UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~March 3031, ~~2019~~2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _________ to _________

Commission File Number 001-36696

STANDARD DIVERSIFIED INC.

(Exact name of registrant as specified in its charter)

Delaware		56-1581761
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

767 5^th Avenue, 12^th Floor
New York, NY		10153
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (~~516~~212) ~~248~~922-~~1100~~3752

Former name, former address and former fiscal year, if changed since last report:

~~Mineola, NY 11501~~N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Class A Common Stock, $0.01 par value		SDI		NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☒		Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

At ~~November~~April 129, ~~2019~~2020, there were 8,~~960~~884,~~576~~183 shares outstanding of the registrant’s Class A common stock, par value $0.01 per share, and 7,~~732~~699,~~806~~124 shares outstanding of the registrant’s Class B common stock, par value $0.01 per share.

STANDARD DIVERSIFIED INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		~~Page No.~~	Page No.
PART I FINANCIAL INFORMATION
~~ITEM 1~~	~~Financial~~ITEM ~~Statements~~1	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
		Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2019 and 2018	4
		Condensed Consolidated Statements of Loss for the three months ended March 31, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018	5
		Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019	5
	Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2019 and 2018	6
		Condensed Consolidated Statements of Equity for the three months ended March 31, 2020 and 2019	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	8
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	7
	~~Notes to Condensed Consolidated Financial Statements~~	10Notes to Condensed Consolidated Financial Statements	9
~~ITEM 2~~	~~Management’s~~ITEM ~~Discussion and Analysis of Financial Condition and Results of Operations~~2	50Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
~~ITEM 3~~	~~Quantitative~~ITEM ~~and Qualitative Disclosures about Market Risk~~3	71Quantitative and Qualitative Disclosures about Market Risk	61
~~ITEM 4~~	~~Controls~~ITEM ~~and Procedures~~4	71Controls and Procedures	61
PART II OTHER INFORMATION
~~ITEM 1~~	~~Legal~~ITEM ~~Proceedings~~1	72Legal Proceedings	61
~~ITEM 1A~~	~~Risk~~ITEM ~~Factors~~1A	73Risk Factors	62
~~ITEM 2~~	~~Unregistered~~ITEM ~~Sales of Equity Securities and Use of Proceeds~~2	74Unregistered Sales of Equity Securities and Use of Proceeds	63
~~ITEM 3~~	~~Defaults~~ITEM ~~Upon Senior Securities~~3	74Defaults Upon Senior Securities	63
~~ITEM 4~~	~~Mine~~ITEM ~~Safety Disclosures~~4	74Mine Safety Disclosures	63
~~ITEM 5~~	~~Other~~ITEM ~~Information~~5	74Other Information	64
~~ITEM 6~~	~~Exhibits~~ITEM 6	74Exhibits	64
Signatures		75	65

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands except ~~share and~~ per share data)

	September 30, 2019			December 31, 2018
	March 31, 2020			December 31, 2019
	(Unaudited)
ASSETS
Cash and cash equivalents	$	97,347		$	21,201
Current assets:
Fixed maturities available for sale, at fair value; amortized cost of $26,241 in 2019 and $32,474 in 2018		26,566			32,132
Cash and cash equivalents	$	107,054		$	105,841
Equity securities, at fair value; cost: $1,099 in 2019 and $794 in 2018		1,115			693
Trade accounts receivable, net of allowances of $373 in 2020 and $280 in 2019		4,520			7,213
Trade accounts receivable, net of allowances of $63 in 2019 and $42 in 2018		7,276			2,901
Inventories		69,195			70,979
Premiums receivable		3,566			5,858
Other current assets		19,043			16,391
Inventories		98,719			91,237
Current assets - discontinued operations		-			33,948
Other current assets		16,401			15,045
Total current assets		199,812			234,372
Property, plant and equipment, net		29,~~759~~433			2730,~~741~~160
Deferred income taxes		2,242			-
Right of use assets		15,526			14,490
Right of use assets		13,755			-
Deferred financing costs, net		860			890
Deferred financing costs, net		960			870
Goodwill		154,282			154,282
Intangible assets, net		33,180			38,325
Other intangible assets, net		33,590			34,088
Deferred policy acquisition costs		1,468			2,279
Master Settlement Agreement (MSA) escrow deposits		32,074			32,074
Goodwill		154,479			146,696
Other assets		10,858			10,690
Master Settlement Agreement (MSA) escrow deposits		32,074			30,550
Total assets	$	476,435		$	511,046
Other assets		6,891			6,415
Total assets	$	525,798		$	421,943
LIABILITIES AND EQUITY
Reserves for losses and loss adjustment expenses	$	26,432		$	27,330
Current liabilities:
Unearned premiums		8,370			12,707
Accounts payable	$	17,015		$	13,855
Advance premiums collected		326			500
Accrued liabilities		30,510			27,638
Accounts payable		9,498			9,225
Current portion of long-term debt		13,743			16,977
Accrued liabilities		21,571			23,883
Current liabilities - discontinued operations		1,254			33,301
Current portion of long-term debt		15,958			9,431
Total current liabilities		62,522			91,771
Revolving credit facility		-			26,000
Notes payable and long-term debt		297,475			299,569
Notes payable and long-term debt		330,150			208,616
Deferred income taxes		1,495			1,572
Lease liabilities		1213,~~280~~997			-13,262
Deferred income taxes		-			2,711
Asset retirement obligations		2,100			2,100
Postretirement benefits		3,096			3,096
Other long-term liabilities		4,762			2,523
Asset retirement obligations		2,100			2,028
Total liabilities		382,351			410,797
Other long-term liabilities		3,554			1,687
Total liabilities		433,335			327,214
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; authorized shares 50,000,000; -0- issued and outstanding shares		-			-
Class A common stock, $0.01 par value; authorized shares, 300,000,000; 9,036,095 issued and 9,029,479 outstanding at September 30, 2019 and 9,156,293 issued and 9,052,801 outstanding at December 31, 2018		90			92
Class A common stock, $0.01 par value; authorized shares, 300,000,000; 8,884,183 issued and outstanding at March 31, 2020 and 9,012,515 issued and 8,931,332 outstanding at December 31, 2019		89			90
Class B common stock, $0.01 par value; authorized shares, 30,000,000; 7,722,564 and 7,801,995 issued and outstanding at September 30, 2019 and December 31, 2018, respectively; convertible into Class A shares on a one-for-one basis		77			78
Class B common stock, $0.01 par value; authorized shares, 30,000,000; 7,699,124 and 7,701,975 issued and outstanding at March 31, 2020 and December 31, 2019, respectively; convertible into Class A shares on a one-for-one basis		77			77
Additional paid-in capital		7282,~~955~~494			8184,~~260~~862
Class A treasury stock, 6,616 and 103,492 common shares at cost as of September 30, 2019 and December 31, 2018, respectively		(70	)		(1,440	)
Class A treasury stock, 81,183 common shares at cost as of December 31, 2019		-			(1,103	)
Accumulated other comprehensive loss		(12,~~243~~425	)		(1,~~683~~722	)
Accumulated deficit		(2638,~~960~~553	)		(2435,~~613~~236	)
Total stockholders' equity		44,849			53,694
Total stockholders’ equity		41,682			46,968
Noncontrolling interests		4752,~~614~~402			4153,~~035~~281
Total equity		9294,~~463~~084			94100,~~729~~249
Total liabilities and equity	$	~~525~~476,~~798~~435		$	~~421~~511,~~943~~046

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Income (~~Loss)

(dollars in thousands except ~~share and~~ per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Revenues:
Net sales	$	9791,~~520~~368		$	8492,~~035~~309		$	~~283,882~~		$	~~240,156~~
Insurance premiums earned		6,055			7,088			20,362			21,539
Operating costs and expenses:
Net investment income		210			309			767			679
Cost of sales		49,928			51,784
Other income		279			163			829			557
Selling, general and administrative expenses		34,777			30,733
Total revenues		104,064			91,595			305,840			262,931
Total operating costs and expenses		84,705			82,517
Operating costs and expenses:
Operating income		6,663			9,792
Cost of sales		54,636			47,742			159,217			136,147
Interest expense, net		5,863			4,473
Selling, general and administrative expenses		31,024			24,492			84,201			70,237
Investment income		(91	)		(144	)
Incurred losses and loss adjustment expenses		4,790			5,790			20,506			17,007
Net periodic benefit income, excluding service cost		(87	)		(11	)
Impairment loss on goodwill and other intangible assets		-			-			2,826			-
Income before income taxes		978			5,474
Other operating expenses		2,003			2,682			7,248			5,512
Income tax expense		946			1,774
Total operating costs and expenses		92,453			80,706			273,998			228,903
Net income from continuing operations		32			3,700
Operating income		11,611			10,889			31,842			34,028
Net income attributable to noncontrolling interests		(1,637	)		(3,260	)
Interest expense, net		4,680			4,450			13,529			12,556
Net (loss) income from continuing operations attributable to Standard Diversified Inc.		(1,605	)		440
Interest and investment income		(777	)		(243	)		(1,115	)		(620	)
Net loss from discontinued operations, net of tax		(1,712	)		(3,983	)
Loss on extinguishment of debt		2,117			-			2,267			2,384
Net loss attributable to Standard Diversified Inc.	$	(3,317	)	$	(3,543	)
Net periodic benefit (income) expense, excluding service cost		(12	)		(45	)		(34	)		176
Net (loss) income from continuing operations attributable to SDI per Class A and Class B Common Share – Basic	$	(0.10	)	$	0.03
Income before income taxes		5,603			6,727			17,195			19,532
Net (loss) income from continuing operations attributable to SDI per Class A and Class B Common Share – Diluted	$	(0.10	)	$	0.02
Income tax expense		2,236			1,436			6,569			4,153
Net loss from discontinued operations per Class A and Class B Common Share – Basic	$	(0.10	)	$	(0.24	)
Net income		3,367			5,291			10,626			15,379
Net loss from discontinued operations per Class A and Class B Common Share – Diluted	$	(0.10	)	$	(0.24	)
Net income attributable to noncontrolling interests		(3,133	)		(3,924	)		(12,973	)		(9,962	)
Net loss attributable to SDI per Class A and Class B Common Share – Basic	$	(0.20	)	$	(0.21	)
Net income (loss) attributable to Standard Diversified Inc.	$	234		$	1,367		$	(2,347	)	$	5,417
Net loss attributable to SDI per Class A and Class B Common Share – Diluted	$	(0.20	)	$	(0.21	)
Net income (loss) attributable to SDI per Class A and Class B Common Share – Basic	$	0.01		$	0.08		$	(0.14	)	$	0.33
Weighted Average Class A and Class B Common Shares Outstanding – Basic		16,629,349			16,863,621
Net income (loss) attributable to SDI per Class A and Class B Common Share – Diluted	$	0.01		$	0.08		$	(0.14	)	$	0.31
Weighted Average Class A and Class B Common Shares Outstanding – Diluted		16,629,349			16,907,647
Weighted Average Class A and Class B Common Shares Outstanding – Basic		16,830,132			16,677,412			16,816,158			16,618,823
Weighted Average Class A and Class B Common Shares Outstanding – Diluted		16,877,690			16,741,660			16,816,158			16,661,809

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive ~~Income (~~Loss)

(dollars in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Net income	$	3,367		$	5,291		$	10,626		$	15,379
Net income from continuing operations	$	32		$	3,700
Other comprehensive income (loss):
Other comprehensive (loss) income:
Amortization of unrealized pension and postretirement (loss) gain, net of tax of $1 and $3 for the three months ended Setpember 30, 2019 and 2018, respectively, and $4 and $85 for the nine months ended September 30, 2019 and 2018, respectively		(4	)		10			(11	)		314
Amortization of unrealized pension and postretirement gain (loss), net of tax of $2 and $1, for the three months ended March 31, 2020 and 2019, respectively		9			(4	)
Unrealized gain (loss) on investments, net of tax of $83 and $69 for the three months ended September 30, 2019 and 2018, respectively, and $528 and $173 for the nine months ended September 30, 2019 and 2018, respectively		246			(385	)		1,841			(1,322	)
Unrealized gain on investments, net of tax of $0 and $93, for the three months ended March 31, 2020 and 2019, respectively		102			968
Unrealized loss on interest rate swaps, net of tax of $70 and $70 for the three months ended September 30, 2019 and 2018, respectively, and $563 and $92 for the nine months ended September 30, 2019 and 2018, respectively		(208	)		(233	)		(1,616	)		(308	)
Unrealized loss on interest rate swaps, net of tax of $624 and $182 for the three months ended March 31, 2020 and 2019, respectively		(1,615	)		(476	)
Other comprehensive income (loss)		34			(608	)		214			(1,316	)
Other comprehensive (loss) income		(1,504	)		488
Comprehensive income		3,401			4,683			10,840			14,063
Comprehensive (loss) income from continuing operations		(1,472	)		4,188
Amounts attributable to noncontrolling interests		(~~3,158~~836	)		(3,~~924~~221	)		~~(12,747~~	)		~~(9,962~~	)
Comprehensive income (loss) attributable to Standard Diversified Inc.	$	243		$	759		$	(1,907	)	$	4,101
Net loss from discontinued operations		(1,712	)		(3,983	)
Comprehensive loss attributable to Standard Diversified Inc.	$	(4,020	)	$	(3,016	)

The accompanying notes are an integral part of the condensed consolidated financial statements

Table of Contents

Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(dollars in thousands, except share data)

(unaudited)

	Three Months Ended September 30, 2019
	Standard Diversified Inc. Shareholders
	Class A Common Shares						Class B Common Shares						Class A Treasury ~~Stock~~Shares						Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Noncontrolling Interests			Total
	Shares			Amount			Shares			Amount			Shares			Amount
Balance June 30, 2019		9,086,776		$	91			7,750,528		$	78			-		$	-		$	79,958		$	(1,252	)	$	(27,194	)	$	50,931		$	102,612
Balance December 31, 2019		9,012,515		$	90			7,701,975		$	77			(81,183	)	$	(1,103	)	$	84,862		$	(1,722	)	$	(35,236	)	$	53,281		$	100,249
Vesting of SDI restricted stock		6,291			-			-			-			-			-			-			-			-			-			-
Conversion of Class B common stock into Class A common stock		2,851			-			(2,851	)		-			-			-			-			-			-			-			-
Conversion of Class B common stock into Class A common stock		27,964			-			(27,964	)		(1	)		-			-			-			-			-			-			(1	)
Unrecognized pension and postretirement cost adjustment, net of tax of $2		-			-			-			-			-			-			-			5			-			4			9
Unrealized gain on investments, net of tax of $0		-			-			-			-			-			-			-			102			-			-			102
Unrealized loss on interest rate swaps, net of tax of $624		-			-			-			-			-			-			-			(810	)		-			(805	)		(1,615	)
SDI stock-based compensation		-			-			-			-			-			-			178			-			-			-			178
Impact of Turning Point equity transactions on APIC and NCI		-			-			-			-			-			-			(737	)		-			-			(1,209	)		(1,946	)
Turning Point dividend payable to noncontrolling interests		-			-			-			-			-			-			-			-			-			(506	)		(506	)
Share repurchases		-			-			-			-			(50,000	)		(707	)		-			-			-			-			(707	)
Retirement of treasury stock		(131,183	)		(1	)		-			-			131,183			1,810			(1,809	)		-			-			-			-
Net (loss) income		-			-			-			-			-			-			-			-			(3,317	)		1,637			(1,680	)
Balance March 31, 2020		8,884,183		$	89			7,699,124		$	77			-		$	-		$	82,494		$	(2,425	)	$	(38,553	)	$	52,402		$	94,084
Balance December 31, 2018		9,156,293		$	92			7,801,995		$	78			(103,492	)	$	(1,440	)	$	81,260		$	(1,683	)	$	(24,613	)	$	41,035		$	94,729
Conversion of Class B common stock into Class A common stock		48,429			-			(48,429	)		-			-			-			-			-			-			-			-
Unrecognized pension and postretirement cost adjustment, net of tax of $1		-			-			-			-			-			-			-			(2	)		-			(2	)		(4	)
Unrealized gain on investments, net of tax of $83		-			-			-			-			-			-			-			115			-			131			246
Unrealized gain on investments, net of tax of $93		-			-			-			-			-			-			-			768			-			200			968
Unrealized loss on interest rate swaps, net of tax of $70		-			-			-			-			-			-			-			(104	)		-			(104	)		(208	)
Unrealized loss on interest rate swaps, net of tax of $182		-			-			-			-			-			-			-			(239	)		-			(237	)		(476	)
SDI stock-based compensation		-			-			-			-			-			-			~~179~~180			-			-			-			~~179~~180
Impact of Turning Point equity transactions on APIC and NCI		-			-			-			-			-			-			~~(6,068~~261	)		-			-			~~(6,021~~363	)		~~(12,089~~624	)
Turning Point dividend payable to noncontrolling interests		-			-			-			-			-			-			-			-			-			(~~454~~444	)		(~~454~~444	)
Share repurchases		-			-			-			-			(9140,~~552~~100	)		(~~1,184~~576	)		-			-			-			-			(~~1,184~~576	)
Retirement of treasury stock		(84143,~~936~~592	)		(1	)		-			-			84143,~~936~~592			12,~~114~~016			(12,~~114~~015	)		-			-			-			(1-	)
Net income		-			-			-			-			-			-			-			-			234			3,133			3,367
Net (loss) income		-			-			-			-			-			-			-			-			(3,543	)		3,260			(283	)
Balance September 30, 2019		9,036,095		$	90			7,722,564		$	77			(6,616	)	$	(70	)	$	72,955		$	(1,243	)	$	(26,960	)	$	47,614		$	92,463
Balance March 31, 2019		9,061,130		$	91			7,753,566		$	78			-		$	-		$	79,686		$	(1,156	)	$	(28,156	)	$	44,175		$	94,718

	Nine Months Ended September 30, 2019
	Class A Common Shares						Class B Common Shares						Treasury Stock						Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Noncontrolling Interests			Total
	Shares			Amount			Shares			Amount			Shares			Amount
Balance December 31, 2018		9,156,293		$	92			7,801,995		$	78			(103,492	)	$	(1,440	)	$	81,260		$	(1,683	)	$	(24,613	)	$	41,035		$	94,729
Vesting of SDI restricted stock		28,899			-			-			-			-			-			(335	)		-			-			-			(335	)
Conversion of Class B common stock into Class A common stock		79,431			-			(79,431	)		(1	)		-			-			-			-			-			-			(1	)
Unrecognized pension and postretirement cost adjustment, net of tax of $4		-			-			-			-			-			-			-			(6	)		-			(5	)		(11	)
Unrealized gain on investments, net of tax of $528		-			-			-			-			-			-			-			1,256			-			585			1,841
Unrealized loss on interest rate swaps, net of tax of $563		-			-			-			-			-			-			-			(810	)		-			(806	)		(1,616	)
SDI stock-based compensation		-			-			-			-			-			-			530			-			-			-			530
Impact of Turning Point equity transactions on APIC and NCI		-			-			-			-			-			-			(5,371	)		-			-			(4,816	)		(10,187	)
Turning Point dividend payable to noncontrolling interests		-			-			-			-			-			-			-			-			-			(1,352	)		(1,352	)
Share repurchases		-			-			-			-			(131,652	)		(1,760	)		-			-			-			-			(1,760	)
Retirement of treasury stock		(228,528	)		(2	)		-			-			228,528			3,130			(3,129	)		-			-			-			(1	)
Net (loss) income		-			-			-			-			-			-			-			-			(2,347	)		12,973			10,626
Balance September 30, 2019		9,036,095		$	90			7,722,564		$	77			(6,616	)	$	(70	)	$	72,955		$	(1,243	)	$	(26,960	)	$	47,614		$	92,463

The accompanying notes are an integral part of the condensed consolidated financial statements

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Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of Equity (continued)

(dollars in thousands, except share data)

(unaudited)

	Three Months Ended September 30, 2018
	Class A Common Shares				Class B Common Shares						Treasury Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Noncontrolling Interests			Total
	Shares		Amount		Shares			Amount			Shares		Amount
Balance June 30, 2018		8,711,972	$	87		7,923,290		$	79			-	$	-	$	73,794	$	(2,119	)	$	(22,944	)	$	31,922		$	80,819
Conversion of Class B common stock into Class A common stock		104,645		1		(104,645	)		(1	)		-		-		-		-			-			-			-
Issuance of Class A common stock under ATM, net of issuance costs		209,370		2		-			-			-		-		3,166		-			-			-			3,168
SDI restricted stock vesting		5,654		-		-			-			-		-		-		-			-			-			-
Unrecognized pension and postretirement cost adjustment, net of tax of $3		-		-		-			-			-		-		-		5			-			5			10
Unrealized loss on investments, net of tax of $69		-		-		-			-			-		-		-		(271	)		-			(114	)		(385	)
Unrealized loss on interest rate swaps, net of tax of $70		-		-		-			-			-		-		-		(118	)		-			(115	)		(233	)
SDI stock-based compensation		-		-		-			-			-		-		179		-			-			-			179
Impact of Turning Point equity transactions on APIC and NCI		-		-		-			-			-		-		2,199		-			-			2,983			5,182
Turning Point dividend payable to noncontrolling interests		-		-		-			-			-		-		-		-			-			(394	)		(394	)
Net income		-		-		-			-			-		-		-		-			1,367			3,924			5,291
Balance September 30, 2018		9,031,641	$	90		7,818,645		$	78			-	$	-	$	79,338	$	(2,503	)	$	(21,577	)	$	38,211		$	93,637

	Nine Months Ended September 30, 2018
	Class A Common Shares				Class B Common Shares						Treasury Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Noncontrolling Interests			Total
	Shares		Amount		Shares			Amount			Shares		Amount
Balance December 31, 2017		8,348,373	$	83		8,041,525		$	81			-	$	-	$	70,813		$	(1,558	)	$	(26,982	)	$	26,004		$	68,441
Conversion of Class B common stock into Class A common stock		222,880		3		(222,880	)		(3	)		-		-		-			-			-			-			-
Issuance of Class A common stock in private placement, net of issuance costs		181,825		2		-			-			-		-		1,978			-			-			-			1,980
Issuance of Class A common stock under ATM, net of issuance costs		209,370		2		-			-			-		-		3,166			-			-			-			3,168
Issuance of Class A common stock in asset purchase		22,727		-		-			-			-		-		250			-			-			-			250
SDI restricted stock vesting		46,466		-		-			-			-		-		(216	)		-			-			-			(216	)
Unrecognized pension and postretirement cost adjustment, net of tax of $85		-		-		-			-			-		-		-			160			-			154			314
Unrealized loss on investments, net of tax of $173		-		-		-			-			-		-		-			(960	)		-			(362	)		(1,322	)
Unrealized loss on interest rate swaps, net of tax of $92		-		-		-			-			-		-		-			(157	)		-			(151	)		(308	)
SDI stock-based compensation		-		-		-			-			-		-		680			-			-			-			680
Impact of Turning Point equity transactions on APIC and NCI		-		-		-			-			-		-		2,667			-			-			3,768			6,435
Turning Point dividend payable to noncontrolling interests		-		-		-			-			-		-		-			-			-			(1,164	)		(1,164	)
Impact of adoption of ASU 2018-02		-		-		-			-			-		-		-			12			(12	)		-			-
Net income		-		-		-			-			-		-		-			-			5,417			9,962			15,379
Balance September 30, 2018		9,031,641	$	90		7,818,645		$	78			-	$	-	$	79,338		$	(2,503	)	$	(21,577	)	$	38,211		$	93,637

