Kartoon Studios(TOON) - 2024 Q4 - Annual Report

Financial Performance - For the year ended December 31, 2024, Kartoon Studios generated net revenues of $32.6 million, a decrease from$ 44.1 million in the previous year, and incurred a net loss of $20.7 million compared to a net loss of$ 77.1 million in the prior year[79]. - Total revenue for the year ended December 31, 2024, was $44,085,000, a decrease of 26% compared to$ 32,591,000 in 2023[171]. - Production services revenue decreased by 33% to $17,850,000 in 2024 from$ 26,799,000 in 2023, primarily due to a lower volume of animation projects[171]. - Content distribution revenue decreased by 18% to $9,607,000 in 2024, largely due to a$ 1.7 million decline in revenue from Frederator's YouTube creator network[172]. - Licensing and royalties revenue fell by 54% to $298,000 in 2024, mainly due to lower earnings from consumer products and music licensing agreements[173]. - Media advisory and advertising services revenue decreased by 2% to$ 4,836,000 in 2024, attributed to lower renewal activity and fewer media purchases[174]. - Total expenses for the year ended December 31, 2024, decreased to $49.6 million from$ 116.5 million in 2023, representing a 57% reduction[175]. - The company recognized a decrease in net noncash expenses to $9.9 million in 2024 from$ 59.3 million in 2023, primarily due to the absence of prior impairment expenses[190]. Capital and Financing - Kartoon Studios closed a registered direct offering of 3,900,000 shares at $1.00 per share, generating approximately$ 4,000,000 in gross proceeds[35]. - The company raised approximately $4.0 million from the April 2024 Offering and$ 4.5 million from the December 2024 Offering, totaling gross proceeds of about $8.5 million[182]. - As of December 31, 2024, cash increased by$ 4.3 million to $8.4 million, supported by$ 10.0 million from investing activities despite $3.5 million used in operating activities[180]. - The company has production loan facility obligations of approximately$ 9.2 million and an outstanding margin loan of $0.9 million[118]. - The company plans to utilize liquidity to fund material cash requirements, with future minimum purchase obligations totaling approximately$ 27.1 million over the next five years[194]. Strategic Initiatives - The company launched a $30.0 million joint venture for the "Winnie-the-Pooh" project, with a profit split of 60% to Kartoon Studios and 40% to Catalyst Venture Partners[36]. - The "Andrew The Big BIG Unicorn" series is set for delivery in March 2026, consisting of 40 episodes targeting preschool audiences[38]. - Kartoon Studios aims to generate awareness through a 360-degree marketing approach, including social media influencers and strategic partnerships[51]. - The company is focused on a strategic positioning of "content with a purpose" to differentiate itself in the competitive children's media space[52]. Market and Competition - The company faces competition from larger entities like The Walt Disney Company and Nickelodeon Studios, which may impact its market position and profitability[95]. - The reliance on third-party production studios for animated content poses risks; failures or delays could negatively affect profitability and marketability[97]. - The company is subject to various regulations, including the Children's Online Privacy Protection Act (COPPA) and the Consumer Product Safety Act, which may impact its operations[55][57]. Operational Insights - The company employs 344 full-time employees and 68 independent contractors as of December 31, 2024[67]. - The company has rights to valuable intellectual property through its controlling interest in Stan Lee Universe, LLC[30]. - The company holds rights to over 150 motion pictures and over 525 different television shows across partnerships with more than 150 licensors[63]. - The company operates a subscription-based streaming service, Ameba, which significantly enhances its digital footprint and revenue streams[49]. Risks and Challenges - Economic downturns and inflation could reduce demand for the company's products, adversely affecting revenue and earnings[88]. - Recent global events have led to increased market volatility and economic uncertainty, which could negatively impact the company's operations[89]. - Material weaknesses in internal controls over financial reporting have been identified, with one remaining in the information technology general controls area as of December 31, 2024[92]. - Changes in foreign, state, and local tax incentives may increase the cost of original programming, adversely affecting financial condition[120]. - The stock price may be subject to substantial volatility due to limited public float and low trading volume[124]. Legal and Compliance - The company has no material pending legal proceedings as of December 31, 2024, except for ongoing securities litigation[137]. - The District Court dismissed all claims against one defendant in the securities litigation, but allowed one claim to proceed related to statements about the "Rainbow Rangers" cartoon[138]. - The company is a nominal defendant in several shareholder derivative lawsuits, which are stayed pending the outcome of the securities litigation[145]. Future Outlook - The company expects to address future cash needs through cost reductions, optimization of working capital, and securing licensing and distribution advances[186]. - The company does not expect to pay dividends in the foreseeable future, with any return on investment limited to stock price appreciation[128]. - The company plans to invest approximately$ 0.2 million in cybersecurity enhancements following a minor cybersecurity incident[134].