Kartoon Studios, Inc. 10-Q

ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the nine months ended September 30, 2021, in ensuring that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. In the course of our review of our consolidated financial results for the three months and nine months ended September 30, 2021, we identified a material weakness in our internal control over financial reporting related to our failure to adequately evaluate the accounting treatment for warrants and unrealized loss on marketable securities in a timely manner. The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management, with the oversight of the Audit Committee, has evaluated the ineffectiveness described above and is in the process of designing a remediation plan to address the ineffectiveness and enhance the Company’s internal control environment. The remediation plan and will include a risk assessment process coupled with additional controls and procedures. The Company has hired a head of internal control to assist with the remediation plan. Management is committed to successfully implementing the remediation plan as promptly as possible. Changes in Internal Control over Financial Reporting Other than the remediation plan being implemented as described above, and changes in internal controls that have been made related to the integration of ChizComm into the post-acquisition combined company, there have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations over Internal Controls Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 45 PART II - OTHER INFORMATION