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What changed in Kartoon Studios, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Kartoon Studios, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+271 added−299 removedSource: 10-K (2024-04-09) vs 10-K (2023-04-13)

Top changes in Kartoon Studios, Inc.'s 2023 10-K

271 paragraphs added · 299 removed · 174 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn the earliest days of the COVID-19 pandemic, we spread public service messages to keep our audiences safe and informed with animated shorts featuring the iconic voices from our series including Warren Buffett from The Secret Millionaires Club and Jennifer Garner, the voice of Mama Llama from the Llama Llama series. 6 Table of Contents Our mission statement says it all: “Content with a Purpose.” Social justice, caring about the environment and modeling appropriate and inclusionary behavior for kids has been part of our company for many years and we are constantly seeking ways to improve on what we have already been doing.
Biggest changeOur mission statement says it all: “Content with a Purpose.” Social justice, caring about the environment and modeling appropriate and inclusionary behavior for kids has been part of our company for many years and we are constantly seeking ways to improve on what we have already been doing.
We also license our programs to other services worldwide, in addition to the operation of our own channels, including but not limited to Netflix, HBO Max, Paramount+, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.
We also license our programs to other services worldwide, in addition to the operation of our own channels, including, but not limited to, Netflix, Paramount+, Max, Nickelodeon, and satellite, cable and terrestrial broadcasters around the world.
The series is about a team of undersea explorers always ready to dive into action to explore new underwater worlds, rescue amazing sea creatures and protect the ocean.
Murphy. The series is about a team of undersea explorers always ready to dive into action to explore new underwater worlds, rescue amazing sea creatures and protect the ocean.
Canon Drive, 4 th Floor, Beverly Hills, California 90210, Attn: Corporate Secretary or by using the “Contact” page of our website www.gnusbrands.com/contact-us. All of these documents and filings are available free of charge. Generally, stockholders who have questions or concerns should contact our Investor Relations department at 212-564-4700.
Canon Drive, 4 th Floor, Beverly Hills, California 90210, Attn: Corporate Secretary or by using the “Contact” page of our website www.kartoonstudios.com/contact-us. All of these documents and filings are available free of charge. Generally, stockholders who have questions or concerns should contact our Investor Relations department at 212-564-4700.
We also maintain websites which include our corporate website located at www.gnusbrands.com and many brand websites. These websites are subject to laws and regulations directly applicable to internet communications and commerce, which is a currently developing area of the law. The United States has enacted internet laws related to children’s privacy, copyrights and taxation.
We also maintain websites which include our corporate website located at www.kartoonstudios.com and many brand websites. These websites are subject to laws and regulations directly applicable to internet communications and commerce, which is a currently developing area of the law. The United States has enacted internet laws related to children’s privacy, copyrights and taxation.
Website Access to Our SEC Filings and Corporate Governance Documents On the Investors page on our website www.gnusbrands.com we post links to our filings with the SEC, our Corporate Code of Conduct and Whistleblower Policy, which applies to our Board of Directors, executives and all of our employees, our Company Bylaws, our Insider Trading Policy and the charters of the committees of our Board of Directors.
Website Access to Our SEC Filings and Corporate Governance Documents On the Investors page on our website www.kartoonstudios.com we post links to our filings with the SEC, our Corporate Code of Conduct and Whistleblower Policy, which applies to our Board of Directors, executives and all of our employees, our Company Bylaws, our Insider Trading Policy and the charters of the committees of our Board of Directors.
Roblox Rumble: Kidaverse Roblox Rumble is an elimination-style competitive reality series featuring a diverse group of girls and boys across the United States, ages 8 to 12, who compete in 10 different Roblox games to win prizes and find out who is the ultimate gamer. Genius commenced production of this series in 2022 and completed production in 2023.
Roblox Rumble: Kidaverse Roblox Rumble is an elimination-style competitive reality series featuring a diverse group of girls and boys across the United States, ages 8 to 12, who compete in 10 different Roblox games to win prizes and find out who is the ultimate gamer. Kartoon Studios commenced production of this series in 2022 and completed production in 2023.
Preventing Harassment and Discrimination We have enacted policies addressing harassment, discrimination and other behaviors that could create a hostile workplace, some of which are described below. • We make training on preventing sexual harassment, discrimination and retaliation available to our employees. • We expect employees to report any violations of Company policies, including sexual harassment, they witness.
Preventing Harassment and Discrimination We have enacted policies addressing harassment, discrimination and other behaviors that could create a hostile workplace, some of which are described below. • We make training on preventing sexual harassment, discrimination and retaliation available to our employees. 8 Table of Contents • We expect employees to report any violations of Company policies, including sexual harassment, they witness.
(“Wow”), we established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and its Channel Frederator Network , the largest animation focused multi-channel network on YouTube with over 2,500 channels.
Through the ownership of WOW, we established an affiliate relationship with Mainframe Studios, which is one of the largest animation producers in the world. In addition, Wow owns Frederator Networks Inc. (“Frederator”) and its Channel Frederator Network , the largest animation focused multi-channel network on YouTube with over 2,500 channels.
We are committed to advancing and strengthening our approach to environmental, social and governance (“ESG”) topics to help serve our partners, audiences, employees and shareholders — and to enhance our success as a business.
We are committed to advancing and strengthening our approach to environmental, social and governance (“ESG”) topics to help serve our partners, audiences, employees and stockholders — and to enhance our success as a business.
Our library titles include the award-winning Baby Genius , adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret Millionaires Club , created with and starring iconic investor Warren Buffett, Team Zenko Go!, Reboot , Bee & PuppyCat: Lazy in Space and C astlevania .
Our library titles include the award-winning Baby Genius , adventure comedy Thomas Edison’s Secret Lab®, and Warren Buffett’s Secret Millionaires Club , created with and starring iconic investor Warren Buffett, Team Zenko Go!, Reboot , Bee & PuppyCat: Lazy in Space and Castlevania .
Led by experienced industry personnel, we distribute our content primarily on streaming platforms and television and license our properties for a broad range of consumer products based on our characters. We are a “work for hire” producer for many of the streaming outlets and animated content intellectual property ("IP") holders.
Led by experienced industry personnel, we distribute our content primarily on streaming platforms and television, and licenses properties for a broad range of consumer products based on our characters. We are a “work for hire” producer for many of the streaming outlets and animated content intellectual property (“IP”) holders.
We are committed to responsible, ethical and inclusionary business practices as outlined below: Human Capital Management As of December 31, 2022, we employed 743 full-time employees and 57 independent contractors. We aim to build a culture that attracts and retains the best employees and a workplace where everyone feels welcome, safe and inspired.
We are committed to responsible, ethical and inclusionary business practices as outlined below: Human Capital Management As of December 31, 2023, we employed 242 full-time employees and 40 independent contractors. We aim to build a culture that attracts and retains the best employees and a workplace where everyone feels welcome, safe and inspired.
Through our investments in Germany’s Your Family Entertainment (“YFE”), a publicly traded company on the Frankfurt Exchange (RTV-Frankfurt), we have gained access to one of the largest animation catalogues in Europe with over 50 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide. Through the ownership of WOW Unlimited Media Inc.
Through our investments in Germany’s Your Family Entertainment AG (“YFE”), a publicly traded company on the Frankfurt Stock Exchange (RTV-Frankfurt), we have gained access to one of the largest animation catalogues in Europe with over 50 titles consisting of over 1,600 episodes, and a global distribution network which currently covers over 60 territories worldwide.
Our filings with the SEC are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. You can also obtain copies of these documents by writing to us at: Genius Brands International, Inc., at 190 N.
Our filings with the SEC are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. You can also obtain copies of these documents by writing to us at: Kartoon Studios, Inc., at 190 N.
Our Kartoon Channel! platform, which has potential reach into over 100 million U.S. television households, provides additional reach to promote our content and consumer products. Competition We compete against other creators of children’s content including Disney, Nickelodeon, PBS Kids, and Sesame Street, as well as other small and large creators.
Our Kartoon Channel! platform, which has potential reach into over 100 million U.S. television households, nearly 100% of the U.S. market penetration, provides additional reach to promote our content and consumer products. 6 Table of Contents Competition We compete against other creators of children’s content including Disney, Nickelodeon, PBS Kids, and Sesame Street, as well as other small and large creators.
Intellectual Property As of December 31, 2022, we own the following properties and related trademarks such as: “Rainbow Rangers,” “ SpacePop, ” “ Secret Millionaires Club,”“Thomas Edison’s Secret Lab,” “ Baby Genius, ” “ Kid Genius, ” “ Wee Worship, ” “ Kaflooey, ” "Bravest Warriors," "Bee & Puppycat" and "Castlevania," as well as several other names and trademarks on characters that had been developed for our content and brands.
Intellectual Property As of December 31, 2023, we own the following properties and related trademarks such as: “Rainbow Rangers,” “ SpacePop, ” “ Secret Millionaires Club,”“Thomas Edison’s Secret Lab,” “ Baby Genius, ” “ Kid Genius, ” “ Wee Worship, ” 7 Table of Contents “ Kaflooey, ” “ Bravest Warriors,” “Bee & Puppycat” and “ Castlevania,” as well as several other names and trademarks on characters that had been developed for our content and brands.
Network In June 2020, we launched the Kartoon Channel! , a digital family entertainment destination that delivers enduring childhood moments of humor, adventure, and discovery and is available across multiple AVOD and over-the-top platforms, including Comcast, Cox, DISH, Sling TV, Amazon Prime, Amazon Fire, Apple TV, Apple iOS, Android TV, 3 Table of Contents Android Mobile, Google Play, Xumo, Roku, Tubi, and streaming via KartoonChannel.com, as well as accessible via Samsung Smart TVs and LG TVs.
Network In June 2020, we launched the Kartoon Channel! , a digital family entertainment destination that delivers enduring childhood moments of humor, adventure, and discovery and is available across multiple AVOD, SVOD and linear streaming platforms, including Comcast, Cox, DISH, Sling TV, Amazon Prime Video, Amazon Fire, Roku, Apple TV, Apple iOS, Android TV, Android Mobile, Pluto TV, Xumo, Tubi and via KartoonChannel.com, as well as accessible via Samsung and LG smart TVs.
Production of Seasons 6 through 8 of this animated title for Silvergate Media on a services basis continued at Mainframe throughout 2022 and into 2023, with final deliveries scheduled for the fourth quarter of 2023.
Production of Seasons 6 through 8 of this animated title for Silvergate Media on a services basis continued at Mainframe throughout 2023, with final deliveries completed during the fourth quarter of 2023.
We strive to be an inclusionary workplace because we believe that it strengthens our business. • In 2021, we created the role of Chief Diversity Officer. That role is responsible for both helping meet our hiring goals and reviewing the content we create. • Our board of directors is diverse with representation from people of color and the LGBTQ community.
We strive to be an inclusionary workplace because we believe that it strengthens our business. • We maintain a Chief Diversity Officer who is responsible for helping us meet our hiring goals and reviewing the content we create. • Our board of directors is diverse with representation from people of color and the LGBTQ community.
Item 1. Business Overview Genius Brands International, Inc. (“we,” “us,” “our,” or the “Company”) is a global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children.
Item 1. Business Overview Kartoon Studios, Inc. (formerly known as Genius Brands International, Inc.) (the “Company” or “we,” “us” or “our”) is a global content and brand management company that creates, produces, licenses, and broadcasts timeless and educational, multimedia animated content for children.
In the children’s media sector, our portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment.
In the children’s media sector, our portfolio features “content with a purpose” for toddlers to tweens, providing enrichment as well as entertainment. With the exception of selected WOW Unlimited Media Inc.
We have rights to a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe (“SLU”), through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”). We also own Beacon Media Group ("Beacon"), the largest media buying service for children in North America.
We have rights to a select amount of valuable IP, including among them a controlling interest in Stan Lee Universe, LLC (“SLU”), through which we control the name, likeness, signature, and all consumer product and IP rights to Stan Lee (the “Stan Lee Assets”). We also own The Beacon Media Group, LLC (“Beacon Media”) and The Beacon Communications Group, Ltd.
We have strong relationships with and actively solicit placement for our content with major linear broadcasters, as well as on the digital side with Netflix, Comcast’s Xfinity platform, AppleTV, Roku, Samsung TV, Amazon Fire, Amazon Prime, Netflix, YouTube, Cox, Dish, Sling, Xumo and Connected TV.
