Quarterly report [Sections 13 or 15(d)]

Segment Reporting

v3.26.1
Segment Reporting
 6 Months Ended
Jun. 30, 2026
Segment Reporting [Abstract]  
Segment Reporting

Note 21: Segment Reporting

 

ASC Topic 280, Segment Reporting, establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance.

 

Our Chief Executive Officer, as the CODM, organizes our company, manages resource allocations and measures performance among two operating and reportable segments, which were identified based on the nature of the products and services offered:

 

· Content Production and Distribution segment includes the operations of Kartoon Studios, Inc., Mainframe Studios, and Frederator Studios. These entities are aggregated due to their similar economic characteristics, nature of products and services, production processes, customer types, and distribution methods. This segment is focused on the creation, production, and distribution of animated and live-action content, as well as licensing and royalty revenue from intellectual property.
     
· Media Advisory and Advertising Services segment includes the Beacon Media Group and the Beacon Communications Group. These entities provide media advisory and advertising services and marketing services.

 

The Company’s CODM decides on resource allocation predominantly based on the annual budget and forecasting process. The CODM considers budget-to-actual variances on a periodic basis when making decision about allocating resources to the segments.

 

The CODM uses revenue and net income (loss) to evaluate the profitability and performance of each operating segment, because it provides insight to operational leverage and other operational metrics for each segment. The CODM reviews revenue and net operating results, as allocated based on the nature of the business activity.

 

The CODM does not evaluate the operating segments using asset information and it is therefore not disclosed.

 

Segment operating expenses include operating expenses directly attributable to the segment as well as certain shared corporate administration services and other costs which are allocated to the reportable segments, such as legal expenses, human resources expenses, accounting expenses, insurance expenses, and corporate facilities expenses. Segment operating expenses exclude certain non-recurring items and other costs, such as interest expense, interest income, share-based compensation expense and taxes.

 

The following table presents the revenue and net earnings within the Company’s two operating segments (in thousands):

                               
    Three Months Ended June 30,   Six Months Ended June 30,
    2026   2025   2026   2025
Total Revenues:                                
Content Production and Distribution   $ 5,373     $ 9,437     $ 11,812     $ 18,074  
Media Advisory and Advertising Services     448       842       1,247       1,709  
Total Revenues   $ 5,821     $ 10,279     $ 13,059     $ 19,783  
                                 
Net Income (Loss):                                
Content Production and Distribution   $ 27,571     $ (5,505 )   $ 21,562     $ (11,531 )
Media Advisory and Advertising Services     (586 )     (658 )     (942 )     (1,158 )
Total Net Income (Loss) Attributable to Kartoon Studios, Inc.   $ 26,985     $ (6,163 )   $ 20,620     $ (12,689 )

 

Geographic Information

 

The following table provides information about disaggregated revenue by geographic area (in thousands):

                               
    Three Months Ended June 30,   Six Months Ended June 30,
    2026   2025   2026   2025
Total Revenues:                                
United States   $ 2,649     $ 4,889     $ 6,627     $ 9,615  
Canada     387       3,734       1,278       6,761  
United Kingdom     2,745       1,618       5,096       3,330  
Other     40       38       58       77  
Total Revenues   $ 5,821     $ 10,279     $ 13,059     $ 19,783  

 

Additional considerations include the use of segment-level budgets and forecasts created by Mainframe Studios, Frederator Studios and Kartoon Studios at the entity level. The additional financial information prepared by the segment managers is discussed at length in meetings with the CODM. The Company determines that the revenue information reviewed by the CODM, combined with the financial information discussed with the segment managers is sufficiently detailed to allow the CODM to assess each component’s performance and make resource allocation decisions. Kartoon Studios, Frederator Studios and Mainframe Studios are separate entities, although according to ASC 280-10-50-11 all criteria are met in order to present result in aggregation.

 

When evaluating the Company’s performance and making key decisions regarding resource allocation, the CODM reviews several metrics included in net income or loss, which also include the following:

                       
    Three Months Ended June 30, 2026
    Content
Production and
Distribution		   Media Advisory
and Advertising		   Total
             
Revenues   $ 5,373     $ 448     $ 5,821  
                         
Less Operating Expenses:                        
Selling, Marketing and Direct Operating Costs     (4,731 )     (43 )     (4,774 )
General and Administrative Expenses     (2,570 )     (975 )     (3,545 )
Segment results:   $ (1,928 )   $ (570 )   $ (2,498 )
                         
Reconciliation of net (loss) income:                        
Depreciation Expense   $ (676 )   $ (43 )   $ (719 )
Interest Expense     (175 )     –       (175 )
Share-Based Compensation     (193 )     –       (193 )
Legal Settlement Income     39,238       –       39,238  
Standstill Agreement Accrued Expense     (4,000 )     –       (4,000 )
Income Tax Expense     (573 )     –       (573 )
Other     (4,158 )     27       (4,131 )
Net Loss Attributable to Non-Controlling Interests     36       –       36  
                         
