Kartoon Studios, Inc. 10-Q

Item 1. Financial Statements Kartoon Studios, Inc. Condensed Consolidated Balance Sheets (in thousands, except for share data) As of March 31, 2026 December 31, 2025 (Unaudited) ASSETS Current Assets: Cash $ 5,016 $ 2,943 Investments in Marketable Securities (amortized cost of $ 982 and $ 3,953 , respectively) 996 3,978 Accounts Receivable (net of allowance of $ 6 and $ 3 , respectively) 3,303 9,632 Tax Credits Receivable (net of allowance of $ 427 and $ 423 , respectively) 18,459 16,800 Other Receivable 1,787 1,571 Prepaid Expenses and Other Assets 1,179 841 Total Current Assets 30,740 35,765 Noncurrent Assets: Property and Equipment, net 1,476 1,635 Operating Lease Right-of-Use Assets, net 4,815 5,114 Finance Lease Right-of-Use Assets, net 261 312 Film and Television Costs, net 6,863 4,878 Investment in Your Family Entertainment AG 2,393 5,481 Intangible Assets, net 16,904 17,604 Other Assets 117 118 Total Assets $ 63,569 $ 70,907 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable $ 7,138 $ 12,115 Participations Payable 1,022 1,024 Accrued Expenses 2,600 744 Accrued Salaries and Wages 1,411 1,370 Deferred Revenue 3,595 4,391 Production Facilities, net 13,654 11,819 Current Portion of Operating Lease Liabilities 1,096 1,077 Current Portion of Finance Lease Liabilities 136 156 Due to Related Party – 5 Other Current Liabilities 750 750 Total Current Liabilities 31,402 33,451 Noncurrent Liabilities: Deferred Revenue 3,369 3,369 Operating Lease Liabilities, Net of Current Portion 4,145 4,488 Finance Lease Liabilities, Net of Current Portion 115 144 Deferred Tax Liability, net 1,205 1,225 Factoring Liability 732 689 Other Noncurrent Liabilities 16 8 Total Liabilities 40,984 43,374 Commitments and Contingencies (Note 19) – Stockholders’ Equity: 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, respectively 57 55 Additional Paid-in Capital 795,270 793,814 Treasury Stock at Cost, 425,150 shares of common stock as of March 31, 2026 and December 31, 2025 ( 604 ) ( 604 ) Accumulated Deficit ( 770,182 ) ( 763,817 ) Accumulated Other Comprehensive Loss ( 3,239 ) ( 3,238 ) Total Kartoon Studios, Inc. Stockholders' Equity 21,302 26,210 Non-Controlling Interests in Consolidated Subsidiaries 1,283 1,323 Total Stockholders' Equity 22,585 27,533 Total Liabilities and Stockholders’ Equity $ 63,569 $ 70,907 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Kartoon Studios, Inc. Condensed Consolidated Statements of Operations (in thousands, except for share data) (Unaudited) Three Months Ended March 31, 2026 2025 Revenues: Production Services $ 4,093 $ 6,572 Content Distribution 2,273 1,981 Licensing and Royalties 73 84 Media Advisory and Advertising Services 799 867 Total Revenues 7,238 9,504 Operating Expenses: Marketing and Sales 192 186 Direct Operating Costs 4,718 6,684 General and Administrative 5,131 5,713 Total Operating Expenses 10,041 12,583 Loss from Operations ( 2,803 ) ( 3,079 ) Interest Expense ( 233 ) ( 128 ) Other Expense, net ( 3,369 ) ( 3,384 ) Net Loss ( 6,405 ) ( 6,591 ) Net Loss Attributable to Non-Controlling Interests 40 65 Net Loss Attributable to Kartoon Studios, Inc. $ ( 6,365 ) $ ( 6,526 ) Net Loss per Share (Basic) $ ( 0.10 ) $ ( 0.14 ) Net Loss per Share (Diluted) $ ( 0.10 ) $ ( 0.14 ) Weighted Average Shares Outstanding (Basic) 62,740,566 46,693,016 Weighted Average Shares Outstanding (Diluted) 62,740,566 46,693,016 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Kartoon Studios, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (Unaudited) Three Months Ended March 31, 2026 2025 Net Loss $ ( 6,405 ) $ ( 6,591 ) Change in Accumulated Other Comprehensive Income (Loss): Change in Unrealized (Loss) Gain on Marketable Securities ( 10 ) 34 Realized Gain on Marketable Securities Reclassified from AOCI into Earnings – ( 4 ) Foreign Currency Translation Adjustments 9 31 Total Change in Accumulated Other Comprehensive (Loss) Income ( 1 ) 61 Total Comprehensive Net Loss $ ( 6,406 ) $ ( 6,530 ) Net Loss Attributable to Non-Controlling Interests 40 65 Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc. $ ( 6,366 ) $ ( 6,465 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Kartoon Studios, Inc. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except for share data) (Unaudited) Common Stock Preferred Stock Additional Paid-In Treasury Stock Accumulated Accumulated Other Comprehensive Non- Controlling Shares Amount Shares Amount Capital Shares Amount Deficit Loss Interest Total December 31, 2025 54,857,000 $ 55 – $ – $ 793,814 425,150 $ ( 604 ) $ ( 763,817 ) $ ( 3,238 ) $ 1,323 $ 27,533 Issuance of Common Stock for Services 625,346 1 – – 583 – – – – – 584 Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 69,122 – – – – – – – – – – Issuance of Common Stock for Accounts Payable Settlement 977,360 1 – – 682 – – – – – 683 Share Based Compensation – – – – 191 – – – – – 191 Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – ( 10 ) – ( 10 ) Foreign Currency Translation Adjustment – – – – – – – – 9 9 Net Loss – – – – – – – ( 6,365 ) – ( 40 ) ( 6,405 ) Balance, March 31, 2026 56,528,828 $ 57 – $ – $ 795,270 425,150 $ ( 604 ) $ ( 770,182 ) $ ( 3,239 ) $ 1,283 $ 22,585 Common Stock Preferred Stock Additional Paid-In Treasury Stock Accumulated Accumulated Other Comprehensive Non- Controlling Shares Amount Shares Amount Capital Shares Amount Deficit Loss Interest Total December 31, 2024 46,209,081 $ 46 – $ – $ 777,930 75,997 $ ( 340 ) $ ( 739,286 ) $ ( 3,379 ) $ 1,489 $ 36,460 Issuance of Common Stock for Services 14,990 – – – 3 – – – – – 3 Issuance of Common Stock for Vested Restricted Stock Units, Net of Shares Withheld for Taxes 99,177 1 – – 27 134 – – – – 28 Share Based Compensation – – – – 87 – – – – – 87 Stock Options Granted to Consultants – – – – 8 – – – – – 8 Warrant exercise 1,462,000 1 – – – – – – – – 1 Realized Loss Reclassified from AOCI to Earnings, net change in Unrealized Loss – – – – – – – – 30 – 30 Currency Translation Adjustment – – – – – – – – 31 – 31 Net Loss – – – – – – – ( 6,526 ) – ( 65 ) ( 6,591 ) Balance, March 31, 2025 47,785,248 $ 48 – $ – $ 778,055 76,131 $ ( 340 ) $ ( 745,812 ) $ ( 3,318 ) $ 1,424 $ 30,057 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Kartoon Studios, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended March 31, 2026 2025 Cash Flows from Operating Activities: Net Loss $ ( 6,405 ) $ ( 6,591 ) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Amortization of Film and Television Costs 306 54 Depreciation and Amortization of Property, Equipment and Intangible Assets 677 650 Amortization of Right-of-Use Assets 271 281 Amortization of Premium on Marketable Securities – 4 Share Based Compensation Expense 191 87 Loss on Debt Settlement 124 944 Loss on Revaluation of Equity Investments in Your Family Entertainment AG 2,957 3,640 Unrealized Loss (Gain) on Foreign Currency of Equity Investments in Your Family Entertainment AG 131 ( 654 ) Accounts Payable Settled in Stock 558 – Gain on Warrant Revaluation – ( 446 ) Realized Gain on Marketable Securities – ( 4 ) Stock Issued for Services 583 30 Stock Options Issued for Services – 8 Credit Loss Expense (Recovery) 13 ( 2 ) Non-cash Interest Expense 43 – Decrease (Increase) in Operating Assets: Accounts Receivable 6,316 4,466 Other Receivable ( 219 ) ( 121 ) Tax Credits Earned (less capitalized) ( 2,105 ) ( 2,724 ) Tax Credits Received, net 225 4,936 Film and Television Costs, net ( 2,347 ) ( 1,161 ) Prepaid Expenses and Other Assets ( 344 ) ( 750 ) Increase (Decrease) in Operating Liabilities: Accounts Payable ( 4,959 ) ( 5,990 ) Accrued Salaries and Wages 55 451 Accrued Expenses 1,857 1,333 Accrued Production Costs 181 257 Participations Payable – ( 385 ) Deferred Revenue ( 729 ) 119 Lease Liability ( 244 ) ( 234 ) Other Liabilities 8 ( 20 ) Net Cash Used in Operating Activities $ ( 2,856 ) $ ( 1,822 ) Cash Flows from Investing Activities: Proceeds from Sales and Maturities of Marketable Securities 2,972 605 Investment in Marketable Securities – ( 1,771 ) Purchase of Property and Equipment ( 33 ) ( 20 ) Net Cash Provided by (Used in) Investing Activities $ 2,939 $ ( 1,186 ) Cash Flows from Financing Activities: Proceeds from Margin Loan 2,627 2,700 Repayments of Margin Loan ( 2,627 ) ( 3,184 ) Proceeds from Production Facilities 1,842 2,485 Repayment of Production Facilities ( 12 ) ( 4,474 ) Principal Payments on Finance Lease Obligations ( 48 ) ( 70 ) Debt Issuance Costs ( 1 ) ( 25 ) Proceeds from Warrant Exercise – 1 Net Cash Provided by (Used in) Financing Activities $ 1,781 $ ( 2,567 ) Effect of Exchange Rate Changes on Cash 209 ( 38 ) Net (Decrease) Increase in Cash and Restricted Cash 2,073 ( 5,613 ) Beginning Cash and Restricted Cash 2,943 8,385 Ending Cash and Restricted Cash $ 5,016 $ 2,772 Supplemental Disclosures of Cash Flow Information Cash Paid for Interest $ 54 $ 59 Cash Paid for Taxes $ – $ – The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Kartoon Studios, Inc. Notes to Condensed Consolidated Financial Statements March 31, 2026 Note 1: Organization and Business Kartoon Studios, Inc. (the “Company,” “Kartoon Studios,” “we,” “us” or “our”) is a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children. Led by experienced industry personnel, the Company’s core business includes original intellectual property (“IP”) development, third-party IP production services, media agency, and content monetization through licensing and owned distribution platforms. Kartoon Studios’ owned and produced titles include Stan Lee’s Superhero Kindergarten (starring Arnold Schwarzenegger), Llama Llama (starring Jennifer Garner), Rainbow Rangers , KC! Pop Quiz , and Shaq’s Garage (starring Shaquille O’Neal). The Company’s library also includes titles such as Baby Genius , Thomas Edison’s Secret Lab , Warren Buffett’s Secret Millionaires Club , Team Zenko Go! , Reboot , Bee & PuppyCat: Lazy in Space , and Castlevania . The Company maintains 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 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. (“Frederator”). Frederator operates a leading animation-focused creator network on YouTube encompassing over 2,500 channels. Frederator Studios has developed and produced original programming in partnership with Cartoon Network, Nickelodeon, Nick Jr., Netflix, Sony Pictures Animation, and Amazon. The Company distributes its content across streaming platforms, linear television, and its ad-supported and subscription-based video-on-demand (“VOD”) services and apps, including Kartoon Channel! and Ameba TV . Distribution partners include YouTube, YouTube Kids, Amazon Prime Video, Amazon Fire, Roku, Apple TV, iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, Samsung TV Plus, Google TV, Cox, DISH, Sling TV, KartoonChannel.com, and smart TVs from Samsung and LG. The Company also licenses content to third-party networks and streaming services globally, including Netflix, Paramount+, HBO Max, and Nickelodeon. The Company also owns The Beacon Media Group, LLC and The Beacon Communications Group, Ltd. (collectively, “Beacon”), a specialized media and marketing agency focused on children’s and family audiences. Beacon represents over 20 established and emerging brands across the toy, consumer products, and family entertainment sectors, including Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, and Cepia LLC. 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. 8 Through its investment in 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 IP rights to Stan Lee’s name, likeness, signature, and associated IP assets. 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. Additional 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 stock is listed on the NYSE American LLC (“NYSE American”) under the ticker symbol “TOON.” Recent Transactions 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. 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. 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. 9 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 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”) 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 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. 10 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. For 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. Note 2: Basis of Presentation and Summary of Significant Accounting Policies 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, 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 2025 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, 2025 filed with the SEC on March 31, 2026. Foreign Currency Forward Contracts 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 $ 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. 11 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 March 31, 2026 and December 31, 2025 (in thousands): Schedule of allowance for credit losses trade accounts receivable Balance, net as of December 31, 2024 $ 239 Charged to costs and expenses 179 Recoveries ( 39 ) Write-offs ( 376 ) Balance, net as of December 31, 2025 3 Charged to costs and expenses 3 Balance, net as of March 31, 2026 $ 6 Tax Credits Receivable The Company classifies the 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 The Company maintains its cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts. Balances on interest bearing deposits at banks in 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 100,000. 