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Item 9A. Controls and Procedures

2021-03-11 compared with 2020-03-05 · 41 added, 39 removed, 142 unchanged (36% of the section changed)

4 unchanged sentences

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has concluded, based on its evaluation as of December 31, 2019, that our “disclosure controls and procedures” (as such term is defined in Rules 13a–15(e) and 15d–15(e) under the Securities and Exchange Act of 1934, as amended (the Exchange Act”)), were not effective at the reasonable assurance level due to the material weakness in the Company’s internal control over financial reporting described below.

Our management, with the participation of our chief executive officer and chief financial officer, has concluded, based on its evaluation as of December 31, 2020, that our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“the Exchange Act”)), were effective at the reasonable assurance level as of December 31, 2020.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

Our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that, as of December 31, 2019, our internal control over financial reporting was not effective as a result of a material weakness in our internal control over financial reporting related to the Company's absence of controls to ensure the completeness and accuracy of the information used in the calculation of duties payable to U.S.

Customs at our Loungefly subsidiary.

This control deficiency did not result in a material misstatement of our prior period consolidated annual or interim financial statements.

However, the control deficiency could have resulted in material misstatements to the annual or interim consolidated financial statements that would not have been prevented or detected.

Accordingly, management has concluded that this control deficiency constitutes a material weakness.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for "emerging growth companies".

Remediation Plan

We are implementing a plan to remediate the material weakness, which includes identifying key stakeholders across the relevant departments, providing training and education from outside experts, formalizing a customs policy and procedures manual which includes, among other things, a process for reviewing customs entry forms, and implementing a semi-annual review of compliance with our customs policy and procedures and, if necessary, allocation of additional resources, including personnel, to our compliance functions.

Changes in Internal Control Over Financial Reporting

Except for the remediation measures described above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

In the course of completing our assessment of internal control over financial reporting as of December 31, 2019, management identified a material weakness in internal control over financial reporting related to the Company's absence of controls to ensure the completeness and accuracy of the information used in the calculation of duties payable to U.S.

Customs at our Loungefly subsidiary.

In 2019 and 2020, the Company implemented a number of remediation efforts to address the material weakness and to improve and strengthen our internal controls including the following:

• Identified key stakeholders within the Company, both within the Loungefly subsidiary and overall global operations.

• Formalized a Customs Policy and created Customs procedures specific to the review of custom entry forms.

• Hired additional Compliance personnel and expanded the resources in the functional areas that support and monitor our global import functions.

• Implemented expanded on-the-job training focused on the design and function of our control procedures, and employed dedicated compliance personnel to drive the design, maintenance and optimization of our control framework, including monitoring activities.

During the fourth quarter of 2020, we completed our evaluation of internal control over financial reporting and determined that controls and procedures over the affected Customs reporting were designed, implemented and tested to be operating effectively.

Management has therefore concluded that the previously reported material weakness in internal control over financial reporting related to the completeness and accuracy of the information used in the calculation of duties payable to U.S.

Customs had been remediated as of December 31, 2020.

Except as described above, there have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OTHER INFORMATION

1 unchanged sentence

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Item 1 of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant,” and will also appear in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.

The remaining information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be included under the headings “Election of Directors,” “Corporate Governance,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2020 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.

Code of Ethics

Our Code of Business Conduct and Ethics (the “Code of Conduct”) applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer.

The Code of Conduct is publicly available on our Internet website at www.funko.com.

We intend to satisfy the disclosure required by law or Nasdaq Stock Market listing standards regarding any amendment to, or waiver from, a provision of the Code of Conduct by posting such information on our website at www.funko.com.

Executive Officers and Directors

Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Item 1 of this Annual Report on Form 10-K under the caption “Information about our Executive Officers and Board of Directors,” and will also appear in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.

The remaining information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be included under the headings “Election of Directors,” “Corporate Governance,” and “Delinquent Section 16(a) Reports” (if applicable) in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such required information is incorporated herein by reference.

