Organization and Business	6 Months Ended
Jun. 30, 2026
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization and Business	Note 1: Organization and Business Kartoon Studios, Inc. (the “Company,” “Kartoon Studios,” “we,” “us” or “our”) is a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children. Led by experienced industry personnel, the Company’s core business includes original intellectual property (“IP”) development, third-party IP production services, media agency, and content monetization through licensing and owned distribution platforms. Kartoon Studios’ owned and produced titles include Stan Lee’s Superhero Kindergarten (starring Arnold Schwarzenegger), Llama Llama (starring Jennifer Garner), Rainbow Rangers, KC! Pop Quiz, and Shaq’s Garage (starring Shaquille O’Neal). The Company’s library also includes titles such as Baby Genius, Thomas Edison’s Secret Lab, Warren Buffett’s Secret Millionaires Club, Team Zenko Go!, Reboot, Bee & PuppyCat: Lazy in Space, and Castlevania. The Company maintains a strategy of leveraging owned IP and third-party relationships to expand distribution and consumer product licensing. The Company is also developing Hundred Acre Wood’s: Winnie and Friends, a new franchise property inspired by A.A. Milne’s Winnie the Pooh, consisting of 78 full-length streaming episodes, over 200 short-form episodes, holiday specials, and a global consumer products program. The main launch is anticipated in Q1 2027, with plans to expand across experiential activations and live events. Kartoon Studios also owns Wow Unlimited Media Inc. (“Wow”), through which the Company holds its interest in Mainframe Studios, one of North America’s largest animation production studios. Founded in 1993 and headquartered in Vancouver, British Columbia, Mainframe created ReBoot, the first fully CG-animated television series. Mainframe operates primarily as a producer-for-hire for major streaming platforms, broadcasters, and intellectual property holders. To date, Mainframe has produced over 1,200 television episodes, 70 movies, and 3 feature films, including titles such as It’s Andrew!, Phoebe and Jay, Barbie Dreamhouse Adventures, Octonauts: Above & Beyond, Cocomelon, SuperKitties, and Unicorn Academy, in partnership with leading global media companies. The Company distributes its content across streaming platforms, linear television, and its ad-supported and subscription-based video-on-demand (“VOD”) services and apps, including Kartoon Channel! and Ameba TV. Distribution partners include YouTube, YouTube Kids, Amazon Prime Video, Amazon Fire, Roku, Apple TV, iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, Samsung TV Plus, Google TV, Cox, DISH, Sling TV, KartoonChannel.com, and smart TVs from Samsung and LG. The Company also licenses content to third-party networks and streaming services globally, including Netflix, Paramount+, HBO Max, and Nickelodeon. The Company also owns The Beacon Media Group, LLC and The Beacon Communications Group, Ltd. (collectively, “Beacon”), a specialized media and marketing agency focused on children’s and family audiences. Beacon represents over 20 established and emerging brands across the toy, consumer products, and family entertainment sectors, including Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, and Cepia LLC. The agency has developed a strong reputation within the toy industry, supported by long-standing client relationships, deep category expertise, and a consistent track record of campaign execution. The Company believes that Beacon’s positioning within a niche, relationship-driven market provides barriers to entry and supports durable demand for its services. The Company owns Ameba Inc. which operates Ameba TV, a subscription streaming service with a focus on educational and entertainment content for younger children. As a cornerstone of the Company’s subscription offerings, Ameba delivers a vast library of engaging and educational content, accessible across multiple platforms. Through its investment in Germany-based Your Family Entertainment AG (“YFE”), a publicly listed company on the Frankfurt Stock Exchange (ticker symbol “RTV”), the Company holds a strategic interest in one of Europe’s leading independent children’s content providers, with a catalog of approximately 150 titles and 3,500 half-hour episodes. The Company holds a controlling interest in Stan Lee Universe, LLC (“SLU”), which owns the IP rights to Stan Lee’s name, likeness, signature, and associated IP assets. Existing licensing arrangements include a non-exclusive license with Marvel for Stan Lee’s likeness to appear in Marvel films and a separate non-exclusive license with the Walt Disney Company for use of Stan Lee’s likeness in Walt Disney theme parks. Additional brand partnerships include an agreement with Madame Tussauds. The Company considers the SLU to be a core component of its IP portfolio and is currently developing plans for expanded commercialization across animation, publishing, licensing, and global consumer products in connection with its 2026 strategic initiatives. Kartoon Studios’ common stock is listed on the NYSE American LLC (“NYSE American”) under the ticker symbol “TOON.” Recent Transactions Section 3(a)(10) Accounts Payable Settlement On August 27, 2025, the Company 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 the Company’s vendors in cash and, in exchange, the Company issues 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, the Company entered into a new agreement to settle an additional $1.0 million of outstanding 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 and were approved by a court after a public hearing. The settlement arrangement was carried out in stages and completed through the first quarter of 2026, settling a total of $1.0 million of accounts payable and issuing an aggregate of 1,695,072 shares of common stock to CCI. During the six months ended June 30, 2026, the Company 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 Company’s condensed consolidated statements of operations. On April 8, 2026, the Company 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. The settlement arrangement was carried out in stages and completed as of June 30, 2026. During the three months ended June 30, 2026, the Company recognized a loss of $0.6 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 condensed consolidated statements of operations. October 2025 Financing On October 22, 2025, pursuant to the terms of a securities purchase agreement (the “October 2025 Purchase Agreement”) entered into with an institutional investor (the “October 2025 Investor”), the Company closed a registered direct offering (the “Registered Direct Offering”) of 3,000,000 shares (the “October 2025 Shares”) of its 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, the Company 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, 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, the Company 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 also is entitled to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common Warrants, if any. In addition, the Company 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. A registration statement on Form S-1 registering the resale of common stock to be issued upon exercise of the Placement Agent Warrants and the October 2025 Common Warrants was declared effective on December 9, 2025. Section 16(b) Litigation Settlement Between May 29, 2026 and June 11, 2026, the Company 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 the benefit of the Company, in which the Company is named only as a nominal defendant, seeking disgorgement of alleged short-swing profits realized by certain investors in the Company’s 2020 private placements. The Settling Parties agreed to pay the Company 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 the Company 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 the Company after the applicable approval orders become final. The Company recognized the $39.2 million received as a non-recurring, non-operating gain, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026. In accordance with Accounting Standards Codification (“ASC”) 450-30-25-1, any residual amounts distributable to the Company from escrow constitute a gain contingency and will be recognized if and when realized. In connection with the settlement with the Anson Investments Master Fund LP and its affiliates (collectively, the “Anson Parties”), on June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company 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. The Company recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026. 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 the Company’s 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 our 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 the Company’s 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 the Company’s condensed consolidated financial statements, and Part II, Item 1A, Risk Factors included in this report, as well as 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, the Company sold all of the issued and outstanding common stock of Frederator Networks, Inc. (“Frederator Networks”), which operated the Frederator Network channel business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June 18, 2026. Kartoon Studios will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary of the Company, including Bee and PuppyCat, Bravest Warriors, Castlevania, and Catbug, for distribution and product licensing opportunities. The transaction was part of the Company’s strategic realignment to focus on monetization of premium intellectual property and franchise development. Upon closing, the Company 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. The Company expects 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 adjustment 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 the Company’s 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 the Company’s 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. Liquidity and Capital Resources As of June 30, 2026, the Company had cash of $7.7 million (which does not include cash held in escrow from the Section 16(b) litigation settlement described above), which increased by $4.8 million as compared to December 31, 2025. The increase was primarily due to net cash provided by operating activities of $31.4 million, cash provided by financing activities of $1.7 million, and the effect of