[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Kartoon Studios, Inc.'s unaudited condensed consolidated financial statements for Q1 2025, including balance sheets, operations, comprehensive loss, equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :--------------------------------- | :-------------------------- | :------------------ | | **ASSETS** | | | | Total Current Assets | $25,128 | $34,664 | | Total Assets | $71,701 | $85,467 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Current Liabilities | $26,835 | $33,440 | | Total Liabilities | $41,644 | $49,007 | | Total Stockholders' Equity | $30,057 | $36,460 | - Total Assets decreased by **$13.766 million** from **$85.467 million** at December 31, 2024, to **$71.701 million** at March 31, 2025[10](index=10&type=chunk) - Total Liabilities decreased by **$7.363 million** from **$49.007 million** at December 31, 2024, to **$41.644 million** at March 31, 2025[10](index=10&type=chunk) - Total Stockholders' Equity decreased by **$6.403 million** from **$36.460 million** at December 31, 2024, to **$30.057 million** at March 31, 2025[12](index=12&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $9,504 | $6,078 | | Total Operating Expenses | $12,583 | $12,372 | | Loss from Operations | $(3,079) | $(6,294) | | Net Loss | $(6,591) | $(7,064) | | Net Loss Attributable to Kartoon Studios, Inc. | $(6,526) | $(7,045) | | Net Loss per Share (Basic) | $(0.14) | $(0.20) | - Total Revenues increased by **56%** to **$9.504 million** for the three months ended March 31, 2025, compared to **$6.078 million** in the prior year[14](index=14&type=chunk) - Net Loss attributable to Kartoon Studios, Inc. improved to **$(6.526) million** for the three months ended March 31, 2025, from **$(7.045) million** in the prior year[14](index=14&type=chunk) - Basic Net Loss per Share improved to **$(0.14)** for the three months ended March 31, 2025, from **$(0.20)** in the prior year[14](index=14&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss | $(6,591) | $(7,064) | | Total Change in Accumulated Other Comprehensive Income (Loss) | $61 | $(23) | | Total Comprehensive Net Loss | $(6,530) | $(7,087) | | Total Comprehensive Net Loss Attributable to Kartoon Studios, Inc. | $(6,465) | $(7,068) | - Total Comprehensive Net Loss attributable to Kartoon Studios, Inc. improved to **$(6.465) million** in Q1 2025 from **$(7.068) million** in Q1 2024[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Changes in Stockholders' Equity (in thousands, except share data) | Metric | December 31, 2024 | March 31, 2025 | | :--------------------------------- | :------------------ | :------------- | | Common Stock Shares Outstanding | 46,209,081 | 47,785,248 | | Common Stock Amount | $46 | $48 | | Additional Paid-in Capital | $777,930 | $778,055 | | Accumulated Deficit | $(739,286) | $(745,812) | | Total Stockholders' Equity | $36,460 | $30,057 | - Common stock outstanding increased by **1,576,167 shares**, primarily due to warrant exercises and issuance for vested restricted stock units and services[20](index=20&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk) - Accumulated Deficit increased by **$6.526 million**, reflecting the net loss for the three months ended March 31, 2025[20](index=20&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided by (Used in) Operating Activities | $(1,822) | $3,845 | | Net Cash Provided by (Used in) Investing Activities | $(1,186) | $2,560 | | Net Cash Used in Financing Activities | $(2,567) | $(7,891) | | Net Decrease in Cash and Restricted Cash | $(5,613) | $(1,332) | | Ending Cash and Restricted Cash | $2,772 | $2,763 | - Net cash used in operating activities was **$(1.822) million** in Q1 2025, a significant change from net cash provided of **$3.845 million** in Q1 2024[23](index=23&type=chunk) - Net cash used in investing activities was **$(1.186) million** in Q1 2025, compared to net cash provided of **$2.560 million** in Q1 2024, primarily due to increased investment in marketable securities[23](index=23&type=chunk) - Net cash used in