The accompanying notes are an integral part of the condensed consolidated financial statements

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Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018
	2020			2019
Cash flows from operating activities:
Net income	$	10,626		$	15,379
Net income from continuing operations	$	32		$	3,700
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net loss from discontinued operations		(1,712	)		(3,983	)
Loss on extinguishment of debt		2,267			2,384
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposal of property, plant and equipment		(12	)		-
Loss on disposal of property, plant and equipment		-			23
Depreciation expense		2,893			2,497
Loss on disposal of Insurance segment		1,045			-
Amortization of deferred financing costs and debt discount		1,416			1,048
Depreciation expense		1,166			830
Amortization of other intangible assets		1,304			755
Amortization of deferred financing costs and debt discount		2,328			366
Deferred income taxes		(424	)		2,806
Amortization of other intangible assets		498			431
Impairment loss on goodwill and other intangible assets		2,826			-
Deferred income taxes		545			(29	)
Stock-based compensation expense		~~3,012~~633			~~1,586~~646
Non-cash lease expense		77			-
Changes in operating assets and liabilities:
Accounts receivable		(32,~~882~~690	)		(31,~~564~~677	)
Inventories		(61,~~704~~784	)		~~(18,840~~366	)
Other current assets		(~~996~~2,233	)		(3,~~300~~090	)
Other assets		~~144~~(130	)		(~~2,310~~427	)
Accounts payable		~~953~~3,195			48,~~692~~646
Accrued postretirement liabilities		(~~125~~27	)		(~~107~~9	)
Accrued liabilities and other		(42,~~803~~522	)		(54,~~971~~104	)
Premiums receivable		2,774			795
Net cash provided by operating activities of continuing operations		14,125			11,852
Deferred policy acquisition costs		810			(2,384	)
Net cash used in operating activities of discontinued operations		(2,543	)		(929	)
Reserves for losses and loss adjustment expenses		(899	)		(5,475	)
Net cash provided by operating activities		11,582			10,923
Unearned and advance premiums		(4,511	)		244
Net cash provided by (used in) operating activities		6,669			(9,765	)
Cash flows from investing activities:
Acquisitions, net of cash acquired		(8,323	)		(16,991	)
Cash outflow from disposal of Insurance segment		(4,939	)		-
Capital expenditures		(~~4,117~~877	)		(~~1,591~~901	)
Proceeds from sale and maturity of fixed maturity securities, available-for-sale		15,908			3,339
Restricted cash, MSA escrow deposits		-			1,702
Payments for purchases of fixed maturity securities, available-for-sale		(9,435	)		(12,510	)
Net cash (used in) provided by investing activities from continuing operations		(5,816	)		801
Payments for purchases of equity securities		(1,700	)		(753	)
Net cash provided by (used in) investing activities of discontinued operations		102			(216	)
Restricted cash, MSA escrow deposits		29,713			(2,234	)
Net cash (used in) provided by investing activities		(5,714	)		585
Proceeds from sale of property, plant, and equipment		117			-
Issuance of note receivable		-			(6,500	)
Receipt of note receivable repayment including prepayment penalty		-			7,475
Net cash provided by (used in) investing activities		22,163			(29,765	)

The accompanying notes are an integral part of the condensed consolidated financial statements

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Standard Diversified Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(dollars in thousands)

(unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018
	2020			2019
Cash flows from financing activities:
Payments of 2018 first lien term loan		(62,000	)		-(2,000	)
Payments of 2018 second lien term loan		(40,000	)		-
Payments of 2018 revolving credit facility		-			(12,000	)
Payments of 2018 revolving credit facility		(26,000	)		-
Payments of IVG Note		(4,240	)		-
Payments of Standard Outdoor promissory note		(1,~~366~~206	)		-(966	)
Payments of Crystal term loan		(15,000	)		-
Payments of financing costs		(168	)		-
Proceeds from 2018 first lien term loan		-			156,000
Turning Point exercise of stock options		227			187
Proceeds from 2018 second lien term loan		-			40,000
Turning Point redemption of options		-			(12	)
Proceeds from 2018 revolving credit facility		-			30,000
Turning Point dividend to noncontrolling interests		(443	)		(437	)
Proceeds from borrowings under SDI credit facility, net		-			14,113
Turning Point repurchase of common shares		(2,627	)		-
Proceeds from GACP term loan		25,000			-
SDI repurchase of common shares		(707	)		(1,385	)
Proceeds from Convertible Senior Notes		172,500			-
Share repurchase for tax withholdings on vesting of restricted stock		(117	)		-
Payments of 2017 second lien term loans, net		-			(55,000	)
Net cash used in financing activities		(11,281	)		(16,613	)
Payments of financing costs		(7,899	)		(3,286	)
Net decrease in cash		(5,413	)		(5,105	)
Payments of 2017 revolving credit facility, net		-			(8,000	)
Payment to terminate acquired capital lease		-			(170	)
Payments of 2017 first lien term loan		-			(140,613	)
Turning Point Brands exercise of stock options		639			779
Turning Point Brands payments for call options		(20,528	)		-
Turning Point Brands redemption of stock options		(12	)		(623	)
Turning Point Brands surrender of restricted stock		(84	)		-
Proceeds from issuance of SDI stock		-			5,148
Turning Point Brands dividend to noncontrolling interests		(1,317	)		-
Repurchase of SDI common shares		(2,570	)		-
Payments of Vapor Beast Note Payable and Vapor Shark loans		-			(2,000	)
Proceeds from release of restricted funds		-			1,107
Share repurchase for tax withholdings on vesting of restricted stock		(336	)		(216	)
Payment of cash dividends		-			(749	)
Net cash provided by financing activities		77,027			36,490
Net increase (decrease) in cash		105,859			(3,040	)
Cash, beginning of period
Unrestricted		21105,~~201~~841			1815,~~219~~611
Restricted		232,~~361~~074			42,~~709~~361
Total cash at beginning of period		23,562			22,928
Discontinued operations		6,626			5,590
Total cash at beginning of period		144,541			23,562
Cash, end of period
Unrestricted		97107,~~347~~054			189,~~520~~950
Restricted		32,074			14,~~368~~062
Total cash at end of period	$	129,421		$	19,888
Discontinued operations		-			4,445
Supplemental schedule of noncash investing activities:
Total cash at end of period	$	139,128		$	18,457
Turning Point hold back for acquisition	$	265		$	-
Supplemental schedule of noncash financing activities:
Turning Point dividend to noncontrolling interests declared not paid	$	448		$	389
Turning Point accrued expenses incurred for financing costs	$	13		$	-
Accrued expenses incurred for financing costs	$	123		$	-
Turning Point dividend to noncontrolling interests declared not paid	$	506		$	444
Issuance of SDI shares in business combination	$	-		$	5,542
Turning Point issuance of note payable for acquisition	$	-		$	4,000

The accompanying notes are an integral part of the condensed consolidated financial statements

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Standard Diversified Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except where designated and per share data)

(unaudited)

Note 1. Organization and Description of Business

The accompanying condensed consolidated financial statements include the results of operations of Standard Diversified Inc. (“SDI”), a holding company, and its consolidated subsidiaries (collectively, “the “Company”). SDI (f/k/a Standard Diversified Opportunities Inc., Special Diversified Opportunities Inc., and Strategic Diagnostics Inc.) was incorporated in the State of Delaware in 1990., and, until 2013, engaged in bio-services and industrial bio-detection (collectively, the “Life Sciences Business”). On July 12, 2013, SDI sold substantially all of its rights, title and interest in substantially all of its non-cash assets related to the Life Sciences Business and became a “shell company,” as such term is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended.

On June 1, 2017, SDI consummated a Contribution and Exchange Transaction (the “Contribution and Exchange”) to acquire a 52.1% controlling interest in Turning Point Brands, Inc. (“Turning Point” or “TPB”). The transaction was accounted for as a recapitalization or reverse acquisition. Turning Point was the accounting acquirer for financial reporting purposes, notwithstanding the legal form of the transaction. As a result of ~~September~~the 30consummation of the Contribution and Exchange, ~~2019~~SDI is no longer a shell company. As of March 31, 2020, SDI has a 50.12% ownership interest in Turning Point. AsOn aApril ~~result~~7, of2020, the ~~consummation~~Company entered into an Agreement and Plan of Merger and Reorganization (the ~~Contribution~~“Merger Agreement”), by and among the Company, TPB and Standard Merger Sub, ~~Exchange~~ LLC, a wholly-owned subsidiary of the TPB (“Merger Sub”). The Merger Agreement provides for, among other things, (i) the merger of SDI iswith noand ~~longer~~into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a ~~shell~~wholly-owned ~~company~~subsidiary of TPB. See Note 22, “Subsequent Events” for further information.

On January 14, 2020, the New York State Department of Financial Services (“NYSDFS”) filed a petition for Maidstone Insurance (“Maidstone”), one of SDI’s wholly-owned subsidiaries, to enter an order of liquidation pursuant to Article 74 of the New York Consolidated Insurance Law (“Order of Liquidation”) in the Supreme Court of the State of New York, County of Nassau (the “Court”) with respect to Maidstone. On January 21, 2020, the Court issued an order to show cause establishing February 13, 2020 as the date of a hearing before the Court with respect to the Order of Liquidation. On February 13, 2020, the Court conducted a hearing with respect to the Order of Liquidation and, thereafter, approved the Order of Liquidation. As of February 13, 2020, the control and net assets of Maidstone vested with the New York State Liquidation Bureau (“NYS Liquidation Bureau”). The Company determined that the disposal of Maidstone and its Insurance segment operations represents a strategic shift that had a major effect on the Company’s results of operations and, as a result, reclassified the Insurance segment as discontinued operations. See Note 3, “Discontinued Operations” for further information.

On April 7, 2020, SDI transferred all of its equity interests in Standard Outdoor LLC (“Standard Outdoor”), which constituted 100% of the outstanding equity interests, to Billboards LLC, a commonly controlled affiliate of Standard General, the Company’s controlling shareholder. See Note 22, “Subsequent Events” for further information.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

SDI is a holding company and its condensed consolidated financial statements include Turning Point and its subsidiaries, Pillar General Inc. (“Pillar General”) and its subsidiaries, ~~and~~which ~~Standard~~include Maidstone, ~~Outdoor~~and ~~LLC (“~~Standard Outdoor”) and its subsidiaries.

Turning Point is also a holding company which owns North Atlantic Trading Company, Inc. (“NATC”), and its subsidiaries and Turning Point Brands, LLC (“TPLLC”), and its subsidiaries and Turning Point Brands (Canada), Inc. (“TPBC”). Except where the context indicates otherwise, references to Turning Point include Turning Point; NATC and its subsidiaries National Tobacco Company, L.P. (“NTC”), National Tobacco Finance, LLC (“NTFLLC”), North Atlantic Operating Company, Inc. (“NAOC”), North Atlantic Cigarette Company, Inc. (“NACC”), and RBJ Sales, Inc. (“RBJ”); and TPLLC and its subsidiaries Intrepid Brands, LLC (“Intrepid”), Vapor Beast, LLC (“VaporBeast,” f/k/a Smoke Free Technologies, Inc.), Vapor Shark, LLC, and its subsidiaries (collectively, “Vapor Shark,” f/k/a The Hand Media), Vapor Acquisitions Company, LLC (“Vapor Supply”), Vapor Finance, LLC (“VFIN”), International Vapor Group, LLC and its subsidiaries (collectively, “IVG”) and Nu-X Ventures, LLC (“Nu-X”).9

Pillar General, a wholly-owned subsidiary of the Company as of January 2, 2018, owns 100% of Interboro Holdings, Inc. which is a holding company and includes the accounts of its wholly-owned subsidiaries (collectively, “Interboro”) which consist of Interboro Management, Inc., Maidstone Insurance Company (“Maidstone”), formerly known as AutoOne Insurance Company and AIM Insurance Agency Inc. Maidstone is domiciled in the State of New York and is a property and casualty insurance company which provides automobile insurance.

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~~The~~Turning ~~unaudited~~Point ~~condensed~~is ~~consolidated~~also ~~financial~~a ~~statements~~holding ~~presented~~company ~~herein~~which ~~have~~owns ~~been~~North ~~prepared~~Atlantic inTrading ~~accordance~~Company, ~~with~~Inc. ~~accounting~~(“NATC”), ~~principles~~and ~~generally~~its ~~accepted~~subsidiaries inand Turning ~~the~~Point ~~United~~Brands, ~~States~~ LLC (“~~GAAP~~TPLLC”), ~~for~~and ~~interim~~its ~~financial~~subsidiaries ~~information~~ and inTurning ~~accordance~~Point ~~with~~Brands ~~the~~(Canada), ~~instructions~~Inc. to(“TPBC”). Except ~~Form~~where ~~10-Q~~the ~~and~~context ~~Article~~indicates ~~10 of Regulation S-X. Accordingly~~otherwise, ~~the~~references ~~financial~~to ~~statements~~Turning doPoint ~~not~~ include ~~all~~Turning ofPoint; ~~the~~NATC ~~information~~ and ~~notes~~its ~~required~~subsidiaries byNational ~~GAAP~~Tobacco ~~for~~Company, ~~complete~~L.P. (“NTC”), National ~~financial~~ Tobacco ~~statements.~~Finance, InLLC ~~the~~(“NTFLLC”), ~~opinion~~North ofAtlantic ~~management~~Operating Company, ~~all~~Inc. ~~adjustments~~(“NAOC”), ~~including~~North ~~normal~~Atlantic ~~recurring~~Cigarette ~~adjustments~~Company, ~~considered~~Inc. ~~necessary~~(“NACC”), ~~for~~and aRBJ ~~fair~~Sales, ~~statement~~Inc. of(“RBJ”); ~~the~~TPLLC ~~financial~~and ~~statements~~its subsidiaries ~~have~~Intrepid ~~been~~Brands, ~~included.~~LLC ~~Operating~~(“Intrepid”), ~~results~~TPB ~~for~~Beast, ~~the~~LLC ~~three~~(“VaporBeast”), TPB Shark, LLC, and ~~nine~~its ~~months ended~~subsidiaries ~~September~~(collectively, 30“Vapor Shark”), ~~2019~~TPB ~~are~~International, ~~not~~LLC ~~necessarily~~and ~~indicative~~its ofsubsidiaries ~~the~~(collectively, ~~results~~“IVG”), ~~that~~Nu-X ~~may~~Ventures beLLC ~~expected~~(“Nu-X”), ~~for~~Nu-Tech Holdings ~~the~~LLC ~~year~~(“Nu-Tech”), ~~ending~~and ~~December~~South 31Beach Holdings, ~~2019~~LLC (“South Beach”); and TPBC.

Standard Outdoor, a wholly-owned subsidiary of the Company, and its subsidiaries, consists of Standard Outdoor Southeast I LLC, Standard Outdoor Southeast II LLC and Standard Outdoor Southwest LLC. Standard Outdoor is an out-of-home advertising business with billboard structures located in Texas, Alabama, Georgia and Florida. As discussed in Note 1, on April 7, 2020, the Company transferred its equity interests in Standard Outdoor. See Note 22, “Subsequent Events” for further information.

As disclosed in Note 1, as of February 13, 2020, the Company completed the disposal of Maidstone, which represented the operations of its Insurance segment. The condensed consolidated financial statements, including the comparative periods presented, have been adjusted to remove the Insurance segment, which has been treated as discontinued operations in accordance with generally accepted accounting principles in the United States (“GAAP”). See Note 3, “Discontinued Operations” for further information.

As a result of the disposal of its Insurance segment, the Company only had four reportable segments remaining, see Note 20, “Segment Information” for further information on the Company’s reportable segments. Unless noted otherwise, discussion in these notes to the condensed consolidated financial statements pertain to the Company’s continuing operations.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the accounting practices described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019. In the opinion of management, the unaudited interim condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods indicated. Such adjustments, other than nonrecurring adjustments separately disclosed, are of a normal and recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2019. The accompanying interim condensed consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission and, accordingly, do not include all the disclosures required by GAAP with respect to annual financial statements.

Certain prior year amounts have been reclassified to conform to the current year’s presentation. The changes did not have an impact on the Company’s consolidated financial position, results of operations, or cash flows in any of the periods presented.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated.

Certain prior years’ amounts have been reclassified to conform to the current year’s presentation. The changes did not have an impact on the Company’s consolidated results of operations or cash flows in any of the periods presented.10

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Noncontrolling Interests

These condensed consolidated financial statements reflect the application of Accounting Standards Codification (“ASC”) Topic 810, Consolidations, which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholder’s equity, but separate from the parent’s equity; (ii) the amount of consolidated net ~~income~~ (loss) income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statements of ~~income~~ (loss) income; and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.

SDI acquired a 52.1% interest in Turning Point on June 1, 2017 through the Contribution and Exchange. As of March 31, 2020, SDI has a 50.2% ownership interest in Turning Point. Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of ~~Turning~~the ~~Point~~Company are reported as noncontrolling interests in the accompanying condensed consolidated financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements requires the management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of expenses during the period. The Company’s significant estimates include but are not limited to those affecting the valuation of goodwill and other intangible assets, the adequacy of the Company’s insurance reserves, assumptions used in determining pension and postretirement benefit obligations and deferred income tax valuation allowances. Actual results could differ from those estimates.

Revenue Recognition

Turning Point

Turning Point recognizes revenues, ~~net~~which ofincludes ~~sales~~excise ~~incentives~~taxes and ~~sales returns, including~~ shipping and handling charges billed to customers, ~~upon~~net of cash discounts for prompt payment, sales returns and incentives, upon delivery of goods to the customer – at which time Turning Point’s performance obligation is satisfied – at an amount that Turning Point expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in ~~Revenue from Contracts with Customers (~~Topic 606): (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Turning Point excludes from the transaction price, sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on smokeless tobacco, cigars or vaping products billed to customers).

Turning Point records an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued liabilities on the condensed consolidated balance sheets. Turning Point records sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction in revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers and consumers at the end of the period) based principally on historical volume and utilization rates. Expected payments for sales incentives are included in accrued liabilities on the consolidated balance sheets.

A further requirement of ASU 2014-09 is for entities to disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Turning Point management views business performance through segments that closely resemble the performance of major product lines. Thus, the primary and most useful disaggregation of Turning Point’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 20, “Segment Information.” An additional disaggregation of contract revenue by sales channel can be found within Note 20 as well.

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~~Topic~~Discontinued 606 requires entities to disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Turning Point’s management views business performance through segments that closely resemble the performance of major product lines. Thus, the primary and most useful disaggregation of Turning Point’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 23, “Segment Information,” along with an additional disaggregation of contract revenue by sales channel.Operations

~~Standard~~A ~~Outdoor~~business is classified as discontinued operations if the disposal represents a strategic shift that will have a major effect on operations or financial results and meets the criteria to be classified as held for sale or is disposed of by sale or otherwise. Significant judgments are involved in determining whether a business meets the criteria for discontinued operations reporting and the period in which these criteria are met. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.

The Company’s out-of-home advertising revenues are primarily derived from providing advertising space to customers on its physical billboards or other outdoor structures. Standard Outdoor generally (i) owns the physical structures on which it displays advertising copy for customers, (ii) holds the legal permits to display advertising thereon, and (iii) leases the underlying sites. As of January 1, 2019, billboard display revenues are recognized under ASC 842, the lease accounting standard, as rental income on a straight-line basis over the customer lease term.

Maidstone

Maidstone recognizes revenues from insurance contracts, including premiums and fees, under the guidance in ASC 944, Financial Services-Insurance Premiums. Maidstone’s premiums, which are recorded at the policy inception, are earned pro rata over the period for which the coverage is provided, generally nine months for auto policies. Unearned premiums represent the portion of premiums written that are applicable to the unexpired terms of policies in force. Premiums ceded to other companies pursuant to reinsurance agreements have been reported as a reduction to premiums earned. Take-out fees are received by Maidstone in the form of credits when it writes business from the state assigned pool. These credits can be used by Maidstone to reduce the amount of business it writes from the assigned pool in the future or they can be sold to third-party insurance companies for them to reduce their exposure to the assigned risk pool. Maidstone collects other miscellaneous fees such as installment and late fees. Broker fee income is received from non-affiliated insurance companies for which Maidstone’s management acts as an agent to sell their state mandated obligations for assigned risks. These fees are shown as other income in the Company’s condensed consolidated statements of income (loss).

Shipping Costs

The Company records shipping costs incurred as a component of selling, general and administrative expenses. Shipping costs incurred were approximately $45.43 million and $34.83 million for the three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018, respectively. Shipping costs incurred were approximately $13.6 million and $10.5 million for the nine months ended September 30,~~ 2019 ~~and 2018~~, respectively.

Fair Value

GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under GAAP are described below:

Level 1 –- Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2 –- Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 –- Unobservable inputs ~~that~~which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

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Derivative Instruments

Foreign Currency Forward Contracts: Turning Point enters into foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory purchase commitments. ~~Turning~~The ~~Point~~Company accounts for its forward contracts under the provisions of ASC 815, Derivatives and Hedging. Under Turning Point’s policy, the Turning Point may hedge up to 100% of its anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months. ~~Turning~~The ~~Point~~Company may also, from time to time, hedge up to ninety percent of its non-inventory purchases in the denominated invoice currency. Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive ~~income~~loss as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in income. Gains and losses on these forward contracts are transferred from other comprehensive ~~income~~loss into net income as the related inventories are received. Changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Interest Rate Swap Agreements: Turning Point enters into interest rate swap contracts to manage interest rate risk and reduce the volatility of future cash flows. Turning Point accounts for its interest rate swap contracts under the provisions of ASC 815, Derivatives and Hedging. Swap contracts that qualify as hedges are adjusted to their fair value through other comprehensive ~~income~~loss as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in income. Gains and losses on these swap contracts are transferred from other comprehensive ~~income~~loss into net income upon settlement of ~~the~~ the derivative position or at maturity of the interest rate swap contract. Changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Risks and Uncertainties

Manufacturers and sellers of tobacco products are subject to regulation at the federal, state, and local levels. Such regulations include, among others, labeling requirements, limitations on advertising, and prohibition of sales to minors. The tobacco industry is likely to continue to be heavily regulated. There can be no assurance as to the ultimate content, timing, or effect of any regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. Recently, several state governors have reacted to perceived issues around nicotine vapor products by unilaterally, without regard to the legislative process, proclaiming bans on vapor products, particularly those that are flavored. Many of these executive actions have been challenged and temporarily restrained, but no assurance can be given that such state or local flavor bans will not be enacted or ultimately upheld. Indeed, in a number of states, targeted flavor bans, particularly with regard to vapor products, have been enacted legislatively. Depending on the number and location of such bans, that legislation or regulation could have a material adverse effect on Turning Point’s financial position, results of operations or cash flows. Food and Drug Administration (“FDA”) ~~and~~continues ~~the~~to ~~White~~consider ~~House~~various ~~have~~restrictive ~~also stated~~regulations ~~that~~around ~~they~~Turning ~~are~~Point’s ~~considering~~products, aincluding targeted flavor ~~“ban”~~bans; ~~of some sort~~however, ~~however~~ the details, timing, and ultimate implementation of such ameasures ~~proposal~~ remain unclear.