We have strong 5 Table of Contents relationships with and actively solicit placement for our content with major linear broadcasters, as well as on the digital side with Netflix, Comcast’s Xfinity platform, AppleTV, Roku, Samsung TV, Amazon Fire, Amazon Prime, Netflix, YouTube, Cox, Dish, Sling, Xumo, IOS, Android/Google Play, LG TV, Tubi, Pluto, Xbox and Connected TV.
Our in-house owned and produced animated shows include Stan Lee’s Superhero Kindergarten starring Arnold Schwarzenegger, Llama Llama starring Jennifer Garner, Rainbow Rangers, KC Pop Quiz , and the upcoming Shaq’s Garage starring Shaquille O’Neal, scheduled to debut in the second quarter of 2023.
Our in-house owned and produced animated shows 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.
As of the same date, we licensed our content to over 40 broadcasters in more than 90 countries worldwide, as well as a number of VOD and online platforms that have a global reach.
Customers and Licensees As of December 31, 2023, we have partnered with over 40 consumer products licensees. As of the same date, we licensed our content to over 60 broadcasters in more than 90 countries worldwide, as well as a number of VOD and online platforms that have a global reach.
To compete effectively, we are focused on our strategic positioning of “content with a purpose,” which we believe is a point of differentiation embraced by the industry, as well as parents and educators.
To compete effectively, we are focused on our strategic positioning of “content with a purpose,” which we believe is a point of differentiation embraced by the industry, as well as parents and educators. Additionally, the Kartoon Channel! enables us to increase the awareness of our brands through an owned platform.
These streaming services are available on Apple TV, Apple iOS, Android TV, Android mobile, Amazon Prime, Amazon Fire, Tubi, Roku, Comcast, Cox, Dish/Sling, Xumo, Pluto, Samsung Smart TVs, LG Smart TVs, as well as YouTube, among other platforms.
These streaming platforms include Comcast, Cox, DISH, Sling TV, Amazon Prime Video, Amazon Fire, Roku, Apple TV, Apple iOS, Android TV, Android mobile, Pluto TV, Xumo, Tubi, YouTube, YouTube Kids and via KartoonChannel.com, as well as Samsung and LG smart TVs.
Shaq’s Garage: Shaq’s Garage production continues on this animated IP series, starring and co-produced by NBA legend, Shaquille O’Neal, is a children’s animated series about the secret adventures of Shaquille’s extraordinary collection of cars, trucks, and other unique vehicles—the Shaq Pack. Shaq’s Garage is expected to be launched on the Kartoon Channel! during the second quarter of 2023.
Our Products During 2023, we produced numerous owned IP and for-hire projects including: 4 Table of Contents Animated Series Shaq’s Garage: Shaq’s Garage production was completed on this animated IP series, starring and co-produced by NBA legend, Shaquille O’Neal, is a children’s animated series about the secret adventures of Shaquille’s extraordinary collection of cars, trucks, and other unique vehicles—the Shaq Pack.
Eggventurers: Eggventurers is a preschool animated series featuring a zany cast of egg characters who jump into grand engineering adventures, building spectacular chain reaction machines to help them overcome obstacles and achieve their goals. Mainframe's production of this 13 x 7-minute animated series for GoldieBlox has spanned 2022 and final deliveries are scheduled for the second quarter of 2023.
Eggventurers: Eggventurers is a preschool animated series featuring a zany cast of egg characters who jump into grand engineering adventures, building spectacular chain reaction machines to help them overcome obstacles and achieve their goals.
We are subject to online distribution regulations, namely the FTC’s Children’s Online Privacy Protection Act (COPPA) which regulates the collection of information of children younger than 13 years old.
Government Regulation The FCC requires broadcast networks to air a required number of hours of educational and informational content (E/I). We are subject to online distribution regulations, namely the FTC’s Children’s Online Privacy Protection Act (COPPA) which regulates the collection of information of children younger than 13 years old.
The series premiered on Kartoon Channel! during March of 2023. Spin Master Productions: throughout 2022, Mainframe produced on a services basis and delivered several animated series, specials and shorts for Unicorn Academy , the fantasy-adventure children’s franchise owned by its client, Spin Master, a global Canadian toy and entertainment company.
The series premiered on Kartoon Channel! during March of 2023. Spin Master Productions: Mainframe produced on a services basis and completed delivery of several animated series, specials and shorts for Unicorn Academy, the fantasy-adventure children’s franchise that hit the Netflix Global Top 10 across three weeks.
With the exception of our recent acquisition of Wow Unlimited Media Inc.'s and related titles, our programs, along with those programs we license, are being broadcast in the United States on our wholly-owned advertisement supported video on demand (“AVOD”) service, our free ad supported TV ("FAST") channels and our subscription video on demand (“SVOD”) outlets, Kartoon Channel! and Ameba TV .
(“Wow”) titles, our programs, along with licensed programs, are being broadcast in the United States on our wholly-owned advertisement supported video on demand (“AVOD”) service, our free ad supported TV (“FAST”) channels and subscription video on demand (“SVOD”) outlets, Kartoon Channel! and Ameba TV, as well as linear streaming platforms .
We also have a number of registered and pending trademarks in Europe, Australia, China, Japan and Mexico and other countries in which our products are sold.
As of December 31, 2023, we hold 22 registered trademarks in multiple classes in the United States associated with the Kartoon Studios brand. We also have a number of registered and pending trademarks in Europe, Australia, China, Japan and Mexico and other countries in which our products are sold.
We replicate this model of ubiquity around the world defining content distribution strategies by market that blends the best of linear, video on demand (“VOD”), and digital distribution. Finally, we expanded our long-term strategic partnership with Sony Pictures Home Entertainment from domestic to global in January 2017.
We replicate this model of ubiquity around the world defining content distribution strategies by market that blends the best of linear, video on demand (“VOD”) and digital distribution. Kartoon Channel!
The channel features animated programs for little kids, including “Peppa Pig Shorts,” “Super Simple Songs,” “Mellodees,” “Finny the Shark,” “Strawberry Shortcake” and content for bigger kids, such as “Angry Birds,” “Yu-Gi-Oh” and “ Bakugan, ” to original programming like "Rainbow Rangers" and " Stan Lee’s Superhero Kindergarten, ” starring Arnold Schwarzenegger.
The channel features animated classics for little kids, including “Peppa Pig Shorts,” “Mother Goose Club,” “Barney and Friends,” “Om Nom Stories,” as well as content for bigger kids, such as “Angry Birds,” “Talking Tom and Friends” and “Yu-Gi-Oh!” and original programming like “ Rainbow Rangers” and “ Stan Lee’s Superhero Kindergarten, ” starring Arnold Schwarzenegger.
Mainframe produces content on a services basis for Moonbug Productions USA Inc. and delivered 49 x 3.5 minutes of animated shorts in the second quarter of 2022. Production continues on an additional 64 x 3 minutes of shorts with deliveries scheduled throughout 2023 and into the first quarter of 2024.
Mainframe produces content on a services basis for Moonbug Productions USA Inc. and had delivered 52 x 3-minutes of animated shorts by the end of 2023 and the final 12 x 3-minutes of animated shorts are scheduled to be delivered by the end of the first quarter of 2024.
We currently have, across all brands, multiple licensees and hundreds of licensed products either in development, in market or scheduled to enter the market. Products bearing our trademarks can be found in a wide variety of retail distribution outlets reaching consumers in retailers such as Wal-Mart, Target, Barnes & Noble, Kohl’s, Amazon.com, Hot Topic and many more.
Products bearing our trademarks can be found in a wide variety of retail distribution outlets reaching consumers in retailers such as Wal-Mart, Target, Barnes & Noble, Kohl’s, Amazon.com, Hot Topic, Spirit, YOTTOY and many more. License agreements that we enter into often include financial guarantees and commitments from the manufacturers guaranteeing a minimum stream of revenue for us.
Marketing Our marketing mission is to generate awareness and consumer interest in the brands of Genius via a 360-degree approach to reach audiences through all touchpoints.
There are hundreds of kids’ music videos, including “Alex and the Kaleidoscope Band” and “Zinghoppers,” and a catalog of classic content, such as “Babar” and “Franklin and Friends.” Marketing Our marketing mission is to generate awareness and consumer interest in the brands of Kartoon Studios via a 360-degree approach to reach audiences through all touchpoints.
This broad cross-section of customers includes companies such as Comcast, Netflix, Sony, YouTube, Mattel, Target, Penguin Publishing, Manhattan Toys, Roku, Apple TV, Amazon, Google, Bertelsmann Music Group, Discovery International, and others both domestically and internationally. Government Regulation The FCC requires broadcast networks to air a required number of hours of educational and informational content (E/I).
This broad cross-section of customers includes companies such as Comcast, Netflix, Sony, YouTube, Mattel, Target, Penguin Publishing, Manhattan Toys, Roku, Apple TV, Amazon, Google, Bertelsmann Music Group, Discovery International, Hot Topic and others both domestically and internationally. At December 31, 2023, we had four customers whose total revenue accounted for 74.4% of our total revenue.
We also jointly hold 92 registered trademarks in multiple classes in multiple countries associated with our ownership interest in Stan Lee Universe, in addition to 6 pending trademarks. 5 Table of Contents As of December 31, 2022, we also hold 146 motion pictures, 42 sound recordings, and two literary work copyrights related to our video, music and written work products.
We also jointly hold 92 registered trademarks in multiple classes in multiple countries associated with our ownership interest in Stan Lee Universe, in addition to 6 pending trademarks. As of December 31, 2023, we also hold rights in over 200 motion pictures, over 600 different shows across our partnerships with over 150 different licensors.
On August 31, 2018, Sony Pictures Home Entertainment assigned all of its rights and interest in our programs to Alliance Entertainment, LLC. Consumer Products A source of our revenue is our licensing and merchandising activities from our underlying intellectual property content. We work directly in licensing properties to a variety of manufacturers and occasionally to retailers.
Consumer Products A source of our revenue is our licensing and merchandising activities from our underlying intellectual property content. We work directly in licensing properties to a variety of manufacturers and occasionally to retailers. We currently have, across all brands, multiple licensees and hundreds of licensed products either in development, in market or scheduled to enter the market.
The Kartoon Channel! also offers STEM-based content through its Kartoon Classroom!, including “ Baby Genius,” and more. Distribution Content Today’s global marketplace and the manner in which content is consumed has evolved to a point where we believe there is only one viable strategy, ubiquity.
As licensed merchandise is sold at retail, these advances and/or minimum guarantees can earn out, at which point we could earn additional revenue. Distribution Content Today’s global marketplace and the manner in which content is consumed has evolved to a point where we believe there is only one viable strategy; ubiquity.
Production and deliveries are scheduled to continue through the third quarter of 2023. Licensed Content In addition to the wholly owned or partially-owned properties listed above, we represent Llama Llama, Bee & PuppyCat and Castlevania in the licensing and merchandising space. Kartoon Channel!
Unicorn Academy was delivered to Spin Master Entertainment, a global Canadian toy and entertainment company. Final deliveries were completed during the fourth quarter of 2023. Licensed Content In addition to the wholly owned or partially-owned properties listed above, we represent Llama Llama, Bee & PuppyCat and Castlevania in the licensing and consumer products sector of the market.
During the fourth quarter of 2022, Mainframe completed delivery of 52 x 22-minute animated episodes for DreamWorks Animation on a services basis. Cocomelon: Cocomelon specializes in 3D animation videos of both traditional nursery rhymes and original children's songs.
Shaq’s Garage was launched on the Kartoon Channel! during the second quarter of 2023. Cocomelon: Cocomelon specializes in 3D animation videos of both traditional nursery rhymes and original children's songs.
Additionally, we have the United States trademark and various international trademarks applications pending for Kartoon Channel!, Kartoon Channel! Jr., KC! Pop Quiz, Little Genius and Little Genius Jukebox . As of December 31, 2022, we hold 22 registered trademarks in multiple classes in the United States associated with the Genius brand.
Additionally, we have the United States trademark and various international trademarks applications pending for Kartoon Channel!, Kartoon Channel! Jr., KC! Pop Quiz, Little Genius and Little Genius Jukebox . Through our controlling interest in Stan Lee Universe, we control the rights to the name, image, the likeness, the signature, and the consumer product licensing to the iconic Stan Lee.
Beacon represents over 30 major toy companies, including Playmobile, Bandai Toys, Bazooka, Moose Toys, and JAKKS Pacific. In addition, we own the Canadian company Ameba Inc. (“Ameba”), which distributes a profitable SVOD service for kids, and has become the focal point of revenue growth for Genius Networks’ subscription offering.
Ameba TV We own the Canadian company Ameba Inc. (“Ameba TV”), which distributes SVOD services for kids and has become a focal point of revenue for TOON Media Networks’ subscription offering. Ameba TV provides a streaming service that is full of active, engaging and intelligent programming.
Barbie Productions: throughout 2022, Mainframe produced and delivered several outstanding animated Barbie series, specials, shorts and vlogs including Barbie: It Takes Two , Barbie: Epic Road Trip , Barbie: Mermaid Power, Barbie: Skipper and the Big Babysitting Adventure and Barbie: Vlogger seasons 7 and 8 on a services basis for its longstanding client, Mattel.
Barbie Productions: throughout 2023, Mainframe produced and delivered several outstanding animated Barbie series, specials and shorts, including Barbie: A Touch of Magic and Barbie and Stacie to the Rescue on a services basis for its longstanding client, Mattel. Octonauts: Above & Beyond: Octonauts is a children's television series based on the children's books written by Vicki Wong and Michael C.
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We and our affiliates provide world class animation production studios, a catalogue representing thousands of hours of premium global content for children, a broadcast system for delivering that content and an in-house consumer products licensing infrastructure to fully exploit the content.
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Frederator also owns Frederator Studios, focused on developing and producing shorts and series for and with partners. Over the past 20 years, Frederator Studios has partnered with Nickelodeon, Nick Jr., Netflix, Sony Pictures Animation and Amazon.
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Recent Developments On February 6, 2023, our board of directors approved a 1-for-10 reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:00 p.m. Eastern time.
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(“Beacon Communications”) (collectively, “Beacon”), a leading North American marketing and media agency and its first-class media research, planning and buying division. Beacon represents over 30 kids and family clients, including Bandai Namco, Moose Toys, Bazooka Candy Brands and Playmobil. In addition, we own the Canadian company Ameba Inc.
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At the effective time, every 10 issued and outstanding shares of the Company's common stock were converted into 1 share of common stock. Any fractional shares of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of fractional shares.
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(“Ameba”), which distributes SVOD service for kids and has become a focal point of revenue for TOON Media Networks’ subscription offering. 3 Table of Contents On June 23, 2023, we were renamed Kartoon Studios, Inc. On June 26, 2023, we transferred our listing to NYSE American LLC (“NYSE American”).
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The par value of each share of common stock remained unchanged. The reverse stock split proportionately reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000 shares. The reverse stock split also applied to common stock issuable upon the exercise of our outstanding warrants and stock options.
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In connection with listing on NYSE American, we voluntarily delisted from the Nasdaq Capital Market (“Nasdaq”). Our common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023.
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The reverse stock split did not affect the authorized preferred stock of 1 Table of Contents 10,000,001 shares. Unless noted, all references to shares of common stock and per share amounts contained in this Annual Report on Form 10-K have been retroactively adjusted to reflect a 1-for-10 reverse stock split. 2022 Investments On January 13, 2022, we acquired Ameba Inc.
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Recent Developments Exercise of 2021 Warrants and Issuance of New Warrants On June 26, 2023, we entered into warrant exercise inducement offer letters (the “Letter Agreements”) with certain existing institutional and accredited investors pursuant to which such investors agreed to exercise for cash certain warrants issued by us in January 2021 (the “2021 Warrants”) to purchase 2,311,550 shares of common stock (the “Exercise”).
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("Ameba") and gained access to its kid-safe platform technology and 13,000 episodes of owned and licensed content. Refer to Note 3 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details. On April 6, 2022, we completed the acquisition of Wow. On October 26, 2021, our wholly-owned subsidiary, 1326919 B.C.
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To induce the Exercise by holders of the 2021 Warrants, we also amended the exercise price of the 2021 Warrants from $23.70 per share (as adjusted pursuant to a 1-for-10 reverse stock split of our outstanding shares of common stock effected on February 10, 2023) to $2.50 per share pursuant to the terms of the 2021 Warrants.
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LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act.
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In consideration for the Exercise, the exercising holders received warrants to purchase up to 4,623,100 shares of common stock, and The Special Equities Group, LLC, a division of Dawson James Securities, Inc. (“SEG”) which acted as the warrant solicitation agent for the Exercise, received a warrant to purchase up to 161,809 shares of common stock (collectively, the “Warrants”).
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We purchased 100% of the issued and outstanding shares of Wow, including Wow's subsidiary Frederator, for $38.3 million in cash and 1,105,708 shares of our common stock.
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The Warrants are exercisable at any time beginning on November 1, 2023 (i.e., the date stockholder approval was received as described therein) (the “Initial Exercise Date”) and ends on the fifth anniversary of the Initial Exercise Date at a price per share of $2.50.
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The plan of arrangement and final agreement, together with the acquisition of Wow’s Mainframe Studios and its subsidiary Frederator, are referred to as the “Wow Acquisition.” Refer to Note 3 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details.
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Pursuant to the Letter Agreements, we filed a registration statement on Form S-3 covering the resale of the shares of common stock issuable upon the exercise of the Warrants on July 26, 2023.
Removed
On December 1, 2021, we completed a $6.8 million investment in YFE. In exchange for $3.4 million in cash and 228,127 shares of our common stock (valued at approximately $3.4 million), we received 3,000,500 shares of YFE’s common stock, a 28.7% ownership in YFE.
Added
Declaration of Series C Preferred Stock Dividend; Redemption of Series C Preferred Stock On September 21, 2023, our board of directors declared a dividend of one one-thousandth of a share of Series C Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”), for each outstanding share of our common stock, par value $0.001 per share to stockholders of record on October 2, 2023 (the “Record Date”).
Removed
Following the initial equity investment in YFE, we participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, we purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.3 million EUROS ($6.0 million USD) in the aggregate.
Added
Each share of Series C Preferred Stock would entitle the holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of Series C Preferred Stock would have a ratable number of votes). Thus, each one-thousandth of a share of Series C Preferred Stock would entitle the holder thereof to 1,000 votes.
Removed
On March 9, 2022, bonds held by YFE shareholders were converted into $2.6 million shares of YFE common stock, 304,431 of which were purchased by us, at 2.00 EUROS per share or $0.6 million EUROS ($0.7 million USD).
Added
The outstanding shares of Series C Preferred Stock would vote together with the outstanding shares of common stock as a single class exclusively with respect to the approval of the proposal (the “Share Increase Proposal”) to amend our Articles of Incorporation to increase the authorized shares of common stock from 40,000,000 shares to 190,000,000 shares with a corresponding increase in the total number of authorized shares of capital stock from 50,000,000 shares to 200,000,000 shares (the “Share Increase Amendment”) and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Share Increase Amendment (the “Adjournment Proposal” and together with the Share Increase Proposal, the “Proposals”).
Removed
On April 5, 2022, we exercised our subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million EUROS ($2.9 million USD), increasing the number of YFE’s outstanding shares to 6,857,132.
Added
The Series C Preferred Stock would not be entitled to vote on any other matter, except to the extent required under Chapter 78 of the Nevada Revised Statues. We held a special meeting of stockholders on November 1, 2023 (the “Special Meeting”), at which both Proposals were approved by the stockholders.
Removed
During the fourth quarter of 2022, we did not take part in a round of financing raised by YFE which increased YFE's outstanding shares and therefore decreased our ownership in YFE from 48.03% to 44.8% as of December 31, 2022. Strategy Our over arching strategic goal is to be a leading global producer and distributor of kids’ media.
Added
All shares of Series C Preferred Stock that had not been duly voted by proxy prior to the opening of the Special Meeting were automatically redeemed in whole, but not in part, by the Company as of immediately prior to the opening of such meeting.
Removed
To achieve that goal, we are developing, producing, marketing and licensing new branded children’s entertainment properties. The criteria for moving forward on a new project include positive social messaging and fun and unique storytelling.
Added
Any outstanding shares of Series C Preferred Stock that had not been redeemed prior to the opening of the Special Meeting were redeemed in whole, but not in part, automatically upon the approval of the Share Increase Proposal by the stockholders.
Removed
We have invested heavily into our wholly owned worldwide distribution system and our content is also available to kids and families on a multitude of platforms and devices. We also have a licensing team to develop and sell consumer products based on the brands we own or manage.
Added
Each share of Series C Preferred Stock was redeemed in consideration for the right to receive an amount equal to $0.01 in cash for each ten whole shares of Series C Preferred Stock that had been held as of immediately prior to the applicable redemption.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+17 added−37 removed92 unchanged
Biggest changeAccordingly, the benefits from the Wow Acquisition may be offset by costs incurred or delays in integrating the companies, which could cause our financial assumptions to be inaccurate. We operate internationally, which exposes us to significant risks. We have expanded into international operations, including the acquisitions of Wow and Ameba and our investment in YFE.
Biggest changeWe operate internationally, which exposes us to significant risks. We have expanded into international operations, including the acquisitions of Wow and Ameba, our launch of Kartoon Channel! WW and our investment in YFE. As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion.
These risks and uncertainties include, but are not limited to, the following: Risks Relating to our Business • We have incurred net losses since inception. • If we are not able to obtain sufficient capital, we may not be able to continue our growth. • Our revenues and results of operations may fluctuate from period to period. • The value of our investments is subject to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows. • Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business. • Our business has been and may continue to be adversely affected by the COVID-19 pandemic. • Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales. • We face competition from a variety of content creators that sell similar merchandise and have better resources than we do. • The production of our animated content is accomplished through third-party production and animation studios around the world, and any failure of these third parties could negatively impact our business. • We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms. • Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations. • The failure of others to promote our products may adversely affect our business. • We may not be able to keep pace with technological advances. • Failure in our information technology and storage systems could significantly disrupt the operation of our business. • Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer. • Loss of key personnel may adversely affect our business. • Litigation may harm our business or otherwise distract management. • Our vendors and licensees may be subject to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations. 7 Table of Contents • Protecting and defending against intellectual property claims may have a material adverse effect on our business. • Any additional future acquisitions or strategic investments may not be available on attractive terms and would subject us to additional risks. • We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG. • We operate internationally, which exposes us to significant risks. • We are exposed to foreign currency exchange rate risk. • A decrease in the fair values of our reporting units may result in future goodwill impairments.
These risks and uncertainties include, but are not limited to, the following: Risks Relating to our Business • We have incurred net losses since inception. • If we are not able to obtain sufficient capital, we may not be able to continue our growth. • Our revenues and results of operations may fluctuate from period to period. • The value of our investments is subject to significant capital markets risk related to changes in interest rates and credit spreads as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows. • Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business. 9 Table of Contents • Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales. • We face competition from a variety of content creators that sell similar merchandise and have better resources than we do. • The production of our animated content is accomplished through third-party production and animation studios around the world, and any failure of these third parties could negatively impact our business. • We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms. • Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations. • The failure of others to promote our products may adversely affect our business. • We may not be able to keep pace with technological advances. • Failure in our information technology and storage systems could significantly disrupt the operation of our business. • Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer. • Loss of key personnel may adversely affect our business. • Litigation may harm our business or otherwise distract management. • Our vendors and licensees may be subject to various laws and government regulations, violation of which could subject these parties to sanctions which could lead to increased costs or the interruption of normal business operations that could negatively impact our financial condition and results of operations. • Protecting and defending against intellectual property claims may have a material adverse effect on our business. • Any additional future acquisitions or strategic investments may not be available on attractive terms and would subject us to additional risks. • We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG. • We operate internationally, which exposes us to significant risks. • We are exposed to foreign currency exchange rate risk. • A decrease in the fair values of our reporting units may result in future goodwill impairments.
The value of our investments is exposed to capital market risks, and our consolidated results of operations, financial condition or cash flows could be adversely affected by realized losses, impairments and changes in unrealized 9 Table of Contents positions as a result of: significant market volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, a reduction in market liquidity, declines in equity prices, changes in national, state/provincial or local laws and the strengthening or weakening of foreign currencies against the U.S. dollar.
The value of our investments is exposed to capital market risks, and our consolidated results of operations, financial condition or cash flows could be adversely affected by realized losses, impairments and changes in unrealized positions as a result of: significant market volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, a reduction in market liquidity, declines in equity prices, changes in national, state/provincial or local laws and the strengthening or weakening of foreign currencies against the U.S. dollar.
For the year ended December 31, 2022, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein. Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business.
For the year ended December 31, 2023, we incurred net realized and unrealized investment gains and losses, as described in Item 8, “Financial Statements and Supplementary Data” included herein. Changes in the United States, global or regional economic conditions could adversely affect the profitability of our business.
Risk Related to Tax Rules and Regulations • Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible. • Changes in, or interpretations of, tax rules and regulations, and changes in geographic operating results, may adversely affect our effective tax rates.
Risks Related to Tax Rules and Regulations • Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible. • Changes in, or interpretations of, tax rules and regulations, and changes in geographic operating results, may adversely affect our effective tax rates.
In addition, we face risks in doing business internationally that could adversely affect our business, including: • Fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk; • Currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars; • Restrictions on the transfer of funds; • Difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations; • Our ability to effectively price our products in competitive international markets; • New and different sources of competition; • The need to adapt and localize our products for specific countries; • Challenges in understanding and complying with local laws, regulations and customs in foreign jurisdictions; • International trade policies, tariffs and other non-tariff barriers, such as quotas; • The continued threat of terrorism and the impact of military and other action, including military actions involving Russia and Ukraine; and • Adverse consequences relating to the complexity of operating in multiple international jurisdictions with different laws, regulations and case law which are subject to interpretation by taxpayers, including us.
In addition, we face risks in doing business internationally that could adversely affect our business, including: • Fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk • Currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars • Restrictions on the transfer of funds • Difficulties in managing and staffing international operations, including difficulties related to the increased operations, travel, infrastructure, employee attrition and legal compliance costs associated with numerous international locations • Our ability to effectively price our products in competitive international markets • New and different sources of competition • The need to adapt and localize our products for specific countries • Challenges in understanding and complying with local laws, regulations and customs in foreign jurisdictions • International trade policies, tariffs and other non-tariff barriers, such as quotas • The continued threat of terrorism and the impact of military and other action 16 Table of Contents • Adverse consequences relating to the complexity of operating in multiple international jurisdictions with different laws, regulations and case law which are subject to interpretation by taxpayers, including us.
The OTC Bulletin Board does not meet such requirements and if the price of our common stock is less than $5.00 and our common stock is no longer listed on a national securities exchange such as Nasdaq, our stock may be deemed a penny stock.
The OTC Bulletin Board does not meet such requirements and if the price of our common stock is less than $5.00 and our common stock is no longer listed on a national securities exchange such as the NYSE, our stock may be deemed a penny stock.
Significant judgment is required in making these estimates and assumptions, and actual results may ultimately be materially different from such estimates and assumptions. RISK RELATING TO OUR INDEBTEDNESS We have incurred indebtedness that could adversely affect our operations and financial condition.
Significant judgment is required in making these estimates and assumptions, and actual results may ultimately be materially different from such estimates and assumptions. RISKS RELATING TO OUR INDEBTEDNESS We have incurred indebtedness that could adversely affect our operations and financial condition.
Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. 8 Table of Contents RISKS RELATING TO OUR BUSINESS We have incurred net losses since inception.
Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. RISKS RELATING TO OUR BUSINESS We have incurred net losses since inception.
The loss of the services of any member of our core executive management team or other key 12 Table of Contents persons could have a material adverse effect on our business, results of operations and financial condition. We do not have “key man” insurance coverage for any of our employees. Litigation may harm our business or otherwise distract management.
The loss of the services of any member of our core executive management team or other key persons could have a material adverse effect on our business, results of operations and financial condition. We do not have “key man” insurance coverage for any of our employees. Litigation may harm our business or otherwise distract management.
Any adverse outcome from any examinations may have an adverse effect on our business and operating results, which could cause the market price of our securities to decline. RISKS RELATING TO OUR COMMON STOCK Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.
Any adverse outcome from any examinations may have an adverse effect on our business and operating results, which could cause the market price of our securities to decline. 18 Table of Contents RISKS RELATING TO OUR COMMON STOCK Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.
Wow's functional currency is the Canadian dollar, therefore their financial results are translated into USD, our reporting currency, upon consolidation of our financial statements. We are then exposed to more significant currency 14 Table of Contents fluctuation risks as a result of the Wow Acquisition.
Wow's functional currency is the Canadian dollar, therefore their financial results are translated into USD, our reporting currency, upon consolidation of our financial statements. We are then exposed to more significant currency fluctuation risks as a result of the Wow Acquisition.
In the event of a delisting, we would expect to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with Nasdaq’s listing requirements.
In the event of a delisting, we would expect to take actions to restore our compliance with NYSE American’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NYSE minimum bid price requirement, or prevent future non-compliance with NYSE’s listing requirements.
We expect that as our business continues to evolve and grow, we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly.
We expect that as our business continues to evolve and grow, we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to 11 Table of Contents expand our business, and we will have to modify our business plans accordingly.
We may not be able to keep pace with technological advances. The entertainment industry in general, and the music and motion picture industries in particular, continue to undergo significant changes, primarily due to technological developments.
We may not be able to keep pace with technological advances. The entertainment industry in general, and the music and motion picture industries in particular, continue to undergo significant changes, primarily due to technological developments, such as AI.
If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.
If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of 15 Table of Contents infringement or invalidity.
Such a 16 Table of Contents delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.
Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.
Our common stock currently trades on the Nasdaq Capital Market. There is limited public float, and trading volume historically has been low and sporadic. As a result, the market price for our common stock may not necessarily be a reliable indicator of our fair market value.
Our common stock currently trades on NYSE American. There is limited public float, and trading volume historically has been low and sporadic. As a result, the market price for our common stock may not necessarily be a reliable indicator of our fair market value.
RISK RELATED TO TAX RULES AND REGULATIONS 15 Table of Contents Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible. Original programming requires substantial financial commitment, which can occasionally be offset by foreign, state or local tax incentives.
RISKS RELATED TO TAX RULES AND REGULATIONS Changes in foreign, state and local tax incentives may increase the cost of original programming content to such an extent that they are no longer feasible. Original programming requires substantial financial commitment, which can occasionally be offset by foreign, state or local tax incentives.
Our level of debt could have adverse consequences on our business, such as making it more difficult for us to satisfy our obligations with respect to our other debt; limiting our ability to refinance such indebtedness or to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; increasing our vulnerability to economic downturns and adverse developments in our business; exposing us to the risk of increased interest rates as certain of our borrowings are at fixed long term rates and or variable rates of interest; limiting our flexibility in planning for, and reducing our flexibility in reacting to, changes in the conditions of the financial markets and our industry; placing us at a competitive disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness and exposing us to potential events of default (if not cured or waived) under covenants contained in our debt instruments.
The facilities and the margin loan are generally repayable on demand and are subject to customary default provisions, representations and warranties and other terms and conditions. 17 Table of Contents Our level of debt could have adverse consequences on our business, such as making it more difficult for us to satisfy our obligations with respect to our other debt; limiting our ability to refinance such indebtedness or to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; increasing our vulnerability to economic downturns and adverse developments in our business; exposing us to the risk of increased interest rates as certain of our borrowings are at fixed long term rates and or variable rates of interest; limiting our flexibility in planning for, and reducing our flexibility in reacting to, changes in the conditions of the financial markets and our industry; placing us at a competitive disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and restricting the way in which we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness and exposing us to potential events of default (if not cured or waived) under covenants contained in our debt instruments.
If we fail to satisfy the continued listing requirements of Nasdaq Capital Market, such as minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements, Nasdaq may take steps to delist our common stock.
If we fail to satisfy the continued listing requirements of NYSE American, such as minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum share price, and certain corporate governance requirements, the NYSE may take steps to delist our common stock.
Therefore, in addition to the foreign currency translation risk, we face exposure to adverse movements in currency exchange rates with each transaction made outside of the entities' functional currency.
Therefore, in addition to the foreign currency translation risk, we face exposure to adverse movements in currency exchange rates with each transaction made outside of the entities' functional currency, including our investment in YFE.
If we reposition or realign portions of the investment portfolio and sell securities in an unrealized loss position, we will incur an other-than-temporary impairment charge or realized losses. Any such charge may have a material adverse effect on our results of operations and business.
If we reposition or realign portions of the investment portfolio and sell securities in an unrealized loss position, we will incur a credit loss. Any such loss may have a material adverse effect on our results of operations and business.
The failure of others to promote our products may adversely affect our business. The availability of retailer programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs, are important with respect to promoting our properties.
The availability of retailer programs relating to product placement, co-op advertising and market development funds, and our ability and willingness to pay for such programs, are important with respect to promoting our properties.
Any such access, disclosure or other loss of such information could result in legal claims or proceedings and damage our reputation. Loss of key personnel may adversely affect our business. Our success greatly depends on the performance of our executive management team, including Andy Heyward, our Chief Executive Officer.
Further, access to, disclosure of, loss of and misuse of personal or proprietary information could result in legal claims or proceedings. Loss of key personnel may adversely affect our business. Our success greatly depends on the performance of our executive management team, including Andy Heyward, our Chief Executive Officer.
We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. For the year ended December 31, 2022, we generated net revenues of $62.3 million and incurred a net loss of $44.5 million, while for the previous year, we generated net revenue of $7.9 million and incurred a net loss of $126.3 million.
We have a history of operating losses and incurred net losses in each fiscal quarter since our inception. For the year ended December 31, 2023, we generated net revenues of $44.1 million and incurred a net loss of $77.1 million, while for the previous year, we generated net revenue of $62.3 million and incurred a net loss of $45.6 million.
As of December 31, 2022, we and our subsidiaries have production loan facility obligations of approximately $18.3 million and advances outstanding of $1.7 million under our senior secured revolving credit facility. We also had an outstanding margin loan of $60.8 million secured by our marketable investment securities as of December 31, 2022.
As of December 31, 2023, we and our subsidiaries have production loan facility obligations of approximately $15.3 million and advances outstanding of $2.9 million under our senior secured revolving credit facility. We also had an outstanding margin loan of $0.8 million secured by our marketable investment securities as of December 31, 2023.
Our failure to meet the continued listing requirements of Nasdaq Capital Market could result in a delisting of our common stock.
Our failure to meet the continued listing requirements of NYSE American could result in a delisting of our common stock.
Except as required by law or applicable securities exchange listing standards, we do not expect to ask our shareholders to vote on any proposed acquisition. 13 Table of Contents We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG.
In addition, the financing of any future acquisition completed by us could adversely impact our capital structure. Except as required by law or applicable securities exchange listing standards, we do not expect to ask our shareholders to vote on any proposed acquisition. We are exposed to investment risk with the acquisition of an equity interest in Your Family Entertainment AG.
Risks Relating to our Common Stock • Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment. • Our failure to meet the continued listing requirements of Nasdaq Capital Market could result in a delisting of our common stock. • If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock. • If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected. • We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock. • We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock. • 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.
Risks Relating to our Common Stock 10 Table of Contents • Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment. • Our failure to meet the continued listing requirements of New York Stock Exchange American (“NYSE American”) could result in a delisting of our common stock. • If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock. • We have identified material weaknesses in our internal control over financial reporting which may, if not effectively remediated, result in additional material misstatements in our financial statements. • We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock. • We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock. • 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.
We cannot assure you that we will be able to maintain the success of any of our current original programming content or generate sufficient demand and market acceptance for new original programming content in the future.
We cannot assure you that we will be able to maintain the success of any of our current original programming content or generate sufficient demand and market acceptance for new original programming content in the future. This could materially adversely impact our business, financial condition, operating results, liquidity and prospects.
Our ability to sell products is dependent in part upon the success of these programs. If we or our licensees do not successfully market our products or if media or other advertising or promotional costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations.
If we or our licensees do not successfully market our products or if media or other advertising or promotional costs increase, these factors could have an adverse effect on our business, financial condition, and results of operations. The failure of others to promote our products may adversely affect our business.
In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to us being current in our periodic reports filed with the SEC.
In general, under Rule 144, a non-affiliated person who has held restricted shares of our common stock for a period of six months may sell into the market all of their shares, subject to us being current in our periodic reports filed with the SEC. 20 Table of Contents As of April 5, 2024, approximately 33,147,900 shares of common stock of the 35,367,653 shares of common stock issued are outstanding and freely trading.
