# Kartoon Studios, Inc.: Form 10-Q for the period ended Mar 31, 2026

- Company: [Kartoon Studios, Inc.](/companies/toon.md) (CIK 1355848)
- Form: 10-Q
- Filed: 2026-05-15
- Accepted by EDGAR: May 15, 2026, 08:51 ET
- Period: 2026-03-31
- Accession: 0001683168-26-003977
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1355848/000168316826003977/kartoon_i10q-033126.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355848/000168316826003977/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2026-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2026-01-01 to 2026-03-31 | $7.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2026-01-01 to 2026-03-31 | −$2.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2026-01-01 to 2026-03-31 | $233.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2026-01-01 to 2026-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2026-01-01 to 2026-03-31 | −$6.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2026-01-01 to 2026-03-31 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2026-01-01 to 2026-03-31 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2026-01-01 to 2026-03-31 | 62,740,566 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2026-01-01 to 2026-03-31 | −$2.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2026-01-01 to 2026-03-31 | $33.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2026-03-31 | $5.0m | us-gaap:Cash |
| Current assets | at 2026-03-31 | $30.7m | us-gaap:AssetsCurrent |
| Total assets | at 2026-03-31 | $63.6m | us-gaap:Assets |
| Current liabilities | at 2026-03-31 | $31.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2026-03-31 | $41.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2026-03-31 | $21.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,833 characters.

*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 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. 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 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.*

Overview

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.

Production Services

*Animation Production Services:* Our production services business is centered on delivering original and third-party commissioned animated content with a focus on production efficiency and scalability. Mainframe Studios, our primary production entity, is undertaking operational enhancements through the adoption of flexible production workflows, strategic outsourcing, and the integration of new technologies. These initiatives aim to optimize cost structures and streamline the production pipeline. To date, Mainframe has produced over 1,200 television episodes, 70 movies, and three feature films, including titles such as *Barbie Dreamhouse Adventures, Octonauts: Above & Beyond, Cocomelon, SuperKitties*, and *Unicorn Academy*, in partnership with leading global media companies. Mainframe Studios is currently engaged 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. Milne. 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

*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.

Licensing and Royalties

*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’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.

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 Events

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.

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.

Results of Operations

Our summary results for the three months ended March 31, 2026 and 2025 are below:

Revenue

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2026 | 2025 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Production Services | $4,093 | $6,572 | $(2,479) | (38%) |
| Content Distribution | 2,273 | 1,981 | 292 | 15% |
| Licensing and Royalties | 73 | 84 | (11) | (13%) |
| Media Advisory and Advertising Services | 799 | 867 | (68) | (8%) |
| **Total Revenue** | **$7,238** | **$9,504** | **$(2,266)** | **(24%)** |

34

#### 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.

#### 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 three months ended March 31, 2026, increased by 15% as compared to the three months ended March 31, 2025. The increase was primarily driven by revenue recognized from the delivery of episodes of Wow’s *It’s Andrew!* IP 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. 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 three months ended March 31, 2026 decreased by 13% as compared to the three months ended March 31, 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 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.

### Expenses

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2026 | 2025 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Marketing and Sales | $192 | $186 | $6 | 3% |
| Direct Operating Costs | 4,718 | 6,684 | (1,966) | (29%) |
| General and Administrative | 5,131 | 5,713 | (582) | (10%) |
| **Total Expenses** | **$10,041** | **$12,583** | **$(2,542)** | **(20%)** |

35

#### Marketing and Sales

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

#### Direct Operating Costs

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 period. 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.

#### General and Administrative

The $0.6 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.

#### 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 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.

Other Expense, net

Components of Other Income (Expense), net, are summarized as follows (in thousands):

|  | Three Months Ended March 31, 2026 | 2025 |
| --- | ---: | ---: |
| **Interest Expense (a)** | **$(233)** | **$(128)** |
| Gain on Revaluation of Warrants (b) | – | 446 |
| Loss on Revaluation of Equity Investment in YFE (c) | (2,957) | (3,640) |
| Realized Gain on Marketable Securities Investments (d) | – | 4 |
| (Loss) Gain on Foreign Exchange (e) | (372) | 667 |
| Loss on Debt Settlement (f) | (124) | (944) |
| Interest Income (g) | 35 | 54 |
| Finance Lease Interest Expense (h) | (4) | (4) |
| Other (i) | 53 | 33 |
| **Other Expense, net** | **$(3,369)** | **$(3,384)** |

36

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

(a) Interest Expense during the three months ended March 31, 2026, primarily consisted of $0.2 million interest incurred on production facilities and on the factoring liability. Interest expense during the three months ended March 31, 2025, primarily consisted of $0.1 million of interest incurred on production facilities.