The tobacco industry has experienced, and is experiencing, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers of cigarettes for injuries allegedly caused by smoking or exposure to smoke. However, several lawsuits have been brought against manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. Typically, such claims assert that use of smokeless products is addictive and causes oral cancer. Additionally, several lawsuits have been brought against manufacturers and distributors of NewGen products due to malfunctioning devices. There can be no assurance Turning Point will not sustain losses in connection with such lawsuits and that such losses will not have a material adverse effect on Turning Point’s financial position, results of operations, or cash flows.

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Master Settlement Agreement

Pursuant to the Master Settlement Agreement (the “MSA”) entered into in November 1998 by most states (represented by their attorneys general acting through the National Association of Attorneys General) and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to include a manufacturer of make-your-own (“MYO”) cigarette tobacco) has the option of either becoming a signatory to the MSA or opening, funding, and ~~maintaining~~ maintaining an escrow account to have funds available for certain potential tobacco-related liabilities, with sub-accounts on behalf of each settling state. Such companies are entitled to direct the investment of the escrowed funds and withdraw any appreciation, but cannot withdraw the principal for twenty-five years from the year of each annual deposit, except to withdraw funds deposited pursuant to an individual state’s escrow statute to pay a final judgement to that state’s plaintiffs in the event of such a final judgement against Turning Point. Turning Point chose to open and fund an escrow account as its method of compliance. It is ~~Turning~~the ~~Point~~Company’s policy to record amounts on deposit in the escrow account for prior years as a non-current asset. Each year’s annual obligation is required to be deposited in the escrow account by April 15 of the following year. In addition to the annual deposit, many states have elected to require quarterly deposits for the previous quarter’s sales. As of ~~September~~March 3031, 2020 ~~2019,~~and ~~Turning Point had on deposit approximately $32.1 million, the fair value of which was approximately $32.1 million. At~~ December 31, ~~2018~~2019, Turning Point had on deposit approximately $32.1 million, the fair value of which was approximately $3032.61 million. Effective in the third quarter of 2017, Turning Point no longer sells any product covered under the MSA. Thus, absent a change in legislation, Turning Point will no longer be required to make deposits to the MSA escrow account.

Turning Point ~~may~~has chosen to invest a portion of the MSA escrow, ~~deposits~~from time to time, in U.S. Government securities including Treasury Inflation-Protected Securities, Treasury Notes, and Treasury Bonds. These investments are classified as available-for-sale and carried at fair value. Realized losses are prohibited under the MSA; any investment in an unrealized loss position will be held until the value is recovered, or until maturity. ~~The~~All ~~following~~monies ~~shows~~at ~~the~~March ~~fair~~31, ~~value~~2020 ofand ~~the~~December ~~MSA~~31, ~~escrow~~2019 ~~account~~were asheld ~~of:~~in money market savings accounts.

	September 30, 2019		December 31, 2018
(In thousands)	Cost and Estimated Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Cash and cash equivalents	$	32,074	$	2,361	$	-	$	-		$	2,361
Fair value level 2: U.S. Governmental agency obligations (unrealized gain position < 12 months)		-		1,193		9		-			1,202
Fair value level 2: U.S. Governmental agency obligations (unrealized loss position < 12 months)		-		1,000		-		(3	)		997
Fair value level 2: U.S. Governmental agency obligations (unrealized loss position > 12 months)		-		27,519		-		(1,529	)		25,990
	$	32,074	$	32,073	$	9	$	(1,532	)	$	30,550

The following shows the amount of deposits by sales year for the MSA escrow account:

Fair value for the U.S. Governmental agency obligations are Level 2. The following schedule shows the maturities of the U.S. Governmental agency obligations as of:

(Dollar amounts in thousands)	Deposits as of
Sales Year	March 31, 2020		December 31, 2019
1999	$	211	$	211
2000		1,017		1,017
2001		1,673		1,673
2002		2,271		2,271
2003		4,249		4,249
2004		3,714		3,714
2005		4,553		4,553
2006		3,847		3,847
2007		4,167		4,167
2008		3,364		3,364
2009		1,619		1,619
2010		406		406
2011		193		193
2012		199		199
2013		173		173
2014		143		143
2015		101		101
2016		91		91
2017		83		83
Total	$	32,074	$	32,074

(In thousands)	December 31, 2018
Less than one year	$	1,499
One to five years		13,591
Five to ten years		11,152
Greater than ten years		3,470
Total U.S. Governmental agency obligations	$	29,712

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The following shows the amount of deposits by sales year for the MSA escrow account:

(Dollar amounts in thousands)	Deposits as of
Sales Year	September 30, 2019		December 31, 2018
1999	$	211	$	211
2000		1,017		1,017
2001		1,673		1,673
2002		2,271		2,271
2003		4,249		4,249
2004		3,714		3,714
2005		4,553		4,552
2006		3,847		3,847
2007		4,167		4,167
2008		3,364		3,364
2009		1,619		1,619
2010		406		406
2011		193		193
2012		199		199
2013		173		173
2014		143		143
2015		101		101
2016		91		91
2017		83		83
Total	$	32,074	$	32,073

Food and Drug Administration

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (“~~FSPTCA~~TCA”) authorized the Food and Drug Administration (“FDA”) to immediately regulate the manufacturing, sale, and marketing of four categories of tobacco products –- cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. On August 8, 2016, the FDA deeming regulation became effective. The deeming regulations gave the FDA the authority to additionally regulate cigars, pipe tobacco, electronic cigarettes (“e-cigarettes”), vaporizers, and e-liquids as “deemed” tobacco products under the FSPTCA.

~~The~~Under ~~FDA~~the ~~assesses~~TCA, tobacco product user fees are assessed on six classes of regulated tobacco products. ~~and~~The ~~computes~~ user fees are computed using a methodology similar to the methodology used by the U.S. Department of Agriculture to compute the Tobacco Transition Payment Program (“TTPP,” also known as the “Tobacco Buyout”) assessment. First, the total, annual, congressionally established user fee assessment is allocated among the various classes of tobacco products using the federal excise tax weighted market share of tobacco products subject to regulation. Then, the assessment for each class of tobacco products is divided among individual manufacturers and importers.

In August 2016, the FDA’s regulatory authority under the ~~Tobacco Control Act (the “~~TCA”) was extended to all tobacco products not previously covered, including: (i) certain NewGen products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar tobacco); (iii) pipe tobacco; (iv) hookah products; and (v) any other tobacco product “newly deemed” by the FDA. These “deeming regulations” apply to all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products (such as lighters). Accordingly, the FDA has since regulated Turning Point’s pipe tobacco, cigar, and cigar wrap products as well as its vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Under the deeming regulations, the FDA has responsibility for conducting premarket review of “new tobacco products” - defined as those products not commercially marketed in the United States as of February 15, 2007. There are three pathways for obtaining premarket authorization, including submission of a premarket tobacco product application (“PMTA”).

When the FDA initially issued the deeming regulations, it recognized that many products in the deemed categories that were already on the market qualified as “new tobacco products” and lacked a marketing order. In August 2017, the FDA issued an authorization until specified deadlines had passed. Under the August 2017 Guidance, compliance dates vary depending upon the type of application submitted, but all newly-deemed products require an application no later than August 8, 2021, for “combustible” products (e.g. cigar and pipe), and August 8, 2022, for “non-combustible” products (e.g. vapor products) with the exception of “grandfathered” products (products in commerce as of February 15, 2007) which are already authorized.

On March 27, 2018, several public health organizations filed a lawsuit (the “Maryland Lawsuit”) challenging the August 2017 Guidance. The plaintiffs asserted, among other arguments, that the modification to the deeming regulations included in the August 2017 Guidance conflicts with the TCA and exceeds FDA’s statutory authority. The plaintiffs also expressed concern that the August 2017 Guidance allows vapor products to remain marketed for a significant period of time without required premarket review.

The court found in favor of the plaintiffs in May 2019 and vacated the August 2017 Guidance. On July 12, 2019, the court issued its remedy order (the “Remedy Order”). Specifically, the court ordered that: (1) for all deemed new tobacco products, marketers must file applications within 10 months of the Remedy Order to continue marketing such products; (2) such a product may remain on the market pending FDA review of a timely filed application for a period not to exceed one year from the date of the application’s submission; (3) in its discretion, the FDA may enforce the premarket review requirements against such products for which marketers do not file applications within 10 months; and (4) the FDA will have the ability to exempt deemed new tobacco products from these application submission requirements for good cause, on a case-by-case basis. On October 24, 2019, FDA filed a Notice of Appeal from the Remedy Order and other actions adverse to FDA. The court-ordered modification to the compliance policy remains subject to change as a result of potential appeals or litigation brought or pending in other venues.

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~~Under~~In ~~the~~January ~~deeming regulations~~2020, the FDA ~~has~~indicated ~~responsibility~~it ~~for~~intended ~~conducting~~to ~~premarket~~maintain ~~review~~this deadline irrespective of ~~“new~~the ~~tobacco~~outcome ~~products”—~~of ~~defined~~the aspending ~~those~~appeal ~~products~~in ~~not~~the ~~commercially~~Maryland ~~marketed~~Lawsuit. inOn ~~the~~March ~~United~~30, ~~States~~2020, ashowever, citing the impacts of ~~February~~ the 15worldwide COVID-19 pandemic on both FDA and industry, ~~2007.~~FDA ~~There~~requested ~~are~~a ~~three~~modification ~~pathways~~to the Remedy Order that would extend the May 12, 2020, deadline for ~~obtaining~~filing premarket ~~authorization~~applications by 120 days to September 9, ~~including~~2020. ~~submission~~After ofseveral aprocedural steps, ~~premarket~~the ~~tobacco~~Remedy ~~product~~Order ~~application~~was ~~(“PMTA”)~~modified on April 22, 2020, to reflect the new deadline, and since then, FDA has stated it will update relevant Guidance documents to reflect this new timeline.

~~When~~On ~~the~~September ~~FDA~~11, ~~initially~~2019, ~~issued~~President ~~the~~Donald ~~deeming~~Trump ~~regulations,~~and itthe ~~recognized~~Department ~~that~~of ~~many~~Health ~~products~~and inHuman ~~the~~Services ~~deemed~~Secretary, ~~categories~~Alex ~~that~~Azar, ~~were~~indicated ~~already~~FDA onwould ~~the~~adopt ~~market~~a ~~qualified~~regulatory aspolicy ~~“new~~restricting ~~tobacco~~all ~~products”~~flavors ~~and~~in ~~lacked a~~vapor ~~marketing order~~ products. In ~~August~~January ~~2017~~2020, ~~the~~ FDA issued a ~~compliance~~Guidance ~~policy~~document (the “~~August~~January ~~2017~~2020 Guidance”) that ~~allowed~~stated ~~new~~it would be prioritizing enforcement of several categories of electronic nicotine delivery systems (“ENDS”) products: (1) flavored, cartridge-based ENDS products (other than tobacco- or menthol-flavored ENDS products); to(2) ~~remain~~ENDS onproducts for which the ~~market~~manufacturer ~~without~~has anfailed ~~FDA~~to ~~authorization~~take ~~until~~(or ~~specified~~is ~~deadlines~~failing ~~had~~to ~~passed.~~take) ~~Under~~adequate ~~the~~measures ~~August~~to ~~2017 Guidance,~~prevent ~~compliance~~minors’ ~~dates~~access; ~~vary~~(3) ~~depending~~ENDS ~~upon~~products targeted to minors or whose marketing is likely to promote the ~~type~~use of ~~application~~ENDS ~~submitted,~~by ~~but~~minors; ~~all~~and (4) ~~newly-deemed~~ENDS products ~~require~~offered anfor ~~application~~sale noafter ~~later~~the ~~than~~May ~~August 8~~12, ~~2021~~2020, premarket application deadline for ~~“combustible”~~which ~~products~~the (emanufacturer has not submitted a premarket application.g. ~~cigar~~The ~~and~~policy ~~pipe),~~outlined ~~and~~several ~~August~~factors 8,the ~~2022,~~agency ~~for~~would consider in its enforcement of ~~“non-combustible”~~ flavored cigars going forward but did not drastically restrict those products (eas it had considered in its March 2019 Guidance proposal.g. ~~vapor~~The ~~products)~~FDA’s ~~with~~policy ~~the~~on ~~exception~~these ofand ~~“grandfathered”~~other ~~products~~regulated (products may change or expand over time in ~~commerce~~ways not yet known and may significantly impact Turning Point’s products or our PMTA filings. For example, as ofnoted ~~February~~above, 15the FDA recently acted to modify the deadline for premarket applications from May 12, ~~2007)~~2020, ~~which~~to ~~are~~September ~~already~~9, ~~authorized~~2020.

OnAs ~~March~~a ~~27,~~result ~~2018~~of the implementation of the modified Remedy Order, ~~several~~Turning ~~public~~Point ~~health~~would ~~organizations~~not ~~filed~~be apermitted ~~lawsuit~~to ~~challenging~~continue marketing its existing line of vapor products that the ~~August~~FDA ~~2017~~regulates ~~Guidance. The~~as ~~plaintiffs~~tobacco products ~~asserted,~~past ~~among~~September ~~other~~9, ~~arguments~~2020, unless it files an application for each such product by that date. Turning Point expects to be able to make appropriate PMTA applications by the ~~modification~~deadlines and to supplement and complete the ~~deeming~~applications within FDA’s ~~regulations~~ discretionary ~~included~~timeline. inA successful PMTA must demonstrate that the ~~August~~subject ~~2017~~product ~~Guidance~~is ~~conflicts~~“appropriate ~~with~~for the ~~TCA~~protection of public health,” taking into account the effect of the marketing of the product on all sub-populations. On September 25, 2019, FDA published a proposed rule outlining certain required elements of PMTA filings. This rule is not yet final, and ~~exceeds~~its requirements may shift before being finalized. Turning Point believes it has products that meet the requisite standard and that it will be able to efficiently produce satisfactory PMTA filings. However, there is no assurance that the FDA’s ~~statutory~~guidance ~~authority.~~or ~~The~~ultimate ~~plaintiffs~~regulation ~~also~~will ~~expressed~~not ~~concern~~change, the Remedy Order will not be further altered or that unforeseen circumstances will not arise that prevent Turning Point from filing applications or otherwise increase the ~~August~~amount ~~2017~~of ~~Guidance~~time ~~allows~~and ~~vapor~~money ~~products~~it is required to ~~remain~~spend ~~marketed~~to ~~for~~successfully afile ~~significant~~all ~~period~~necessary PMTAs. Even if Turning Point successfully file all of its PMTAs in a timely manner, no assurance can be given that the applications will ultimately be successful. Given the shorter time ~~without~~frame ~~required~~mandated ~~premarket~~by ~~review~~the Remedy Order, which if not amended or successfully appealed may result in the prioritization of meeting requisite deadlines by selecting high priority SKUs, Turning Point’s inventory position, and future revenues may be adversely impacted.

~~The~~In ~~court~~addition, ~~found~~Turning inPoint ~~favor~~currently ofdistributes ~~the~~many ~~plaintiffs~~third-party inmanufactured ~~May~~vapor ~~2019~~products ~~and~~for ~~vacated~~which ~~the~~it ~~August~~will ~~2017~~be ~~Guidance.~~completely Ondependent ~~July~~on ~~12, 2019,~~ the ~~court~~manufacturer ~~issued~~complying ~~its~~with ~~remedy order (~~the ~~“Remedy~~premarket ~~Order”)~~filing requirements. ~~Specifically,~~There ~~the~~can ~~court ordered~~be ~~that:~~no ~~(1)~~assurances ~~for~~that ~~all~~some ~~deemed new tobacco~~ products, ~~marketers~~that ~~must~~Turning ~~file~~Point ~~applications~~currently ~~within~~distribute 10will ~~months~~be ofable ~~the~~to ~~Remedy~~be ~~Order~~sold to ~~continue~~end ~~marketing~~consumers ~~such~~after ~~products;~~September ~~(2)~~2020. ~~such~~While aTurning ~~product~~Point ~~may~~will ~~remain~~take onmeasures ~~the~~to ~~market~~pursue ~~pending~~regulatory ~~FDA~~compliance ~~review~~for ofits ~~a timely filed~~own ~~application~~ privately-branded ~~for~~or aproprietary ~~period~~vape ~~not~~products tothat ~~exceed~~compete ~~one~~with ~~year~~these ~~from~~third-party ~~the date of the application’s submission; (3) in its discretion~~products, ~~the~~there ~~FDA~~is ~~may~~no ~~enforce~~assurance ~~the~~that ~~premarket review requirements against~~ such proprietary products ~~for~~would ~~which~~be ~~marketers~~as dosuccessful ~~not~~in ~~file applications within 10 months; and (4)~~ the ~~FDA~~marketplace ~~will~~or ~~have~~can ~~the~~fully ~~ability~~displace tothird-party ~~exempt deemed new tobacco~~ products ~~from~~that ~~these~~are ~~application~~currently being ~~submission~~distributed ~~requirements for good cause, on a case-~~by~~-case~~ ~~basis.~~Turning ~~On October 24~~Point, ~~2019,~~which ~~FDA~~could ~~filed~~adversely aaffect ~~Notice~~its results of ~~Appeal~~operations ~~from the Remedy Order~~ and ~~other~~ ~~actions adverse to FDA~~liquidity.

Currently, the deadline to submit an application and to continue marketing a deemed new product remains May 12, 2020. This court-ordered modification to the compliance policy remains subject to change as a result of potential appeals, litigation brought or pending in other venues, or FDA’s finalization of the March 2019 Draft Guidance.

On September 11, 2019, President Donald Trump and the Department of Health and Human Services Secretary, Alex Azar, indicated FDA would adopt a regulatory policy restricting all flavors in vapor products. FDA has not yet adopted such policy, and the timing of the policy is not certain. The details of such a policy area not yet known; however, such a policy could significantly impact our products and our plans for PMTA filings.

Should the Remedy Order stand, Turning Point would not be permitted to continue marketing its existing line of vapor products that the FDA regulates as tobacco products past May 12, 2020, unless it files an application for each such product by that date. Turning Point expects to be able to make appropriate PMTA applications by the deadlines and to supplement and complete the applications within FDA’s discretionary timeline. A successful PMTA must demonstrate that the subject product is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations. On September 25, 2019, FDA published a proposed rule outlining certain required elements of PMTA filings. This rule is not yet final, and its requirements may shift before being finalized. Turning Point believe products that meet the requisite standard and that we will be able to efficiently produce satisfactory PMTA filings. However, there is no assurance that the FDA’s guidance or ultimate regulation will not change, the Remedy Order will not be altered or that unforeseen circumstances will not arise that prevent Turning Point from filing applications or otherwise increase the amount of time and money it is required to spend to successfully file all necessary PMTAs. Even if Turning Point successfully files all of its PMTAs in a timely manner, no assurance can be given that the applications will ultimately be successful. Given the shorter time frame mandated by the Remedy Order, which if not amended or successfully appealed may result in the prioritization of meeting requisite deadlines by selecting high priority SKUs, Turning Point’s inventory position, and future revenues may be adversely impacted.

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In Recent ~~addition,~~Accounting ~~Turning~~Pronouncements Point currently distributes many third-party manufactured vapor products for which it will be completely dependent on the manufacturer complying with the requirements of the deeming regulations generally and the Remedy Order more specifically. There can be no assurances that some products that Turning Point currently distribute will be able to be sold to end consumers after May 2020. While Turning Point will take measures to pursue regulatory compliance for its own privately-branded or proprietary vape products that compete with these third-party products, there is no assurance that such proprietary products would be as successful in the marketplace or can fully displace third-party products that are currently being distributed by Turning Point, which could adversely affect its results of operations and liquidity.Adopted

~~Stock~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-~~Based~~13, ~~Compensation~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. The ASU replaced the previous incurred loss impairment methodology with a methodology to reflect current expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. The guidance was adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The ASU was effective for the Company beginning in the first quarter of 2020. The ASU did not have an impact on the Company’s financial statements and related disclosures.

~~The~~In ~~Company~~August ~~accounts~~2018, ~~for~~the ~~stock~~FASB issued ASU 2018-~~based~~15, ~~compensation~~Intangibles — ~~using~~Goodwill ~~the~~and ~~fair~~Other ~~value~~— ~~method,~~Internal-Use ~~which~~Software ~~requires~~(Subtopic ~~that~~350-40): ~~compensation~~Customer’s ~~costs~~Accounting ~~related~~for toImplementation ~~employee~~Costs ~~share-based~~Incurred ~~payment~~in ~~transactions~~a ~~are~~Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the ~~measured~~requirements for capitalizing implementation costs in ~~the~~a ~~financial~~cloud ~~statements~~computing atarrangement service contract with the ~~fair~~requirements ~~value~~for oncapitalizing ~~the~~implementation ~~date~~costs ofincurred ~~grant~~for an internal-use software license. The guidance is effective for interim and ~~are~~annual ~~recognized~~periods ~~over~~beginning ~~the~~after ~~vesting~~December ~~period~~15, of2019, with early adoption permitted. The Company adopted ASU 2018-15 effective January 1, 2020. The ASU did not have an impact on the ~~award~~Company’s financial statements and related disclosures.

~~Fixed~~Recent ~~Maturity~~Accounting ~~Securities~~Pronouncements Not Yet Adopted

~~Investments~~In inDecember ~~fixed~~2019, ~~maturity~~the ~~securities~~FASB ~~including~~issued ~~bonds,~~ASU ~~loan~~2019-~~backed~~12 ~~and~~to ~~structured~~simplify ~~securities~~the ~~are~~accounting ~~classified~~in asASC ~~available-for-sale~~740, ~~and~~Income ~~reported at fair value~~Taxes. ~~Significant~~This ~~changes in~~guidance ~~prevailing~~removes ~~interest~~certain ~~rates~~exceptions ~~and~~related ~~other~~to ~~economic~~the ~~conditions~~approach ~~may~~for ~~adversely~~intra-period ~~affect~~tax allocation, the ~~timing~~methodology ~~and~~for ~~amount~~calculating ofincome ~~cash~~taxes ~~flows~~in onan ~~fixed~~interim ~~income investments~~period, asand ~~well~~the asrecognition ~~their~~of ~~related~~deferred ~~fair~~tax ~~values.~~liabilities ~~Fixed~~for ~~maturities~~outside ~~are~~basis ~~recorded~~differences. onThis aguidance ~~trade~~also ~~date~~clarifies ~~basis.~~and ~~Amortization of~~simplifies ~~bond~~other ~~premium~~areas ~~and accretion~~ of ~~bond~~ASC ~~discount~~740. ~~are~~This ~~calculated~~ASU ~~using~~will ~~the~~be ~~scientific~~effective ~~method. Changes~~ beginning in ~~fair~~the ~~values~~first quarter of ~~these~~the ~~securities,~~Company’s ~~after~~fiscal ~~deferred~~year ~~income~~2021. ~~tax~~Early ~~effects,~~adoption ~~are~~is ~~reflected~~permitted. asCertain ~~unrealized~~amendments ~~gains~~in orthis ~~losses~~update inmust ~~accumulated~~be ~~other~~applied ~~comprehensive income~~on ~~(loss).~~a ~~Realized~~prospective ~~gains~~basis, ~~and~~certain ~~losses~~amendments ~~from~~must ~~the~~be ~~sale~~applied ofon ~~investments~~a ~~are~~retrospective ~~calculated~~basis, asand ofcertain ~~the~~amendments ~~trade~~must ~~date~~be applied inon ~~the~~a ~~consolidated~~modified ~~statements~~retrospective ofbasis ~~operations~~through ~~and~~a ~~comprehensive~~cumulative-effect ~~loss~~adjustment ~~and~~to ~~are~~retained ~~based~~earnings/(deficit) ~~upon~~in the ~~specific~~period ~~identification~~ of ~~securities sold~~adoption. ~~Investment~~ ~~income~~The ~~consists~~Company ~~of interest and~~ is ~~reported~~currently ~~net~~evaluating ofthe ~~investment~~impact ~~expenses.~~this ~~Prepayment~~ASU ~~assumptions~~will ~~are~~have ~~considered~~on ~~when determining~~ the ~~amortization~~financial ofstatements ~~discount~~and orrelated disclosures, ~~premium~~as ~~for~~well ~~loan-backed~~as ~~and~~the ~~structured~~timing ~~securities~~of adoption.

