All right. Hello everyone, and welcome to the Kartoon Studios fireside chat. Kartoon Studios trades under the ticker symbol TOON on the NYSE American. Company is a global children's and family entertainment company, repositioning its business around the ownership and commercialization of highly valuable children's intellectual property. My name is Robert Blum, Managing Partner here at Lytham Partners, and up next here, I'll be moderating a Q&A discussion with the company's Chairman and Chief Executive Officer, Andy Heyward, and Brian Parisi, the company's Chief Financial Officer. All right, let's get started. Gentlemen, welcome. Thank you. Good to be here. Hi, Robert. Thank you. Fantastic. Andy and Brian, for those not familiar, please provide a brief background on yourselves. Would you like me to start? Yeah, Andy, why don't you begin? Okay. My name's Andy Heyward. I am a writer, creator, producer of children's content. I've been doing this my entire career. Over the years, I've either written, created, produced, and supervised programs ranging from "Scooby-Doo," "Alvin and the Chipmunks," "The Smurfs," "The Flintstones," "Inspector Gadget," "Sonic the Hedgehog," "Super Mario Bros.," "Strawberry Shortcake," "Care Bears," "Teddy Ruxpin," "The Legend of Zelda," "Captain Planet," "G.I. Joe," "Carmen Sandiego," "Madeline," and probably a dozen or so others. We produce the shows, we distribute the shows, sometimes on our own networks, and we do the consumer product licensing of the characters in the shows. That's how money is made. The characters create an appetite for the products, which are toys, video games, music, publishing, backpacks, sleepwear, school supplies, stationery, party goods, pretty much anything that you can think of. That's our business. My first company was called DIC Entertainment. I managed it for many years, eventually sold it to Disney, eventually started our company that we have here today, with a focus on bringing content with a purpose to children in the digital age. How children consume media today is quite different than they did 20 or 30 years ago, or even 10 years ago, when there were networks, there were children's cable networks. Today, kids consume media across streaming services, digital platforms of all kinds, all the new emerging media. But the essence of it is still telling good stories, having interesting characters, engaging children with things that we as a company can be prideful about, that's what we're doing. All right. Very good. Brian, yourself? Yeah. No, thank you, Robert, I always hate following that, but I'll certainly try here really quick. But yeah, thank you for this. For my background, I'm a CPA with over 30 years of experience in media entertainment, in both finance accounting, I really have had the great fortune opportunity to work for some of the largest entertainment brands in the world, going back to Warner Bros., Universal Studios, the Pro Football Hall of Fame, Live Nation. Kind of ran the gamut of different entertainment type of companies. Really my responsibility over that period of time, my remit is to create value for the company, value for the shareholders by really translating the creative energy of these companies into financial performance through financial discipline. Really the goal there is to create shareholder value for the investors or the shareholders. As Andy mentioned, we've really kind of galvanized the company around a strategy of really focusing on IP, a more durable financial entertainment model. Really, I think my breadth of experience really adds value to the focus, the goal is to get that done. All right, very good. Thank you both for that. Let's jump into Kartoon Studios in some more detail here. Andy, you sort of alluded to it briefly, but let's talk about the strategy and what has shifted over the past year or so. Okay. The first thing I have to do, because Brian is very modest and he neglected to say this, but he was named by the Los Angeles Business Journal last year as the Public Company CFO of the Year. I'm very proud of him and excited that he was able to receive that recognition. He's done an incredible job. We've been investing in our IP for the last few years, and we're coming to the place now where we are about to harvest that investment. The millions of dollars that we have placed into developing our infrastructure, developing the brands that we're bringing to the marketplace, has been done, and we're seeing now in this coming year, these properties are coming to the marketplace. You mentioned our changing of our strategy. We've done a lot of work for hire over the years, where we would produce shows that belong to somebody else. We know how to make hits. We build hits. We produced Cocomelon from our Canadian facility. We produced Barbie, the animated specials. We produced numbers of things for whether it's Disney or Mattel or Spin Master or YouTube or Netflix. That has been the core of our revenue. But we've made a re-evaluation of what our company is going to be, and we've migrated now to producing our own in-house owned products. That has required a lot of investment to get them to the place where they can now, as I say, be harvested, come to market, where we will have all the different products throwing off royalty income from them. I mentioned The Flintstones. When I first began my career, I was working at Hanna-Barbera, and one of the shows I worked on was The Flintstones. You can see today, you can go to any supermarket and find Pebbles and Bamm- Bamm cereal, or you can go to a drugstore and find Flintstones Vitamins. That is such a telling example of how when you have a successful property in the kids' business, the licensing lives forever. Today we're focused on two properties. They are superstar properties, two of the biggest that ever existed. One is called the Hundred Acre Wood, which comes off of Winnie the Pooh, that has done billions and billions of dollars of revenue over the years. The other is our Stan Lee brand, which we will lead with Stan Lee's "Superhero Pets." For those not