Net Income (Loss)   $ 27,571     $ (586 )   $ 26,985  

 

                         
    Three Months Ended June 30, 2025
    Content
Production and
Distribution		   Media Advisory
and Advertising		   Total
             
Revenues   $ 9,437     $ 842     $ 10,279  
                         
Less Operating Expenses:                        
Selling, Marketing and Direct Operating Costs     (7,212 )     (70 )     (7,282 )
General and Administrative Expenses     (4,176 )     (1,252 )     (5,428 )
Other Segment Expenses     –       (8 )     (8 )
Segment results:   $ (1,951 )   $ (488 )   $ (2,439 )
                         
Reconciliation of net (loss) income:                        
Depreciation Expense   $ (685 )   $ (43 )   $ (728 )
Interest Expense     (165 )     –       (165 )
Share-Based Compensation     (48 )     –       (48 )
Other     (2,760 )     (127 )     (2,887 )
Net Loss Attributable to Non-Controlling Interests     104       –       104  
                         
Net Income (Loss)   $ (5,505 )   $ (658 )   $ (6,163 )

 

             
    Six Months Ended June 30, 2026
    Content
Production and
Distribution		   Media Advisory
and Advertising		   Total
             
Revenues   $ 11,812     $ 1,247     $ 13,059  
                         
Less Operating Expenses:                        
Selling, Marketing and Direct Operating Costs     (9,568 )     (115 )     (9,683 )
General and Administrative Expenses     (5,734 )     (2,033 )     (7,767 )
Segment results:   $ (3,490 )   $ (901 )   $ (4,391 )
                         
Reconciliation of net (loss) income:                        
Depreciation Expense   $ (1,351 )   $ (87 )   $ (1,438 )
Interest Expense     (408 )     –       (408 )
Share-Based Compensation     (384 )     –       (384 )
Legal Settlement Income     39,238       –       39,238  
Standstill Agreement Accrued Expense     (4,000 )     –       (4,000 )
Income Tax Expense     (573 )     –       (573 )
Other     (7,546 )     46       (7,500 )
Net Loss Attributable to Non-Controlling Interests     76       –       76  
                         
Net Income (Loss)   $ 21,562     $ (942 )   $ 20,620  

 

             
    Six Months Ended June 30, 2025
    Content
Production and
Distribution		   Media Advisory
and Advertising		   Total
             
Revenues   $ 18,074     $ 1,709     $ 19,783  
                         
Less Operating Expenses:                        
Selling, Marketing and Direct Operating Costs     (14,002 )     (148 )     (14,150 )
General and Administrative Expenses     (7,850 )     (2,520 )     (10,370 )
Other Segment Expenses     –       (8 )     (8 )
Segment results:   $ (3,778 )   $ (967 )   $ (4,745 )
                         
Reconciliation of net (loss) income:                        
Depreciation Expense   $ (1,324 )   $ (90 )   $ (1,414 )
Interest Expense     (293 )     –       (293 )
Share-Based Compensation     (135 )     –       (135 )
Other     (6,170 )     (101 )     (6,271 )
Net Loss Attributable to Non-Controlling Interests     169       –       169  
                         
Net Income (Loss)   $ (11,531 )   $ (1,158 )   $ (12,689 )

 

In evaluating segment expenses, the CODM primarily focuses on cash operating costs and budget-to-actual variances, as these measures are most relevant to assessing operating performance and making resource allocation decisions. All other segment items included in net income or loss are reported on the consolidated statements of operations and described within their respective disclosures.

 

Sale of Frederator Networks, Inc.

 

Frederator Networks operated within the Company’s Content Production and Distribution segment, and its operating results are included in income from continuing operations within that segment for all periods through June 30, 2026. As described in Note 1, Organization and Business - Recent Transactions, control of Frederator Networks transferred to the buyer on July 8, 2026. Accordingly, its results will be excluded from the segment beginning in the third quarter of 2026. The disposal did not represent a strategic shift that would have a major effect on the Company’s operations or financial results and therefore did not meet the criteria for discontinued operations under ASC 205-20, Presentation of Financial Statements Discontinued Operations.

 

Beginning in the third quarter of 2026, the exclusion of Frederator Networks is expected to affect the Content Production and Distribution segment as follows:

 

· Revenues are expected to decrease by $1.9 million due to the exclusion of Frederator’s post-sale activity.
     
· Operating loss is expected to decrease by $0.1 million, reflecting the removal of Frederator’s operations.
     
· A one-time loss on deconsolidation of $0.3 million, is expected to be recognized in the third quarter of 2026, which is not allocated to segment operating income in accordance with the Company’s segment reporting policies.

 

The Company does not expect the sale and deconsolidation of Frederator Networks to have a material impact on the long-term financial performance of the Content Production and Distribution segment.