What changed in this filing

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Item 1. Financial Statements

2026-08-14 compared with 2026-05-15 · 961 added, 470 removed, 724 unchanged (66% of the section changed)

3 unchanged sentences

(in thousands, except for share data)

March 31, 2026

December 31, 2025

Current Assets:

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

Accounts Receivable (net of allowance of $ 6 and $ 3 , respectively)

Tax Credits Receivable (net of allowance of $ 427 and $ 423 , respectively)

Investments in Marketable Securities

(amortized cost of $ 32,754

and $ 3,953 ,

respectively)

Accounts Receivable (net of allowance

respectively)

Tax Credits Receivable (net of

allowance of $ 427

respectively)

Other Receivable

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Intangible Assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’

Current Liabilities:

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Due to Related Party

Standstill Agreement Payable

Other Current Liabilities

10 unchanged sentences

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,

Preferred Stock, 10,000,000

shares authorized, 0

shares issued and outstanding as of June 30, 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 June 30, 2026 and December 31, 2025

Series B Preferred Stock, $ 0.001

shares authorized, 0

shares issued and outstanding as of June 30, 2026 and December 31, 2025

Series C Preferred Stock, $ 0.001

par value, 50,000

shares authorized, 0

shares issued and outstanding as of June 30, 2026 and December 31, 2025

Common Stock, $ 0.001

par value, 190,000,000

shares authorized, 62,629,255

and 55,282,150

shares issued and 62,204,105

and 54,857,000

shares outstanding as of June 30, 2026 and December 31, 2025, respectively

Additional Paid-in Capital

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

Treasury Stock at Cost, 425,150

shares of common stock as of June 30, 2026 and December 31, 2025

Accumulated Deficit

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Stockholders’ Equity

Non-Controlling Interests in Consolidated Subsidiaries

Non-Controlling Interests in Consolidated

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Total Liabilities and Stockholders’

The accompanying notes are an integral part of

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(in thousands, except for share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Production Services

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Interest Expense

Other Expense, net

Other Income (Expense), net

Profit (Loss) Before Income Tax Expense

Income Tax Expense

Net Income (Loss)

Net Loss Attributable to Non-Controlling Interests

Net Loss Attributable to Kartoon Studios, Inc.

Net Loss per Share (Basic)

Net Loss per Share (Diluted)

Net Income (Loss) Attributable to Kartoon Studios, Inc.

Net Income (Loss) per Share (Basic)

Net Income (Loss) per Share (Diluted)

Weighted Average Shares Outstanding (Basic)

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Condensed Consolidated Statements of Comprehensive

Income (Loss)

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net Income (Loss)

Change in Accumulated Other Comprehensive Income (Loss):

Change in Unrealized (Loss) Gain on Marketable Securities

Realized Gain on Marketable Securities Reclassified from AOCI into Earnings

Realized Losses on Marketable Securities Reclassified from AOCI into Earnings

Foreign Currency Translation Adjustments

Total Change in Accumulated Other Comprehensive (Loss) Income

Total Comprehensive Net Loss

Total Change in Accumulated Other Comprehensive Income (Loss)

Total Comprehensive Income (Loss)

Net Loss Attributable to Non-Controlling Interests

Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc.

Total Comprehensive Income (Loss) Attributable to Kartoon Studios, Inc.

The accompanying notes are an integral part of

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Accumulated Other Comprehensive

Non-Controlling

December 31, 2025

8 unchanged sentences

$ ( 770,182 )

Issuance of Common Stock for Services

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

Issuance of Common Stock for Accounts Payable Settlement

Share Based Compensation

Warrant exercise

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

Foreign Currency Translation Adjustment

Net Income (Loss)

Balance, June 30, 2026

$ ( 743,197 )

Preferred Stock

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Accumulated Other Comprehensive

Non-Controlling

December 31, 2024

1 unchanged sentence

Issuance of Common Stock for Services

Issuance of Common Stock for Vested

Restricted Stock Units, Net of Shares Withheld for Taxes

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

Share Based Compensation

1 unchanged sentence

Warrant exercise

Realized Loss Reclassified from AOCI

to Earnings, net change in Unrealized Loss

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

Currency Translation Adjustment

1 unchanged sentence

$ ( 745,812 )

Issuance of Common Stock for Services

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

Proceeds from Securities Purchase Agreement, Net

Share Based Compensation

Stock Options Granted to Consultants

Warrant Reclassification

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

Currency Translation Adjustment

Balance, June 30, 2025

$ ( 751,975 )

The accompanying notes are an integral part of

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(in thousands)

Three Months Ended March 31,

Ended June 30,

Cash Flows from Operating Activities:

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

Net Income (Loss)

Adjustments to Reconcile Net Income

(Loss) to Net Cash Provided by (Used in) Operating Activities:

Amortization of Film and Television Costs

Depreciation and Amortization of Property, Equipment and Intangible Assets

Depreciation and Amortization of Property, Equipment

and Intangible Assets

Amortization of Right-of-Use Assets

1 unchanged sentence

Share Based Compensation Expense

Loss on Settlement of Related Party Note

Loss on Debt Settlement

Loss on Revaluation of Equity Investments in Your Family Entertainment AG

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

Gain on Early Lease Termination

Loss on Revaluation of Equity

Investments in Your Family Entertainment AG

Unrealized Loss (Gain) on Foreign

Currency of Equity Investments in Your Family Entertainment AG

Accounts Payable Settled in Stock

Gain on Warrant Revaluation

Realized Gain on Marketable Securities

Standstill Agreement Payable

Loss on Warrant Revaluation

Realized Loss on Marketable Securities

Stock Issued for Services

Stock Options Issued for Services

Credit Loss Expense (Recovery)

Credit Loss Expense

Non-cash Interest Expense

Other Non-Cash Items

Decrease (Increase) in Operating Assets:

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Lease Liability

Due From Related Party

Other Liabilities

Net Cash Used in Operating Activities

Net Cash Provided by (Used in) Operating Activities

Kartoon Studios, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Cash Flows from Investing Activities:

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Purchase of Property and Equipment

Net Cash Provided by (Used in) Investing Activities

Net Cash Provided by (Used in)

Investing Activities

Cash Flows from Financing Activities:

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Effect of Exchange Rate Changes on Cash

Net (Decrease) Increase in Cash and Restricted Cash

Beginning Cash and Restricted Cash

Ending Cash and Restricted Cash

Net Increase (Decrease) in Cash

Beginning Cash

Supplemental Disclosures of Cash Flow Information

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Cash Paid for Taxes

Non-Cash Operating Activities

Reduction in Leased Asset Due to Modified Lease Liability

Non-Cash Financing and Investing Activities

Leased Assets Obtained in Exchange for New Finance

Lease Liabilities

The accompanying notes are an integral part of

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Notes to Condensed Consolidated Financial Statements

March 31, 2026

June 30, 2026

Organization and Business

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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.

Pooh , consisting of 78 full-length streaming episodes, over 200 short-form episodes, holiday specials, and a global consumer products

The main launch is anticipated in Q1 2027, with plans to expand across 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.

(“Wow”), through which the Company holds its interest in Mainframe Studios, one of North America’s

largest animation production studios.

Founded in 1993 and headquartered in Vancouver, British Columbia, Mainframe created ReBoot ,

the first fully CG-animated television series.

Mainframe operates primarily as a producer-for-hire for major streaming platforms, broadcasters,

and intellectual property 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.

The Company distributes its

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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.

Company entered into a new agreement to settle an additional $ 1 .0 million of outstanding accounts payable under Section 3(a)(10) of the

Securities Act with CCI, in exchange for issuing 1,695,072 shares of common stock.