financing activities decreased to **$(2.567) million** in Q1 2025 from **$(7.891) million** in Q1 2024, mainly due to lower repayments of production facilities and bank indebtedness[23](index=23&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1: Organization and Business](index=11&type=section&id=Note%201%3A%20Organization%20and%20Business) - Kartoon Studios, Inc. is a global content and brand management company focused on creating, producing, licensing, and broadcasting educational, multimedia animated content for children, distributed across various streaming platforms and television[27](index=27&type=chunk) - Key assets include wholly-owned AVOD/FAST/SVOD services (Kartoon Channel!, Ameba TV), investments in Your Family Entertainment AG (YFE), ownership of WOW Unlimited Media Inc. (Mainframe Studios, Frederator Networks), controlling interest in Stan Lee Universe, LLC, and The Beacon Media Group[27](index=27&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) - The company launched a **$30.0 million** joint venture with Catalyst Venture Partners for a 'Winnie-the-Pooh' project, with Kartoon Studios retaining operational control and a **25%** agency fee[35](index=35&type=chunk) - As of March 31, 2025, the company had **negative working capital of $1.7 million**, a **decrease of $2.9 million** from December 31, 2024, but management believes it has sufficient liquidity for the next 12 months[39](index=39&type=chunk) [Note 2: Basis of Presentation and Summary of Significant Accounting Policies](index=13&type=section&id=Note%202%3A%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) - The interim financial statements are unaudited and prepared in conformity with U.S. GAAP, with management making estimates and assumptions that may differ from actual results[40](index=40&type=chunk)[41](index=41&type=chunk) - Disclosure errors from the 2024 10-K were identified and corrected, including an overstatement of gross asset cost and accumulated depreciation for property and equipment, and an outstanding warrant balance that included exercised warrants[43](index=43&type=chunk)[44](index=44&type=chunk) - The company faces concentration risk with **four customers** accounting for **85.1% of total revenue** in Q1 2025 (up from **61.7%** in Q1 2024) and **three customers** accounting for **53.2% of total accounts receivable**[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) - New accounting standards (ASU 2023-09, ASU 2024-01, ASU 2024-03) related to income tax disclosures, scope application of profits interests, and expense disaggregation are being evaluated for their impact on future financial statements[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) [Note 3: Variable Interest Entity](index=16&type=section&id=Note%203%3A%20Variable%20Interest%20Entity) - The Company controls Stan Lee Universe, LLC (SLU), a variable interest entity formed to exploit intellectual property rights related to Stan Lee. SLU generated an insignificant net loss in Q1 2025 and Q1 2024[59](index=59&type=chunk)[60](index=60&type=chunk) [Note 4: Investment in Equity Interest](index=16&type=section&id=Note%204%3A%20Investment%20in%20Equity%20Interest) - As of March 31, 2025, the fair value of the investment in Your Family Entertainment AG (YFE) was **$13.4 million**, a net **decrease of $3.0 million** from December 31, 2024, due to a decrease in YFE's stock price and foreign currency remeasurement[61](index=61&type=chunk) - The Company's ownership in YFE was **44.8%** as of March 31, 2025, and December 31, 2024[61](index=61&type=chunk) [Note 5: Marketable Securities](index=16&type=section&id=Note%205%3A%20Marketable%20Securities) Marketable Securities Fair Value (in thousands) | Security Type | March 31, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------------------------- | :-------------------------- | :--------------------------- | | Corporate Bonds | $540 | $537 | | U.S. Treasury | $1,181 | N/A | | U.S. Agency and Government Sponsored Securities | $1,119 | $1,107 | | U.S. States and Municipalities | $386 | $385 | | Total | $3,226 | $2,029 | - The total fair value of marketable securities **increased by $1.197 million** to **$3.226 million** as of March 31, 2025, from **$2.029 million** at December 31, 2024[55](index=55&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - Realized **gain of $4,454** was recognized in Q1 2025, compared to a **loss of $141,174** in Q1 2024, primarily from selling U.S. Treasury securities[64](index=64&type=chunk) [Note 6: Property and Equipment, net](index=17&type=section&id=Note%206%3A%20Property%20and%20Equipment%2C%20net) Property and Equipment, net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :---------------- | | Property and Equipment, gross | $3,404 | $3,384 | | Less Accumulated Depreciation | $(1,239) | $(1,078) | | Foreign Currency Translation Adjustment | $(244) | $(253) | | Property and Equipment, net | $1,921 | $2,053 | - Net property and equipment **decreased by $0.132 million** to **$1.921 million** as of March 31, 2025, from **$2.053 million** at December 31, 2024[66](index=66&type=chunk) - Depreciation expense was **$0.1 million** for both Q1 2025 and Q1 2024, with no impairment charges recorded[67](index=67&type=chunk) [Note 7: Leased Right-of-Use Assets, net](index=18&type=section&id=Note%207%3A%20Leased%20Right-of-Use%20Assets%2C%20net) Leased Right-of-Use Assets, net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :---------------- | | Right-of-Use Assets, Gross | $6,988 | $7,268 | | Foreign Currency Translation Adjustment | $(1,117) | $(1,143) | | Leased Right-of-Use Assets, net | $5,871 | $6,125 | - Net leased right-of-use assets **decreased by $0.254 million** to **$5.871 million** as of March 31, 2025, from **$6.125 million** at December 31, 2024[68](index=68&type=chunk) - Operating lease costs were **$0.4 million** for both Q1 2025 and Q1 2024. Finance lease costs were **$0.1 million** in Q1 2025, down from **$0.4 million** in Q1 2024[69](index=69&type=chunk)[70](index=70&type=chunk) [Note 8: Film and Television Costs, net](index=19&type=section&id=Note%208%3A%20Film%20and%20Television%20Costs%2C%20net) Film and Television Costs, net (in thousands) | Metric | December 31, 2024 | March 31, 2025 | | :--------------------------------- | :------------------ | :------------- | | Film and Television Costs, net | $2,621 | $3,462 | | Additions to Film and Television Costs | N/A | $904 | | Film Amortization Expense | N/A | $(54) | - Net film and television costs **increased by $0.841 million** to **$3.462 million** as of March 31, 2025, from **$2.621 million** at December 31, 2024, driven by **$0.904 million** in additions[71](index=71&type=chunk) - Amortization expense for film and television costs was **$0.1 million** for both Q1 2025 and Q1 2024, with no significant impairment charges[71](index=71&type=chunk) [Note 9: Intangible Assets, net](index=19&type=section&id=Note%209%3A%20Intangible%20Assets%2C%20net) Intangible Assets, net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :---------------- | | Intangible Assets, gross | $28,098 | $28,098 | | Less Accumulated Amortization | $(6,311) | $(5,822) | | Foreign Currency Translation Adjustment | $(2,487) | $(2,555) | | Intangible Assets, net | $19,300 | $19,722 | - Net intangible assets **decreased by $0.422 million** to **$19.300 million** as of March 31, 2025, from **$19.722 million** at December 31, 2024[72](index=72&type=chunk) - Amortization expense for intangible assets was **$0.5 million** for both Q1 2025 and Q1 2024[73](index=73&type=chunk) - Expected future amortization for intangible assets totals **$14.008 million**, with **$1.469 million** due in 2025[74](index=74&type=chunk) [Note 10: Deferred Revenue](index=20&type=section&id=Note%2010%3A%20Deferred%20Revenue) - Aggregate short-term and long-term deferred revenue increased slightly to **$9.5 million** as of March 31, 2025, from **$9.4 million** at December 31, 2024, primarily due to productions nearing completion[75](index=75&type=chunk) [Note 11: Margin Loan](index=20&type=section&id=Note%2011%3A%20Margin%20Loan) - The margin loan