What changed in this filing

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Item 1. Financial Statements

2026-05-15 compared with 2025-11-14 · 672 added, 865 removed, 522 unchanged (75% of the section changed)

3 unchanged sentences

(in thousands, except for share data)

September 30, 2025

March 31, 2026

December 31, 2025

Current Assets:

Restricted Cash

Investments in Marketable Securities (amortized cost of $ 982 and $ 3,953 , respectively)

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Finance Lease Right-of-Use Assets, net

Notes and Accounts Receivable from Related Party

Film and Television Costs, net

Tax Credits Receivable (net of allowance of $ 402 and $ 421 , respectively)

Investment in Your Family Entertainment AG

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Deferred Revenue

Operating Lease Liabilities, Net Current Portion

Finance Lease Liabilities, Net Current Portion

Operating Lease Liabilities, Net of Current Portion

Finance Lease Liabilities, Net of Current Portion

Deferred Tax Liability, net

Factoring Liability

Warrant Liability

Other Noncurrent Liabilities

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Stockholders’ Equity:

Preferred Stock, 10,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 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 September 30, 2025 and December 31, 2024

Series B Preferred Stock, $ 0.001 par value, 0 shares authorized, 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024

Common Stock, $ 0.001 par value, 190,000,000 and 190,000,000 shares authorized, 49,338,158 and 46,285,078 shares issued and 48,913,630 and 46,209,081 outstanding as of September 30, 2025 and December 31, 2024, respectively

Preferred Stock, 10,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2026 and December 31, 2025

0% Series A Convertible Preferred Stock, $ 0.001 par value, 6,000 shares authorized,

0 shares issued and outstanding as of March 31, 2026 and December 31, 2025

Series C Preferred Stock, $ 0.001 par value, 50,000 shares authorized, 0 shares

issued and outstanding as of March 31, 2026 and December 31, 2025

Common Stock, $ 0.001 par value, 190,000,000 shares authorized, 56,953,978 and

55,282,150 shares issued and 56,528,828 and 54,857,000 outstanding as of March 31, 2026 and December 31, 2025,

Additional Paid-in Capital

Treasury Stock at Cost, 424,528 and 75,997 shares of common stock as of September 30, 2025 and December 31, 2024, respectively

Treasury Stock at Cost, 425,150 shares of common stock as of March 31, 2026 and December 31, 2025

Accumulated Deficit

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(in thousands, except for share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Production Services

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Interest Expense

Other Income (Expense), net

Other Expense, net

Net Loss Attributable to Non-Controlling Interests

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(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Change in Accumulated Other Comprehensive Income:

Change in Unrealized Gain on Marketable Securities

Realized Loss on Marketable Securities Reclassified from AOCI into Earnings

Three Months Ended March 31,

Change in Accumulated Other Comprehensive Income (Loss):

Change in Unrealized (Loss) Gain on Marketable Securities

Realized Gain on Marketable Securities Reclassified from AOCI into Earnings

Foreign Currency Translation Adjustments

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Treasury Stock

Accumulated Other Compre-

Accumulated Other Comprehensive

December 31, 2025

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Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes

Share Based Compensation

Stock Options Granted to Consultants

Warrant Exercise

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Balance, March 31, 2025

$ ( 745,812 )

Issuance of Common Stock for Services

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes

Share Based Compensation

Stock Options Granted to Consultants

Warrant Reclassification

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Balance, June 30, 2025

$ ( 751,975 )

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 Accounts Payable Settlement

Non-cash Share Exchange

Share Based Compensation

Stock Options Granted to Consultants

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Balance, September 30, 2025

Balance, March 31, 2026

$ ( 770,182 )

(1) Includes out-of-period

adjustment of Q1 and Q2 2025 NCI attribution resulted from deferral of terms under a production financing agreement.

The adjustment had

no impact on consolidated revenue, total consolidated net loss, total equity, or cash flows.

Preferred Stock

1 unchanged sentence

Treasury Stock

Accumulated Other Compre-

Accumulated Other Comprehensive

December 31, 2024

1 unchanged sentence

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

Share Based Compensation

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Stock Options Granted to Consultants

Warrant exercise

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

Currency Translation Adjustment

Balance, March 31, 2025

$ ( 745,812 )

Issuance of Common Stock for Services

Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes

Proceeds from Securities Purchase Agreement, Net

Share Based Compensation

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Balance, June 30, 2024

$ ( 731,464 )

Issuance of Common Stock for Services

Transfer - Post Reverse Stock Split Adjustment

Share-Based Compensation

Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss

Foreign Currency Translation Adjustment

Balance, September 30, 2024

$ ( 733,521 )

The accompanying notes are an integral part of

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(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities:

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Share Based Compensation Expense

Loss on Debt Settlements

Gain on Early Lease Termination

Loss on Debt Settlement

Loss on Revaluation of Equity Investments in Your Family Entertainment AG

Unrealized Gain on Foreign Currency of Equity Investments in Your Family Entertainment AG

Loss on Partial Disposal of Equity Investment in Your Family Entertainment AG

Loss on Share Exchange

Loss (Gain) on Warrant Revaluation

Realized Loss on Marketable Securities

Unrealized Loss (Gain) on Foreign Currency of Equity Investments in Your Family Entertainment AG

Accounts Payable Settled in Stock

Gain on Warrant Revaluation

Realized Gain on Marketable Securities

Stock Issued for Services

Stock Options Issued for Services

Credit Loss Expense

Credit Loss Expense (Recovery)

Non-cash Interest Expense

Other Non-Cash Items

Decrease (Increase) in Operating Assets:

13 unchanged sentences

Lease Liability

Due From (To) Related Party

Other Liabilities

1 unchanged sentence

Cash Flows from Investing Activities:

Repayments from Related Party for Notes Receivable

Proceeds from Sales and Maturities of Marketable Securities

1 unchanged sentence

Purchase of Property and Equipment

Net Cash Provided by Investing Activities

Net Cash Provided by (Used in) Investing Activities

Cash Flows from Financing Activities:

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Repayment of Production Facilities

Repayments of Bank Indebtedness, net

Proceeds from Sale of Equity Investment in Your Family Entertainment AG

Proceeds from Securities Purchase Agreements

Proceeds from ERTC Factoring Transaction

Principal Payments on Finance Lease Obligations

Debt Issuance Costs

Shares Withheld for Taxes on Vested Restricted Shares

Proceeds from Warrant Exercise

Net Cash Provided by (Used in) in Financing Activities

Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rate Changes on Cash

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Cash Paid for Interest

Non-Cash Operating Activities

Reduction in Leased Asset Due to Modified Lease Liability

Non-Cash Financing and Investing Activities

Leased Assets Obtained in Exchange for New Finance Lease Liabilities

Cash Paid for Taxes

The accompanying notes are an integral part of

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Notes to Condensed Consolidated Financial Statements

September 30, 2025

March 31, 2026

Organization and Business

Organization and Nature of Business

Kartoon Studios, Inc.

Genius Brands International, Inc.) (the “Company”, “Kartoon Studios” or “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.

“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

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a strategy of leveraging owned IP and third-party relationships to expand distribution and consumer product licensing.

The Company is

also developing Hundred Acre Wood’s:

Winnie and Friends, a new franchise property inspired by A.A.

Milne's Winnie the

Pooh , comprising 78 anchor streamer episodes, over 200 short-form episodes, holiday specials, and a global consumer products program.

The main launch is anticipated in Q1 2027, with plans to expand across consumer products, experiential activations, and live events.

Kartoon Studios also owns

Wow Unlimited Media Inc.

(“WOW”), through which the Company established its affiliate relationship with 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 three feature films, including

titles such as Barbie Dreamhouse Adventures , Octonauts:

Above & Beyond , Cocomelon , SuperKitties , and Unicorn

Academy , in partnership with leading global media companies.

(“Wow”), through which the Company holds interest in 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 It’s

Andrew!, Phoebe and Jay, Barbie Dreamhouse Adventures , Octonauts:

Above & Beyond , Cocomelon , SuperKitties ,

and Unicorn Academy , in partnership with leading global media companies.

In addition, Wow owns Frederator Networks Inc.

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The Company distributes its

content across streaming platforms, linear television, and its ad-supported and subscription-based video-on-demand services and apps,

including Kartoon Channel!

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 owns Ameba Inc.

(“Ameba”), a subscription streaming service with a focus on educational and entertainment content for younger children.

a cornerstone of the Company’s subscription offerings, Ameba delivers a vast library of engaging and educational content, accessible

across multiple platforms.

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

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agency focused on children’s and family audiences.