The terms were consistent with the original arrangement

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

of 1,695,072 shares of common stock.

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

of accounts payable, issued 977,360 shares of common stock to CCI, and recognized a loss of $ 0.1 million on the settlement, representing

the difference between the carrying value of liabilities extinguished and the fair value of shares issued, included in Other Income (Expense),

net, on the Company’s condensed consolidated statements of operations.

and were approved by a court after a public hearing.

The settlement arrangement was carried out in stages and completed through the first

quarter of 2026, settling a total of $1.0 million of accounts payable and issuing an aggregate of 1,695,072 shares of common stock to

During the six months ended June 30, 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

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The terms were consistent with the original arrangement.

The settlement arrangement was carried

out in stages and completed as of June 30, 2026.

During the three months ended June 30, 2026, the Company recognized a loss

of $ 0.6 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.

October 2025 Financing

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

The placement agent is also entitled

The placement agent also is entitled

to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common Warrants, if any.

2 unchanged sentences

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.

During the three months ended

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

ongoing government tariffs and intensified competition.

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

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

its financial position.

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

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

accounts payable in a transaction under Section 3(a)(10) of the Securities Act.

While management is taking

these steps to improve liquidity, due to the uncertainty surrounding the successful execution and timing of these plans, substantial doubt

continues to exist regarding the Company’s ability to meet its obligations as they become due within one year after the date the

financial statements are issued.

A registration statement on Form S-1 registering the resale of common stock to

be issued upon exercise of the Placement Agent Warrants and the October 2025 Common Warrants was declared effective on December 9, 2025.

Section 16(b) Litigation Settlement

Between May 29, 2026 and

June 11, 2026, the Company entered into settlement agreements with six defendants (the “Settling Parties”) in the action

styled Todd Augenbaum v.

Anson Investments Master Fund LP, et al., Case No.

1:22-cv-00249 (S.D.N.Y.) , an action brought under

Section 16(b) of the Securities Exchange Act of 1934 by a stockholder on behalf of and for the benefit of the Company, in which the

Company is named only as a nominal defendant, seeking disgorgement of alleged short-swing profits realized by certain investors in

the Company’s 2020 private placements.

The Settling Parties agreed to pay the Company aggregate settlement amounts of $78.5

million minus fees and expenses of plaintiff’s counsel (in an amount not yet determined), subject to certain terms and

conditions, and the parties agreed to mutual releases.

Pursuant to the settlement agreements, 50% of each settlement amount, or

$39.2 million in the aggregate, was paid directly to the Company during June 2026, and the remaining 50% was deposited into escrow

to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to the Company after the

applicable approval orders become final.

The Company recognized the $ 39.2

million received as a non-recurring, non-operating gain, included in Other Income (Expense), net, on the Company’s condensed

consolidated statements of operations for the three months ended June 30, 2026.

In accordance with Accounting Standards Codification

(“ASC”) 450-30-25-1, any residual amounts distributable to the Company from escrow constitute a gain contingency and

will be recognized if and when realized.

In connection with the settlement with the Anson Investments Master Fund LP and its

affiliates (collectively, the “Anson Parties”), on June 10, 2026, the Company entered into a standstill and voting

agreement with the Anson Parties, under which the Company agreed to pay the Anson parties $ 4 .0

million and the Anson Parties agreed to certain voting commitments and standstill restrictions through June 11, 2027.

recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the Company’s condensed

consolidated statements of operations for the three months ended June 30, 2026.

Adoption of Stockholder Rights Plan and Related Measures

On July 1, 2026, the

Board of Directors adopted a Preferred Stock Rights Agreement (a stockholder rights plan), filed a related Certificate of

Designation designating 300,000 shares of a new Series D Participating Preferred Stock, and adopted amendments to the Company’s Bylaws.

stockholder rights plan is intended as a protective measure to guard against coercive or unfair takeover tactics and the

accumulation of a controlling interest in the Company without negotiation with our Board.

The Series D Participating Preferred Stock

was designated solely to support the stockholder rights plan;

no shares have been issued, and the rights issued under the plan

become exercisable only upon the occurrence of certain triggering events.

These actions did not affect the Company’s financial

condition, results of operations or shares of common stock outstanding as of or for the period covered by this report.

additional information, see Note 22, Subsequent Events, to the Company’s condensed consolidated financial statements,

and Part II, Item 1A, Risk Factors included in this report, as well as our Form 8-K filed with the SEC on July 2, 2026, as

amended on July 6, 2026, and our Registration Statement on Form 8-A filed on July 2, 2026.

Sale of Frederator Networks, Inc.

On July 8, 2026, the Company

sold all of the issued and outstanding common stock of Frederator Networks, Inc.

(“Frederator Networks”), which operated the

Frederator Network channel business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June

Kartoon Studios will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary of the Company,

including Bee and PuppyCat, Bravest Warriors, Castlevania, and Catbug , for distribution and product licensing opportunities.

The transaction was part of the Company’s strategic realignment to focus on monetization of premium intellectual property and franchise

Upon closing, the Company ceased to have a controlling financial interest in Frederator Networks.

The base purchase price

under the purchase agreement was $ 0.5 million in cash, subject to customary post-closing adjustments for net working capital, indebtedness,

and cash and cash equivalents, on a cash-free, debt-free basis.

The Company expects to recognize a loss on disposal of approximately $ 0.3

million (before income taxes), representing the excess of Frederator Networks’ net carrying amount over the estimated net consideration

to be received.

This estimate is preliminary, unaudited, and subject to change pending finalization of the post-closing working capital

adjustment pursuant to the purchase agreement, which is expected to be completed within 60 days of closing.

Because the transaction closed

after June 30, 2026, Frederator Networks’ assets, liabilities, and results of operations continue to be included in the Company’s

condensed consolidated financial statements as of and for the three and six months ended June 30, 2026, on a continuing-operations basis.

Frederator Networks did not meet the held-for-sale criteria of ASC 360-10-45-9 as of June 30, 2026.

Management concluded that the disposition

does not represent a strategic shift that has, or will have, a major effect on the Company’s operations or financial results, and accordingly,

the transaction does not qualify for discontinued-operations presentation under ASC 205-20.

In connection with the closing, Frederator

Networks, Inc.

and Project Robot LLC entered into a three-year Channel Distribution Agreement with Frederator Studios, LLC.

arrangement, Frederator Studios, LLC will continue to receive a declining share of net YouTube receipts (85% in year one, decreasing to

5% by year three) generated from certain retained channels through YouTube CMS infrastructure.

Frederator Studios, LLC and Frederator

Networks, Inc.

will each retain a 50 % ownership interest in the Frederator trademark.

Management does not believe this continuing involvement

affects the conclusions and estimates described above.

Liquidity and Capital Resources

As of June 30, 2026,

the Company had cash of $ 7.7 million (which does not include cash held in escrow from the Section 16(b) litigation settlement described

above), which increased by $ 4.8 million as compared to December 31, 2025.

The increase was primarily due to net cash provided by

operating activities of $ 31.4 million, cash provided by financing activities of $ 1.7 million, and the effect of exchange rate of $ 0.5

million, offset by cash used in investing activities of $ 28.8 million.

The cash provided by operating activities of $ 31.4 million was

primarily due to net income of $ 20.5 million, and a favorable impact of net change in non-cash adjustments of $ 15.1 million, partially

offset by a net use of cash related to operating assets and liabilities of $ 4.2 million.

Net income was driven primarily by a non-recurring

and non-operating cash receipt of $ 39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation

settlement agreements.

The cash provided by financing activities of $ 1.7 million was primarily due to the drawdowns, net of repayments

and debt issuance costs, from production facilities of $ 1.2 million, proceeds from a warrant exercise of $ 0.6 million, partially offset

by finance lease payments of $ 0.1 million.

