What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-15 · 552 added, 266 removed, 163 unchanged (83% of the section changed)

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The following discussion and analysis of our results of operations, financial condition

and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three months

ended March 31, 2026 and 2025.

Certain statements made or incorporated by reference in this report and our other filings with the Securities

and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward

looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange

Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby.

Forward-looking statements reflect intent,

belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future

events and financial trends affecting us.

Words such as “anticipates,” “expects,” “intends,” “plans,”

“believes,” “seeks,” “estimates,” “may,” “will” and variations of these words

or similar expressions are intended to identify forward looking statements.

In addition, any statements that refer to expectations, projections

or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements.

we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance

and are subject to certain risks, uncertainties and assumptions that are difficult to predict.

Therefore, our actual results could differ

materially and adversely from those expressed in any forward-looking statements as a result of various factors.

These differences can

arise as a result of the risks described in the section entitled “Item 1A.

Risk Factors” in our Annual Report on Form 10-K

for the year ended December 31, 2025, which was filed with the SEC on March 31, 2026 (“The 2025 Annual Report”), and elsewhere

in this report, as well as other factors that may affect our business, results of operations, or financial condition.

Forward-looking

statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak

only as of the date of those documents.

Unless otherwise required by law, we undertake no obligation to publicly update or revise these

forward-looking statements, whether as a result of new information, future events or otherwise.

In light of these risks and uncertainties,

we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.

and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three and six

months ended June 30, 2026 and June 30, 2025 .

Certain statements made

or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and

in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section

27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act,

and are subject to the safe harbor created thereby.

Forward-looking statements reflect intent, belief, current expectations, estimates

or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us.

Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,”

“estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify

forward looking statements.

In addition, any statements that refer to expectations, projections or other characterizations of future events

or circumstances, including any underlying assumptions, are forward-looking statements.

Although we believe the expectations reflected

in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain

risks, uncertainties and assumptions that are difficult to predict.

Therefore, our actual results could differ materially and adversely

from those expressed in any forward-looking statements as a result of various factors.

These differences can arise as a result of the

risks described in the section entitled “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the year ended December

31, 2025, which was filed with the SEC on March 31, 2026 (“The 2025 Annual Report”), and elsewhere in this Report, as well

as other factors that may affect our business, results of operations, or financial condition.

Forward-looking statements in this report

speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those

Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements,

whether as a result of new information, future events or otherwise.

In light of these risks and uncertainties, we cannot assure you that

the forward-looking statements contained in this report will, in fact, transpire.

We are a global content and

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in the production of numerous owned IP and for-hire projects spanning a range of formats and target audiences, including Phoebe &

Jay, It's Andrew, Unicorn Academy, and SuperKitties .

This content is being produced for leading platforms and broadcasters

such as Disney Junior, PBS Kids, Netflix, Canadian Broadcasting Corporation, and the Australian Broadcasting Corporation, among others.

These projects are at various stages of production and delivery, with certain titles completed during the prior year and others expected

to be delivered through 2026.

During 2025, we entered into active development and production on Hundred

Acre Wood’s Winnie and Friends, an animated franchise series inspired by Winnie-the-Pooh by A.A.

Structured as

a serialized short-form series, the production is engineered for broad multi-platform distribution across AVOD, FAST, SVOD, in-store,

and international platforms.

Developed as a cornerstone franchise for Kartoon Studios, the series features an original yarn-based animation

style combining digital tools with handcrafted textures to create a warm, storybook aesthetic enhanced by music and dance.

The franchise

includes a multi-phase rollout, consisting of major holiday specials, including Christmas, Halloween, Thanksgiving, and Easter, and is

supported by an integrated global consumer products program spanning toys, apparel, home goods, publishing, collectibles, and retail partnerships.

The series is scheduled to premiere with preliminary activities in Q4 2026, with a full launch across main distribution channels anticipated

Jay, It’s Andrew, and SuperKitties .

This content is being produced for leading platforms and broadcasters such as Disney Junior,

PBS Kids, Netflix, CBC, and the Australian Broadcasting Corporation, among others.

These projects are at various stages of production

and delivery, with certain titles completed during the prior year and others expected to be delivered through 2026.

During 2025, we entered into

active development and production on Hundred Acre Wood’s:

Winnie and Friends, an animated franchise series inspired by Winnie-the-Pooh

Structured as a serialized short-form series, the production is engineered for broad multi-platform distribution across

AVOD, FAST, SVOD, in-store, and international platforms.

Developed as a cornerstone franchise for Kartoon Studios, the series features

an original yarn-based animation style combining digital tools with handcrafted textures to create a warm, storybook aesthetic enhanced

by music and dance.

The franchise includes a multi-phase rollout, consisting of major holiday specials, including Christmas, Halloween,

Thanksgiving, and Easter, and is supported by an integrated global consumer products program spanning toys, apparel, home goods, publishing,

collectibles, and retail partnerships.

The series is scheduled to premiere with preliminary activities in Q4 2026, with a full launch

across main distribution channels anticipated in Q1 2027.

Content Distribution

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in areas such as localization and video resolution enhancement.

Subsequent to the end of the quarter, the Company sold its interest in

Frederator Networks, Inc.

For additional information, see Recent Events, Sale of Frederator Networks, Inc.

Advertising Revenue:

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and Ameba, and Frederator’s owned and

operated YouTube channels as well as revenues generated from the operation of Federator’s creator network, Channel Frederator

operated YouTube channels as well as revenues generated from the operation of Frederator’s creator network, Channel Frederator

Additionally, advertising revenue is derived from Kartoon Channel!

branded channels on Free Ad Supported Streaming

Subsequent to the end of the quarter, the Company sold its interest in Frederator Networks, Inc.

In connection with such

sale, the Company entered into a three-year Channel Distribution Agreement.

For additional information, see Recent Events, Sale of

Frederator Networks, Inc.

Licensing and Royalties

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of the Stan Lee intellectual property portfolio and the launch of the Hundred Acre Wood’s:

Winnie & Friends property, with a

focus on both digital and physical consumer products, as well as location-based fan experiences.

We intend to expand the use of our broader

IP catalog in licensing programs in 2026 and beyond.

Winnie and Friends property, with

a focus on both digital and physical consumer products, as well as location-based fan experiences.

We intend to expand the use of our

broader IP catalog in licensing programs in 2026 and beyond.

Media Advisory and Advertising Services

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Section 3(a)(10) Accounts Payable Settlement

On August 27, 2025, we entered

into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”)

with Continuation Capital, Inc.

(“CCI”), to settle $1.8 million of outstanding accounts payable, in exchange for issuing 3,148,535

shares of common stock.

Under the terms of the agreement, CCI makes payments to our vendors in cash and, in exchange, we issue shares

of common stock to CCI.

The settlement was valued at 1.75 shares of common stock per $1 of accounts payable, pursuant to the terms of

the agreement.

The transaction was approved by a court after a public hearing on the fairness of the terms and conditions.

The transaction

was carried out in stages and completed in the year ended December 31, 2025.

On November 18, 2025, we entered

into a new agreement to settle an additional $1.0 million of accounts payable under Section 3(a)(10) of the Securities Act with CCI, in

exchange for issuing 1,695,072 shares of common stock.

The terms were consistent with the original arrangement.

As of March 31, 2026

we 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, we 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 condensed consolidated

statements of operations.

into an agreement to engage in a transaction under Section 3(a)(10) of the Securities Act with CCI, to settle an additional $1.0 million

of accounts payable in exchange for issuing 1,695,072 shares of common stock.

Under the terms of the agreement, CCI makes payments to

our vendors in cash and, in exchange, we issued 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, we 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, we 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 our condensed consolidated statements of operations.

The transaction was

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

On April 8, 2026, we entered

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

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

551,250 shares of common stock.

The terms were consistent with the original arrangement.

into a new agreement to settle an aggregate of $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 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 November 2025 arrangement.

The transaction was

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

During the three months ended June 30, 2026, we 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 our condensed consolidated statements of operations.

Section 16(b) Litigation Settlement

Between May 29, 2026 and June

11, 2026, we entered into settlement agreements with six defendants (the “Settling Parties”) in the action styled Todd

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 our benefit, in which we were named only as a nominal defendant,

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

The Settling Parties

agreed to pay 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 us 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 us after

the applicable approval orders become final.

We recognized the $39.2 million received as a non-recurring, non-operating gain, included

in Other Income (Expense), net, on our condensed consolidated statements of operations for the three months ended June 30, 2026.

In connection

with the settlement with the Anson Investments Master Fund LP and its affiliates (collectively, the “Anson Parties”), on June

10, 2026, we entered into a standstill and voting agreement with the Anson Parties, under which we 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.

We recognized this

amount as a non-operating loss, included in Other Income (Expense), net, on the condensed consolidated statements of operations for the

three months ended June 30, 2026.

The related liability was included in current liabilities on the condensed consolidated balance sheet

as of June 30, 2026 and was paid in July 2026.

In accordance with ASC 450-30-25-1, any residual amounts distributable to us from escrow

constitute a gain contingency and will be recognized if and when realized.

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 our Bylaws.

The 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 the Company’s Board.

The Series D Participating Preferred Stock was designated solely to support the stockholder

no shares have been issued, and the rights issued under the plan become exercisable only upon the occurrence of certain triggering

These actions did not affect our financial condition, results of operations or shares of common stock outstanding as of or for

the period covered by this report.

For additional information, see Note 22, Subsequent Events, to our condensed consolidated financial

statements included in this report, Part II, Item 1A, Risk Factors , and 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, we sold all

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

(“Frederator Networks”), which operated the Frederator

Channel network business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June 18, 2026.

We will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary, including Bee and PuppyCat, Bravest

Warriors, Castlevania, and Catbug , for distribution and product licensing opportunities.

The transaction was part of our strategic

realignment to focus on monetization of premium intellectual property and franchise development.

Upon closing, we 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.