Low ratings or viewership for programming content produced by us may lead to the cancellation, removal or non-renewal of a program and can negatively affect future license fees for such program.
A change in viewer preferences could cause our original programming content to decline in popularity, which could jeopardize renewal of agreements with distributors. Low ratings or viewership for programming content produced by us may lead to the cancellation, removal or non-renewal of a program and can negatively affect future license fees for such program.
It is an inherent risk in our industry that people may make such claims with respect to any title already included in our products, whether or not such claims can be substantiated. For example, in July 2020, we received a letter from a law firm alleging that rights that we had licensed from POW!
It is an inherent risk in our industry that people may make such claims with respect to any title already included in our products, whether or not such claims can be substantiated.
While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect our profitability.
While we believe we have mitigated this risk by aligning the economic interests of our partners with ours and managing the production process remotely on a daily basis, any failures or delays from our production partners could negatively affect our profitability. 13 Table of Contents We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms.
This could materially adversely impact our business, financial condition, operating results, liquidity and prospects. 11 Table of Contents Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations. Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs.
Failure to successfully market or advertise our products could have an adverse effect on our business, financial condition and results of operations. Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs. Our ability to sell products is dependent in part upon the success of these programs.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares. If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares. We have identified material weaknesses in our internal control over financial reporting which may, if not effectively remediated, result in additional material misstatements in our financial statements.
Lastly, as of December 31, 2022, there are 1,351,421 shares of common stock underlying outstanding options granted, 1,939,985 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 98,672 shares reserved for issuance under our Genius Brands International, Inc. 2020 Incentive Plan. Item 1B. Unresolved Staff Comments None.
As of December 31, 2023, there were 6,852,952 warrants outstanding. Lastly, as of December 31, 2023, there are 1,183,908 shares of common stock underlying outstanding options granted, 1,020,067 shares of common stock underlying outstanding restricted stock units (“RSUs”) and 87,045 shares reserved for issuance under our Kartoon Studios, Inc. 2020 Incentive Plan. Item 1B. Unresolved Staff Comments None.
Our business depends in part upon viewer preferences and audience acceptance of our original programming content. These factors are difficult to predict and are subject to influences beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment activities.
These factors are difficult to predict and are subject to influences beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment activities. We may not be able to anticipate and react effectively to shifts in tastes and interests in markets.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
If our common stock becomes subject to the penny stock rules, it may be more difficult to sell our common stock. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
As part of our growth strategy, we will continue to evaluate potential opportunities for further international expansion. Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States.
Operating in international markets requires significant resources and management attention, and subjects us to legal, regulatory, economic and political risks in addition to those we face in the United States. We have limited experience with international operations, and further international expansion efforts may not be successful.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer.
Despite precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business. 14 Table of Contents Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption and cause our business and reputation to suffer.
Substantial, complex or extended litigation could cause us to incur large expenditures and could distract management. For example, lawsuits by licensors, consumers, employees or stockholders could be very costly and disrupt business. We recently had a securities class action and derivative shareholder action filed against us.
Substantial, complex or extended litigation could cause us to incur large expenditures and could distract management. For example, lawsuits by licensors, consumers, employees or stockholders could be very costly and disrupt business. While disputes from time to time are not uncommon, we may not be able to resolve such disputes on terms favorable to us.
While trends in the toddler to tween sector change quickly, we respond to trends and developments by modifying, refreshing, extending, and expanding our product offerings on an on-going basis. However, we operate in extremely competitive industries where the ultimate appeal and popularity of content and products targeted to this sector can be difficult to predict.
However, we operate in extremely competitive industries where the ultimate appeal and popularity of content and products targeted to this sector can be difficult to predict.
In addition, an increase in price levels generally, or in price levels in a particular sector, could result in a shift in consumer demand away from the animated content and consumer products we offer, which could also decrease our revenues, increase our costs, or both.
In addition, an increase in price levels generally, or in price levels in a particular sector, could result in a shift in consumer demand away from the animated content and consumer products we offer, which could also decrease our revenues, increase our costs, or both. 12 Table of Contents Further, recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility.
We cannot assure you that our original programming content will appeal to our distributors and viewers or that any of our original programming content will not be cancelled or removed from our distributors’ platforms. Our business depends on the appeal of our content to distributors and viewers, which is difficult to predict.
Our business depends on the appeal of our content to distributors and viewers, which is difficult to predict. Our business depends in part upon viewer preferences and audience acceptance of our original programming content.
Removed
We may experience an adverse impact on our results of operations due to the current geopolitical tensions caused by the Russian invasion of Ukraine.
Added
Military conflicts and wars (such as the ongoing conflicts between Russia and Ukraine, Israel and Hamas, and the Red Sea crisis and its impact on shipping and logistics), terrorist attacks, instability in Venezuela, other geopolitical events, high inflation, increasing interest rates, bank failures and associated financial instability and crises, and supply chain issues can cause exacerbated volatility and disruptions to various aspects of the global economy.
Removed
The governments of the European Union, the United States, Japan and other jurisdictions have recently announced the imposition of sanctions on certain industry sectors and parties in Russia and the regions of Donetsk and Luhansk, as well as enhanced export controls on certain products and industries.
Added
The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations.
Removed
These and any additional sanctions and export controls, as well as any counter responses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, the levels of government spending or the global supply chain, with negative implications on the availability and prices of raw materials, energy prices, and our customers, as well as the global financial markets.
Added
Regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, could result in disruption or non-availability of our service or particular content or increased operating costs in the applicable jurisdiction and foreign intellectual property laws, such as the EU copyright directive, or changes to such laws, among other issues, may impact the economics of creating or distributing content, anti-piracy efforts, or our ability to protect or exploit intellectual property rights.
Removed
Our business has been and may continue to be adversely affected by the COVID-19 pandemic. We face various risks related to health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic. The COVID-19 pandemic and the mitigation efforts by governments to attempt to control its spread have adversely impacted the global economy, leading to reduced consumer spending and lending activities.
Added
Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales. While trends in the toddler to tween sector change quickly, we respond to trends and developments by modifying, refreshing, extending, and expanding our product offerings on an on-going basis.
Removed
Our customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions. We experienced significant revenue declines in several of our markets as a result of COVID-19, primarily due to the supply chain issues that are affecting the toy industry and which impacted our Beacon subsidiary.
Added
In addition, new technological developments, including the development and use of generative artificial intelligence (“AI”), are rapidly evolving. If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.
Removed
We continue to work with our stakeholders (including customers, employees, consumers, suppliers, business partners and local communities) to responsibly address this global pandemic. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions in an effort to mitigate adverse consequences.
Added
We and many of the third parties we work with rely on open source software and libraries that are integrated into a variety of applications, tools and systems, which may increase our exposure to vulnerabilities. Additionally, outside parties may attempt to induce employees, vendors, partners, or users to disclose sensitive or confidential information in order to gain access to data.
Removed
We cannot assure you that we will be successful in any such mitigation efforts.
Added
Any attempt by hackers to obtain our data (including member and corporate information) or intellectual property (including digital content assets), disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive to remedy and damage our reputation.
Removed
The extent to which the COVID-19 pandemic will continue to negatively impact our operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, the emergence of new virus variants, new information which may emerge concerning the severity of the COVID-19 pandemic, outbreaks occurring at any of our facilities, the actions taken to control the spread of COVID-19 or treat its impact, and changes in worldwide and U.S. economic conditions.
Added
We have implemented certain systems and processes to thwart hackers and protect our data and systems. However, the techniques used to gain unauthorized access to data and software are constantly evolving, and we may be unable to anticipate, detect or prevent unauthorized access or address all cybersecurity incidents that occur.
Removed
Further deterioration in economic conditions, as a result of the COVID-19 pandemic or otherwise, could lead to a further or prolonged decline in demand for our products and services and negatively impact our business. It may also impact financial markets and corporate credit markets which could adversely impact our access to financing or the terms of any such financing.
Added
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. As disclosed in Item 9A, “Controls and Procedures” in this Annual Report on Form 10-K, management identified material weaknesses in our internal control over financial reporting.
Removed
We cannot at this time predict the extent of the impact of the COVID-19 pandemic and its resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows.
Added
The related control deficiencies resulted in material misstatements in our previously issued audited consolidated financial statements in the annual report for the year ended December 31, 2022, including the unaudited interim periods ended June 30, 2022 and September 30, 2022 and the unaudited interim periods ended March 31, 2023, June 30, 2023 and September 30, 2023.
Removed
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Item 1A.
Added
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Removed
Risk Factors” and elsewhere in this Annual Report on Form 10-K, such as our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise.
Added
As a result of the material weakness, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. 19 Table of Contents Our management is actively engaged in developing a remediation plan designed to address these material weaknesses.
Removed
On March 15, 2022, we began implementing our “Return to Office” plan and currently the majority of the employees based in our Beverly Hills headquarters are in the office five days a week. 10 Table of Contents Inaccurately anticipating changes and trends in popular culture, media and movies, fashion, or technology can negatively affect our sales.
Added
If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results.
Removed
We may not be able to anticipate and react effectively to shifts in tastes and interests in markets. A change in viewer preferences could cause our original programming content to decline in popularity, which could jeopardize renewal of agreements with distributors.
Added
We cannot assure you that any measures we may take in the near future will be sufficient to remediate these material weaknesses or avoid potential future material weaknesses.
Removed
Despite precautionary measures to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.
Added
In addition, we may suffer adverse regulatory or other consequences, as well as negative market reaction, as a result of any material weaknesses, and we will incur additional costs as we seek to remediate these material weaknesses.
Removed
There may be an increased risk of cybersecurity attacks by state actors due to the current conflict between Russia and Ukraine. Recently, Russian ransomware gangs have threatened to increase hacking activity against critical infrastructure of any nation or organization that retaliates against Moscow for its invasion of Ukraine.
Added
If not remediated, these material weaknesses could result in additional material misstatements to our annual or interim consolidated financial statements that might not be prevented or detected on a timely basis, or in delayed filing of required periodic reports.
Removed
While we do not believe that we have experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could adversely affect our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal office is located in Beverly Hills, California, where we lease 5,838 square feet of general office space. We also lease 45,119 square feet of general office space located in Vancouver, Canada, 6,845 square feet of general office space in Toronto, Canada and 4,765 square feet of general office space in Lyndhurst, New Jersey.
Biggest changeItem 2. Properties Our principal office is located in Beverly Hills, California, where we lease 5,838 square feet of general office space. We also lease 45,119 square feet of general office space located in Vancouver, Canada, and 6,845 square feet of general office space in Toronto, Canada.
See Note 20 in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about our lease commitments. 18 Table of Contents
See Note 19 in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about our lease commitments.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOn October 3, 2022, the parties reached a full and complete settlement of the New York state action and the AAA arbitration proceeding and both proceedings have been dismissed with prejudice. In all of the above-mentioned active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously.
Biggest changeAside from the motions directed to the pleading, there has been no discovery or other proceedings in the case. In all of the above-mentioned active proceedings, the Company has denied and continues to deny any wrongdoing and intends to defend the claims vigorously.
As previously disclosed, the Company, its Chief Executive Officer Andy Heyward, and its Chief Financial Officer Robert Denton were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Central District of California and styled In re Genius Brands International, Inc. Securities Litigation , Master File No. 2:20-cv-07457 DSF (RAOx).
As previously disclosed, the Company, its Chief Executive Officer Andy Heyward, and its former Chief Financial Officer Robert Denton were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Central District of California and styled In re Genius Brands International, Inc. Securities Litigation, Master File No. 2:20-cv-07457 DSF (RAOx).
Item 3. Legal Proceedings As of December 31, 2022, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject other than described below.
Item 3. Legal Proceedings As of December 31, 2023, there were no material pending legal proceedings to which the Company is a party or as to which any of its property is subject other than as described below.
Pursuant to agreements among the parties, the courts in all of the derivative lawsuits have stayed proceedings pending the outcome of the securities class action. The Company cannot predict the impact of the securities class action’s dismissal on the shareholder derivative lawsuits.
Pursuant to agreements among the parties, the courts in all of the derivative lawsuits have stayed proceedings pending the outcome of the securities class action. The Company cannot predict the impact of the securities class action’s dismissal on the shareholder derivative lawsuits. The Company is also a nominal defendant in an action filed on January 11, 2022, in the U.S.