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 account with a financial institution. The managed account maintained its investments in marketable securities of approximately $ 1 .0 million 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. 12 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 As of March 31, 2026 December 31, 2025 Customer A 19.8 % * Customer B 16.5 % 26.1 % Customer C 14.8 % * Customer D 11.2 % 11.1 % Customer E * 17.3 % * Less than 10% During the three months ended 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 85.1 % of the Company’s total revenue for the three months ended March 31, 2025. Three Months Ended March 31, 2026 2025 Customer F 32.4 % 17.9 % Customer G 15.3 % 19.5 % Customer H 11.9 % 16.0 % Customer A * 31.7 % * Less than 10% There is significant financial risk associated with a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated credit losses. 13 Fair Value of Financial Instruments 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 Level 1 Level 2 Total Fair Value Investments in Marketable Securities: U.S. Treasury $ 996 $ – $ 996 Total $ 996 $ – $ 996 Investment in Equity Interest: Investment in YFE $ – $ 2,393 $ 2,393 Total $ – $ 2,393 $ 2,393 Foreign Currency Forward Contracts: Foreign Currency Forward Contracts, net: $ – $ ( 29 ) $ ( 29 ) Total $ – $ ( 29 ) $ ( 29 ) 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): Level 1 Level 2 Total Fair Value Investments in Marketable Securities: U.S. Treasury $ 3,978 $ – $ 3,978 Total $ 3,978 $ – $ 3,978 Investment in Equity Interest: Investment in YFE $ – $ 5,481 $ 5,481 Total $ – $ 5,481 $ 5,481 Foreign Currency Forward Contracts: Foreign Currency Forward Contracts, net: $ – $ ( 43 ) $ ( 43 ) Total $ – $ ( 43 ) $ ( 43 ) 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. 14 New Accounting Standards Issued but Not Yet Adopted In November, 2024 the FASB 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 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 be received. 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. Note 3: Variable Interest Entity In July 2020, the Company entered into a binding term sheet with POW! Entertainment, LLC. (“POW”) pursuant to which the Company agreed to form an entity with POW to exploit certain rights in intellectual property created by Stan Lee, as well as the name and likeness of Stan Lee. The entity is called “Stan Lee Universe, LLC” (“SLU”). POW and the Company executed an Operating Agreement for the joint venture, effective as of June 1, 2021. The purpose of the acquisition was to enable the Company to assume the worldwide rights, in perpetuity, to the name, physical likeness, physical signature, live-action and animated motion picture, television, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and over 100 original Stan Lee creations, from which the Company plans to develop and license multiple properties each year. During the three months ended 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. Note 4: 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. GAAP. 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. 15 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. dollars. 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. Note 5: Marketable Securities 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 March 31, 2026, the Company redeemed $ 3 .0 million of its marketable securities upon maturity. The investments in marketable 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) : Schedule of marketable securities Adjusted Cost Unrealized Gain (Loss) Fair Value U.S. Treasury $ 982 $ 14 $ 996 Total $ 982 $ 14 $ 996 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) Fair Value U.S. Treasury $ 3,953 $ 25 $ 3,978 Total $ 3,953 $ 25 $ 3,978 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. 16 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 Fair Value Due within 1 year $ 996 Total $ 996 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. Note 6: Property and Equipment, net The Company has property and equipment as follows (in thousands): Schedule of property and equipment, net As of March 31, 2026 December 31, 2025 Furniture and Equipment $ 98 $ 98 Computer Equipment 843 827 Leasehold Improvements 2,230 2,230 Software 332 316 Property and Equipment, gross 3,503 3,471 Less Accumulated Depreciation ( 1,838 ) ( 1,626 ) Foreign Currency Translation Adjustment ( 189 ) ( 210 ) Property and Equipment, net $ 1,476 $ 1,635 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. 