An investment is considered impaired when the fair value of the investment is less than its cost or amortized cost. When an investment is impaired, the Company must make a determination as to whether the impairment is other than temporary (“OTTI”).

With respect to an investment in an impaired fixed maturity security, OTTI occurs if the Company (a) intends to sell the fixed maturity security, (b) more likely than not will be required to sell the fixed maturity security before its anticipated recovery, or (c) it is probable that the Company will be unable to collect all amounts due to the recovery of the entire cost basis of the security. The Company conducts a periodic review to identify and evaluate securities having OTTI, which include the above factors as well as the following: (1) the likelihood of the recoverability of principal and interest for fixed maturity securities (i.e., whether there is a credit loss); (2) the length of time and extent to which the fair value has been less than amortized cost for fixed maturity securities; and (3) the financial condition, near term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. If the Company intends to sell the fixed maturity security or will more likely than not be required to sell the fixed maturity security before the anticipated recovery, a loss in the entire amount of the impairment is reflected in net investment gains (losses) in net income (loss). If the Company determines that it is probable it will be unable to collect all amounts and the Company has no intent to sell the fixed maturity security, a credit loss is recognized in net investment gains (losses) in net income (loss) to the extent that the present value of expected cash flows is less than the amortized cost basis; any difference between fair value and the new amortized cost basis (net of the credit loss) is reflected in other comprehensive income (losses), net of applicable income taxes.

Upon recognizing an OTTI, the new cost basis of the security is the previous amortized cost basis less the OTTI recognized in net investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value; however, for fixed maturity securities, the difference between the new cost basis and expected cash flows is accreted to net investment gains (losses) over the remaining expected life of the investment.

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~~Deferred~~Note ~~Policy~~3. ~~Acquisition~~Discontinued ~~Costs~~Operations

~~Policy~~As ~~acquisition~~of ~~costs~~February 13, ~~which~~2020, ~~vary~~as a result of the approval of the Order of Liquidation, the control and net assets of Maidstone vested with the NYS Liquidation Bureau. The Company determined that the disposal of Maidstone and ~~are~~its ~~directly~~Insurance ~~related~~segment tooperations represented a strategic shift that had a major effect on the ~~production~~Company’s results of ~~successful~~operations ~~new~~and, ~~business~~as a result, ~~are~~have ~~deferred~~reported the disposal as discontinued operations. ~~The~~As ~~costs~~such, ~~deferred~~amounts ~~consist~~related to ~~principally~~the Insurance Segment presented on the condensed consolidated balance sheets as of ~~commissions~~March 31, 2020 and ~~policy issuance~~December ~~costs~~31, 2019 and ~~are~~condensed ~~amortized~~consolidated ~~into~~statements ~~expense~~of operations for the period from January 1, 2020 to February 13, 2020 and the three months ended March 31, 2019 have been reclassified as discontinued operations. In addition, the goodwill impairment charge of $2.8 million recorded during the first quarter of 2019 related ~~premiums~~to ~~are~~the ~~earned~~Insurance segment has been reclassified to discontinued operations. The Company recorded a loss on disposal of the Insurance segment of $1.0 million. The table below provide a reconciliation of the loss on disposal as of February 13, 2020:

(In thousands)	~~Nine~~As ~~Months~~of ~~Ended~~February ~~September 30~~13, ~~2019~~2020			~~Period from January 2, 2018 to September 30, 2018~~
DAC asset at beginning of period	$	2,279		$	-
Assets
Deferred expenses		2,781			3,950
Cash and cash equivalents	$	4,939
Amortized expenses		(3,592	)		(1,566	)
Fixed maturities available for sale, at fair value; amortized cost		21,661
DAC asset at end of period	$	1,468		$	2,384
Equity securities, at fair value		1,119
Premiums receivable		2,564
Property, plant and equipment, net		191
Deferred policy acquisition costs		601
Other assets		1,060
Total assets		32,135
Liabilities
Reserves for losses and loss adjustment expenses		24,846
Unearned premiums		5,427
Advance premiums collected		469
Accrued expenses		864
Other long-term liabilities		484
Total liabilities		32,090
Net assets disposed		45
Accrued expenses related to exit of Insurance segment		1,000
Loss on disposal of Insurance segment	$	1,045

~~The~~As ~~Company,~~a ~~utilizing~~result ~~assumptions~~of ~~for~~the ~~future~~disposal ~~expected~~of ~~claims,~~the ~~premium~~Insurance ~~rate increases and interest rates~~segment, ~~reviews~~ the ~~recoverability~~Company ofincurred ~~its~~expected ~~deferred policy acquisition~~ costs ~~(“DAC”)~~of onapproximately ~~a periodic basis~~$1.0 Ifmillion ~~the~~related ~~Company~~to ~~determines~~its ~~that~~exit ~~the future gross profits~~ of ~~its~~the ~~in-force~~Insurance ~~policies~~segment. ~~are~~The ~~not~~$1.0 ~~sufficient~~million torepresents ~~recover its DAC,~~ the Company’s ~~recognizes~~best aestimate ~~premium~~of ~~deficiency~~the ~~by charging any unamortized acquisition~~ costs to ~~expense~~be toincurred ~~the extent required~~ in ~~order~~connection towith ~~eliminate~~ the ~~deficiency~~exit. IfThese ~~the~~final ~~premium~~costs ~~deficiency~~could ~~exceeds~~be ~~the~~different ~~unamortized~~and ~~acquisition~~such ~~costs,~~differences ~~then~~could abe ~~liability~~material. isThese ~~accrued~~costs ~~for~~are ~~the~~included ~~excess~~in ~~deficiency.~~the ~~The~~calculation ~~Company~~of ~~anticipates~~the ~~investment~~loss ~~income~~on asdisposal ~~a factor~~ in ~~its~~the ~~premium deficiency~~table ~~reserve calculation~~above.

Incurred Losses and Loss Adjustment Expenses

Incurred losses and loss adjustment expenses (“LAE”) are charged to operations as incurred. The liability for losses and LAE is based upon individual case estimates for reported claims and a factor for incurred but not reported (“IBNR”) claims. Losses, LAE and related liabilities are reported net of estimated salvage and subrogation. Inherent in the estimate of ultimate losses and LAE are expected trends in claim severity and frequency and other factors which may vary significantly as claims are settled. Management believes that its aggregate provisions for losses and LAE as of September 30, 2019 and December 31, 2018 were reasonable and adequate to meet the ultimate net cost of covered losses, but such provisions are necessarily based on estimates and the ultimate net cost may vary significantly from such estimates. As adjustments to these estimates become necessary, such adjustments are reflected in current operations.

Recent Accounting Pronouncements Adopted

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, "Leases." This ASU requires substantially all leases be recorded on the balance sheet as right of use assets and lease obligations. The Company adopted the ASU using a retrospective adoption method at January 1, 2019, as outlined in ASU No. 2018-11, "Leases - Targeted Improvements." Under this method of adoption, there is no impact to the comparative consolidated statement of income (loss) and consolidated balance sheet. The Company determined that there was no cumulative-effect adjustment to beginning retained earnings on the consolidated balance sheet. The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in ASC Topic 840, "Leases". In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications. Adoption of this standard did not materially impact the Company’s income before income taxes and had no impact on the statement of cash flows. See Note 15, “Leases” for further details.

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~~Recent~~The ~~Accounting~~related ~~Pronouncements~~assets ~~Not~~and ~~Yet~~liabilities ~~Adopted~~of the Insurance Segment are presented as assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019. The following table provides details of the carrying amounts of major classes of assets and liabilities related to discontinued operations as of March 31, 2020 and December 31, 2019:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the effect the adoption of this standard will have on its consolidated financial statements.

(In thousands)	March 31, 2020		December 31, 2019
ASSETS OF DISCONTINUED OPERATIONS
Cash and cash equivalents	$	-	$	6,626
Fixed maturities available for sale, at fair value; amortized cost		-		21,680
Equity securities, at fair value		-		1,075
Premiums receivable		-		2,440
Property, plant and equipment, net		-		208
Right-of-use assets		-		13
Deferred policy acquisition costs		-		993
Other assets		-		913
Total assets	$	-	$	33,948

LIABILITIES OF DISCONTINUED OPERATIONS
Reserves for losses and loss adjustment expenses	$	-	$	25,393
Unearned premiums		-		5,818
Advance premiums collected		-		318
Accrued expenses		1,254		891
Current portion of operating lease liabilities		-		34
Other long-term liabilities		-		847
Total liabilities	$	1,254	$	33,301

InThe ~~August~~following ~~2018,~~table ~~the~~provides ~~FASB~~details ~~issued~~of ~~ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to~~ the ~~Disclosure~~amounts ~~Requirements~~reflected ~~for~~in ~~Fair~~loss ~~Value~~from ~~Measurement~~discontinued operations, ~~which~~net ~~modifies~~of ~~certain disclosure~~tax ~~requirements on fair value measurements~~ in ~~ASC~~the ~~820.~~condensed ~~This~~consolidated ~~ASU~~statements isof ~~effective~~operations for ~~interim~~the ~~and~~three ~~annual~~months ~~periods~~ended ~~beginning~~March ~~after December 15~~31, ~~2019~~2020 and ~~early adoption is permitted. The Company is currently evaluating the effect that ASU 2018-13 will have on its consolidated financial statement disclosures.~~2019:

Note 3. Acquisitions

	Three Months Ended March 31
(In thousands)	2020			2019
Revenues:
Insurance premiums earned	$	1,959		$	7,149
Net investment income		66			335
Other income		83			219
Total revenues of discontinued operations		2,108			7,703
Operating costs and expenses:
Incurred losses and loss adjustment expenses		1,674			6,564
Impairment loss on goodwill and other intangibles		-			2,826
Loss on disposal of Insurance segment		1,045			-
Other operating expenses		1,101			2,716
Total operating costs and expenses		3,820			12,106
Operating loss of discontinued operations		(1,712	)		(4,403	)
Loss before income taxes		(1,712	)		(4,403	)
Income tax benefit		-			(420	)
Net loss of discontinued operations, net of tax	$	(1,712	)	$	(3,983	)

~~Acquisitions~~The components of cash flow provided by ~~SDI~~or used in operating, investing and financing activities resulting from discontinued operations are presented as separate line items on the accompanying condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019.

Maidstone Acquisition

On January 2, 2018, the Company acquired all the outstanding capital stock of Interboro for cash consideration of $2.5 million. Under the name Maidstone Insurance Company, Maidstone offered personal automobile insurance, primarily in the state of New York.

The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired, and liabilities assumed were recorded at fair value as of the date of acquisition. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of acquisition:

(In thousands)	At January 2, 2018 (final)
Fixed maturities available for sale	$	25,386
Cash and cash equivalents		12,795
Investment income due and accrued		203
Premiums receivable		7,158
Property, plant and equipment		408
Intangible assets		2,100
Other assets		615
Reserves for losses and loss adjustment expenses		(30,672	)
Unearned premiums		(12,784	)
Advance premium collected		(651	)
Deferred tax liability		(420	)
Other liabilities		(2,395	)
Total net assets acquired		1,743
Consideration exchanged		2,500
Goodwill	$	757

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~~Standard~~Accounting ~~Outdoor~~Policies of Amounts Reclassified to Discontinued Operations

OnDeferred ~~January~~Policy ~~18,~~Acquisition 2018, the Company, through Standard Outdoor, completed an asset acquisition consisting of 83 billboard structures located in Alabama, as well as the ground leases and advertising contracts relating to such billboard structures for consideration with a fair value of approximately $9.7 million, of which $4.0 million was paid in cash and the remainder is payable under a promissory note with a face value of $6.5 million, net of a fair value discount of $0.9 million. A principal payment of $1.0 million on the promissory note is payable January 1 of each year, beginning January 1, 2020 and ending January 1, 2022, with a $3.5 million final principal payment on January 1, 2023. The promissory note has a 5% fixed interest rate and interest is payable quarterly. The purchase price was primarily attributed to property, plant and equipment consisting of the billboard structures. In conjunction with the asset acquisition, the Company established an asset retirement obligation of $1.0 million.Costs

OnMaidstone’s ~~February~~policy ~~20, 2018, the Company, through Standard Outdoor, completed an asset~~ acquisition ~~consisting of 86 billboard structures located in Georgia and Florida~~costs, ~~as well as the ground leases and advertising contracts relating to such billboard structures for consideration with a fair value of approximately $6.8 million, of~~ which ~~$3.2~~varied ~~million was paid in cash, $0.2 million was paid~~ with ~~the~~and ~~Company’s~~were ~~Class~~directly Arelated ~~common~~to ~~shares and~~ the ~~remainder is~~production ~~payable under a promissory note with a face value~~ of ~~$3.5~~successful ~~million~~new business, ~~net~~were ~~of a fair value discount of $0~~deferred.3 ~~million.~~The ~~Principal~~costs ~~payments~~deferred ~~began~~consisted onprincipally ~~March 1, 2019, with the remaining principal paid down monthly through March 1, 2022. The promissory note~~of ~~has~~commissions ~~a 5% fixed interest rate~~ and ~~interest~~policy isissuance ~~payable~~costs ~~monthly, starting March 1, 2019. The purchase price was primarily attributed to property, plant~~ and ~~equipment~~were ~~consisting~~amortized ofinto ~~the~~expense ~~billboard~~as ~~structures. In conjunction with~~ the ~~asset~~related ~~acquisition, the~~premiums ~~Company~~were ~~established an asset retirement obligation of $1~~earned.~~0 million.~~

OnIncurred ~~May~~Losses ~~7, 2019, the Company, through Standard Outdoor, completed an asset acquisition consisting of nine billboard structures located in Georgia, as well as the ground leases~~ and ~~advertising contracts~~Loss ~~relating~~Adjustment ~~to such billboard structures, for total consideration of $0.6 million, paid in cash. In conjunction with the asset acquisition, the Company established an asset retirement obligation of $0.1 million.~~Expenses

Incurred losses and loss adjustment expenses (“LAE”) were charged to operations when incurred. The liability for losses and LAE was based upon individual case estimates for reported claims and a factor for incurred but not reported (“IBNR”) claims. Losses, LAE and related liabilities were reported net of estimated salvage and subrogation.

Investments Reclassified to Discontinued Operations

Debt Securities

Maidstone classified all of its investments in fixed maturity debt securities as available-for-sale and, accordingly, they were carried at estimated fair value. The amortized cost, gross unrealized gains and losses, and fair value of investments in fixed maturity securities were as follows as of:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019
U.S. Treasury and U.S. Government	$	11,253	$	30	$	-	$	11,283
U.S. Tax-exempt municipal		2,508		76		-		2,584
Corporate		3,907		82		-		3,989
Mortgage and asset-backed securities		3,760		64		-		3,824
Total Fixed Maturity Securities	$	21,428	$	252	$	-	$	21,680

Fixed maturity securities that were in an unrealized loss position and the length of time that such securities had been in an unrealized loss position, as measured by their prior 12-month fair values, were as follows as of:

	Less Than 12 Months					12 Months or More					Total
(In thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2019
Bonds:
U.S. Treasury and U.S. Government	$	3,698	$	(386	)	$	-	$	-		$	3,698	$	(386	)
Mortgage and asset-backed securities		-		-			59		(32	)		59		(32	)
Total fixed maturities available for sale	$	3,698	$	(386	)	$	59	$	(32	)	$	3,757	$	(418	)

Maidstone had evaluated the unrealized losses on the fixed maturity securities and determined that they were not attributable to credit risk factors. For fixed maturity securities, losses in fair value were viewed as temporary if the fixed maturity security could be held to maturity and it was reasonable to assume that the issuer would be able to service the debt, both as to principal and interest. Maidstone did not recognize OTTI losses during the year ended December 31, 2019.

Net investment income

Maidstone had $0.1 million and $0.3 million of net investment income for the period from January 1, 2020 to February 13, 2020 (the date of disposal) and the three months ended March 31, 2019, respectively.

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~~Acquisitions~~Fair byvalue ~~Turning Point~~disclosures

~~Solace~~The ~~Technologies~~following tables show how Maidstone’s investments were categorized in the fair value hierarchy as of December 31, 2019:

In July 2019, Turning Point purchased the assets of E-Vape 12, Inc and Solace Technologies LLC (“Solace”) for $8.0 million in total consideration, comprised of $7.7 million in cash and $0.5 million holdback for 18 months. The holdback was adjusted for a working capital deficiency of $0.2 million. As additional consideration, Turning Point may issue, to the former owners, stock equal to $2.3 million upon the achievement of certain annual milestones, the fair value of which was $0.0 at September 30, 2019. Immediately following the acquisition, 88,582 performance based restricted stock units with a fair value of $4.6 million were issued to former owners who became employees. Solace is an innovative product development company that has grown from the creator of one of the leading vape juice brands in the industry into a leader of alternative ingredients product development. Turning Point intends to incorporate Solace’s innovative products as well as the legacy vapor products into its Nu-X Ventures development engine. As of September 30, 2019, Turning Point had not completed the accounting for the acquisition. The following purchase price and goodwill and other intangibles are based on the excess of the acquisition price over the estimated fair value of the tangible assets acquired and are based on Turning Point’s preliminary estimates:

(In thousands)	Level 1		Level 2		Level 3		Total Fair Value
December 31, 2019
Common stock	$	255	$	-	$	-	$	255
Preferred stocks		-		820		-		820
Total equities:	$	255	$	820	$	-	$	1,075
Fixed maturities:
U.S. treasury and U.S. government	$	11,283	$	-	$	-	$	11,283
U.S. tax-exempt municipal		-		2,584		-		2,584
Corporate		-		3,989		-		3,989
Mortgage and asset-backed securities		-		3,824		-		3,824
Total fixed maturities	$	11,283	$	10,397	$	-	$	21,680

(In thousands)	As of September 30, 2019 (preliminary)
Total consideration transferred	$	8,250
Adjustments to consideration transferred:
Cash acquired		(45	)
Working capital		(235	)
Adjusted consideration transferred		7,970
Assets acquired:
Working capital (primarily AR and inventory)		1,132
Fixed assets and other long term assets		414
Other liabilities		(209	)
Net assets acquired		1,337
Goodwill and other intangibles	$	6,633

There were no transfers between levels during the period from January 1, 2020 to February 13, 2020 (the date of disposal).

~~The~~Restricted ~~goodwill of $6.6 million consists of the synergies and scale expected from combining the operations and is currently deductible for tax purposes.~~Assets

~~IVG~~The insurance subsidiaries maintained assets in trust accounts as collateral for or guarantees for letters of credit to third parties. As of December 31, 2019, the carrying value of deposits the Company had on deposit with U.S. regulatory authorities was $2.8 million.

InLiability ~~September 2018, Turning Point acquired 100% of the equity interest of IVG~~ for ~~total~~Losses ~~consideration of $23.8 million satisfied through $14.5 million paid in cash, 153,079 shares of common stock with a fair value of $5.3 million,~~ and aLoss ~~$4.0~~Adjustment million note payable to IVG’s former owners (“IVG Note”) which matures 18 months from the acquisition date. All principal and accrued and unpaid interest under the IVG Note is subject to indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018. The arrangement includes an additional $4.5 million of earnouts with both performance-based and service-based conditions payable to former IVG owners who became employees of Turning Point as a result of the acquisition. Such amounts will be recorded as compensation and not additional purchase price. The portion of earnout payments a recipient will receive will be calculated by reference to certain performance metrics not to exceed a two-year period as specified within the acquisition agreement. Turning Point recorded earnout expense of approximately $0.9 million within the condensed consolidated statements of income for the nine months ended September 30, 2019, based on the probability of achieving the performance conditions. No earnout expense was recorded for the three months ended September 30, 2019.Expenses

The liability for losses and loss adjustment expenses disclosures below relate to the current and prior period presentation of the Insurance segment, which as of February 13, 2020, was disposed of and classified as a discontinued operation. Activity in the liability for losses and LAE is summarized as follows:

(In thousands)	For the Period Ended February 13, 2020		Three Months Ended March 31, 2019
Reserve for losses and LAE at beginning of period	$	25,393	$	27,330
Provision for claims, net of insurance:
Incurred related to:
Prior year		231		622
Current year		1,443		5,871
Total incurred		1,674		6,493
Deduct payment of claims, net of reinsurance:
Paid related to:
Prior year		1,851		4,743
Current year		370		2,096
Total paid		2,221		6,839
Reserve for losses and LAE at end of period	$	24,846	$	26,984

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IVG markets and sells a broad array of proprietary and third-party vapor products directly to adult consumers through an online platform under brand names such as VaporFi, South Beach Smoke, and Direct-Vapor. IVG operates company-owned stores under the VaporFi brand and also operates as a franchisor to franchisee-owned stores. The ~~acquisition~~components of ~~IVG adds a significant business-to-consumer distribution platform to Turning Point’s NewGen portfolio. Turning Point completed~~ the ~~accounting~~net liability for ~~the~~losses ~~acquisition during the third quarter of 2019. The following purchase price~~ and ~~goodwill~~LAE ~~are~~were ~~based~~as onfollows ~~the~~as ~~excess~~ of ~~the acquisition price over the fair value of the tangible and intangible assets.~~:

(In thousands)	AsFebruary ~~of September 6~~13, ~~2019 (final)~~2020			December 31, 2019
Total consideration transferred	$	24,292
Case basis reserves	$	11,784		$	12,078
Adjustments to consideration:
Incurred but not reported reserves		13,062			13,315
Cash acquired, net of debt assumed		(221	)
Total	$	24,846		$	25,393
Working capital		(245	)
Adjusted consideration transferred		23,826
Assets acquired:
Working capital (primarily inventory)		3,218
Fixed assets		1,274
Intangible assets		7,880
Net assets acquired		12,372
Goodwill	$	11,454

~~The goodwill of $11.5 million consists of the synergies and scale expected from combining the operations and is currently deductible for tax purposes.~~Contingencies

~~Note~~Maidstone 4was a party to lawsuits arising in the normal course of its business. ~~Derivative~~These ~~Instruments~~lawsuits would generally seek to establish liability under insurance policies and occasionally seek punitive damages. In August 2019, Maidstone consented to the entry of an order of liquidation pursuant to Article 74 of the Order of Liquidation with the NYSDFS. On January 14, 2020, the NYSDFS filed a petition for an Order of Liquidation in the Court with respect to Maidstone and on February 13, 2020, the Court conducted a hearing with respect to the Order of Liquidation and, thereafter, approved the Order of Liquidation. As a result of this approval, the Company reclassified its Insurance segment to discontinued operations.

