Turning Point Brands, Inc. 10-K

Item 9A. Controls and Procedures Previously Disclosed Material Weakness Related to IT Controls As previously reported in the 10K filing for year-end December 31, 2023, the Company did not design and maintain effective internal controls related to our information technology general controls (“ITGCs”) in the areas of user access and program change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon knowledge and actions of certain individuals with IT expertise and inherent system limitations. The material weakness did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results. Disclosure Controls and Procedures As of December 31, 2024, the Company’s management, with participation of the Company’s President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2024, solely due to the previously disclosed material weaknesses related to ITGCs in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes. No financial restatements were made as a result of this material weakness. Internal Control Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report that provides management’s assessment of our internal control over financial reporting as part of this Annual Report on Form 10-K for the year ended December 31, 2024. Management’s report is included below under the caption entitled “Management’s Report on Internal Control Over Financial Reporting,” and is incorporated herein by reference. Management ’ s Report on Internal Control Over Financial Reporting The consolidated financial statements appearing in this Annual Report have been prepared by the management that is responsible for their preparation, integrity, and fair presentation and reviewed by the Audit Committee of the Board of Directors. The statements have been prepared in accordance with U.S. generally accepted accounting principles, which requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. 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) of the Securities Exchange Act of 1934, as amended). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions over the normal and routine course of business, the effectiveness of an internal control system may vary over time. With the oversight of the Audit Committee of the Board of Directors, and under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on the standardized framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO ICIF”). According to this standard, a material weakness is defined as 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. Based on our evaluation under the framework in COSO ICIF, our management concluded that our internal control over financial reporting was not effective as of December 31, 2024, which was previously reported. The material weakness did not require a financial restatement. Internal Controls Related to Information Technology and User Access While we designed and implemented internal controls related to our ITGCs in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes, we did not maintain those controls for a sufficient period of time to effectively demonstrate the operating effectiveness of those ITGCs. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of ITGCs overly dependent upon knowledge and actions of certain individuals with IT expertise and inherent system limitations creating segregation of duties risks for most of the fiscal year. Our independent registered public accounting firm has audited the consolidated financial statements appearing in this Annual Report and the effectiveness of our internal controls over financial reporting and has issued their reports, included herein. Notwithstanding the above identified material weakness, management believes the financial statements as included in Part II of this Annual Report on Form 10-K fairly represent in all material respects the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles in the U.S. 90 Table of Contents Remediation Plan In 2024, we have been engaged in the implementation of a new enterprise resource planning (“ERP”) system, which is part of the remediation efforts for our material weakness in internal controls over financial reporting identified. This ERP system will replace our operating and financial systems and is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. While we have taken meaningful steps to improve our internal controls, full remediation of the previously identified material weakness was not realized as of December 31, 2024. We anticipate that the remediation will be complete by the end of fiscal year 2025, as at that time the referenced controls will have been in place for a sufficient period of time to demonstrate operating effectiveness. The Company implemented the following remediation control activities in 2024: ● Enhanced policies and procedures to improve our overall control environment, including processes for reporting deficiencies to those parties responsible for taking corrective action, such as senior management and the Board of Directors, as appropriate. ● Recruited key positions within our technology, accounting, and other support functions with appropriate qualified experience to 1) enhance our risk assessment processes and internal control activities; 2) allow for additional segregation of duties and