31, 2024.

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productions in progress.

Revenue is fully recognized upon production completion.

Deferred revenue also includes both (i) variable fee

contracts with licensees and customers in which the Company collected advances and minimum guarantees against future royalties and (ii)

fixed fee contracts.

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

For fixed-fee production contracts, revenue is generally recognized upon completion and delivery of the production

or upon achievement of specified contractual delivery milestones during the production process, depending on the terms of the underlying

As production progresses and the Company satisfies its performance obligations, the related deferred revenue is recognized

Deferred revenue also includes both (i) variable fee contracts with licensees and customers in which the Company collected

advances and minimum guarantees against future royalties and (ii) fixed fee contracts.

The Company recognizes revenue related to these

contracts when all revenue recognition criteria have been met.

As of December 31, 2025,

and December 31, 2023, the Company’s margin loan balance was $ 0.9 million and $ 0.8 million, respectively.

During the year ended

December 31, 2024, the Company borrowed an additional $ 11 .0 million from its 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 costs.

the Company had no outstanding margin loan balance.

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

During the year ended December 31, 2025, the Company borrowed an additional $ 5.9 million from its 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 %, respectively, on average margin loan balances of $ 1 .0 million and $ 27.4 million as of December 31, 2024 and December 31,

During the years ended

December 31, 2024 and December 31, 2023, the Company incurred interest expense on the margin loan of $ 0.1

million and $ 1.5

million, respectively.

The investment margin account borrowings do not

mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at

any time, effecting a payable on demand loan.

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

Company’s consolidated balance sheets.

The weighted average

interest rates were 0.20 % and 0.46 %, respectively, on average margin loan balances of $ 0.2 million and $ 1 .0 million as of December 31,

2025 and December 31, 2024, respectively.

During the years ended December 31,

2025 and December 31, 2024, the Company incurred interest expense on the margin loan of $ 8,392 and $ 0.1 million, respectively.

investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and

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

Due to the call option, the margin loan is recorded

as a current liability on the Company’s consolidated balance sheets.

Bank Indebtedness and Production Facilities

The Company has certain credit

facilities that are comprised of the following:

Revolving Demand Facility

In the first quarter of 2024,

the Company amended the revolving demand facility to allow for draws of up to $ 0.7 million (CAD 1 .0 million) to be made by way of CAD

prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $ 200,000 in either CAD or USD and having

a term of up to 1 year.

The CAD prime borrowings and overdrafts bear interest at a rate equal to bank prime plus 2.00 % per annum.

USD base rate borrowings bear interest at a rate equal to bank base rate plus 2.00 % per annum.

As of December 31, 2023, the revolving

demand facility allowed for draws of up to $ 5.6 million (CAD 8 .0 million).

On December 19, 2024,

the Company fully repaid its outstanding revolving demand facility balance and its revolving demand facility with the lender was terminated.

The final payment to close out the revolving demand facility was $ 0.6 million (CAD 0.8 million).

As of December 31, 2023,

the Company had an outstanding balance of $ 2.9 million (CAD 3.8 million) on the revolving demand facility by way of bank prime

rate loan draws, included as Bank Indebtedness within current liabilities on the Company’s consolidated balance sheets.

Equipment Lease Line

Under the equipment lease

line, the Company could borrow up to $ 2.8 million (CAD 4 .0 million) in total for equipment leases.

Each transaction under the equipment

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

first quarter of 2024, the equipment lease line was terminated, however, the Company continued to make the regular principal and interest

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

In the third quarter of 2024, the lender and the

Company reached an agreement for the early repayment of certain equipment leases under the equipment lease line to be completed within

the fourth quarter of 2024.

On November 29, 2024, the Company made equipment lease line repayments of $ 0.6 million (CAD 0.8 million)

in total to extinguish the remaining equipment lease line obligations.

As of December 31, 2023,

the Company had an outstanding balance of $ 1.2 million (CAD 1.6 million) under the equipment lease line, included within current and noncurrent

Finance Lease Liabilities on the Company’s consolidated balance sheets.

Treasury Risk Management Facility

The treasury risk management

facility allows for advances of up to $ 0.3 million (CAD 0.5 million) for foreign exchange forward contracts and interest rate swaps.

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

As of December 31, 2024 and December 31,

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

The Company had the following

credit facilities during the fiscal years ended December 31, 2025 and December 31, 2024:

Production Facilities, net

The production

facilities are used for financing specific productions.

The Company’s production facilities bear interest at rates ranging

from bank prime plus 1.00 %

The production facilities

are used for financing specific productions.

The Company’s production facilities bear interest at rates ranging from bank prime

plus 1.00 % - 1.25 % per annum.

The production facilities are generally repayable on demand.

Any borrowings under the production facilities are

collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible

assets, including a combination of federal and provincial tax credits, other government incentives, production service agreements

and license agreements as well as those of certain of our subsidiaries and related entities acting as guarantors of the production

Any borrowings under the production facilities

are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets,

including a combination of federal and provincial tax credits, other government incentives, production service agreements and license

agreements as well as those of certain of the Company’s subsidiaries and related entities acting as guarantors of the production

As of December 31, 2025

and December 31, 2024, the Company had an outstanding net balance of $ 11.8 million (CAD $ 16.2 million), including $ 1.1 million (CAD

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

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

$ 1.5 million) of interest and $ 9.2 million (CAD $ 13.3 million), including $ 0.8 million (CAD $ 1.2 million) of interest, respectively,

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

As of December 31, 2025

and December 31, 2023, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production

facilities of $ 0.1 million, which were included as a reduction to the carrying amount of production facilities.

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

facilities of $ 0.1 million, which were presented as a direct reduction of the carrying amount of the Production Facilities.

Equipment Lease Facility

1 unchanged sentence

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

This additional equipment lease facility allows the Company

to finance equipment purchases of up to $ 1 .0 million (CAD 1.4 million) in total.

Each transaction under the equipment lease facility has

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

As of December 31, 2024,

the Company has two leases remaining under this facility with finance rates of 7.52 % and 8.20 %, and remaining lease terms of 11 months

and 20 months.

This equipment lease facility allows the Company to finance

equipment purchases of up to $ 1 .0 million (CAD $ 1.4 million) in total.

Each transaction under the equipment lease facility has specific

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

As of December 31, 2025,

and December 31, 2023, the outstanding balances, net of repayments, of $ 0.3 million (CAD 0.4 million) and $ 0.6 million (CAD 0.8 million),

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

Loan Covenants, Violations and Waiver

The Company was subject to

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

In the second and third quarter of 2024, the Company was not in compliance with financial covenant calculations.

As a result of these

financial covenant violations, the Company 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, the Company is 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.

the Company has one lease remaining under this facility with finance rates of 8.20 %, and a remaining lease term of 8 months.

As of December 31, 2025

the Company was in technical violation of two financial covenants requiring a minimum fixed charge ratio and a maximum senior funded debt

to EBITDA ratio as part of its loan covenants for the revolving demand facility, equipment lease line, and treasury risk management facility.

and December 31, 2024, the outstanding balances, net of repayments, of $ 0.1 million (CAD $ 0.1 million) and $ 0.3 million (CAD $ 0.4

million), respectively, were included within current and noncurrent Finance Lease Liabilities, net on the Company’s consolidated

balance sheets.