exchange rate of $0.5 million, offset by cash used in investing activities of $28.8 million. The cash provided by operating activities of $31.4 million was primarily due to net income of $20.5 million, and a favorable impact of net change in non-cash adjustments of $15.1 million, partially offset by a net use of cash related to operating assets and liabilities of $4.2 million. Net income was driven primarily by a non-recurring and non-operating cash receipt of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The cash provided by financing activities of $1.7 million was primarily due to the drawdowns, net of repayments and debt issuance costs, from production facilities of $1.2 million, proceeds from a warrant exercise of $0.6 million, partially offset by finance lease payments of $0.1 million. The cash used in investing activities of $28.8 million was primarily due to the investment of settlement proceeds in marketable securities of $32.8 million, offset by the proceeds received from the redemption of marketable securities purchased in prior periods of $4.0 million. During the six months ended June 30, 2026, the Company 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 the Company 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 the Company 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 the Company 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. The Company 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 Company’s marketable securities balance rather than in its ending cash balance. The Company holds these securities as a source of liquidity and expects to draw on them to fund working capital and operating requirements. The Company has not received, and has not recognized, the portion of the settlement deposited into escrow. Any residual amounts distributable to the Company will become available as a source of liquidity if and when realized. On June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company 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. As of June 30, 2026, the Company held available-for-sale marketable securities with a fair value of $32.8 million, compared to $4.0 million as of December 31, 2025, representing an increase of $28.8 million. The increase was primarily due to purchases of $32.3 million of securities funded by the proceeds received under the Section 16(b) litigation settlement, together with $0.5 million of securities purchased in May 2026, partially offset by $4.0 million of securities redeemed upon maturity during the six months ended June 30, 2026. The available-for-sale securities consist principally of U.S. Treasury securities and are available to the Company as a source of liquidity. The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”), which contemplates continuation of the Company as a going concern. The evaluation was performed in accordance with ASC 205, Presentation of Financial Statements - Going Concern (Subtopic 205-40). Historically, the Company has incurred net losses. For the six months ended June 30, 2026 and June 30, 2025, the Company reported net income of $20.5 million and a net loss of $12.9 million, respectively. Net income for the current quarter was driven primarily by a non-recurring, non-operating cash receipt of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The Company reported net cash provided by operating activities of $31.4 million, and cash used in operating activities of $6.3 million for the six months ended June 30, 2026 and June 30, 2025, respectively. As of June 30, 2026, the Company had an accumulated deficit of $743.2 million and total stockholders’ equity of $53.6 million. As of June 30, 2026, the Company had total current assets of $63.0 million, including cash of $7.7 million, and total current liabilities of $31.6 million. The Company had working capital of $31.4 million as of June 30, 2026, compared to working capital of $2.3 million as of December 31, 2025. In October 2025, the Company closed an offering and received an aggregate gross proceeds of approximately $7.3 million. During the six months ended June 30, 2026, the Company continued to navigate macroeconomic challenges in the animation and advertising industries, including ongoing government tariffs and intensified competition. In prior periods, the Company demonstrated resilience in its financing activities, having successfully raised net proceeds through public offerings, and continued to explore opportunities to further strengthen its financial position. In parallel, management 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, the Company settled approximately $1.7 million of outstanding accounts payable in a transaction under Section 3(a)(10) of the Securities Act. In addition, during the six months ended June 30, 2026, the Company received $39.2 million in direct cash proceeds from the settlement of the Section 16(b) litigation, which the Company has substantially deployed into available-for-sale marketable securities as a source of liquidity. Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations and determined that the Company has sufficient cash, marketable securities and investments to fund operations for at least the next 12 months from the issuance date of this 10-Q.