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 our 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

Management concluded that the disposition does not represent a strategic shift that has, or will have, a major effect on our

operations or financial results, and accordingly, the transaction does not qualify for discontinued-operations presentation under ASC

In connection with the closing, Frederator Networks, Inc.

and Project Robot LLC entered into a three-year Channel Distribution

Agreement with Frederator Studios, LLC.

Under this 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.

does not believe this continuing involvement affects the conclusions and estimates described above.

Results of Operations

Net income for the three

months ended June 30, 2026 was $27.0 million, compared to a net loss of $6.3 million for the three months ended June 30, 2025.

was primarily attributable to a non-recurring, non-operating gain of $39.2 million from the Section 16(b) litigation settlement received

in June 2026.

Excluding this one-time gain, we would have incurred a net loss from operations for the three months ended June 30, 2026.

As a result, period-over-period comparisons of net income are not indicative of underlying operational performance.

For additional information

regarding the settlement, see Recent Events Section 16(b) Litigation Settlement .

In addition, our results

for the three months and six months ended June 30, 2026 include the operations of Frederator Networks, Inc., which was sold on July

In the future, we expect to focus on monetization of premium intellectual property and franchise development.

additional information regarding the Frederator Networks sale, see Recent Events Sale of Frederator Networks, Inc.

Our summary results for the

three months ended March 31, 2026 and 2025 are below:

Three Months Ended March 31,

three months ended June 30, 2026 and 2025 are below:

Three Months Ended June 30,

(in thousands, except percentages)

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Production Services

Production services revenue was generated specifically by Mainframe

Studios providing animation production services.

Revenue for production services is recognized over time on a percentage of completion

basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of costs incurred cumulatively

to total expected costs.

Consequently, less revenue is recognized during the periods in which the projects are near completion or completed.

The production services revenue for the three months ended March 31, 2026 was 38% lower than the production services revenue recognized

during the three months ended March 31, 2025.

The decrease was primarily due to the timing of production deliveries at Mainframe Studios,

with several projects shifting from the first quarter into later periods in 2026, reducing the proportion of costs incurred relative to

total estimated project costs.

In contrast, the comparable prior year period benefited from multiple projects simultaneously entering

advance production phases, resulting in a higher concentration of production activity and correspondingly higher revenue recognized under

the percentage of completion method.

Production services revenue

was generated specifically by Mainframe Studios providing animation production services.

Revenue for production services is recognized

over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion

of costs incurred cumulatively to total expected costs.

Consequently, less revenue is recognized during the periods in which the projects

are near completion or completed.

The production services revenue for the three months ended June 30, 2026 was 53% lower than the

production services revenue recognized during the three months ended June 30, 2025.

The decrease was primarily due to the timing of production

deliveries at Mainframe Studios, with several projects shifting from the first quarter into later periods in 2026, reducing the proportion

of costs incurred relative to total estimated project costs.

In contrast, the comparable prior year period benefited from multiple projects

simultaneously entering advanced production phases, resulting in a higher concentration of production activity and correspondingly higher

revenue recognized under the percentage of completion method.

Content Distribution

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distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including

advertising sales for the three months ended March 31, 2026, increased by 15% as compared to the three months ended March 31,

The increase was primarily driven by revenue recognized from the delivery of episodes of Wow’s It’s Andrew!

Project of $0.2 million, distribution revenue from other Wow IP of $0.6 million and an increase in sales activity of Ameba and Kartoon

Channel divisions by $0.1 million.

The increase was partially offset by a decline in content revenue from Frederator’s creator network

on YouTube of $0.6 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.

decrease in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period.

advertising sales for the three months ended June 30, 2026, decreased by 7% as compared to the three months ended June 30, 2025.

The decrease of $0.1 million was due to a decrease in Frederator’s creator network revenue from YouTube by $0.7 million driven by

overall less viewership as compared to the prior year period, partially offset by an increase in Mainframe content distribution revenue

by $0.4 million due to delivery of episodes of Mainframe’s It’s Andrew!

IP Project and distribution revenue from other

Mainframe IP, and an increase in sales activity of Ameba and Kartoon Channel divisions by $0.2 million.

Licensing and Royalties

Revenue related to our licensing

and royalties for the three months ended March 31, 2026 decreased by 13% as compared to the three months ended March 31, 2025,

and royalties for the three months ended June 30, 2026 decreased by 29% as compared to the three months ended June 30, 2025,

primarily attributable to timing differences in revenue recognition from our existing license deals.

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Revenue generated by media

advisory and advertising services for the three months ended March 31, 2026 decreased by 8% as compared to the three months ended

March 31, 2025, primarily due to lower net renewal activity and media purchases from clients, which were impacted by continued U.S.

tariffs legislative uncertainty.

Three Months Ended March 31,

advisory and advertising services for the three months ended June 30, 2026 decreased by 47% as compared to the three months ended

June 30, 2025, primarily due to a reduced number of customer accounts in the period compared to the prior period.

Three Months Ended June 30,

(in thousands, except percentages)

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Marketing and sales expenses

for the three months ended March 31, 2026 increased by approximately 3% as compared to the three months ended March 31, 2025.