17 Note 7: Leased Right-of-Use Assets, net Leased right-of-use assets consisted of the following (in thousands): Schedule of leased right of use assets As of March 31, 2026 December 31, 2025 Operating Lease Office Lease Assets $ 9,331 $ 9,331 Accumulated Amortization ( 3,828 ) ( 3,601 ) Finance Lease Equipment Lease Assets 4,570 4,570 Accumulated Amortization ( 4,021 ) ( 3,975 ) Right-of-Use Assets, Net $ 6,052 $ 6,325 Foreign Currency Translation Adjustment ( 976 ) ( 899 ) Leased Right-of-Use Assets, net $ 5,076 $ 5,426 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 was 11.3 %. Operating lease costs during 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. 18 Note 8: Film and Television Costs, net The following table highlights 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 Film and Television Costs, net as of December 31, 2024 $ 2,621 Additions to Film and Television Costs 3,259 Disposals ( 88 ) Film Amortization Expense ( 932 ) Foreign Currency Translation Adjustment 18 Film and Television Costs, net as of December 31, 2025 $ 4,878 Additions to Film and Television Costs 2,345 Disposals ( 34 ) Film Amortization Expense ( 306 ) Foreign Currency Translation Adjustment ( 20 ) Film and Television Costs, net as of March 31, 2026 $ 6,863 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 three month ended March 31, 2026 and March 31, 2025. Note 9: Intangible Assets, net The Company had the following intangible assets (in thousands) with their weighted average remaining amortization period (in years) : Schedule of intangible asset Weighted Average Remaining Amortization As of Period March 31, 2026 December 31, 2025 Customer Relationships 4.3 $ 17,325 $ 17,325 Digital Networks 12.0 803 803 Trade Names 65.2 9,198 9,198 Intangible Assets, gross 27,326 27,326 Less Accumulated Amortization ( 8,335 ) ( 7,833 ) Foreign Currency Translation Adjustment ( 2,087 ) ( 1,889 ) Intangible Assets, net $ 16,904 $ 17,604 19 During the three months ended 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 March 31, 2026 is as follows (in thousands): Schedule of expected future intangible asset amortization Fiscal Year: 2026 $ 1,385 2027 1,969 2028 2,009 2029 2,009 2030 662 Thereafter 4,216 Total $ 12,250 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. Note 10: Deferred Revenue 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 agreement. As production progresses and the Company satisfies its performance obligations, the related deferred revenue is recognized as revenue. 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. Note 11: Margin Loan 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 0.15 % 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 March 31, 2026 and March 31, 2025, the Company incurred interest expense on the loan of $ 1,875 and $ 1,806 , respectively. 20 Note 12: Bank Indebtedness and Production Facilities The Company has certain credit facilities that are comprised of the following: Production Facilities, net The production facilities are used for financing specific productions. The Company’s production facilities bear interest at rates ranging from bank prime plus 1.00 % - 1.25 % per annum. The production facilities are generally repayable on demand. Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including a combination of federal and provincial tax credits, other government incentives, production service agreements and license agreements as well as those of certain of our subsidiaries and related entities acting as guarantors of the production facilities. 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 (CAD 1.7 million) of interest, and USD 11.8 million (CAD 16.2 million), including USD 1.1 million (CAD 1.5 million) of interest, respectively, recorded as Production Facilities, net within current liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2026 and December 31, 2025, Production Facilities, net includes unamortized debt issuance costs related to the issuance of production facilities of $ 0.1 million and $ 0.1 million, respectively, which were included as a reduction to the carrying amount of production facilities. Equipment Lease Facility In the fourth quarter of 2022, the Company entered into an equipment lease agreement with a Canadian bank. This additional equipment lease facility allows the Company to finance equipment purchases of up to $ 1 .0 million (CAD 1.4 million) in total. Each transaction under the equipment lease facility has specific financing terms in respect of the leased equipment such as term, finance amount, rate, and payment terms. As of 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. Note 13: Stockholders’ Equity Common Stock As of March 31, 2026 and December 31, 2025, the total number of authorized shares of common stock was 190,000,000 . 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 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. 21 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 The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001 per share including 9,944,000 shares of undesignated preferred stock, 6,000 shares designated as 0% Series A Convertible Preferred Stock and 50,000 shares designated as Series C Preferred Stock. The board of directors is authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time-to-time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. As of March 31, 2026 and December 31, 2025, there were 0 shares of Series A Convertible 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 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. Note 14: Stock Options On August 27, 2020, the Company’s stockholders approved the adoption of the Kartoon Studios, Inc. 2020 Equity Incentive Plan (as amended, the ”2020 Plan”). The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”). The maximum number of shares available for issuance was initially equal to the sum of (i) 3,000,000 shares of common stock and (ii) the number of shares of common stock remaining available for issuance under the 2015 Plan, which was then equal to 216,767 shares. On May 23, 2023, the Company’s stockholders approved the adoption of an Amended and Restated 2020 Equity Incentive Plan, which provided for the maximum number of shares of common stock available for issuance under the 2020 Plan to be increased by 5,000,000 shares. Subsequently, on May 14, 2025, the Company’s stockholders approved a further amendment and restatement of the 2020 Plan, providing for an additional increase of 5,000,000 shares of common stock authorized for issuance under the plan. 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. 22 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 during the three months ended March 31, 2026: Schedule of option activity Stock Options Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price per Share Outstanding at December 31, 2025 969,130 3.96 $ 11.58 Granted – – – Exercised – – – Forfeited/Cancelled ( 24,999 ) – 8.95 Expired ( 72,133 ) – 15.02 Outstanding at March 31, 2026 871,998 4.11 $ 11.36 Vested and exercisable at March 31, 2026 871,998 4.11 $ 11.36 During the three months ended 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 . Note 15: Restricted Stock Units Restricted stock units (“RSUs”) are granted under the Company’s 2020 Plan. 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. The RSUs 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. 23 The following table summarizes the Company’s RSU activity: Schedule of RSU activity Restricted Stock Units Weighted-Average Grant Date Fair Value per Share Unvested at December 31, 2025 1,605,417 $ 7.62 Granted 1,169,738 0.67 Vested ( 434,738 ) 0.67 Forfeited – – Unvested at March 31, 2026 2,340,417 $ 5.43 During the three months ended 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. Note 16: Warrants The following table summarizes the activity in the Company’s outstanding warrants during the three months ended March 31, 2026: Schedule of warrant activity Warrants Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price per Share Outstanding at December 31, 2025 41,622,504 2.86 $ 1.52 Granted – – – Exercised – – – Expired ( 1,662,500 ) – 23.70 Forfeitures – – – Outstanding at March 31, 2026 39,960,004 2.77 $ 0.60 Exercisable at March 31, 2026 39,960,004 2.77 $ 0.60 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. 