Lead plaintiffs again sought unspecified damages on behalf of an alleged class of persons who invested in the Company’s common stock during the expanded alleged class period. In November 2021, defendants filed a motion to dismiss the second amended complaint. On July 15, 2022, the Court issued a decision dismissing the second amended complaint in its entirety and with prejudice.
Lead plaintiffs again sought unspecified 21 Table of Contents damages on behalf of an alleged class of persons who invested in the Company’s common stock during the expanded alleged class period. In November 2021, defendants filed a motion to dismiss the second amended complaint.
Heyward and Denton and former director Michael Klein, have been named as defendants in several punitive stockholder derivative lawsuits. As previously disclosed, these include a consolidated proceeding pending in the U.S.
Related to the securities class action, the Company’s directors (other than Dr. Cynthia Turner-Graham, Michael Hirsh and Stefan Piech), together with Messrs. Heyward and Denton and former director Michael Klein, have been named as defendants in several putative stockholder derivative lawsuits. As previously disclosed, these include a consolidated proceeding pending in the U.S.
On August 12, 2022, lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. Briefing of the appeal has concluded.
On July 15, 2022, the Court issued a decision dismissing the second amended complaint in its entirety and with prejudice. On August 12, 2022, lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit.
Removed
The Company cannot predict whether the Court will entertain oral argument of the appeal, when a hearing might be scheduled, the outcome of the appeal or the timing of a decision on the appeal. Related to the securities class action, the Company’s directors (other than Dr. Cynthia Turner-Graham), together with Messrs.
Added
After full briefing of the appeal, a panel of the Court of Appeals held oral argument on the appeal on November 6, 2023 and took the matter under submission.
Removed
On January 18, 2022, the Company was named as a defendant in a lawsuit filed in the Supreme Court of the State of New York, County of New York styled Harold Chizick and Jennifer Chizick v.
Added
On April 5, 2024, the Court of Appeals affirmed in part and reversed in part the district court's dismissal of the second amended complaint, remanding certain claims back to district court for further proceedings. The Company cannot predict the outcome of the claims remanded for further proceedings or the timing of a decision with respect to such claims.
Removed
Genius Brands International, Inc., ChizComm Ltd., Index No. 650278/2022, alleging: (1) breach of employment agreement, (2) breach of duty of good faith, (3) constructive dismissal, (4) indemnification, (5) violation of the Employment Standards Act 2000 of Ontario, and (6) defamation.
Added
District Court for the Southern District of New York and styled Todd Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 VM.
Removed
Mine Safety Disclosures Not applicable. 19 Table of Contents PART II
Added
The action, which again purports to be brought on behalf and for the benefit of the Company, seeks the recovery under Section 16(b) of the Exchange Act of supposed short-swing profits allegedly realized by roughly a dozen persons and entities that participated as investors in certain of the Company’s private placements of securities in 2020.
Added
Plaintiff Augenbaum, who purports to be a Company stockholder, filed his lawsuit after issuing a demand to the Company’s Board of Directors asking that the Company sue the investor defendants. The Company rejected the demand in late December 2021, and Mr. Augenbaum sued a few weeks later, as Section 16(b) permits him to do.
Added
No Company officer or director is among the defendants. The defendant investors in the action requested and received court permission to file motions to dismiss the action, and motions were filed July 25, 2022, and plaintiff has opposed the motions. After full briefing, the court, by order entered March 30, 2023, granted the motion to dismiss with leave to amend.
Added
Plaintiff subsequently filed his First Amended Complaint on May 1, 2023. Defendants again moved to dismiss and briefing on that motion closed November 2, 2023. At the first pretrial conference, held on November 16, 2023, the Court asked the parties to address the motion to dismiss.
Added
Following the hearing, the Court requested supplemental letter briefs on one issue, which letters were submitted by the parties simultaneously just before Thanksgiving. The motion is now under submission. The Company cannot predict when or how the court will decide the motion, and we cannot predict the timing of any action.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock began trading on the Nasdaq Capital Market under the symbol “GNUS” on November 21, 2016. On February 6, 2023, our board of directors approved a 1-for-10 reverse stock split of our outstanding shares of common stock.
Biggest changeIn connection with listing on NYSE American, we voluntarily delisted from the Nasdaq Capital Market (“Nasdaq”). Our common stock began trading on NYSE American under the new symbol “TOON” on June 26, 2023. On February 6, 2023, our board of directors approved a 1-for-10 reverse stock split of our outstanding shares of common stock.
Stockholders As of April 12, 2023, there were approximately 348 stockholders of record of our common stock, although there is a significantly larger number of beneficial owners of our common stock. Dividends We have never declared or paid any cash dividends on our capital stock, and we do not currently anticipate paying any cash dividends in the foreseeable future.
Stockholders As of April 5, 2024, there were approximately 188 stockholders of record of our common stock, although there is a significantly larger number of beneficial owners of our common stock. Dividends We have never declared or paid any cash dividends on our capital stock, and we do not currently anticipate paying any cash dividends in the foreseeable future.
The table below summarizes such repurchase during the quarterly period ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 41,934 $ 19.90 – n/a November 1, 2022 – November 30, 2022 – – – – December 1, 2022 - December 31, 2022 – – – – Total 41,934 $ 19.90 – – 20 Table of Contents Item 6. [Reserved]
Company Purchases of Equity Securities The table below summarizes such repurchase during the quarterly period ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 – – – – November 1, 2023 – November 30, 2023 – – – – December 1, 2023 - December 31, 2023 – – – – Total – $ – – – Item 6. [Reserved] 24 Table of Contents
Equity Compensation Plan Information Information about our equity compensation plans is incorporated herein by reference to Part III, Item 12 of this Annual Report. Recent Sales of Unregistered Securities None. Company Purchases of Equity Securities The Company repurchased 41,934 shares of its common stock as settlement in a lawsuit.
Equity Compensation Plan Information Information about our equity compensation plans is incorporated herein by reference to Part III, Item 12 of this Annual Report. Recent Sales of Unregistered Securities On October 3, 2023, we issued 1,683 shares of common stock valued at $1.39 per share for production services.
Removed
The purchase was not made pursuant to a publicly announced repurchase plan or program.
Added
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information 22 Table of Contents On June 23, 2023, we were renamed Kartoon Studios, Inc. On June 26, 2023, we transferred our listing to NYSE American LLC (“NYSE American”).
Added
On October 16, 2023, we issued 4,545 shares of common stock valued at $1.32 per share for production services. On October 23, 2023, we issued 2,340 shares of common stock valued at $1.00 per share for production services. On October 31, 2023, we issued 9,218 shares of common stock valued at $0.99 per share for production services.
Added
On November 6, 2023, we issued 4,239 shares of common stock valued at $1.12 per share for production services. On November 15, 2023, we issued 5,505 shares of common stock valued at $1.09 per share for production services. On November 16, 2023, we issued 2,867 shares of common stock valued at $1.09 per share for production services.
Added
On November 20, 2023, we issued 4,263 shares of common stock valued at $1.09 per share for production services. On November 30, 2023, we issued 5,563 shares of common stock valued at $1.64 per share for production services. On December 1, 2023, we issued 2,792 shares of common stock valued at $1.64 per share for production services.
Added
On December 15, 2023, we issued 8,432 shares of common stock valued at $1.52 per share for production services. 23 Table of Contents In each case, the issuance of the shares of common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther Income (Expense), Net Components of other income (expense), net, are summarized as follows: Year Ended December 31, 2022 2021 Change % Change (in thousands, except percentages) Interest Expense (a) $ (2,329) $ (20) $ (2,309) 11,545 % Gain on Warrant Revaluation (b) 557 342 215 63 % Loss on Foreign Exchange (c) (2,161) (26) (2,135) 8,212 % Loss on Marketable Securities Investments (d) (413) (70) (343) 490 % Gain (Loss) on Revaluation of Equity Investment in YFE (e) 1,392 (106) 1,498 (1,413) % Interest Income (f) 1,015 559 456 82 % Finance Lease Interest Expense (g) (116) – (116) – % Warrant Incentive Expense (h) – (69,139) 69,139 (100) % Gain on Contingent Consideration Revaluation (i) 1,345 5,846 (4,501) (77) % Other 6 – 6 – % Other Income (Expense) $ 1,625 $ (62,594) $ 64,219 (103) % 23 Table of Contents (a) Interest expense during the year ended December 31, 2022 primarily consisted of $1.3 million of interest incurred on the margin loan collateralized by the marketable security investments and $0.9 million of interest incurred on production facilities loans and bank indebtedness assumed as part of the Wow Acquisition.
Biggest changeAs a result, we recorded an impairment charge to our property and equipment of $0.1 million, our definite-lived intangible assets of $2.8 million, our indefinite-lived intangible assets of $1.7 million and our goodwill recorded within the Content Production and Distribution reporting unit of $33.5 million in our consolidated statement of operations. 27 Table of Contents Other Income (Expense), net Components of Other Income (Expense), net are summarized as follows Year Ended December 31, 2023 2022 Interest Expense (a) $ (3,126) $ (2,329) Warrant Expense (b) (12,664) – Gain on Revaluation of Warrants (c) 10,373 557 Gain on Revaluation of Equity Investment in YFE (d) 2,314 1,392 Realized Loss on Marketable Securities Investments (e) (4,496) (413) Gain (Loss) on Foreign Exchange (f) 641 (2,161) Interest Income (g) 622 1,015 Loss on Early Lease Termination (h) (258) – Finance Lease Interest Expense (i) (189) (116) Gain on Contingent Consideration Revaluation (j) – 1,345 Other (k) 978 6 Other Income (Expense), net $ (2,679) $ 1,625 (a) Interest Expense during the year ended December 31, 2023 primarily consisted of $1.5 million of interest incurred on the margin loan and $1.5 million of interest incurred on production facilities loans and bank indebtedness.
Quantitative and Qualitative Disclosures about Market Risk 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. Item 8. Financial Statements and Supplementary Data The financial statements are included herein commencing on page F-1. Item 9.
Quantitative and Qualitative Disclosures about Market Risk 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. Item 8. Financial Statements and Supplementary Data The financial statements are included herein commencing on page F-1.
We issue authorized shares available for issuance under our 2015 Incentive Plan and our 2020 Incentive Plan upon employees’ exercise of their stock options. Income Taxes Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.
We issue authorized shares available for issuance under our 2020 Incentive Plan upon employees’ exercise of their stock options. Income Taxes Deferred income tax assets and liabilities are recognized based on differences between the financial statement and tax basis of assets and liabilities using presently enacted tax rates.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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.
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 have rendered services and amortization, including any write-downs of film and television costs, make up the remainder of Direct Operating Costs.
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.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheet. Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration.
The difference between contractual payments received and revenue recognized is recorded as deferred revenue when receipts exceed revenue. When revenue exceeds milestone billings, we recognize this difference as unbilled accounts receivable within Other Receivable on our consolidated balance sheets. Unbilled accounts receivables are transferred to accounts receivable when we have an unconditional right to consideration.
Revenue Recognition We account for revenue according to standard FASB ASC 606, Revenue from Contracts with Customers ("ASC 606"). Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized when a customer obtains control of the products or services in a contract.
Revenue Recognition We account for revenue according to standard FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized when a customer obtains control of the products or services in a contract.
Specifically, actual results may vary from our forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
For flat rate promotions with a fixed term, revenue is recognized when all five revenue recognition criteria under ASC 606 are met. For impressions served, we deliver a certain minimum number of impressions on the channel to the advertiser for which the advertiser pays a contractual cost per mille impressions ("CPM").
For flat rate promotions with a fixed term, revenue is recognized when all five revenue recognition criteria under ASC 606 are met. For impressions served, we deliver a certain minimum number of impressions on the channel to the advertiser for which the advertiser pays a contractual cost per 1000 (mille) impressions (“CPM”).
Accordingly, production costs are capitalized at actual cost and amortized using the individual-film-forecast method, whereby these costs are amortized, and participations costs are accrued based on the ratio of the current period’s revenues to management’s estimate of ultimate revenue expected to be recognized from each production.
Accordingly, production costs are capitalized at actual cost and amortized 32 Table of Contents using the individual-film-forecast method, whereby these costs are amortized, and participations costs are accrued based on the ratio of the current period’s revenues to management’s estimate of ultimate revenue expected to be recognized from each production.