Beacon represents over 20 kids and family clients, including Bandai Namco, Moose

Toys, Bazooka Brands, Goliath Games, Playmates Toys, Cepia LLC, and Zebra Pens.

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.

Germany-based Your Family Entertainment AG (“YFE”), a publicly listed company on the Frankfurt Stock Exchange (ticker symbol

“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 intellectual property rights to Stan Lee’s name, likeness,

signature, and associated IP assets.

interest in Stan Lee Universe, LLC (“SLU”), which owns the IP rights to Stan Lee’s name, likeness, signature, and associated

Existing licensing arrangements include a non-exclusive license with Marvel for Stan Lee's likeness to appear in Marvel films

and a separate non-exclusive license with the Walt Disney Company for use of Stan Lee's likeness in Walt Disney theme parks.

brand partnerships include an agreement with Madame Tussauds.

The Company considers the SLU to be a core component of its IP portfolio

and is currently developing plans for expanded commercialization across animation, publishing, licensing, and global consumer products

in connection with its 2026 strategic initiatives.

Kartoon Studios’ common

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Recent Transactions

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

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.

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 completed in the year ended December 31, 2025.

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.

March 31, 2026 the Company had completed the arrangement, settling a total of $ 1 .0 million of accounts payable and issuing an aggregate

of 1,695,072 shares of common stock.

During the three months ended March 31, 2026, the Company settled an aggregate of $ 0.6 million

of accounts payable, issued 977,360 shares of common stock to CCI, and 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 condensed consolidated statements of operations.

On April 8, 2026, the Company

entered into a new agreement to settle an additional $ 1.1 million of accounts payable under Section 3(a)(10) of the Securities Act with

CCI, in exchange for issuing 2,001,797 shares of common stock, and to settle additional obligations up to $ 0.3 million in exchange for

issuing 551,250 shares of common stock.

The terms were consistent with the original arrangement.

October 2025 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.

Liquidity, Going Concern, and Capital Resources

As of September 30, 2025,

the Company had cash and restricted cash of $ 1.4 million, which decreased by $ 7.0 million as compared to December 31, 2024.

was primarily due to cash used in operating activities of $ 11.8 million and the effect of exchange rate of $ 0.3 million, offset by cash

provided by financing activities of $ 2.8 million and cash provided by investing activities of $ 2.4 million.

The cash used in operating

activities was primarily due to net loss of $ 19.4 million and net change in operating asset and liabilities of $ 6.0 million, partially

offset by net change in non-cash adjustments of $ 13.6 million.

The cash provided by financing activities was primarily due to net proceeds

from production facilities of $ 2.8 million, cash proceeds from partial disposal of YFE investment of $ 0.8 million and proceeds from ERTC

sale of $ 0.5 million, offset by net repayment of margin loan of $ 1.0 million and payments of lease obligations of $ 0.3 million.

provided by investing activities of $ 2.4 million was primarily due to proceeds from the sale and maturities of marketable securities of

$ 3.8 million and proceeds from the settlement of the Note Receivable of $ 0.4 million, offset by the investment in marketable securities

of $ 1.8 million and the purchase of new property and equipment of $ 0.1 million.

As of September 30, 2025,

the Company did not hold any available-for-sale marketable securities, and the decrease in available-for-sale marketable securities of

$ 2 .0 million as compared to December 31, 2024, was due to a sale of securities during the nine months ended September 30, 2025.

As of March 31, 2026,

the Company had cash of $ 5 .0 million, which increased by $ 2.1 million as compared to December 31, 2025.

The increase was primarily

due to cash provided by investing activities of $ 2.9 million, cash provided by financing activities of $ 1.8 million, and the effect of

exchange rate of $ 0.2 million, offset by cash used in operating activities of $ 2.9 million.

The cash provided by investing activities

of $ 2.9 million was primarily due to proceeds from the sale and maturities of marketable securities.

The cash provided by financing activities

of $ 1.8 million, was primarily due to the drawdowns, net of repayments and debt issuance costs, from production facilities.

The cash used

in operating activities of $ 2.9 million was primarily due to net loss of $ 6.4 million and net use of cash related to operating assets

and liabilities of $ 2.3 million, partially offset by a favorable impact of net change in non-cash adjustments of $ 5.9 million.

As of March 31, 2026,

the Company held available-for-sale marketable securities with a fair value of $ 1 .0 million.

A decrease of

$ 3 .0 million as compared to December 31, 2025, was due to a sale of securities

during the three months ended March 31, 2026.

The available-for-sale securities consist principally of government debt securities

and are also available as a source of liquidity.

In accordance with Accounting

Standards Codification (“ASC”), 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.

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 nine months ended September 30, 2025 and 2024, the Company reported net losses of $ 19.4 million and $ 15.1

million, respectively.

The Company reported net cash used in operating activities of $ 11.8 million, and cash used in operating activities

of $ 1.1 million for the nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, the Company had an

accumulated deficit of $ 758.5 million and total stockholders’ equity of $ 24 .0 million.

As of September 30, 2025, the Company

had total current assets of $ 27.1 million, including cash of $ 0.9 million, and restricted cash of $ 0.5 million, and total current

liabilities of $ 32.5 million.

The Company had negative working capital of $ 5.4 million as of September 30, 2025, compared to working

capital of $ 1.2 million as of December 31, 2024.

In October 2025, the Company closed an offering transaction and received an aggregate

gross proceeds of approximately $ 7.3 million.

Management has evaluated the significance of these conditions in relation to the Company’s

ability to meet its obligations and noted the Company has sufficient cash resources and projected inflows to fund operations for the next

12 months from the issuance date of this 10-Q.

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.

As a result, the Company may have to

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

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

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

the successful execution and timing of these plans, macroeconomic uncertainty around the impact of tariffs on the toy and

related industries, 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.

For the three months ended March 31, 2026 and March 31, 2025, the Company reported net losses of $ 6.4

million and $ 6.6 million, respectively.

The Company reported net cash used in operating activities of $ 2.9 million, and cash used in operating

activities of $ 1.8 million for the three months ended March 31, 2026 and March 31, 2025 respectively.

As of March 31, 2026,

the Company had an accumulated deficit of $ 770.2 million and total stockholders’ equity of $ 22.6 million.

As of March 31, 2026,

the Company had total current assets of $ 30.7 million, including cash of $ 5 .0 million, and total current liabilities of $ 31.4 million.

The Company had negative working capital of $ 0.7 million as of March 31, 2026, compared to working capital of $ 2.3 million as of

December 31, 2025.

In October 2025, the Company closed an offering transaction and received an aggregate gross proceeds of approximately

$ 7.3 million.

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.

As a result, the Company may have to significantly limit its operations

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

During the three months ended

March 31, 2026, the Company continues to navigate macroeconomic challenges in the animation and advertising industries, including

ongoing government tariffs and intensified competition.

In the prior periods, the Company has demonstrated resilience in its financing

activities, having successfully raised net proceeds through public offerings, and continues to explore opportunities to further strengthen

its financial position.

In parallel, management also plans to preserve liquidity, as needed, by implementing cost saving measures.

example, during the three months ended March 31, 2026, in order to improve liquidity, the Company settled $ 0.6 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.

Basis of Presentation and Summary of Significant Accounting

The accompanying interim condensed

consolidated financial statements of the Company have been prepared in conformity with U.S.

Generally Accepted Accounting Principles (U.S.

GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the

year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025.

The preparation

of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that

affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the condensed

consolidated financial statements and accompanying disclosures.

These estimates are based on management’s best knowledge of current

events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed

to be reasonable under the circumstances.

accompanying interim condensed consolidated financial statements of the Company have been prepared in conformity with U.S.

Generally Accepted

Accounting Principles (U.S.

GAAP”) and are consistent in all material respects with those applied in the Company’s Annual

Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on

March 31, 2026.

The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make

estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss)

that are reported in the condensed consolidated financial statements and accompanying disclosures.

These estimates are based on management’s

best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions

that are believed to be reasonable under the circumstances.

On a regular basis, the Company evaluates the assumptions, judgments and estimates.

Actual results

may differ from these estimates.

The accompanying interim condensed

consolidated financial statements are unaudited, but in the opinion of management, contain all adjustments (which include normal recurring

adjustments) considered necessary to present fairly the interim financial statements.

Interim results are not necessarily indicative of

financial results for a full year.

The information included in this Form 10-Q should be read in conjunction with the Company’s 2024

Annual Report.

The following is provided

to update the Company’s significant accounting policies previously described in the Company’s Annual Report on Form 10-K for

the year ended December 31, 2024 filed with the SEC on March 31, 2025.