The cash used in investing activities of $ 28.8 million was primarily due to the investment

of settlement proceeds in marketable securities of $ 32.8 million, offset by the proceeds received from the redemption of marketable securities

purchased in prior periods of $ 4 .0 million.

During the six months ended

June 30, 2026, the Company received aggregate cash of $39.2 million representing 50% of the court-approved settlement payments under

the Section 16(b) litigation settlement agreements.

The Settling Parties agreed to pay the Company aggregate settlement amounts of $78.5

million, minus fees and expenses of plaintiff’s counsel (in an amount not yet determined), subject to certain terms and conditions,

and the parties agreed to mutual releases.

Pursuant to the settlement agreements, 50% of each settlement amount, or $39.2 million in the

aggregate, was paid directly to the Company during June 2026, and the remaining 50% was deposited into escrow to fund the court-awarded

fees and expenses of plaintiff’s counsel, with any residual balance payable to the Company after the applicable approval orders become

These receipts are non-recurring and non-operating in nature and do not represent a source of operating cash flow.

used a significant portion of these receipts to purchase $32.3 million of available-for-sale securities, primarily U.S.

Treasury securities.

As a result, the settlement receipts are reflected principally in the Company’s marketable securities balance rather than in its ending

cash balance.

The Company holds these securities as a source of liquidity and expects to draw on them to fund working capital and operating

requirements.

The Company has not received, and has not recognized, the portion of the settlement deposited into escrow.

amounts distributable to the Company will become available as a source of liquidity if and when realized.

On June 10, 2026, the Company

entered into a standstill and voting agreement with the Anson Parties, under which the Company agreed to pay the Anson Parties $4.0 million

and the Anson Parties agreed to certain voting commitments and standstill restrictions through June 11, 2027.

As of June 30, 2026,

the Company held available-for-sale marketable securities with a fair value of $ 32.8 million, compared to $ 4 .0 million as of December 31,

2025, representing an increase of $ 28.8 million.

The increase was primarily due to purchases of $ 32.3 million of securities funded by

the proceeds received under the Section 16(b) litigation settlement, together with $ 0.5 million of securities purchased in May 2026, partially

offset by $ 4 .0 million of securities redeemed upon maturity during the six months ended June 30, 2026.

The available-for-sale securities

consist principally of U.S.

Treasury securities and are available to the Company as a source of liquidity.

The unaudited condensed

consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United

States (“U.S.

GAAP”), which contemplates continuation of the Company as a going concern.

The evaluation was performed in

accordance with ASC 205, Presentation of Financial Statements - Going Concern (Subtopic 205-40).

Historically, the

Company has incurred net losses.

For the six months ended June 30, 2026 and June 30, 2025, the Company reported net income

million and a net loss of $ 12.9

million, respectively.

Net income for the current quarter was driven primarily by a non-recurring, non-operating cash receipt of

million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements.

Company reported net cash provided by operating activities of $ 31.4

million, and cash used in operating activities of $ 6.3

million for the six months ended June 30, 2026 and June 30, 2025, respectively.

As of June 30, 2026, the Company had

an accumulated deficit of $ 743.2

million and total stockholders’ equity of $ 53.6

As of June 30, 2026, the Company had total current assets of $ 63 .0

million, including cash of $ 7.7 million,

and total current liabilities of $ 31.6

The Company had working capital of $ 31.4

million as of June 30, 2026, compared to working capital of $ 2.3

million as of December 31, 2025.

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

approximately $ 7.3

During the six months ended June 30, 2026, the Company continued to navigate macroeconomic challenges in the animation

and advertising industries, including ongoing government tariffs and intensified competition.

In prior periods, the Company

demonstrated resilience in its financing activities, having successfully raised net proceeds through public offerings, and continued

to explore opportunities to further strengthen its financial position.

In parallel, management plans to preserve liquidity, as

needed, by implementing cost-saving measures.

For example, during the six months ended June 30, 2026, in order to improve

liquidity, the Company settled approximately $ 1.7

million of outstanding accounts payable in a transaction under Section 3(a)(10) of the Securities Act.

In addition, during the six

months ended June 30, 2026, the Company received $ 39.2

million in direct cash proceeds from the settlement of the Section 16(b) litigation, which the Company has substantially deployed

into available-for-sale marketable securities as a source of liquidity.

Management has evaluated the significance of these

conditions in relation to the Company’s ability to meet its obligations and determined that the Company has sufficient cash,

marketable securities and investments to fund operations for at least the next 12

months from the issuance date of this 10-Q.

Basis of Presentation and Summary of Significant Accounting

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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.

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)

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.

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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.

As of June 30, 2026,

gross amounts of foreign currency (“FX”) forward contracts in an asset and liability position subject to a master netting arrangement

resulted in a net asset of $ 5,137 recorded within Prepaid Expenses and Other Assets on the condensed consolidated balance sheets.

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

to a master netting arrangement resulted in a net liability of $ 43,438 recorded within Other Current Liabilities on the condensed consolidated

balance sheets.

the three months ended June 30, 2026 and June 30, 2025, the Company recorded a realized

loss of $ 24,942 and $ 24,070 , respectively, on FX forward contracts within

Production Services Revenue on the condensed consolidated statements of operations.

For the six months ended June 30, 2026

and June 30, 2025, the Company recorded a realized loss of $ 0.05

million and $ 0.2 million, respectively, on FX forward contracts within Production Services Revenue on the

condensed consolidated statements of operations.

Trade Accounts Receivable and Allowance

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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,

the activity in the allowance for credit losses related to trade accounts receivable as of June 30, 2026 and December 31, 2025

(in thousands):

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Charged to costs and expenses

Balance, net as of March 31, 2026

Balance, net as of June 30, 2026

Tax Credits Receivable

9 unchanged sentences

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

As of June 30, 2026 and

December 31, 2025, the Company had $ 17.5 million a nd $ 16.8 million, respectively, in

tax credit receivables related to Mainframe’s film and television productions, 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.

The Company did not have

any non-current tax credits receivable as of June 30, 2026 and December 31, 2025.

Concentration of Risk

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the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD

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

As of June 30, 2026 and December 31, 2025, the Company had eight and six bank deposit accounts with an aggregate uninsured

balance of $ 6.6 million and $ 1.9 million, respectively.

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The managed account maintained its investments in marketable securities of approximately $ 32.8 million

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

as of June 30, 2026, and $ 4 .0 million as of December 31, 2025.

Assets in the managed account are protected by the Securities

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

As of March 31, 2026 and December 31,

As of June 30, 2026 and December 31,

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

As of March 31, 2026,

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

As of June 30, 2026,

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 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.

accounted for an aggregate of 69.6 % of the total accounts receivable as of June 30, 2026.

As of December 31, 2025, the Company

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

These customers accounted

for an aggregate of 54.5 % of the total accounts receivable as of December 31, 2025.

Schedule of concentration of risk

March 31, 2026

June 30, 2026

December 31, 2025

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During the three months ended

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

June 30, 2026, three customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers

accounted for an aggregate of 59.6 %

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

During the three months ended March 31, 2025, four

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

These customers accounted for an aggregate

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

Three Months Ended March 31,

accounted for an aggregate of 74.2 % of the Company’s total revenue for the three months ended June 30, 2026.

During the three

months ended June 30, 2025, four customers each accounted for more than 10% of the Company’s total consolidated revenue.

customers accounted for an aggregate of 86.6 % of the Company’s total revenue for the three months ended June 30, 2025.