Organization and Business

6 Months Ended

Jun. 30, 2026

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Note 1: Organization and Business

Kartoon Studios, Inc. (the “Company,” “Kartoon Studios,” “we,” “us” or “our”) is a global content and brand management company focused on the creation, production, licensing, and distribution of multimedia animated content for children. Led by experienced industry personnel, the Company’s core business includes original intellectual property (“IP”) development, third-party IP production services, media agency, and content monetization through licensing and owned distribution platforms.

Kartoon Studios’ owned and produced titles include Stan Lee’s Superhero Kindergarten (starring Arnold Schwarzenegger), Llama Llama (starring Jennifer Garner), Rainbow Rangers, KC! Pop Quiz, and Shaq’s Garage (starring Shaquille O’Neal). The Company’s library also includes titles such as Baby Genius, Thomas Edison’s Secret Lab, Warren Buffett’s Secret Millionaires Club, Team Zenko Go!, Reboot, Bee & PuppyCat: Lazy in Space, and Castlevania. The Company maintains a strategy of leveraging owned IP and third-party relationships to expand distribution and consumer product licensing. The Company is also developing Hundred Acre Wood’s: Winnie and Friends, a new franchise property inspired by A.A. Milne’s Winnie the Pooh, consisting of 78 full-length streaming episodes, over 200 short-form episodes, holiday specials, and a global consumer products program. The main launch is anticipated in Q1 2027, with plans to expand across experiential activations and live events.

Kartoon Studios also owns Wow Unlimited Media Inc. (“Wow”), through which the Company holds its interest in Mainframe Studios, one of North America’s largest animation production studios. Founded in 1993 and headquartered in Vancouver, British Columbia, Mainframe created ReBoot, the first fully CG-animated television series. Mainframe operates primarily as a producer-for-hire for major streaming platforms, broadcasters, and intellectual property holders. To date, Mainframe has produced over 1,200 television episodes, 70 movies, and 3 feature films, including titles such as It’s Andrew!, Phoebe and Jay, Barbie Dreamhouse Adventures, Octonauts: Above & Beyond, Cocomelon, SuperKitties, and Unicorn Academy, in partnership with leading global media companies.

The Company distributes its content across streaming platforms, linear television, and its ad-supported and subscription-based video-on-demand (“VOD”) services and apps, including Kartoon Channel! and Ameba TV. Distribution partners include YouTube, YouTube Kids, Amazon Prime Video, Amazon Fire, Roku, Apple TV, iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, Samsung TV Plus, Google TV, Cox, DISH, Sling TV, KartoonChannel.com, and smart TVs from Samsung and LG. The Company also licenses content to third-party networks and streaming services globally, including Netflix, Paramount+, HBO Max, and Nickelodeon.

The Company also owns The Beacon Media Group, LLC and The Beacon Communications Group, Ltd. (collectively, “Beacon”), a specialized media and marketing agency focused on children’s and family audiences. Beacon represents over 20 established and emerging brands across the toy, consumer products, and family entertainment sectors, including Bandai Namco, Moose Toys, Bazooka Brands, Goliath Games, Playmates Toys, and Cepia LLC. The agency has developed a strong reputation within the toy industry, supported by long-standing client relationships, deep category expertise, and a consistent track record of campaign execution. The Company believes that Beacon’s positioning within a niche, relationship-driven market provides barriers to entry and supports durable demand for its services.

The Company owns Ameba Inc. which operates Ameba TV, a subscription streaming service with a focus on educational and entertainment content for younger children. As a cornerstone of the Company’s subscription offerings, Ameba delivers a vast library of engaging and educational content, accessible across multiple platforms.

Through its investment in Germany-based Your Family Entertainment AG (“YFE”), a publicly listed company on the Frankfurt Stock Exchange (ticker symbol “RTV”), the Company holds a strategic interest in one of Europe’s leading independent children’s content providers, with a catalog of approximately 150 titles and 3,500 half-hour episodes.

