# Kartoon Studios, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Kartoon Studios, Inc.](/companies/toon.md) (CIK 1355848)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 08:27 ET
- Period: 2024-03-31
- Accession: 0001355848-24-000071
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1355848/000135584824000071/toon-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355848/000135584824000071/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $6.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$6.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $203.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$7.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 35,297,746 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $3.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $34.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $2.8m | us-gaap:Cash |
| Current assets | at 2024-03-31 | $41.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $93.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $34.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $46.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $44.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,238 characters.

*The following discussion and analysis of our results of operations, financial condition and liquidity and capital resources should be read in conjunction with our financial statements and related notes for the three months ended March 31, 2024 and 2023. Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the safe harbor created thereby. Forward-looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. These differences can arise as a result of the risks described in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 9, 2024, and elsewhere in this report, as well as other factors that may affect our business, results of operations, or financial condition. Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking statements contained in this report will, in fact, transpire.*

### Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. It should be noted that the MD&A contains forward-looking statements that involve risks and uncertainties.

### Our Business

Our Content Distribution business is focused on achieving scale across our networks, including *Kartoon Channel!*, Frederator, Ameba, and *Kartoon Channel!* Worldwide. Revenue growth will be driven by the continued focus on licensed content and exploitation of our current content such as Stan Lee, *Shaq's Garage, Rainbow Rangers* and many more. Continued profit growth will be realized the more we can scale the business across our platforms. In addition, we are looking at artificial intelligence (“AI”) tools to reduce the cost of operating distribution expenses such as dubbing expenses, video resolution upscaling and converting between 2D and 3D.

Our Production Services business is focused on creating high-quality original and for hire content in the most efficient way possible. To achieve this, our Mainframe Studios division, the main driver of this business, is exploring more ways to improve operations by adopting a more flexible and efficient approach. This includes collaborating with outsource partners and utilizing AI technology to streamline processes and drive efficiencies within the organization.

Our Licensing & Royalties business has the most upside and potential for the Company. We are looking to take advantage of our incredible set of Stan Lee assets to drive consumer products - both digitally and physically. We will be focused on utilizing all of our IP assets further in 2024 and beyond.

Our Media Advisory & Advertising Services business is focused on driving deal flow opportunities and winning annuity business through retainers and projects. The team continues to focus on the toy business, but also expansion into tangential industries such as family and travel. The team has expanded their reach over the past 12-18 months by leveraging their relationships with influencers to promote products and provide bespoke marketing initiatives for the clients.

### Results of Operations

Our summary results for the three months ended March 31, 2024 and 2023 are below:

### Revenue

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Production Services | $2,763 | $9,886 | $(7,123) | (72)% |
| Content Distribution | 2,329 | 3,301 | (972) | (29)% |
| Licensing & Royalties | 100 | 46 | 54 | 117% |
| Media Advisory & Advertising Services | 886 | 956 | (70) | (7)% |
| **Total Revenue** | **$6,078** | **$14,189** | **$(8,111)** | **(57)%** |

Production Services revenue was generated specifically by Wow providing animation production services. Revenue for production services is recognized over time on a percentage of completion basis, therefore, as the projects are still in progress, we recognize revenue based upon the proportion of costs incurred cumulatively to total expected costs. Consequently, less revenue is recognized during the periods in which the projects are near completion or completed. Revenue for the three months ended March 31, 2024 was lower than the Wow production services revenue recognized during three months ended March 31, 2023 primarily due to a lower volume of active service production projects in the current period versus the prior year period.

Revenue related to Content Distribution on AVOD and SVOD, including advertising sales for the three months ended March 31, 2024, decreased by 29% as compared to the three months ended March 31, 2023. This was primarily due to a decrease in Frederator’s multi-channel network revenue of $0.8 million from YouTube due to less viewership and a decline in RPM advertising rates.

Revenue related to Licensing & Royalties for the three months ended March 31, 2024 increased by 117% as compared to the three months ended March 31, 2023 primarily due to the acquisition of new customers during the current period.

Revenue generated by Media Advisory & Advertising services for the three months ended March 31, 2024 decreased by 7% as compared to the three months ended March 31, 2023 primarily due to lower net renewal activity and media purchases from clients.