During the six months ended

June 30, 2026, three customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers

accounted for an aggregate of 66.1 % of the Company’s total revenue for the six months ended June 30, 2026.

During the six months

ended June 30, 2025, four customers each accounted for more than 10% of the Company’s total consolidated revenue.

These customers

accounted for an aggregate of 85.9 % of the Company’s total revenue for the six months ended June 30, 2025.

Three Months Ended June 30,

Six Months Ended June 30,

* Less than 10%

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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):

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 June 30, 2026

(in thousands):

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

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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):

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

December 31, 2025 (in thousands):

Total Fair Value

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There were no transfers between

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

Level 1, Level 2, or Level 3 during the three months ended June 30, 2026.

No allowance for credit losses was recorded for marketable

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

securities as of June 30, 2026 or December 31, 2025.

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

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and Exchange Commission on March 31, 2026.

Contingencies

Between May 29, 2026 and June

11, 2026, the Company entered into settlement agreements with six defendants in the action styled Todd Augenbaum v.

Anson Investments

Master Fund LP, et al., Case No.

1:22-cv-00249 (S.D.N.Y.) , an action brought under Section 16(b) of the Securities Exchange Act of

1934 by a stockholder on behalf of and for the benefit of the Company, in which the Company is named only as a nominal defendant, seeking

disgorgement of alleged short-swing profits realized by certain investors in the Company’s 2020 private placements.

The Settling Parties

agreed to pay the Company aggregate settlement amounts of $ 78.5 million, minus fees and expenses of plaintiff’s counsel (in an amount

not yet determined), subject to certain terms and conditions, and the parties agreed to mutual releases.

Pursuant to the settlement agreements,

50% of each settlement amount, or $ 39.2 million in the aggregate, was paid directly to the Company during June 2026, and the remaining

50% was deposited into escrow to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to

the Company after the applicable approval orders become final.

The Company recognized the $ 39.2 million received as a non-recurring, non-operating

gain, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended

June 30, 2026.

In accordance with ASC 450-30-25-1, any residual amounts distributable to the Company from escrow constitute a gain contingency

and will be recognized if and when realized.

In connection with the settlement with the Anson Investments Master Fund LP and its affiliates,

on June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company agreed to

pay the Anson Parties $ 4 .0 million and the Anson Parties agreed to certain voting commitments and standstill restrictions through June

The Company recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the Company’s condensed

consolidated statements of operations for the three months ended June 30, 2026.

The related liability was included in current liabilities

on the Company’s condensed consolidated balance sheet as of June 30, 2026 and was paid in July 2026.

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):

In November 2024, the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards 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.

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 2025-11, Interim Reporting (Topic 270) Narrow-Scope Improvements .

The update provides clarifications intended to improve

the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and

a new disclosure principle for reporting material events occurring after the most recent annual period.

The amendments do not change the

underlying objectives of interim reporting but are designed to enhance clarity in application.

This update is effective for interim periods

within annual reporting periods beginning after December 15, 2027.

The Company does not expect it to have a material effect on its condensed

consolidated financial statements and disclosures.

In December 2025, the FASB

issued ASU 2025-10, Government Grants (Topic 832) :

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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.

During the six months ended

June 30, 2026 and June 30, 2025, SLU generated a net loss of $ 0.2 million and $ 0.2 million, respectively.

During the three months

ended June 30, 2026 and June 30, 2025, SLU generated a net loss of $ 0.1 million and $ 0.1 million, respectively.

There were no

contributions or distributions during the six months ended June 30, 2026 and June 30, 2025, and there were no changes in facts

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

Equity Investment

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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.

At the time of the Company’s

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

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

Under this election, the investment

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

Subsequent to the initial

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

the exercise of subscription rights.

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

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

Throughout this period, management determined that the Company did

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

As of March 31, 2026

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

Under this election,

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

Subsequent to the Company’s

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 Company’s 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 June 30, 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

1 unchanged sentence

dollars at the period-end exchange rate.

As of March 31, 2026,

As of June 30, 2026,

the fair value of the investment was $ 1.9 million, recorded within noncurrent assets on the Company’s condensed consolidated balance sheet.

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

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

The total change in fair value

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

The net decrease in fair value of $ 3.6 million for the six months ended June 30, 2026 reflects the combined impact of a decline in

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

The total change in fair value is

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

Management concluded that the Company continues

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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.

During the six months ended

June 30, 2026, the Company redeemed marketable securities for proceeds of $ 4 .0 million, and purchased an additional $ 32.8 million

Treasury securities, classified as available-for-sale.

The increase from December 31, 2025 was primarily funded by proceeds received

in the second quarter of 2026 from settlements reached with several defendants in the Section 16(b) Litigation.

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) :

securities as of June 30, 2026 had an adjusted cost basis of $ 32.8 million and a market value of $ 32.8 million.

The balances consisted

of the following securities (in thousands) :

Schedule of marketable securities

Adjusted Cost

Unrealized Gain (Loss)

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) :

securities as of December 31, 2025 had an adjusted cost basis of $ 4 .0 million and a market value of $ 4 .0 million.

The balances consisted

of the following securities (in thousands) :

Adjusted Cost

Unrealized Gain (Loss)

The Company holds two AFS

securities, all of which were in an unrealized gain position and none had been in an unrealized loss position for a period longer than

12 months as of March 31, 2026.

The Company holds seven AFS

securities, four 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 June 30, 2026.

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

(loss), a component of stockholders’ equity.

As of March 31, 2026 and December 31, 2025, an allowance for credit loss

was no t recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each

security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

During the three months ended

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

During the three months

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

additional liquidity for general operating needs.

As of June 30, 2026 and December 31, 2025, an allowance for credit loss was

no t recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security’s

investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

During the six months ended

June 30, 2026, the Company did no t record any realized gains or losses related to its marketable securities.

During the six months

ended June 30, 2025, the Company recorded realized losses related to its marketable securities of $ 0.04 million 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):

of the Company’s marketable investments as of June 30, 2026 were as follows (in thousands):

Schedule of contractual maturities of marketable investments

Due within 1 year

Due after 1 year through 5 years

The Company may sell certain

2 unchanged sentences

Property and Equipment, net

The Company has property

and equipment as follows (in thousands):

The Company has property and

equipment as follows (in thousands):

Schedule of property and equipment, net

March 31, 2026

June 30, 2026

December 31, 2025

7 unchanged sentences

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.

June 30, 2026 and June 30, 2025, the Company recorded depreciation expense of $ 0.2 million and $ 0.1 million, respectively.

During the six months ended

June 30, 2026 and June 30, 2025, the Company recorded depreciation expense of $ 0.3 million and $ 0.3 million, respectively.

During the six months ended

June 30, 2026 and June 30, 2025, the Company did no t incur any impairment charges on its property and equipment.

Leased Right-of-Use Assets, net

Leased right-of-use assets

consisted of the following (in thousands):

Leased right-of-use

(“ROU”) assets consisted of the following (in thousands):

Schedule of leased right of use assets

March 31, 2026

June 30, 2026

December 31, 2025

Operating Lease

Operating Leases

Office Lease Assets

Accumulated Amortization

Finance Lease

Finance Leases

Equipment Lease Assets

3 unchanged sentences

Leased Right-of-Use Assets, net

As of March 31, 2026,

As of June 30, 2026,

the weighted-average lease term for the Company’s operating leases was 60 months and the weighted-average discount rate was 11.4 %.

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

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

June 30, 2026 and June 30, 2025, the Company recorded operating lease costs of $ 0.4 million and $ 0.4 million, respectively,

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

During the six

months ended June 30, 2026 and June 30, 2025, the Company recorded operating lease costs of $ 0.7 million and $ 0.7 million, respectively,

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

During the three months ended

June 30, 2026 and June 30, 2025, the Company recorded finance lease costs of $ 48,276 and $ 0.1 million, respectively, primarily

comprised of ROU amortization of $ 44,774 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.

