Kartoon Studios, Inc. 10-Q

ITEM 1A. RISK FACTORS. Except as set forth below, there have been no material changes to the Risk Factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Coronavirus (COVID-19) With respect to the ongoing and evolving COVID-19 outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, COVID-19 has caused substantial disruption in international and U.S. economies and markets. COVID-19 has had an adverse impact on the entertainment industry and, if repercussions of COVID-19 are prolonged, could have a significant adverse impact on our business, which could be material. The majority of the Company’s employees have been working remotely from home, with only a few individuals monitoring the office as needed. We have not experienced any disruption in our supply chain, nor have we experienced any negative impact from our animation production partners. With regard to content distribution, we have observed demand increases for streaming entertainment services in 2020. In terms of our consumer products business we are starting to see some negative impact from COVID-19 as consumer activity decelerates in the U.S. and across the world. Global supply chain issues had a negative impact on the timing of certain toy releases. The toy manufacturing business has experienced slowdowns related to global supply chain issues caused by the COVID -19 outbreak. Equally important, the retail toy business has suffered slowdown and closures effecting toy sales. New to market brands are impacted more severely by a slowdown in physical retail sales. Other consumer products licensees’ business is driven, by toy sales, so a there is a negative downstream effect across the industry. If the COVID-19 outbreak is prolonged, we will see a negative impact on our revenues. 46 The Company’s management cannot at this point estimate the impact of COVID-19 on its business and no provision for COVID-19 is reflected in the accompanying financial statements. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.