improved change management; and 3) provide appropriate oversight and reviews. ● Provided training and education programs for personnel responsible for the performance of key IT controls and business processes throughout the Company to facilitate their understanding of the risks being addressed by the controls they are performing, as well as educate them in the documentation requirements of the internal control framework. ● Made investments in our technology platforms and associated monitoring tools, in order to provide better reporting capabilities and allow for transparency as to the changes made by users with privileged access. We also implemented monitoring controls utilizing these tools to validate that activities performed by those accounts were authorized and appropriate. ● Modified and restricted access to key system privileges to minimize segregation of duties risks within the Company and its IT systems. ● Made significant progress in enhancements to the business process control environment to address the noted design deficiencies. ● Increased resource allocations to further support the internal controls compliance program. While we have put forth significant resources and effort in our remediation activities described above, ongoing and additional activities are required to fully remediate our material weaknesses. Our ongoing efforts include: ● Anticipated completion of the implementation of the new ERP system in the first half of 2025 providing an enhanced control environment. ● Continue to utilize third-party consultants specialized in ITGC’s, internal audit, risk management and compliance functions. Their expertise will help us to continually assess risk and design and implement appropriate controls to address said risks. ● Continuing to implement and enhance ITGCs and related policies. ● Continuing to configure system access and new tools, such as monitoring software, to allow us to better report upon and evaluate software modifications, data changes, and other relevant IT changes. ● Providing additional training for control owners and reviewers with specific focus on understanding the risks being addressed by the controls they are performing, as well as requirements for sufficient documentation and evidence in the execution of the controls. ● Continuing to enhance our reporting process related to the remediation measures to the Audit Committee of the Board of Directors. Upon the completion of the steps above, we believe that these actions will remediate the material weakness. However, the material weakness will not be considered fully remediated until the applicable controls have been in place for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively. Role of the Audit Committee in Material Weakness Remediation The Audit Committee of the Board of Directors is actively overseeing the remediation of the material weaknesses. Working closely with management, as well as with the Company’s internal audit, finance teams, and independent auditors, the Audit Committee has and will continue to monitor and evaluate the effectiveness of the remediation throughout the fiscal year ending December 31, 2025. Regular updates on progress have been and will continue to be provided to the Board of Directors, with the Audit Committee ensuring management’s testing of the remediated controls is completed as soon as practicable Changes in Internal Controls over Financial Reporting Other than in connection with aspects of our remediation plan, there were no changes in the Company’s internal controls over financial reporting during the fiscal quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 91 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance The information required for this Item is incorporated by reference from our Proxy Statement to be filed in connection with our 2025 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2024. We have adopted a Securities Trading Policy that governs the purchase, sale, and/or other dispositions of our securities by our directors, officers, and employees designed to promote compliance with insider trading laws, rules, and regulations, and any listing standards applicable to us. A copy of our Securities Trading Policy, as currently in effect, is filed as Exhibit19.1 to this Annual Report on Form 10-K. Item 11. Executive Compensation The information required for this Item is incorporated by reference from our Proxy Statement to be filed in connection with our 2025 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2024. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this Item is incorporated by reference from our Proxy Statement to be filed in connection with our 2025 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2024. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required for this Item is incorporated by reference from our Proxy Statement to be filed in connection with our 2025 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2024. Item 14. Principal Accountant Fees and Services The information required for this Item is incorporated by reference from our Proxy Statement to be filed in connection with our 2025 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2024. 