During the six months ended June 30, 2026 and June 30,

2025, the Company recorded finance lease costs of $ 0.1 million and $ 0.2 million, respectively, primarily comprised of ROU amortization

of $ 0.1 million and $ 0.2 million, respectively.

ROU amortization is recorded within General and Administrative Expenses and accretion

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

Film and Television Costs, net

The following table highlights

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

the activity in Film and Television Costs as of June 30, 2026 and December 31, 2025 (in thousands):

Schedule of film and television costs activity

7 unchanged sentences

Foreign Currency Translation Adjustment

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

Film and Television Costs, net as of June 30, 2026

During the three months

ended June 30, 2026 and June 30, 2025, the Company recorded amortization expense of $ 0.2

million and $ 5,639 ,

respectively.

During the six months

ended June 30, 2026 and June 30, 2025, the Company recorded amortization expense of $ 0.5

million and $ 0.1

million, respectively.

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.

June 30, 2026, the Company did not record any write-downs.

During the three months ended June 30, 2025, the Company recorded

write-downs of $5,482 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.

During the six months

ended June 30, 2026 and June 30, 2025, the Company recorded write-downs of $ 34,492

and $ 17,586 ,

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.

any impairment charges on film costs during the six months ended June 30, 2026 and June 30, 2025.

Intangible Assets, net

The Company had the following

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

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

Schedule of intangible asset

Weighted Average Remaining Amortization

March 31, 2026

June 30, 2026

December 31, 2025

6 unchanged sentences

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,

June 30, 2026 and June 30, 2025, the Company recorded intangible asset amortization expense of $ 0.5 million and $ 0.5 million,

respectively.

During the six months ended June 30, 2026 and June 30, 2025, the Company recorded intangible asset amortization

expense of $ 1 .0 million and $ 1 .0 million, respectively.

Expected future amortization

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

of intangible assets subject to amortization as of June 30, 2026 is as follows (in thousands):

Schedule of expected future intangible asset amortization

As of March 31, 2026

and December 2025, $ 4.7 million and $ 4.7 million, respectively, of the Company’s intangible assets related to the acquired trade

As of June 30, 2026 and

December 31, 2025, $ 4.6 million and $ 4.7 million, respectively, of the Company’s intangible assets related to the acquired trade

names from the Wow acquisition had indefinite lives and are not subject to amortization.

Deferred Revenue

As of March 31, 2026

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

The decrease in deferred

revenue is primarily related to production on various shows advancing to later stages of execution of the projects as of March 31,

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

Deferred revenue balance mainly relates to cash received from customers for

productions in progress.

For fixed-fee production contracts, revenue is generally recognized upon completion and delivery of the production

or upon achievement of specified contractual delivery milestones during the production process, depending on the terms of the underlying

As production progresses and the Company satisfies its performance obligations, the related deferred revenue is recognized

Deferred revenue also includes both (i) variable fee contracts with licensees and customers in which the Company collected

advances and minimum guarantees against future royalties and (ii) fixed fee contracts.

The Company recognizes revenue related to these

contracts when all revenue recognition criteria have been met.

As of March 31, 2026

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

During the three months ended March 31, 2026, the

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

As of June 30, 2026 and

December 31, 2025, the Company had deferred revenue of $ 6.1 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 June 30, 2026, compared

to the progress as of December 31, 2025.

Deferred revenue balance mainly relates to cash received from customers for productions

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.

As of June 30, 2026 and

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

During the six months ended June 30, 2026, the Company

borrowed an additional $ 3.7 million from its investment margin account and repaid $ 3.7 million primarily with cash received

from maturities of marketable securities.

2 unchanged sentences

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.

The weighted average interest rates on outstanding borrowing were 4.35 % during

the six months ended June 30, 2026.

During the six months ended

June 30, 2026 and June 30, 2025, the Company incurred interest expense on the loan of $ 2,517 and $ 4,868 , respectively.

the three months ended June 30, 2026 and June 30, 2025, the Company incurred interest expense on the loan of $ 642 and $ 3,062 ,

respectively.

Bank Indebtedness and Production Facilities

The Company has certain credit

facilities that are comprised of the following:

has certain credit facilities that are comprised of the following:

Production Facilities, net

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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,

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 June 30, 2026 and

December 31, 2025, the Company had an outstanding net balance of USD 12.9 million (CAD 18.4 million), including USD 1.4 million (CAD

1.9 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

As of June 30, 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

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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,

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

of June 30, 2026 , the Company has one lease remaining under

this facility with finance rates of 8.20 %, and a remaining lease term of 2 months .

As of June 30, 2026 and

December 31, 2025, the outstanding balances, net of repayments, of $ 12,744 (CAD 18,094 ) and $ 0.1 million (CAD 0.1 million), respectively,

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

Stockholders’ Equity

As of 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.

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.

Stockholders’ Equity and Earnings per Share

As of June 30, 2026 and

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

As of June 30, 2026 and

December 31, 2025, there were 62,204,105 and 54,857,000 shares of common stock outstanding, respectively.

During the six months ended

June 30, 2026, the Company issued 2,712,865 shares of common stock for services, which included 2,424,146 shares of common stock

in connection with immediately vested restricted stock units (RSUs) granted to consultants.

During the six months ended June 30,

2025, the Company issued 92,282 shares of common stock for services, which included 92,282 shares of common stock in connection with immediately

vested restricted stock units (RSUs) granted to consultants.

During the six months ended

June 30, 2026, the Company issued 103,833 shares of common stock in connection with vested restricted stock units (RSUs), net of

shares withheld for tax obligations, consisting of 97,999 shares related to RSUs that vested during the current period and 5,834 shares

related to RSUs that vested in prior periods.

During the six months ended

June 30, 2025, the Company issued 143,206 shares of common stock in connection with vested restricted stock units (RSUs), net of

shares withheld for tax obligations, consisting of 136,808 shares related to RSUs that vested during the current period and 6,398 shares

related to RSUs that vested in prior periods.

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.

Company entered into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with CCI, to settle an aggregate

of $ 1 .0 million of outstanding accounts payable 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.

During the six months ended June 30, 2026, the Company

settled $ 0.6 million of accounts payable and issued an aggregate of 977,360 shares of common stock to CCI.

During the six months ended

June 30, 2026, the Company recognized a loss of $ 0.1 million on the settlement, representing the difference between the carrying

value of liabilities extinguished and the fair value of shares issued, included in Other Income (Expense), net, on the Company’s

condensed consolidated statements of operations.

The transaction was carried out in stages and completed as of June 30, 2026.

On April 8, 2026, the Company

entered into a new agreement to settle an additional $ 1.1 million of outstanding 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.

The settlement arrangement was carried

out in stages and completed as of June 30, 2026.

During the three months ended June 30, 2026, the Company recognized a loss

of $ 0.6 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 June 16, 2026, the Company

issued 1,000,000 shares of common stock upon the cash exercise of outstanding warrants at an exercise price of $ 0.57 per share, resulting

in gross proceeds of approximately $ 0.6 million.

The shares were issued in accordance with the terms of the underlying warrant agreements.

Preferred Stock

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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,

As of June 30, 2026 and

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

As of June 30, 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.

As of June 30, 2026 and December 31, 2025, there were 0 shares

of Series C Preferred Stock outstanding.

Treasury Stock

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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,

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

During the six months ended

June 30, 2026, no employees elected this option and accordingly no shares were withheld.

