ASCENT INDUSTRIES CO. 10-K

Item 9A. Controls and Procedures a) Evaluation of Disclosure Controls and Procedures The Company conducted an evaluation, under the supervision and with the participation of its management, of the effectiveness of the design and operation of its disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company'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 on this evaluation, the Company’s principal executive and principal financial officers concluded as of December 31, 2022 that its disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in its internal control over financial reporting discussed below. (b) Management's Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, its CEO and CFO, or persons performing similar functions, and effected by its 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 accounting principles generally accepted in the United States of America (GAAP). The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework . Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was not effective at the reasonable assurance level as of December 31, 2022. Material Weaknesses in Internal Control over Financial Reporting A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), 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 the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that the Company had the following material weaknesses in its internal control over financial reporting: • Entity Level Activities - Management did not maintain appropriately designed entity-level controls impacting the control environment and effective monitoring activities to prevent or detect potential material misstatements to the financial statements. These deficiencies were attributed to: • Lack of structure and responsibility, insufficient number of qualified resources due to significant turnover in key personnel leading to insufficient oversight and accountability over the performance of controls; and, 60 • Insufficient evaluation and determination as to whether the components of internal control were present and functioning based upon evidence maintained for certain management review controls and activity level controls across a significant portion of the Company's financial statement areas. • Control Activities - Management did not have effective policies and procedures or adequate selection and development of effective control activities, which resulted in the following additional material weaknesses: • Inventory - Management did not appropriately design and implement controls over the existence, accuracy, completeness and valuation of inventory. • Revenue recognition – Management did not maintain effectively designed and implemented controls over recorded revenue and accounts receivable, including procedures over the existence and accuracy of data input for price and quantity, review of sales contracts, as well as appropriate allocation of transaction price across identified performance obligations within the Company's contracts with customers. • Period-end financial reporting, journal entries, reconciliations, and account analyses - Management did not maintain effectively designed and implemented controls to detect potential material misstatements to period-end financial statements through review of account reconciliations and account analyses on a timely basis as well as other aspects of the financial statement preparation and review process. Additionally, management did not maintain effectively designed and implemented controls over the review of journal entries. • Complex Accounting - Management did not appropriately design and implement management review controls at a sufficient level of precision around complex accounting areas including goodwill impairment, long-lived asset impairment and income taxes. • Information Technology - Management did not fully design, implement and monitor general information technology controls in the areas of user access, cyber-security and segregation of duties for systems supporting many of the Company's internal control processes. As a result of those segregation of duties deficiencies the related manual business process controls were determined to be ineffective. While there were no material misstatements in 2022, these material weaknesses, individually or in the aggregate, could result in misstatements of accounts or disclosures in the consolidated financial statements that would not be prevented or detected on a timely basis. Accordingly, management has concluded that these control deficiencies constitute material weaknesses. Management’s Plan to Remediate the Material Weakness Management plans to implement measures designed to ensure that we improve our internal controls over financial reporting and remediate the material weaknesses. The remediation actions planned include development of policies and procedures and design and enhancement of internal controls over our financial reporting process as well as monitoring of the effectiveness of these controls. Remediation Plan In response to the identified deficiencies that aggregated to the aforementioned material weaknesses, management, with oversight from the Company's Audit Committee, is in the process of developing a detailed plan for remediation, including: • Providing relevant training on internal controls over financial reporting to control owners and control preparers • Evaluating and realigning roles and responsibilities of management • Evaluating and realigning roles and responsibilities of control owners and control prepares to maintain segregation of duties • Enhancing/designing/implementing controls over the inventory, revenue recognition and accounts receivable, period-end financial reporting, account analyses, and journal entry processes • Enhancing/designing/implementing controls over accounting for complex areas • Enhancing/designing/implementing controls over general information technology controls, including user access provisioning and cyber-security 61 As the Company continues to evaluate the control deficiencies that gave rise to the material weaknesses, the Company may determine additional remediation measures are necessary. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. c) Changes in Internal Control over Financial Reporting Other than the material weaknesses described above, there were no changes in the Company’s internal controls over financial reporting during the fiscal quarter ended December 31, 2022 that materially affected, or are reasonably likely to have a materially affect, on our internal control over financial reporting. BDO USA, LLP, our independent registered public accounting firm, has issued their report on our internal control over financial reporting as of December 31, 2022, which is included in Item 8 under the heading “Report of Independent Registered Public Accounting Firm." Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance In accordance with General Instruction G(3), information called for by Part III, Item 10, is incorporated herein by reference from the information appearing under the caption "Proposal 1 - Election of Directors," "Executive Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. Code of Conduct. The Company's Board of Directors has adopted a Code of Conduct that applies to the Company's Chief Executive Officer, Chief Financial Officer and corporate and divisional controllers. The Code of Conduct is available on the Company's website at www.ascentco.com . Any amendment to, or waiver from, this Code of Conduct will be posted on the Company's website. Audit Committee. The Company has a separately designated standing Audit Committee of the Board of Directors established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Henry L. Guy, Aldo J. Mazzaferro, Jr. and John P. Schauerman. Audit Committee Financial Expert. The Company's Board of Directors has determined that the Company has at least one "audit committee financial expert," as that term is defined by Item 407(d)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, serving on its Audit Committee. Mr. John P. Schauerman meets the terms of the definition and is independent, as independence is defined for audit committee members in the rules of the NASDAQ Global Market. Pursuant to the terms of Item 407(d) of Regulation S-K, a person who is determined to be an "audit committee financial expert" will not be deemed an expert for any purpose as a result of being designated or identified as an "audit committee financial expert" pursuant to Item 407(d), and such designation or identification does not impose on such person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and Board of Directors in the absence of such designation or identification. Further, the designation or identification of a person as an "audit committee financial expert" pursuant to Item 407(d) does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors. Item 11. Executive Compensation In accordance with General Instruction G(3), information called for by Part III, Item 11, is incorporated herein by reference from the information appearing under the caption "Board of Directors and Committees - Compensation Committee Interlocks 62 and Insider Participation," "Director Compensation," "Discussion of Executive Compensation" and "Compensation Committee Report" in the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters In accordance with General Instruction G(3), information called for by Part III, Item 12, is incorporated by reference from the information appearing under the caption "Beneficial Owners of More Than Five Percent of the Company's Common Stock" and "Security Ownership of Certain Beneficial Owners and Management" in the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. Equity Compensation Plan Information. The following table sets forth aggregated information as of December 31, 2022 about all of the Company's equity compensation plans. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants, and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 1 (c) Equity compensation plans approved by security holders 118,142 $ 13.66 668,523 Equity compensation plans not approved by security holders — — — Total 118,142 $ 13.66 668,523 1 Represents shares remaining available for issuance under the 2022 Omnibus Equity Incentive Plan Non-employee directors are paid an annual retainer of $102,000, and each director has the opportunity to elect to receive 100% of the retainer in restricted stock, which vest quarterly over a one year period. The number of restricted shares is determined by the average of the high and low sale price of the Company's stock on the day prior to the Annual Meeting of Shareholders. In 2022, the Company issued an aggregate of 17,173 shares of restricted stock to non-employee directors in lieu of $0.3 million of their annual cash retainer fees. The Company also issued an aggregate of 65,000 additional shares of restricted stock to the Company's Executive Chairman of the Board consisting of 15,000 restricted stock units and 50,000 performance stock units. The restricted stock units will vest 50% on the first and second anniversary of the award while the performance stock units vest upon the achievement of specific 30-day volume weighted average price targets of the Company's common stock. Item 13. Certain