Revolving Demand Facility

On December 19, 2024,

the Company fully repaid its outstanding revolving demand facility balance and its revolving demand facility with the lender was terminated.

The final payment to close out the revolving demand facility was $ 0.6 million (CAD $ 0.8 million).

Equipment Lease Line

Under the equipment lease

line, the Company could borrow up to $ 2.9 million (CAD $ 4 .0 million) in total for equipment leases.

In the first quarter of 2024, the

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

financing terms of the existing equipment lease agreements.

On November 29, 2024, the Company made equipment lease line repayments

of $ 0.6 million (CAD $ 0.8 million) in total to extinguish the remaining equipment lease line obligations.

Stockholders’ Equity

February 6, 2023, the Company’s board of directors approved a 1-for-10 reverse stock split of the Company’s outstanding shares

of common stock.

The reverse stock split was effected on February 10, 2023 at 5:00 p.m.

Eastern time.

At the effective time, every 10

issued and outstanding shares of the Company’s common stock were converted into one share of common stock.

Any fractional shares

of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no stockholders received

cash in lieu of fractional shares.

The par value of each share of common stock remained unchanged.

The reverse stock split proportionately

reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000

The reverse stock split also applied to common stock issuable upon the exercise of the Company’s

then outstanding warrants and stock options.

The reverse stock split did not affect the authorized preferred stock of 10,000,000 shares.

As of December 31, 2025

2 unchanged sentences

and December 31, 2024, there were 54,857,000 and 46,209,081 shares of common stock outstanding, respectively.

During the year ended December 31,

2024, the Company issued 362,568 shares of common stock for services.

During the year ended December 31,

2024, the Company issued 166,033 shares of common stock in connection with vested restricted stock units (RSUs), net of shares withheld

for tax obligations.

On April 23, 2024,

pursuant to the terms of a securities purchase agreement, dated April 18, 2024 (the “SPA”), the Company 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.

On December 18, 2024 the

Company closed an offering resulting an 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 $ 0.569 .

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

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.

As a result of this allocation, we recorded

a non-cash loss of $ 1 .0

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.

Furthermore, our management believes, that the offering was beneficial

from a market visibility perspective.

On December 26, 2024, the

Company issued 2,057,736 shares of common stock to investor Armistice Capital Master Fund Ltd.

upon the exercise of outstanding pre-funded

The warrants were exercised at a price of $ 0.001 per share, which represented par value, resulting in total proceeds of $ 2,058 .

The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

During the years ended December 31,

2025 and December 31, 2024, the Company issued 340,340 and 362,568 shares of common stock as compensation for services, respectively.

During the years ended December 31,

2025 and December 31, 2024, the Company issued 327,459 and 166,033 shares of common stock in connection with vested RSUs, net of

shares withheld for tax obligations, respectively.

On March 5, 2025, the Company

issued 1,462,000 shares of common stock to an investor upon the exercise of outstanding pre-funded warrants.

The pre-funded warrants were

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

The issuance was completed

in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

On August 27, 2025, the Company

entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with CCI 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 makes payments to the

Company’s vendors in cash and, in exchange, the Company issues shares of common stock to CCI.

The settlement was valued at 1.75

shares of common stock per $ 1 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,

the Company had completed the arrangement, settling a total of $ 1.8 million, and issuing an aggregate of 3,148,535 shares of common stock.

The Company 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 the Company’s consolidated statements

of operations.

On November 18, 2025, the

Company entered into a new agreement to settle an additional $ 1 .0 million of accounts payable under Section 3(a)(10) of the Securities

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

The terms were consistent with the original arrangement.

the three months ended December 31, 2025, the Company settled $ 0.4 million of accounts payable and issued 717,712 shares of common

stock to CCI.

The Company 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.

On October 22, 2025, pursuant

to the terms of the October 2025 Purchase Agreement, the Company closed the registered direct offering of the 3,000,000 October 2025 Shares

and the October 2025 Pre-Funded Warrants to purchase up to 6,903,049 shares of common stock to the October 2025 Investor.

In the Concurrent

Private Placement, pursuant to the October 2025 Purchase Agreement, the Company also sold to the October 2025 Investor unregistered October

2025 Common Warrants to purchase up to 9,903,049 shares of common stock, 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, the Company 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, the Company

issued 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.

Preferred Stock

The Company has 10,000,000

shares of preferred stock authorized with a par value of $ 0.001

per share including 9,943,999

shares of undesignated preferred stock, 6,000

shares designated as 0% Series A Convertible Preferred Stock and 50,000

shares as Series C Preferred Stock.

The board of directors is authorized, subject to any limitations prescribed by law, without further

vote or action by the Company’s stockholders, to issue from time-to-time shares of preferred stock in one or more series.

series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative

rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights,

liquidation preferences, conversion rights and preemptive rights.

In connection with the Company’s

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

in the capital of the Wow Exchange Co.

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

they were otherwise entitled.

The shares of ExchangeCo were

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

Holders of the ExchangeCo shares were entitled

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

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

(“CallCo”) and Computershare Trust

Company of Canada (the “Voting Trustee”).

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

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

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

pursuant to the tender of ExchangeCo shares.

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

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

not exercise voting rights with respect to the applicable shares.

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

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

Accordingly, the shares of ExchangeCo are no longer

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

of the shares of ExchangeCo or the Special Voting Share.

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

6,000 shares designated as 0% Series A Convertible Preferred Stock and 50,000 shares as Series C Preferred Stock.

The board of directors

is authorized, subject to any limitations prescribed by law, without further vote or action by the Company’s stockholders, to issue

from time-to-time shares of preferred stock in one or more series.

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

preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors,

which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

As of December 31, 2025

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As of December 31, 2025 and

December 31, 2023, there was 0 and 1 share of Series B Preferred Stock outstanding, respectively.

As of December 31, 2024 and

December 31, 2023, there were 0 shares of Series C Preferred Stock outstanding.

December 31, 2024, there were 0 of Series B Preferred Stock outstanding.

As of December 31, 2025 and December 31, 2024,

there were 0 shares of Series C Preferred Stock outstanding.

Treasury Stock

During the years ended December 31,

2024 and December 31, 2023, 524 and 32,840 shares of common stock with a cost of $ 504 and $ 48,845 , respectively, were withheld to

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

on the consolidated balance sheets.

2025 and December 31, 2024, 1,026 and 524 shares of common stock with a cost of $ 765 and $ 504 , respectively, were withheld to cover

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

the consolidated balance sheets.

On September 25, 2025, the

Company executed a share exchange agreement with F&M Film und Medien Beteiligungs GmbH (“F&M”), pursuant to which

the Company agreed to transfer 348,127 shares of YFE previously held by the Company, to F&M, in exchange for 348,127 shares of the

Company’s common stock previously held by F&M, on a one-for-one basis.

The shares received from F&M were returned to the

Company’s treasury and recorded at their cost of approximately $ 0.3 million within Treasury Stock on the consolidated balance sheet.

Stock Options

2 unchanged sentences

2020 Equity Incentive Plan (as amended, the “2020 Plan”).

2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”).

The maximum number of shares available for

issuance was initially equal to the sum of (i) 3,000,000 shares of common stock and (ii) the number of shares of common stock remaining

The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”).

The maximum number of shares available

for issuance was initially equal to the sum of (i) 3,000,000 shares of common stock and (ii) the number of shares of common stock remaining

available for issuance under the 2015 Plan, which was then equal to 216,767 shares.