~~Foreign~~Note ~~Currency~~4. Acquisitions

~~The~~Acquisitions ~~Company’s~~by ~~policy~~Turning is to manage the risks associated with foreign exchange rate movements. The policy allows hedging up to 100% of its anticipated purchases of inventory over a forward period that will not exceed 12 rolling and consecutive months. The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 90% of the purchase price. The Company did not execute any forward contracts during the three and nine months ended September 30, 2019. The Company executed various forward contracts during the three and nine months ended September 30, 2018, none of which met hedge accounting requirements, for the purchase of €2.3 million and €14.5 million, respectively. As of September 30, 2019, and December 31, 2018, the Company had forward contracts for the purchase of €0.0 million and €1.5 million, respectively.Point

Solace Technologies

In July 2019, Turning Point purchased the assets of E-Vape 12, Inc and Solace Technologies LLC (“Solace”) for $9.4 million in total consideration, comprised of $7.7 million in cash, $1.1 million earn-out fair value, and $0.5 million holdback for 18 months, which was adjusted by $0.2 million for a working capital deficiency. The earn-out consists of 44,295 shares of Turning Point’s common stock to be issued to the former owners upon the achievement of certain annual milestones. Immediately following the acquisition, 88,582 performance based restricted stock units with a fair value of $4.62 million were issued to former owners who became employees. See Note 16, “Share-Based Compensation”, for further details. Solace is an innovative product development company that has grown from the creator of one of the leading vape juice brands in the industry into a leader of alternative ingredients product development. Turning Point intends to incorporate Solace’s innovative products as well as the legacy vapor products into its Nu-X development engine. As of March 31, 2020, Turning Point had not completed the accounting for the acquisition. The following purchase price and goodwill and other intangibles are based on the excess of the acquisition price over the estimated fair value of the tangible assets acquired and are based on management’s preliminary estimates:

	(preliminary)
Total consideration transferred	$	9,405

Adjustments to consideration transferred:
Cash acquired		(45	)
Working capital		(235	)
Adjusted consideration transferred		9,125

Assets acquired:
Working capital (primarily AR and inventory)		1,132
Fixed assets and other long term assets		414
Intangible assets		1,352
Other liabilities		(209	)
Net assets acquired		2,689

Goodwill	$	6,436

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The goodwill of $6.4 million consists of the synergies and scale expected from combining the operations and is currently deductible for tax purposes.

Note 5. Derivative Instruments

Foreign Currency

The Company’s policy is to manage the risks associated with foreign exchange rate movements. The policy allows hedging up to 100% of its anticipated purchases of inventory over a forward period that will not exceed 12 rolling and consecutive months. The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 90% of the purchase price. The Company did not execute any forward contracts during the three months ended March 31, 2020 and 2019.

Interest Rate Swaps

The Company’s policy is to manage interest rate risk by reducing the volatility of future cash flows associated with debt instruments bearing interest at variable rates. In March 2018, the Company executed various interest rate swap agreements for a notional amount of $70 million with an expiration of December 2022. The swap agreements fix LIBOR at 2.755%. The swap agreements met the hedge accounting requirements; thus, any change in fair value is recorded to other comprehensive income. The Company uses the ~~shortcut~~Shortcut ~~method~~Method to account for the swap agreements. The ~~shortcut~~Shortcut ~~method~~Method assumes the hedge to be perfectly effective; thus, there is no ineffectiveness to be recorded in earnings. The swap agreements’ fair values asat ofMarch ~~September 30~~31, ~~2019,~~2020 and December 31, ~~2018~~2019, resulted in a liability of $34.18 million and $02.95 million, respectively, included in other long-term liabilities ~~in the Company’s condensed consolidated balance sheets~~.

Note 5. Investments

Debt Securities

The Company currently classifies all of its investments in fixed maturity debt securities held by Maidstone as available-for-sale and, accordingly, they are carried at estimated fair value. The amortized cost, gross unrealized gains and losses, and fair value of investments in fixed maturity securities are as follows as of:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019
U.S. Treasury and U.S. Government	$	11,247	$	31	$	(6	)	$	11,272
U.S. Tax-exempt municipal		2,522		76		-			2,598
Corporate		7,151		150		(6	)		7,295
Mortgage and asset-backed securities		5,321		80		-			5,401
Total Fixed Maturity Securities	$	26,241	$	337	$	(12	)	$	26,566
December 31, 2018
U.S. Treasury and U.S. Government	$	4,338	$	-	$	(34	)	$	4,304
U.S. Tax-exempt municipal		4,645		4		(25	)		4,624
Corporate		14,858		16		(193	)		14,681
Mortgage and asset-backed securities		8,633		10		(120	)		8,523
Total Fixed Maturity Securities	$	32,474	$	30	$	(372	)	$	32,132

Amortized cost and fair value of fixed maturity securities as of September 30, 2019 and December 31, 2018 by contractual maturity are shown below. The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019				December 31, 2018
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,993	$	2,994	$	748	$	745
Due after one year through five years		15,459		15,569		13,719		13,600
Due after five years through ten years		2,468		2,602		9,027		8,917
Due after ten years		-		-		347		347
Mortgage and asset-backed securities		5,321		5,401		8,633		8,523
Total	$	26,241	$	26,566	$	32,474	$	32,132

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The Company uses the services of its investment manager, which uses a proprietary model for loss assumptions and widely accepted models for prepayment assumptions in valuing mortgage-backed and asset-backed securities with inputs from major third-party data providers. The models combine the effects of interest rates, volatility, and prepayment speeds based on various scenarios (Monte Carlo simulations) with resulting effective analytics (spreads, duration, convexity) and cash flows on a monthly basis. Credit sensitive cash flows are calculated using proprietary models, which estimate future loan defaults in terms of timing and severity. Model assumptions are specific to asset class and collateral types and are regularly evaluated and adjusted where appropriate.

Fixed maturity securities that were in an unrealized loss position and the length of time that such securities have been in an unrealized loss position, as measured by their prior 12-month fair values, are as follows as of:

	Less Than 12 Months					12 Months or More				Total
(In thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2019
Bonds:
U.S. Treasury and U.S. Government	$	8,188	$	(6	)	$	-	$	-	$	8,188	$	(6	)
Corporate bonds		253		(6	)		-		-		253		(6	)
Mortgage and asset-backed securities		-		-			75		-		75		-
Total Fixed maturities available for sale	$	8,441	$	(12	)	$	75	$	-	$	8,516	$	(12	)
December 31, 2018
Bonds:
U.S. Treasury and U.S. Government	$	4,304	$	(34	)	$	-	$	-	$	4,304	$	(34	)
U.S. Tax-exempt municipal		4,285		(25	)		-		-		4,285		(25	)
Corporate bonds		10,306		(193	)		-		-		10,306		(193	)
Mortgage and asset-backed securities		6,717		(120	)		-		-		6,717		(120	)
Total Fixed maturities available for sale	$	25,612	$	(372	)	$	-	$	-	$	25,612	$	(372	)

The Company has evaluated the unrealized losses on the fixed maturity securities and determined that they are not attributable to credit risk factors. For fixed maturity securities, losses in fair value are viewed as temporary if the fixed maturity security can be held to maturity and it is reasonable to assume that the issuer will be able to service the debt, both as to principal and interest. The Company did not recognize OTTI losses during the nine months ended September 30, 2019 or for the period from January 2, 2018 to September 30, 2018.

Equity Securities

The Company’s equity investments are carried at fair value with changes in fair value recognized in income.

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Net investment income

The components of net investment income for the nine months ended September 30, 2019 and the period from January 2, 2018 to September 30, 2018 are as follows:

(In thousands)	Nine Months Ended September 30, 2019			Period from January 2, 2018 to September 30, 2018
Investment income:
Bonds	$	627		$	520
Common stocks		45			85
Preferred stocks		32			4
Cash and cash equivalents		83			144
Other asset investments		27			-
Total investment income		814			753
Less: Investment expenses		(47	)		(74	)
Net investment income	$	767		$	679

For the nine months ended September 30, 2019, Maidstone realized $0.3 million of capital gains and less than $10,000 of capital losses. For the period from January 2, 2018 to September 30, 2018, Maidstone realized less than $10,000 in capital gains and capital losses.

Fair value disclosures

The following tables show how Maidstone’s investments are categorized in the fair value hierarchy as of:

(In thousands)	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2019
Common stock	$	287	$	-	$	-	$	287
Preferred stocks		-		828		-		828
Total equities:	$	287	$	828	$	-	$	1,115
Fixed maturities:
U.S. treasury and U.S. government	$	11,272	$	-	$	-	$	11,272
U.S. tax-exempt municipal		-		2,598		-		2,598
Corporate		-		7,295		-		7,295
Mortgage and asset-backed securities		-		5,401		-		5,401
Total fixed maturities	$	11,272	$	15,294	$	-	$	26,566
December 31, 2018
Common stock	$	227	$	-	$	-	$	227
Preferred stocks		-		466		-		466
Total equities:	$	227	$	466	$	-	$	693
Fixed maturities:
U.S. treasury and U.S. government	$	4,304	$	-	$	-	$	4,304
U.S. tax-exempt municipal		-		4,624		-		4,624
Corporate		-		14,681		-		14,681
Mortgage and asset-backed securities		-		8,523		-		8,523
Total fixed maturities	$	4,304	$	27,828	$	-	$	32,132

There were no transfers between levels during the nine months ended September 30, 2019 or the period from January 2, 2018 to September 30, 2018.

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Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

Level 1 inputs- fixed income securities and equity securities: valuations based on unadjusted quoted prices in active markets for identical assets that the Company’s pricing sources have the ability to access. Since the valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant amount or degree of judgment.

Level 2 inputs- fixed income securities and equity securities: valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of cash or fixed maturities, with various regulatory authorities to support its insurance operations. The Company’s insurance subsidiaries maintain assets in trust accounts as collateral for or guarantees for letters of credit to third parties. As of September 30, 2019 and December 31, 2018, the Company had deposits with U.S. regulatory authorities of $2.8 million and $2.7 million, respectively.

Note 6. Fair Value of Financial Instruments

The ~~following disclosure of the~~ estimated fair value ~~of financial instruments is made in accordance with the requirements of ASC 825, Financial Instruments. The estimated fair value~~ amounts have been determined by the Company using the methods and assumptions described below. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

~~The~~Cash ~~Company used Level 1 inputs to determine the fair value of its cash~~ and cash equivalents. Asare, ofby ~~September 30~~definition, ~~2019~~short-term. Thus, ~~and~~the ~~December~~carrying ~~31,~~amount ~~2018,~~is ~~cost~~a ~~represented~~reasonable ~~fair~~estimate ~~value~~ of ~~the~~fair ~~Company's cash and cash equivalents~~value.

Accounts Receivable

The fair value of accounts receivable approximates their carrying value due to their short-term nature.

2018 Revolving Credit Facility

The fair value of Turning Point’s ~~revolving~~2018 ~~credit~~Revolving ~~facility~~Credit Facility approximates its carrying value as the interest rate fluctuates with changes in market rates.

Note Payable – IVG

The fair value of the IVG Note approximates its carrying value of $4.2 million due to the recency of the note’s issuance relative to the end of the quarter, September 30, 2019.

Long-Term Debt

As Turning Point’s 2018 Credit Facility bears interest at variable rates that fluctuate with market rates, the carrying values of the long-term debt instruments approximate their respective fair values. As of ~~September~~March 3031, ~~2019~~2020, the fair value of the 2018 First Lien Term Loan approximated $~~148~~144.0 million. As of December 31, ~~2018~~2019, the fair ~~values~~value of the 2018 First Lien Term Loan ~~and the 2018 Second Lien Term Loan approximated~~ ~~$154.0~~ approximated ~~million and~~ $40146.0 million~~, respectively~~.

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InThe ~~July~~Convertible ~~2019~~Senior ~~Turning~~Notes ~~Point~~bear ~~closed~~interest anat ~~offering~~a rate of 2.50% per year and the fair value approximated $~~172~~141.56 million, inwith ~~aggregate~~a ~~principal~~carrying ~~amount~~value of ~~its 2~~$172.~~50%~~5 ~~Convertible~~million ~~Senior~~as ~~Notes~~of ~~due~~March ~~July 15~~31, ~~2024~~2020. ~~(the~~As ~~“Convertible~~of ~~Senior~~December ~~Notes”).~~31, ~~The~~2019, the fair value of the Convertible Senior Notes ~~fair value~~ approximated $~~169~~140.51 million, with a carrying value of $172.5 million ~~as of September 30, 2019~~.

The fair value of Standard Outdoor’s promissory notes issued as partial consideration in the January and February 2018 asset acquisitions approximated $6.9 million as of March 31, 2020 and $8.10 million as of ~~September~~December 3031, 2019.

The fair value of SDI’s term loan debt issued in September 2019 approximates its carrying value as the interest rate fluctuates with changes in market rates. ~~See Note 14, “Notes Payable and Long-Term Debt,” for further information regarding the Company’s long-term debt.~~

~~Foreign~~See ~~Exchange~~Note 12, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

Turning Point did not have any open forward contracts as of September 30, 2019. Turning Point had forward contracts for the purchase of €1.5 million as of December 31, 2018. The fair values of the foreign exchange contracts are based upon quoted market prices and resulted in no gain or loss for the three months ended September 30, 2019 and a gain of approximately $0.1 million for the nine months ended September 30, 2019. As there were no open contracts as of September 30, 2019, there is no resulting balance sheet position related to the fair value.

Interest Rate Swaps

Turning Point had swap contracts for a total notional amount of $70 million as of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019. The fair values of the swap contracts are based upon quoted market prices and ~~and~~ resulted in ~~liabilities~~a liability of $34.18 million and $02.95 million as of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, respectively.

Note 7. Inventories

The components of inventories are as follows as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020			December 31, ~~2018~~2019
Raw materials and work in process	$	6,~~064~~574		$	27,~~722~~050
Leaf tobacco		3436,~~128~~900			3432,~~977~~763
Finished goods - Smokeless products		65,~~965~~907			65,~~321~~680
Finished goods - Smoking products		1211,~~249~~081			1413,~~666~~138
Finished goods - NewGen products		4313,~~565~~535			3717,~~194~~111
Other		~~1,129~~950			~~738~~989
		104,100			96,618
Gross inventory		74,947			76,731
LIFO reserve		(5,~~381~~752	)		(5,~~381~~752	)
	$	98,719		$	91,237
Net inventory	$	69,195		$	70,979

The inventory valuation allowance was $219.02 million and $221.5 million as of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019, respectively. Inventory reserves increased in the fourth quarter 2019 as a result of additional reserves necessary for products in Turning Point’s NewGen segment primarily from increased regulation.

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Note 8. ~~Property,~~Other ~~Plant~~Current ~~and Equipment~~Assets

Property, plant and equipment consist of the following as of:

(In thousands)	September 30, 2019			December 31, 2018
Land	$	22		$	22
Building and improvements		2,444			2,320
Leasehold improvements		1,953			2,101
Machinery and equipment		14,810			13,307
Advertising structures		18,610			17,913
Furniture and fixtures		7,894			5,453
		45,733			41,116
Accumulated depreciation		(15,974	)		(13,375	)
	$	29,759		$	27,741

Note 9. Other Current Assets

Other current assets consist of the following as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020		December 31, ~~2018~~2019
Inventory deposits	$	75,~~139~~616	$	94,~~739~~012
Other		9,262		5,306
Prepaid taxes		3,250		3,673
	$	16,401	$	15,045
Other		10,177		8,706
	$	19,043	$	16,391

Note 9. Property, Plant and Equipment

Property, plant and equipment consist of the following as of:

(In thousands)	March 31, 2020			December 31, 2019
Land	$	22		$	22
Building and improvements		2,655			2,655
Leasehold improvements		2,511			2,567
Machinery and equipment		15,103			14,532
Advertising structures		18,650			18,650
Furniture and fixtures		8,307			8,502
Gross property, plant and equipment		47,248			46,928
Accumulated depreciation		(17,815	)		(16,768	)
Net property, plant and equipment	$	29,433		$	30,160

Note 10. Other Assets

Other assets consist of the following as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020		December 31, ~~2018~~2019
Equity investments	$	35,421	$	25,421
Pension assets		1,~~239~~753		1,~~223~~686
Other		23,~~231~~684		23,~~771~~583
	$	6,891	$	6,415
Total	$	10,858	$	10,690

In July 2019, Turning Point obtained a 30% stake in Canadian distribution entity, ReCreation Marketing (“ReCreation”), for $1.0 million paid at closing. Turning Point also received options to acquire up to a 50% ownership position in ReCreation.

~~Note 11. Goodwill and Intangible Asset Impairments~~25

The Company tests goodwill and indefinite-lived intangible assets for impairment annually, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. The Company’s annual assessment is performed as of December 31.

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~~During~~Note ~~the nine months ended September 30, 2019, the Company recorded impairment charges of $0~~11.8 ~~million~~Accrued and $2.0 million related to the full impairment of the goodwill and intangible asset balances, respectively, in its Insurance segment. This impairment was a result of changes in the future plans for the Insurance segment and certain other factors impacting recoverability. As a result, there were no goodwill or intangible asset balances remaining in the Company’s Insurance segment as of September 30, 2019.Liabilities

Note 12. Accrued Liabilities

Accrued liabilities consist of the following as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020		December 31, ~~2018~~2019
Accrued payroll and related items	$	56,~~623~~144	$	65,~~063~~267
Customer returns and allowances		25,~~980~~537		26,~~895~~160
Taxes payable		~~691~~1,508		-705
Lease liabilities		12,~~914~~745		-2,453
Other		10,363		14,925
Accrued interest		1,241		2,236
	$	21,571	$	23,883
Other		13,335		10,817
Total	$	30,510	$	27,638

Note 1312. ~~Liability~~Notes ~~for~~Payable ~~Losses~~ and ~~Loss~~Long-Term ~~Adjustment Expenses~~Debt

The liability for unpaid losses and LAE is determined from individual case estimates for reported claims and a factor for IBNR claims. The methods for making such estimates and establishing claim reserves are continually reviewed and adjustments are reflected in the current period. While management believes the liability for unpaid losses and LAE is adequate, the ultimate liability may vary from the amount recorded and the variance may be material to the Company’s financial position and results of operations.

Activity in the liability for losses and LAE is summarized as follows:

(In thousands)	Nine Months Ended September 30, 2019		Period from January 2, 2018 to September 30, 2018
Reserve for losses and LAE at beginning of period	$	27,330	$	30,216
Provision for claims, net of insurance:
Incurred related to:
Prior year		3,531		-
Current year		12,334		17,007
Total incurred		15,865		17,007
Deduct payment of claims, net of reinsurance:
Paid related to:
Prior year		12,658		11,815
Current year		4,105		10,667
Total paid		16,763		22,482
Reserve for losses and LAE at end of period	$	26,432	$	24,741

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The components of the net liability for losses and LAE are as follows as of:

(In thousands)	September 30, 2019		December 31, 2018
Case basis reserves	$	13,062	$	15,863
Incurred but not reported reserves		13,370		11,467
Total	$	26,432	$	27,330

Note 14. Notes Payable and Long-Term Debt

Notes payable and long-term debt consist of the following as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020			December 31, ~~2018~~2019
2018 First Lien Term Loan	$	~~148~~144,000		$	~~154~~146,000
2018 Second Lien Term Loan		-			40,000
Convertible Senior Notes		172,500			172,500
SDI Crystal Term Loan		-			15,000
SDI GACP Term Loan		25,000			25,000
SDI GACP Term Loan		25,000			-
Standard Outdoor Promissory Notes		7,242			8,447
Standard Outdoor Promissory Notes		8,584			9,950
Note payable - IVG		-			4,240
Convertible Senior Notes		172,500			-
Gross notes payable and long-term debt		348,742			356,187
Note payable - IVG		4,240			4,000
Less deferred finance charges		(7,191	)		(7,558	)
Total Notes Payable and Long-Term Debt		358,324			222,950
Less debt discount		(30,333	)		(32,083	)
Less: deferred finance charges and debt discount		(12,216	)		(4,903	)
Less current maturities		(13,743	)		(16,977	)
Less: current maturities		(15,958	)		(9,431	)
Net notes payable and long-term debt	$	297,475		$	299,569
	$	330,150		$	208,616

Turning Point

2018 Credit Facility

On March 7, 2018, Turning Point entered into a $250 million credit facility consisting of a $160 million 2018 First Lien Term Loan with Fifth Third Bank, as administrative agent, and other lenders, and a $50 million 2018 Revolving Credit Facility (collectively, the “2018 First Lien Credit Facility”) in addition to a $40 million 2018 Second Lien Term Loan (the “2018 Second Lien Credit Facility,” and, together with the 2018 First Lien Credit Facility, the “2018 Credit Facility”) with Prospect Capital Corporation, as administrative agent, and other lenders. The 2018 Credit Facility contains a $40 million accordion feature. Proceeds from the 2018 Credit Facility were used to repay, in full, the 2017 Credit Facility. Turning Point incurred a loss on extinguishment of debt of $2.4 million in the first quarter of 2018 as a result of the refinancing.

The 2018 Credit Facility contains customary events of default including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, and change in control defaults. The 2018 Credit Facility also contains certain negative covenants customary for facilities of these types including covenants that, subject to exceptions described in the 2018 Credit Facility, restrict the ability of Turning Point and its subsidiary guarantors: (i) to pledge assets, (ii) to incur additional indebtedness, (iii) to pay dividends, (iv) to make distributions, (v) to sell assets, and (vi) to make investments.

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2018 First Lien Credit Facility: The 2018 First Lien Term Loan and the 2018 Revolving Credit Facility bear interest at LIBOR plus a spread of 2.75% to 3.50% based on Turning Point’s senior leverage ratio. The 2018 First Lien Term Loan has quarterly required payments of $2.0 million beginning June 30, 2018, increasing to $3.0 million on June 30, 2020, and increasing to $4.0 million on June 30, 2022. The 2018 First Lien Credit Facility has a maturity date of March 7, 2023. The 2018 First Lien Term Loan is secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors thereunder, including a pledge of Turning Point’s capital stock, other than certain excluded assets (the “Collateral”). In connection with the Convertible Senior Notes offering, Turning Point entered into a First Amendment (“the Amendment”) to the First Lien Credit Agreement, with Fifth Third Bank, as administrative agent, and other lenders and certain other lender parties thereto. The Amendment was entered into primarily to permit Turning Point to issue up to $200 million of convertible senior notes, enter into certain capped call transactions in connection with the issuance of such notes and to use the proceeds from the issuance of the notes to repay amounts outstanding under Turning Point’s 2018 Second Lien Credit Facility and use the remaining proceeds for acquisitions and investments. In connection with the Amendment, fees of $0.7 million were incurred. The 2018 First Lien Credit Facility contains certain financial covenants, which were amended in connection with the Convertible Senior Notes offering in the third quarter 2019. The covenants include maximum senior leverage ratio of 3.00x with step-downs to 2.50x, a maximum total leverage ratio of 5.50x with step-downs to 5.00x, and a minimum fixed charge coverage ratio of 1.20x. In the first quarter of 2020, the financial covenants were amended to permit certain add-backs related to PMTA in the definition of Consolidated EBITDA for the period of October 1, 2019 until September 30, 2020. In connection with the amendment, fees of $0.2 million were incurred. Based on an excess cash covenant for the facility, a principal payment of $4.5 million was due in the second quarter of 2019. All parties agreed to waive the payment, resulting in consent fees of $0.1 million. The weighted average interest rate of the 2018 First Lien Term Loan was 3.74% as of March 31, 2020. As of March 31, 2020, Turning Point had no borrowings outstanding under the 2018 Revolving Credit Facility. The $50.0 million unused portion of the 2018 Revolving Credit Facility is reduced by letters of credit from Fifth Third Bank totaling $3.7 million, resulting in $46.3 million of availability under the 2018 Revolving Credit Facility as of March 31, 2020.