familiar with Stan Lee, he is the most prolific and successful creator of all time. He created "Spider-Man." He created "Iron Man." He created "Fantastic Four." He created the "Guardians of the Galaxy" and all of the different superheroes, including Hulk and The Avengers and et cetera. We became the steward of Stan Lee, and we have the rights to everything that he did post-Marvel, which is about 200 properties, and we are bringing them into the marketplace. We also own his name, his signature, his physical likeness, all of the IP and the consumer products that come from the IP. So those are the two properties that we are focused on with our new. Sort of a lengthy answer to your question, Robert, but it is important to understand we are moving into owning our own IP and we are starting it with two very powerful brands that are proven. As I said, from some of the properties I have worked with and produced and created over the years, we have had a long track record of producing successful hits, and now we are going to do it for ourselves. Well done. Looking ahead here, what are the company's most important strategic priorities over the next 12- 24 months? You have sort of alluded to them here, but maybe just expand to make sure people understand the benchmarks and metrics by which they should be looking at here. Yeah. We are bringing our properties to the marketplace. We put out an 8-K last week where we announced, sort of loosely announced, we will have a more formal announcement as we get closer to air date, that we have contracted with Amazon Prime to do our "Hundred Acre Wood" property, which of course, comes from "Winnie- the- Pooh," A.A. Milne's "Winnie the Pooh." We have put a team together on that is absolutely second to none. It is led creatively by Linda Woolverton, who was the writer of "Beauty and the Beast," the writer of "The Lion King," writer of "Mulan," writer of "Maleficent," writer of Tim Burton's "Alice in Wonderland." These are all multi-billion-dollar brands, and she is leading us on that, on our "Hundred Acre Woods" property. Of course, the other one I said was Stan Lee's "Superhero Pets." We are focusing on bringing those two to the marketplace. We will announce shortly where "Stan Lee's Superhero Pets" will be on the air. When those go on the air, that becomes the race begins, and then we will have all of our products in the marketplace. One of the conditions of working with Amazon was that we would have products ready by the time the show goes on the air. The show goes on the air, there will be a tease that will start on January 18th with a very special broadcaster that we have not announced yet. But on February 18th, 30 days later, we start with Amazon Prime. That is going to be our focus, those two. And of course, we have our channel system that we are building and growing and is already profitable and becoming more important. It is Kartoon Channel! A nd Ameba, which is our little preschool channel as well, both of them growing and becoming an important contributor to our company. All right. Brian, from a financial perspective, what should investors be looking for? Well, okay, and we have talked a lot about this, Robert, the last couple of years, is really a discipline and focus on cost control. You see it in the numbers, you see the trend, you see it in our earnings that we put out last week. And really for us, for the next 12- 24 months, we cannot take our eye off that ball. We have to keep the discipline in place, and any use of capital, any initiatives we take on have to have a return on capital, and have to have a return on investment, and have to drive either top-line revenue or profitability for the company. And if it is not able to do that, or if the risk profile is too great, then we are going to look to do something differently. Ultimately, all these priorities roll up into one goal, is getting the profitability and driving long-term shareholder value for the company. We are only going to get there if we are disciplined in our ability to manage costs and to look at businesses that are accretive to the business, either whether we do it organically or through acquisition. All right. Very good. With the Amazon Prime launch agreement announced here, Andy, help people understand how you came to own "The Hundred Acre Wood" rights, and what makes the strategy different from maybe a more traditional children's content launch? Okay. Well, as you may know, the A.A. Milne "Winnie-the-Pooh" product was managed by The Walt Disney Company for the last several decades. They did a great job, and they made a fantastic business out of it. Tens of billions of dollars. It is probably the most successful property of all time. Certainly bigger than "Star Wars," bigger than "Harry Potter," bigger than "The Avengers," bigger than "Barbie," bigger than "Mickey Mouse." So let us understand the magnitude of "Winnie- the-Pooh." 70 years after the death of the author, the property went into public domain, which means anybody could make their own version of "Winnie-the-Pooh." So what we did, however, was we acquired the trademarks, and the trademark of "The Hundred Acre Wood" is priceless. With that trademark, we created our own original look. Nothing to do with what has been done by Disney or others in the past, completely coming out of the A.A. Milne books. It is very vibrant, it is very colorful. It is based on yarn, and nobody has seen anything like this before. I took it to Linda Woolverton and I said, "What do you think about us doing a new 'Winnie the Pooh' together? One that we can protect ourselves, that has its defensible trademarks behind it." She was very, very passionate about "Winnie the Pooh." Linda had worked for me years ago, before she wrote "The Lion King," before she wrote "Beauty and the Beast" or any of the other big hits she did. She worked on my "Ghostbusters" animated series, and she was, in fact, a staff writer. One day she came to me and said, "I think I want to write feature films." I said, "Oh, Linda, don't do that. It's such a hard business to get into. It's