### Expenses

*(in thousands, except percentages)*

|  | Three Months Ended March 31, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Marketing and Sales | $444 | $245 | $199 | 81% |
| Direct Operating Costs | 4,325 | 11,285 | (6,960) | (62)% |
| General and Administrative | 7,603 | 9,225 | (1,622) | (18)% |
| Impairment of Property and Equipment | – | 120 | (120) | (100)% |
| Impairment of Intangible Assets | – | 4,023 | (4,023) | (100)% |
| Impairment of Goodwill | – | 11,287 | (11,287) | (100)% |
| **Total Expenses** | **$12,372** | **$36,185** | **$(23,813)** | **(66)%** |

The increase in Marketing and Sales expenses for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to an increase in advertising efforts aimed at promoting the Kartoon Studios branding.

Direct Operating Costs during the three months ended March 31, 2024 consisted primarily of salaries and related expenses for the animation production services employees of Wow and Frederator. Channel expenses, licensing and production of content costs, such as participation expenses related to profit sharing obligations with various animation studios, post-production studios, writers, directors, musicians or other creative talent that had rendered services and amortization, including any write-downs of film and television costs, make up the remainder of Direct Operating Costs. The decrease was primarily due to a reduction in salary costs and headcount due to a lower volume of service production projects for the three months ended March 31, 2024, compared to the same period of the prior year.

The decrease in General and Administrative expenses for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to a decrease of $0.7 million in share-based compensation expense, a decrease in depreciation related to equipment leases that had ended prior to the current period, and a decrease in general expenses as part of the Company’s cost saving initiatives.

During the three months ended March 31, 2023, we reassessed our nonfinancial assets, including our definite-lived intangible assets, our indefinite-lived intangible assets and our remaining goodwill for impairment. As a result, we concluded that impairment charges to those assets were required. The Company concluded that there were no indications or triggering events that would further impair the assets during the three months ended March 31, 2024.

### Other Expense, net

Components of Other Expense, net are summarized as follows (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| **Interest Expense (a)** | **$(203)** | **$(1,085)** |
| Gain on Revaluation of Warrants (b) | 37 | 139 |
| Loss on Revaluation of Equity Investment in YFE (c) | – | (895) |
| Realized Loss on Marketable Securities Investments (d) | (141) | (1,537) |
| Gain (Loss) on Foreign Exchange (e) | (650) | 320 |
| Interest Income (f) | 53 | 310 |
| Finance Lease Interest Expense (g) | (30) | (50) |
| Other (h) | 164 | 1 |
| **Other Expense, net** | **$(567)** | **$(1,712)** |

(a) Interest Expense during the three months ended March 31, 2024 primarily consisted of $0.1 million of interest incurred on the production facilities and $0.1 million of interest incurred on bank indebtedness.

(b) The Gain on Revaluation of Warrants during the three months ended March 31, 2024 is primarily related to the changes in fair value of the remaining outstanding warrant classified as a liability due to decreases in market price.

(c) As accounted for using the fair value option, the Loss on Revaluation of Equity Investment in YFE is a result of the increases or decreases in YFE’s stock price as of the current reporting period when compared to the prior reporting period. This excludes the impact of foreign currency recorded separately. The stock price of YFE as of March 31, 2024 did not change from the prior period.

(d) The Realized Loss on Marketable Securities Investments reflects the loss that will not be recovered from the investments due to selling securities prior to maturity.

(e) The Gain (Loss) on Foreign Exchange during the three months ended March 31, 2024 primarily related to the revaluation of the YFE investment, resulting in a loss of $0.4 million due to the EURO fluctuation to USD as compared to the prior reporting period. The remaining balance is related to remeasurements of transactions made in foreign currencies that are outstanding as of the balance sheet date.

(f) Interest Income during the three months ended March 31, 2024 primarily consisted of interest income, net of premium amortization expense, recorded for the investments in marketable securities.

(g) The Finance Lease Interest Expense represents the interest portion of the finance lease obligations for equipment purchased under an equipment lease line.

(h) Other Income is primarily related to late fees from select clients on a payment plan.

25

### Liquidity and Capital Resources

As of March 31, 2024, we had cash of $2.8 million, which decreased by $1.3 million as compared to December 31, 2023. The decrease was primarily due to cash used in financing activities of $7.9 million, offset by cash provided by operating activities of $3.8 million and investing activities of $2.6 million. The cash used in financing activities was primarily due to the net repayment of the production facilities and bank indebtedness, partially offset by the net proceeds from the margin loan, resulting in cash used of $7.5 million, and payments on finance leases of $0.4 million. The cash provided by investing activities was due to sales of marketable securities of $2.6 million.

As of March 31, 2024, we held available-for-sale marketable securities with a fair value of $9.4 million, a decrease of $2.6 million as compared to December 31, 2023 due to sales and maturities during the three months ended March 31, 2024. The available-for-sale securities consist principally of corporate and government debt securities and are also available as a source of liquidity.

As of March 31, 2024 and December 31, 2023, our margin loan balance was $2.9 million and $0.8 million, respectively. During the three months ended March 31, 2024, we borrowed an additional $3.1 million from our investment margin account and repaid $0.9 million primarily with cash received from sales and maturities of marketable securities. The borrowed amounts were primarily used for operational costs. The interest rates for the borrowings fluctuate based on the Fed Funds Upper Target plus 0.60%. The weighted average interest rates were 0.95% and 0.98% on average margin loan balances of $14.2 million and $27.4 million as of March 31, 2024 and December 31, 2023, respectively. We incurred interest expense on the loan of $18,632 and $0.7 million during the three months ended March 31, 2024 and 2023, respectively. The investment margin account borrowings do not mature but are collateralized by the marketable securities held by the same custodian and the custodian can issue a margin call at any time, effecting a payable on demand loan. Due to the call option, the margin loan is recorded as a current liability on our condensed consolidated balance sheets.

We are subject to financial and customary affirmative and negative non-financial covenants on the revolving demand facility and equipment lease line that have an aggregate total outstanding balance of USD 1.0 million (CAD 1.4 million).

During March 2024, the Company amended the revolving demand facility, equipment lease line, and treasury risk management facility. As a result of the amendment, the revolving demand facility allows for draws of up to CAD 1.0 million to be made by way of CAD prime rate loans, CAD overdrafts, USD base rate loans or letters of credit up to a maximum of $200,000 in either CAD or USD and having a term of up to 1 year. The CAD prime borrowings and overdrafts bear interest at a rate equal to bank prime plus 2.00% per annum. The USD base rate borrowings bear interest at a rate equal to bank base rate plus 2.00% per annum. In addition, the equipment lease line was terminated, however, the Company has and will continue to make the regular principal and interest payments under the specific financing terms of the existing equipment lease agreements. The amendment removed the treasury risk management facility that allowed for advances of up to CAD 0.5 million. As of March 31, 2024 and the date of the amendment, there were no outstanding amounts drawn under the treasury risk management facility. The amendment also introduced revised financial covenants that are effective as of March 15, 2024. The amendment did not have any impact on the Company’s existing production facilities that are separate from the revolving demand facility and are used for financing specific productions.

#### Working Capital

As of March 31, 2024, we had total current assets of $41.0 million, including cash of $2.8 million and marketable securities of $9.4 million, and our total current liabilities were $34.9 million. We had working capital of $6.1 million as of March 31, 2024 as compared to working capital of $11.5 million as of December 31, 2023. The decrease of $5.4 million was primarily due to a decrease in our cash and marketable security position.

During the three months ended March 31, 2024, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. We believe that our current cash balances and our investments in available for sale marketable securities are sufficient to support our operations for at least the next twelve months. To meet our short and long-term liquidity needs, we expect to use existing cash and marketable securities balances.

#### Comparison of Cash Flows for the Three Months Ended March 31, 2024 and March 31, 2023

Our total cash as of March 31, 2024 and March 31, 2023 was $2.8 million and $4.1 million, respectively.

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Net Cash Provided by (Used in) Operating Activities | $3,845 | $(5,165) | $9,010 |
| Net Cash Provided by Investing Activities | 2,560 | 14,648 | (12,088) |
| Net Cash Used in Financing Activities | (7,891) | (12,157) | 4,266 |
| Effect of Exchange Rate Changes on Cash | 154 | 7 | 147 |
| Decrease in Cash | **$(1,332)** | **$(2,667)** | **$1,335** |

#### Net Non-cash Expenses

Items necessary to reconcile from net loss to cash provided by operating activities included net non-cash expenses of $2.1 million for the three months ended March 31, 2024 as compared to net non-cash expenses of $19.4 million for the three months ended March 31, 2023. The majority of the decrease of $17.3 million was primarily due to the absence of the recognition of $15.4 million in impairment expenses of long-lived assets, intangible assets and goodwill and a loss of $0.9 million on the revaluation of our equity investment in YFE securities that was recorded during the three months ended March 31, 2023. In addition, the realized loss on marketable securities decreased by $1.4 million due to the decreased sales of our marketable securities prior to their maturity date and stock based compensation expense decreased by $0.7 million. The decrease is offset by the absence of recording deferred income taxes of $0.9 million.

#### Change in Operating Activities

The net change in operating asset and liability activities from cash used of $0.7 million as of March 31, 2023 to the net change in operating asset and liability activities provided by cash of $8.8 million as of March 31, 2024 was primarily due to an increase in net receipts of tax credits during the current year of $5.6 million as credits were received for production completed in the prior year, a decrease in deferred revenue of $3.4 million and a $2.0 million decrease in accounts payable and accrued expenses due to timing.

#### Change in Investing Activities

The decrease in cash provided by investing activities of $12.1 million was primarily due to a decrease in proceeds from the sales and maturities of marketable securities of $12.2 million during the three months ended March 31, 2024 due to less sales of our marketable securities during the current period.

#### Change in Financing Activities

The decrease in cash used in financing activities of $4.3 million was primarily due to a decrease in borrowings from our margin loan and production facilities, offset by an increase in pay down of the production facilities resulting in a net decrease of cash used in financing of $3.8 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

#### Material Cash Requirements

We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our material cash requirements from known contractual and other obligations primarily relate to our debt and lease obligations and our employment and consulting contracts. The aggregate amount of future minimum purchase obligations under these agreements over the period of next five years is approximately $24.6 million as of March 31, 2024, of which about $8.5 million could be owed within one year if the margin loan is called.

We plan to utilize our liquidity (as described above) to fund our material cash requirements.

As of March 31, 2024, we had $1.7 million in commitments for capital expenditures, related to equipment leases.

### Critical Accounting Policies and Estimates

The preparation of the financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

Note 2, “Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 9, 2024 (the “2023 Annual Report”), and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2023 Annual Report describe the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.

### Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

## Market risk

As filed, 140 characters.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

## Controls and procedures

As filed, 7,334 characters.

### 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 effective for the three months ended March 31, 2024, 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 SEC rules and forms.

### Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control – Integrated Framework (2013 Framework).*

Based on this assessment, our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial and accounting officer), has concluded that, as of March 31, 2024, our internal controls over financial reporting were not effective based on those criteria.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which are observed in many small companies with a small number of accounting and financial reporting staff:

- Inadequate design of user access provisioning/deprovisioning controls and inadequate segregation of duties on certain controls or processes;
- Lack of specialized experts related to income tax areas; and
- Inappropriate application of accounting standards related to warrant modifications.

### Management’s Plan to Remediate the Material Weaknesses

The Company continues to be committed to maintaining a strong internal control environment. In response to the identified material weaknesses, management has taken comprehensive actions to strengthen its internal controls and has been and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated.

Our plans for remediation include, but are not limited to, the efforts summarized below, which have been or are in the process of being implemented:

- Enhanced procedures for formal documented review and approval of journal entries;
- Reorganized the accounting team members to ensure proper segregation of duties;
- Implemented core financial reporting and financial close software systems;
- Performed risk assessment procedures and improved the documentation of internal processes and controls;
- Improved documentation over complex financial transactions;
- Implemented additional procedures over assessment of cybersecurity and information technology general controls;
- Increase the extent of oversight and verification checks included in operation of user access controls and processes; and
- Continue to enhance review over financial reporting, financial operations, internal controls including segregation of duties; as well as improve tax analysis and fair value estimates.

We will not be able to conclude whether these efforts will fully remediate the material weakness until the updated process has operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively.

### Changes in Internal Control over Financial Reporting

Other than the remediation efforts described above, there was no change in our internal controls over financial reporting that occurred during the quarter ended March 31, 2024 that has materially affected, or is 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.

## Risk factors

As filed, 137 characters.

There have been no material changes to the Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001355848-24-000071. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.