The increase is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting

for the three months ended June 30, 2026 decreased by approximately 17% as compared to the three months ended June 30, 2025.

The decrease is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting

no significant changes in the Company’s corporate awareness initiatives or advertising activities.

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Direct operating costs during

the three months ended March 31, 2026 consisted primarily of salaries and related expenses for the animation production services

employees of Wow.

Creator network channel expenses, licensing and production of content costs, such as participation expenses related

to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative

talent that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of direct

operating costs.

The 29% decrease was primarily due to lower salary costs by $2.5 million driven by a lower headcount included in Production

Services related to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current

The decrease in direct operating costs was partially offset by an increase of $0.3 million in film amortization expense and an

increase of $0.2 million in participation expenses arising from new contractual agreements entered into during the period as well as existing

agreements, consistent with the corresponding increase in owned-IP revenue.

the three months ended June 30, 2026 consisted primarily of salaries and related expenses for the animation production services employees

Creator network channel expenses, licensing and production of content costs, such as participation expenses related to profit

sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that

had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of direct operating

The 35% decrease was primarily due to lower salary costs by $2.2 million driven by a lower headcount in Production Services related

to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current period and a

decrease of $0.6 million of direct costs related to Frederator Networks.

The decrease in direct operating costs was partially offset by

an increase of $0.2 million in film amortization expense and an increase of $0.1 million in participation expenses arising from new contractual

agreements entered into during the period as well as existing agreements, consistent with the corresponding increase in owned-IP revenue.

General and Administrative

The $1.8 million decrease

in general and administrative expenses for the three months ended March 31, 2026, as compared to the three months ended March 31,

2025, was driven by a decrease of $0.5 million in salaries and wages and a decrease of $0.3 million in professional fees, reflecting reduced

use of external consulting services.

The decrease was partially offset by an increase of $0.1 million in share-based compensation expense

due to new awards granted in recent periods and an increase of $0.1 million in other administrative costs, mainly IT infrastructure and

other equipment costs.

in general and administrative expenses for the three months ended June 30, 2026, as compared to the three months ended June 30,

2025, was driven by a decrease of $0.7 million in salaries and wages primarily due to the capitalization of certain wages associated with

a new film project and reduced headcount, a decrease of $0.6 million in professional fees reflecting reduced use of external consulting

services and timing of the annual shareholder meeting costs, a decrease of $0.3 million in various administrative costs, mainly IT infrastructure

and other equipment costs, a decrease of $0.1 million in bad debt expense due to certain receivables being written down in prior year

quarter, and a gain on disposal of equipment of $0.1 million recorded in the current period.

The decrease was partially offset by an increase

of $0.1 million in share-based compensation expense due to new awards granted in recent periods.

Impairment Charge

During the three months ended

March 31, 2026 and March 31, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our

June 30, 2026 and June 30, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets and our

indefinite-lived intangible assets for impairment.

As a result, we concluded that impairment charges to those assets were not required.

Furthermore, we concluded that no indicators of impairment or triggering events were identified during the periods.

No indicators of impairment or triggering events were identified during the periods,

and we concluded that no impairment charges were required.

On July 8, 2026, we completed

the sale of Frederator Networks, Inc.

We assessed the Frederator Networks, Inc.

asset group for recoverability using the executed Stock

Purchase Agreement price as the primary evidence of fair value and determined that any impairment indicated as of June 30, 2026 would

be limited to the aggregate shortfall on the transaction of approximately $0.3 million.

Because the sale closed on July 8, 2026, this

shortfall will be reflected in the loss on deconsolidation of Frederator recognized in the third quarter of 2026.

Accordingly, no impairment

charge was recorded during the three months ended June 30, 2026.

For additional information, see Note 22, Subsequent Events, to

the Company’s condensed consolidated financial statements included in this report.

Our summary results for the

six months ended June 30, 2026 and 2025 are below:

Six Months Ended

(in thousands, except percentages)

Production Services

Content Distribution

Licensing and Royalties

Media Advisory and Advertising Services

Total Revenue

Production Services

Production services revenue

was generated specifically by Mainframe Studios providing animation production services.

Revenue for production services is recognized

over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion

of costs incurred cumulatively to total expected costs.

Consequently, less revenue is recognized during the periods in which the projects

are near completion or completed.

The production services revenue for the six months ended June 30, 2026 was 46% lower than the production

services revenue recognized during the six months ended June 30, 2025.

The decrease was primarily due to the timing of production deliveries

at Mainframe Studios, with several projects shifting from the first quarter into later periods in 2026, reducing the proportion of costs

incurred relative to total estimated project costs.

In contrast, the comparable prior year period benefited from multiple projects simultaneously

entering advance production phases, resulting in a higher concentration of production activity and correspondingly higher revenue recognized

under the percentage of completion method.

Content Distribution

Revenue related to content

distribution on advertising-supported video on demand (“AVOD”) and subscription video on demand (“SVOD”), including

advertising sales for the six months ended June 30, 2026, increased by 4% as compared to the six months ended June 30, 2025.