~~The~~ 2018 ~~First~~Second Lien ~~Term~~Credit ~~Loan~~Facility: ~~and~~The ~~the~~ 2018 ~~Revolving~~Second Lien Credit Facility ~~bear~~bore interest at ~~LIBOR plus~~ a ~~spread~~rate of ~~2.75%~~LIBOR toplus 37.5000% based on Turning Point’s senior leverage ratio. The 2018 First Lien Term Loan has quarterly required payments of $2.0 million beginning June 30, 2018, increasing to $3.0 million on June 30, 2020, and ~~increasing~~had ~~to $4.0 million on June 30, 2022. The 2018 First Lien Credit Facility has~~ a maturity date of March 7, ~~2023~~ 2024. The 2018 ~~First~~Second Lien Term Loan iswas secured by a ~~first~~second priority ~~lien~~interest onin ~~substantially all of~~ the ~~assets of the borrowers and the guarantors thereunder, including a pledge of Turning Point’s capital stock, other than certain excluded assets (the “~~Collateral~~”).~~ In connection with the Convertible Senior Notes offering, Turning Point entered into a First Amendment (“the Amendment”) to the First Lien Credit Agreement, with Fifth Third Bank, as administrative agent, and ~~other lenders and certain other lender parties thereto. The Amendment~~ was ~~entered~~guaranteed ~~into~~by ~~primarily to permit Turning Point to issue up to $200 million of convertible senior notes, enter into certain capped call transactions in connection with~~ the ~~issuance~~same ~~of such~~entities ~~notes~~as ~~and to use~~ the proceeds from the issuance of the notes to repay amounts outstanding under Turning Point’s Second Lien Credit Agreement and use the remaining proceeds for acquisitions and investments. In connection with the Amendment, fees of $0.7 million were incurred. The 2018 First Lien ~~Credit~~Term ~~Facility contains certain financial covenants, which were amended in connection with the Convertible Senior Notes offering in the third quarter of 2019~~Loan. ~~The~~ covenants include maximum senior leverage ratio of 3.00x with step-downs to 2.50x, a maximum total leverage ratio of 5.50x with step-downs to 5.00x, and a minimum fixed charge coverage ratio of 1.20x. Based on an excess cash covenant for the facility, a ~~principal~~ ~~payment of~~ $4.5 million principal payment was ~~due~~made in the second quarter of 2019~~. All parties agreed to waive the payment~~, resulting in ~~consent~~a ~~fees of~~ $0.12 million. ~~The~~loss ~~weighted~~on ~~average~~extinguishment ~~interest rate~~ of ~~the~~debt. ~~2018~~Turning ~~First~~Point ~~Lien~~used ~~Term~~a ~~Loan~~portion ~~was~~of ~~5.04%~~the ~~at September~~proceeds ~~30,~~from ~~2019.~~the Asissuance of ~~September~~the ~~30,~~Convertible ~~2019,~~Senior ~~Turning~~Notes ~~Point~~to ~~had~~prepay noall ~~borrowings~~ outstanding ~~under~~amounts related to the 2018 ~~Revolving~~Second Lien Credit Facility. ~~The~~in ~~$50.0 million unused portion of~~ the ~~2018~~third ~~Revolving~~quarter ~~Credit~~2019. ~~Facility~~The isprincipal ~~reduced~~paid byin ~~letters~~the ofthird ~~credit~~quarter ~~from Fifth~~amounted ~~Third~~to ~~Bank totaling~~ $235.75 million, ~~resulting~~and the transaction resulted in a $471.31 million ofloss ~~availability~~on ~~under~~extinguishment ~~the 2018 Revolving Credit Facility as~~ of ~~September 30, 2019~~debt.

2018 Second Lien Credit Facility

The 2018 Second Lien Credit Facility bore interest at a rate of LIBOR plus 7.00% and had a maturity date of March 7, 2024. The 2018 Second Lien Term Loan was secured by a second priority interest in the Collateral and was guaranteed by the same entities as the 2018 First Lien Term Loan. The 2018 Second Lien Credit Facility contained certain financial covenants including a maximum senior leverage ratio of 3.75x with step-downs to 3.50x, a maximum total leverage ratio of 4.75x with step-downs to 4.50x, and a minimum fixed charge coverage ratio of 1.10x. Based on an excess cash covenant for the facility, a $4.5 million principal payment was made in the second quarter of 2019, resulting in a $0.2 million loss on extinguishment of debt. Turning Point used a portion of the proceeds from the issuance of the its 2.50% Convertible Senior Notes due July 15, 2024 to prepay all outstanding amounts related to the 2018 Second Lien Credit Facility in the third quarter of 2019. The principal paid in the third quarter amounted to $35.5 million and the transaction resulted in a $1.2 million loss on extinguishment of debt.

Convertible Senior Notes

In July 2019, Turning Point closed an offering of $172.5 million in aggregate principal amount of ~~its~~ 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes will mature on July 15, 2024, unless earlier repurchased, redeemed or converted. The Convertible Senior Notes are senior unsecured obligations of Turning Point.

The Convertible Senior Notes are convertible into approximately 3,202,808 shares of Turning Point’s voting common stock under certain circumstances prior to maturity at a conversion rate of 18.567 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.86 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. Upon conversion, Turning Point may pay cash, shares of common stock or a combination of cash and stock, as determined by Turning Point at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of ~~September~~March 3031, ~~2019~~2020.

The excess of the principal amount of the liability over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Convertible Senior Notes using the effective interest rate method.27

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~~Turning~~Under ~~Point~~GAAP, ~~incurred~~certain convertible debt ~~issue~~instruments ~~costs~~that ~~and~~may ~~allocated~~be ~~the~~settled ~~total~~in ~~amount~~cash on conversion are required to ~~the~~be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the Convertible Senior Notes, ~~based~~Turning onPoint ~~their~~separated ~~relative~~the Convertible Senior Notes into ~~values~~ liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, which is recognized as a debt ~~issue~~discount, ~~costs~~represents ~~attributable~~the todifference between the proceeds from the issuance of the Convertible Senior Notes and the fair value of the liability component ~~are~~of the Convertible Senior Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”), $35.0 million, will be amortized to interest expense using an effective interest rate of 7.5% over the ~~term~~expected life of the Convertible Senior Notes. ~~using~~The ~~the~~equity ~~effective~~component ~~interest~~is ~~method.~~not ~~Issuance~~remeasured ~~costs~~as ~~attributable~~long as it continues to meet the criteria for equity ~~component~~classification. ~~were netted~~Interest ~~with~~expense includes $1.8 million of amortization for the ~~equity~~three ~~component~~months inended March ~~stockholders’~~31, ~~equity~~2020.

In ~~connection~~accounting ~~with~~for the issuance costs related to the issuance of the Convertible Senior Notes ~~offering~~, Turning Point ~~entered~~allocated ~~into~~the ~~privately~~total ~~negotiated~~amount ~~capped~~incurred ~~call~~to ~~transactions~~the ~~with~~liability ~~certain~~and ~~financial~~equity ~~institutions.~~components ~~The~~based on their ~~capped~~ relative ~~call~~fair ~~transactions~~values. ~~have~~Debt aissuance ~~strike~~costs ~~price~~attributable ofto ~~$53.86~~the ~~per~~liability ~~and~~component aare ~~cap~~amortized ~~price~~to ofinterest ~~$82.86~~expense ~~per~~using ~~and~~the ~~are~~effective ~~exercisable~~interest ~~when~~method ~~and~~over ifthe expected life of the Convertible Senior Notes, ~~are converted~~$4.7 ~~Turning~~million, ~~Point~~and ~~paid~~the debt issuance costs attributable to the equity component, $201.532 million, ~~for~~are ~~these~~netted ~~capped~~with ~~calls~~the ~~and~~equity ~~charged~~component ~~that amount~~of tostockholders’ ~~additional paid-in capital~~equity.

~~The~~In ~~carrying~~connection ~~value~~with of the ~~equity component related to the~~ Convertible Senior Notes ~~at September 30~~offering, ~~2019~~Turning ~~was~~Point ~~$3.1~~entered ~~million.~~into ~~The effective~~privately ~~interest~~negotiated ~~rate~~capped oncall ~~the~~transactions ~~liability component~~with ~~for~~certain ~~the~~financial ~~three-month~~institutions. ~~period~~The ~~ended~~capped ~~September~~call ~~30,~~transactions have ~~2019~~a ~~was~~strike 6price of $53.~~15%.~~86 ~~Total~~per ~~interest~~and ~~cost~~a cap price of $082.986 ~~million~~per, ~~was~~and ~~recognized~~are ~~during~~exercisable when, and if, the ~~three-month~~Convertible ~~period~~Senior ~~ended~~Notes ~~September 30,~~are ~~2019,~~converted. ~~including~~Turning Point paid $020.153 million ~~amortization~~for ofthese ~~debt~~capped ~~discount~~calls and charged that amount to additional paid-in capital.

Note Payable –- IVG

In September 2018, Turning Point issued a note payable to IVG’s former shareholders (~~the~~ “IVG Note”). The IVG Note iswas $4.0 million principal with 6.0% interest compounding annually and ~~matures~~matured on March 5, 2020. All principal and accrued and unpaid interest under the IVG Note iswere subject to indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018. The carrying amount of the IVG Note, ~~was~~ $4.2 million, aswas deposited into an escrow account pending agreement with the sellers of ~~September~~any ~~30,~~indemnification ~~2019~~obligations.

SDI and Standard Outdoor

SDI

On September 18, 2019, the Company entered into a Term Loan Agreement (the “Term Loan Agreement”) with GACP II, L.P., a Delaware limited partnership (the “Agent”), as administrative agent and collateral agent for the financial institutions (the “Lenders”). The Term Loan Agreement ~~provides~~provided for a term loan of $25.0 million (the “Term Loan”). The Term Loan will be used to (a) repay, in full, all outstanding indebtedness under the Crystal Term Loan (as defined below), (b) finance the purchase of common stock of Turning Point, (c) finance the repurchase of common stock of the Company, (d) fund certain fees and expenses, and (e) provide working capital for the Company.

The Term Loan Agreement contains certain affirmative and negative covenants that are binding on the Company, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the ability of the Company to incur indebtedness, to create liens, to merge or consolidate, to make dispositions, to pay dividends or make distributions, to make investments, to pay any subordinated indebtedness, to enter into certain transactions with affiliates or to make capital expenditures. The Term Loan Agreement contains customary events of default (which are in some cases subject to certain exceptions, thresholds, notice requirements and grace periods). The Term Loan Agreement also contains certain representations, warranties and conditions, in each case as set forth in the Term Loan Agreement.

With respect to the maintenance of at least $2.0 million in unrestricted cash and cash equivalents in accounts subject to control agreements in favor of the Agent, as of September 30, 2019, the Company had approximately $12.9 million in unrestricted cash and cash equivalents in those accounts.

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OnThe Term Loan bears interest at a rate equal to the three-month “Libor Rate” as published in The Wall Street Journal plus 9.00%. Interest under the Term Loan Agreement is payable monthly with the principal balance due on September 18, ~~2019~~2024. The Term Loan was subject to a closing fee of $0.5 million, inwhich ~~connection~~was ~~with~~paid ~~entering~~upon ~~into~~execution of the Term Loan Agreement. Additionally, the ~~Company~~Term ~~repaid~~Loan inis ~~full~~subject ~~all~~to ~~amounts outstanding~~an ~~under~~agent monitoring fee of $25 thousand, payable quarterly. An early termination fee shall be due at any time if on or prior to the ~~Crystal~~third anniversary of the closing of the Term Loan, the Company prepays or repays (aswhether ~~defined~~voluntarily ~~below~~or mandatorily), or is required to prepay or repay, the Term Loan in whole or in part. ~~The~~Prior ~~Company~~to ~~recognized~~the afirst ~~loss~~anniversary onof ~~extinguishment~~the closing of ~~debt~~the Term Loan, the early termination fee is the greater of $1(a) 2.0% ~~million,~~of ~~comprised~~amount of the Term Loan or $0.75 million, ~~unamortized~~or ~~deferred~~(b) ~~financing~~the interest ~~costs~~on the Term Loan that would have accrued during the first year following closing, less actual interest payments paid through the date of prepayment. Any time after the first anniversary of the closing of the Term Loan and aprior to the third anniversary, the early termination fee reduces to 1.0% of the amount of the Term Loan or $0.325 million. ~~early~~The ~~termination~~obligations ~~fee,~~of the Company under the Term Loan Agreement are secured by all of the shares of Turning ~~which~~ Point isstock ~~recognized~~owned by the Company. In connection with the closing of the proposed Merger with Turning Point, as more fully described in Note 22, we expect to prepay the ~~condensed~~Term ~~consolidated~~Loan ~~statements~~at the time of ~~operations~~the ~~for~~Merger. The Merger is subject to customary closing conditions, including approval by holders of a majority of the ~~three~~aggregate voting power of the SDI Common Stock and ~~nine~~the ~~months~~receipt ~~ended~~of ~~September~~any ~~30,~~applicable ~~2019~~regulatory approvals. The Company ~~capitalized~~expects the transaction to close in the summer of 2020. If the closing of the Merger were to occur on or around June 30, 2020, it would incur an early termination fee of approximately $0.6 million and this amount would reduce, over time, to its floor of ~~deferred~~$0.5 ~~financing~~million, ~~costs~~if ~~associated~~prepayment ~~with~~occurs on or before September 18, 2020. The Company has classified the Term Loan as a non-current liability as of March 31, 2020 as the Merger is still subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals. In order to raise the capital needed, along with its existing cash on hand, to retire such liabilities, including this indebtedness, the Company may consider a variety of transactions, including a sale of a portion of the shares of TPB Common Stock that the Company owns. The Term Loan Agreement contains certain affirmative and negative covenants that are binding on the Company, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the ability of the Company to incur indebtedness, to create liens, to merge or consolidate, to make dispositions, to pay dividends or make distributions, to make investments, to pay any subordinated indebtedness, to enter into certain transactions with affiliates or to make capital expenditures. The Term Loan Agreement contains customary events of default (which are in some cases subject to certain exceptions, thresholds, notice requirements and grace periods). The Term Loan Agreement also contains certain representations, warranties and conditions, in each case as set forth in the Term Loan Agreement.

OnWith ~~February~~respect 2,to ~~2018, SDI and its Standard Outdoor advertising subsidiaries (~~the ~~“Borrowers”)~~maintenance ~~entered~~of ~~into~~at aleast ~~term loan agreement with Crystal Financial LLC (“Crystal Term Loan”)~~$2.0 ~~The~~million ~~Crystal Term~~in ~~Loan~~unrestricted ~~provided~~cash ~~for~~and ancash ~~initial~~equivalents ~~term~~in ~~loan~~accounts ofsubject ~~$10.0 million and a commitment~~ to ~~provide~~control ~~additional~~agreements ~~term~~in ~~loans~~favor of upthe toAgent, ~~$15.0~~as ~~million. As~~ of ~~September~~March 3031, ~~2019~~2020, the Company had ~~repaid~~approximately ~~all~~$7.1 ~~amounts~~million ~~outstanding~~in ~~under~~unrestricted ~~the~~cash ~~Crystal~~and ~~Term~~cash ~~Loan~~equivalents in those accounts.

~~Interest~~On ~~expense~~September ~~related~~18, to2019, ~~the~~in ~~Term~~connection ~~Loan~~with ~~and~~entering into the ~~Crystal~~ Term Loan ~~of $0.4 million and $1.2 million~~Agreement, ~~including amortization of~~ the ~~discount,~~Company ~~was~~repaid ~~recorded~~in ~~for~~full ~~the~~all ~~three~~amounts ~~and~~outstanding ~~nine~~under ~~months~~the ~~ended September~~term ~~30,~~loan ~~2019,~~agreement ~~respectively.~~with ~~Interest~~Crystal ~~expense~~Financial ~~related to the~~ LLC (“Crystal Term Loan ~~of $0~~”).4 ~~million~~The ~~and~~Company capitalized $0.86 million, ~~including~~of ~~amortization~~deferred offinancing ~~the~~costs ~~discount,~~associated ~~was~~with ~~recorded~~closing ~~for~~on the ~~three~~Term ~~and nine months ended September 30, 2018~~Loan.

Interest expense related to the Term Loan and the Crystal Term Loan of $0.7 million and $0.4 million, including amortization of the discount, was recorded for the three months ended March 31, 2020 and 2019, respectively.

Standard Outdoor

On January 18, 2018, as partial consideration for an asset purchase of 83 billboard structures located in Alabama, as well as the ground leases and advertising contracts relating to such billboard structures, the Company issued a promissory note with a face value of $6.5 million. The promissory note was recorded net of a discount of $0.9 million, representing the difference between the face value and fair value at issuance. This discount will be amortized into interest expense using the effective interest rate method over the term of the promissory note. A principal payment of $1.0 million on the promissory note is payable January 1 of each year, beginning January 1, 2020 and ending January 1, 2022, with a $3.5 million final principal payment on January 1, 2023. The promissory note has a 5% fixed coupon interest rate and interest is payable quarterly.

On February 20, 2018, as partial consideration for an asset purchase of 86 billboard structures located in Georgia and Florida, as well as the ground leases and advertising contracts relating to such billboard structures, the Company issued a promissory note with a face value of $3.5 million. The promissory note was recorded net of a discount of $0.3 million, representing the difference between the face value and fair value at issuance. This discount will be amortized into interest expense using the effective interest rate method over the term of the promissory note. Principal payments began on March 1, 2019, with the remaining principal paid down monthly through March 1, 2022. The promissory note has a 5% fixed coupon interest rate and interest is payable monthly.

Interest expense related to the Standard Outdoor loans of $0.2 million and $0.6 million, including amortization of the discount, was recorded for the three and nine months ended September 30, 2019 and 2018, respectively.29

The following table summarizes the consolidated scheduled principal repayments subsequent to September 30, 2019:

	Future Minimum Principal Payments
October 1, 2019 - December 31, 2019	$	2,136
2020		17,079
2021		13,882
2022		16,227
2023		111,500
thereafter		197,500
Total	$	358,324

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~~Note~~Interest 15expense related to the Standard Outdoor loans of $0.2 ~~Leases~~million, including amortization of the discount, was recorded for the three months ended March 31, 2020 and 2019.

The following table summarizes the consolidated scheduled principal repayments subsequent to March 31, 2020:

(In thousands)	Future Minimum Principal Payments
2020	$	9,633
2021		13,882
2022		16,227
2023		111,500
2024		197,500
thereafter		-
Total	$	348,742

On April 7, 2020, the Company transferred its equity interest in Standard Outdoor, which included the transfer of the remaining $7.2 million of Standard Outdoor’ outstanding indebtedness, included in the table above. See Note 22, “Subsequent Events” for further information.

Note 13. Leases

As of January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). The main impact to the financial statements is the recognition of lease liabilities and right of use assets.

Turning Point

Turning Point’s leases consist primarily of leased property for its manufacturing warehouse, head offices and retail space as well as vehicle leases. In general, Turning Point does not recognize any renewal periods within the lease terms as there are not significant barriers to ending the lease at the initial term. Lease and non-lease components are accounted for as a single lease component.

Standard Outdoor

Standard Outdoor leases land and constructs a billboard that it owns, or leases an existing billboard owned by a third party. Standard Outdoor does recognize certain renewal periods to match the remaining useful life of its billboard structures. From a lessor perspective, Standard Outdoor has operating leases related to customers that use its billboards to advertise; however, these lessees are typically considered to be short-term (less than 12 months) and are not cyclical with the same lessee.

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance ~~sheet~~sheets. Lease expense for these leases is recognized on a straight-line basis over the ~~lease~~ lease term.

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The components of lease expense consist of the following:

(In thousands)	Three Months Ended ~~September~~March 3031, ~~2019~~2020			~~Nine~~Three Months Ended ~~September~~March 3031, 2019
Operating lease cost:
Cost of sales	$	~~225~~349		$	~~649~~192
Selling, general and administrative		~~658~~431			~~2,115~~669
Variable lease cost (1)		~~320~~376			~~802~~298
Short-term lease cost		3183			~~120~~54
Sublease income		(30	)		(8030	)
Total operating lease cost	$	1,204		$	3,606
Total	$	1,209		$	1,183

(1)

Variable lease cost primarily includes elements of a contract that do not represent a good or service, but for which the lessee is responsible for paying.

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Supplemental balance sheet information related to leases consist of the following as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020		December 31, 2019
Assets:
Right of use assets	$	1315,~~755~~526	$	14,490
Total leased assets	$	1315,~~755~~526	$	14,490
Liabilities:
Current lease liabilities (1)	$	12,~~914~~745	$	2,453
Long-term lease liabilities		1213,~~280~~997		13,262
Total lease liabilities	$	1416,~~194~~742	$	15,715

(1)

Reported within accrued liabilities on the condensed consolidated balance sheet.

	September 30, 2019
	March 31, 2020			December 31, 2019
Consolidated weighted average remaining lease term - operating leases	98.24 years			8.7 years
Consolidated weighted average discount rate - operating leases		76.0945	%		6.67	%

Nearly all the lease contracts for the Company do not provide a readily determinable implicit rate. For these contracts, the Company estimated the incremental borrowing rate based on information available upon ~~the~~ adoption of ASU 2016-02. The Company applied a consistent method in periods after the adoption of ASU 2016-02 to estimate the incremental borrowing rate.

~~As of September 30, 2019, future maturities of lease liabilities consist of the following:~~31

Year	Payments
October 1, 2019 - December 31, 2019	$	590
2020		3,338
2021		2,813
2022		1,986
2023		1,563
Thereafter		9,633
Total lease payments		19,923
Less: Imputed interest		5,729
Present value of lease liability	$	14,194

During the three months ended September 30, 2019, Turning Point had seven retail leases and one warehouse lease extended, renewed or adjusted. These changes resulted in additional lease liabilities of $0.7 million. Also, during the nine months ended September 30, 2019, Standard Outdoor entered into three new leases as a part of its May 2019 asset acquisition resulting in additional lease liabilities of $0.1 million as of September 30, 2019.