The Company holds a controlling interest in Stan Lee Universe, LLC (“SLU”), which owns the IP rights to Stan Lee’s name, likeness, signature, and associated IP assets. Existing licensing arrangements include a non-exclusive license with Marvel for Stan Lee’s likeness to appear in Marvel films and a separate non-exclusive license with the Walt Disney Company for use of Stan Lee’s likeness in Walt Disney theme parks. Additional brand partnerships include an agreement with Madame Tussauds. The Company considers the SLU to be a core component of its IP portfolio and is currently developing plans for expanded commercialization across animation, publishing, licensing, and global consumer products in connection with its 2026 strategic initiatives.

Kartoon Studios’ common stock is listed on the NYSE American LLC (“NYSE American”) under the ticker symbol “TOON.”

Recent Transactions

Section 3(a)(10) Accounts Payable Settlement

On August 27, 2025, the Company 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 the Company’s vendors in cash and, in exchange, the Company issues 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, the Company entered into a new agreement to settle an additional $1.0 million of outstanding 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 and were approved by a court after a public hearing. The settlement arrangement was carried out in stages and completed through the first quarter of 2026, settling a total of $1.0 million of accounts payable and issuing an aggregate of 1,695,072 shares of common stock to CCI. During the six months ended June 30, 2026, the Company 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 Company’s condensed consolidated statements of operations.

On April 8, 2026, the Company 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. The settlement arrangement was carried out in stages and completed as of June 30, 2026. During the three months ended June 30, 2026, the Company recognized a loss of $0.6 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 condensed consolidated statements of operations.

October 2025 Financing

On October 22, 2025, pursuant to the terms of a securities purchase agreement (the “October 2025 Purchase Agreement”) entered into with an institutional investor (the “October 2025 Investor”), the Company closed a registered direct offering (the “Registered Direct Offering”) of 3,000,000 shares (the “October 2025 Shares”) of its 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, the Company 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, 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, the Company 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 also is entitled to receive 7% of the gross proceeds received from the exercise of any of the October 2025 Common Warrants, if any. In addition, the Company 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. A registration statement on Form S-1 registering the resale of common stock to be issued upon exercise of the Placement Agent Warrants and the October 2025 Common Warrants was declared effective on December 9, 2025.

Section 16(b) Litigation Settlement

Between May 29, 2026 and June 11, 2026, the Company 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 the benefit of the Company, in which the Company is named only as a nominal defendant, seeking disgorgement of alleged short-swing profits realized by certain investors in the Company’s 2020 private placements. The Settling Parties agreed to pay the Company 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 the Company 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 the Company after the applicable approval orders become final. The Company recognized the $39.2 million received as a non-recurring, non-operating gain, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026. In accordance with Accounting Standards Codification (“ASC”) 450-30-25-1, any residual amounts distributable to the Company from escrow constitute a gain contingency and will be recognized if and when realized. In connection with the settlement with the Anson Investments Master Fund LP and its affiliates (collectively, the “Anson Parties”), on June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company 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. The Company recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026.

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 the Company’s 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 our 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 the Company’s 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 the Company’s condensed consolidated financial statements, and Part II, Item 1A, Risk Factors included in this report, as well as 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, the Company sold all of the issued and outstanding common stock of Frederator Networks, Inc. (“Frederator Networks”), which operated the Frederator Network channel business, to Project Robot LLC, an unaffiliated third party, pursuant to a stock purchase agreement dated June 18, 2026. Kartoon Studios will retain key intellectual property of Frederator Studios, LLC, a wholly owned subsidiary of the Company, including Bee and PuppyCat, Bravest Warriors, Castlevania, and Catbug, for distribution and product licensing opportunities. The transaction was part of the Company’s strategic realignment to focus on monetization of premium intellectual property and franchise development. Upon closing, the Company 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. The Company expects 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 adjustment 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 the Company’s 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 the Company’s 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.