The increase was primarily driven by revenue recognized from the delivery of episodes of Mainframe’s It’s Andrew!

Project and distribution revenue from other Mainframe IP of $1.2 million, and an increase in sales activity of Ameba and Kartoon Channel

divisions by $0.2 million.

The increase was partially offset by a decline in content revenue from Frederator’s creator network on

YouTube of $1.2 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.

in Frederator’s creator network revenue from YouTube was due to overall less viewership as compared to the prior year period.

Licensing and Royalties

Revenue related to our licensing

and royalties for the six months ended June 30, 2026 decreased by 21% as compared to the six months ended June 30, 2025, primarily

attributable to timing differences in revenue recognition from our existing license deals.

Media Advisory and Advertising Services

Revenue generated by media

advisory and advertising services for the six months ended June 30, 2026 decreased by 27% as compared to the six months ended June 30,

2025, primarily due to a reduced number of customer accounts in the period compared to prior period.

Six Months Ended June 30,

(in thousands, except percentages)

Marketing and Sales

Direct Operating Costs

General and Administrative

Total Expenses

Marketing and Sales

Marketing and sales expenses

for the six months ended June 30, 2026 decreased by approximately 6% as compared to the six months ended June 30, 2025.

decrease is considered immaterial, and overall marketing and sales spending remained largely consistent period-over-period, reflecting

no significant changes in the Company’s corporate awareness initiatives or advertising activities.

Direct Operating Costs

Direct operating costs during

the six months ended June 30, 2026 consisted primarily of salaries and related expenses for the animation production services employees

Creator network channel expenses, licensing and production of content costs, such as participation expenses related to profit

sharing obligations with various animation studios, post-production studios, writers, directors, musicians, or other creative talent that

had rendered services, and amortization, including any write-downs of film and television costs, make up the remainder of direct operating

The 32% decrease was primarily due to lower salary costs of $4.0 million driven by a lower headcount in Production Services related

to the delivered projects, that were in the advanced production stages in the prior year quarter compared to the current quarter, a decrease

of $1.2 million of direct costs related to Frederator Networks and the elimination of $0.1 million from the restructuring of our international

The decrease in direct operating costs was partially offset by an increase of $0.5 million in film amortization expense and

an increase of $0.3 million in participation expenses arising from new contractual agreements entered into during the period as well as

existing agreements, consistent with the corresponding increase in owned-IP revenue.

Additionally, $0.1 million in product development

costs was not capitalized.

General and Administrative

The $2.3 million decrease

in general and administrative expenses for the six months ended June 30, 2026, as compared to the six months ended June 30,

2025, was driven by a decrease of $1.2 million in salaries and wages primarily due to the capitalization of certain wages associated with

a new film project and reduced headcount, a decrease of $0.9 million in professional fees, reflecting reduced use of external consulting

services and timing of the annual shareholder meeting costs, a decrease of $0.2 million in other administrative costs, mainly IT infrastructure

and other equipment costs, and a gain on disposal of equipment of $0.1 million recorded in the current period.

The decrease was partially

offset by an increase of $0.2 million in share-based compensation expense due to new awards granted in recent periods.

Impairment Charge

During the six months ended

June 30, 2026 and June 30, 2025, we reassessed our nonfinancial assets, including our definite-lived intangible assets and our

indefinite-lived intangible assets for impairment.

No indicators of impairment or triggering events were identified during the periods,

and we concluded that no impairment charges were required.

On July 8, 2026, we completed

the sale of Frederator Networks, Inc.

We assessed the Frederator Networks, Inc.

asset group for recoverability using the executed Stock

Purchase Agreement price as the primary evidence of fair value and determined that any impairment indicated as of June 30, 2026 would

be limited to the aggregate shortfall on the transaction of approximately $0.3 million.

Because the sale closed on July 8, 2026, this

shortfall will be reflected in the loss on deconsolidation of Frederator recognized in the third quarter of 2026.

Accordingly, no impairment

charge was recorded during the six months ended June 30, 2026.

For additional information, see Note 22, Subsequent Events, to the

Company’s condensed consolidated financial statements included in this report.

Components of Other Income (Expense), net, are

summarized as follows (in thousands):

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)

2 unchanged sentences

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 not 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 not 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 not 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.

Liquidity, Going Concern, and Capital Resources

As of March 31, 2026,

we 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 change in operating asset and liabilities of $2.3 million,

partially offset by net change in non-cash adjustments of $5.9 million.

As of March 31, 2026,

we 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.

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.

Liquidity and Capital Resources

As of June 30, 2026,

we 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 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 the 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, we 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 us 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 us 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 us after the applicable approval orders become final.

These receipts are non-recurring and

non-operating in nature and do not represent a source of operating cash flow.

We 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 marketable securities balance rather than in the ending cash balance.

We hold these securities as a source of liquidity

and expect to draw on them to fund working capital and operating requirements.

We have not received, and have not recognized, the portion

of the settlement deposited into escrow.

Any residual amounts distributable to us will become available as a source of liquidity if and

when realized.