1 unchanged sentence

approved the adoption of an Amended and Restated 2020 Equity Incentive Plan, which provided for the maximum number of shares of common

stock available for issuance under the 2020 Plan to be increased by 5,000,000

The remaining 12,000

outstanding stock options granted under the 2015 Plan, as of December 31, 2024, remain to be governed under such plan.

During the years ended December 31,

2024 and December 31, 2023, the Company granted options to purchase 35,000 and 25,000 shares of common stock with weighted-average

grant-date fair market values of $ 24,210 and $ 9,007 , respectively.

stock available for issuance under the 2020 Plan to be increased by 5,000,000 shares.

Subsequently, on May 14, 2025, the Company’s

stockholders approved a further amendment and restatement of the 2020 Plan, providing for an additional increase of 5,000,000 shares of

common stock authorized for issuance under the 2020 Plan.

As of December 31, 2025, the number of shares remaining available for issuance

was 8,481,135 , out of a maximum of 13,216,767 shares available under the 2020 Plan.

During the year ended December 31,

2025, the Company granted options to purchase 100,000 shares of common stock to a consultant, with weighted-average grant-date fair market

value of $ 39,260 .

The options vested immediately upon grant and related expense was capitalized to production costs related to the project.

During the year ended December 31, 2024, the Company granted options to purchase 35,000 shares of common stock with a weighted-average

grant-date fair market value of $ 24,210 .

The fair value of the options

1 unchanged sentence

on the following assumptions:

Schedule of assumptions used

Schedule of option pricing model

Year Ended December 31,

14 unchanged sentences

Outstanding at December 31, 2025

Unvested at December 31, 2024

Vested and exercisable December 31, 2025

During the years ended December 31,

2024 and December 31, 2023, the Company recognized $ 0.2 million and $ 1.2 million ,

respectively, in share-based compensation expense related to stock options included in General and Administrative Expense on the Company’s

consolidated statements of operations.

The unrecognized share-based compensation expense as of December 31, 2024 was $ 0.02 million

which will be recognized through the 2025 assuming the underlying grants are not cancelled or forfeited.

The outstanding shares as of

December 31, 2024 had an aggregated intrinsic value of zero .

During the year ended December 31,

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

to their employment agreements.

This resulted in 98,850 options becoming immediately vested on the separation date and $ 0.2 million

in expense recognized by the Company.

2025 and December 31, 2024, the Company recognized $ 24,699 and $ 0.2 million , respectively,

in share-based compensation expense related to stock options included in General and Administrative Expense on the Company’s consolidated

statements of operations.

As of December 31, 2025, there was no unrecognized stock-based compensation expense related to stock options,

as all outstanding stock options were fully vested.

The outstanding stock options as of December 31, 2025 had an aggregated intrinsic

value of zero.

Restricted Stock Units

1 unchanged sentence

the Company’s 2020 Plan.

During the year ended December 31, 2024, the Company granted 372,745 fully vested RSUs to the

Company’s board members and consultants, with a fair value of $ 0.4 million.

There was no RSUs to granted to employees during

the year ended December 31, 2024.

During the year ended December 31, 2025, the Company granted 575,305

fully vested RSUs to the Company’s board members and consultants, with a fair value of $ 0.4 million.

During the year ended December 31, 2025, the Company granted 750,000

RSUs to an executive employee with an aggregate grant-date fair value of approximately $ 0.5

These RSUs vest ratably over three years from the grant date, subject to continued employment.

An aggregate of 588,864 shares

of common stock were issued during the year ended December 31, 2024 as a result of vested RSUs held by employees.

of common stock were issued during the year ended December 31, 2025 as a result of RSUs that vested during the current and prior

The following table summarizes

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Unvested at December 31, 2025

During the year ended December 31,

2025, upon termination of certain employees, the Company accelerated the vesting of any unvested RSUs held by such employees pursuant

to their employment agreements.

This resulted in 1,667 RSUs becoming immediately vested and 1,045 shares issued, net of withheld taxes

on the separation date.

The Company recognized expense of $ 1,137 related to the accelerated vesting of RSUs during the year ended December 31,

During the years ended December 31,

1 unchanged sentence

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

The unvested share-based compensation as of December 31, 2024 was $ 0.02 million which will be recognized through the second

quarter of 2025 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the year ended

December 31, 2024 was $ 1.8 million.

The unvested share-based compensation as of December 31, 2025 was $ 0.4 million which will be recognized through the fourth quarter

of 2028 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the year ended December 31,

2025 was $ 0.4 million.

The following table summarizes

1 unchanged sentence

Schedule of warrant activity

Warrants Outstanding Number of Shares

Warrants Outstanding Number of

Weighted Average Remaining

7 unchanged sentences

Exercisable December 31, 2025

Registered Direct Offering

On April 23, 2024

the Company issued pre-funded warrants to purchase up to 100,000

shares of Common Stock to an institutional investor at $ 0.99

per Pre-funded Warrant.

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 the Company in June 2023, was reduced from $ 2.50

per share to $ 1.00

per share pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price reduced the

Weighted-Average Exercise Price per Share from $ 8.19

before the reprice to $ 7.14

after the reprice.

Since the Warrants are classified as equity, they are not remeasured after initial recognition, in accordance

with ASC 815, as outlined in the “Warrants Exchange” section below.

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 $ 0.569 .

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

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.

As a result of this

allocation, we recorded a non-cash loss of $ 1 .0

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.

Furthermore, our management believes, that the

offering was beneficial from a market visibility perspective Additionally, in connection with the December 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 $ 1.00

per share to $ 0.57

per shares pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price reduced the

Weighted-Average Exercise Price per Share from $ 7.14

before the reprice to $ 6.85

after the reprice.

Since the Warrants are classified as equity, they are not remeasured after initial recognition, in accordance

with ASC 815, as outlined in the “Warrants Exchange” section below.

The outstanding warrant balance

as of December 31, 2024, as previously erroneously reported in the Company’s Annual Report on Form 10-K for the year ended December

31, 2024, included 100,000 warrants that had been exercised in April 2024.

This exercised amount was identified in the Q1 2025 review

and the prior period balance has been corrected accordingly.

The correction was not material to the financial statements, did not result

in any adjusting entry, and had no impact on the Company’s results of operations or financial position.

On March 5, 2025, 1,462,000

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

The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

On March 13, 2025, 89,286

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

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

In addition, 60,273 warrants previously classified as equity

expired during the year ended December 31, 2025.

On May 14, 2025, the Company’s

shareholders approved the exercise of the Series A warrants and Series B warrants under all settlement scenarios, thereby satisfying the

conditions for equity classification.

These warrants were issued in connection with the Company’s December 2024 offering, presented

in a later section of this Note.

Based on this approval, the Company reevaluated the classification of the warrants under ASC 815-40 and

determined that equity classification is appropriate.

The warrants were remeasured to fair value immediately before the reclassification.

As of May 13, 2025, the warrants were revalued at approximately $5.7 million, resulting in a recognition of a $0.7 million decrease

in the liability.

The change in value was recorded as a Gain on Revaluation of Warrants within Other Income (Expense), net on the consolidated

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

statements of cash flows.

