What changed in this filing

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Item 1A. Risk Factors

2026-05-15 compared with 2025-11-14 · 86 added, 84 removed, 38 unchanged (82% of the section changed)

Except as set forth below, there have been no material

changes to the Risk Factors set forth in our 2024 Annual Report.

Except as set

forth below, there have been no material changes to the Risk Factors set forth in our 2025 Annual Report.

We must raise additional capital to fund

our operations in order to continue as a going concern.

As of September 30, 2025,

As of March 31, 2026,

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

As of September 30, 2025,

we 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.

We 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.

Subsequent to September 30, 2025, we were successful in raising net proceeds of $6.6 million

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

Management has evaluated

the significance of these conditions in relation to our ability to meet our obligations and concluded, that there is substantial doubt

about our ability to continue as a going concern for a period of at least one year subsequent to the issuance of the accompanying condensed

As of March 31, 2026, we had

total current assets of $30.7 million, including cash of $5.0 million, and total current liabilities of $31.4 million.

We 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.

has evaluated the significance of these conditions in relation to our ability to meet our obligations and concluded that there is substantial

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

consolidated financial statements.

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assurance that we will be able to complete any such financing, collaborative or strategic transactions in a timely manner or on acceptable

terms beyond what we completed on October 22, 2025.

Our ability to continue as a going concern is dependent upon our ability to generate

revenue and raise additional capital.

terms, or at all.

Our ability to continue as a going concern is dependent upon our ability to generate revenue and raise additional capital.

There can be no assurance that we will be successful in accomplishing these objectives.

such additional capital, we may be required to curtail or cease operations and be required to realize our assets and discharge our liabilities

other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.

Without such additional capital, we may be required

to curtail or cease operations and be required to realize our assets and discharge our liabilities other than in the normal course of

business which could cause investors to suffer the loss of all or a substantial portion of their investment.

We have incurred net losses since inception.

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

During the three months ended September 30, 2025, we generated

During the three months ended March 31, 2026, we generated

total revenues of $7.2 million and incurred a net loss of $6.4 million, while for the same period the previous year, we generated total

revenue of $9.5 million and incurred a net loss of $6.6 million, respectively.

During the nine months ended September 30, 2025, we

generated total revenues of $29.7 million and incurred a net loss of $19.4 million, while for the same period the previous year, we generated

total revenue of $23.2 million and incurred a net loss of $15.1 million, respectively.

For the year ended December 31, 2024, we generated

net revenues of $32.6 million and incurred a net loss attributable to Kartoon Studios Inc.

of $20.7 million.

These losses, among other

things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and

working capital.

These losses, among other things, have had an adverse effect

on our results of operations, financial condition, stockholders’ equity, net current assets and working capital.

The financial statements

included elsewhere in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which contemplates the realization

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

The financial statements do not include any adjustments

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

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

We will need to generate additional

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trade policy, including

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

production services based in Canada and Asia.

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

on animation production services based in Canada and Asia.

government has indicated

its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral

or multilateral trade agreements.

It has initiated or is considering the imposition of tariffs on certain foreign goods.

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

terminate, certain existing bilateral or multilateral trade agreements.

It has initiated or is considering the imposition of tariffs on

certain foreign goods.

Changes in U.S.

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

trading partners adopting responsive trade policies, making it more difficult or costly

for us to conduct our international and domestic operations.

As an example, on May 4, 2025, President Trump announced an intention to

impose tariffs on films made outside of the United States.

Although our parent company is based in the United States, our primary animation

production operations are located in Canada.

The scope of the proposed tariffs is not yet finalized and there is a risk that such measures

could be extended to include animated content produced internationally.

Our business operations, financial condition, and results of operations

could be significantly affected by such a measure and the potential expansion of existing tariffs or implementation of new tariffs, trade

restrictions, or retaliatory measures by other countries that could disrupt our established operations.