On June 10, 2026, we entered into a standstill and voting agreement with the Anson Parties, under which we agreed to pay

the Anson Parties $4.0 million for certain voting commitments and standstill restrictions through June 11, 2027.

Subsequent to June 30, 2026,

we sold our interest in Frederator Networks, Inc.

for $0.5 million, subject to customary post-closing adjustments for net working capital,

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

Frederator Networks was not a material contributor to our

consolidated operating cash flows, and the sale is not expected to have a material adverse effect on our liquidity.

In connection with

the sale, we entered into a three-year Channel Distribution Agreement under which we will receive a declining share of net YouTube receipts

generated by certain retained channels.

For additional information, see Recent Events - Sale of Frederator Networks, Inc.

As of June 30, 2026,

we 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 as a source of liquidity.

Working Capital

As of March 31, 2026,

As of June 30, 2026,

we had total current assets of $63.0 million, including cash of $7.7 million, and marketable securities of $32.8 million, and our total

current liabilities were $31.6 million.

We had negative working capital of $0.7 million as of March 31, 2026 as compared to working

capital of $2.3 million as of December 31, 2025.

The decrease of

$3.0 million was du e to a decrease of $5.0 million in current assets, offset by a

decrease of $2.0 million in current liabilities compared to the balances as of December 31, 2025.

The decrease in current assets

is primarily driven by a decrease of $6.3 million in accounts receivable related to the timing of contractual billing milestones in production

projects, a decrease of $3.0 million in marketable securities investments due to the sale of a portion of the marketable securities, offset

by an increase of $2.1 million in cash primarily due to proceeds from the sale of a portion of the marketable securities, an increase

We had working capital of $31.4 million as of June 30, 2026 as compared to working capital

of $2.3 million as of December 31, 2025.

The increase of

$29.1 million was du e to an increase of $27.3 million in current assets and a decrease

of $1.9 million in current liabilities compared to the balances as of December 31, 2025.

The increase in current assets is primarily

driven by an increase of $28.8 million in marketable securities investments due to investments of a portion of the cash proceeds from

the settlement of the Section 16(b) litigation in the marketable securities, an increase of $4.8 million in cash primarily due to the

remaining settlement proceeds not allocated to marketable securities, an increase of $0.8 million in prepaid expenses, and an increase

of $0.7 million in production tax credit receivable due to recognized credits for the ongoing projects,

an increase of $0.3 million in prepaid expenses, and an increase of $0.2 million in other receivable due to collection of insurance proceeds

related to previously filed claims.

The decrease in current liabilities is primarily driven by a decrease of $5.0 million in accounts

payable driven by the settlements under Section 3(a)(10) of the Securities Act, a decrease of $0.8 million in deferred revenue balance

related to revenue recognized under the percentage-of-completion method on production projects, offset by an increase of $1.8 million

in accrued expenses related mainly to billing timing and insurance policy renewals, and an increase of $1.8 million in production facilities

due to advance stages of production projects.

During the three months ended March 31, 2026, we met our immediate cash requirements

through existing cash balances.

Additionally, we used equity and equity-linked instruments to pay for services and compensation.

Going Concern

Based on our current expected

level of operating expenditures and the cash and cash equivalents on hand at March 31, 2026, management concluded that there is substantial

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

condensed consolidated financial statements.

Historically, we have financed our operations primarily through revenue generated from operations,

loans and sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner going forward.

We continue to navigate macroeconomic challenges in the animation and advertising industries, including ongoing government tariffs and

intensified competition.

In the prior periods, we have demonstrated resilience in our financing activities, having successfully raised

net proceeds through public offerings.

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

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

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

In order to address our capital needs, we intend 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.

Our ability to sell securities registered under our registration statement on Form S-3 is limited

until such time that the market value of our voting securities held by non-affiliates is $75 million or more.

In addition, the number

of shares of common stock and securities convertible or exercisable for common stock that we can sell, under certain circumstances, will

be limited by NYSE American rules and regulations.

If we are able to raise funds by selling additional shares of common stock or other

securities convertible into common stock, the ownership interest of our existing shareholders will be diluted.

The issuance of debt can

result in restrictive covenants that limit operations.

There can be no assurance that we will be able to complete any financing, collaborative

or strategic transaction in a timely manner or on acceptable terms.

As a result, we may have to significantly limit our operations and

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

of Cash Flows for the Three Months Ended March 31, 2026 and March 31, 2025

Our total cash as of March 31,

2026 and March 31, 2025 was $5.0 million and $2.8 million, respectively.

Three Months Ended March 31,

offset by a decrease of $7.6 million in accounts receivable related to the timing of contractual billing milestones in production

projects and a decrease of $0.2 million in other receivables due to collection of insurance proceeds related to previously filed claims.

The decrease in current liabilities is primarily driven by a decrease of $6.4 million in accounts payable primarily within the Media Advisory

and Advertising Services segment, driven by the seasonality of the business, as sales peak during the holiday season, a decrease of $1.7

million in deferred revenue balance related to revenue recognized under the percentage-of-completion method on production projects, offset

by a standstill agreement payable of $4.0 million which was outstanding as of June 30, 2026, an increase of $1.1 million in production

facilities due to advance stages of production projects, an increase of $1.0 million in accrued expenses related mainly to billing timing

and insurance policy renewals, and an increase of $0.1 million in participation payable due to timing of production related participant

distributions.