Subsequently, the total liability of approximately $5.7 million was reclassified to additional paid-in

The fair value of the outstanding

Series A derivative warrants at issuance date was determined by using the BSM option pricing model based on the following assumptions:

of assumptions

December 18, 2024

Series A derivative warrants, prior to their reclassification to equity, was determined by using the BSM based on the following assumptions

as of May 13, 2025:

Schedule of assumptions

Exercise Price

3 unchanged sentences

The fair value of the outstanding

Series B derivative warrants at issuance date determined by using the BSM option pricing model based on the following assumptions:

of assumptions

Series A derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

December 31, 2024

4 unchanged sentences

The fair value of the outstanding

Series A derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

of assumptions

December 31, 2024

Series B derivative warrants, prior to their reclassification to equity, was determined by using the BSM option pricing model based on

the following assumptions as of May 13, 2025:

Exercise Price

4 unchanged sentences

Series B derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

of assumptions

December 31, 2024

3 unchanged sentences

Expected Life of Warrants

As of December 31, 2025,

the 7,894,736 Series A warrants and 7,894,736 Series B warrants remain outstanding as equity-classified instruments.

October 2025 Offerings

On October 22, 2025, pursuant

to the terms of the October 2025 Purchase Agreement, the Company closed the registered direct offering of the 3,000,000 October 2025

Shares and the October 2025 Pre-Funded Warrants to purchase up to 6,903,049 shares of common stock to the October 2025 Investor.

Concurrent Private Placement, pursuant to the October 2025 Purchase Agreement, the Company also sold to the October 2025 Investor unregistered

October 2025 Common Warrants to purchase up to 9,903,049 shares of common stock, with an exercise price of $ 0.738 per share.

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, the Company 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

In addition, the Company issued 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.

April 2024 Offering

On April 23, 2024 the

Company issued pre-funded warrants to purchase up to 100,000 shares of Common Stock to an institutional investor at price of $ 0.99 per

pre-funded warrant, which were exercised immediately.

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 the Company in June 2023, was reduced from $ 2.50 per

share to $ 1.00 per share pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price reduced the

Weighted-Average Exercise Price per Share from $ 8.19 before the reprice to $ 7.14 after the reprice.

December 2024 Offering

On December 18, 2024, the

Company 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 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 combined purchase price per share of

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

warrant, together with the accompanying Series A and Series B warrants, was $ 0.569 .

The Company 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, the Company 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 Series A and Series B warrants were initially measured at fair value and remeasured at

each reporting period, with changes in fair value recorded in earnings.

Additionally, in connection with the December 2024 Offering, the

exercise price of certain warrants to purchase 4,784,909 shares of common stock, previously issued by the Company in June 2023, was reduced

from $ 1.00 per share to $ 0.57 per share pursuant to anti-dilution provisions contained in such warrants.

The reduction in exercise price

reduced the Weighted-Average Exercise Price per Share from $ 7.14 before the reprice to $ 6.85 after the reprice.

On December 26, 2024, 2,057,736

of the pre-funded warrants were exercised at a price of $ 0.001

per share, which represented par value, resulting in total proceeds of $ 2,058 .

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

The issuance was completed in accordance with the terms of the warrant agreements, and the shares issued are fully paid and non-assessable.

As of December 31, 2024,

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

common stock remained outstanding and are revalued each reporting period.

As of December 31, 2024, the warrants were revalued at

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

The change in value was

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

the Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities on the consolidated statements of cash flows.

The fair value of the outstanding

derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31, 2024:

Schedule of assumptions

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

Warrant Exchange

On June 26, 2023, the

Company entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain holders of the warrants

issued by the Company in January 2021 that had an exercise price of $ 23.70 per share and were exercisable for an aggregate of 2,311,550

shares of the Company’s common stock (the “2021 Warrants”).

Pursuant to the Letter Agreements, the exercising holders

and the Company agreed that, subject to any applicable beneficial ownership limitations, the holders would exercise all of their 2021

Warrants for shares of the Company’s common stock at a reduced exercise price of $ 2.50 per share of common stock in exchange for

the issuance of new unregistered warrants (the “Exchange Warrants”) to purchase up to an aggregate of 4,623,100 shares of

common stock, equal to 200 % of the number of common stock underlying the 2021 Warrants.

The Exchange Warrants had an exercise price of

$ 2.50 per share and a term of exercise of five years from November 1, 2023.

The Company received approximately

$ 5.8 million in gross proceeds recorded as an increase to Additional Paid-in Capital.

The Special Equities Group, a division of Dawson

James Securities, Inc.

(“SEG”), acted as warrant solicitation agent and received a cash fee of $ 0.4 million, equal to

7.0 % of the total gross proceeds, and warrants with a value of $ 0.4 million on the issuance date to purchase up to 161,809 of the

Company’s common stock at $ 2.50 per share (the “SEG Warrants”).

In addition, through issuance of the Company’s

common stock, the Company paid lawyer fees of $ 0.1 million for costs directly attributable to the warrant re-pricing and exchange.

The total issuance costs of $ 0.5 million were netted against the proceeds received and recorded as a reduction to Additional Paid-in

Capital on the Company’s consolidated balance sheet.

As the 2021 Warrants were

repriced prior to exercising, the Company utilized ASC 815 to account for the modification.

The Company calculated the fair value of the

2021 Warrants exercised immediately before the repricing using the BSM option pricing model.

The calculation used the original exercise

price of $ 23.70 per share and the BSM assumptions as of June 26, 2023 to calculate the fair value immediately before the repricing

and calculated the fair value of the 2021 Warrants exercised utilizing the modified exercise price of $ 2.50 per share and the same BSM

assumptions as of June 26, 2023.

The resulting increase in fair value of $ 3.5 million, was considered a deemed dividend and reflected

within Additional Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The fair value of the aggregate total

of 4,784,909 Exchange Warrants and the SEG Warrants (collectively, the “Warrants”) on the issuance date of June 26, 2023

was determined to be $ 13.1 million, or $ 2.74 per share, as calculated using the BSM option pricing model.

The fair value of the Exchange

Warrants of $ 12.7 million was recorded as a Warrant Expense within Other Income (Expense), net on the consolidated statement of operations

in the year ended December 31, 2023.

The fair value of the SEG Warrants of $ 0.4 million was recorded as a reduction to Additional

Paid-in Capital on the consolidated balance sheet as of December 31, 2023.

The Company held a special

meeting of stockholders on November 1, 2023, at which, among other things, the stockholders approved an increase in the number of authorized

shares of common stock.

Consequently, the Company had a sufficient number of authorized and unissued shares required to settle all outstanding

equity instruments, including the Warrants.

Per ASC 815, as a result of events during the period, the classification of an instrument

shall be reclassified as of the date of the event that caused the reclassification by revaluing the instrument immediately prior to reclassification

and any gains or losses should be recognized.

The fair value of the Warrants was determined to be $ 3 .0 million,

using the BSM option pricing model based on the following assumptions on October 31, 2023:

Schedule of assumptions

October 31, 2023

Exercise Price

Dividend Yield

Risk-free interest rate

Expected Life of Warrants

The decrease in value of $ 1.4

million was recorded as a Gain on Revaluation of Warrant within Other Income (Expense), net on the consolidated statement of operations

and a decrease in liability in the year ended December 31, 2023.

The remaining liability of $ 3 .0 million was then reclassified

from Warrant Liability to Additional Paid-in-Capital within stockholders’ equity on the consolidated balance sheet.

