Kartoon Studios : Non-Reliance on Previously Issued Financial Report - Form 8-K

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

(a) ) On April 3, 2024, the audit committee (the "Audit Committee") of the board of directors of Kartoon Studios, Inc. (the "Company"), after considering the recommendations of the Company's management, concluded that the Company's previously issued audited consolidated financial statements contained in the annual report for the year ended December 31, 2022, including the unaudited interim periods ended June 30, 2022 and September 30, 2022 and unaudited interim consolidated financial statements in the quarterly reports for the three months ended March 31, 2023, three and six months ended June 30, 2023 and the nine months ended September 30, 2023 (the "Relevant Periods") and earning releases and other communications relating to the Relevant Periods should no longer be relied upon with respect to the errors described below and should be restated.

The Company identified an error in its Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flow for each of the Relevant Periods and determined that these financial statements should be restated. The misstatement pertaining to the interim and annual periods of 2022 relate to an understatement of Deferred Tax Liability, net of $1.7 million with a corresponding increase to goodwill that were omitted from the Company's purchase accounting and the misstatement pertaining to the interim periods of 2023 relates to an overstatement of Warrant Incentive Expense recorded within Other Income (Expense), net and Additional Paid-in-Capital of $3.5 million associated with the warrant modification (together, the "Misstatements"). As such, the Company will restate its financial statements for each of the Relevant Periods in the Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K"), expected to be filed concurrently, today. The financial information that has been previously filed or otherwise reported for the Relevant Periods with respect to the Misstatements will be superseded by the information included in the Company's audited consolidated financial statements for the year ended December 31, 2023 set forth in the 2023 Form 10-K.

Pursuant to the above, the Company's management and audit committee identified a material weakness in the Company's internal control over financial reporting and discussed such matters with the Company's independent registered public accounting firm, WithumSmith+Brown, PC, and implementing remediation plans to address the control deficiency outlined above with further specifics in the 2023 Form 10-K.

Forward-Looking Statements

Certain statements in this Current Report constitute "forward-looking statements" within the meaning of the federal securities laws. Words such as "may," "might," "will," "should," "believe," "expect," "anticipate," "estimate," "continue," "predict," "forecast," "project," "plan," "intend" or similar expressions, or statements regarding intent, belief, or current expectations, are forward-looking statements. While the Company believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this Current Report. These forward looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including without limitation, our ability to generate revenue or achieve profitability; our ability to obtain additional financing on acceptable terms, if at all; the potential issuance of a significant number of shares, which will dilute our equity holders; fluctuations in the results of our operations from period to period; general economic and financial conditions; our ability to anticipate changes in popular culture, media and movies, fashion and technology; competitive pressure from other distributors of content and within the retail market; our reliance on and relationships with third-party production and animation studios; our ability to market and advertise our products; our reliance on third-parties to promote our products; our ability to keep pace with technological advances; our ability to protect our intellectual property and those other risk factors set forth in the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K and in the Company's subsequent filings with the Securities and Exchange Commission. Thus, actual results could be materially different. The Company expressly disclaims any obligation to update or alter statements whether as a result of new information, future events or otherwise, except as required by law.

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