During the six months ended

June 30, 2026, we met our immediate cash requirements through existing cash balances.

We continue to navigate macroeconomic challenges

in the animation and advertising industries, including ongoing government tariffs and intensified competition.

In the prior periods, we

have demonstrated resilience in our financing activities, having successfully raised net proceeds through public offerings, and continue

to explore opportunities to further strengthen our financial position.

In parallel, management also 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, we settled

approximately $1.7 million of outstanding accounts payable in transactions under Section 3(a)(10) of the Securities Act.

Additionally,

we also used equity and equity-linked instruments to pay for services and compensation.

During the six months ended

June 30, 2026, we received $39.2 million in direct cash proceeds from the settlement of the Section 16(b) litigation, which we have

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

Management has evaluated the significance

of these conditions in relation to our ability to meet our obligations and noted that we have sufficient cash, marketable securities and

investments to fund operations for the next 12 months from the issuance date of this 10-Q.

As of June 30, 2026, we had

access to production facilities with an outstanding balance of $12.9 million.

Our production facilities are generally repayable on demand

and bear interest at rates ranging from bank prime plus 1.00% to 1.25% per annum.

Borrowings under these facilities are collateralized

by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including federal

and provincial tax credits and production service agreements.

We expect to continue utilizing production facilities to finance specific

productions as projects advance through the production pipeline.

For additional information regarding our production facilities, see Note

12, Bank Indebtedness and Production Facilities, to our condensed consolidated financial statements.

of Cash Flows for the Six Months Ended June 30, 2026 and June 30, 2025

Our total cash as of June 30,

2026 and June 30, 2025 was $7.7 million and $2.6 million, respectively.

Six Months Ended June 30,

(in thousands)

Net Cash Used in Operating Activities

Net Cash Provided by (Used in) Operating Activities

Net Cash Provided by (Used in) Investing Activities

1 unchanged sentence

Effect of Exchange Rate Changes on Cash

Increase (Decrease) in Cash and Restricted Cash

Increase (Decrease) in Cash

Change in Operating Activities

Change in operating activities

of $37.7 million during the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, include an increase

in net income of $33.4 million driven primarily by the legal settlement cash receipts, an increase of $5.6 million in net non-cash expense

adjustments, and an increase of $1.3 million in cash flows from operating assets activity, offset by a decrease of $2.6 million in cash

flows from operating liabilities activity.

Items necessary to reconcile

net loss to cash used in operating activities included net non-cash expenses of $5.9 million for the three months ended March 31,

2026 as compared to net non-cash expenses of $4.6 million for the three months ended March 31, 2025.

The increase of $1.3 million

in non-cash expenses compared to prior year was primarily due to an increase of $0.6 million non-cash adjustment due to stock issued for

services, the absence of $0.4 million gain on warrant revaluation recorded in prior year, an increase of $0.3 million in Film and Television

amortization related to the projects delivered in prior year, an increase of $0.1 million in stock-based compensation expense due to new

awards granted, and a loss of $0.8 million related to accounts payable debt settlement transactions.

Additionally, we recorded a noncash

reduction of $0.6 million in accounts payable due to corresponding stock issuances to CCI.

These movements were offset by a $0.8 million

net decrease in loss on debt settlement, reflecting a $1.0 million loss on the related party loan settlement in the prior year compared

to a $0.2 million loss on accounts payable settlement transactions in the current year.

Change in cash used in operating

activities also includes fluctuations in working capital, including movements in operating assets and liabilities.

Working capital adjustments

reflect timing differences between the recognition of revenues and expenses and the related cash receipts or payments.

Operating asset

and liability activities resulted in a decrease of $2.3 million in cash during the three month ended March 31, 2026, and an increase

of $0.2 million in cash during the three month ended March 31, 2025.

The changes resulted in a net decrease in operating asset and

liability cash flows of $2.5 million compared to prior year.

This was primarily due to a decrease in net cash flows generated by the operating

assets activity by $3.1 million, partially offset by a decrease in cash flows used by the operating liabilities by $0.6 million.

in cash flows from operating activities by $3.1 million was primarily driven by a lower reduction in operating assets during the year,

which generated less cash than in the comparative period.

This was due to lower net receipts of tax credits during the current period

by $4.1 million and higher capitalized costs related to ongoing productions by $1.2 million, and an unfavorable impact of $0.1 million

attributable to other receivables, offset by cash flows generated by net receipts of outstanding accounts receivable by $1.9 million and

less cash spent on prepaid services by $0.4 million.

The decrease in cash flows used by the operating liabilities by $0.6 million was

primarily due to generally less accounts payable settled in cash by $1.0 million, an increase of $0.5 million in accrued expenses representing

additional costs recognized during the period that were outstanding as of March 31, 2026, offset by an unfavorable impact of deferred

revenue movement of $0.8 million representing revenue recognized related to cash received in advance in prior periods, and a decrease

of $0.1 million related to timing of Mainframe production costs accruals.

net loss to cash provided by operating activities included net non-cash expenses of $15.1 million for the six months ended June 30,

2026 as compared to net non-cash expenses of $9.5 million for the six months ended June 30, 2025.