These are fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts (Level 2). The fair values of the available-for-sale securities are generally based on quoted market prices, where available.
These are fair valued using observable forward exchange rates at the measurement dates and interest rates corresponding to the maturity of the contracts (Level 2). The fair values of the AFS securities are generally based on quoted market prices, where available.
Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, we are entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up.
Each production is made to an individual customer’s specifications and if the contract is terminated by the customer, the Company is entitled to be reimbursed for any costs incurred to date, and for any prepaid commitments made, plus the agreed contractual mark-up.
This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
We have identified the following material and distinct performance obligations: • Provide animation production services. • License rights to exploit Functional Intellectual Property (“functional IP”) is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired.
We have identified the following material and distinct performance obligations: • Providing animation production services • Licensing rights to exploit Functional Intellectual Property (“functional IP” is defined as intellectual property that has significant standalone functionality, such as the ability to be played or aired.
Completed Productions Completed productions are carried at the cost of proprietary film and television programs which have been produced by us or to which we have acquired distribution rights, less accumulated amortization and accumulated impairment losses.
Completed Productions Completed productions are carried at the cost of proprietary film and television programs which have been produced by the Company or to which the Company has acquired distribution rights, less accumulated amortization and accumulated impairment losses.
Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures. The ultimate collection of previously recorded estimates is subject to ordinary course audits from the CRA and Provincial agencies.
Determination of when and if the conditions of eligibility have been met is based on management’s judgment, and the amount recognized is based on management’s estimates of qualifying expenditures. The ultimate collection of previously recorded estimates is subject to ordinary course audits from the Canada Revenue Agency (“CRA”) and provincial agencies.
In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders.
We are considered the primary beneficiary and are required to consolidate the VIE. 31 Table of Contents In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders.
Further, continued adverse market conditions could result in the recognition of additional impairment if we determine that the fair values of our reporting units have fallen below their carrying values. Intangible assets have been acquired, either individually or with a group of other assets, and were initially recognized and measured based on fair value.
Further, continued adverse 33 Table of Contents market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values. Intangible assets have been acquired, either individually or with a group of other assets, and were initially recognized and measured based on fair value.
The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $103.4 million as of December 31, 2022, of which about $74.3 million, could be owed within one year, if the margin loan and interim 26 Table of Contents production facilities are called.
The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $34.2 million as of December 31, 2023, of which about $26.3 million could be owed within one year if the margin loan and interim production facilities are called.
Tax Credits Receivable The Canada Revenue Agency (“CRA”) and certain Provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.
Tax Credits Receivable The Canadian federal government and certain provincial governments in Canada provide programs that are designed to assist film and television production in the form of refundable tax credits or other incentives.
Recent Accounting Pronouncements For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 to the financial statements in Item 8 of this Annual Report. Item 7A.
Recent Accounting Pronouncements For a description of recent accounting pronouncements and the potential impact of these pronouncements on our consolidated financial statements, see Note 2 to the financial statements in Item 8 of this Annual Report. Off Balance Sheet Arrangements We have no off-balance sheet arrangements. Item 7A.
Direct Operating Costs during the year ended December 31, 2022 consist primarily of salaries and related expenses for the animation production services employees of Mainframe and Frederator.
Direct Operating Costs during the year ended December 31, 2023 consisted primarily of salaries and related expenses for the animation production services employees of Wow and Frederator.
Functional IP derives a substantial portion of its utility from its significant standalone functionality). • License rights to exploit Symbolic Intellectual Property (“symbolic IP”) is intellectual property 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, including our ordinary business activities, such as our licensing and merchandising programs associated with its animated content). • Provide media and advertising services to clients. • Fixed and variable fee advertising and subscription-based revenue generated from the Genius Brands Kartoon Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network on YouTube . • Options to renew or extend a contract at fixed terms.
Functional IP derives a substantial portion of its utility from its significant standalone functionality) • Licensing rights to exploit Symbolic Intellectual Property (“symbolic IP” is intellectual property 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, including its ordinary business activities, such as the Company’s licensing and merchandising programs associated with its animated content) • Providing media and advertising services to clients • Fixed and variable fee advertising and subscription-based revenue generated from the Kartoon Studios Kartoon Channel!, the Frederator owned and operated YouTube channels and revenues generated from the operation of its multi-channel network, Channel Frederator Network, on YouTube • Options to renew or extend a contract at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future) 34 Table of Contents • Options on future seasons of content at fixed terms (while this performance obligation is not significant for the Company’s current contracts, it could become significant in the future) Production Services Animation Production Services For revenue from animation production services, the customer controls the output throughout the production process.
These tiers include: • Level 1 - Observable inputs such as quoted prices for identical instruments in active markets; 32 Table of Contents • Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and • Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
These tiers include: • Level 1 - Observable inputs such as quoted prices for identical instruments in active markets • Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active • Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable The carrying amounts of cash, restricted cash, receivables, payables, accrued liabilities, bank indebtedness and the margin loan approximate fair value due to the short-term nature of the instruments.
The decrease of $86.4 million in working capital as compared to December 31, 2021 was primarily due to a decrease in our cash and cash equivalents and marketable security position, offset by the change in net current assets and liabilities as a result of the acquisition of Wow and Ameba and additional short-term borrowings from our margin loan account.
The decrease of $17.1 million was primarily due to a decrease in our cash and marketable security position, offset by the change in net current 29 Table of Contents assets and liabilities as a result of the acquisition of Wow and Ameba and additional short-term borrowings from our margin loan account.
As of December 31, 2022, we have $2.6 million in commitments for capital expenditures, related to equipment leases. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP.
We plan to utilize our liquidity (as described above) to fund our material cash requirements. As of December 31, 2023, we had $2.2 million in commitments for capital expenditures, related to equipment leases. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles, or GAAP.
We had working capital of $28.6 million as of December 31, 2022 as compared to working capital of $115.1 million as of December 31, 2021.
We had working capital of $11.5 million as of December 31, 2023 as compared to working capital of $28.6 million as of December 31, 2022.
Media Advisory & Advertising Services Media and Advertising Services We provide media and advertising services to clients. Revenue is recognized when the services are performed. When the Company purchases advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.
Revenue is recognized when the services are performed or as paid through the monthly retainer. When we purchase advertising for clients on linear and across digital and streaming platforms and receives a commission, the commissions are recognized as revenue in the month the advertising is displayed.
Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured.
Variable consideration in excess of non-refundable guaranteed amounts, such as royalties and other contractual payments are recognized as revenue when the amounts are known and become due provided collectability is reasonably assured. Invoices are issued based on the contractual terms of an agreement and are usually payable within 30-45 days.
Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.
Capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to the Company. Borrowing costs and depreciation are capitalized to the cost of a film or television program until substantially all of the activities necessary to prepare the film or television program for its use intended by management are complete.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
The FX forwards are typically settled in CAD for their fair value at or close to their settlement date. We do not currently designate any of the FX forwards under hedge accounting and therefore reflect changes in fair value as unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged.
We do not currently designate any of the FX forwards under hedge accounting and therefore reflect changes in fair value as unrealized gains or losses immediately in earnings as part of the revenue generated from the transactions hedged. We do not hold or use these instruments for speculative or trading purposes.
Receivables are usually collectable within 30 days. Licensing & Royalties Merchandising and licensing We enter into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of our intellectual property.
Licensing & Royalties Merchandising and licensing 35 Table of Contents We enter into merchandising and licensing agreements that allow licensees to produce merchandise utilizing certain of our intellectual property.
All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes. Additionally, for episodic series, from time to time, we develop additional content, improved animation and bonus songs/features for its existing content.
These write-downs are included in amortization expense within Direct Operating Expenses on the consolidated statements of operations. All capitalized costs that exceed the initial market firm commitment revenue are expensed in the period of delivery of the episodes. Additionally, for episodic series, from time to time, the Company develops additional content, improved animation and bonus songs/features for its existing content.
Refer to Note 10 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details. 29 Table of Contents Debt and Attached Equity-Linked Instruments We measure issued debt on an amortized cost basis, net of debt premium/discount and debt issuance costs amortized using the effective interest rate method or the straight-line method when the latter does not lead to materially different results.
Debt and Attached Equity-Linked Instruments We measure issued debt on an amortized cost basis, net of debt premium/discount and debt issuance costs amortized using the effective interest rate method or the straight-line method when the latter does not lead to materially different results.
At each balance sheet date, we evaluate the available evidence about future taxable income and other possible sources of realization of deferred tax assets and record a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized.
At each balance sheet date, we evaluate the available evidence about future taxable income and other possible sources of realization of deferred tax assets and record a valuation allowance that reduces the deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized. 36 Table of Contents Fair value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
We used the settlement value for our put option liability on certain warrants and the fair values of the liability-classified derivative warrants are revalued at the end of each reporting period determined using the BSM model (Level 2) with standard valuation inputs.
We use the fair values of the liability-classified derivative warrants revalued at the end of each reporting period determined using the BSM option pricing model (Level 2) with standard valuation inputs. Refer to Note 16 for additional details.
The investment margin account borrowings do not mature but are payable on demand as the custodian can issue a margin call at any time, therefore the margin loan is recorded as a current liability on our consolidated balance sheets. As of December 31, 2022 and December 31, 2021, our margin loan balance was $60.8 million and $6.4 million, respectively.
The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on our consolidated balance sheets.
The variable interest relates to 50% ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from us to continue operations. Our total cash investment in SLU was $2.0 million as of December 31, 2021. As of December 31, 2022, our investment in SLU was $1.2 million, net $0.8 million of distributions.
The variable interest relates to 50% ownership in the entity that is comprised of the Stan Lee Assets and that requires additional financial support from us to continue operations.
During the year ended December 31, 2022, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation.
During the year ended December 31, 2023, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. We believe that our current cash balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months.
Productions in Development Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences. Development costs include the costs of acquiring film rights to books, scripts or original screenplays and the third-party costs to adapt such projects, including visual development and design.
There are usually three stages for production projects with different costs incurred at each stage: Productions in Development Development costs include the costs of acquiring film rights to books, scripts or original screenplays and the third-party costs to adapt such projects, including visual development and design.
Revenue related to our licensing and royalties for the year ended December 31, 2022 increased 77% as compared to the year ended December 31, 2021 primarily due to entering an agreement for the licensing of certain Stan Lee Assets.
Revenue related to our licensing and royalties for the year ended December 31, 2023 decreased by 83% as compared to the year ended December 31, 2022 primarily due to our license deals related to our Stan Lee Assets generating increased revenue of $2.5 million during the prior year period.
(d) The net realized loss on marketable securities reflects the loss that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities. (e) The fair value revaluation of the investment in YFE, accounted for using the fair value option, as of December 31, 2022, resulted in a $1.4 million gain.
(e) The Realized Loss on Marketable Securities Investments reflects the loss that will not be recovered from the investments due to selling securities and issuers' prepayments of principals on certain mortgage-backed securities.
Following the acquisition of Wow, we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its multi-channel network on YouTube . Revenue is recognized when services are provided in accordance with our agreement with YouTube , the price is fixed or determinable, and collection of the related receivable is probable.
Upon the acquisition of Wow, we generate advertising revenue from Frederator’s owned and operated YouTube channels as well as revenues generated from the operation of its multi-channel network, Channel Frederator Network, on YouTube.
Annual amortization of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset. We have performed our annual impairment test on goodwill and indefinite-lived intangible assets during the fourth quarter of the year ended December 31, 2022.
Annual amortization of these intangible assets is computed based on the straight-line method over the remaining economic life of the asset.
Revenue related to our AVOD and SVOD, including advertising sales for the year ended December 31, 2022, increased 2,146% as compared to the year ended December 31, 2021 primarily due to the acquisition of Ameba, Wow and Frederator, increasing Content Distribution revenue by $23.9 million.
Revenue related to content distribution on AVOD and SVOD, including advertising sales for the year ended December 31, 2023, decreased by 52% as compared to the year ended December 31, 2022.
(h) The Warrant Incentive Expense was related to the fair value of new warrants issued in 2021 to certain existing warrant holders in exchange for previously issued outstanding warrants.
(b) The Warrant Expense is related to the $12.7 million fair value of Exchange Warrants that were issued during the year ended December 31, 2023 to certain existing warrant holders in exchange for previously issued outstanding warrants.