Supplemental Financial Statement Information

5 unchanged sentences

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)

1 unchanged sentence

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 primar ily 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

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 $ 0.4 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 (see 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.

For financial reporting purposes, Loss Before

3 unchanged sentences

United States

Loss Before Income Tax Benefit (Expense)

Loss Before Income Tax Benefit

The significant components

5 unchanged sentences

Deferred benefit

Income Tax Benefit (Expense)

Income Tax Benefit

Deferred taxes are provided

on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit

carry forwards and deferred tax liabilities are recognized for taxable temporary differences.

carryforwards and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences

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Net Operating Loss Carryover

Capital Loss Carryover

Lease Liability

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Year Ended December 31, 2025

Federal Statutory Tax Rate

State and Local Income Taxes, Net of Federal Income Tax Effect (1)

Foreign Tax Effects

Statutory tax rate difference between Canada and U.S.

Changes in valuation allowances

Provincial tax

Changes in Valuation Allowances

Nontaxable or Nondeductible Items

Other Adjustments

Intercompany Transactions

Adjustments to Deferred Items

Effective Tax Rate

State taxes in California and New Jersey made up the majority (greater than 50 percent) of the tax effect

in this category.

As previously disclosed for

the years ended December 31, 2024, prior to the adoption of ASU 2023-09, the table below is a reconciliation of the components that caused

the Company’s (provision) benefit for income taxes to differ from amounts computed by applying the U.S.

federal statutory rate:

December 31, 2024

Income Tax Benefit Computed at the Statutory Federal Rate

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Valuation Allowance

Income Tax Benefit (Expense)

Income Tax Benefit

On July 4, 2025, the President

1 the One Big Beautiful Bill Act into law.

The legislation includes several changes to federal tax law that generally allow

for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic

research and development expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation

on business interest expense.

These changes were reflected in the income tax provision for the period ended December 31, 2025, as enactment

occurred before the balance sheet date.

The Company determined, there was no material impact to our income tax expense or effective tax

rate, due to the full valuation allowance against the net deferred tax asset.

At December 31,

2024, the Company had Federal, state, and foreign net operating loss carry forwards of approximately $ 135.4 million, $ 137.4 million,

and $ 54.7 million, respectively, that may be offset against future taxable income and will begin to expire in 2027, if not utilized.

No tax benefit has been reported in the December 31, 2024 financial statements since the potential tax benefit from net operating

loss carryforward is offset by a valuation allowance of the same amount.

At December 31, 2024, the Company had gross realized

capital loss carryforwards of $ 6 million, which expire beginning in 2027 if not utilized.

A full valuation allowance has been

recorded against this amount.

For the years ending December 31,

2024 and 2023, the Company reflects a deferred tax liability in the amount of $ 1.3 million and $ 1.4 million r espectively,

due to the future tax liability from assets with indefinite lives known as a “naked credit.” The future tax liability created

2025, the Company had Federal, state, and foreign net operating loss carry forwards of approximately $ 118.4

million, $ 114.2

million, and $ 56.1

million, respectively, that may be offset against future taxable income, and will begin to expire in 2026 (Federal) and in 2028

(state and Canada), if not utilized.

No tax benefit related specifically to operating loss has been reported in the

December 31, 2025 financial statements since the potential tax benefit from net operating loss carryforward is offset by a

valuation allowance of the same amount.

At December 31, 2025, the Company had gross realized capital loss carryforwards of

$ 8.7 million , which expire beginning in 2027 if not utilized.

A full valuation allowance has been recorded against this amount.

For the years ended December 31,

2025 and 2024, the Company reflects a deferred tax liability in the amount of $ 1.2 million and $ 1.3 million, respectively, due

to the future tax liability from assets with indefinite lives known as a “naked credit.” The future tax liability created

by this indefinite lived asset can be offset by up to 80% of net operating loss carryforwards created after 2017.

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foreign withholding taxes on undistributed earnings of its foreign subsidiaries based on its intention to permanently reinvest those earnings

at December 31, 2024 or 2023.

at December 31, 2025 or 2024, except for Frederator, wholly owned by WOW.

During 2025, management reevaluated and determined that it will

no longer assert permanent reinvestment with respect to Frederator.

As of December 31, 2025, Frederator has a cumulative deficit

in earnings and profits.

Accordingly, the change in assertion does not expect to generate a deferred tax liability or applicable withholding

Due to the change in ownership

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Consulting Contracts

Production Facilities

Contractual obligation

3 unchanged sentences

pursuant to a 96 -month lease that commenced on August 1, 2019.

The Company pays rent of $ 0.4 million annually, subject to annual

escalations of 3.5 %.

The Company pays rent of $ 0.5 million annually, subject to annual escalations

On February 1, 2021, as part

of the acquisition of Beacon Communications, the Company assumed an operating lease that was entered into on May 19, 2019 for 6,845 square

feet of general office space located at 245 Fairview Mall Drive, Suites 202 and 301, Toronto, Ontario M2J 4T1 pursuant to an 84 -month

lease which commenced on October 1, 2019.

The Company pays rent of $ 95,830 annually, subject to annual escalations of 5 % to 7 %.

of the acquisition of Beacon, the Company assumed an operating lease that was entered into on May 19, 2019.

Pursuant to a lease reassignment

agreement executed on April 1, 2025, one floor of its office space in Toronto was relinquished to a new tenant, who assumed the lease

obligation for that floor.

The reassignment reduced Beacon’s leased space from 570 square feet to 74 square feet.

The Company’s

uses 74 square feet of general office space located at 245 Fairview Mall Drive, Suites 202 and 301, Toronto, Ontario M2J 4T1 pursuant

to an 84 -month lease which commenced on October 1, 2019.

As of December 31, 2025, the remaining lease payments were $ 9,153 .

On April 6, 2022, as part

of the Wow acquisition, the Company assumed an operating lease for 45,119 square feet of general office space located at 2025 West Broadway,

Suite 200, Vancouver, B.C., V6J 1Z6 which had a remaining lease term of 117 months and payments of $ 81,769 per month, subject to escalations

of 7 % each of the third and fifth years.

In addition, the Company also assumed a parking lease for 80 parking spaces which had a remaining

lease term of 117 months and payments of $ 6,091 per month.

Suite 300, Vancouver, B.C., V6J 1Z6.

As of December 31, 2025, the operating lease had a remaining lease term of 72 months and payments

of $ 0.1 million per month, subject to escalations of 7 % each of the third and fifth years.

In addition, the Company also assumed a parking

lease for 80 parking spaces which had a remaining lease term of 72 months as of December 31, 2025, and payments of $ 5,728 per month.

The present value discount

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Some of these agreements call for the potential future payment of royalties or “profit”

participations for either (i) the use of third party intellectual property, in which the Company is obligated to share net profits with

the underlying rights holders on a certain basis as defined in the respective agreements, or (ii) services rendered by animation studios,

post-production studios, writers, directors, musicians or other creative talent for which the Company is obligated to share with these

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

The Company is not a party

to any material legal proceedings and is not aware of any material pending or threatened claims except for those cases described in Part

I Item 3 Legal Proceedings within this Annual Form 10-K.