24 Note 17: Supplemental Financial Statement Information Components of Other Income (Expense), net, are summarized as follows (in thousands): Schedule of other income expense, net Three Months Ended March 31, 2026 2025 Interest Expense (a) $ ( 233 ) $ ( 128 ) Gain on Revaluation of Warrants (b) – 446 Loss on Revaluation of Equity Investment in YFE (c) ( 2,957 ) ( 3,640 ) Realized Gain on Marketable Securities Investments (d) – 4 (Loss) Gain on Foreign Exchange (e) ( 372 ) 667 Loss on Debt Settlement (f) ( 124 ) ( 944 ) Interest Income (g) 35 54 Finance Lease Interest Expense (h) ( 4 ) ( 4 ) Other (i) 53 33 Other Expense, net $ ( 3,369 ) $ ( 3,384 ) Three Months Ended March 31, 2026 and March 31, 2025 (a) 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. (b) 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. (c) 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. (d) 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. (e) 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. subsidiary. 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. (f) 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. (g) 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. (h) The finance lease interest expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line. (i) 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. 25 Note 18: Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes , which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. ASC 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the consolidated financial statements. For the three months ended March 31, 2026, the effective tax rate was 0%. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, a foreign tax rate differential, and a change in valuation allowance. For the three months ended March 31, 2025, the effective tax rate was 0%. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, a foreign tax rate differential, and a change in valuation allowance. 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. and its wholly-owned U.S. subsidiaries are subject to U.S. income taxes and file consolidated and separate tax returns in the U.S. The Beacon 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. The Company files income tax returns in the U.S. federal jurisdiction and in the states of California, Florida, Massachusetts, New Jersey and New York, as well as Canada. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses were generated and carried forward to make adjustments up to the amount of the net operating losses. The Company is currently subject to U.S. federal, state and local and foreign tax examinations by tax authorities. The Company is no longer subject to audits by U.S. federal, state, local or foreign authorities for years prior to 2021. Note 19: Commitments and Contingencies The following is a schedule of future minimum cash contractual obligations as of March 31, 2026 (in thousands): Schedule of future minimum lease payments 2026 2027 2028 2029 2030 Thereafter Total Operating Leases $ 1,166 $ 1,385 $ 1,040 $ 1,078 $ 1,105 $ 1,105 $ 6,879 Finance Leases 118 114 29 – – – 261 Employment Contracts 2,655 2,417 1,275 – – – 6,347 Consulting Contracts 2,476 434 – – – – 2,910 Production Facilities 13,654 – – – – – 13,654 Contractual obligation $ 20,069 $ 4,350 $ 2,344 $ 1,078 $ 1,105 $ 1,105 $ 30,051 26 Leases The present value discount 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 $ 5.2 million recorded as of March 31, 2026 on the Company’s condensed consolidated balance sheet. Employment contracts The Company has entered into employment agreements with certain key executives, which remain in effect for fixed terms. Under these agreements, the executives receive a base salary, subject to potential reviews at the discretion of the Board of Directors. Some of these agreements also include provisions for severance benefits in certain circumstances. As a result, the Company's commitments under these agreements represent future salary or severance payments obligations. Other Funding Commitments The Company enters into various agreements associated with its individual properties. Some of these agreements call for the potential future payment of royalties or “profit” participations for either (i) the use of third party intellectual property, in which the Company is obligated to share net profits with the underlying rights holders on a certain basis as defined in the respective agreements, or (ii) services rendered by animation studios, post-production studios, writers, directors, musicians or other creative talent for which the Company is obligated to share with these service providers a portion of the net profits of the properties on which they have rendered services, as defined in each respective agreement. Note 20: Related Party Transactions During 2022, the Company entered into a sublease agreement with a related party to lease one office in the general office space at 190 N. Canon Drive, Suite 400, Beverly Hills, CA 90210. 