TOON 10-K & 10-Q changes, risk factors and insider trading

We must raise additional capital to fund our operations in order to continue as a going concern.

As of December 31, 2025, we had an accumulated deficit of $763.8 million and total stockholders’ equity of $27.5 million. As of December 31, 2025, we had total current assets of $35.8 million, including cash of $2.9 million and marketable securities of $4.0 million, and total current liabilities of $33.5 million. We had working capital of $2.3 million as of December 31, 2025, compared to working capital of $1.2 million as of December 31, 2024. Management has evaluated the significance of these conditions in relation to our ability to meet our obligations and concluded that there is substantial doubt about our ability to continue as a going concern for a period of at least one year subsequent to the issuance of the accompanying 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.

The financial statements included elsewhere in this Annual Report on Form 10-K 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.

Pursuant to the terms of the Securities Purchase Agreement that we entered into in connection with the registered direct offering and concurrent private placement that closed on October 22, 2025 (the “October 2025 Purchase Agreement”), we agreed, subject to limited exceptions, for a period from October 20, 2025 until October 20, 2027, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of our common stock or common stock equivalents involving a variable rate transaction; provided however, that commencing October 20, 2026, we are allowed to enter into, and issue shares pursuant to, an “at the market” offering. The October 2025 Purchase Agreement further provides that the investor thereunder (the “October 2025 Investor”) has the right to participate in certain subsequent financings by us in an amount equal to 50% of such subsequent financings for 12 months following October 22, 2025.

In addition, we maintain an investment in foreign equity, the securities of YFE that we hold, which is inherently volatile and subject to greater market risk. The value of this investment may be significantly affected by changes in equity market conditions, foreign currency exchange rate movements, and economic or geopolitical developments in the relevant jurisdictions. For example, we recognized a loss on revaluation of our equity investment in YFE of approximately $9.8 million and $1.6 million for the years ended December 31, 2025 and December 31, 2024, respectively, as a result of decreases in YFE’s stock price during the respective reporting periods. For the year ended December 31, 2025, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein.

As of December 31, 2025, we and our subsidiaries have production loan facility obligations (“production facilities”) of approximately $11.8 million. Any borrowings under the production facilities are collateralized by a security interest in substantially all of the relevant production company’s tangible and intangible assets, including primarily federal and provincial tax credits and other government incentives, as well as production service agreements and license agreements. As of December 31, 2025, we recorded $16.8 million in tax credit receivables related to Wow’s film and television productions, net of $0.4 million in allowance for credit loss. If the production entities default on their obligations under the production facilities, the lender could foreclose on certain assets held by our subsidiaries and related entities that are parties to those facilities; however, such foreclosure would only apply to the extent any outstanding amounts exceed the related tax credit receivables securing those obligations. As the amounts currently outstanding do not exceed the associated tax credit receivables, these assets are not presently at risk. In addition, the existence of these security interests may adversely affect our financial flexibility. The production facilities and the margin loan are generally repayable on demand and are subject to customary default provisions, representations and warranties, and other terms and conditions.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

The loss of one or more significant customers could have a material adverse effect on us.

A small number of customers have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period of several consecutive years. During the year ended December 31, 2025, four customers each accounted for more than 10% of our total consolidated revenue. These customers accounted for an aggregate of 81.9% of our total revenue. As of December 31, 2025, we had three customers, the accounts receivable for each of which exceeded 10% of our total accounts receivable. These customers accounted for an aggregate of 54.5% of the total accounts receivable as of December 31, 2025. The loss of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are exposed to investment risk with the ownership of an equity interest in Your Family Entertainment AG.