During the six months ended June 30,

2025, the Company withheld 269 shares of common stock with a cost of $ 187 to cover taxes owed by certain employees.

Earnings (Loss) per Share

Basic earnings (loss) per

share of common stock (“EPS”) is calculated by dividing net income (loss) applicable to common stockholders by the weighted

average number of shares of common stock outstanding for the period.

Diluted EPS is calculated by dividing net income (loss) applicable

to common stockholders by the weighted average number of shares of common stock outstanding, and the assumed exercise of all dilutive

securities using the treasury stock method.

The 6,903,049 October 2025

Pre-Funded Warrants issued in the October Offerings and outstanding as of June 30, 2026 were included in the calculation of basic

and diluted net loss per share.

The table below sets forth

the Company’s calculated earnings (loss) per share, with net income (loss) presented in thousands:

Schedule of earnings (loss) per share

Three Months Ended June 30,

Six Months Ended June 30,

Net Income (Loss) Attributable to Kartoon Studios, Inc.

Weighted-average shares of common stock outstanding

Basic earnings (loss) per share

Net Income (Loss) Attributable to Kartoon Studios, Inc.

Weighted-average shares of common stock outstanding

Effect of dilutive warrants and stock-based awards

Weighted-average shares of common stock outstanding - diluted

Diluted earnings (loss) per share

The following common stock

equivalents were excluded from the calculation of diluted net earnings (loss) per share applicable to common stockholders, because including

them would have had an anti-dilutive effect:

Schedule of an anti-dilutive effect

Three Months Ended June 30,

Six Months Ended June 30,

Stock Options

Restricted Stock Units

On August 27, 2020, the Company’s

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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.

During the three months ended

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

As of June 30, 2026, the number of shares remaining available for issuance was

5,096,394 , out of a maximum of 13,216,767 shares authorized under the 2020 Plan.

During the six months ended

June 30, 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:

the Company’s option activity during the six months ended June 30, 2026:

Schedule of option activity

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Forfeited/Cancelled

Outstanding at March 31, 2026

Vested and exercisable at March 31, 2026

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

Outstanding at June 30, 2026

Vested and exercisable at June 30, 2026

During the six months ended

June 30, 2026, the Company did no t recognize any share-based compensation expense related to stock options.

During the six months

ended June 30, 2025, the Company recognized $ 24,699 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,

As of June 30, 2026,

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

The outstanding options as of March 31,

The outstanding options as of June 30,

2026 had an aggregated intrinsic value of zero .

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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

During the six months ended

June 30, 2026, the Company granted 2,522,145 fully vested RSUs to the Company’s board members and consultants, with a fair

market value of $ 1.8 million.

During the six months ended June 30, 2025, the Company granted 180,936 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

During the six months ended

June 30, 2026, the Company granted 500,000 RSUs to an executive employee with an aggregate grant-date fair value of approximately

$ 0.3 million.

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In addition, the Company

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

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

During the three months ended

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

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

vested in prior periods.

granted an additional 365,000 RSUs, with an aggregate grant-date fair value of approximately $ 0.3 million, to certain employees, and 5,000

RSUs to a consultant with a grant-date fair value of approximately $ 3,600 .

The RSUs vest over a three year service period and are subject

to continued employment.

During the six months ended

June 30, 2026, the Company issued an aggregate of 2,527,979 shares of common stock as a result of RSUs vested during the current

and prior periods, consisting of 2,522,145 shares issued upon RSUs that vested during the current period and 5,834 shares issued upon

RSUs that vested in prior periods.

The following table summarizes

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Schedule of RSU activity

Weighted-Average

Grant Date Fair

Value per Share

Restricted Stock

Date Fair Value

Unvested at December 31, 2025

Unvested at March 31, 2026

( 2,522,145 )

Unvested at June 30, 2026

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

June 30, 2026 and June 30, 2025, the Company recognized $ 0.2 million and $ 41,847 , 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.

During the six months ended June 30, 2026 and June 30, 2025, the Company recognized $ 0.4 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 June 30, 2026 was $ 0.7 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 six months ended June 30, 2026 was $ 1.8 million.

The following table summarizes

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

the activity in the Company’s outstanding warrants during the six months ended June 30, 2026:

Schedule of warrant activity

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( 1,000,000 )

Outstanding at March 31, 2026

Exercisable at March 31, 2026

All outstanding warrants are

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

under ASC 815-40.

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

( 1,662,500 )

Outstanding at June 30, 2026

Exercisable at June 30, 2026

All outstanding warrants

are classified as equity instruments in the Company’s condensed consolidated balance sheet, as the warrants meet the criteria

for equity classification under ASC 815-40.

On June 16, 2026, the Company

issued 1,000,000 shares of common stock upon the cash exercise of outstanding warrants at an exercise price of $ 0.57 per share, resulting

in gross proceeds of approximately $ 0.6 million.

The shares were issued in accordance with the terms of the underlying warrant agreements.

During the six months ended

June 30, 2026, the Company did no t grant or forfeit any warrants.

Supplemental Financial Statement Information

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Schedule of other income expense, net

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest Expense (a)

Gain on Revaluation of Warrants (b)

Other Income (Expense), net (b-l)

Loss on Revaluation of Warrants (b)

Loss on Revaluation of Equity Investment in YFE (c)

Realized Gain on Marketable Securities Investments (d)

Realized Loss on Marketable Securities Investments (d)

(Loss) Gain on Foreign Exchange (e)

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Finance Lease Interest Expense (h)

Other Expense, net

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

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

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

During the three months ended March 31, 2025, the Company recorded a $0.4 million fair value gain due to a revaluation of the outstanding 7,894,736 Series A warrants and 7,894,736 Series B warrants issued in December 2024.

These warrants were classified as a liability in the quarter ended March 31, 2025.

As the investment in YFE is accounted for under the fair value option, the Company recognized a loss on revaluation of its equity investment in YFE of approximately $ 3 .0 million and $ 3.6 million for the three months ended March 31, 2026 and March 31, 2025, respectively.

Gain on Lease Modification (i)

Legal Settlement Income (j)

Loss on Standstill Agreement (k)

Other Income (Expense), net

Three Months and Six Months Ended June 30, 2026

Interest Expense during the three months and six months ended June 30, 2026, primarily consisted of $ 0.2 million and $ 0.4 million in interest, respectively, incurred on production facilities and the factoring liability.

For the three months and six months ended June 30, 2026, the Company did no t record any gain related to warrant revaluation.

As the investment in YFE is accounted for under the fair value option, the Company recognized a loss on revaluation of its equity investment in YFE of approximately $ 0.5 million and $ 3.5 million for the three months and six months ended June 30, 2026, respectively.

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

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

The realized gain on marketable securities investments recorded during the three months ended March 31, 2025, reflects the gain on the sale of marketable securities prior to maturity date.

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

For the three months and six months ended June 30, 2026, the Company did no t record any loss related to marketable securities.

The loss on foreign exchange during the three months ended June 30, 2026, primarily related to the remeasurement of foreign currency transactions of the Company’s non-U.S.

subsidiary, resulting in a loss of $ 0.4 million.

The loss on foreign exchange during the six months ended June 30, 2026, primarily related to the revaluation of the YFE investment, resulting in a loss of $ 0.2 million due to the Euro depreciating against the U.S.

dollar as compared to prior period and a loss of $ 0.6 million due to the remeasurement of foreign currency transactions of the Company’s non-U.S.

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

The loss on debt settlement recorded during the three months and six months ended June 30, 2026, includes a loss of $ 0.6 million and $ 0.8 million, respectively, arising from the Section 3(a)(10) transaction completed during the periods.

Interest Income during the three months and six months ended June 30, 2026, primarily consisted of income from investments in marketable securities.