so competitive. You're much better off here. You've got a weekly paycheck. You're doing great on "Ghostbusters." But she was determined, she went off and she did that, and bless her heart, she had great success. With her vision and her creativity, her imagination, her seasoning and experience, we're very, very excited and confident that our version of "Winnie-the-Pooh," "The Hundred Acre Wood," is going to be a massive hit. It checks so many boxes, and we like it for a special reason. It's not violent. It's safe for kids. It's about, in a very anxious and noisy and divisive world that we live in, it's about friendship, it's about family, it's about kindness, it's about love, it's about nature. The Hundred Acre Wood itself is a four-season environment, and we have shows that take place throughout the year. The beautiful relationships that exist between Pooh and Piglet and Tigger and Eeyore and all of the wonderful characters in there are so special, and we're very confident that this is going to resonate. As, by the way, is Amazon. As is, by the way, our other very important streamer retailer that we will announce in the coming days. So we're very excited and enthusiastic about this, and we have it so that we can protect it, and the marketplace is not able to absorb other Winnie the Poohs out there that are not protectable. So here we are. All right, very good. Let's transition to the Stan Lee Universe. I have to leave. I left off one thing I have to add. Excuse me- No, go ahead. For interrupting you. We then went and we got who we felt could bring the music dimension to this in the most important way. Our "Winnie- the-Pooh" has music and dance, original song in every episode. It is joyful. It is uplifting. We went to Danny Elfman. For those of your viewers who do not know who Danny Elfman is, let me say he is the single most successful composer in Hollywood. He has done over 100 big blockbuster films, ranging from the "Spider-Man" trilogy, all of the "Batman" films, "Beetlejuice," "Men in Black," "The Avengers, Age of Ultron," so many different things, "The Nightmare Before Christmas." He has only done one animated television series. Of course, it was a good one. It was "The Simpsons." The reason that he wanted to do this is because he recently had a grandchild, and he felt that in our world, he wants to be a part of something that is making it a kinder and gentler world for children, and that he could contribute to doing that. He is doing the music for "Winnie the Pooh," and I am telling you, this song is an absolute gem. His theme song that he did for the main title and all of the main cue underscore that is based on it. Yeah. Let me just add to that really quick. I think what Andy is talking about is really a great example of how we can really drive the longer tail economics of owned IP and really drive shareholder value. What we will do for this launch is measure viewership, engagement, retention, and really how it feeds into the licensing and consumer products, kind of product initiatives that we are going to have. This will drive exponential financial performance, and it really is a hockey stick. Getting the viewership, getting it out onto the networks and channels, and getting the eyeballs on it is great, but that really sets us up for the significant growth that you will have on the consumer products and licensing side of the business. Ultimately, our goal is to build a durable franchise over time, and we think we have that with Stan Lee and then Hundred Acre Wood. Yeah. Let's just thank you for that, Brian. Let's maybe just expand a little bit more on the Stan Lee Universe. Talk about how that sort of similarly fits into the broader strategy. I know, Andy, you touched a little bit on it earlier, but what are the principal opportunities for developing and monetizing that portfolio? Yeah. Well, there's a lot of IP that exists in the world, and there's a lot of creators, and you can find them all across YouTube. We've focused on what is really Tiffany IP that has existing brand equity, marquee value that is pre-sold. Having said that, I am very blessed and fortunate to have had Stan Lee as a mentor for many years. As I said, he was one of the most successful creators of all time. He has, I think, about 15 of the top 50 films in box office ever made were created by him. Most recently, "Spider-Man" that came out two weeks ago, I think it broke records, and it's now the second biggest box office opening of all time. Stan, we were very fortunate when he passed away to leave us as the steward of his IP and his personal name and likeness. We are very focused on monetizing that in a very respectful way, preserving the integrity of the brand and everything that Stan stands for. He left us some great properties. One of them is called "Stan Lee's Superhero Pets," and it'll be, to the best of my knowledge, the first thing that he ever did for a preschool audience. The characters are absolutely so adorable, and he is in it himself. He plays young Stan Lee, who had all these pets at home, and when he is not there, when he went off to school, the pets come alive, and they have a superhero. I won't reveal the whole backstory. It's very rich, as everything is with Stan Lee. Everything he touches, has touched, turned to success. Look at "Spider-Man." Look at "Iron Man." Look at "The Incredible Hulk." Look at "Captain America." Look at "Black Panther." Look at "Guardians of the Galaxy." Look at "The Avengers." The list goes on and on and on. We think this is one of his most exciting properties ever, and we will be bringing that out to the marketplace this year as well. All right. Fantastic. Let's jump here. Brian, second quarter results showed $40.5 million in cash and marketable securities, no long-term debt. How does that support the shift towards this owned IP model, and what are the capital allocation priorities? Yeah, no. That is right. Our cash position and our balance sheet greatly improved in the quarter, largely through the legal settlement proceeds that we received, and there is more