This in turn could require us

to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our profit margin

on certain services.

trading partners adopting responsive trade policies,

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

In May 2025, President Trump announced

an intention to impose tariffs on films made outside of the United States, which he reiterated in September 2025 and again in January

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

date, no formal executive order or implementing regulations specific to filmed or animated content have been issued, and the scope and

extent of any such proposed measures remain undefined.

The broader legal landscape

governing U.S.

tariff authority has also evolved materially.

In February 2026, the U.S.

Supreme Court held in Learning Resources, Inc.

Trump that the International Emergency Economic Powers Act ("IEEPA") does not authorize the President to impose tariffs,

invalidating a broad set of tariffs that had been imposed under that authority.

Following the ruling, the administration moved promptly

to impose new tariffs under alternative statutory authorities, signaling its continued intent to pursue tariff measures through other

available legal mechanisms.

Additionally, a World Trade Organization moratorium on customs duties applicable to electronic transmissions,

which had previously served as a potential constraint on the imposition of tariffs on digitally distributed content, expired in March

The full implications of these developments for the potential imposition of tariffs on filmed or animated content remain uncertain.

There is a risk that tariff

measures could be extended to include animated content produced internationally.

Our business operations, financial condition, and results

of operations could be significantly affected by such measures, as well as by the potential expansion of existing tariffs or the implementation

of new tariffs, trade restrictions, or retaliatory measures by other countries that could disrupt our established operations.

turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in

lower profit margins on certain services.

We cannot predict future trade

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could have a material adverse effect on us.

A few customers have in the

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

During the three months ended September 30, 2025, we had four customers from which our total revenue exceeded 10% of our total

condensed consolidated revenue.

These customers collectively accounted for 85.6% of the total revenue.

As of September 30, 2025,

we 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.

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

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

A small number of customers

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

consecutive years.

During the three months ended March 31, 2026, three customers each accounted for more than 10% of our total consolidated

These customers accounted for an aggregate of 59.6% of our total revenue.

As of March 31, 2026, we had four customers, the

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

These customers accounted for an aggregate of 62.4%

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

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

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

Offers or availability for sale of a substantial

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If our stockholders sell substantial

amounts of our common stock in the public market upon the expiration of any statutory holding period under Rule 144, or shares issued

upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang ”

and, in anticipation of which, the market price of our common stock could fall.

The existence of an overhang, whether or not sales have

occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related

securities in the future at a time and price that we deem reasonable or appropriate.

In general, under Rule 144, a non-affiliated person

who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to

us being current in our periodic reports filed with the SEC.

As of September 30, 2025,

approximately 46,484,165 shares of common stock of the 48,913,630 shares of common stock issued are outstanding and freely trading.

of September 30, 2025, there were 24,150,943 warrants outstanding.

Lastly, as of September 30, 2025, there are 973,980 shares

of common stock underlying outstanding options granted, 966,649 shares of common stock underlying outstanding restricted stock units (“RSUs”)

and 9,422,971 shares reserved for issuance under our Kartoon Studios, Inc.

amounts of our common stock in the public market or upon shares issued upon the exercise of outstanding options or warrants, it could

create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common

stock could fall.

The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our

ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we

deem reasonable or appropriate.

As of May 14, 2026, approximately

56,713,071 shares of common stock of the 59,142,534 shares of common stock issued are outstanding and freely trading.

As of March 31,

2026, there were 39,960,004 warrants outstanding.

Lastly, as of March 31, 2026, there are 871,998 shares of common stock underlying

outstanding options granted, 2,579,478 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 7,183,707

shares reserved for issuance under our Kartoon Studios, Inc.

2020 Incentive Plan.

A shutdown of the U.S.

federal government

may adversely affect our business.

A recurring shutdown of the

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

During such shutdowns, while the SEC’s

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

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

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

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

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

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended

March 31, 2026, the Company did not make any unregistered sales of equity securities that were not disclosed in SEC filings.

Defaults Upon Senior Securities

Mine Safety Disclosures

Not applicable.

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 1A. Risk Factors