Actual results may differ from these estimates.

accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management, contain all adjustments

(which include normal recurring adjustments) considered necessary to present fairly the interim financial statements.

Interim results

are not necessarily indicative of financial results for a full year.

The information included in this Form 10-Q should be read in conjunction

with the Company’s 2025 Annual Report.

following is provided to update the Company’s significant accounting policies previously described in the Company’s Annual

Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026.

Foreign Currency Forward Contracts

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, gross amounts of foreign currency (“FX”) forward contract in an asset and liability position subject

to a master netting arrangement resulted in a net liability of $ 0.1 million and $ 0.6 million, respectively, recorded within Other Current

Liabilities on the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2025, the Company recorded

to a master netting arrangement resulted in a net liability of $ 28,711 and $ 43,438 , respectively, recorded within Other Current Liabilities

on the condensed consolidated balance sheets.

For the three months ended March 31, 2026 and March 31, 2025, the Company recorded

a realized loss of $ 25,961 and $ 0.1 million, respectively, on FX forward contracts within Production Services Revenue on the condensed

consolidated statements of operations.

For the three and nine months ended September 30, 2024, the Company recorded a realized loss

of $ 35,601 and $ 0.1 million, respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements

of operations.

Trade Accounts Receivable and Allowance for

As of September 30, 2025

and December 31, 2024, the Company recorded an allowance for credit loss of $ 0.1 million and $ 0.2 million, respectively.

Trade Accounts Receivable and Allowance

for Credit Loss

The following table summarizes

the activity in the allowance for credit losses related to trade accounts receivable as of September 30, 2025 and December 31,

the activity in the allowance for credit losses related to trade accounts receivable as of March 31, 2026 and December 31,

2025 (in thousands):

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Charged to costs and expenses

Balance, net as of September 30, 2025

Balance, net as of March 31, 2026

Tax Credits Receivable

The Company classifies the

majority of its tax credits receivable as current based on their normal operating cycle.

As of September 30, 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 September 30, 2025

and December 31, 2024, $ 16.8 million a nd $ 12.7 million in tax credit receivables related

to Wow’s film and television productions were recorded, net of $ 0.7 million and $ 0.6 million, respectively, recorded as an allowance

for credit loss.

As of September 30, 2025, $ 2.3 million in tax credits receivable net of $ 0.4 million allowance for credit loss was

presented as non-current asset.

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

credit loss was presented as non-current asset.

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 $ 0.6 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 collectibility each reporting period.

tax credits receivable as current based on their normal operating cycle.

Government assistance, in the form of refundable tax credits,

is relied upon as a key component of production financing.

These amounts are claimed from the CRA through the submission of income tax

returns and can take up to 18 to 24 months from the date of the first tax credit dollar being earned to being received.

As this financing

is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the

normal operating cycle for such assets is considered to be a 12 to 24-month period, or the time it takes for the CRA to assess and refund

the tax credits earned.

As of March 31, 2026

and December 31, 2025, the Company had $ 18.5 million a nd $ 16.8 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 $ 0.4 million, respectively.

The Company did not have any non-current tax credits

receivable as of March 31, 2026 and December 31, 2025.

Concentration of Risk

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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 September 30, 2025 and December 31, 2024, the Company had five and twelve bank deposit accounts with an aggregate

uninsured balance of $ 16,710 and $ 6.7 million, respectively.

As of March 31, 2026 and December 31, 2025, the Company had seven and six bank deposit accounts with an aggregate uninsured

balance of $ 3.5 million and $ 1.9 million, respectively.

The Company has a managed

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The managed account maintained its investments in marketable securities of approximately $ 1 .0 million

as of December 31, 2024, and no such investments as of September 30, 2025, as all securities were sold during the period.

in the managed account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit

of $250,000 for cash).

In addition, the financial institution provides additional “excess of SIPC” coverage which insures

up to $1.0 billion.

As of September 30, 2025 and December 31, 2024, the Company did not have account balances held at this financial

institution that exceed the insured balances.

as of March 31, 2026, and $ 4 .0 million as of December 31, 2025.

Assets in the managed account are protected by the Securities

Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash).

In addition, the financial institution

provides additional “excess of SIPC” coverage which insures up to $1.0 billion.

As of March 31, 2026 and December 31,

2025, the Company did not have account balances held at this financial institution that exceed the insured balances.

As of March 31, 2026,

the Company had four customers, the accounts receivable for each of which exceeded 10% of the total accounts receivable.

These customers

accounted for an aggregate of 62.4 %

of the total accounts receivable as of March 31, 2026.

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.

Schedule of concentration of risk

March 31, 2026

December 31, 2025

* Less than 10%

During the three months ended

September 30, 2025, the Company had four customers, whose total revenue exceeded 10% of the total condensed consolidated revenue.

These customers accounted for 85.1 % of the total revenue.

During the three months ended September 30, 2024, the Company had four

customers whose total revenue exceeded 10% of the total condensed consolidated revenue.

These customers accounted for 77.2 % of the total

During the nine months ended

September 30, 2025, the Company had four customers, whose total revenue exceeded 10% of the total condensed consolidated revenue.

These customers accounted for 85.6 % of the total revenue.

During the nine months ended September 30, 2024, the Company had three

customers whose total revenue exceeded 10% of the total condensed consolidated revenue.

These customers accounted for 60.2 % of the total

As of September 30, 2025,

the Company had four customers whose total accounts receivable exceeded 10% of the total accounts receivable.

These customers accounted

for 67.5 % of the total accounts receivable as of September 30, 2025.

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.

March 31, 2026, three customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers

accounted for an aggregate of 59.6 %

of the Company’s total revenue for the three months ended March 31, 2026.

During the three months ended March 31, 2025, four

customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers accounted for an aggregate

of the Company’s total revenue for the three months ended March 31, 2025.

Three Months Ended March 31,

* Less than 10%

There is significant financial

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Fair Value of Financial Instruments

As of September 30, 2025,

there were no marketable securities outstanding.

The following table summarizes

the marketable securities measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31,

2024 (in thousands):

The following table presents

the fair values of the Company's financial instruments measured on a recurring basis, categorized within the fair value hierarchy as

of March 31, 2026 (in thousands):

Schedule of marketable securities measured at fair value on a recurring basis

1 unchanged sentence

Investments in Marketable Securities:

Corporate Bonds

Agency and Government Sponsored Securities

States and Municipalities

Fair values were determined

for each individual security in the investment portfolio.

The Company’s marketable securities are considered to be available-for-sale

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 September 30, 2025 and December 31, 2024.

Refer to Note 5 for additional details.

New Accounting Standards Issued but Not Yet

In December 2023, the FASB

issued 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 ASU 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 on the consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures in

the annual report for the year 2025.

Investment in Equity Interest:

Investment in YFE

Foreign Currency Forward Contracts:

Foreign Currency Forward Contracts, net:

The following table presents

the fair values of the Company's financial instruments measured on a recurring basis, categorized within the fair value hierarchy as

of December 31, 2025 (in thousands):

Total Fair Value

Investments in Marketable Securities:

Investment in Equity Interest:

Investment in YFE

Foreign Currency Forward Contracts:

Foreign Currency Forward Contracts, net:

There were no transfers between

Level 1, Level 2, or Level 3 during the three months ended March 31, 2026.

No allowance for credit losses was recorded for marketable

securities as of March 31, 2026 or December 31, 2025.

For a description of the Company's fair value methodologies and classification

policies, refer to Note 2 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities

and Exchange Commission on March 31, 2026.

New Accounting Standards Issued but Not Yet Adopted

In November, 2024 the FASB

issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

issued Accounting Standard Update (“ASU”) 2024-03, Income Statement — Reporting Comprehensive Income — Expense

Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expense.

This update mandates that public companies provide more detailed information about specific

expenses in their financial statement notes.

The effective date for this guidance is annual reporting periods beginning after December

15, 2026, with interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is in the process

of evaluating the impact that the adoption of this ASU will have on the consolidated financial statements and related disclosures, which

is expected to result in enhanced disclosures.

This update mandates that public companies

provide more detailed information about specific expenses in their financial statement notes.

The effective date for this guidance is

annual reporting periods beginning after December 15, 2026, with interim reporting periods beginning after December 15, 2027.

Early adoption

is permitted.

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 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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During the three months ended

September 30, 2025 and 2024, SLU generated a net loss of $ 0.1 million and $ 0.1 million, respectively.

During the nine months ended September 30,

2025 and 2024, SLU generated a net loss of $ 0.2 million and $ 0.3 million, respectively.