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

For the three months and six months ended June 30, 2026, the Company did no t record any gain related to lease modification.

Between May 29, 2026 and June 11, 2026, the Company received aggregate cash of $ 39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements.

For additional information, see Note 1, Organization and Business - Recent Transactions , to our condensed consolidated financial statements.

In connection with the legal settlement with the Anson Investments Master Fund LP and its affiliates, on June 10, 2026, Kartoon Studios Inc.

entered into a standstill and voting agreement with the Anson Parties, under which the Company agreed to pay the Anson Parties $ 4 .0 million and the Anson Parties agreed to certain voting commitments and standstill restrictions through June 11, 2027.

The amount was recognized as a non-operating loss for the three months and six months ended June 30, 2026.

For additional information, see Note 1, Organization and Business - Recent Transactions , to our condensed consolidated financial statements.

Other loss of $ 2.6 million primarily consists of non-operating losses related to legal fees directly attributable to the legal settlement, recorded during the three months and six months ended June 30, 2026.

Three Months and Six Months Ended June 30, 2025

Interest Expense during the three months and six months ended June 30, 2025 consisted of $ 0.2 million and $ 0.3 million, respectively, primarily due to interest incurred on production facilities.

The loss on revaluation of warrants during the three months ended June 30, 2025 was related to the remeasurement occurred immediately before reclassification of the outstanding 7,894,736 Series A warrants and 7,894,736 Series B warrants from liability to equity.

The loss on revaluation of warrants during the six months ended June 30, 2025 consisted of $0.7 million loss recorded at remeasurement offset by a $0.4 million fair value gain in the period ended March 31, 2025 of the outstanding 7,894,736 Series A warrants and 7,894,736 Series B warrants.

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

As accounted for using the fair value option, the loss on revaluation of equity investment in YFE of $ 3.8 million and $ 7.4 million, respectively, recorded in the three months and six months ended June 30, 2025, was a result of the decreases in YFE’s stock price as of the reporting period when compared to the prior reporting period.

This excluded the impact of foreign currency recorded separately.

The realized loss on marketable securities investments of $ 32,145 recorded during the three months ended June 30, 2025, was related to the Loss of $ 37,197 on sale of certain securities prior to the maturity date, offset by the gain of $ 5,053 attributable to the sale of U.S.

Treasury Securities.

The realized loss on marketable securities investments of $ 27,691 recorded during the six months ended June 30, 2025 was related to the loss of $ 37,197 on sale of certain securities prior to the maturity date, offset by the gain of $ 9,507 attributable to the sale of U.S.

Treasury securities.

The gain on foreign exchange during the three months and six months ended June 30, 2025 primarily related to the revaluation of the YFE investment and remeasurement of foreign currency transactions of the Company’s non-U.S.

subsidiary, resulting in a gain of $ 1.7 million and $ 2.4 million, respectively, due to the depreciation of the U.S.

dollar against the Euro relative to prior periods.

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

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

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

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

In April 2025, a settlement agreement with YFE related to the shareholder loan agreement was finalized.

As the settlement was considered probable and the loss reasonably estimable as of March 31, 2025, the Company recorded a loss of approximately $ 0.9 million during the first quarter of 2025.

Interest Income during the three and six months ended June 30, 2025, primarily consisted of income from investments in marketable securities, net of premium amortization expense, as well as other transactions, including interest income related to Employee Retention Tax Credit (“ERTC”) receivable and interest income related to the shareholder loan.

Each of these sources was individually immaterial.

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

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.

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

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

During the three months ended June 30, 2025, a net loss of $ 0.1 million was recognized in connection with the reversal of previously accrued other income related to Employee Retention Tax Credit (ERTC) claims.

Other income had initially been recorded based on anticipated recoveries from submitted claims.

Subsequent legislative developments reduced the expected recoverable amounts, resulting in a partial reversal of the accrued other income.

The amount also included $ 11,991 of other income, primarily consisting of late fees from select clients on payment plans.

For the six months ended June 30, 2025, other income primarily related to such late fees totaled $ 50,197 .

The Company accounts for income

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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,

For the six months ended June 30,

2026, the effective tax rate was 2.7%.

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.

federal statutory rate primarily due to the

tax impact from the net gain from the litigation settlement, state income taxes, a foreign tax rate differential, and a change in valuation

For the six months ended June 30, 2025, the effective tax rate was 0.0%.

The effective tax rate differed from the U.S.

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

During the six months ended

June 30, 2026, the Company recorded an income tax expense of $ 0.6 million.

As of June 30, 2026 and December 31, 2025, net

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

Kartoon Studios, Inc.

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The following is a schedule

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

of future minimum cash contractual obligations as of June 30, 2026 (in thousands):

Schedule of future minimum lease payments

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of the minimum operating lease payments above was $ 1.5 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.

the table above, equates to the lease liabilities of $ 4.9 million recorded as of June 30, 2026 on the Company’s condensed consolidated

balance sheet.

Employment contracts

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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.

Consulting Contracts and Other Commitments

The Company also enters into

consulting contracts, primarily for production-related work, that commit the Company to future payments for services to be rendered under

the terms of each respective agreement.

These commitments are not recorded as liabilities on the Company’s condensed consolidated balance

sheets until the related services are performed.

The Company also 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.

Related Party Transactions

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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

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.

The monthly income was $595 during the six months ended June 30, 2026 and June 30, 2025, and recorded within

Other Income (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 six months ended June 30, 2026 and June 30, 2025, and was recorded within General and Administrative Expenses in the

Company’s condensed consolidated statements of operations.

On February 6, 2025, certain

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and retains no financial interest in its operations or assets.

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

From the Foundation’s inception on February 6, 2025 through June 30,

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

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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.

The agreement further provided that Mr.

Heyward would receive an award of 2,000,000

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

Subsequent to

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pursuant to his employment agreement were not issued to Mr.

Heyward as of March 31, 2026.

Heyward as of June 30, 2026.

No bonuses were earned or accrued under

this arrangement as of March 31, 2026.

this agreement as of June 30, 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

Heyward was 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.

During the six months ended June 30, 2026 and June 30, 2025, Mr.

no t earn or was not paid any producer fees.

Subsequent to the quarter end, Mr.

Heyward’s employment agreement was amended.

For additional

information, see Note 22, Subsequent Events , to our condensed consolidated financial statements.

Segment Reporting

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total Revenues:

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Total Revenues

Net Income (Loss):

Content Production and Distribution

Media Advisory and Advertising Services

Total Net Loss Attributable to Kartoon Studios, Inc.

Total Net Income (Loss) Attributable to Kartoon Studios, Inc.

Geographic Information

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Schedule of segments by geographic area

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total Revenues:

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Additional considerations

include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator and Kartoon Studios at the entity level.

include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator Studios and Kartoon Studios at the entity

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

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.

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

order to present result in aggregation.

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:

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

Three Months Ended March 31, 2026

Content Production and Distribution

Media Advisory and Advertising

Three Months Ended June 30, 2026

Production and

Media Advisory

and Advertising

Less Operating Expenses:

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Share-Based Compensation

Legal Settlement Income

Standstill Agreement Accrued Expense

Income Tax Expense

Net Loss Attributable to Non-Controlling Interests

Three Months Ended March 31, 2025

Content Production and Distribution

Media Advisory and Advertising

Net Income (Loss)

Three Months Ended June 30, 2025

Production and

Media Advisory

and Advertising

Less Operating Expenses:

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General and Administrative Expenses

Other Segment Expenses

Segment results:

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Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

Six Months Ended June 30, 2026

Production and

Media Advisory

and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Share-Based Compensation

Legal Settlement Income

Standstill Agreement Accrued Expense

Income Tax Expense

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

Six Months Ended June 30, 2025

Production and

Media Advisory

and Advertising

Less Operating Expenses:

Selling, Marketing and Direct Operating Costs

General and Administrative Expenses

Other Segment Expenses

Segment results:

Reconciliation of net (loss) income:

Depreciation Expense

Interest Expense

Share-Based Compensation

Net Loss Attributable to Non-Controlling Interests

Net Income (Loss)

In evaluating segment expenses,

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statements of operations and described within their respective disclosures.