balance decreased to **$0.4 million** as of March 31, 2025, from **$0.9 million** at December 31, 2024[76](index=76&type=chunk) - The company borrowed **$2.7 million** and repaid **$3.2 million** from its investment margin account in Q1 2025, primarily for operational costs[76](index=76&type=chunk) - Interest expense on the margin loan was **$1,806** in Q1 2025, significantly lower than **$18,632** in Q1 2024[76](index=76&type=chunk) [Note 12: Bank Indebtedness and Production Facilities](index=21&type=section&id=Note%2012%3A%20Bank%20Indebtedness%20and%20Production%20Facilities) - Outstanding net balance of production facilities decreased to **$7.4 million (CAD 10.6 million)** as of March 31, 2025, from **$9.2 million (CAD 13.3 million)** at December 31, 2024[78](index=78&type=chunk) - The company has an equipment lease facility for up to **$1.0 million (CAD 1.4 million)**, with two leases remaining as of March 31, 2025, totaling **$0.2 million (CAD 0.3 million)**[80](index=80&type=chunk)[81](index=81&type=chunk) [Note 13: Stockholders' Equity](index=21&type=section&id=Note%2013%3A%20Stockholders'%20Equity) - Common stock outstanding increased to **47,785,248 shares** as of March 31, 2025, from **46,209,081 shares** at December 31, 2024[82](index=82&type=chunk) - **1,462,000 shares** of common stock were issued upon the exercise of pre-funded warrants in Q1 2025, generating **$1,462** in proceeds[84](index=84&type=chunk) - **134 shares** of common stock were withheld for taxes and recorded as treasury stock in Q1 2025[87](index=87&type=chunk) [Note 14: Stock Options](index=22&type=section&id=Note%2014%3A%20Stock%20Options) Stock Option Activity | Metric | March 31, 2025 | | :--------------------------------- | :------------- | | Outstanding Stock Options | 946,320 | | Weighted-Average Exercise Price per Share | $12.75 | | Unvested Stock Options | 65,000 | | Vested and Exercisable Stock Options | 881,320 | - No stock options were granted in Q1 2025 or Q1 2024[89](index=89&type=chunk) - Share-based compensation expense related to stock options was **$18,213** in Q1 2025, down from **$69,965** in Q1 2024[90](index=90&type=chunk) [Note 15: Restricted Stock Units](index=23&type=section&id=Note%2015%3A%20Restricted%20Stock%20Units) Restricted Stock Unit (RSU) Activity | Metric | March 31, 2025 | | :--------------------------------- | :------------- | | Unvested RSUs | 870,417 | | Granted RSUs (Q1 2025) | 110,968 | | Vested RSUs (Q1 2025) | (110,968) | - **110,968** fully vested RSUs were granted to board members and consultants in Q1 2025, with a fair market value of **$65,375**[91](index=91&type=chunk) - Share-based compensation expense related to RSUs was **$0.1 million** in Q1 2025, down from **$0.2 million** in Q1 2024[92](index=92&type=chunk) [Note 16: Warrants](index=24&type=section&id=Note%2016%3A%20Warrants) Warrant Activity | Metric | December 31, 2024 | March 31, 2025 | | :--------------------------------- | :------------------ | :------------- | | Outstanding Warrants | 25,734,752 | 24,165,466 | | Exercised Warrants | N/A | (1,462,000) | | Expired Warrants | N/A | (107,286) | | Weighted Average Exercise Price per Share | $2.19 | $2.32 | - Outstanding warrants decreased by **1,569,286** to **24,165,466** as of March 31, 2025, due to exercises and expirations[93](index=93&type=chunk) - The warrant liability was revalued at approximately **$5.0 million** as of March 31, 2025, resulting in a **$0.4 million decrease** compared to December 31, 2024, recorded as a Gain on Revaluation of Warrants[95](index=95&type=chunk) [Note 17: Supplemental Financial Statement Information](index=26&type=section&id=Note%2017%3A%20Supplemental%20Financial%20Statement%20Information) Components of Other Expense, net (in thousands) | Component | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Interest Expense | $(128) | $(203) | | Gain on Revaluation of Warrants | $446 | $37 | | Loss on Revaluation of Equity Investment in YFE | $(3,640) | $0 | | Realized Gain (Loss) on Marketable Securities Investments | $4 | $(141) | | Gain (Loss) on Foreign Exchange | $667 | $(650) | | Loss on Debt Settlement | $(944) | $0 | | Other Expense, net | $(3,384) | $(567) | - Other Expense, net significantly increased to **$(3.384) million** in Q1 2025 from **$(567) thousand** in Q1 2024, primarily due to a **$3.640 million loss** on revaluation of equity investment in YFE and a **$0.944 million loss** on debt settlement[98](index=98&type=chunk) - A **$0.667 million gain** on foreign exchange was recognized in Q1 2025, reversing a **$0.650 million loss** in Q1 2024, mainly due to the depreciation of the U.S. dollar against the Euro[98](index=98&type=chunk) [Note 18: Income Taxes](index=27&type=section&id=Note%2018%3A%20Income%20Taxes) - The effective tax rate was **0%** for both Q1 2025 and Q1 2024, primarily due to state income taxes, foreign tax rate differentials, and changes in valuation allowance[101](index=101&type=chunk) - Net deferred tax liability remained stable at **$1.3 million** as of March 31, 2025, and December 31, 2024[102](index=102&type=chunk) [Note 19: Commitments and Contingencies](index=27&type=section&id=Note%2019%3A%20Commitments%20and%20Contingencies) Future Minimum Cash Contractual Obligations (in thousands) | Obligation Type | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | | :---------------- | :------ | :---- | :---- | :---- | :---- | :--------- | :------ | | Operating Leases | $1,187 | $1,585| $1,356| $1,011| $1,048| $2,149 | $8,336 | | Finance Leases | $193 | $51 | $0 | $0 | $0 | $0 | $244 | | Employment Contracts | $2,114 | $839 | $538 | $498 | $0 | $0 | $3,989 | | Consulting Contracts | $2,580 | $769 | $0 | $0 | $0 | $0 | $3,349 | | Debt | $7,791 | $0 | $0 | $0 | $0 | $0 | $7,791 | | Production Financing | $484 | $0 | $0 | $0 | $0 | $0 | $484 | | Total | $14,349 | $3,244| $1,894| $1,509| $1,048| $2,149 | $24,193 | - Total future minimum cash contractual obligations are **$24.193 million** as of March 31, 2025, with **$14.349 million** due within one year[106](index=106&type=chunk) - The company committed a non-refundable advance of approximately **$0.5 million** for the 'Andrew the Big BIG Unicorn' animated series, expected to be funded in 2025[110](index=110&type=chunk) [Note 20: Related Party Transactions](index=28&type=section&id=Note%2020%3A%20Related%20Party%20Transactions) - CEO Andy Heyward earned a **$55,000** quarterly bonus and **$100,000** in creative producer fees in Q1 2025 and Q1 2024[111](index=111&type=chunk)[113](index=113&type=chunk) - The company entered into a settlement agreement with YFE in April 2025 for a Shareholder Loan Agreement, accepting a reduced repayment of **$0.4 million**, resulting in a **$0.9 million loss** recorded in Q1 2025[115](index=115&type=chunk) [Note 21: Segment Reporting](index=29&type=section&id=Note%2021%3A%20Segment%20Reporting) - The company operates in two segments: Content Production and Distribution, and Media Advisory and Advertising Services[120](index=120&type=chunk)[121](index=121&type=chunk) Segment Revenues (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Content Production and Distribution | $8,637 | $5,192 | | Media Advisory and Advertising Services | $867 | $886 | | Total Revenues | $9,504 | $6,078 | Segment Net Loss Attributable to Kartoon Studios, Inc. (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Content Production and Distribution | $(6,026) | $(6,739) | | Media Advisory and Advertising Services | $(500) | $(306) | | Total Net Loss Attributable to Kartoon Studios, Inc. | $(6,526) | $(7,045) | Geographic Revenue (in thousands) | Geographic Area | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | United States | $4,726 | $3,181 | | Canada | $3,026 | $140 | | United Kingdom | $1,712 | $2,559 | | Other | $40 | $198 | | Total Revenues | $9,504 | $6,078 | - Content Production and Distribution revenue increased by **66.3% YoY**, while Media Advisory and Advertising Services revenue decreased by **2.1% YoY**[123](index=123&type=chunk) [Note 22: Subsequent Events](index=32&type=section&id=Note%2022%3A%20Subsequent%20Events) - Subsequent