There were no contributions or distributions during

the nine months ended September 30, 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

As of September 30, 2025,

the Company owned 5,009,005 shares of YFE.

At the time of the initial investment in 2021, it was determined that based on the Company’s

28.7 % 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.

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 Your Family Entertainment AG 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 %.

Management concluded that the Company continues to exercise significant influence over

the investee.

As of September 30, 2025,

the fair value of the investment was determined to be $ 6.7 million recorded within noncurrent assets on the Company’s condensed

consolidated balance sheet.

The fair value as of September 30, 2025 decreased by net $ 9.7 million, as compared to December 31,

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 condensed consolidated statements of operations.

As of September 30, 2025

and December 31, 2024, the Company’s ownership in YFE was 32.7 % and 44.8 %, respectively.

March 31, 2026 and March 31, 2025, SLU generated a net loss of $ 0.1 million and $ 0.1 million, respectively.

There were no contributions

or distributions during the three months ended March 31, 2026 and March 31, 2025, and there were no changes in facts and circumstances

that would result in a re-evaluation of the VIE assessment.

Equity Investment

The Company holds an equity

investment in Your Family Entertainment AG ("YFE"), a publicly listed company on the Frankfurt Stock Exchange (ticker symbol

"RTV"), headquartered in Germany.

YFE is one of Europe's leading independent children's content providers, with a catalog of

approximately 150 titles and 3,500 half-hour episodes.

When the Company does not have a controlling financial

interest in an entity but has the ability to exert significant influence over its 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 between 20 % and 50 % of the common stock or in-substance common stock of the investee.

At the time of the initial

investment in 2021, the Company held a 28.7 % ownership interest in YFE and determined that it had significant influence over the entity.

Accordingly, the Company elected to account for the investment at fair value under the fair value option.

Under this election, the investment

is remeasured at fair value at each reporting period, with changes in fair value recorded through earnings.

Subsequent to the initial

investment, the Company's ownership interest increased to 44.8 % through participation in a public tender offer, bond conversions, and

the exercise of subscription rights.

The ownership interest was subsequently reduced to approximately 32.7 % through a partial disposition

of shares in July 2025 and an exchange of shares in September 2025.

Throughout this period, management determined that the Company did

not obtain a controlling financial interest in YFE, and that significant influence was maintained at all times.

As of March 31, 2026

and December 31, 2025, the Company owned 5,009,005 shares of YFE, representing ownership interests of 32.2 % and 32.5 %, respectively.

The fair value of the investment is determined based on the quoted closing market price of YFE's shares on the Frankfurt Stock Exchange

as of each reporting date, remeasured from Euro to U.S.

dollars at the period-end exchange rate.

As of March 31, 2026,

the fair value of the investment was $ 2.4 million, recorded within noncurrent assets on the Company's condensed consolidated balance sheet.

The net decrease in fair value of $ 3.1 million for the three months ended March 31, 2026 reflects the combined impact of a decline

in YFE's quoted share price and the effect of foreign currency remeasurement from Euro to U.S.

The total change in fair value

is recorded within Other Income (Expense), net in the Company's condensed consolidated statements of operations.

Management concluded that the Company continues

to exercise significant influence over YFE and therefore continues to account for the investment at fair value under the fair value option.

Marketable Securities

The Company classifies its

marketable debt securities as available-for-sale (“AFS”) and reports them at fair value in accordance with ASC Topic 326,

Measurement of Credit Losses on Financial Instruments .

The Company classifies and

accounts for its marketable debt securities as available-for-sale (“AFS”) and the securities are stated at fair value in accordance

with ASC 326, Financial Instruments - Credit Losses .

During the three months ended

September 30, 2025, the Company sold all of its investments in marketable debt securities.

As a result, there were no marketable

securities outstanding as of September 30, 2025, and the proceeds were used for general operating purposes.

March 31, 2026, the Company redeemed $ 3 .0 million of its marketable securities upon maturity.

The investments in marketable

securities as of December 31, 2024 had an adjusted cost basis of $ 2.1

million and a market value of $ 2 .0

securities as of March 31, 2026 had an adjusted cost basis of $ 1 .0

million and a market value of $ 1 .0 million.

The balances consisted of the following securities (in thousands) :

2 unchanged sentences

Unrealized Gain (Loss)

Corporate Bonds

Agency and Government Sponsored Securities

States and Municipalities

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 income (loss), a component of stockholders’ equity.

As of September 30,

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 $ 8,983

and $ 0.1 million were recognized in earnings during the three months ended September 30, 2025 and 2024, respectively.

Realized losses

of $ 36,674 and $ 0.5 million were recognized in earnings during the nine months ended September 30, 2025 and 2024, respectively, primarily

due to selling securities prior to maturity to provide additional liquidity for general operating needs.

The investments in marketable

securities as of December 31, 2025 had an adjusted cost basis of $ 4 .0

million and a market value of $ 4 .0 million.

The balances consisted of the following securities (in thousands) :

Adjusted Cost

Unrealized Gain (Loss)

The 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 March 31, 2026.

The Company reports the net unrealized gains and losses in accumulated other comprehensive income

(loss), a component of stockholders’ equity.

As of March 31, 2026 and December 31, 2025, 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.

During the three months ended

March 31, 2026, the Company did no t record any realized gains or losses related to its marketable securities.

During the three months

ended March 31, 2025, the Company recorded realized gain of $ 4,454 primarily due to selling securities prior to maturity to provide

additional liquidity for general operating needs.

The contractual maturities

of the Company’s marketable investments as of March 31, 2026 were as follows (in thousands):

Schedule of contractual maturities of marketable investments

Due within 1 year

The Company may sell certain

of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit

risk, duration and asset allocation.

Property and Equipment, net

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Schedule of property and equipment, net

September 30, 2025

March 31, 2026

December 31, 2025

6 unchanged sentences

Property and Equipment, net

During the nine months ended

September 30, 2025 and 2024, the Company recorded depreciation expense of $ 0.4 million and $ 0.3 million, respectively.

During the nine months ended

September 30, 2025 and 2024, the Company did no t incur any impairment charges on its property and equipment.

During the three months ended

March 31, 2026 and March 31, 2025, the Company recorded depreciation expense of $ 0.2 million and $ 0.1 million, respectively.

During the three months ended

March 31, 2026 and March 31, 2025, the Company did no t incur any impairment charges on its property and equipment.

Leased Right-of-Use Assets, net

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Schedule of leased right of use assets

September 30, 2025

March 31, 2026

December 31, 2025

8 unchanged sentences

Leased Right-of-Use Assets, net

As of September 30, 2025,

As of March 31, 2026,

the weighted-average lease term for the Company’s operating leases was 62 months and the weighted-average discount rate was 11.3 %.

As of December 31, 2025, the weighted-average lease term for operating leases was 64 months and the weighted-average discount rate

Effective April 1, 2025, the

Company executed a lease reassignment agreement with the landlord for its Ontario office, resulting in the reassignment of one of its

suites to a new tenant.

The Company continues to lease and occupy remaining space under the original terms of the lease agreement.

reassignment reduced the Company’s leased space from 570 square feet to 74 square feet, and 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 will be recognized on a straight-line basis over the remaining lease

Operating lease costs during

the three months ended September 30, 2025 and 2024 were $ 0.4 million and $ 0.9 million, respectively, recorded within General and Administrative

Expenses on the Company’s condensed consolidated statements of operations.

Operating lease costs during the nine months ended September

30, 2025 and 2024 were $ 1.1 million and $ 1.2 million, respectively, recorded within General and Administrative Expenses on the Company’s

condensed consolidated statements of operations.

During the three and nine

months ended September 30, 2025, the Company recorded finance lease costs of $ 0.1 million and $ 0.3 million, respectively, primarily

comprised of ROU amortization of $ 0.1 million and $ 0.3 million, respectively.

During the three and nine months ended September 30,

2024, the Company recorded finance lease costs of $ 0.2 million and $ 1 .0 million, respectively, primarily comprised of ROU amortization

of $ 0.2 million and $ 1 .0 million.

ROU amortization is recorded within General and Administrative Expenses and accretion of interest expense

is recorded within Other Income (Expense), net on the Company’s condensed consolidated statements of operations.

the three months ended March 31, 2026 and March 31, 2025 were $ 0.4 million and $ 0.4 million, respectively, recorded within General

and Administrative Expenses on the Company’s condensed consolidated statements of operations.

During the three months ended

March 31, 2026 and March 31, 2025, the Company recorded finance lease costs of $ 48,737 and $ 0.1 million, respectively, primarily

comprised of ROU amortization of $ 44,448 and $ 0.1 million, respectively.

