Kartoon Studios, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Marketable Securities

Marketable Securities

3 Months Ended

Mar. 31, 2024

The Company classifies and accounts for its marketable debt securities as available-for-sale securities (“AFS”) and the securities are stated at fair value. On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326), which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. The credit loss model applicable to AFS debt securities requires the recognition of credit losses through an allowance account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. The adoption of the ASU did not have a material impact on the Company's condensed consolidated financial statements.

The investments in marketable securities had an adjusted cost basis of $10.1 million and a market value of $9.4 million as of March 31, 2024. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Loss		Fair Value
Corporate Bonds	$	5,263	$	(365)	$	4,898
U.S. Agency and Government Sponsored Securities	1,999		(148)		1,851
U.S. States and Municipalities	2,847		(214)		2,633
Total	$	10,109	$	(727)	$	9,382

The investments in marketable securities as of December 31, 2023 had an adjusted cost basis of $12.8 million and a market value of $12.0 million. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Loss		Fair Value
Corporate Bonds	$	6,333	$	(425)	$	5,908
U.S. Treasury	646		(37)		609
U.S. Agency and Government Sponsored Securities	2,000		(148)		1,852
U.S. States and Municipalities	3,859		(278)		3,581
Total	$	12,838	$	(888)	$	11,950

The Company holds 9 AFS securities, all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of March 31, 2024. The AFS securities held by the Company as of December 31, 2023 had also been in an unrealized loss position for a period greater than 12 months. The Company reported the net unrealized losses in accumulated other comprehensive income (loss), a component of stockholders’ equity. As of March 31, 2024 and December 31, 2023, an allowance for credit loss was not recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $0.1 million and $1.5 million were recognized in earnings during the three months ended March 31, 2024 and 2023, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities.

The contractual maturities of the Company’s marketable investments as of March 31, 2024 were as follows (in thousands):


	Fair Value
Due within 1 year	$	184
Due after 1 year through 5 years	9,198
Total	$	9,382

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.