Sale of Frederator Networks, Inc.

Frederator Networks operated

within the Company’s Content Production and Distribution segment, and its operating results are included in income from continuing

operations within that segment for all periods through June 30, 2026.

As described in Note 1, Organization and Business - Recent Transactions ,

control of Frederator Networks transferred to the buyer on July 8, 2026.

Accordingly, its results will be excluded from the segment beginning

in the third quarter of 2026.

The disposal did not represent a strategic shift that would have a major effect on the Company’s

operations or financial results and therefore did not meet the criteria for discontinued operations under ASC 205-20, Presentation

of Financial Statements Discontinued Operations .

Beginning in the third quarter

of 2026, the exclusion of Frederator Networks is expected to affect the Content Production and Distribution segment as follows:

· Revenues are expected to decrease by $ 1.9 million due to the exclusion of Frederator’s post-sale activity.

· Operating loss is expected to decrease by $ 0.1 million, reflecting the removal of Frederator’s operations.

· A one-time loss on deconsolidation of $ 0.3 million, is expected to be recognized in the third quarter of 2026, which is not allocated

to segment operating income in accordance with the Company’s segment reporting policies.

The Company does not expect

the sale and deconsolidation of Frederator Networks to have a material impact on the long-term financial performance of the Content Production

and Distribution segment.

Subsequent Events

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.

Marketable Securities

Subsequent to June 30, 2026, the Company purchased marketable securities for $1.5 million,

and sold marketable securities for proceeds of $2.0 million.

Stockholder Rights Plan and Related Measures

On July 1, 2026, the Company’s

Board of Directors adopted a stockholder rights plan and related measures, as described below.

Preferred Stock Rights

On July 1, 2026, the Company

entered into a Preferred Stock Rights Agreement (the “Rights Agreement”) with VStock Transfer, LLC, as rights agent.

In connection

with the Rights Agreement, the Board of Directors declared a dividend of distribution of one right (a “Right”) for each outstanding

share of our common stock, payable to stockholders of record as of the close of business on July 13, 2026.

In general terms, the Rights

Agreement imposes significant dilution upon any person or group (other than the Company and certain other exempt persons, that is or becomes

the beneficial owner of ten percent (10%) or more of the Company’s common stock without the prior approval of the Board of Directors.

Each Right entitles its registered holder, upon the occurrence of certain triggering events, to purchase from the Company one one-thousandth

of a share of Series D Participating Preferred Stock at a purchase price of $3.75 per one one-thousandth of a share, subject to adjustment.

The Rights become exercisable only if a person or group acquires beneficial ownership of 10% or more of our outstanding common stock without

the approval of the Board of Directors, subject to certain exceptions.

The Rights are redeemable by the Board of Directors at a price

of $0.001 per Right at any time prior to the earlier of the time the Rights become exercisable and their final expiration, and will expire

at the close of business on June 29, 2027, unless earlier redeemed or exchanged.

Certificate of Designation

of Series D Participating Preferred Stock:

connection with the Rights Agreement, the Company filed with the Secretary of State of the State of Nevada a Certificate of Designation

designating 300,000 shares of our authorized preferred stock as Series D Participating Preferred Stock, par value $0.001 per share.

one one-thousandth of a share of Series D Participating Preferred Stock (“ Series D Preferred

Stock”), if issued, upon the exercise of the Rights (i) will not be redeemable;

(ii) will entitle holders to quarterly dividend

payments, when and if declared, of $0.001 per one one-thousandth of a share of Series D Preferred Stock, or an amount equal to the dividend

paid on one share of common stock, whichever is greater;

(iii) will entitle holders upon liquidation either to receive $1.00 per

one one-thousandth of a share of Series D Preferred Stock or an amount equal to the payment made on one share of common stock, whichever

(iv) will have the same voting power as one share of common stock and will vote together with the common stock;

(v) will entitle holders to a payment per one one-thousandth of a share of Series D Preferred Stock equal to the payment made on one

share of common stock if the common stock is exchanged via merger, consolidation, or a similar transaction.

No shares of Series D Preferred

Stock were issued or outstanding as of the date of this Report, and the designation was established solely to support the Rights Agreement.

Amendments to Bylaws:

The Board also adopted amendments

to our Bylaws that, among other things, divide the Board of Directors into two classes with staggered terms, eliminate the ability of

stockholders to act by written consent, provide that special meetings of stockholders may be called only by the Board of Directors, establish

advance notice procedures for stockholder nominations of directors and other stockholder proposals, require the affirmative vote of the

holders of at least two-thirds of the voting power of our outstanding stock to remove a director, and designate an exclusive forum for

certain legal proceedings.

The foregoing actions had

no effect on the Company’s financial position, results of operations, or shares of common stock outstanding as of or for the period

covered by this report.

For additional information, see our Form 8-K filed on July 2, 2026, as amended by our Form 8-K/A filed on July

6, 2026, and our Form 8-A12B filed on July 2, 2026.

Disposal of a Subsidiary

On July 8, 2026, the Company

sold all of the issued and outstanding common stock of Frederator Networks, Inc.

(“Frederator Networks”), which operated the

Frederator Network channel business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June

Kartoon Studios will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary of the Company,

including Bee and PuppyCat, Bravest Warriors, Castlevania, and Catbug , for distribution and product licensing opportunities.

The transaction was part of the Company’s strategic realignment to focus on monetization of premium intellectual property and franchise

Upon closing, the Company ceased to have a controlling financial interest in Frederator Networks.

The base purchase price

under the purchase agreement was $0.5 million in cash, subject to customary post-closing adjustments for net working capital, indebtedness,

and cash and cash equivalents, on a cash-free, debt-free basis.

The Company expects to recognize a loss on disposal of approximately $0.3

million (before income taxes), representing the excess of Frederator Networks’ net carrying amount over the estimated net consideration

to be received.

This estimate is preliminary, unaudited, and subject to change pending finalization of the post-closing working capital

true-up pursuant to the purchase agreement, which is expected to be completed within 60 days of closing.

Because the transaction closed

after June 30, 2026, Frederator Networks’ assets, liabilities, and results of operations continue to be included in the Company’s

condensed consolidated financial statements as of and for the three and six months ended June 30, 2026 on a continuing-operations basis.

Frederator Networks did not meet the held-for-sale criteria of ASC 360-10-45-9 as of June 30, 2026.

Management concluded that the disposition

does not represent a strategic shift that has, or will have, a major effect on the Company’s operations or financial results, and accordingly,

the transaction does not qualify for discontinued-operations presentation under ASC 205-20.

In connection with the closing, Frederator

Networks, Inc and Project Robot LLC entered into a three-year Channel Distribution Agreement with Frederator Studios, LLC.

arrangement, Frederator Studios, LLC, will continue to receive a declining share of net YouTube receipts (85% in year one, decreasing

to 5% by year three) generated from certain retained channels through YouTube CMS infrastructure.

Frederator Studios, LLC and Frederator

Networks, Inc., will each retain a 50% ownership interest in the Frederator trademark.

Management does not believe this continuing

involvement affects the conclusions and estimates described above.

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

What changed 10-Q

Item 1. Financial Statements