ROU amortization is recorded within General and Administrative

Expenses and accretion of interest expense is recorded within Other Income (Expense), net on the Company’s condensed consolidated

statements of operations.

Film and Television Costs, net

The following table highlights

the activity in Film and Television Costs as of September 30, 2025 and December 31, 2024 (in thousands):

the activity in Film and Television Costs as of March 31, 2026 and December 31, 2025 (in thousands):

Schedule of film and television costs activity

7 unchanged sentences

Foreign Currency Translation Adjustment

Film and Television Costs, net as of September 30, 2025

During the nine months ended

September 30, 2025 and 2024, the Company recorded amortization expense of $ 0.2 million and $ 0.2 million, respectively.

During the nine month ended

September 30, 2025, the Company recorded $ 0.1 million of write-downs related to projects not advancing beyond the development stage.

Based on the review performed by the executive team it was determined, that certain projects would no longer be pursued.

The Company did

no t record any write-downs on film costs during the nine months ended September 30, 2024.

Film and Television Costs, net as of March 31, 2026

During the three months ended

March 31, 2026 and March 31, 2025, the Company recorded amortization expense of $ 0.3 million and $ 0.1 million, respectively.

During the three month ended

March 31, 2026 and March 31, 2025, the Company recorded write-downs of $ 34,492 and $ 12,104 , respectively, related to projects

not advancing beyond the development stage.

Based on the review performed by the executive team, it was determined that certain projects

would no longer be pursued.

The Company did no t record

any impairment charges on film costs during the nine months ended September 30, 2025 and 2024.

Intangible Assets, net

any impairment charges on film costs during the three month ended March 31, 2026 and March 31, 2025.

Intangible Assets, net

The Company had the following

intangible assets (in thousands) with their weighted average remaining amortization period (in years) :

Intangible Assets, net

intangible assets (in thousands) with their weighted average remaining amortization period (in

Schedule of intangible asset

Weighted Average Remaining Amortization

September 30, 2025

September 30, 2024

March 31, 2026

December 31, 2025

Customer Relationships

5 unchanged sentences

During the three months ended

September 30, 2025 and 2024, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.5 million, respectively.

During the nine months ended September 30, 2025 and 2024, the Company recorded intangible asset amortization expense of $ 1.5 million and

$ 1.5 million, respectively.

March 31, 2026 and March 31, 2025, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.5 million,

respectively.

Expected future amortization

of intangible assets subject to amortization as of September 30, 2025 is as follows (in thousands):

of intangible assets subject to amortization as of March 31, 2026 is as follows (in thousands):

Schedule of expected future intangible asset amortization

As of September 30, 2025 and December 2024,

$ 5.4 million and $ 5.3 million, respectively, 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.

As of March 31, 2026

and December 2025, $ 4.7 million and $ 4.7 million, respectively, 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 September 30, 2025

and December 31, 2024, the Company had aggregate short term and long term deferred revenue of $ 8.9 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 September 30, 2025, compared to the progress as of December 31, 2024.

Wow's deferred revenue balance relates to cash received

from customers for 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.

As of September 30, 2025,

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 nine months ended September 30, 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 and other transactions.

As of March 31, 2026

and December 31, 2025, the Company had deferred revenue of $ 7 .0 million and $ 7.8 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 March 31,

2026, compared to the progress as of December 31, 2025.

Deferred revenue balance mainly relates to cash received from customers for

productions in progress.

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 March 31, 2026

and December 31, 2025, the Company had no outstanding margin loan balance.

During the three months ended March 31, 2026, the

Company borrowed an additional $ 2.6 million from its investment margin account and repaid $ 2.6 million primarily with cash received

from 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 0.39 % and 0.46 %, respectively, on average margin loan balances of $ 0.2 million

and $ 1 .0 million as of September 30, 2025 and December 31, 2024, respectively.

The interest rates for the borrowings

fluctuate based on the Fed Funds Upper Target plus 0.60 %.

The weighted average interest rates were 0.15 % and 0.20 %, respectively, on average

margin loan balances of $ 0.3 million and $ 0.2 million as of March 31, 2026 and December 31, 2025, respectively.

During the three months ended

September 30, 2025 and 2024, the Company incurred interest expense on the loan of $ 3,195 and $ 11,070 , respectively.

During the nine months

ended September 30, 2025 and 2024, the Company incurred interest expense on the loan of $ 8,062 and $ 42,131 , respectively, included in

Interest Expense on the Company’s condensed consolidated statements of operations.

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 was recorded as a current liability on the Company’s

condensed consolidated balance sheets.

March 31, 2026 and March 31, 2025, the Company incurred interest expense on the loan of $ 1,875 and $ 1,806 , respectively.

Bank Indebtedness and Production Facilities

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agreements as well as those of certain of our subsidiaries and related entities acting as guarantors of the production facilities.

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, the Company had an outstanding net balance of USD 13.7 million (CAD 19 .0 million), including USD 1.2 million

1 unchanged sentence

recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets.

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production

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specific financing terms in respect of the leased equipment such as term, finance amount, rate, and payment terms.

As of September 30,

2025, the Company has two leases remaining under this facility with finance rates of 7.52 %

and 8.20 %, and remaining lease terms of 2 months and 11 months, respectively.

As of September 30, 2025

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 condensed consolidated

balance sheets.

As of March 31, 2026,

the Company has one lease remaining under this facility with finance rates of 8.20 %, and a remaining lease term of 5 months.

As of March 31, 2026

and December 31, 2025, the outstanding balances, net of repayments, of $ 32,030 (CAD 44,567 ) and $ 0.1 million (CAD 0.1 million), respectively,

were included within current Finance Lease Liabilities on the Company’s condensed consolidated balance sheets.

Stockholders’ Equity

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, the total number of authorized shares of common stock was 190,000,000 .

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, there were 56,528,828 and 54,857,000 shares of common stock outstanding, respectively.

During the nine months ended

September 30, 2025 and 2024, the Company issued 226,733 and 218,886 shares of common stock for services, respectively.

During the nine months ended

September 30, 2025 and 2024, the Company issued 182,987 and 88,531 shares of common stock in connection with vested restricted stock units

(RSUs), net of shares withheld for tax obligations, respectively.

On March 5, 2025, the Company

issued 1,462,000 shares of common stock to investor Armistice Capital Master Fund Ltd.

upon the exercise of outstanding pre-funded warrants.

The warrants were exercised at a price of $ 0.001 per share, which represented par value, resulting in total proceeds of $ 1,462 .

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 of 1933 with a third party

lender (“Lender”) 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, the Lender makes payments to the Company’s vendors in cash and, in

exchange, the Company issues shares of common stock to the Lender.

The settlement was valued at $ 0.75

accounts payable and is being carried out in stages, 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.

During the three months ended September 30, 2025 the

Company settled $ 0.7

million of accounts payable by issuing 1,180,955

shares of common stock to the Lender.

The Company recognized a loss of $ 0.3

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 condensed consolidated statements of operations.

During the three months ended

March 31, 2026 and March 31, 2025, the Company issued 625,346 and 14,990 shares of common stock for services, respectively.

During the three months ended

March 31, 2026 and March 31, 2025, the Company issued 69,122 and 99,177 shares of common stock in connection with vested restricted

stock units (RSUs), net of shares withheld for tax obligations, respectively.

On November 18, 2025, the

Company entered into a new agreement to settle an aggregate of $ 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.

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.

As of March 31, 2026, the Company had completed the arrangement, settling a total of

$ 1 .0 million of accounts payable and issuing an aggregate of 1,695,072 shares of common stock.

During the three months ended March 31,

2026, the Company settled an aggregate of $ 0.6 million of accounts payable, issued 977,360 shares of common stock to CCI, and 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 condensed consolidated statements of operations.

Preferred Stock

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which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

As of September 30, 2025

As of March 31, 2026

and December 31, 2025, there were 0 shares of Series A Convertible Preferred Stock outstanding.

As of September 30, 2025 and

December 31, 2024, there were 0 shares of Series C Preferred Stock outstanding.

As of March 31, 2026 and December 31,

2025, there were 0 shares of Series B Preferred Stock outstanding.

As of March 31, 2026 and December 31, 2025, there were 0

shares of Series C Preferred Stock outstanding.

Treasury Stock

During the nine months ended

September 30, 2025 and 2024, 404 and 217 shares of common stock, respectively, with a cost of $ 293 and $ 252 , 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 condensed consolidated balance sheet.

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 Your Family Entertainment AG 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 condensed

consolidated balance sheet.

Upon vesting of restricted

stock unit awards, employees may elect to have the Company withhold shares of common stock to cover their tax obligations, which are included

as treasury stock outstanding and recorded within Treasury Stock on the condensed consolidated balance sheet.

During the three months

ended March 31, 2026, no employees elected this option and accordingly no shares were withheld.

During the three months ended March 31,

2025, the Company withheld 134 shares of common stock with a cost of $ 252 to cover taxes owed by certain employees.

Stock Options

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common stock authorized for issuance under the plan.

As of September 30, 2025, the maximum number of shares available for issuance

was 13,216,767 .

During the nine months ended

September 30, 2025, the Company granted options to purchase 100,000 shares of common stock to the music composer on the Winnie

& Friends title song, with weighted-average grant-date fair market value of $ 39,260 .

The options vested immediately upon grant.

The fair value of the options granted during the

nine months ended September 30, 2025 was calculated using the Black-Scholes-Merton (“BSM”) option pricing model based

on the following assumptions:

Schedule of option pricing model

Nine Months Ended September 30,

Exercise Price

Dividend Yield

Risk-free interest rate

Expected life of options

During the nine months ended

September 30, 2024, the Company did no t grant any stock options.

As of March 31, 2026, the number of shares remaining available for issuance

was 7,183,707 , out of a maximum of 13,216,767 shares authorized under the 2020 Plan.

During the three months ended

March 31, 2026, the Company did no t grant any stock options.

The following table summarizes

the Company’s option activity:

the Company’s option activity during the three months ended March 31, 2026:

Schedule of option activity

4 unchanged sentences

Forfeited/Cancelled

Outstanding at September 30, 2025

Unvested at September 30, 2025

Vested and exercisable at September 30, 2025

During the three months ended

September 30, 2025, the Company did no t recognize any share-based compensation expense related to stock options.

Outstanding at March 31, 2026

Vested and exercisable at March 31, 2026

During the three months ended

September 30, 2024, the Company recognized $ 23,804 in share-based compensation expense related to stock options.

During the nine months ended

September 30, 2025 and 2024, the Company recognized $ 24,699 and $ 0.1 million, respectively, in share-based compensation expense related

to stock options included in General and Administrative Expenses on the Company’s condensed consolidated statements of operations.

As of September 30, 2025, the Company had no unrecognized share-based compensation expense related to outstanding stock options.

The outstanding options as of September 30, 2025 had an aggregated intrinsic value of zero .

March 31, 2026, the Company did no t recognize any share-based compensation expense related to stock options.

During the three months

ended March 31, 2025, the Company recognized $ 18,213 in share-based compensation expense related to stock options included in General

and Administrative Expenses on the Company’s condensed consolidated statements of operations..

As of March 31, 2026,

the Company had no unrecognized share-based compensation expense related to outstanding stock options.

The outstanding options as of March 31,

2026 had an aggregated intrinsic value of zero .

Restricted Stock Units

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are granted under the Company’s 2020 Plan.

During the nine months ended September 30, 2025 and 2024, the Company granted 400,123

and 286,324 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $ 0.3 million and $ 0.3

million, respectively.

An aggregate of 409,720 shares

of common stock were issued during the nine months ended September 30, 2025 as a result of RSUs vested during the current and prior

During the three months ended

March 31, 2026, the Company granted 439,738 fully vested RSUs to the Company’s board members and consultants, with a fair market

value of $ 0.3 million.

During the three months ended March 31, 2025, the Company granted 110,968 fully vested RSUs to the Company’s

board members and consultants, with a fair market value of $ 0.1 million.

During the three months ended

March 31, 2026, the Company granted 500,000 RSUs to an executive employee with an aggregate grant-date fair value of approximately

$ 0.3 million.

These RSUs vest ratably over three years from the grant date, subject to continued employment.

In addition, the Company

granted an additional 230,000 RSUs, with an aggregate grant-date fair value of approximately $ 0.2 million, to certain employees.

vest over a three year service period and are subject to continued employment.

During the three months ended

March 31, 2026, the Company issued an aggregate of 437,655 shares of common stock as a result of RSUs vested during the current and

prior periods, consisting of 434,738 shares issued upon RSUs that vested during the current period and 2,917 shares issued upon RSUs that

vested in prior periods.

The following table summarizes

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Schedule of RSU activity

Restricted Stock Units

Average Grant Date Fair Value per Share

Weighted-Average

Grant Date Fair

Value per Share

Unvested at December 31, 2025

Unvested at September 30, 2025

Unvested at March 31, 2026

During the three months ended

September 30, 2025 and 2024, the Company recognized $ 41,847 and $ 0.1 million, respectively, in share-based compensation expense related

During the nine months ended September 30, 2025 and 2024, the Company recognized $ 0.2 million and $ 0.4 million, respectively,

in share-based compensation expense related to RSU awards included in General and Administrative Expenses on the Company’s condensed

consolidated statements of operations.

The unvested share-based compensation as of September 30, 2025 was $ 9,601 which will be recognized

through the fourth quarter of 2026 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested

during the nine months ended September 30, 2025 was $ 0.3 million.

March 31, 2026 and March 31, 2025, the Company recognized $ 0.2 million and $ 0.1 million, respectively, in share-based compensation

expense related to RSU awards included in General and Administrative Expenses on the Company’s condensed consolidated statements

of operations.

The unvested share-based compensation as of March 31, 2026 was $ 0.9 million which will be recognized through the first

quarter of 2029 assuming the underlying grants are not cancelled or forfeited.

The total fair value of shares vested during the three

months ended March 31, 2026 was $ 0.3 million.

The following table summarizes

the activity in the Company’s outstanding warrants during the nine months ended September 30, 2025:

the activity in the Company’s outstanding warrants during the three months ended March 31, 2026:

Schedule of warrant activity

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( 1,662,500 )

Outstanding at September 30, 2025

Exercisable at September 30, 2025

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 September 30, 2025.

In addition, 32,523 warrants previously classified as equity

expired during the nine months ended September 30, 2025.

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 December 18, 2024, the

Company issued 7,894,736 Series A derivative warrants and 7,894,736 Series B derivative warrants in connection with the public offering.

Upon issuance, the warrants were classified as liabilities as the terms did not allow for settlement in shares in all circumstances, including

under the Fundamental Transaction provision.

The warrants were initially measured at fair value and remeasured at each reporting period,

with changes in fair value recorded in earnings.

On May 14, 2025, the Company’s

shareholders approved the settlement of the Series A warrants and Series B warrants in shares in all scenarios, including in the event

of a Fundamental Transaction, thereby satisfying the conditions for equity classification.

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 $0.7 million decrease in the liability as compared to March 31, 2025.

The change in value was recorded as a Gain on Revaluation

of Warrants within Other Income (Expense), net on the condensed consolidated statements of operations and within the Adjustments to Reconcile

Net Loss to Net Cash Used in Operating Activities on the condensed consolidated statements of cash flows.

Subsequently, the total liability

of approximately $5.7 million was reclassified to additional paid-in capital.

As of September 30, 2025, the 7,894,736 Series

A warrants and 7,894,736 Series B warrants remain outstanding as equity-classified instruments.

The fair value of the outstanding

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

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

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,

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

The fair value of the outstanding

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

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

The fair value of the outstanding

Series B derivative warrants was determined by using the BSM option pricing model based on the following assumptions as of December 31,

December 31, 2024

Exercise Price

Dividend Yield

Risk-free Interest Rate

Expected Life of Warrants

Outstanding at March 31, 2026

Exercisable at March 31, 2026

All outstanding warrants are

classified as equity instruments in the Company's consolidated balance sheet, as the warrants meet the criteria for equity classification

under ASC 815-40.

During the three months ended March 31, 2026, the Company did not grant, exercise, or forfeit any warrants.

Supplemental Financial Statement Information

Other Expense, net

Components of Other Income (Expense), net, are

1 unchanged sentence

Schedule of other income expense, net

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Interest Expense (a)

Gain (Loss) on Revaluation of Warrants (b)

Gain on Revaluation of Warrants (b)

Loss on Revaluation of Equity Investment in YFE (c)

Realized Loss on Marketable Securities Investments (d)

Gain (Loss) on Foreign Exchange (e)

Realized Gain on Marketable Securities Investments (d)

(Loss) Gain on Foreign Exchange (e)

Loss on Debt Settlement (f)

1 unchanged sentence

Finance Lease Interest Expense (h)

Gain on Lease Modification (i)

Other Income (Expense), net

Three Months and Nine Months Ended September 30, 2025

Interest Expense during the three and nine months ended September 30, 2025 was $ 0.2 million and $ 0.5 million, respectively, primarily due to interest incurred on production facilities.

