What changed in this filing

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Item 1A. Risk Factors

2026-08-14 compared with 2026-05-15 · 143 added, 63 removed, 61 unchanged (77% of the section changed)

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

We must raise additional capital to fund

our operations in order to continue as a going concern.

As of March 31, 2026,

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

As of March 31, 2026, we had

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

We had negative

working capital of $0.7 million as of March 31, 2026, compared to working capital of $2.3 million as of December 31, 2025.

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

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

consolidated financial statements.

In order to address our capital needs, we will need to raise further capital through the sale of equity

or debt securities, financing arrangements or by entering into collaborative, strategic, and/or licensing transactions.

There can be no

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

terms, or at all.

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

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

Without such additional capital, we may be required

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

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

We have incurred net losses since inception.

We have incurred net losses from operations

since inception.

We have a history of operating

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

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

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

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

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

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

The financial statements

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

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

The financial statements do not include any adjustments

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

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

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

During the three months ended June 30, 2026,

we generated total revenues of $5.8 million and incurred a net loss from operations of $3.4 million, while for the same period the previous

year, we generated total revenue of $10.3 million and incurred a net loss from operations of $3.2 million, respectively.

These operating

losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity,

net current assets and working capital.

Although we have net income for the three and six months ended June 30, 2026, the net income is

not derived from operations and is instead attributed to non-recurring and non-operating cash receipt of $39.2 million from the court

approved cash settlement received by us.

We will need to generate additional

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

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

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

extent of any such proposed measures remain undefined.

Although we are headquartered in the United States, our primary animation production operations are located in Canada.

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

of any such proposed measures remain undefined.

The broader legal landscape

governing U.S.

tariff authority has also evolved materially.

tariff authority has continued to evolve materially.

In February 2026, the U.S.

Supreme Court held in Learning Resources, Inc.

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

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

Following the ruling, the administration moved promptly

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

available legal mechanisms.

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

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

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

Supreme Court held in Learning Resources,

Trump that the International Emergency Economic Powers Act does not authorize the President to impose tariffs, invalidating a

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

Following the ruling, the administration imposed a temporary 10% global

tariff under Section 122 of the Trade Act of 1974, which expired in July 2026 in accordance with that statute’s 150-day limit.

the Office of the U.S.

Trade Representative initiated investigations under Section 301 of the Trade Act of 1974 covering a substantial

number of U.S.

trading partners and, following one such investigation, in July 2026 imposed tariffs on goods of approximately 60 trading

partners, reflecting the administration’s stated intent to reestablish broad-based tariff measures under alternative statutory authorities.

In addition, a World Trade Organization moratorium on customs duties applicable to electronic transmissions, which had previously served

as a potential constraint on the imposition of tariffs on digitally distributed content, expired in March 2026, and the joint review of

the United States-Mexico-Canada Agreement, which prohibits customs duties on digital products transmitted electronically between the parties,

commenced in July 2026.

Any renegotiation or modification of that agreement’s digital trade provisions could reduce or eliminate one of

the remaining legal constraints on the imposition of duties on content produced by our Canadian operations.

The full implications of these

developments for the potential imposition of tariffs or fees on filmed or animated content remain uncertain.

There is a risk that tariff

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business, financial condition, and results of operations.

We are subject to laws governing children’s

privacy and online safety, including the FTC’s amended COPPA rule, which became fully enforceable in April 2026, and compliance requires

ongoing operational measures.

Our digital distribution properties,

including Kartoon Channel!, are directed to children, and we are subject to the Children’s Online Privacy Protection Act (COPPA) and the

FTC’s implementing rule, which govern the online collection, use, disclosure, and retention of personal information from children under

the age of 13.

In April 2025, the FTC published significant amendments to the COPPA Rule, and operators were required to be in full compliance

by April 22, 2026.

Among other changes, the amended rule expanded the definition of personal information to include biometric identifiers,

requires separate verifiable parental consent before disclosing children’s personal information to third parties for purposes not integral

to our service (including targeted advertising and training artificial intelligence technologies), and requires operators to maintain

a written information security program and data retention policy applicable to children’s personal information.

Because a portion of our revenue

is derived from advertising on child-directed services, these requirements, particularly the separate consent requirement for third-party

advertising disclosures, affect how we and our advertising partners may collect and use viewer data.

Compliance involves ongoing operational,

contractual, and technological measures, including monitoring third-party vendors’ use of data collected through our services.

a growing number of states have enacted laws imposing further restrictions on the processing of minors’ personal information, and additional

federal and state rulemaking, including with respect to age verification, remains under active consideration.

We implemented the changes

necessary to comply with the amended rule by the required date, and doing so has not to date had a material effect on our operations or

advertising-supported revenue.

However, because these requirements are not uniform across jurisdictions and continue to evolve, compliance

with the most restrictive applicable standard could increase our costs or constrain our advertising-supported revenue model in the future.

Failure to comply with COPPA or analogous state laws could result in investigations, enforcement actions, civil penalties, and reputational

harm with parents, distributors, and advertisers, any of which could adversely affect our business, financial condition, and results of

The loss of one or a few significant customers

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consecutive years.