During the year ended December 31, 2021, we acquired a material equity interest in YFE, a company publicly traded on the Frankfurt Stock Exchange. With an ownership stake of 32.5% as of December 31, 2025, we are exposed to the risk of success of the YFE business. We are also exposed to risk of adverse reactions to the transaction or changes to business relationships; competitive responses; inability to maintain key personnel and changes in general economic conditions in Germany. Germany was in a recession for most of 2025 and 2024, largely due to persistent high inflation and falling household spending. Continued inflation, volatility or recessionary risks in Germany could adversely affect YFE’s business, results of operations and stock price. If YFE fails to perform to our expectations, it could have a material adverse effect on our results of operations or financial condition and liquidity. For example, the fair value of the investment as of December 31, 2025 decreased by net $9.8 million, as compared to December 31, 2024. The net decrease is comprised of the net impact of a decrease in YFE’s stock price, the share sale and exchange transactions completed in the quarter, and the effect of foreign currency remeasurement from EURO to USD. The total change in fair value is recorded within Other Income (Expense), net on the Company’s consolidated statements of operations.

We have expanded into international operations, including as a result of our acquisitions of Wow and Ameba, our launch of Kartoon Channel! Worldwide and our investment in YFE. As part of our growth strategy, we intend to continue to evaluate potential opportunities for further international expansion. Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States. We have limited experience with international operations, and further international expansion efforts may not be successful.

Wow's functional currency is the Canadian dollar; therefore their financial results are translated into U.S. dollars, our reporting currency, upon consolidation of our financial statements. We are exposed to more significant currency fluctuation risks as a result of our acquisition of Wow in 2021. Fluctuations between the foreign exchange rates, and in particular the Canadian dollar and the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results.

Further, each entity conducts a growing portion of their businesses in currencies other than such entity's own functional currency. Therefore, in addition to the foreign currency translation risk, we face exposure to adverse movements in currency exchange rates with each transaction made outside of the entities' functional currency, including our investment in YFE. If the functional currency of the entity weakens against the foreign currencies in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income or loss. However, if the functional currency of the entity weakens against the foreign currencies in which transactions are being made, the remeasurement of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income (or loss). As exchange rates vary, sales and other operating results, when remeasured, may differ materially from expectations. We continue to review potential hedging strategies that may reduce the effect of fluctuating currency rates on our business, but there can be no assurances that we will implement such a hedging strategy or that once implemented, such a strategy would accomplish our objectives or not result in losses.

RISKS RELATED TO INTELLECTUAL PROPERTY, LITIGATION AND CYBERSECURITY Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our ability to compete in the animated content and entertainment industry depends, in part, upon successful protection of our proprietary and IP. We protect our property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited, or no, practical protection in some jurisdictions, especially jurisdictions outside of the United States. It may be possible for unauthorized third parties to copy and distribute our productions or portions of our productions. In addition, although we own most of the music and IP included in our products, there are some titles for which the music or other elements are in the public domain and for which it is difficult or even impossible to determine whether anyone has obtained ownership or royalty rights. It is an inherent risk in our industry that people may make ownership or royalty claims with respect to any title already included in our products, whether or not such claims can be substantiated. If litigation is necessary in the future to enforce our IP rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and the resulting diversion of resources could have an adverse effect on our business, operating results or financial condition.

RISKS RELATED TO INFLATION, INTEREST RATES, AND OTHER ADVERSE ECONOMIC CONDITIONS Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business.

Further, recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. Military conflicts and wars (such as the ongoing conflicts between Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, other geopolitical events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, trade wars, and supply chain issues created by tariffs threatened or imposed by the current U.S. Administration on imports can cause exacerbated volatility and disruptions to various aspects of the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations.

Regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, could result in disruption or non-availability of our services or particular content or increased operating costs in the applicable jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property rights.

Changes in U.S. trade policy, including current and proposed tariffs on foreign-produced content, could adversely impact our business operations, particularly due to our reliance on animation production services based in Canada and Asia.