From time to time however, the Company may be subject to various legal

proceedings and claims that arise in the ordinary course of its business activities.

participations for either (i) the use of third party IP, in which the Company is obligated to share net profits with the underlying rights

holders on a certain basis as defined in the respective agreements, or (ii) services rendered by animation studios, post-production studios,

writers, directors, musicians or other creative talent for which the Company is obligated to share with these service providers a portion

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

From time to time, the Company

may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.

As of December 31,

2025, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject,

other than as described below.

Securities Litigation:

On February 4, 2025, the District

Court issued an order granting in part and denying in part the renewed motion to dismiss and denying Plaintiffs’ motion for leave

to file a sur-reply.

The District Court dismissed all claims against Mr.

Denton, and claims against the Company and Mr.

Heyward based

on all but one of the complained-of statements.

However, the District Court determined that Plaintiffs had adequately pled a Section 10(b)

claim based on March 2020 statements concerning the number of times that the Rainbow Rangers cartoon was airing on Nickelodeon.

the other alleged misstatements that were dismissed, and as to any claims against Mr.

Denton, the District Court granted Plaintiffs leave

to amend their pleading another time.

On March 3, 2025, Plaintiffs filed a Third Amended Complaint, seeking again to assert claims against

the Company and Mr.

Heyward related to the four alleged misstatements that survived the Ninth Circuit appeal;

they did not replead any

claims against Mr.

On April 14, 2025, defendants filed a motion to dismiss the Third Amended Complaint.

On August 5, 2025, the

District Court issued a decision that granted in part and denied in part Defendants’ motion to dismiss Plaintiffs’ Third Amended

Two of the four alleged misstatements were dismissed with prejudice.

Plaintiffs were granted leave to amend as to one of the

alleged misstatements, and the Court denied the motion as to the fourth misstatement.

Plaintiffs elected not to further amend their complaint,

leaving only one alleged misstatement at issue in the case.

This one alleged misstatement, which appeared in a press release issued March

17, 2020, and repeated in a shareholder letter issued March 20, 2020, stated that the Nickelodeon cable platform Nick, Jr., had increased

its airing of the Company’s cartoon series Rainbow Rangers to 26 times a week.

Plaintiffs claim this was false, and that the misstatement

was issued with an intent to deceive investors.

Defendants have denied and continue to deny any wrongdoing.

Given that only a small portion

of the Third Amended Complaint remains, and with no case schedule in place, Defendants filed a request with the Court to set a status

conference pursuant to Federal Rule of Civil Procedure 16 to limit the scope of discovery, to phase discovery, and to modify the normal

rule requiring an allegation-by-allegation response to the Third Amended Complaint.

The Court granted the request and held the conference

on January 12, 2026.

At that time, the Court determined that Defendants did not need to file an Answer to the Third Amended Complaint

for now, denied the request to phase discovery, and agreed that merits discovery should be limited to the narrow issues that remain in

The Court referred the specifics concerning the scope of discovery to Magistrate Judge Oliver.

She has held an initial conference

and ordered that the parties submit letter-briefs regarding outstanding disputes concerning the scope of discovery by March 20, 2026,

with responses due by April 3, 2026.

Once letter briefing is complete, the parties anticipate that the Magistrate will issue proposed

orders setting bounds on the scope of discovery, which will then be considered by the Court.

The Court is also expected to set a schedule

for the case.

In the meantime, defendants are engaged in document-collection efforts and fact-development work.

The Company cannot predict

the outcome of the securities class action.

Meanwhile, as previously reported,

the parties elected to mediate the dispute, as well as the shareholder derivative actions referenced below, before Phillips ADR.

The mediation

was held December 9, 2024.

The case did not settle during the mediation.

In light of the District Court’s February 4, 2025, order,

however, the mediator has reached out to the parties to determine whether there is a basis now to resolve the dispute.

While the Company

has advised that it would like to settle the lawsuit, the mediator has not reported back concerning his discussions with Plaintiffs’

We cannot predict whether the parties will decide to continue with mediation or, if they do, whether they will be able to reach

a settlement of the case and of related shareholder derivative litigation on terms acceptable to the parties.

As previously disclosed,

the Company, its Chief Executive Officer Andy Heyward, and its former Chief Financial Officer Robert Denton were named as defendants

in a putative class action lawsuit filed in the U.S.

District Court for the Central District of California and styled In re Genius

Brands International, Inc.

Securities Litigation, Master File No.

2:20-cv-07457 DSF (RAOx) .

Lead plaintiffs alleged generally that

the defendants violated Sections 10(b) and 20(a) of the Exchange Act of 1934 by issuing allegedly false or misleading statements about

the Company, initially over an alleged class period running from March into early July 2020.

Plaintiffs sought unspecified damages on

behalf of the alleged class of persons who invested in the Company’s common stock during the alleged class period.

Defendants moved

to dismiss lead plaintiffs’ amended complaint, and in a decision issued on August 30, 2021, the Court dismissed the amended complaint

but granted lead plaintiffs a further opportunity to plead a claim.

In September 2021, lead plaintiffs

filed a second amended complaint, naming the same defendants.

The new complaint alleged again that the Company made numerous - depending

on how one counted, more than two dozen - false or misleading statements about the Company’s business and business prospects, this

time over an expanded alleged class period that extended into March 2021.

They again alleged that these misstatements violated Section

10(b) and 20(a) of the Exchange Act.

Lead plaintiffs again sought unspecified damages on behalf of an alleged class of persons who invested

in the Company’s common stock during the expanded alleged class period.

In November 2021, the defendants filed a motion to dismiss

the second amended complaint.

On July 15, 2022, the Court issued a decision dismissing the second amended complaint in its entirety and

with prejudice.

On August 12, 2022, lead plaintiffs

filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit.

After a full briefing of the appeal, a panel of

the Court of Appeals held oral argument on the appeal on November 6, 2023, and took the matter under submission.

On April 5, 2024, the Appellate

Court issued its opinion, affirming in part and reversing in part the decision of the District Court.

The Appellate Court affirmed the

dismissal of certain claims pertaining to Company statements where it found that Plaintiffs failed to adequately plead a 10(b) cause

of action but reversed the lower court’s dismissal of claims related to four of the Company’s alleged misstatements, finding

that, in three of those instances, the Plaintiffs adequately pleaded loss causation, and in one instance adequately alleged a misleading

The Court of Appeals did not address other elements of any claims based on these four complained-of statements, noting that

the District Court should address those issues on remand.

The matter was remanded to

the District Court in May 2024.

By order entered June 4, 2024, the Court directed the defendants to file a renewed motion to dismiss

on a schedule to be proposed by the parties.

Consistent with that order, Defendants filed their renewed motion on July 29, 2024.

filed the opposition to the motion on September 16, 2024, and Defendants filed a reply brief on October 16, 2024.

The District Court

subsequently vacated the hearing on the renewed motion to dismiss (including plaintiffs’ motion for leave to file a sur-reply)

that had been scheduled for November 4, 2024, determining that the matter could be resolved by the Court based on the parties' written

Shareholder Derivative

Since the Company’s

last quarterly report, there have been no developments in the shareholder derivative actions involving the Company, which were previously

Related to the securities class action, the Company’s directors (other than Dr.

Cynthia Turner-Graham and Michael Hirsh),

together with Messrs.

Heyward and Denton and former director Michael Klein, have been named as defendants in several putative stockholder

derivative lawsuits.