The increase of $5.6 million in

non-cash expenses compared to prior year was primarily due to a $4.0 million accrued expense related to the standstill agreement recorded

in the current period, an increase of $2.0 million non-cash adjustment due to stock issued for services, an absence of foreign currency

YFE investment remeasurement recorded in the six months ended June 30, 2025 resulting in a $1.9 million change compared to the prior

year, a noncash reduction of $1.7 million in accounts payable due to corresponding stock issuances to CCI, an increase of $0.8 million

in loss on debt settlement related to the transaction under Section 3(a)(10) of the Securities Act of 1933, an increase of $0.4 million

in Film and Television amortization related to the projects delivered in prior year, and an increase of $0.2 million in stock-based compensation

expense due to new awards granted.

These movements were offset by a decrease of $3.9 million in expense related to fair value adjustment

of YFE investment, an absence of $1.3 million loss on debt related to the settlement agreement of the loan from related party recorded

in prior year period, and an absence of $0.2 million loss related to revaluation of the warrants recorded in prior year period.

Change in cash provided by

operating activities also includes fluctuations in working capital, including movements in operating assets and liabilities.

Working capital

adjustments reflect timing differences between the recognition of revenues and expenses and the related cash receipts or payments.

asset and liability activities resulted in a net decrease of $4.2 million in cash during the six months ended June 30, 2026, as compared

to a net decrease of $2.9 million in cash during the six months ended June 30, 2025.

The changes resulted in an increase in use of

cash related to operating asset and liability cash flows of $1.3 million compared to prior year.

This was primarily due to a decrease

in cash flows from the operating liabilities by $2.6 million, offset by an increase in net cash flows generated by the operating assets

activity by $1.3 million.

The decrease in cash flows used by the operating liabilities by $2.6 million was primarily due to unfavorable

impact of deferred revenue movement of $1.7 million representing revenue recognized related to cash received in advance in prior periods,

generally more accounts payable settled in cash by $1.2 million, an unfavorable impact of lower accrued salaries and wages costs of $0.6

million, and an unfavorable impact of lower media purchases accrued expenses of $0.2 million, offset by favorable impact of accrued participation

costs movement of $0.5 million due to timing of payment obligation and an increase of $0.3 million related to timing of Mainframe production

costs accruals.

Net cash flows generated by the operating assets activity by $1.3 million compared to the prior year period was due to

generally higher net receipts of outstanding accounts receivable by $2.5 million, a favorable impact of $0.4 million attributable to other

receivables, partially offset by higher capitalized costs related to ongoing productions by $1.1 million, lower net receipts of tax credits

during the current period by $0.4 million and more cash spent on prepaid services by $0.1 million as compared to the prior year period.

Change in Investing Activities

The increase in cash provided

by investing activities of $4.1 million was primarily due to an increase in proceeds from the sales and maturities of marketable securities

of $2.3 million during the three months ended March 31, 2026.

In addition, during the three months ended March 31, 2025, we

invested a portion of the financing proceeds from the prior year offering in the marketable securities totaling to $1.8 million.

The cash used in investing

activities increased by $30.1 million, primarily due to investment of a portion of the legal settlement proceeds in the marketable securities

totaling to $31.0 million, partially offset by an increase in proceeds from the redemption of marketable securities of $0.8 million during

the six months ended June 30, 2026.

Change in Financing Activities

The increase in cash provided

by financing activities of $4.3 million was primarily due to a decrease in repayments of our production facilities and margin loan of

$5.0 million, and a decrease in borrowings from our margin loan and production facilities of $0.7 million during the three months ended

March 31, 2026 as compared to the three months ended March 31, 2025.

by financing activities of $1.9 million was primarily due to higher net proceeds from borrowing from our margin loan and production facilities

of $1.2 million during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025, proceeds from warrants

exercise of $0.6 million, and lower finance leases payments by $0.1 million.

Material Cash Requirements

4 unchanged sentences

The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately

$30.1 million as of March 31, 2026, of which $20.1 million could be owed within one year.

$26.9 million as of June 30, 2026, of which $16.8 million could be owed within one year.

Included in the amount that could be due

within one year is the production facilities balance of $12.9 million.

In addition, we expect to

incur significant production costs in connection with the development and launch of Hundred Acre Wood’s:

Winnie and Friends ,

which is scheduled to premiere with preliminary activities in Q4 2026 and a full launch anticipated in Q1 2027.

We expect to fund these

production costs through a combination of existing cash and marketable securities, production facilities, and potential licensing and

distribution advances.

We plan to utilize our liquidity

(as described above) to fund our material cash requirements.

As of March 31, 2026,

As of June 30, 2026,

we had $0.2 million in commitments for capital expenditures, related to equipment leases.

18 unchanged sentences

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 2. Management’s Discussion and Analysis