Kartoon Studios, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Options

Stock Options

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

On September 1, 2020, the Company adopted the Kartoon Studios, Inc. 2020 Incentive Plan (the “2020 Plan”) as voted by the Board of Directors. The Board of Directors approved the maximum number of shares available for issuance up to an aggregate of 3,000,000 shares of common stock, which does not include shares that the Company may issue related to acquisitions. The 2020 Plan replaced the previously adopted 2015 Incentive Plan (the “2015 Plan”) that had a total number of authorized shares of 216,767, however any remaining outstanding shares granted under the 2015 Plan remain to be governed under such plan. As of December 31, 2023, 57,800 stock options granted under the 2015 Plan remain outstanding. All expired or terminated shares granted under the 2015 Plan, that have not been vested or exercised, reverts to and again becomes available for issuance under the 2020 Plan.

During the years ended December 31, 2023 and December 31, 2022, the Company granted options to purchase 25,000 and 441,981 shares of common stock with weighted-average grant-date fair market values of $9,007 and $259,235, respectively.

The fair value of the options granted during the years ended December 31, 2023 and December 31, 2022 were calculated using the BSM option pricing model based on the following assumptions:


	Year Ended December 31,
	2023			2022
Exercise Price	$	1.43		$5.10 - $9.00
Dividend Yield	–		%	–	%
Volatility	98.78		%	100% - 123%
Risk-free interest rate	3.90		%	0.41% - 3.75%
Expected life of options	5.0 years			3.0 - 5.0 years

The following table summarizes the stock option activity during the years ended December 31, 2023 and 2022:


	Number of Shares	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
Outstanding at December 31, 2021	1,019,732	7.96	$	17.50
Granted	441,981	4.49	$	10.59
Exercised	–	–	$	–
Forfeited/Cancelled	(110,292)	–	$	–
Expired	–	–	$	–
Outstanding at December 31, 2022	1,351,421	6.49	$	15.09
Granted	25,000	4.96	$	1.43
Exercised	–	–	$	–
Forfeited/Cancelled	(175,497)	–	$	–
Expired	(17,016)	–	$	–
Outstanding at December 31, 2023	1,183,908	5.56	$	14.96

Unvested at December 31, 2023	167,527	3.96	$	6.83
Vested and exercisable December 31, 2023	1,016,381	5.83	$	16.30

During the year ended December 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested options held by the employees pursuant to their employment agreements. This resulted in 98,850 options becoming immediately vested on the separation date and $0.2 million in expense recognized by the Company.

During the years ended December 31, 2023 and 2022, the Company recognized $1.2 million and $1.7 million, respectively, in share-based compensation expense related to stock options included in General & Administrative Expense on the Company’s consolidated statements of operations. The unrecognized share-based compensation expense as of December 31, 2023 was $0.2 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited. The outstanding shares as of December 31, 2023 had an aggregated intrinsic value of zeroRestricted Stock Units

RSUs are granted under the Company’s 2020 Plan. During the year ended December 31, 2023, the Company granted 148,937 fully vested RSUs to the Company’s board members and consultants, with a fair market value of $0.3 million and 40,000 shares of RSUs to employees with a fair value of $57,200 that vest evenly over three years.

An aggregate of 418,648 shares of common stock were issued during the year ended December 31, 2023 as a result of vested RSUs held by employees.

The following table summarizes the Company’s RSU activity during the years ended December 31, 2023 and 2022:


	Restricted Stock Units	Weighted- Average Grant Date Fair Value per Share
Unvested at December 31, 2021	1,538,324	$	14.00
Granted	158,667	$	7.21
Vested	(545,047)	$	12.59
Forfeited/Cancelled	–	$	–
Unvested at December 31, 2022	1,151,944	$	13.72
Granted	188,937	$	1.69
Vested	(358,256)	$	8.18
Forfeited/Cancelled	–	$	–
Unvested at December 31, 2023	982,625	$	13.42

During the year ended December 31, 2023, upon termination of certain employees, the Company accelerated the vesting of any unvested shares held by such employees pursuant to their employment agreements. This resulted in 60,910 shares becoming immediately vested and issued on the separation dates and $0.2 million in expense recognized by the Company.

During the years ended December 31, 2023 and 2022, the Company recognized $1.5 million and $9.2 million, respectively, in share-based compensation expense related to RSU awards included in General & Administrative Expense on the Company’s consolidated statements of operations. The unvested share-based compensation as of December 31, 2023 was $0.4 million which will be recognized through the second quarter of 2025 assuming the underlying grants are not cancelled or forfeited. The total fair value of shares vested during the year ended December 31, 2023 was $2.9 million.