to come on that. Really what that gives us is runway to execute on this new strategy and this pivot in our strategy without near-term financing pressure. We have had near-term financing pressure for the last couple of years, and we have managed through it effectively. We do not have that right now. We can really now focus on driving top line and then profitability. Really, with a stronger balance sheet, our first priority is really to protect the cash and liquidity. From there, the capital can support the stage commercialization of core IP, continued improvement in our distribution channels like Kartoon Channel! and Ameba, and really be inquisitive in the marketplace to see where we do that make versus buy analysis. Do we, again, grow organically, or we go out and acquire tangential or related businesses that will grow the top line or be accretive to the bottom line as well? We are very inquisitive in that way. Really having the stronger balance sheet as we reported in the quarter really is going to help us get there. All right. Make the financial difference tangible for investors who do not maybe follow the entertainment industry. What are the economics of doing production work for others versus owning the IP, and what should investors look for over the next 12-24 months if this is a successful endeavor? Well, look, I think most people that are in the business know it well, but it is not always easy to discern the models. The way we drive most of our revenue today, it is a one-time revenue hit. We do production services for other companies, and we create their IP. Once it is done, it is a one-time earning for us. We make a 20%-30% margin on the businesses that we do, but all that downstream upside goes to the IP owner. We want to change that. We want to shift that. If you look at the last couple of years, we talk a lot about driving profitability for the business. We have talked a lot about our movement towards profitability, and we have done a good job controlling the cost, but there is a lot of unpredictability and volatility in that production services model that is really impacted our ability to meet what we have talked about with our shareholders, which is moving to profitability. We have seen major ebbs and flows in deals from other studios that are really impacting our ability to drive revenue, and that is just not a model we want to be in. We look to change that. Really over the next 12-24 months, as we talked about a lot here today, we want to shift away from one-time profitable hits in developing other people's IP to developing our own. Once we develop our own, then we can monetize it through distribution channels, sell it on networks, put it on our own. We have a media-buying business that could be activated with our own IP, and then really the consumer products and licensing down the road is really the upshot for us. Andy said it perfectly. You can go into a store today and buy Pebbles and Bamm-Bamm cereal or vitamins. That is the kind of evergreen and durable financial model that is going to work for us longer term. It is a major shift of the company, and you are going to see a lot of what we are going to talk about in the next year or two is going to be around those concepts. All right. If I could amplify that just for a moment as well. Instead of us producing Barbie, which we do for Mattel, and we get a fee, and then we go away, but Mattel then owns Barbie, and they continue to harvest that income for years and years and years. We would own the property. Instead of us producing Cocomelon, which we did for the owners of Cocomelon, and getting a fee for it, whereas they would then go and license Cocomelon in so many different places and enjoy those revenues forever, we just got a fee. We will be doing that ourselves. If you look on the screen next to my head, a little bit above on the right, you will see the Super Mario Bros., and you will see Sonic the Hedgehog. Those were shows I produced for Nintendo and Sega, respectively. Got a fee for them, a nice fee. That was wonderful. But 30 years later, Nintendo is still making more and more and more money from Super Mario than ever. Well, now we are going to be doing that ourselves with Winnie-the-Pooh, with Tigger, with Eeyore, with Piglet, with all of those beautiful, delicious characters, as well as with the characters from Stan Lee. We are producing it. We have invested it. We have put millions of dollars to build that infrastructure and to develop those characters. But now these will be ours that will go on for us and our shareholders for years and years to come. Yeah. Very good. Well, I guess we have maybe about 90 seconds left. Any sort of closing comments, Andy or Brian, as we wrap things up here? Well, I would just add that we brought on a very important executive, Brooke Bacon, who is going to be running our licensing activity. She was at Activision the last 10 years, and she has done an incredible job for them, doing their brands and making sure that they are all around the world and throwing off royalties for them. She will be doing that for us. We are in an extraordinary position. I do not think there is any company of our size that could say they have no debt and they have a lot of cash. That is where we are today. So we are in a wonderful spot, and we are looking forward to bringing this forward for our shareholders. All right, fantastic. Well, let us leave it there. Andy, Brian, thank you so much for your participation in the summit here today. Thank you, of course, to everybody for watching. We do have additional presentations and fireside chats coming up, so please stick around. Again, Andy, Brian, thank you so much. Thank you, Rob. Thank you. Andy, Brian, thank you very much once again for your participation in the summit here today and for your insights into what's taking place there at Kartoon Studios. Up next, I'm going to sit down with Peter Hoetzinger, the Co-Chief Executive Officer at Century Casinos, to talk about what's taking place within the casino market here. Please stick around. We'll be right back.