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

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

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

As accounted for under the fair value option, the Company recognized losses in its Equity Investment in YFE of $ 2.9 million and $ 10.3 million during the three and nine months ended September 30, 2025, respectively.

The losses were primarily driven by decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period, and resulted in a revaluation loss of $ 1 .0 million and $ 8.6 million during the three and nine months ended September 30, 2025, respectively.

Additionally, during the three months ended September 30, 2025, the Company recorded a $ 1.5 million loss on the sale of a portion of the investment and a $ 0.3 million loss on the share exchange transaction.

This excludes the impact of foreign currency recorded separately.

The Realized Loss on Marketable Securities Investments of $ 8,983 and $ 36,674 recorded during the three and nine months ended September 30, 2025, respectively, is related to the Loss of on sale of marketable securities prior to the maturity date.

The Gain on Foreign Exchange during the nine months ended September 30, 2025 primarily related to the revaluation of the YFE investment, resulting in a gain of $ 1.8 million, due to the depreciation of the U.S.

Other Expense, net

Three Months Ended March 31, 2026 and March 31, 2025

Interest Expense during the three months ended March 31, 2026, primarily consisted of $ 0.2 million interest incurred on production facilities and on the factoring liability.

Interest expense during the three months ended March 31, 2025, primarily consisted of $ 0.1 million of interest incurred on production facilities.

During the three months ended March 31, 2025, the Company recorded a $0.4 million fair value gain due to a revaluation 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.

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 $ 3 .0 million and $ 3.6 million for the three months ended March 31, 2026 and March 31, 2025, 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 realized gain on marketable securities investments recorded during the three months ended March 31, 2025, reflects the gain on the sale of marketable securities prior to maturity date.

The loss on Foreign Exchange during the three months ended March 31, 2026, primarily related to the revaluation of the YFE investment, resulting in a loss of $ 0.1 million due to the Euro depreciating against the U.S.

dollar as compared to prior period and a loss of $ 0.2 million due to the remeasurement of foreign currency transactions of the Company’s non-U.S.

The gain on foreign exchange during the three months ended March 31, 2025 primarily related to the remeasurement of the YFE investment, resulting in a gain of $ 0.7 million, due to the depreciation of the U.S.

dollar against the Euro relative to prior periods.

The remaining balance of $ 0.3 million represents the remeasurement of foreign currency transactions of the Company’s non-U.S.

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

The Loss on Foreign Exchange during the three months ended September 30, 2025 of $ 0.3 million is related to the remeasurement of foreign currency transactions of the Company’s non-U.S.

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

The Loss on Debt Settlement recorded during the nine months ended September 30, 2025 includes a loss of $ 0.9 million related to the loan settlement agreement with YFE finalized in April 2025 and a loss of $ 0.3 million arising from the Section 3(a)(10) transaction completed during the period.

The Loss on Debt Settlement of $ 0.3 million recorded during the three months ended September 30, 2025 is related to the Section 3(a)(10) transaction completed during the period.

Interest Income during the three and nine months ended September 30, 2025 and 2024 primarily consisted of income from investments in marketable securities, net of premium amortization expense, as well as other transactions, including interest income related to ERTC receivable and interest income related to the Shareholder Loan.

The loss on debt settlement recorded during the three months ended March 31, 2026, includes a loss of $ 0.1 million arising from the Section 3(a)(10) transaction completed during the quarter.

The loss on debt settlement recorded during the three months ended March 31, 2025, includes a loss of $ 0.9 million related to the loan settlement agreement with YFE.

Interest Income during the three months ended March 31, 2026, primarily consisted of income from investments in marketable securities, net of premium amortization expense.

Interest Income during the three months ended March 31, 2025, primarily consisted of income from investments in marketable securities, net of premium amortization expense, and interest income related to an Employee Retention Tax Credit (“ERTC”) receivable.

Each of these sources was individually immaterial.

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

On April 1, 2025, a subsidiary, Beacon Communications Group, Ltd (“Beacon Communications”), executed a rent reassignment agreement relinquishing one floor of its office space in Toronto to a new tenant who assumed the lease obligation for that floor.

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

During the nine months ended September 30, 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 $ 75,568 of other income, primarily consisting of late fees from select clients on payment plans and credit card rewards.

For the three months ended September 30, 2025, other income primarily related to such late fees totaled $ 22,323 .

Three Months and Nine Months Ended September 30, 2024

Interest Expense during the three and nine months ended September 30, 2024 was $ 0.2 million and $ 0.6 million, respectively, primarily due to interest incurred on production facilities and bank indebtedness.

The Gain on Revaluation of Warrants recorded during the three and nine months ended September 30, 2024 was related to the remeasurement of 89,286 outstanding liability warrants 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 $ 0.5 million and $ 1.3 million for the three and nine months ended September 30, 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 Realized Loss on Marketable Securities Investments during the three and nine months ended September 30, 2024 reflected the loss that was not recovered from the investments due to selling securities prior to maturity.

The Gain on Foreign Exchange during the three and nine months ended September 30, 2024 was primarily related to the revaluation of the YFE investment, resulting in a gain of $ 0.8 million and $ 0.2 million, respectively, due to the EURO fluctuation to USD, as compared to the prior reporting period.

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

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

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

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

No gain or loss on lease modification was recorded during the three and nine months ended September 30, 2024.

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

During the three months ended March 31, 2026, other income of $ 28,000 was recognized from the recovery of previously written-off accounts receivable, and $ 24,810 from credit card and other rebates.

During the three months ended March 31, 2025, other income of $ 32,522 was recognized primarily related to credit card rewards.

The Company accounts for income

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in the consolidated financial statements.

For the nine months ended

September 30, 2025, the effective tax rate was 0%.

For the three months ended

March 31, 2026, the effective tax rate was 0%.

The effective tax rate differed from the U.S.

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due to state income taxes, a foreign tax rate differential, and a change in valuation allowance.

For the nine months ended September 30,

For the three months ended March 31,

2025, the effective tax rate was 0%.

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taxes, a foreign tax rate differential, and a change in valuation allowance.

During the nine months ended

September 30, 2025, the Company did no t record an income tax expense.

As of September 30, 2025 and December 31, 2024, net

deferred tax liability was $ 1.3 million and $ 1.3 million, respectively.

During the three months ended

March 31, 2026, the Company did no t record an income tax expense.

As of March 31, 2026 and December 31, 2025, net deferred

tax liability was $ 1.2 million and $ 1.2 million, respectively.

Kartoon Studios, Inc.

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subsidiaries are subject to U.S.

income taxes and file a consolidated tax return in the U.S.

The Beacon Communications

Group, Ltd., Ameba Inc.

income taxes and file consolidated and separate tax returns in the U.S.

Communications Group, Ltd., Ameba Inc.

and Wow Unlimited Media Inc.

are subject to Canadian income taxes on a stand-alone basis and file separate tax

returns in Canada.

are subject to Canadian income taxes on a stand-alone basis and file

separate tax returns in Canada.

The Company files income tax

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state, local or foreign authorities for years prior to 2021.

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 September

30, 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.

Commitments and Contingencies

The following is a schedule

of future minimum cash contractual obligations as of September 30, 2025 (in thousands):

of future minimum cash contractual obligations as of March 31, 2026 (in thousands):

Schedule of future minimum lease payments

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Consulting Contracts

Production Financing

Production Facilities

Contractual obligation

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of the minimum operating lease payments above was $ 1.6 million which when deducted from the cash commitments for the leases included in

the table above, equates to the lease liabilities of $ 5.7 million recorded as of September 30, 2025 on the Company’s condensed

the table above, equates to the lease liabilities of $ 5.2 million recorded as of March 31, 2026 on the Company’s condensed

consolidated balance sheet.

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Related Party Transactions

Pursuant to his initial employment

agreement dated December 7, 2020, Mr.

Heyward was previously entitled to receive a quarterly bonus.

Heyward was paid $ 55,000 as quarterly

bonus for each quarter during the nine months ended September 30, 2025 and 2024.

On February 27, 2023, Mr.

Heyward’s prior employment agreement was amended to provide him a creative producer fee of $ 100,000 per quarter, prorated for the

first quarter of 2023, for services rendered to Wow.

Heyward was paid $ 100,000 in creative producer fees for each quarter during the

nine months ended September 30, 2025 and 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 were to

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

Shareholder Loan Agreement.

Pursuant to the settlement, 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 September 30,

2025, all terms of the settlement agreement were fulfilled.