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

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

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

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

These customers accounted for an aggregate of 62.4%

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

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

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

During the three months ended June 30, 2026, three customers each accounted for more than 10% of our total consolidated

These customers accounted for an aggregate of 74.2% of our total revenue for the three months ended June 30, 2026.

the six months ended June 30, 2026, three customers each accounted for more than 10% of our total consolidated revenue.

These customers

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

As of June 30, 2026, we had

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

These customers accounted for

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

The loss of business from a significant customer could

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

Offers or availability for sale of a substantial

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deem reasonable or appropriate.

As of May 14, 2026, approximately

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

As of March 31,

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

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

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

shares reserved for issuance under our Kartoon Studios, Inc.

As of August 13, 2026,

approximately 59,728,670 shares of common stock of the 62,204,105 shares of common stock issued are outstanding and freely trading.

of June 30, 2026, there were 38,960,004 warrants outstanding.

Lastly, as of June 30, 2026, there are 839,998 shares of common

stock underlying outstanding options granted, 2,576,561 shares of common stock underlying outstanding restricted stock units (“RSUs”)

and 5,096,394 shares reserved for issuance under our Kartoon Studios, Inc.

2020 Incentive Plan.

We are authorized to issue “blank

check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

Our Articles of Incorporation,

as amended (our “Articles of Incorporation”), authorize us to issue up to 10,000,000 shares of blank check preferred stock

without seeking approval of our shareholders.

As of June 30, 2026, 6,000 shares of our authorized preferred stock have been designated

as 0% Series A Convertible Preferred Stock, and 50,000 shares of our authorized preferred stock have been designated as Series C Preferred

Stock, none of which shares were outstanding.

On July 1, 2026, the Board of Directors designated 300,000 shares of our authorized preferred

stock as Series D Participating Preferred Stock, none of which have been issued, in connection with our adoption of a stockholder rights

plan on that date, as described elsewhere in this report.

Any preferred stock that we issue in the future may rank ahead of our common

stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock.

In addition, such

preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value

of common stock to current stockholders and could adversely affect the market price, if any, of our common stock.

In addition, the preferred

stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.

Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we

will not do so in the future.

Our stockholder rights plan and provisions of our amended

Bylaws and Nevada law could discourage, delay or prevent a change in control and may adversely affect the market price of our common stock.

On July 1, 2026, our Board

of Directors adopted a stockholder rights plan (the “Rights Agreement”) and adopted amendments to our Bylaws.

Under the Rights

Agreement, if a person or group acquires beneficial ownership of 10% or more of our outstanding common stock without the approval of our

Board, the rights held by that person or group would become void and each other holder of a right would become entitled to purchase shares

of our common stock at a substantial discount, resulting in significant dilution to the acquiring person or group.

In connection with

the Rights Agreement, on July 1, 2026 our Board also designated a new series of participating preferred stock.

In addition, the amendments

to our Bylaws adopted on July 1, 2026, among other things, divide our Board 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, establish advance

notice procedures for stockholder nominations and proposals, require a two-thirds supermajority stockholder vote to remove a director,

and designate an exclusive forum for certain disputes.

We are also subject to provisions of Nevada law that may have anti-takeover effects.

These provisions, alone or

in combination, could make it more difficult for a third party to acquire us, or for our stockholders to change the composition of our

Board, even in a transaction that some or all of our stockholders might consider to be in their best interests or in which our stockholders

might receive a premium over the then-current market price of our common stock.

As a result, these provisions could limit the price that

investors are willing to pay in the future for shares of our common stock and could adversely affect the market price of our common stock

and the ability of our stockholders to realize a premium for their shares.

Actions of activist stockholders could

be disruptive and costly and could adversely affect our results of operations, financial condition, and/or share price.

While we strive to maintain

constructive communications with our stockholders, we may, from time to time, be subject to demands from activist stockholders.

campaign against the Company that contests, conflicts with, or seeks to change, our board composition, leadership, strategic direction,

or business mix could have an adverse effect on us because:

(i) responding to actions by activist stockholders could disrupt our operations,

be costly or time-consuming, or divert the attention of our board of directors and senior management from their regular duties, including

diverting their attention from the operation of our business and the execution of our strategic plans, which could adversely affect our

results of operations or financial condition;

(ii) perceived uncertainties as to our future direction, including as a result of possible

changes to the composition of our board, may lead to the perception of a change in the direction of the business or lack of continuity,

any of which may be exploited by our competitors, cause concern to our customers, employees, and/or business partners and result in the

loss of potential business opportunities, or make it more difficult to attract and retain qualified personnel and business partners, and

may adversely affect our relationships with vendors, customers, business partners, and other third parties;

(iii) these types of actions

could cause significant fluctuations in our share price based on temporary or speculative market perceptions or other factors that do

not necessarily reflect the underlying fundamentals and prospects of our business;

and (iv) if individuals are elected to our board of

directors with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and create additional

value for our stockholders.

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended

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

June 30, 2026, the Company did not make any unregistered sales of equity securities that were not disclosed in SEC filings.

Defaults Upon Senior Securities

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

What changed 10-Q

Item 1A. Risk Factors