Note 16. Pension and Postretirement Benefit Plans

Turning Point has a defined benefit pension plan. Benefits for hourly employees were based on a stated benefit per year of service, reduced by amounts earned in a previous plan. Benefits for salaried employees were based on years of service and the employees’ final compensation. The defined benefit pension plan is frozen. Turning Point’s policy is to make the minimum amount of contributions that can be deducted for federal income taxes. Turning Point expects to make no contributions to the pension plan in 2019. In the second quarter of 2018, Turning Point made mutually agreed upon lump-sum payments to certain individuals covered by the defined benefit pension plan which resulted in a curtailment loss of approximately $0.3 million during the second quarter of 2018, which is reported within net periodic benefit (income) expense, excluding service cost within the condensed consolidated statements of income (loss). In October 2019, Turning Point elected to terminate the defined benefit pension plan, effective December 31, 2019, with final distributions to be made in 2020.

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~~Turning~~As ~~Point~~of ~~sponsored~~March a31, ~~defined~~2020, ~~benefit~~future ~~postretirement~~maturities ~~plan~~of ~~that~~lease ~~covered~~liabilities ~~hourly~~consist employees. This plan provides medical and dental benefits. This plan is contributory with retiree contributions adjusted annually. Turning Point’s policy is to make contributions equal to benefits paid during the year. Turning Point expects to contribute approximately $0.2 million to its postretirement plan in 2019 for the payment of ~~benefits. In October 2019, Turning Point amended~~ the ~~plan to cease benefits effective June 30, 2020.~~following:

Year	Payments (in thousands)
2020	$	2,987
2021		3,703
2022		3,080
2023		2,639
2024		1,457
Thereafter		8,151
Total lease payments		22,017
Less: Imputed interest		5,275
Present value of lease liabilities	$	16,742

On April 7, 2020, the Company transferred its equity interest in Standard Outdoor, which included the transfer of $2.5 million of lease liabilities included in the tables above. See Note 22, “Subsequent Events” for further information.

During the first quarter, Turning Point entered into a number of additional operating leases related to vehicles for business use. These changes resulted in additional lease liabilities of $1.6 million as of March 31, 2020.

Note 14. Pension and Postretirement Benefit Plans

Turning Point sponsored a defined benefit postretirement plan that covered hourly employees. This plan provides medical and dental benefits. This plan is contributory with retiree contributions adjusted annually. Turning Point’s policy is to make contributions equal to benefits paid during the year. Turning Point does not expect to contribute to its postretirement plan in 2020 for the payment of benefits. In October 2019, Turning Point amended the plan to cease benefits effective June 30, 2020.

The following table provides the components of net periodic pension and postretirement benefit costs and total costs for the plans:

	Three months ended September 30,
	Three Months Ended March 31,
	Pension Benefits						Post-Retirement Benefits
(In thousands)	~~2019~~2020			~~2018~~2019			~~2019~~2020			~~2018~~2019
Service cost	$	26-		$	26		$	-		$	-
Interest cost		~~130~~95			~~135~~130			25-			3025
Expected return on plan assets		(161	)		(~~221~~161	)		-			-
Amortization of losses (gains)		36			3337			(4157	)		(2142	)
Net periodic benefit expense (income)	$	31		$	(27	)	$	(16	)	$	9
Net periodic benefit (income) cost	$	(30	)	$	32		$	(57	)	$	(17	)

	Nine months ended September 30,
	Pension Benefits						Post-Retirement Benefits
(In thousands)	2019			2018			2019			2018
Service cost	$	78		$	78		$	-		$	-
Interest cost		390			419			76			88
Expected return on plan assets		(484	)		(728	)		-			-
Amortization of losses (gains)		110			153			(125	)		(61	)
Curtailment loss		-			306			-			-
Net periodic benefit expense (income)	$	94		$	228		$	(49	)	$	27

~~Note~~ ~~17.~~Table ~~Stockholders’~~of ~~Equity~~Contents

Note 15. Stockholders’ Equity

Common Stock

At the consummation of the Contribution and Exchange, the Company issued 7,335,018 shares of its Class A common stock to Turning Point shareholders, in exchange for 9,842,373 shares of Turning Point stock, and 857,714 shares of its Class A common stock, in exchange for the Company’s outstanding common stock. The Company also issued 13,700 shares of Class A common stock to holders of the Company’s restricted stock, which vested at the time of the Contribution and Exchange. Following the consummation of the Contribution and Exchange, the Company distributed a dividend of one share of Class B common stock for each outstanding share of Class A common stock, for a total issuance of 8,190,166 shares of Class B common stock. In addition, under the Fifth Amended and Restated Certificate of Incorporation, which became effective at the time of the Contribution and Exchange, the number of authorized shares of the Company’s common stock, $0.01 par value per share, was increased from 50,000,000 to 330,000,000, of which 300,000,000 are Class A common stock and 30,000,000 are Class B common stock.

36The Company has two classes of common stock, Class A and Class B; shares of Class B common stock are convertible into shares of Class A common stock at any time, on a one-for-one basis. Shares of Class A common stock and Class B common stock have the same rights and powers, rank equally, share ratably and are identical in all respects and as to all matters, except that (i) each share of Class B common stock shall have the right to 10 votes per share and (ii) the shares of Class B common stock shall be convertible into shares of Class A common stock automatically upon the transfer of such shares of Class B common stock, with certain exceptions, or upon the affirmative vote of holders of two-thirds of the then outstanding shares of Class B common stock or voluntarily by the holder of such shares of Class B common stock.

~~Table~~The Sixth Amended and Restated Certificate of ~~Contents~~Incorporation was approved by the Company’s stockholders by partial written consent on July 14, 2017, and in accordance with the rules of the Securities and Exchange Commission and Delaware corporation law regarding approval by partial written consent, became effective when filed with the Secretary of State of the State of Delaware on August 18, 2017.

~~The~~Preferred Ninth Amended and Restated Certificate of Incorporation was approved by the Company’s stockholders by partial written consent on July 14, 2017, and in accordance with the rules of the Securities and Exchange Commission and Delaware corporation law regarding approval by partial written consent, became effective when filed with the Secretary of State of the State of Delaware on August 18, 2017.Stock

On May 30, 2017, under the Fifth Amended and Restated Certificate of Incorporation, the Company increased the number of authorized shares of the Company’s Preferred Stock, $0.01 par value per share, from 19,664,362 to 50,000,000, all of which is designated as blank check preferred stock. No changes with respect to preferred stock were made in the Sixth Amended and Restated Certificate of Incorporation.

Common Stock Repurchase Program

On June 29, 2017, the Company’s Board of Directors (the “Board”) authorized a program, effective immediately, to repurchase shares of the Company’s Class A common stock or Class B common stock, ~~par~~ par value $0.01 per share, constituting, in the aggregate, up to 5% of the outstanding shares of ~~Common~~common ~~Stock~~stock. Shares of ~~Common~~common ~~Stock~~stock may be repurchased in the open market or through negotiated transactions. The program may be terminated or ~~suspended~~ suspended at any time at the discretion of the Company.

The time of purchases and the exact number of shares to be purchased, if any, will depend on market conditions. The repurchase program does not include specific price targets or timetables. The Company intends to finance the purchases using available working capital.

Pursuant to this program, repurchases of 9150,~~552~~000 shares of common stock were made during the three months ended ~~September~~March 3031, ~~2019~~2020 for a cost of $10.27 million at an average price of $14.15 per share. During the ~~nine~~ three months ended ~~September~~March 3031, 2019, ~~repurchases of 131~~40,~~652~~100 shares ~~of common stock~~ were ~~made~~repurchased for a cost of $10.86 million. Noat ~~shares~~an ofaverage ~~common~~price ~~stock were repurchased during the three or nine months ended September 30, 2018. As~~ of ~~December 31, 2018,~~ $014.802 ~~million~~per ~~was included in accrued liabilities on the condensed consolidated balance sheets for unsettled repurchases~~share.

~~Equity Issuance~~33

In January 2018, the Company issued 181,825 shares of its Class A common stock in a private placement for gross proceeds of $2.0 million.

In March 2018, the Company granted 18,834 shares of restricted stock with immediate vesting to individuals for services performed. These shares were granted outside of the Company’s 2017 Omnibus Equity Compensation Plan.

Dividends paid by Turning Point

On November 9, 2017, the Board of Directors of Turning Point approved the initiation of a cash dividend to its shareholders. During the nine months ended September 30, 2019, Turning Point paid or accrued dividends of $1.4 million to its shareholders other than SDI. The most recent dividend was paid on October 11, 2019 to shareholders of record at the close of business on September 20, 2019.

Dividends are classified as restricted payments within the 2018 Credit Facility. Turning Point is generally permitted to make restricted payments provided that, at the time of payment, or as a result of payment, Turning Point is not in default on its debt covenants. Additional restrictions limit the aggregate amount of restricted, quarterly dividends during a fiscal year to the aggregate amount of mandatory and voluntary principal payments made on the priority term loans during the fiscal year.

Note 18. Share-Based Compensation

On June 9, 2017, the Company’s Board adopted the 2017 Omnibus Equity Compensation Plan (the “2017 Plan”) in order to provide employees of the Company and its subsidiaries, certain consultants and advisors who perform services for the Company or its subsidiaries, and non-employee members of the Board of the Company with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, and other stock-based awards. The Board authorized 1,000,000 shares of the Class A Common Stock of the Company to be issued under the Plan. The Plan was approved by the Company’s stockholders by partial written consent on July 14, 2017, and in accordance with the rules of the Securities and Exchange Commission and Delaware corporation law regarding approval by partial written consent, became effective on August 17, 2017. As of September 30, 2019, the Company had 982,183 shares available for grant under the 2017 Plan.

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Treasury Stock

During the three months ended March 31, 2020, the Company retired 131,183 shares of Class A treasury stock, 81,183 of which were included in Class A treasury stock at December 31, 2019. As of March 31, 2020, the Company had no shares remaining in treasury stock.

Turning Point Dividends and Share Repurchase

Turning Point’s most recent dividend of $0.05 per common share was paid on April 10, 2020, to shareholders of record at the close of business on March 20, 2020.

On February 25, 2020, Turning Point’s Board of Directors approved a $50.0 million share repurchase authorization, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The authorization is subject to the ongoing discretion of the Turning Point Board of Directors. The total number of Turning Point shares repurchased during the three months ended March 31, 2020 was 134,130 shares for a total cost of $2.6 million and an average price per share of $19.59.

Note 16. Share-Based Compensation

On June 9, 2017, the Company’s Board of Directors adopted the 2017 Omnibus Equity Compensation Plan (the “2017 Plan”) in order to provide employees of the Company and its subsidiaries, certain consultants and advisors who perform services for the Company or its subsidiaries, and non-employee members of the Board of the Company with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, and other stock-based awards. The Board authorized 1,000,000 shares of the Class A common stock of the Company to be issued under the Plan. The Plan was approved by the Company’s stockholders by partial written consent on July 14, 2017, and in accordance with the rules of the Securities and Exchange Commission and Delaware corporation law regarding approval by partial written consent, became effective on August 17, 2017. As of March 31, 2020, the Company had 982,183 shares available for grant under the 2017 Plan.

The Company also has an Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 26,447 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP. The Company’s ESPP is compensatory and therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP. The Company issues new shares to satisfy shares purchased under the ESPP.

Including the share-based compensation expense of SDI’s subsidiaries, the Company recorded share-based compensation expense of $~~1.2 million and $~~0.56 million recorded for the three months ended ~~September~~ ~~30,~~March ~~2019 and 2018~~31, ~~respectively.~~2020 ~~For the nine months ended September 30, 2019~~ and ~~2018, the Company recorded share-based compensation expense of $3~~2019.0 ~~million and $1.7 million, respectively.~~ This expense is a component of selling, general and administrative expense in the condensed consolidated statements of income (loss).

No options of SDI were exercised during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019~~2020 ~~and~~or ~~2018~~2019.

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Information with respect to the adjusted activity of outstanding stock options is summarized as follows:

	Number of Shares			Price Range				~~Weighted Average Remaining Contractual term~~	Weighted Average Remaining Contractual term
Balance, January 1, 2019		2,463		$	31.00	$	46.25
Balance, January 1, 2020		2,463		$	31.00	$	46.25
Cancelled		-(1,063	)		-45.25		-46.25
Balance, September 30, 2019		2,463		$	31.00	$	46.25	3.1 years
Balance, March 31, 2020		1,400			31.00		31.25		1.1 years
Vested and exercisable at September 30, 2019		2,463		$	31.00	$	46.25	3.1 years
Vested and exercisable at March 31, 2020		1,400		$	31.00	$	31.25		1.1 years

The following table provides additional information about the Company’s stock options outstanding and exercisable as of ~~September~~March 3031, ~~2019~~2020:

		Options Outstanding and Exercisable
			Options Outstanding and exercisable
					~~Weighted Average~~	Weighted Average
Range of Exercise Prices		~~Number of Shares~~	Number of Shares		~~Remaining Contractual Life~~	Remaining Contractual Life				~~Exercise Price~~	Exercise Price
$ 31.00 - $ 31.25			1,400			4.6		years		$	31.18
$	31.00 - $31.25			1,400			1.1		Years		$	31.18
$ 45.25 - $46.25			1,063			1.2		years			45.63
$ 31.00 - $46.25			2,463			3.1		years		$	37.41

The Company grants restricted stock awards (“RSA”) which is the right to receive shares. The fair value of RSAs is based on the market price for the stock at the date of grant.

38The following table summarizes the changes in non-vested RSAs for the three months ended March 31, 2020:

	Shares		Weighted Average Grant Date Fair Value
Non-vested RSAs at January 1, 2020		64,714	$	11.02
Granted		-		-
Vested		-		-
Cancelled/Forfeited		-		-
Non-vested RSAs at March 31, 2020		64,714	$	11.02

As of March 31, 2020, there was $0.3 million of total unrecognized stock-based compensation expense, related to restricted stock awards, which will be recognized over the weighted-average remaining vesting period of 0.4 years.

Turning Point Share Incentive Plans

On April 28, 2016, the Board of Directors of Turning Point adopted the Turning Point Brands, Inc., 2015 Equity Incentive Plan (the “2015 Plan”), pursuant to which awards may be granted to employees, non-employee directors, and consultants. In addition, the 2015 Plan provides for the granting of nonqualified stock options to employees of Turning Point or any subsidiary of Turning Point. Pursuant to the 2015 Plan, 1,400,000 shares of Turning Point’s voting common stock are reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or future services or the attainment of certain performance goals. The 2015 Plan is scheduled to terminate on April 27, 2026. The 2015 Plan is administered by a committee (the “Committee”) of Turning Point’s Board of Directors. The Committee determines the vesting criteria for the awards, with such criteria to be specified in the award agreement. As of March 31, 2020, net of forfeitures, there were 16,159 shares of restricted stock, 440,232 performance-based restricted stock units, and 613,832 options granted under the 2015 Plan. There are 329,777 shares available for grant under the 2015 Plan.

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~~The~~On ~~following~~February ~~table~~8, ~~summarizes~~2006, the ~~changes~~Board inof ~~non-vested~~Directors ~~RSAs~~of Turning Point adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding Company, Inc., pursuant to which awards may be granted to employees. The 2006 Plan provides for the ~~nine~~granting ~~months~~of ~~ended~~nonqualified ~~September~~stock 30options and restricted stock awards to employees. Upon the adoption of Turning Point’s 2015 Equity Incentive Plan in connection with its IPO, ~~2019:~~Turning Point determined no additional grants would be made under the 2006 Plan. However, all awards issued under the 2006 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected.

	Shares			Weighted Average Grant Date Fair Value
Non-vested RSAs at January 1, 2019		127,005		$	10.96
Granted		6,747			14.45
Vested		(44,107	)		11.28
Cancelled/Forfeited		(4,779	)		13.34
Non-vested RSAs at September 30, 2019		84,866		$	10.94

There are no shares available for grant under the 2006 Plan. Stock option activity for the 2006 and 2015 Plans is summarized below:

As of September 30, 2019, there was $0.6 million of total unrecognized stock-based compensation expense, related to restricted stock awards, which will be recognized over the weighted-average remaining vesting period of one year.

	Stock Option Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2018		659,574		$	9.00	$	3.34

Granted		180,780			43.89		14.34
Exercised		(129,067	)		5.72		2.58
Forfeited		(14,571	)		34.55		11.10
Outstanding, December 31, 2019		696,716			18.13		6.17

Granted		155,000			14.85		4.41
Exercised		(42,407	)		5.36		2.50
Forfeited		(406	)		34.27		11.07
Outstanding, March 31, 2020		808,903		$	18.16	$	6.03

~~Note~~Under 19the 2006 and 2015 Plans, the total intrinsic value of options exercised during the three months ended March 31, 2020 and 2019, was $0.9 ~~Income~~million, ~~Taxes~~and $0.8 million, respectively.

InAt ~~December~~March ~~2017~~31, ~~the~~2020, ~~U.S.~~under ~~Congress~~the ~~passed~~2006 Plan, the ~~Tax~~outstanding ~~Cuts~~stock ~~and~~options’ ~~Jobs~~exercise ~~Act~~price ~~(“TCJA”)~~for ~~which~~273,247 ~~the~~options ~~President~~is ~~signed~~$3.83 inper ~~the~~share, ~~same~~all ~~month~~of which are exercisable. The ~~TCJA~~weighted ~~reduced~~average of the ~~corporate~~remaining lives ~~income~~of ~~tax~~the ~~rate~~outstanding tostock ~~21%,~~options ~~effective January~~with 1,an ~~2018~~exercise price of $3.83 ~~Other~~is ~~significant~~approximately ~~changes~~3.28 ~~accompanying~~years. ~~the~~Turning ~~corporate~~Point ~~income~~estimates ~~tax~~the ~~rate~~expected ~~reduction~~life ~~include~~of ~~eliminating~~these ~~the~~stock ~~corporate~~options ~~alternative~~is ~~minimum~~ten ~~tax,~~years ~~limiting~~from the ~~interest~~date ~~expense~~of ~~deduction~~grant. toFor ~~30%~~the of$3.83 ~~adjusted~~per ~~taxable~~share ~~income~~options, ~~and~~the ~~limiting~~weighted ~~net~~ average ~~operating~~fair ~~losses~~value toof ~~80%~~options ofwas ~~taxable~~determined ~~income~~using ~~for~~the ~~losses~~Black-Scholes ~~arising~~model inassuming ~~tax~~a ~~years~~ten-year ~~beginning~~life ~~after~~from ~~2017.~~grant ~~The~~date, ~~TCJA~~a ~~required~~current ~~the~~share ~~Company~~price toand ~~remeasure~~exercise ~~its~~price ~~deferred~~of ~~tax~~$3.83, ~~assets~~a ~~and~~risk-free ~~liabilities~~interest atrate ~~the~~of ~~newly~~3.57%, ~~enacted~~volatility ~~tax~~of ~~rate~~40%, inand ~~December~~no ~~2017~~assumed dividend yield. Based on these assumptions, the ~~period~~fair value of ~~enactment~~ these options is approximately $2.17 per share option granted.

~~SDI~~At ~~has~~March ~~recorded~~31, a2020, ~~full~~under ~~valuation~~the ~~allowance~~2015 asPlan, ofthe ~~September~~risk-free ~~30,~~interest ~~2019,~~rate ~~offsetting~~is ~~its~~based on the U.S. ~~federal~~Treasury ~~and~~rate ~~state~~for ~~net~~the ~~deferred~~expected ~~tax~~life ~~assets~~at ~~which~~the ~~primarily~~time ~~represent~~of ~~net operating loss carry forwards (“NOLs”)~~grant. AsThe ofexpected ~~September~~volatility ~~30,~~is ~~2019,~~based on the ~~Company’s~~average long-term ~~management~~historical ~~concluded,~~volatilities ~~based~~of ~~upon~~peer ~~the~~companies. ~~evaluation~~Turning ofPoint ~~all~~intends ~~available~~to ~~evidence,~~continue ~~that~~to itconsistently isuse ~~more~~the ~~likely~~same ~~than~~group ~~not~~of ~~that~~publicly ~~the~~traded ~~U.S.~~peer ~~federal~~companies ~~and~~to ~~state~~determine ~~net~~expected ~~deferred~~volatility ~~tax~~until ~~assets~~sufficient ~~will~~information ~~not~~regarding bevolatility ~~realized. Due~~of toour ~~the~~ share ~~reverse~~price ~~acquisition~~becomes ~~transaction~~available ~~with~~or ~~Turning~~until ~~Point,~~ the ~~Company~~selected ~~determined~~companies ~~that~~are ~~SDI~~no ~~has~~longer ~~experienced~~suitable afor ~~“change~~this inpurpose. ~~control”~~Due asto ~~defined~~Turning inPoint’s ~~Internal~~limited ~~Revenue~~trading ~~Code Section 382~~history, ~~which~~it ~~will~~is ~~result~~using inthe ansimplified ~~annual~~method ~~limitation~~presented onby ~~SDI’s~~SEC ~~utilization~~Staff ~~of NOLs~~Accounting inBulletin ~~future periods~~No. ~~The~~107 ~~Company~~to ~~completed~~calculate expected ~~the~~holding ~~evaluation~~periods, ofwhich represent the ~~effects~~periods of ~~Section~~time ~~382~~for onwhich ~~SDI’s~~options ~~future~~granted ~~utilization~~are ofexpected ~~its~~to ~~NOLs,~~be ~~and~~outstanding. ~~determined~~Turning ~~that~~Point ~~the~~will ~~Company~~continue ~~will~~to beuse ~~limited~~this tomethod ~~$10.6~~until ~~million~~it ofhas ~~its~~sufficient ~~$33.0~~historical ~~million~~exercise ~~pre-2018~~experience ~~NOLs~~to ~~over~~give ~~the~~it confidence in ~~next~~ the 20reliability ~~years~~of its calculations. ~~All~~The ~~NOLs~~fair ~~generated~~values ~~after~~of ~~December~~these ~~31,~~options ~~2017~~were ~~have~~determined anusing ~~indefinite~~the ~~life~~Black-Scholes option pricing model.

The Company’s income tax expense for the three and nine months ended September 30, 2019 was $2.2 million and $6.6 million, respectively. The Company’s income tax expense for the three and nine months ended September 30, 2018 was $1.4 million and $4.2 million, respectively. Turning Point’s effective income tax rate for the three and nine months ended September 30, 2019 was 26% and 21%, respectively, which includes discrete tax deduction of $0.1 million and $4.6 million for the three and nine months ended September 30, 2019, respectively, relating to stock option exercises. Turning Point’s effective income tax rate for the three and nine months ended September 30, 2018, was 15% and 17%, respectively, which includes discrete tax deductions of $3.3 million and $5.2 million for the three and nine months ended September 30, 2018, respectively, relating to stock option exercises.36

The Company follows the provisions of ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has determined that the Company did not have any uncertain tax positions requiring recognition under the provisions of ASC 740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of interest expense. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state tax examinations for years prior to 2015.

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AsThe afollowing ~~part~~table ofoutlines the ~~Company’s~~assumptions ~~impairment~~based of other indefinite lived intangible assets as described more fully in Note 11, “Goodwill and Intangible Asset Impairments,” the Company reversed its deferred tax liability recorded as a part of the purchase of Maidstone during the nine months ended September 30, 2019. The reversal decreased deferred income taxes by $0.4 million on the ~~condensed~~number ~~consolidated balance sheet as~~ of ~~September~~options ~~30, 2019~~granted ~~and~~under ~~provided an income tax benefit of $0.4 million to~~ the ~~condensed~~2015 ~~consolidated statements of income (loss) for the nine months ended September 30, 2019~~Plan.