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, 2024, the Company entered into a consulting agreement with a related party for office space interior design services. The agreement was subject to an initial fee of $ 6,545 and a monthly fee of $ 595 that commenced on September 1, 2024. 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 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. 27 On August 25, 2025, the Company entered into a new employment agreement with Mr. Heyward, the Company’s CEO, which replaced and superseded all prior employment agreements. 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 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. The 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 agreement, Mr. Heyward is entitled to an executive producer fee of $ 12,500 per episode for each episode he provides services as an executive producer, up to maximum 52 episodes per calendar year. 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. Note 21: 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 (“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 Group. 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. 28 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 income (loss) Three Months Ended March 31, 2026 2025 Total Revenues: Content Production and Distribution $ 6,439 $ 8,637 Media Advisory and Advertising Services 799 867 Total Revenues $ 7,238 $ 9,504 Net Loss: Content Production and Distribution $ ( 6,009 ) $ ( 6,026 ) Media Advisory and Advertising Services ( 356 ) ( 500 ) Total Net Loss Attributable to Kartoon Studios, Inc. $ ( 6,365 ) $ ( 6,526 ) Geographic Information The following table provides information about disaggregated revenue by geographic area (in thousands): Schedule of segments by geographic area Three Months Ended March 31, 2026 2025 Total Revenues: United States $ 3,978 $ 4,726 Canada 892 3,026 United Kingdom 2,351 1,712 Other 17 40 Total Revenues $ 7,238 $ 9,504 Additional considerations include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator and Kartoon Studios at the entity level. The additional financial information prepared by the segment managers is discussed at length in meetings with the CODM. The Company determines that the revenue information reviewed by the CODM, combined with the financial information discussed with the segment managers is sufficiently detailed to allow the CODM to assess each component’s performance and make resource allocation decisions. Kartoon Studios, Frederator and Mainframe Studios are separate entities, although according to ASC 280-10-50-11 all criteria are met in order to present results in aggregation. 29 When evaluating the Company’s performance and making key decisions regarding resource allocation, the CODM reviews several metrics included in net income or loss, which also include the following: Schedule of segment allocations Three Months Ended March 31, 2026 Content Production and Distribution Media Advisory and Advertising Total Revenues $ 6,439 $ 799 $ 7,238 Less Operating Expenses: Selling, Marketing and Direct Operating Costs 4,837 72 4,909 General and Administrative Expenses 3,163 1,059 4,222 Segment results: $ ( 1,561 ) $ ( 332 ) $ ( 1,893 ) Reconciliation of net (loss) income: Depreciation Expense $ 676 $ 43 $ 719 Interest Expense 233 – 233 Share-Based Compensation 191 – 191 Other 3,388 ( 19 ) 3,369 Net Loss Attributable to Non-Controlling Interests ( 40 ) – ( 40 ) Net Loss $ ( 6,009 ) $ ( 356 ) $ ( 6,365 ) Three Months Ended March 31, 2025 Content Production and Distribution Media Advisory and Advertising Total Revenues $ 8,637 $ 867 $ 9,504 Less Operating Expenses: Selling, Marketing and Direct Operating Costs 6,791 79 6,870 General and Administrative Expenses 3,674 1,266 4,940 Segment results: $ ( 1,828 ) $ ( 478 ) $ ( 2,306 ) Reconciliation of net (loss) income: Depreciation Expense $ 639 $ 47 $ 686 Interest Expense 128 – 128 Share-Based Compensation 87 – 87 Other 3,409 ( 25 ) 3,384 Net Loss Attributable to Non-Controlling Interests ( 65 ) – ( 65 ) Net Loss $ ( 6,026 ) $ ( 500 ) $ ( 6,526 ) 30 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. Note 22: Subsequent Events Subsequent 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. 31