As previously disclosed, these include a consolidated proceeding pending in the U.S.

District Court for the Central

District of California and styled In re Genius Brands Stockholder Derivative Litigation , C ase No.

2:20-cv-08277 DSF (RAOx);

an action filed in the Los Angeles County Superior Court captioned Ly, etc.

Heyward, et al.

an additional case pending in the U.S.

District Court for the District of Nevada, styled Miceli, etc.

Heyward, et al., Case No.

3:21-cv-00132-MMD-WGC .

While the allegations and legal claims vary somewhat among the derivative actions, they all generally allege

that the defendants breached fiduciary duties owed to the Company.

The plaintiffs, all alleged stockholders of the Company, purport to

sue on behalf and for the benefit of the Company.

Accordingly, the derivative plaintiffs seek no recovery from the Company.

a stockholder derivative action, the Company is named as a nominal defendant.

Pursuant to agreements among the parties, the courts in

all of the derivative lawsuits have stayed proceedings pending the outcome of the securities litigation.

On October 2, 2025, a new

shareholder derivative action, Cohen v.

Heyward, et al., Case No.

A-25-929617-C was filed in the District Court of Clark County,

Nevada, making substantially similar allegations to the derivative actions already pending, and the Company expects, that the Cohen action

will be similarly stayed pending the outcome of the securities class action.

As the Company cannot predict the outcome of the securities

class action, it is likewise unable to predict the outcome of the shareholder derivative lawsuits.

Section 16(b) Litigation:

As previously disclosed, the

Company is also a nominal defendant in an action filed on January 11, 2022, in the U.S.

District Court for the Southern District of New

York and styled Todd Augenbaum v.

Anson Investments Master Fund LP, et al., Case No.

1:22-cv-00249 AS.

The action, which again purports

to be brought on behalf and for the benefit of the Company, seeks the recovery under Section 16(b) of the Exchange Act of supposed short-swing

profits allegedly realized by roughly a dozen persons and entities that participated as investors in certain of the Company’s private

placements of securities in 2020.

Plaintiff Augenbaum, who purports to be a Company stockholder, filed his lawsuit after issuing a demand

to the Company’s Board of Directors asking that the Company sue the investor defendants.

The Company rejected the demand in late

December 2021, and Mr.

Augenbaum sued a few weeks later, as Section 16(b) permits him to do.

No Company officer or director is among the

The defendant investors filed motions to dismiss the action.

After full briefing, the court, by order entered March 30, 2023,

granted the motion to dismiss with leave to amend.

Plaintiff subsequently filed his First Amended Complaint on May 1, 2023.

moved to dismiss again.

After a full briefing and oral argument, the Court (with a new judge now sitting) denied the motion to dismiss

by order entered on January 24, 2024.

The parties then engaged in extensive fact discovery, which closed in October 2024.

proceeded with expert discovery.

Following the completion of expert discovery in December 2024, Plaintiff and the various Defendants filed

cross-motions for summary judgment in mid-January 2025.

On September 30, 2025, the Court denied all cross-motions for summary judgment.

The Court has set trial in the action for June 8, 2026, and has set various pretrial dates as well.

As previously noted, Plaintiff seeks

no relief from the Company;

indeed, he seeks monetary relief for the Company.

The Company desires a resolution

To that end, Company counsel attempted to engage the parties in settlement discussions after a mediation attempt in March

2025, which had excluded the Company, proved unsuccessful.

While Defendants expressed interest in discussions, Plaintiffs declined.

Company thereafter submitted a request to the Court that the Court direct the parties to mediation, with a direction that the Company

could participate fully in the mediation.

That request was denied without prejudice.

Since then, the Company’s Board of Directors

has established a special committee to attempt to negotiate a settlement with the Defendants.

The special committee has engaged counsel

and is in discussions with the mediator who oversaw the March 2025 mediation session.

To the extent a settlement proposal acceptable to

the Company and Defendants can be reached, the parties plan to seek Plaintiffs’ approval of the settlement and, potentially, to

seek Court intervention into the settlement process or settlement approval.

The Company cannot predict the outcome of these settlement

efforts, or of the case should the matter go to trial.

In connection with the Augenbaum

lawsuit and as previously reported, six of the investor/investor-group Defendants (the “demanding defendants”) have made demands

on the Company for indemnification pursuant to terms of an indemnity provision of the securities purchase agreements under which they

invested in the Company.

Regarding these demands (and

the potential for additional demands from other Defendants), the Company has rejected each of the demands on multiple grounds.

the demanding defendants, the Iroquois investors and the Empery investors, have filed lawsuits alleging breach of contract and seeking

declaratory relief in the Supreme Court of New York, Commercial Division, seeking damages of more than $5 million, and more than $3.5

million, respectively, which the Iroquois plaintiffs and Empery investors say represent the defense expenses they have incurred in Augenbaum

through the date of filing.

The investor plaintiffs also seek a declaration that the Company is obliged to advance their defense expenses

on an ongoing basis.

These lawsuits are captioned Iroquois Master Fund Ltd., et al.

Kartoon Studios, Inc., No.

650077/2026 and

Empery Asset Master, Ltd., et al.

Kartoon Studios, Inc., No.

650906/2026 .

After the Company removed the Iroquois lawsuit to

federal district court in Manhattan and sought to have it related to Augenbaum and assigned to the same judge, the Iroquois investors

voluntarily dismissed their lawsuit, noting an intention to join the Empery lawsuit in state court;

as of this writing, the Iroquois investors

have not done so.

The Company also removed the Empery lawsuit to federal court, where it is styled Empery Asset Master Ltd.

Kartoon Studios, Inc., Case No.

1:26-cv-01872 (S.D.N.Y.) .

After receiving information bearing on diversity jurisdiction, the Company

stipulated to remand the Empery action to state court;

as of this writing, however, the federal court has not yet entered an order of

The Company cannot predict the outcome of the Iroquois or Empery lawsuits, or whether other demanding defendants will file similar

Finally, as previously reported,

the Company’s placement agent for the offerings at issue, Special Equities Group (“SEG”), has also demanded indemnification

from the Company for its legal fees incurred in connection with the Augenbaum lawsuit.

SEG has presented bills for legal expenses totaling

several hundred thousand dollars, a figure that the Company views as excessive.

The Company has reserved all rights.

We are unable to

predict the outcome of this dispute.

In all of the above-mentioned

active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously.

maintains a program of directors’ and officers’ liability insurance that, subject to the insurers’ reservations of rights,

has offset a portion of the costs of defending the securities class action litigation, and that the Company expects will afford coverage

for some costs of the other shareholder litigation should any of those cases proceed.

Related Party Transactions

Pursuant to his employment

agreement dated December 7, 2020, Andy Heyward, the Company’s CEO, is entitled to an executive producer fee of $ 12,500 per one-half

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

During the year ended December 31, 2024 Mr.

did no t earn any producer fees and during the year ended December 31, 2023, Mr.

Heyward earned and was paid $ 0.3 million in executive

producer fees.

Heyward also earned his $ 55,000 quarterly bonus during each of the quarters in 2024 and 2023.

On August 25, 2022, Mr.

employment agreement was amended to include assignment of music royalties to Mr.

Heyward for all musical compositions in which he provides

services as a composer for or on behalf of the Company, in the event that the Company acquires up to 50 % of the writer’s share of the

royalties for that musical composition.

If the Company acquires more than 50 % of the writer’s share of the royalties on musical compositions

Heyward provided services for, he has the option to purchase the additional royalties from the Company at the price the Company paid

to acquire the additional royalties.

During the years ended December 31, 2024 and December 31, 2023, Mr.

Heyward has no t earned

royalties from musical compositions.

On February 27, 2023, Mr.

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

the first quarter of 2023.

During the year ended December 31, 2024, Mr.

Heyward earned and was paid $ 400,000 in creative producer fees.

During the year ended December 31, 2023, Mr.

Heyward earned and was paid $ 325,556 in creative producer fees.

On July 21, 2020, the Company

entered into a merchandising and licensing agreement with Andy Heyward Animation Art (“AHAA”), whose principal is Andy Heyward.

The Company entered into a customary merchandise license agreement with AHAA for the use of characters and logos related to Warren Buffett’s

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

and conditions of such license are customary within the industry, and the Company earns an industry standard royalty on all sales made

by AHAA utilizing the licensed content.

During the years ended December 31, 2024 and December 31, 2023, Mr.

Heyward has no t

earned royalties from this agreement.

On September 30, 2021,

the Company entered into a Loan Agreement and Promissory Note with POW, its joint venture partner in SLU, in the amount of $ 1,250,000

included within Note and Accounts Receivable from Related Party as of December 31, 2022, which was fully repaid by POW in April 2023.

Pursuant to his initial employment

agreement dated December 7, 2020, Andy Heyward, the Company’s CEO, was previously entitled to receive a quarterly bonus.

was paid a quarterly bonus of $ 55,000 for each of the first three quarters during the year ended December 31, 2025 and each quarter

during the year ended December 31, 2024.

On July 19, 2022, the Company

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

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

The principal plus interest must be

repaid by no later than June 30, 2026.

As of December 31, 2024, $ 1.4 million is included within Notes and Accounts Receivable

from Related Party on the Company’s consolidated balance sheets.

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

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

The principal plus interest were

to be repaid to the Company by YFE no later than June 30, 2026.

On April 27, 2025, the Company entered into a settlement agreement with

YFE to resolve the outstanding obligations under the Shareholder Loan Agreement.

Pursuant to the settlement agreement, the Company accepted

a reduced repayment amount of $ 0.4 million, payable in two installments no later than June 2025, in full satisfaction of the loan

The settlement agreement became effective in April 2025 and the Company recorded an adjustment to the balance of the loan and

recognized FX adjusted loss of approximately $ 0.9 million.

As of December 31, 2025, all terms of the settlement agreement were fulfilled.

During 2022, the Company entered

2 unchanged sentences

Hills, CA 90210.

The monthly payment is $ 595 and recorded within Other Income (Expense), net in the Company’s consolidated statements

of operations.

On September 25, 2024 the Company entered into an agreement with a related party to provide services valued at $ 595 per

month, instead of a cash payment settlement.

The monthly income was $595 during the years ended December 31, 2025 and December 31, 2024 and recorded within

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

On February 27, 2023, Mr.

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

Heyward was paid creative producer fees of $ 100,000 for each of the first three quarters during the year ended December 31,

2025 and each quarter during the year ended December 31, 2024.

During the quarter ended September

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

30, 2024, the Company entered into a consulting agreement with a related party for office

space interior design services.

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

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

of operations.

Segment Reporting

ASC Topic 280 Segment Reporting

establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic

areas, and major customers.

Operating segments are defined as components of an enterprise that engage in business activities from which

it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by

the Company’s chief operating decision maker, or group, in deciding how to allocate resources and assess performance.

The Company’s CODM uses

revenue and net income (loss) to evaluate the profitability and performance of each operating segment.

The CODM does not evaluate the

operating segments using asset information and it is therefore not disclosed.

Segment operating expenses include operating expenses directly

attributable to the segment as well as certain shared corporate administration services and other costs which are allocated to the reportable

segments, such as legal expenses, human resources expenses, accounting expenses, insurance expenses, and corporate facilities expenses.

Segment operating expenses exclude certain non-recurring items and other costs, such as interest expense, interest income, share-based

compensation expense and taxes.

Our CODM evaluates the performance of each reportable segment based on segment operating income (loss)

because it provides insight to operational leverage and other operational metrics for each segment.

The Company has identified

two operating segments based on the nature of the products and services offered:

Content Production and Distribution

segment includes the operations of Kartoon Studios, Inc, Mainframe Studios, and Frederator Studios.

These entities are aggregated due

to their similar economic characteristics, nature of products and services, production processes, customer types, and distribution methods.

This segment is focused on the creation, production, and distribution of animated and live-action content, as well as licensing and royalty

revenue from intellectual property.

Media Advisory and Advertising

Services segment includes The Beacon Media Group and The Beacon Communications Group.

These entities provide media advisory and advertising

services and marketing services.

The CEO (CODM) primarily reviews

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

The following table presents

the revenue and net income (loss) within the Company’s two

operating segments (in thousands):

Schedule of segment information by revenues and net earnings

Year Ended December 31,

Total Revenues:

Content Production and Distribution

Media Advisory and Advertising Services

Total Revenues

Content Production and Distribution

Media Advisory and Advertising Services

Total Net Loss Attributable to Kartoon Studios, Inc

Geographic Information

The following table provides information about disaggregated revenue by geographic area (in thousands):

Schedule of segments by geographic area

Year Ended December 31,

Total Revenues:

United States

United Kingdom

Total Revenues

Additional considerations

include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator and Kartoon Studios at the entity level.

The additional financial information prepared by the segment managers is discussed at length in meetings with the CODM.

The Company determines

that the revenue information reviewed by the CODM, combined with the financial information discussed with the segment managers is sufficiently

detailed to allow the CODM to assess each component’s performance and make resource allocation decisions.

Kartoon Studios, Frederator

and Mainframe Studios are separate entities although according to ASC 280-10-50-11 all criteria are met in order to present result in

When evaluating the Company’s

performance and making key decisions regarding resource allocation, the CODM reviews several metrics included in net income or loss, which

also include the following:

December 31, 2024

Content Production and Distribution

Media Advisory and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Other Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Stock Based Compensation

Tax provision

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

December 31, 2023

Content Production and Distribution

Media Advisory and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Other Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Stock Based Compensation

Tax provision

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

All other segment items included

in net income or loss are reported on the consolidated statements of operations and described within their respective disclosures.

Subsequent Events

The Company evaluated

subsequent events and transactions that occurred after the balance sheet date up to March 31, 2025, the date that the

financial statements were issued.

Subsequent to December 31,

2024, the Company acquired marketable securities for $ 1.8 million.

Additionally, the Company sold marketable securities and received proceeds

of $ 0.4 million.

As of March 31,

2025, the Company had margin loan balance of $ 0.4

Subsequent to December 31,

2024, the fair value of the Company’s investment in YFE experienced a decline due to a decrease in YFE’s stock price.

March 31, 2025, the share price of YFE was €1.81 compared to €2.30 as of December 31, 2024.

The Company will continue to

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

Subsequent to December 31,

2024, the Company received $ 0.2 million in cash related to outstanding ERTC receivable.

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

The monthly expense was $ 595 and $ 595 , during the years ended December 31, 2025 and December 31, 2024, respectively,

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

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 9A. Controls and Procedures