92 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules a) Financial Information (1) Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedule: Information required by this item is included within the consolidated financial statements or notes in Item 8 of this Annual Report on Form 10-K. (3) Exhibits – See (b) below b) Exhibits Index to Exhibits Index to Exhibits Exhibit No. Description 1 At Market Issuance Sales Agreement, dated December 13, 2024, by and among Turning Point Brands, Inc., B. Riley Securities, Inc. and Barclays Capital Inc. (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed on December 13, 2024). 2 International Vapor Group Stock Purchase Agreement dated as of September 5, 2018, between Turning Point Brands, Inc. and International Vapor Group, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 7, 2018). 3.1 Second Amended and Restated Certificate of Incorporation of Turning Point Brands, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2016). 3.2 Second Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 27, 2020). 4.1 Registration Rights Agreement of Turning Point Brands, Inc. dated May 10, 2016, between Turning Point Brands, Inc. and the Stockholders named therein (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2016). 4.2 Description of Securities. (incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K filed on March 12, 2020). 4.3 Indenture dated as of February 19, 2025, between Turning Point Brands, Inc. and GLAS Trust Company LLC (including the form of Note as Exhibit A thereto).* 10.1 Turning Point Brands, Inc. 2021 Equity Incentive Plan, dated as of March 22, 2021 (incorporated by reference to Appendix A of the Company’s definitive proxy statement on Schedule 14A, filed with the Commission on March 25, 2021). † 10.2 Turning Point Brands, Inc. 2015 Equity Incentive Plan (the “2015 Plan”) (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 5, 2015). † 10.3 Form of Stock Option Award Agreement under the 2015 Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2017). † 10.4 Form of Performance-Based Restricted Stock Unit Award Agreement under the Turning Point Brands, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 11, 2017). † 10.5 2006 Equity Incentive Plan of Turning Point Brands, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 5, 2015). † 93 Table of Contents 10.6 Amendment No. 1 to the 2006 Equity Incentive Plan of North Atlantic Holding Company, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2017). † 10.7 Amendment No. 2 to the 2006 Equity Incentive Plan of North Atlantic Holding Company, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2017). † 10.8 Amendment No. 3 to the 2006 Equity Incentive Plan of North Atlantic Holding Company, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 7, 2017). † 10.9 Amendment No. 4 to the 2006 Equity Incentive Plan of North Atlantic Holding Company, Inc. (incorporated by reference to Exhibit 10.54 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2017). † 10.10 Form of Award Agreement under the 2006 Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 5, 2015). † 10.11 Form of Cash-Out Agreement under the 2006 Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 7, 2017). † 10.12 Form of Indemnification Agreement between Turning Point Brands, Inc. and certain directors and officers (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 24, 2015). 10.13 Contract Manufacturing, Packaging and Distribution Agreement dated as of September 4, 2008, between National Tobacco Company, L.P. and Swedish Match North America, Inc. (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 24, 2015). 10.14 Amended and Restated Distribution and License Agreement dated as of November 30, 1992, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc., as predecessor to North Atlantic Operating Company, Inc. (U.S.) (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the Registrant’s Registration Statement (Reg. No. 333-31931) on Form S-4/A filed with the Commission on September 17, 1997). 10.15 Amended and Restated Distribution and License Agreement dated as of November 30, 1992, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc., as predecessor to North Atlantic Operating Company, Inc. (Canada) (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to the Registrant’s Registration Statement (Reg. No. 333-31931) on Form S-4/A filed with the Commission on September 17, 1997). 10.16 Amendment to the Amended and Restated Distribution and License Agreement dated March 31, 1993 between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.17 Amendment to the Amended and Restated Distribution and License Agreements dated June 10, 1996, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.18 Amendment to the Amended and Restated Distribution and License Agreement dated September 1996, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.19 Restated Amendment to the Amended and Restated Distribution and License Agreement between Bolloré Technologies, S.A. and North Atlantic Operating Company, Inc. dated June 25, 1997 (U.S. & Canada) (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Registrant’s Registration Statement (Reg. No. 333-31931) on Form S-4/A filed with the Commission on September 17, 1997). 