Relationships and Related Transactions, and Director Independence In accordance with General Instruction G(3), information called for by Part III, Item 13, is incorporated by reference from the information appearing under the caption "Board of Directors and Committees – Related Party Transactions" and "– Director Independence" in the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. Item 14. Principal Accounting Fees and Services In accordance with General Instruction G(3), information called for by Part III, Item 14, is incorporated by reference from the information appearing under the caption "Independent Registered Public Accounting Firm - Fees Paid to Independent Registered Public Accounting Firm" and "– Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm" in the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed electronically with the SEC pursuant to Regulation 14A. PART IV 63 Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as a part of this report: 1. Financial Statements: The following consolidated financial statements of Ascent Industries Co. are included in Part II, Item 8: Consolidated Balance Sheets as of December 31, 2022 and 2021 Consolidated Statements of Income for the years ended December 31, 2022 and 2021 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2022 and 2021 Notes to Consolidated Financial Statements 2. Financial Statements Schedule: The following consolidated financial statements schedule of Ascent Industries Co. is included in Item 15: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Listing of Exhibits: See "Exhibit Index" 2. Financial Statement Schedule Schedule II Valuation and Qualifying Accounts (in thousands) Balance at Beginning of Period Charged to (Reduction of) Cost and Expenses Other Deductions Balance at End of Period Year ended December 31, 2022 Deducted from asset account: Inventory reserves $ 1,272 $ 3,052 $ — $ ( 627 ) $ 3,697 Year ended December 31, 2021 Deducted from asset account: Inventory reserves $ 718 $ 1,649 $ 216 (a) $ ( 1,311 ) $ 1,272 (a) DanChem acquired reserve on October 22, 2021 64 3. Exhibits Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date 2.1 Stock Purchase Agreement, dated as of October 22, 2021, by and between the Company and DanChem Holdings, LLC.† 8-K 001-05200 2.1 October 25, 2021 3.1 Amended and Restated Certificate of Incorporation of Registrant 8-K 001-05200 3.1 August 10, 2022 3.2 Amended and Restated Bylaws of Registrant 8-K 001-05200 3.2 August 10, 2022 4.1 Description of Common Stock 10-K 001-05200 4.2 March 29, 2022 10.1 Amended and Restated Synalloy Corporation 2015 Stock Awards Plan 10-Q 001-05200 10.2 August 9, 2021 10.2 2011 Long-Term Incentive Stock Option Plan DEF 14A 000-19687 A March 25, 2011 10.3 2022 Omnibus Equity Incentive Plan DEF 14A 001-05200 A April 27, 2022 10.4 Agreement between Registrant's Bristol Metals, LLC subsidiary and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union Local 5852-22, dated March 12, 2018, but effective January 6, 2018 10-K 000-19687 10.11 March 13, 2018 10.5 Agreement between Registrant's Bristol Metals, LLC subsidiary and the United Steelworkers of America Local 4586, dated August 1, 2019 10-K 000-19687 10.31 March 6, 2020 10.6 Agreement between Registrant’s Specialty Pipe & Tube, Inc. subsidiary and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union Local 1375-18, dated July 1, 2020 10-K 001-05200 10.9 March 9, 2021 10.7 Credit Agreement, dated as of January 15, 2021, between Registrant and BMO Harris Bank N.A. 8-K 001-05200 99.1 January 19, 2021 10.8 Joinder Agreement, dated November 5, 2021, between Registrant and BMO Harris Bank N.A. 10-Q 001-05200 10.1 November 9, 2021 10.9 Employment Agreement between Registrant and Christopher G. Hutter 8-K 001-05200 99.3 October 28, 2020 10.10 Offer Letter, dated as of August 1, 2021, between Registrant and Aaron Tam. 8-K 001-05200 10.1 August 30, 2021 65 Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date 10.11 Third Amended and Restated Master Lease Agreement, dated as of September 10, 2020, between Registrant and Store Master Funding XII, LLC 10-Q 001-05200 10.1 November 9, 2020 21 Subsidiaries of the Registrant 23.1 Consent of BDO USA LLP, independent registered public accounting firm 31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer 32.1 Certifications Pursuant to 18 U.S.C. Section 1350 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema 101.CAL* XBRL Taxonomy Extension Calculation Linkbase 101.LAB* XBRL Taxonomy Extension Label Linkbase 101.PRE* XBRL Taxonomy Extension Presentation Linkbase 101.DEF* XBRL Taxonomy Extension Definition Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101*) * In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed "furnished" and not "filed." † Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Item 16. Form 10-K Summary None. 66 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASCENT INDUSTRIES CO. By: /s/ Christopher G. Hutter Christopher G. Hutter President and Chief Executive Officer (principal executive officer) March 31, 2023 Date By: /s/ Aaron M. Tam Aaron M. Tam Chief Financial Officer (Principal Financial and Accounting Officer) March 31, 2023 Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Benjamin Rosenzweig Benjamin Rosenzweig Executive Chairman of the Board March 31, 2023 Date /s/ Christopher G. Hutter Christopher G. Hutter Chief Executive Officer and Director March 31, 2023 Date /s/ Henry L. Guy Henry L. Guy Director March 31, 2023 Date /s/ John P. Schauerman John P. Schauerman Director March 31, 2023 Date /s/ Aldo J Mazzaferro, Jr. Aldo J. Mazzaferro, Jr. Director March 31, 2023 Date 67