(i) The gain on contingent consideration revaluation is related to the change in fair value of the liability recorded for the earn-out arrangement with the sellers of the ChizComm entity acquired during 2021.
(j) The Gain on Contingent Consideration Revaluation recorded during the year ended December 31, 2022 is related to the write-off of the contingent earn-out liability related to the earn-out arrangement with the sellers of the Beacon entities acquired during 2021 due to cancellation of the arrangement.
We do not hold or use these instruments for speculative or trading purposes. Per FASB ASC 815-10-45, Derivatives and Hedging , we have elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative instruments.
Per FASB ASC 815-10-45, Derivatives and Hedging , we have elected an accounting policy to offset the fair value amounts recognized for eligible forward contract derivative instruments. Therefore, we present the asset or liability position of the FX Forwards that are with the same counterparty net as either an asset or liability in our consolidated balance sheets.
The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.
The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment. We continuously assess whether we are the primary beneficiary of a variable interest entity as changes to existing relationships or future transactions may result in us consolidating its collaborators or partners.
Wow uses foreign currency derivatives, specifically foreign currency forward contracts ("FX forwards"), to manage its exposure to fluctuations in the CAD-USD exchange rates. FX forwards involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.
Foreign Currency Forward Contracts Our wholly-owned subsidiary, Wow, is exposed to fluctuations in various foreign currencies against its functional currency, the Canadian dollar. Wow uses foreign currency derivatives, specifically foreign currency forward contracts ("FX forwards"), to manage its exposure to fluctuations in the CAD-USD exchange rates.
The $9.9 million increase in general and administrative expenses for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to the consolidation of Ameba, Wow and Frederator general and administration expenses of $9.8 million.
The $10.5 million decrease in general and administrative expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to a decrease of $8.2 million in stock-based compensation expense and acquisition related costs of $4.5 million incurred during the year ended December 31, 2022.
Cash used was offset by $55.3 million of proceeds provided by the margin loan, production facilities and bank indebtedness, net of repayments. As of December 31, 2022, we held available-for-sale marketable securities with a fair value of $83.7 million, a decrease of $28.8 million as compared to December 31, 2021.
The cash provided by investing activities was due to sales and maturities of marketable securities of $72.1 million. As of December 31, 2023, we held available-for-sale marketable securities with a fair value of $12.0 million, a decrease of $71.8 million as compared to December 31, 2022 due to sales and maturities during the year ended December 31, 2023.
Refer to Note 18 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details. The investment in YFE is also revalued at the end of each reporting period based on the trading price of YFE (Level 1).
The investment in YFE is also revalued at the end of each reporting period based on the trading price of YFE (Level 1). Refer to Note 4 for additional details. Upon the acquisition of Wow, foreign currency forward contracts that are not traded in active markets were assumed.
Advances or contributions received from third parties to assist in development are deducted from these costs. Productions in Progress 28 Table of Contents For our film and television programs in progress, capitalized costs include all direct production and financing costs incurred during production that are expected to provide future economic benefit to us.
Advances or contributions received from third parties to assist in development are deducted from these costs. Productions in Progress Capitalized development costs are reclassified to productions in progress once the project is approved and physical production of the film or television program commences.
We incurred interest expense on the loan of $1.3 million during the year ended December 31, 2022. The amount of interest incurred on the margin loan during the year ended December 31, 2021 was insignificant.
The weighted average interest rates were 0.98% and 1.66% on average margin loan balances of $27.4 million and $27.1 million as of December 31, 2023 and December 31, 2022, respectively. We incurred interest expense on the loan of $1.5 million and $1.3 million during the years ended December 31, 2023 and December 31, 2022, respectively.
We borrowed an additional $68.8 million from our investment margin account during the year ended December 31, 2022 and repaid $15.7 million with cash received from sales and/or redemptions of our marketable securities.
During the year ended December 31, 2023, we borrowed an additional $21.2 million from our investment margin account and repaid $81.2 million primarily with cash received from sales and maturities of marketable securities. The borrowed amounts were primarily used for operational costs. The interest rates for the borrowings fluctuate based on the Fed Funds Upper Target plus 0.60%.
Comparison of Cash Flows for the Years Ended December 31, 2022 and December 31, 2021 Our total cash, cash equivalents and restricted cash as of December 31, 2022 and December 31, 2021 was $7.4 million and $10.1 million, respectively. 25 Table of Contents Year Ended December 31, 2022 2021 Increase (Decrease) in Net Cash (in thousands) Net Cash Used in Operating Activities $ (23,653) $ (23,819) $ 166 Net Cash Used in Investing Activities (30,937) (128,732) 97,795 Net Cash Provided by Financing Activities 52,174 62,171 (9,997) Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash (212) (16) (196) Decrease in Cash, Cash Equivalents and Restricted Cash $ (2,628) $ (90,396) $ 87,768 Net Noncash Expenses Items necessary to reconcile from net loss to cash flow used in operating activities included net noncash expenses of $40.1 million for the year ended December 31, 2022 as compared to net noncash expenses of $108.9 million for the year ended December 31, 2021.
Year Ended December 31, 2023 2022 Change (in thousands) Net Cash Used in Operating Activities $ (16,092) $ (25,923) $ 9,831 Net Cash Provided by (Used in) Investing Activities 73,858 (30,937) 104,795 Net Cash Provided by (Used in) Financing Activities (60,802) 54,444 (115,246) Effect of Exchange Rate Changes on Cash (301) (212) (89) Decrease in Cash $ (3,337) $ (2,628) $ (709) Net Noncash Expenses Items necessary to reconcile from net loss to cash used in operating activities included net noncash expenses of $59.3 million for the year ended December 31, 2023 as compared to net noncash expenses of $37.8 million for the year ended December 31, 2022.
The decrease in marketing and sales expenses for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to a 22 Table of Contents decrease in marketing and advertising expenses incurred to promote the Kartoon Channel! as well as the launch of Superhero Kindergarten.
The increase in marketing and sales expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to recognition of marketing expenses related to Shaq’s Garage of $1.2 million, offset by a decrease due to cost saving efforts during the year ended December 31, 2023.
The decrease was primarily due to the decrease of cash used in investments of marketable securities of $305.4 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021.
The decrease was primarily due to a reduction in film amortization expense recognized during the year ended December 31, 2023 of $5.6 million as compared to the year ended December 31, 2022 as a result of less film and television production during the current year.
The change in operating liability activity of $10.9 million as of December 31, 2022 compared to December 31, 2021 was primarily due to the decrease in deferred revenue of $7.8 million and accrued production costs of $3.2 million.
Change in Operating Activities The net change in operating asset and liability activities from cash used of $19.2 million as of December 31, 2022 to cash provided by operating activities of $1.8 million as of December 31, 2023 was primarily due to an increase in net receipts of tax credits during the current year of $10.0 million as credits were received for production completed in the prior year and the decrease in film and television costs of $7.0 million and accrued production costs of $2.6 million due to less production activity during the current year.
The gain is a result of the increase in YFE’s stock price as of December 31, 2022, as compared to December 31, 2021. (f) Interest Income during the year ended December 31, 2022, primarily consisted of cash interest received of $2.0 million from the investments in marketable securities, net of premium amortization expense of $1.1 million.
(g) Interest Income during the year ended December 31, 2023 primarily consisted of interest income of $0.5 million, net of premium amortization expense, recorded for the investments in marketable securities, respectively. (h) The Loss on Early Lease Termination is due to early termination of the Lyndhurst, NJ office lease, effective August 1, 2023.
The increase is partially offset by a decrease in the write-downs of film and television costs of $11.4 million recorded during the year ended December 31, 2022 as compared to the write-downs recorded during the year ended December 31, 2021.
The decrease is offset by the recognition of a full year of costs incurred by Wow and Fred versus nine months of costs incurred during the year ended December 31, 2022 after the acquisition in the second quarter of 2022.
Change in Financing Activities Cash provided by financing activities for the year ended December 31, 2022 decreased by $10.0 million as compared to cash provided during the year ended December 31, 2021.
Revenue generated by media advisory and advertising services for the year ended December 31, 2023 decreased by 3% as compared to the year ended December 31, 2022 primarily due to lower revenue generated by Beacon Communications during the year ended December 31, 2023, resulting in a decrease of $0.8 million.
We believe that our current cash and cash equivalents balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months. To meet our short and long-term liquidity needs, we expect to use existing cash and marketable securities balances.
To meet our short and long-term liquidity needs, we expect to use existing cash and marketable securities balances. Comparison of Cash Flows for the Years Ended December 31, 2023 and December 31, 2022 Our total cash as of December 31, 2023 and December 31, 2022 was $4.1 million and $7.4 million, respectively.
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Recent Developments On February 6, 2023, our board of directors approved a 1-for-10 reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:00 p.m. Eastern time.
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Overview Our content distribution business is focused on achieving scale across our networks, including Kartoon Channel! , Frederator, Ameba, and Kartoon Channel! Worldwide. Revenue growth will be driven by the continued focus on licensed content and exploitation of our current content such as Stan Lee, Shaq's Garage , Rainbow Rangers and many more.
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At the effective time, every 10 issued and outstanding shares of the Company's common stock were converted into 1 share of common stock. Any fractional shares of common stock resulting from the reverse stock split were rounded up to the nearest whole post-split share and no shareholders received cash in lieu of fractional shares.
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Continued profit growth will be realized the more we can scale the business across our platforms. In addition, we are looking at artificial intelligence (“AI”) tools to reduce the cost of operating distribution expenses such as dubbing expenses, video resolution upscaling and converting between 2D and 3D.
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The par value of each share of common stock remained unchanged. The reverse stock split proportionately reduced the number of shares of authorized common stock from 400,000,000 to 40,000,000 shares. The reverse stock split also applied to common stock issuable upon the exercise of our outstanding warrants and stock options.
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Our production services business is focused on creating high-quality original and for hire content in the most efficient way possible. To achieve this, our Mainframe Studios division, the main driver of this business, is exploring more ways to improve operations by adopting a more flexible and efficient approach.
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The reverse stock split did not affect the authorized preferred stock of 10,000,001 shares. Unless noted, all references to shares of common stock and per share amounts contained in this Annual Report on Form 10-K have been retroactively adjusted to reflect a 1-for-10 reverse stock split. 2022 Investments On January 13, 2022, we acquired Ameba Inc.
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This includes collaborating with outsource partners and utilizing AI technology to streamline processes and drive efficiencies within the organization. Our licensing and royalties business has the most upside and potential for the Company. We are looking to take advantage of our incredible set of Stan Lee assets to drive consumer products - both digitally and physically.
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("Ameba") and gained access to its kid-safe platform technology and 13,000 episodes of owned and licensed content. Refer to Note 3 in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details. On April 6, 2022, we completed the acquisition of Wow. On October 26, 2021, our wholly-owned subsidiary, 1326919 B.C.
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We will be focused on utilizing all of our IP assets further in 2024 and beyond. Our media advisory and advertising services business is focused on driving deal flow opportunities and winning annuity business through retainers and projects. The team continues to focus on the toy business, but also expansion into tangential industries such as family and travel.
Removed
LTD., a corporation existing under the laws of the Province of British Columbia and Wow, entered into an Arrangement Agreement to effect a plan of arrangement under the arrangement provisions of Part 9, Division 5 of the Business Corporations Act.
Added
The team has expanded their reach over the past 12-18 months by leveraging their relationships with influencers to promote products and provide bespoke marketing initiatives for the clients.
Removed
We purchased 100% of the issued and outstanding shares of Wow, including Wow's subsidiary Frederator, for $38.3 million in cash and 1,105,708 shares of our common stock.
Added
Results of Operations Our summary results for the year ended December 31, 2023 and 2022 are below: Revenue Year Ended December 31, 2023 2022 (1) Change % Change (in thousands, except percentages) Production Services $ 26,799 $ 29,620 $ (2,821) (10) % Content Distribution 11,872 24,747 (12,875) (52) % Licensing & Royalties 475 2,841 (2,366) (83) % Media Advisory & Advertising Services 4,939 5,091 (152) (3) % Total Revenue $ 44,085 $ 62,299 $ (18,214) (29) % (1) Wow and Frederator were acquired on April 1, 2022, resulting in the inclusion of their financials for only the nine months ended December 31, 2022 in the consolidated financials for the previous year.

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