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

(c) As the investment in YFE is accounted for under the fair value option, the Company recognized a loss on revaluation of its equity investment in YFE of approximately $3.0 million and $3.6 million for the three months ended March 31, 2026 and March 31, 2025, respectively. The loss reflected decreases in YFE’s stock price during the current reporting periods compared to the respective prior reporting periods. The impact of foreign currency translation is excluded and presented separately.

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

(e) The loss on Foreign Exchange during the three months ended March 31, 2026, primarily related to the revaluation of the YFE investment, resulting in a loss of $0.1 million due to the Euro depreciating against the U.S. dollar as compared to prior period and a loss of $0.2 million due to the remeasurement of foreign currency transactions of the Company’s non-U.S. subsidiary. The gain on foreign exchange during the three months ended March 31, 2025 primarily related to the remeasurement of the YFE investment, resulting in a gain of $0.7 million, due to the depreciation of the U.S. dollar against the Euro relative to prior periods.

(f) The loss on debt settlement recorded during the three months ended March 31, 2026, includes a loss of $0.1 million arising from the Section 3(a)(10) transaction completed during the quarter. The loss on debt settlement recorded during the three months ended March 31, 2025, includes a loss of $0.9 million related to the loan settlement agreement with YFE.

(g) Interest Income during the three months ended March 31, 2026, primarily consisted of income from investments in marketable securities, net of premium amortization expense. Interest Income during the three months ended March 31, 2025, primarily consisted of income from investments in marketable securities, net of premium amortization expense, and interest income related to an Employee Retention Tax Credit (“ERTC”) receivable. Each of these sources was individually immaterial.

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

(i) During the three months ended March 31, 2026, other income of $28,000 was recognized from the recovery of previously written-off accounts receivable, and $24,810 from credit card and other rebates. During the three months ended March 31, 2025, other income of $32,522 was recognized primarily related to credit card rewards.

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.

Working Capital

As of March 31, 2026, we had total current assets of $30.7 million, including cash of $5.0 million, and marketable securities of $1.0 million, and our total current liabilities were $31.4 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 due 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 of $1.7 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 measures. 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.

### Comparison 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.

*(in thousands)*

|  | Three Months Ended March 31, 2026 | 2025 | Change |
| --- | ---: | ---: | ---: |
| Net Cash Used in Operating Activities | $(2,856) | $(1,822) | $(1,034) |
| Net Cash Provided by (Used in) Investing Activities | 2,939 | (1,186) | 4,125 |
| Net Cash Provided by (Used in) Financing Activities | 1,781 | (2,567) | 4,348 |
| Effect of Exchange Rate Changes on Cash | 209 | (38) | 247 |
| Increase (Decrease) in Cash and Restricted Cash | **$2,073** | **$(5,613)** | **$7,686** |

Change in Operating Activities

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. The decrease 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.

#### 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.

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.

Material Cash Requirements

We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. 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. Included in the amount that could be due within one year is the production facilities balance of $13.7 million.

We plan to utilize our liquidity (as described above) to fund our material cash requirements.

As of March 31, 2026, we had $0.3 million in commitments for capital expenditures, related to equipment leases.

Critical Accounting Policies and Estimates

The preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2025 Annual Report and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2025 Annual Report describe the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

## Market risk

As filed, 140 characters.

As a “smaller reporting company”, as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

## Controls and procedures

As filed, 2,275 characters.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2026 our disclosure controls and procedures ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the quarter ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations over Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

## Risk factors

As filed, 8,984 characters.

Except as set 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. 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.

### We have incurred net losses 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.

We will need to generate additional revenue and/or reduce costs to achieve profitability. We are generating revenues derived from our existing properties, properties in production, and new brands being introduced into the marketplace. However, the ability to sustain these revenues and generate significant additional revenues and reduce our expenses or achieve profitability will depend upon numerous factors some of which are outside of our control.

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. In May 2025, President Trump announced an intention to impose tariffs on films made outside of the United States, which he reiterated in September 2025 and again in January 2026. Although our parent company is based in the United States, our primary animation production operations are located in Canada. To 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.

The broader legal landscape governing U.S. tariff authority has also evolved materially. In February 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. 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 2026. The full implications of these developments for the potential imposition of tariffs on filmed or animated content remain uncertain.

There is a risk that tariff 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 measures, as well as by the potential expansion of existing tariffs or the 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 lower profit margins 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.

***The loss of one or a few 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 three months ended March 31, 2026, three customers each accounted for more than 10% of our total consolidated revenue. 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.

***Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.***

If our stockholders sell substantial amounts of our common stock in the public market or upon shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we 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. 2020 Incentive Plan.

Filed May 15, 2026.
Source: SEC EDGAR, the filing index for accession 0001683168-26-003977. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.