During 2022, the Company entered

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Hills, CA 90210.

The monthly income was $595 during the nine months ended September 30, 2025 and 2024 and recorded within Other Expense,

net in the Company's condensed consolidated statements of operations.

The monthly income was $595 during the three months ended March 31, 2026 and March 31, 2025, and recorded within

Other Expense, net in the Company's condensed consolidated statements of operations.

During the quarter ended September 30,

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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 $ 0 during the nine months ended September 30, 2025 and 2024, respectively, and was recorded

within General and Administrative expenses in the Company's condensed consolidated statements of operations.

The monthly expense was $ 595 during the three months ended March 31, 2026 and March 31, 2025, and was recorded within

General and Administrative expenses in the Company's condensed consolidated statements of operations.

On February 6, 2025, certain

members of the Company’s executive management team, including the Chief Operating Officer, established a nonprofit organization The

Stan Lee Foundation (the “Foundation”), which was granted tax-exempt status under Section 501(c)(3).

The Foundation is

not owned, governed, or controlled by the Company.

The Company may reference the Foundation in connection with reputational or community

engagement efforts.

The Company provided limited administrative support totaling approximately $ 772 during the three months ended September 30,

This support was not part of an ongoing funding commitment and is not considered material to the Company’s condensed consolidated

financial statements.

The Foundation is not consolidated in these condensed consolidated financial statements.

members of the Company's executive management team, including the Chief Operating Officer, established The Stan Lee Foundation (the "Foundation"),

a nonprofit organization that was granted tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.

The Foundation operates

independently and is not owned, governed, or controlled by the Company.

The Company has no ongoing funding commitment to the Foundation

and retains no financial interest in its operations or assets.

From the Foundation's inception on February 6, 2025 through March 31,

2026, the Company provided administrative support to the Foundation totaling approximately $ 805 .

The Company does not expect to provide

material financial support to the Foundation in future periods.

The Company may engage with the Foundation in connection with community

and reputational initiatives.

The Foundation is not consolidated in the Company's condensed consolidated financial statements.

The administrative

support provided is not considered material to the Company's condensed consolidated financial statements.

On August 25, 2025, the Company

entered into a new employment agreement with Andy Heyward, the Company’s CEO, which replaced and superseded all prior employment

entered into a new employment agreement with Mr.

Heyward, the Company’s CEO, which replaced and superseded all prior employment

The agreement revised certain compensation terms, including a new performance-based bonus structure contingent on market capitalization

and net income thresholds as of December 31, 2025.

The agreement further provides for the potential issuance of a restricted stock unit

(“RSU”) award to Mr.

Heyward, subject to the determination of the terms.

No bonuses were earned or accrued under this arrangement

as of September 30, 2025.

The agreement further provides that Mr.

Heyward will receive an award of 2,000,000

RSUs under the 2020 Plan and shall not be eligible to receive any other equity-based awards during the employment term.

Subsequent to

entering into the Heyward Employment Agreement, the Company and Mr.

Heyward determined to revisit the terms of such equity grant.

Company and Mr.

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

Therefore, the RSUs issuable

pursuant to his employment agreement were not issued to Mr.

Heyward as of March 31, 2026.

No bonuses were earned or accrued under

this arrangement as of March 31, 2026.

Pursuant to the terms of the

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producer, up to maximum 52 episodes per calendar year.

During the nine months ended September 30, 2025 and 2024, Mr.

Heyward has no t earned

or was not paid any producer fees.

During the three months ended March 31, 2026 and March 31, 2025, Mr.

Heyward has no t earned or was not paid any producer fees.

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 chief

operating decision maker (“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.

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.

The Company’s 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:

The 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

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.

The 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) reviews revenue

and net operating results, as allocated based on the nature of the business activity.

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 (“CODM”), or group, in deciding how to allocate

resources and assess performance.

Our Chief Executive Officer,

as the CODM, organizes our company, manages resource allocations and measures performance among two operating and reportable segments,

which were identified 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

These entities provide media advisory and advertising services and marketing services.

The Company’s CODM decides

on resource allocation predominantly based on the annual budget and forecasting process.

The CODM considers budget-to-actual variances

on a periodic basis when making decision about allocating resources to the segments.

The CODM uses revenue and

net income (loss) to evaluate the profitability and performance of each operating segment, because it provides insight to operational

leverage and other operational metrics for each segment.

The CODM reviews revenue and net operating results, as allocated based on the

nature of the business activity.

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.

The following table presents the revenue and net

earnings within the Company's two

operating segments (in thousands):

Schedule of segment information by revenues and net earnings

Three Months Ended September 30,

Nine Months Ended September 30,

earnings within the Company's two operating segments (in thousands):

Schedule of segment information by revenues and net income (loss)

Three Months Ended March 31,

Total Revenues:

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Schedule of segments by geographic area

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total Revenues:

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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

and Mainframe Studios are separate entities, although according to ASC 280-10-50-11 all criteria are met in order to present results in

When evaluating the Company’s

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Schedule of segment

Three Months Ended September 30, 2025

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 Loss Attributable to Kartoon Studios, Inc.

Nine Months Ended September 30, 2025

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 Loss Attributable to Kartoon Studios, Inc.

Three Months Ended September 30, 2024

Three Months Ended March 31, 2026

Content Production and Distribution

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General and Administrative Expenses

Other Expenses

Segment results:

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Interest Expense

Stock Based Compensation

Tax provision

Share-Based Compensation

Net Loss Attributable to Non-Controlling Interests

Net Loss Attributable to Kartoon Studios, Inc.

Nine Months Ended September 30, 2024

Three Months Ended March 31, 2025

Content Production and Distribution

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General and Administrative Expenses

Other Expenses

Segment results:

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Interest Expense

Stock Based Compensation

Tax provision

Share-Based Compensation

Net Loss Attributable to Non-Controlling Interests

Net Loss Attributable to Kartoon Studios, Inc.

All other segment items included

in net income or loss are reported on the condensed consolidated statements of operations and described within their respective disclosures.

In evaluating segment expenses,

the CODM primarily focuses on cash operating costs and budget-to-actual variances, as these measures are most relevant to assessing operating

performance and making resource allocation decisions.

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

On October 22, 2025, pursuant

to the terms of a securities purchase agreement (the “Purchase Agreement”) entered into with an institutional investor (the

“Investor”), the Company closed a registered direct offering of 3,000,000 shares (the “Shares”) of its common

stock, par value $0.001 per share (“Common Stock”), and pre-funded warrants to purchase up to 6,903,049 shares of Common Stock

(the “Pre-Funded Warrants”) to the Investor.

In a concurrent private placement, pursuant to the Purchase Agreement, the Company

also sold to the Investor unregistered warrants to purchase up to 9,903,049 shares of Common Stock (the “Common Warrants”),

with an exercise price of $0.738 per share.

Each Share and privately placed Common Warrant was sold at a public offering price of $0.738,

and each Pre-Funded Warrant and privately placed Common Warrant was sold at a 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.

The Company paid to the

placement agent in connection with the offering a cash fee equal to 7% of the aggregate gross proceeds from the sale of the securities

sold in this offering, and the placement agent is also entitled to receive 7% of the gross proceeds received from the exercise of any

warrants issued in the offering.

In addition, the Company issued 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.

On August 27, 2025, the Company

entered into a transaction under Section 3(a)(10) of the Securities Act of 1933 with a third party 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, the third party makes payments

to the Company’s vendors in cash and, in exchange, the Company issues shares of common stock to the third party.

The transaction

was carried out in stages and as of November 14, 2025, the Company had completed the arrangement, settling a total of $1.8 million,

and issued 3,148,535 shares of common stock.

to March 31, 2026, the Company redeemed $1.0 million of its marketable securities.

Subsequent to March 31,

2026, the Company granted an additional 135,000 RSUs, with an aggregate grant-date fair value of approximately $0.1 million, to certain

employees under the 2020 Plan.

The RSUs vest over a three year service period and are subject to continued employment.

On April 8, 2026, the Company

entered into a new agreement to settle an additional $1.1 million of accounts payable under Section 3(a)(10) of the Securities Act with

CCI, in exchange for issuing 2,001,797 shares of common stock, and to settle an additional past obligations up to $0.3 million in exchange

for issuing 551,250 shares of common stock.

The terms were consistent with the original arrangement.

As of May 14, 2026, the Company

settled $0.3 million of accounts payable in exchange for issuing 558,481 shares of common stock to CCI, and settled an additional $0.3

million of past obligations in exchange for issuing 551,250 shares of common stock to CCI.

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

What changed 10-Q

Item 1. Financial Statements