to March 31, 2025, the company sold marketable securities for **$1.0 million** and redeemed marketable securities for **$0.3 million**[127](index=127&type=chunk) - The fair value of the investment in YFE declined due to a decrease in YFE's stock price from **€1.81** (March 31, 2025) to **€1.19** (May 14, 2025)[128](index=128&type=chunk) - Stockholders approved an amendment to the 2020 Equity Incentive Plan to increase available shares by **5,000,000** and approved the issuance of up to **17,447,366 shares** upon warrant exercise[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) Management's discussion and analysis of financial condition, operations, and liquidity for Q1 2025, detailing revenue/expense drivers, strategic focus, and customer concentration - The company's business strategy focuses on efficient content production (Mainframe Studios leveraging AI), scaling content distribution (Kartoon Channel!, Frederator, Ameba, also using AI for cost reduction), maximizing licensing and royalties from IP (especially Stan Lee assets), and expanding media advisory and advertising services into tangential industries[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) Revenue Breakdown and Changes (in thousands, except percentages) | Revenue Category | 2025 | 2024 | Change | % Change | | :----------------------- | :------ | :------ | :------ | :------- | | Production Services | $6,572 | $2,763 | $3,809 | 138% | | Content Distribution | $1,981 | $2,329 | $(348) | (15)% | | Licensing and Royalties | $84 | $100 | $(16) | (16)% | | Media Advisory and Advertising Services | $867 | $886 | $(19) | (2)% | | Total Revenue | $9,504 | $6,078 | $3,426 | 56% | - Production Services revenue saw a substantial **138% increase** due to a higher number of active projects, while Content Distribution and Licensing & Royalties experienced decreases[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) Operating Expenses Breakdown and Changes (in thousands, except percentages) | Expense Category | 2025 | 2024 | Change | % Change | | :----------------------- | :------ | :------ | :------ | :------- | | Marketing and Sales | $186 | $444 | $(258) | (58)% | | Direct Operating Costs | $6,684 | $4,325 | $2,359 | 55% | | General and Administrative | $5,713 | $7,603 | $(1,890)| (25)% | | Total Expenses | $12,583 | $12,372 | $211 | 2% | - Direct Operating Costs increased by **55%** due to higher salary costs and headcount for new production projects, while General and Administrative expenses decreased by **25%** due to cost-saving initiatives and lower depreciation[141](index=141&type=chunk)[142](index=142&type=chunk) - The company had **negative working capital of $1.7 million** as of March 31, 2025, a **$2.9 million decrease** from December 31, 2024, primarily driven by decreases in cash, accounts receivable, and tax credit receivables, partially offset by decreases in accounts payable and production facilities[149](index=149&type=chunk) - Management believes current cash balances and marketable securities are sufficient to support operations for at least the next twelve months, with future cash needs to be met through cost reductions, working capital optimization, and licensing advances[148](index=148&type=chunk)[150](index=150&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk%2E) Kartoon Studios, Inc. is exempt from market risk disclosures as a smaller reporting company - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a 'smaller reporting company'[163](index=163&type=chunk) [Item 4. Controls and Procedures.](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures%2E) Disclosure controls were ineffective as of March 31, 2025, due to a material weakness in IT General Controls, with remediation ongoing - As of March 31, 2025, disclosure controls and procedures were deemed ineffective due to a material weakness in Information Technology General Controls (ITGC)[165](index=165&type=chunk) - The material weakness is specifically related to inadequate design of user access provisioning/deprovisioning controls and insufficient segregation of duties[166](index=166&type=chunk) - A remediation plan is underway, including transitioning administrative responsibilities to a third-party service provider, with the final phase expected in Q2 2025[167](index=167&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings.](index=41&type=section&id=Item%201.