EXECUTIVE COMPENSATION

The information required by Items 402, 407(e)(4), and (e)(5) of Regulation S-K will be included under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for our 2020 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

The information required by Items 402, 407(e)(4), and (e)(5) of Regulation S-K will be included under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” (if applicable) in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

14 unchanged sentences

The information required by Item 9(e) of Schedule 14A of the Exchange Act will be included under the heading “Independent Registered Public Accounting Firm Fees and Other Matters” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders, and such information is incorporated herein by reference.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

2 unchanged sentences

Financial Statement Schedules

All schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.

Condensed Financial Information of Registrant

All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.

List of Exhibits

7 unchanged sentences

4.1 Specimen Stock Certificate evidencing the shares of Class A common stock

S-1/A 333-220856

4.1 10/23/2017

2 unchanged sentences

2015 Option Plan, Amended and Restated as of November 1, 2017.

015 Option Plan, Amended and Restated as of November 1, 2017.

10.1 3/19/2018

12 unchanged sentences

10.18 10/6/2017

Offer letter, dated September 29, 2013, by and between Funko, LLC and Russell Nickel.

10.19 10/6/2017

Employment Agreement, dated October 20, 2017, by and between Funko, Inc.

and Russell Nickel.

10-K 001-38274 10.8 3/19/2018

Offer letter, dated June 15, 2016, by and between Funko, LLC and Tracy Daw.

S-1 333-220856 10.21 10/6/2017

Employment Agreement, dated October 20, 2017, by and between Funko, Inc.

and Tracy Daw.

3 unchanged sentences

10-K 001-38274 10.13 3/19/2018

Exhibit Description

Incorporated by Reference

Form of Indemnification Agreement for Directors and Officers.

S-1/A 333-220856 10.27 10/12/2017

Exhibit Description

Incorporated by Reference

Form of Restricted Stock Unit Award Agreement under 2017 Incentive Award Plan

2 unchanged sentences

10-K 001-38274 10.16 3/6/2019

10.15 Pledge and Security Agreement, dated as of October 30, 2015, by Funko Acquisition Holdings, L.L.C., Funko Holdings LLC and Funko, LLC, in favor of Cerberus Business Finance, LLC, as Collateral Agent.

S-1 333-220856 10.11 10/6/2017

10.16 Security Agreement Supplement, dated as of June 28, 2017, by Loungefly, LLC, in favor of Cerberus Business Finance, LLC, as Collateral Agent.

S-1 333-220856 10.12 10/6/2017

10.12 Tax Receivable Agreement, dated as of November 1, 2017, between Funko, Inc., Funko Acquisition Holdings, L.L.C., the Members of the LLC, and Tax Receivable Agreement, dated as of November 1, 2017, between Funko, Inc., Funko Acquisition Holdings, L.L.C., the Members of the LLC, and the Management Representative.

18 unchanged sentences

10-K 001-38274 10.33 3/6/2019

Exhibit Description

Incorporated by Reference

10.19 Amendment No.

1 unchanged sentence

8-K 001-38274 10.1 9/24/2019

Transition and Release of Claims Agreement, dated April 15, 2019, between Funko, Inc.

and Russell Nickel.

Exhibit Description

Incorporated by Reference

10.20 Amendment No.

3 dated as of May 5, 2020, among Funko Acquisition Holdings, L.L.C., Funko Holdings LLC, Funko, LLC, Loungefly, LLC, Funko Games, LLC a, and each lender from time to time party thereto

8-K 001-38274 10.1 5/5/2020

9 unchanged sentences

21.1 List of Subsidiaries

10-K 001-38274 21.1 3/5/2020

23.1 Consent of Independent Registered Public Accounting Firm

5 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Definition Linkbase Document.

101.LAB XBRL Taxonomy Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ***

* Filed herewith

29 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures