PART I - FINANCIAL INFORMATION Financial Statements Kartoon Studios reported 37% revenue growth to $19.8 million, but significant net losses and negative working capital raise going concern doubts Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $25,463 | $34,664 | | Cash | $2,056 | $7,879 | | Accounts Receivable, net | $7,043 | $11,982 | | Total Assets | $70,003 | $85,467 | | Total Current Liabilities | $30,360 | $33,440 | | Accounts Payable | $6,772 | $11,954 | | Production Facilities, net | $10,609 | $9,220 | | Total Liabilities | $40,328 | $49,007 | | Total Stockholders' Equity | $29,675 | $36,460 | | Working Capital | ($4,897) | $1,224 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $19,783 | $14,462 | | Production Services | $13,931 | $7,858 | | Content Distribution | $3,973 | $4,725 | | Loss from Operations | ($6,294) | ($10,955) | | Net Loss Attributable to Kartoon Studios, Inc. | ($12,689) | ($12,918) | | Net Loss per Share (Basic & Diluted) | ($0.27) | ($0.35) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($6,290) | ($2,654) | | Net Cash Provided by Investing Activities | $1,301 | $5,518 | | Net Cash Used in Financing Activities | ($273) | ($4,804) | | Net Decrease in Cash and Restricted Cash | ($5,817) | ($1,354) | | Ending Cash and Restricted Cash | $2,568 | $2,741 | - Management has substantial doubt about the company's ability to continue as a going concern due to historical net losses, negative working capital of $4.9 million, and cash used in operations of $6.3 million for the first six months of 202538 Note 1: Organization, Business, and Going Concern Kartoon Studios, a children's content company, faces substantial doubt about its going concern status due to historical losses and negative working capital - The company's core business includes original IP development, third-party production services through Mainframe Studios, a media agency (Beacon), and content distribution via platforms like Kartoon Channel
3033 - As of June 30, 2025, the company had negative working capital of $4.9 million, compared to positive working capital of $1.2 million at year-end 2024, indicating deteriorating short-term liquidity38 - To improve liquidity after the quarter ended, the company sold certain assets, including Employee Retention Tax Credit receivables and 1,500,000 shares of Your Family Entertainment AG (YFE)38 Note 2: Accounting Policies and Concentration of Risk Financial statements are U.S. GAAP compliant; a key risk is customer concentration, with four customers accounting for 85.9% of revenue - For the six months ended June 30, 2025, four customers accounted for 85.9% of total revenue, up from 66.7% from three customers in the same period of 202451 - As of June 30, 2025, two customers accounted for 49.6% of total accounts receivable52 Note 4: Investment in Your Family Entertainment AG (YFE) The YFE investment's fair value decreased by $5.7 million due to stock price decline, leading to a revaluation loss and subsequent share sale - The fair value of the YFE investment decreased by $5.7 million from December 31, 2024, to June 30, 2025, due to a decline in YFE's stock price and foreign currency effects60 - On July 14, 2025, the company sold 1.5 million YFE shares for €750,000 as part of its strategy to optimize its asset portfolio and improve liquidity60134 Note 16: Warrants Shareholder approval enabled reclassification of Series A and B warrants from liability to equity, eliminating future fair value adjustments - On May 14, 2025, shareholder approval allowed for the reclassification of Series A and B warrants from liability to equity97 - The warrant liability of approximately $5.7 million was reclassified to additional paid-in capital, eliminating future fair value adjustments through earnings for these instruments97 Note 21: Segment Reporting Content Production drove 42% revenue growth to $18.1 million, but both segments reported net losses, with overall loss narrowing slightly Segment Performance for Six Months Ended June 30 (in thousands) | Segment | Revenue 2025 | Revenue 2024 | Net Loss 2025 | Net Loss 2024 | | :--- | :--- | :--- | :--- | :--- | | Content Production and Distribution | $18,074 | $12,710 | ($11,531) | ($12,435) | | Media Advisory and Advertising Services | $1,709 | $1,752 | ($1,158) | ($483) | | Total | $19,783 | $14,462 | ($12,689) | ($12,918) | Note 22: Subsequent Events Post-quarter, Kartoon Studios sold YFE shares and ERTC claims, and entered a share exchange to improve liquidity and optimize assets - Sold 1,500,000 YFE shares for €750,000 on July 14, 2025134 - Entered a non-cash agreement to exchange 348,127 YFE shares for 348,127 shares of its own common stock held by F&M Film135 - Agreed to sell $0.9 million in ERTC refund claims for an upfront cash payment of $0.5 million (55% of the claim amount)136 Management's Discussion and Analysis (MD&A) Revenue grew 37% driven by Production Services, but liquidity worsened, raising going concern doubts, prompting capital raise and cost-saving plans Results of Operations Revenue increased 37% for six months, led by Production Services; G&A decreased, but Other Expense rose due to YFE investment revaluation loss Revenue Comparison for Three Months Ended June 30 (in thousands) | Revenue Stream | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Production Services | $7,359 | $5,095 | $2,264 | 44% | | Content Distribution | $1,992 | $2,396 | ($404) | (17%) | | Total Revenue | $10,279 | $8,384 | $1,895 | 23% | Revenue Comparison for Six Months Ended June 30 (in thousands) | Revenue Stream | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Production Services | $13,931 | $7,858 | $6,073 | 77% | | Content Distribution | $3,973 | $4,725 | ($752) | (16%) | | Total Revenue | $19,783 | $14,462 | $5,321 | 37% | - General and Administrative expenses decreased by $2.6 million (18%) for the six months ended June 30, 2025, compared to the prior year, due to lower professional fees, cost-saving initiatives, and reduced share-based compensation159 - Other Expense, net for the six months ended June 30, 2025 was $6.3 million, a significant increase from $1.6 million in the prior year, primarily driven by a $7.4 million loss on the revaluation of the YFE equity investment161162 Liquidity, Going Concern, and Capital Resources Liquidity significantly weakened with $5.8 million cash decrease and negative working capital, leading to substantial going concern doubt - Cash and restricted cash decreased by $5.8 million in the first six months of 2025, primarily due to $6.3 million of cash used in operating activities164 - Working capital shifted from $1.2 million at Dec 31, 2024, to a deficit of $4.9 million at June 30, 2025, a decrease of $6.1 million167 - Management plans to address the going concern issue by considering multiple alternatives, including the sale of equity or debt securities and implementing cost-saving measures169170 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Kartoon Studios is exempt from providing this disclosure - The company is exempt from this disclosure requirement due to its status as a smaller reporting company184 Controls and Procedures Disclosure controls were effective as of June 30, 2025, and a material weakness in IT general controls was remediated - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025186 - A previously identified material weakness related to inadequate segregation of duties in IT general controls was remediated, with the final phase completed in the second quarter of 2025187188 PART II - OTHER INFORMATION Legal Proceedings The company faces ongoing securities class action and derivative lawsuits, with a Section 16(b) case awaiting summary judgment decisions - In the securities class action, the District Court has allowed a claim based on March 2020 statements to proceed, while dismissing others; the case is ongoing193 - Several shareholder derivative lawsuits are stayed pending the outcome of the securities class action200 - In a Section 16(b) lawsuit where the company is a nominal defendant, cross-motions for summary judgment have been filed and are awaiting a court decision201 Risk Factors Substantial doubt exists about the company's going concern ability due to losses, negative working capital, and high customer concentration - There is substantial doubt about the company's ability to continue as a going concern, requiring it to raise additional capital to fund operations206 - The company has a history of operating losses, incurring a net loss of $12.9 million for the six months ended June 30, 2025, and has an accumulated deficit of $752.0 million206208 - During Q2 2025, four customers accounted for 85.9% of total revenue, highlighting significant customer concentration risk212 - Potential U.S. tariffs on foreign-produced content could adversely impact the business, as its primary animation production is in Canada210 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements this quarter Exhibits This section provides an index of exhibits filed with the Form 10-Q, including corporate governance and certifications
Kartoon Studios(US:TOON)2025-08-14 13:01