10.20 Amendment to the Amended and Restated Distribution and License Agreement dated October 22, 1997, between Bolloré Technologies, S.A. and North Atlantic Operating Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.21 Amendment to the Amended and Restated Distribution and License Agreement dated June 19, 2002, between Bolloré S.A. and North Atlantic Operating Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 94 Table of Contents 10.22 Trademark Consent Agreement, dated March 26, 1997, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.23 Amendment to the Amended and Restated Distribution and License Agreement dated February 28, 2005, between Bolloré S.A. and North Atlantic Operating Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.24 Amendment to the Amended and Restated Distribution and License Agreement dated April 20, 2006, between Bolloré S.A. and North Atlantic Operating Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006). 10.25 Amendment to the Amended and Restated Distribution and License Agreement dated March 10, 2010, between Bolloré S.A. and North Atlantic Operating Company, Inc. (U.S. & Canada) (incorporated by reference to Exhibit 10.35 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.26 Consent Agreement dated as of April 4, 1997, between Bolloré Technologies, S.A. and North Atlantic Trading Company, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.27 Amendment No. 1 to Consent Agreement dated as of April 9, 1997, between Bolloré Technologies, S.A. and North Atlantic Operating Company, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.28 Amendment No. 2 to Consent Agreement dated as of June 25, 1997, between Bolloré Technologies, S.A. and North Atlantic Operating Company, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.29 Trademark Consent Agreement dated July 31, 2003, among Bolloré Technologies, S.A., North Atlantic Trading Company, Inc. and North Atlantic Operating Company, Inc. (incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.30 Amendment No. 2 to Trademark Consent Agreement dated December 17, 2012, between Bolloré S.A. and North Atlantic Operating Company, Inc. (incorporated by reference to Exhibit 10.36 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.31 License and Distribution Agreement dated March 19, 2013 between Bolloré S.A. and North Atlantic Operating Company, Inc. (incorporated by reference to Exhibit 10.37 to the Registrant’s Registration Statement on Form S-1 (File No. 333-207816) filed on November 5, 2015). 10.32 Distributors Supply Agreement dated as of April 1, 2013, between National Tobacco Company, L.P. and JJA Distributors, LLC (incorporated by reference to Exhibit 10.38 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-207816) filed on November 24, 2015). 10.33 Employment Agreement by and between the Company and Andrew Flynn, dated as of March 6, 2024.†* 10.34 Pledge and Security Agreement, dated as of February 19, 2025, by and among the Company, the other grantors party thereto and GLAS Trust Company LLC, as collateral agent.* 10.35 Patent Security Agreement, dated as of February 19, 2025, by and among the grantors party thereto and GLAS Trust Company LLC.* 95 Table of Contents 19.1 Securities Trading Policy.* 21 Subsidiaries of Turning Point Brands, Inc.* 23 Consent of RSM US LLP.* 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.3 Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 97.1 Clawback policy of Turning Point Brands, Inc. (incorporated by reference to Exhibit 97 to the Registrant’s Annual Report on Form 10-K filed on February 24, 2024). 101 XBRL (eXtensible Business Reporting Language). The following materials from Turning Point Brands, Inc.’s Annual Report on Form 10-K for the years ended December 31, 2024, 2023, and 2022, formatted in Inline XBRL: (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of changes in stockholder’s equity (deficit), (v) consolidated statements of cash flows, and (vi) notes to the consolidated financial statements.* 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).* * Filed herewith † Compensatory plan or arrangement Item 16. Form 10-K Summary Not applicable. 96 Table of Contents Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on March 6, 2025. TURNING POINT BRANDS, INC. By: /s/ Graham Purdy Name: Graham Purdy Title: Chief Executive Officer By: /s/ Andrew Flynn Name: Andrew Flynn Title: Chief Financial Officer By: /s/ Brian Wigginton Name: Brian Wigginton Title: Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date By: /s/ Graham Purdy Director, Chief Executive Officer March 6, 2025 Graham Purdy By: /s/ Andrew Flynn Chief Financial Officer March 6, 2025 Andrew Flynn By: /s/ Brian Wigginton Chief Accounting Officer March 6, 2025 Brian Wigginton By: /s/ David Glazek Executive Chair of the Board March 6, 2025 David Glazek By: /s/ Gregory H. A. Baxter Director March 6, 2025 Gregory H. A. Baxter By: /s/ John Catsimatidis Director March 6, 2025 John Catsimatidis By: /s/ H. C. Charles Diao Director March 6, 2025 H. C. Charles Diao By: /s/ Ashley Davis Frushone Director March 6, 2025 Ashley Davis Frushone By: /s/ Rohith Reddy Director March 6, 2025 Rohith Reddy By: /s/ Stephen Usher Director March 6, 2025 Stephen Usher By: /s/ Lawrence S. Wexler Director March 6, 2025 Lawrence S. Wexler 97