The U.S. government has indicated its intent to adopt, and in certain cases has implemented, a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multilateral trade agreements. It has initiated or is considering the imposition of tariffs on certain foreign goods. Changes in U.S. trade policy could result in one or more U.S. trading partners adopting responsive trade policies, making it more difficult or costly for us to conduct our international and domestic operations. As an example, on May 4, 2025, President Trump announced an intention to impose tariffs on films made outside of the United States, which he reiterated in September 2025. Although our parent company is based in the United States, our primary animation production operations are located in Canada. The scope and the extent of the proposed tariffs is not yet finalized and there is a risk that such measures could be extended to include animated content produced internationally. Our business operations, financial condition, and results of operations could be significantly affected by such a measure and the potential expansion of existing tariffs or implementation of new tariffs, trade restrictions, or retaliatory measures by other countries that could disrupt our established operations. This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our profit margin on certain services.

We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our services, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition, and results of operations.

A shutdown of the U.S. federal government may adversely affect our business.

A recurring shutdown of the U.S. federal government may adversely affect our business operations and regulatory compliance. During such shutdowns, while the SEC’s EDGAR system remains operational, the unavailability of SEC staff to review filings, issue comments, or declare registration statements effective may delay our ability to complete public offerings, respond to comment letters, or obtain timely regulatory approvals. These delays could impact our access to capital markets, hinder strategic transactions, and create uncertainty around our disclosure obligations. Additionally, the lack of interpretive guidance or exemptive relief during a shutdown may increase legal and compliance risks. There can be no assurance that any future shutdowns will not materially affect our operations or financial condition.

We are a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children.

Our main sources of revenue are derived from animation production services provided to third parties, the sale of licenses for the distribution of films and television programs, advertising revenues, and merchandising and licensing sales.

Film and Television Licensing: We recognize revenue by licensing rights to exploit functional IP (IP that has significant standalone functionality, such as the ability to be played or aired). Our content distribution strategy is focused on scaling audience reach and monetization across a network of branded destinations, including Kartoon Channel!, Kartoon Channel! Worldwide, Frederator, and Ameba. We plan to grow revenue through expanded licensing activity and increased utilization of owned IP assets such as Rainbow Rangers, Stan Lee brands, Shaq’s Garage, and many more. To support margin expansion, we are actively implementing AI-driven tools designed to reduce operating costs in areas such as localization and video resolution enhancement.

Advertising Revenue: We receive advertising revenue through our wholly-owned VOD services, Kartoon Channel! 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 Network. Additionally, advertising revenue is derived from Kartoon Channel! branded channels on Free Ad Supported Streaming TV services.

Merchandising and Licensing: The Company enters into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of the Company’s symbolic IP (IP that is not functional as it does not have significant standalone use and substantially all of the utility of symbolic IP is derived from its association with the entity’s past or ongoing activities, such as a brand or logo). We believe the licensing and royalties business presents the most significant long-term growth opportunity. Strategic emphasis is being placed on the commercialization of the Stan Lee intellectual property portfolio and the launch of the Hundred Acre Wood: 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 beginning in 2026 and beyond.

Media Advisory and Advertising Services

Beacon, our specialized media and marketing agency, provides media advisory and advertising consulting services to clients. Revenue is recognized when the services are performed or are paid through a monthly retainer. Our media advisory and advertising operations are structured to generate recurring and diversified revenue through a combination of retainer-based engagements and commission-driven media planning and buying. This blended revenue model affords client flexibility and supports margin optimization through efficient resource utilization. Beacon has continued to invest in higher-value service offerings, including influencer-driven marketing programs, data-informed media planning, and customized campaign development. These capabilities have increased the scope and duration of client engagements and strengthened customer retention. As these services scale, we expect to benefit from operating leverage, as incremental revenue can be generated with comparatively limited increases in fixed costs. The group continues to build upon its established presence in the toy industry while expanding into adjacent sectors, including family entertainment and travel.

Recent Developments

On October 22, 2025, pursuant to the terms of the October 2025 Purchase Agreement, we closed a registered direct offering (the “Registered Direct Offering”) of 3,000,000 shares (the ”October 2025 Shares”) of our common stock, and pre-funded warrants (the “October 2025 Pre-Funded Warrants”) to purchase up to 6,903,049 shares of common stock to the October 2025 Investor. In a concurrent private placement (the “Concurrent Private Placement” and, together with the Registered Direct Offering, the “October Offerings”), pursuant to the October 2025 Purchase Agreement, we also sold to the October 2025 Investor unregistered warrants (the “October 2025 Common Warrants”) to purchase up to 9,903,049 shares of common stock (the “October 2025 Common Warrant Shares”), with an exercise price of $0.738 per share. Each October 2025 Share and privately placed October 2025 Common Warrant was sold at a combined public offering price of $0.738, and each October 2025 Pre-Funded Warrant and privately placed October 2025 Common Warrant was sold at a combined public offering price of $0.737, for aggregate gross proceeds at closing of approximately $7.3 million, prior to deducting placement agent fees and other offering expenses. In connection with the October Offerings, we paid to the placement agent a cash fee equal to 7% of the aggregate gross proceeds from the sale of the securities sold in this offering, plus $75,000 as a reimbursement of certain out-of-pocket expenses. The placement agent is also entitled to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common Warrants, if any. In addition, we issued warrants (the “Placement Agent Warrants”) to purchase 693,213 shares of common stock to the placement agent and its designees with an exercise price of $0.8118 per share.

Pursuant to the terms of the October 2025 Purchase Agreement, until January 31, 2026, we agreed that neither we nor any of our subsidiaries would issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents (as defined in the October 2025 Purchase Agreement) or file any registration statement or any amendment or supplement thereto, subject to certain limited exceptions, including (i) the prospectus supplement relating to the registered direct offering, and (ii) the Resale Registration Statement (as defined below). We further agreed, subject to limited exceptions, for a period from the date of the October 2025 Purchase Agreement until October 20, 2027, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalents involving a Variable Rate Transaction (as defined in the October 2025 Purchase Agreement); provided however that commencing October 20, 2026, we are allowed to enter into, and issue shares pursuant to, an “at the market” offering.

Pursuant to the October 2025 Purchase Agreement, we agreed to file, as soon as practicable (and in any event within thirty (30) calendar days of the date of the October 2025 Purchase Agreement), a registration statement (the “Resale Registration Statement”) providing for the resale by the October 2025 Investor of the October 2025 Common Warrant Shares. We filed the Resale Registration Statement on November 19, 2025 and it was declared effective by the SEC on December 9, 2025. We agreed to use commercially reasonable efforts to keep the Resale Registration Statement effective at all times until the October 2025 Investor does not own any October 2025 Common Warrants or October 2025 Common Warrant Shares.

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 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 made payments to our vendors in cash and, in exchange, we issued shares of common stock to CCI. The settlement was valued at 1.75 share of common stock per $1.00 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 as of December 31, 2025, we had completed the arrangement, settling a total of $1.8 million, and issued 3,148,535 shares of common stock. We recognized a loss of $0.7 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 consolidated statements of operations.

On November 18, 2025, we entered into a second agreement with CCI to settle an additional $1.0 million of accounts payable under Section 3(a)(10) of the Securities Act, in exchange for issuing 1,695,072 shares of common stock. The terms were consistent with the original arrangement. During the three months ended December 31, 2025 we settled $0.4 million of accounts payable by issuing 717,712 shares of common stock to CCI. 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 the Company’s consolidated statements of operations.

Media Advisory and Advertising Services

Marketing and Sales

Direct Operating Costs

General and Administrative

The $1.2 million decrease in general and administrative expenses for the year ended December 31, 2025 as compared to the year ended December 31, 2024 was driven by a decrease of $0.8 million in salaries and wages, a decrease of $0.5 million in depreciation expense which reflected completion of certain equipment lease terms, a decrease of $0.5 million in professional fees reflecting lower legal expenses including legal insurance reimbursements and reduced use of external consulting services, a decrease of $0.3 million in share-based compensation expense due to awards that were fully vested and recognized in the prior year, and a decrease of $0.2 million in rent expense due to currency translation of our foreign office rent expense and lease reassignment agreement. The decrease was partially offset by an increase of $0.8 million in certain expenses primarily related to higher development expenses, and an additional charge of $0.3 million in bad debt expense for accounts receivable deemed unrecoverable.

Impairment Charge

During the year ended December 31, 2025, we performed an impairment assessment of our intangible assets including our definite-lived intangible assets and our indefinite-lived intangible assets. Pursuant to ASC 350-30, General Intangibles Other than Goodwill, we evaluate our intangible assets periodically to determine whether events or changes in circumstances indicate that their carrying values may not be recoverable. Based on this analysis, we recorded an impairment charge of $0.8 million, recognized as an impairment of intangible assets within operating expenses in the consolidated statement of operations. The impairment related to the Frederator and Wow Tradenames, which are indefinite-lived intangible assets, due to a reduction in the estimated present value of their expected future cash flows.

No impairment charges were recognized in the prior year ended December 31, 2024.

We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. To date, we have funded our operations from cash flows we have generated from our operations, proceeds from the sale of our securities and loans. For the years ended December 31, 2025 and December 31, 2024, we reported net losses of $24.7 million and $20.9 million, respectively. We reported net cash used in operating activities of $11.4 million, and cash used in operating activities of $3.5 million for the years ended December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $763.8 million and total stockholders’ equity of $27.5 million. As of December 31, 2025, we had total current assets of $35.8 million, including cash of $2.9 million, and marketable securities of $4.0 million, and total current liabilities of $33.5 million. We had working capital of $2.3 million as of December 31, 2025, compared to working capital of $1.2 million as of December 31, 2024.

During the year ended December 31, 2025, we met our immediate cash requirements through existing cash balances, including cash raised from the October Offerings. Additionally, we issued equity and equity-linked instruments to certain companies and individuals as payment for services and compensation.

Going Concern

Based on our current expected level of operating expenditures and the cash and cash equivalents on hand at December 31, 2025, 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. During the year ended December 31, 2025, we were successful in raising net proceeds of $6.5 million in connection with the October Offerings, which closed on October 22, 2025, strengthening our cash position. Despite this, macroeconomic conditions continue to present challenges in the animation and advertising industries, primarily due to ongoing government tariffs and intensified competition. 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. Additionally, the October 2025 Purchase Agreement includes certain limitations on our ability to raise working capital through certain types of transactions for a period of time. There can be no assurance that we will be able to complete any such 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.

As of December 31, 2025, we had current assets of $35.8 million, including cash of $2.9 million and marketable securities of $4.0 million, and our current liabilities were $33.5 million. We had working capital of $2.3 million as of December 31, 2025, as compared to working capital of $1.2 million as of December 31, 2024. The increase of $1.1 million was due to an increase of $1.1 million in current assets compared to the prior year. The increase in current assets is primarily driven by an increase of $6.5 million in production tax credit receivable position due to recognized credits for the ongoing projects, an increase of $2.0 million in marketable securities investments due to the investment of a portion of the financing proceeds in securities, an increase of $0.2 million in prepaid expense balance, and an increase of $0.2 million in other receivables related to ERTC, offset by a decrease in cash of $5.4 million, and a decrease of $2.4 million in accounts receivable related to the timing of contractual billing milestones in production projects. Current liabilities as of December 31, 2025 were unchanged compared to the prior year, reflecting offsetting changes related to an increase of $2.6 million in production facilities due to advance stages of production projects, and an increase of $0.3 million in accrued expenses, offset by a decrease of $1.6 million in deferred revenue related to revenue recognized under the percentage-of-completion method on production projects, a decrease of $0.9 million in margin loan balance due to repayment of the balance, and a decrease of $0.4 million in participation payable.