%20Legal%20Proceedings%2E) Kartoon Studios, Inc. is involved in ongoing legal proceedings, including a securities class action, derivative actions, and Section 16(b) litigation - A securities class action lawsuit (In re Genius Brands International, Inc. Securities Litigation) is ongoing, with the District Court dismissing most claims but allowing a Section 10(b) claim based on March 2020 statements about 'Rainbow Rangers' airings[172](index=172&type=chunk)[174](index=174&type=chunk) - Shareholder derivative actions (e.g., In re Genius Brands Stockholder Derivative Litigation) are stayed pending the outcome of the securities litigation, with plaintiffs seeking relief on behalf of the company[179](index=179&type=chunk) - A Section 16(b) litigation (Todd Augenbaum v. Anson Investments Master Fund LP, et al.) seeks recovery of alleged short-swing profits from investor groups, with cross-motions for summary judgment pending after unsuccessful mediation[180](index=180&type=chunk)[181](index=181&type=chunk) - The company denies wrongdoing in all active proceedings and intends to defend claims vigorously, with directors' and officers' liability insurance offsetting some defense costs[183](index=183&type=chunk) [Item 1A. Risk Factors.](index=43&type=section&id=Item%201A.%20Risk%20Factors%2E) Kartoon Studios, Inc. faces risks including net losses, U.S. trade policy impacts, customer concentration, and potential stock price decline from share availability - The company has a history of operating losses, with a net loss of **$6.6 million** in Q1 2025 and **$20.7 million** for the year ended December 31, 2024, requiring additional revenue generation or cost reduction to achieve profitability[185](index=185&type=chunk)[186](index=186&type=chunk) - Changes in U.S. trade policy, such as proposed tariffs on foreign-produced content, could adversely impact business operations, particularly due to reliance on Canadian and Asian animation production services[187](index=187&type=chunk)[188](index=188&type=chunk) - A significant concentration of revenue comes from a few customers; in Q1 2025, **four customers** accounted for **85.1% of total revenue**, and **three customers** accounted for **53.2% of total accounts receivable**[189](index=189&type=chunk) - The availability of a substantial number of common stock shares (**45,486,817** freely trading, plus **24,165,466 warrants** and **946,320 options** outstanding) could lead to a decline in stock price[190](index=190&type=chunk)[191](index=191&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds%2E) No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[192](index=192&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=45&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities%2E) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[193](index=193&type=chunk) [Item 4. Mine Safety Disclosures.](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%2E) Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[194](index=194&type=chunk) [Item 5. Other Information.](index=45&type=section&id=Item%205.%20Other%20Information%2E) No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025[195](index=195&type=chunk) [Item 6. Exhibits.](index=46&type=section&id=Item%206.%20Exhibits%2E) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications - The exhibit index includes corporate governance documents (Articles of Incorporation, Bylaws), officer certifications (Section 302 and 906), and Inline XBRL documents[197](index=197&type=chunk)[199](index=199&type=chunk) [SIGNATURES](index=47&type=section&id=SIGNATURES) - The report was signed on May 15, 2025, by Andy Heyward (Chief Executive Officer) and Brian Parisi (Chief Financial Officer)[203](index=203&type=chunk)