Liquidity and Capital Resources

As of June 30, 2026, the Company had cash of $7.7 million (which does not include cash held in escrow from the Section 16(b) litigation settlement described above), which increased by $4.8 million as compared to December 31, 2025. The increase was primarily due to net cash provided by operating activities of $31.4 million, cash provided by financing activities of $1.7 million, and the effect of exchange rate of $0.5 million, offset by cash used in investing activities of $28.8 million. The cash provided by operating activities of $31.4 million was primarily due to net income of $20.5 million, and a favorable impact of net change in non-cash adjustments of $15.1 million, partially offset by a net use of cash related to operating assets and liabilities of $4.2 million. Net income was driven primarily by a non-recurring and non-operating cash receipt of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The cash provided by financing activities of $1.7 million was primarily due to the drawdowns, net of repayments and debt issuance costs, from production facilities of $1.2 million, proceeds from a warrant exercise of $0.6 million, partially offset by finance lease payments of $0.1 million. The cash used in investing activities of $28.8 million was primarily due to the investment of settlement proceeds in marketable securities of $32.8 million, offset by the proceeds received from the redemption of marketable securities purchased in prior periods of $4.0 million.

During the six months ended June 30, 2026, the Company 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 the Company 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 the Company 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 the Company 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. The Company 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 Company’s marketable securities balance rather than in its ending cash balance. The Company holds these securities as a source of liquidity and expects to draw on them to fund working capital and operating requirements. The Company has not received, and has not recognized, the portion of the settlement deposited into escrow. Any residual amounts distributable to the Company will become available as a source of liquidity if and when realized. On June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company 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.

As of June 30, 2026, the Company held available-for-sale marketable securities with a fair value of $32.8 million, compared to $4.0 million as of December 31, 2025, representing an increase of $28.8 million. The increase was primarily due to purchases of $32.3 million of securities funded by the proceeds received under the Section 16(b) litigation settlement, together with $0.5 million of securities purchased in May 2026, partially offset by $4.0 million of securities redeemed upon maturity during the six months ended June 30, 2026. The available-for-sale securities consist principally of U.S. Treasury securities and are available to the Company as a source of liquidity.

The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”), which contemplates continuation of the Company as a going concern. The evaluation was performed in accordance with ASC 205, Presentation of Financial Statements - Going Concern (Subtopic 205-40). Historically, the Company has incurred net losses. For the six months ended June 30, 2026 and June 30, 2025, the Company reported net income of $20.5 million and a net loss of $12.9 million, respectively. Net income for the current quarter was driven primarily by a non-recurring, non-operating cash receipt of $39.2 million representing 50% of the court-approved settlement payments under the Section 16(b) litigation settlement agreements. The Company reported net cash provided by operating activities of $31.4 million, and cash used in operating activities of $6.3 million for the six months ended June 30, 2026 and June 30, 2025, respectively. As of June 30, 2026, the Company had an accumulated deficit of $743.2 million and total stockholders’ equity of $53.6 million. As of June 30, 2026, the Company had total current assets of $63.0 million, including cash of $7.7 million, and total current liabilities of $31.6 million. The Company had working capital of $31.4 million as of June 30, 2026, compared to working capital of $2.3 million as of December 31, 2025. In October 2025, the Company closed an offering and received an aggregate gross proceeds of approximately $7.3 million. During the six months ended June 30, 2026, the Company continued to navigate macroeconomic challenges in the animation and advertising industries, including ongoing government tariffs and intensified competition. In prior periods, the Company demonstrated resilience in its financing activities, having successfully raised net proceeds through public offerings, and continued to explore opportunities to further strengthen its financial position. In parallel, management 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, the Company settled approximately $1.7 million of outstanding accounts payable in a transaction under Section 3(a)(10) of the Securities Act. In addition, during the six months ended June 30, 2026, the Company received $39.2 million in direct cash proceeds from the settlement of the Section 16(b) litigation, which the Company has substantially deployed into available-for-sale marketable securities as a source of liquidity. Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations and determined that the Company has sufficient cash, marketable securities and investments to fund operations for at least the next 12 months from the issuance date of this 10-Q.