Items necessary to reconcile from net loss to cash used in operating activities included net noncash expenses of $20.2 million for the year ended December 31, 2025, as compared to net noncash expenses of $9.9 million for the year ended December 31, 2024. The increase of $10.3 million in noncash expenses compared to prior year was primarily due to an increase of $5.4 million in loss of the total fair value of the equity investment in YFE which consist of market valuation and foreign exchange impact, a loss of $1.8 million on debt settlement related to repayment agreement of the loan from related party and accounts payable settlement discount, a loss of $1.5 million on partial disposal of the equity investment in YFE, an impairment of intangible assets of $0.8 million, an increase in warrants revaluation loss of $0.3 million due to Series A and Series B warrants fair value adjustments, and a loss of $0.3 million related to YFE for the TOON share exchange transaction. Additionally, we recorded a noncash reduction of $2.2 million in accounts payable due to corresponding stock issuances to CCI. These movements were offset by the absence of a $1.0 million loss on a financing transaction that closed in the prior year, a decrease of $0.6 million in realized loss on marketable securities due to the fewer sales of our marketable securities prior to their maturity date, a decrease of $0.3 million in stock-based compensation expense due to completed amortization of the portion of certain equity awards, and a gain of $0.1 million related to the deferred tax provision.

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 $6.9 million in cash in the year ended December 31, 2025 and an increase of $7.6 million in cash as of December 31, 2024. The net decrease of $14.5 million in operating asset and liability cashflows was primarily due to an increase of $14.4 million in operating assets activity, which resulted in a higher use of cash. This was primarily due to lower net receipts tax credits during the current year by $9.3 million, a decrease of $3.8 million in net receipts of outstanding accounts receivable primarily due to contractual milestones in invoicing production projects, higher capitalized costs related to ongoing productions by $2.1 million, and an increase of $0.4 million in prepaid balance representing cash paid for future services, offset by an absence of a $1.2 million ERTC receivable recorded in the prior year. The remaining variance of approximately $0.1 million was attributable to a net decrease in operating liabilities which had unfavorable impact on operating cash flows. This was primarily due to a decrease of $5.0 million in deferred revenue balance representing cash received in advance for projects not yet recognized, and a decrease $1.4 million in accrued production costs including timing of Mainframe production costs accruals and production advance from external partner received in prior year, offset by a $5.0 million favorable movement in accounts payable primarily reflecting the settlement of a significant portion of payables in stock and larger vendor payments recorded in the prior year, favorable movements in accrued salaries of $0.7 million due to timing of salaries, and an increase of $0.6 million in accrued expenses representing additional costs recognized during the period that were outstanding as of December 31, 2025.

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. In addition, 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 operations.

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. Any activist 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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain an understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the following MD&A contains forward-looking statements that involve risks and uncertainties. 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 and six months ended June 30, 2026 and June 30, 2025.

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 Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 (S.D.N.Y.), an action brought under Section 16(b) of the Securities Exchange Act of 1934 by a stockholder on behalf of and for 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 rights plan; no shares have been issued, and the rights issued under the plan become exercisable only upon the occurrence of certain triggering events. These actions did not affect 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. We expect 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 30, 2026. 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 205-20. In connection with the closing, Frederator Networks, Inc. and Project Robot LLC entered into a three-year Channel Distribution Agreement with Frederator Studios, LLC. 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. Management does not believe this continuing involvement affects the conclusions and estimates described above.

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. The increase 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 8, 2026. In the future, we expect to focus on monetization of premium intellectual property and franchise development. For additional information regarding the Frederator Networks sale, see Recent Events Sale of Frederator Networks, Inc.

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:

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! IP 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. The decrease 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.

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. 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.

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 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 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 operations. 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.

Three Months and Six Months Ended June 30, 2025

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.

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.