Note 20. Contingencies

	February 10, 2017			May 17, 2017			March 7, 2018			March 13, 2018			March 20, 2019			October 24, 2019			March 18, 2020
Number of options granted		40,000			93,819			98,100			26,000			155,780			25,000			155,000
Options outstanding at March 31, 2020		28,700			66,572			86,792			26,000			147,592			25,000			155,000
Number exercisable at March 31, 2020		28,700			66,572			58,298			26,000			50,262			8,250			-
Exercise price	$	13.00		$	15.41		$	21.21		$	21.49		$	47.58		$	20.89		$	14.85
Remaining lives		6.87			7.13			7.94			7.96			8.98			9.57			9.97
Risk free interest rate		1.89	%		1.76	%		2.65	%		2.62	%		2.34	%		1.58	%		0.79	%
Expected volatility		27.44	%		26.92	%		28.76	%		28.76	%		30.95	%		31.93	%		35.72	%
Expected life		6.000			6.000			6.000			5.495			6.000			6.000			6.000
Dividend yield		-			-			0.83	%		0.82	%		0.42	%		0.95	%		1.49	%
Fair value at grant date	$	3.98		$	4.60		$	6.37		$	6.18		$	15.63		$	6.27		$	4.41

Turning Point has recorded compensation expense related to the options based on the provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the options on the date of grant and amortized over the vesting period. Turning Point recorded compensation expense related to the options of approximately $0.2 million for the three months ended March 31, 2020 and 2019. Total unrecognized compensation expense related to options at March 31, 2020, is $1.5 million, which will be expensed over 2.14 years.

Turning Point Performance-Based Restricted Stock Units (“PRSUs”)

PRSUs are restricted stock units subject to both performance-based and service-based vesting conditions. The number of common stock shares a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to Turning Point’s performance over a five-year period. PRSUs will vest on the measurement date, which is no more than 65 days after the performance period (provided the applicable service and performance conditions are satisfied. As of March 31, 2020 there are 440,232 PRSUs outstanding, all of which are unvested. The following table outlines the PRSUs granted and outstanding as of March 31, 2020.

	March 31, 2017		March 7, 2018		March 20, 2019		March 20, 2019		July 19, 2019		March 18, 2020
Number of PRSUs granted		94,000		96,000		92,500		4,901		88,582		90,000
PRSUs outstanding at March 31, 2020		83,000		93,000		85,650		-		88,582		90,000
Fair value as of grant date	$	15.60	$	21.21	$	47.58	$	47.58	$	52.15	$	14.85
Remaining lives		1.75		2.75		3.75		-		2.75		4.75

Turning Point recorded compensation expense related to the PRSUs of approximately $0.2 million in the condensed consolidated statements of loss for the three months ended March 31, 2020 and 2019, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards at March 31, 2020, is $9.0 million which will be expensed over the service periods based on the probability of achieving the performance condition.

Note 17. Income Taxes

On June 1, 2017, SDI consummated the Contribution and Exchange to acquire a 52.1% controlling interest in Turning Point. This acquisition was a reverse acquisition, with Turning Point as the accounting acquirer. Accordingly, the historical financial statements of Turning Point through May 31, 2017 became the Company’s historical financial statements, including the comparative prior periods. However, SDI’s controlling interest does not meet the ownership threshold to file a consolidated federal tax return with Turning Point. Therefore, the parent company will continue to file a separate federal tax return apart from Turning Point.

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SDI has recorded a full valuation allowance as of March 31, 2020, offsetting its U.S. federal and state net deferred tax assets which primarily represent net operating loss carry forwards (“NOLs”). As of March 31, 2020, the Company’s management concluded, based upon the evaluation of all available evidence, that it is more likely than not that the U.S. federal and state net deferred tax assets will not be realized. Due to the reverse acquisition transaction with Turning Point, the Company determined that SDI has experienced a “change in control” as defined in Internal Revenue Code Section 382, which will result in an annual limitation on the Company’s utilization of NOLs in future periods. The Company completed the evaluation of the effects of Section 382 on SDI’s future utilization of its NOLs, and determined that the Company will be limited to $10.6 million of its $33.0 million pre-2018 NOLs over the next 20 years. All NOLs generated after December 31, 2017 have an indefinite life.

The Company’s income tax expense for the three months ended March 31, 2020 and 2019 was $0.9 million and $1.8 million, respectively, which is comprised entirely of Turning Point’s income tax expense. Turning Point’s effective income tax rate for the three months ended March 31, 2020, was 22.4% which includes a discrete tax deduction of $0.7 million for the three months ended March 31, 2020, relating to stock option exercises. Turning Point’s effective income tax rate for the three months ended March 31, 2019, was 21.3%, which includes a discrete tax deduction of $0.9 million for the three months ended March 31, 2019, relating to stock option exercises. In connection with the approval of the Order of Liquidation and the disposal of the Insurance segment, the Company reclassified a $0.4 million income tax benefit from the first quarter 2019 to discontinued operations. See Note 3, “Discontinued Operations” for further information.

Note 18. Contingencies

The Company is a party from time to time to various proceedings in the ordinary course of business. For a description of the Master Settlement Agreement, to which the Company is a party, see Note 2, “Summary of Significant Accounting Policies.” Other than the proceedings mentioned below, there is no material litigation, arbitration or governmental proceeding currently pending against the Company or any of its officers or directors in their capacity as such, and the Company and its officers and directors have not been subject to any such proceeding.

Turning Point

Turning Point is subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or consumption of e-liquids and may be subject to claims in the future ~~relating~~ relating to other NewGen products. Turning Point is still evaluating these claims and the potential defenses to them. For example, Turning Point did not design or manufacture the products at issue; rather, itTurning Point was merely the distributor. Nonetheless, there can be no assurance that Turning Point will prevail in these cases, and they could have a material adverse effect on the financial position, results of operations, or cash flows of Turning Point.

Turning Point has several subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products. As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. Turning Point expects that its subsidiaries will be subject to some such cases and information requests. In the acquisition of the vapor businesses, Turning Point negotiated financial “hold-backs”, which it expects to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits. To the extent that litigation becomes necessary, Turning Point believes that the subsidiaries have strong factual and legal defenses against claims that it unfairly marketed vapor products.38

On October 8, 2019, the City of New York filed a complaint against twenty-three companies, including IVG and VaporFi, making various allegations including selling to consumers over the age of 18 but under 21. In response, those subsidiaries have ceased all sales into New York City, which was an immaterial market for those businesses. The complaint has not been served on Turning Point’s subsidiaries. If the complaint is served, Turning Point believes that there are strong defenses and expect that the subsidiaries will vigorously defend the claims. Nonetheless, there can be no assurance that the subsidiaries will prevail, and an adverse result could have a material adverse effect on Turning Point’s business and results of operations.

Maidstone

Maidstone is a party to lawsuits arising in the normal course of its business. These lawsuits generally seek to establish liability under insurance policies and occasionally seek punitive damages. In the opinion of the Company’s management, none of the cases, individually or collectively, are likely to result in judgments for amounts, after considering established loss reserves and reinsurance, which would have a material adverse effect on the Company’s financial condition or results of operations.

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~~The~~Turning ~~Company~~Point’s ~~has~~franchisors ~~experienced~~are ~~continuing~~defendants ~~losses~~from intime ~~its~~to ~~Insurance~~time ~~segment,~~in ~~primarily~~the ~~driven~~ordinary bycourse ~~increases~~of inbusiness. ~~losses~~In ~~and~~certain ~~loss~~of ~~adjustment~~these ~~expenses~~cases, ~~along with~~ the ~~full~~amounts ~~impairment~~ of ~~its~~punitive ~~goodwill~~ and ~~other~~ ~~intangible~~compensatory ~~asset~~damages ~~balances.~~sought ~~The~~are ~~Company~~significant. One ~~has~~of noTurning ~~plans~~Point’s tosubsidiary’s ~~contribute~~is ~~additional~~a ~~capital~~defendant toin ~~its~~a ~~Insurance~~lawsuit ~~segment~~brought ~~and~~by ~~anticipates~~a itfranchisee, ~~will~~which ~~continue~~claim tohas ~~incur~~been ~~losses~~filed ~~for~~but ~~the~~not ~~foreseeable~~yet ~~future~~served. In ~~August~~that ~~2019~~case, ~~Maidstone consented to~~ the ~~entry~~franchisee ~~of an~~is ~~order~~seeking ofcompensatory ~~liquidation~~and ~~pursuant~~punitive todamages ~~Article~~and 74rescission of ~~the~~their ~~New~~franchise agreement, ~~York~~alleging ~~Consolidated~~that ~~Insurance~~Turning ~~Law~~Point’s ~~(“Order~~subsidiaries offailed ~~Liquidation”)~~to ~~with~~make ~~the~~certain ~~New~~disclosures ~~York~~in ~~State~~the ~~Department~~Franchise ofDisclosure ~~Financial~~Document. ~~Services~~The ~~(the~~subsidiary ~~“NYSDFS”)~~is ~~and~~evaluating ~~began~~these ~~to negotiate~~claims, the ~~terms~~potential ofdefenses ~~the~~to ~~Order~~them ofas ~~Liquidation~~well ~~with~~as ~~the~~available ~~NYSDFS~~counterclaims. AsThe subsidiary ofbelieves ~~September~~that ~~30,~~termination ~~2019,~~of the ~~NYSDFS~~franchise ~~has~~agreement ~~not~~was ~~yet~~proper, ~~filed~~no ~~its~~damages ~~petition~~are ~~for~~due ~~the~~and ~~entry of an Order of Liquidation. If~~ the ~~entry~~franchisee ofis ~~the~~bound ~~Order~~by ofan ~~Liquidation~~arbitration isagreement ~~approved,~~pursuant ~~the Company expects~~ to bethe ~~relieved~~terms of ~~all~~their ~~the~~franchise ~~assets~~agreement and ~~liabilities~~the ofFranchise ~~Maidstone~~Disclosure byDocument ~~the~~(and therefore ~~New~~it ~~York~~was ~~State~~improper ~~Liquidation~~to ~~Bureau~~pursue ~~(“Liquidation Bureau”~~litigation). ~~These~~There ~~condensed~~can ~~consolidated~~be ~~financial~~no ~~statements~~assurance ~~do not include any adjustments~~ that ~~might~~Turning ~~result~~Point ~~from~~subsidiary ~~the outcome~~will ofprevail ~~these~~in ~~uncertainties~~this case, and ~~such~~it ~~adjustments~~ could behave a material toadverse ~~the~~effect ~~Company~~on Turning Point’s ~~financial~~business ~~position~~ and results of operations.

~~Concentrations~~Turning Point has several subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products. As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. Turning Point has subsidiaries that are subject to some information requests. In the acquisition of the vapor businesses, Turning Point negotiated financial “hold-backs”, which it expects to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits as well as the franchisee lawsuit. To the extent that litigation becomes necessary, Turning Point believes that the subsidiaries have strong factual and legal defenses against claims that it unfairly marketed vapor products.

~~Maidstone~~Note ~~primarily wrote personal automobile and homeowner’s insurance in New York~~19. ~~Maidstone’s~~Earnings ~~financial~~Per position, results of operations and cash flows are susceptible to risks as a result of these concentrations. In addition, Maidstone wrote a significant amount of business through brokers and a credit risk exists should any of these brokers be unable to fulfill their obligations with respect to the payment of insurance balances. Since April 1 and July 1, 2019, Maidstone is no longer writing new personal automobile and homeowner’s insurance policies, respectively. As prescribed by section 3425 of the New York Insurance Law, Maidstone continues to write renewal policies for existing personal automobile and homeowner’s insurance policyholders.Share

~~The~~Basic ~~creditworthiness~~net of(loss) ~~the~~income ~~counterparty~~per share is ~~evaluated~~computed byusing ~~Maidstone,~~the ~~taking~~weighted-average ~~into~~number ~~account~~of ~~credit~~common ~~ratings~~shares ~~assigned~~outstanding byduring ~~independent~~the ~~agencies~~period. ~~The~~Diluted ~~credit~~net ~~approval~~loss ~~process~~per ~~involves~~share anis ~~assessment~~computed ofusing the weighted-average ~~factors,~~ number ~~including,~~of ~~among~~common ~~others,~~shares and the ~~counterparty,~~weighted ~~country~~average ~~and~~effect ~~industry~~of ~~credit~~potentially ~~exposure~~dilutive ~~limits~~securities outstanding during the period. ~~Collateral~~Potentially ~~may~~dilutive besecurities ~~required,~~consist atof stock options and restricted stock awards and the ~~discretion~~dilutive effect of ~~the~~such ~~Company,~~awards onis reflected ~~certain~~in ~~transactions~~diluted ~~based~~earnings onper ~~the~~share ~~creditworthiness~~by application of the ~~counterparty~~treasury stock method.

Maidstone’s fixed income investment portfolio is managed in accordance with guidelines that have been tailored to meet specific investment strategies, including standard of diversification, which limit the allowable holdings to any single issue.

Note 21. Legal Settlement

Turning Point engaged in discussions and mediation with VMR Products LLC (“VMR”), which was acquired in 2018. Pursuant to a Distribution and Supply Agreement (“VMR Agreement”), VMR was providing Turning Point with V2 e-cigarettes for the exclusive distribution in bricks-and-mortar stores in the United States. Under the terms of the VMR Agreement, in the event of termination following a change in control, the acquirer was required to make a payment to Turning Point under a formula designed to provide Turning Point with a fair share of the value created by Turning Point’s performance under the VMR Agreement. The discussions have been completed and Turning Point received $6.7 million in the second quarter of 2019 to settle the issue. Net of legal costs and reserves for anticipated future returns associated with the discontinuance, Turning Point recorded a $5.5 million gain in the second quarter, which was recorded as a reduction to selling, general, and administrative expenses.

Note 22. Earnings Per Share

The Company has two classes of common stock, Class A and Class B; shares of Class B common stock are convertible into shares of Class A common stock at any time, on a one-for-one basis. Shares of Class A common stock and Class B common stock have the same rights and powers, rank equally, share ratably and are identical in all respects and as to all matters, except that (i) each share of Class B common stock shall have the right to 10 votes per share and (ii) the shares of Class B common stock shall be convertible into shares of Class A common stock automatically upon the transfer of such shares of Class B common stock, with certain exceptions, or upon the affirmative vote of holders of two-thirds of the then-outstanding shares of Class B common stock or voluntarily by the holder of such shares of Class B common stock.

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Diluted earnings per share is calculated similarly to basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under the Company’s stock incentive plans and the Company’s unvested restricted stock awards.

~~Basic~~The ~~net~~following ~~income~~tables ~~(loss)~~set ~~per~~forth ~~share is computed using~~ the ~~weighted-average~~computation ~~number~~ of ~~common~~basic ~~shares~~and ~~outstanding~~diluted ~~during the period. Diluted~~ net ~~income (~~loss) per share ~~is computed using the weighted-average number~~ of ~~common~~Class ~~shares~~A and ~~the~~Class ~~weighted~~B ~~average~~common ~~effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of~~ stock ~~options and restricted stock awards and the dilutive effect of such awards is reflected in diluted earnings per share by application of the treasury stock method.~~:

The following tables set forth the computation of basic and diluted net income (loss) per share of Class A and Class B common stock:

	Three Months Ended March 31,
(In thousands, except share and per share amounts)	2020			2019
Basic net (loss) income per common share calculation:
Net (loss) income form continuing operations attributable to SDI	$	(1,605	)	$	440
Loss from discontinued operations		(1,712	)		(3,983	)
Net loss attributable to SDI		(3,317	)		(3,543	)

Weighted average Class A common shares outstanding – basic		8,929,769			9,070,542
Weighted average Class B common shares outstanding – basic		7,699,580			7,793,079
Weighted average common shares outstanding – basic		16,629,349			16,863,621
Net (loss) income from continuing operations attributable to SDI per share of common stock – basic		(0.10	)		0.03
Loss from discontinued operations attributable to SDI per share of common stock – basic		(0.10	)		(0.24	)
Net (loss) income attributable to SDI per share of common stock – basic	$	(0.20	)	$	(0.21	)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except share and per share amounts)	2019		2018		2019			2018
Basic net income (loss) per common share calculation:
Net income (loss) attributable to SDI	$	234	$	1,367	$	(2,347	)	$	5,417
Weighted average Class A common shares outstanding – basic		9,085,510		8,778,850		9,063,511			8,647,978
Weighted average Class B common shares outstanding – basic		7,744,622		7,898,562		7,752,647			7,970,845
Weighted average common shares outstanding – basic		16,830,132		16,677,412		16,816,158			16,618,823
Net income (loss) attributable to SDI per share of common stock – basic	$	0.01	$	0.08	$	(0.14	)	$	0.33

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except share and per share amounts)	2019			2018			2019			2018
Diluted net income (loss) attributable to SDI per common share calculation:
Net income (loss) attributable to SDI	$	234		$	1,367		$	(2,347	)	$	5,417
Impact of subsidiary dilutive securities (1)		(90	)		(93	)		(74	)		(233	)
Net income (loss) attributable to SDI - diluted	$	144		$	1,274		$	(2,421	)	$	5,184
Weighted average Class A common shares outstanding – basic		9,085,510			8,778,850			9,063,511			8,647,978
Weighted average Class B common shares outstanding – basic		7,744,622			7,898,562			7,752,647			7,970,845
Dilutive impact of stock options and restricted stock awards		47,558			64,248			-			42,986
Weighted average common shares outstanding – diluted		16,877,690			16,741,660			16,816,158			16,661,809
Net income (loss) attributable to SDI per share of common stock – diluted	$	0.01		$	0.08		$	(0.14	)	$	0.31

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	Three Months Ended March 31,
(In thousands, except share and per share amounts)	2020			2019
Diluted net (loss) income attributable to SDI per common share calculation:
Net (loss) income from continuing operations attributable to SDI	$	(1,605	)	$	440
Loss from discontinued operations attributable to SDI		(1,712	)		(3,983	)
Impact of subsidiary dilutive securities ⁽¹⁾		(63	)		(80	)
Net loss attributable to SDI - diluted		(3,380	)		(3,623	)

Weighted average Class A common shares outstanding – basic		8,929,769			9,070,542
Weighted average Class B common shares outstanding – basic		7,699,580			7,793,079
Dilutive impact of stock options and restricted stock awards		-			44,026
Weighted average common shares outstanding – diluted		16,629,349			16,907,647
Net (loss) income from continuing operations attributable to SDI per share of common stock – diluted		(0.10	)		0.02
Loss from discontinued operations attributable to SDI per share of common stock – diluted		(0.10	)		(0.24	)
Net loss attributable to SDI per share of common stock – diluted ⁽²⁾	$	(0.20	)	$	(0.21	)

(1)

The Company records an adjustment to net income (loss) in the relevant period for the dilutive impact of subsidiary stock-based awards on the Company’s reported net income (loss) for purposes of calculating net income (loss) per share.

~~For the three and nine months ended September 30, 2019 and 2018,~~ (2~~,463~~) ~~stock~~Amounts ~~options~~may ~~have~~not ~~been~~add ~~excluded~~due ~~from~~to ~~the computation of diluted weighted average shares outstanding, as they are anti-dilutive~~rounding.

42For the three months ended March 31, 2020 and 2019, 1,400 and 2,463 stock options, respectively, have been excluded from the computation of diluted weighted average shares outstanding, as they are anti-dilutive.

Note 20. Segment Information

In accordance with ASC 280, Segment Reporting, the Company has four reportable segments. Three of the Company’s segments are also those of Turning Point: (1) Smokeless products; (2) Smoking products; and (3) NewGen products. The Smokeless products segment (a) manufactures and markets moist snuff and (b) contracts for and markets chewing tobacco products. The Smoking products segment (a) markets cigarette papers, tubes, and related products; (b) markets and distributes finished cigars and MYO cigar wraps; and (c) processes, packages, markets, and distributes traditional pipe tobaccos. The NewGen products segment (a) markets and distributes e-cigarettes, e-liquids, vaporizers, and certain other products without tobacco and/or nicotine; (b) markets and distributes a wide assortment of vaping and CBD related products to non-traditional retail outlets via VaporBeast, Vapor Shark, IVG and Solace; and (c) markets and distributes a wide assortment of vapor and CBD related products to individual consumers via Vapor Shark and VaporFi branded retail outlets in addition to online platforms. Smokeless and Smoking products are distributed primarily through wholesale distributors in the United States while NewGen products are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the United States.

As of February 13, 2020, as a result of the approval of the Order of Liquidation, the Company reclassified its Insurance segment to discontinued operations. See Note 3, “Discontinued Operations” for further information.

The Company also reports an Other segment, which includes the results of operations of SDI and Standard Outdoor and assets of the consolidated Company not assigned to the four reportable segments, including Turning Point deferred taxes, deferred financing fees and Turning Point’s investments in subsidiaries. Elimination includes the elimination of intercompany accounts between segments.

The accounting policies of these segments are the same as those of the Company. Corporate costs of Turning Point are not directly charged to the three reportable segments in the ordinary course of operations. The Company evaluates the performance of its segments and allocates resources to them based on operating income.

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Note 23. Segment Information

In accordance with ASC 280, Segment Reporting, the Company has five reportable segments. Three of the Company’s segments are also those of Turning Point: (1) Smokeless products; (2) Smoking products; and (3) NewGen products. The Smokeless products segment (i) manufactures and markets moist snuff and (ii) contracts for and markets chewing tobacco products. The Smoking products segment (i) markets and distributes cigarette papers, tubes, and related products; (ii) markets and distributes finished cigars and MYO cigar wraps; and (iii) processes, packages, markets, and distributes traditional pipe tobaccos. The NewGen products segment (i) markets and distributes e-cigarettes, e-liquids, vaporizers, and certain other products without tobacco and/or nicotine; (ii) markets and distributes a wide assortment of vaping and Cannabidiol (“CBD”) related products to non-traditional retail outlets via VaporBeast, Vapor Shark, Vapor Supply, and IVG and Solace, and (iii) markets and distributes a wide assortment of vaping and CBD related products to individual consumers via Vapor Shark and VaporFi branded retail outlets in addition to online platforms. Smokeless and Smoking products are distributed primarily through wholesale distributors in the United States while NewGen products are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the United States. The Other segment includes the costs and assets of Turning Point not assigned to one of the three reportable segments such as intercompany transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.

Beginning in the first quarter of 2018, as a result of the acquisition of an insurance company, the Company has an additional segment, Insurance. The Insurance segment represents the Company’s property and casualty insurance business, operated through Maidstone, a New York domiciled seller of auto and personal lines.

The Company has experienced continuing losses in its Insurance segment, primarily driven by increases in losses and loss adjustment expenses, along with the full impairment of its goodwill and other intangible asset balances. The Company has no plans to contribute additional capital to its Insurance segment and anticipates it will continue to incur losses for the foreseeable future. In August 2019, Maidstone consented to the entry of an order of liquidation pursuant to Article 74 of the New York Consolidated Insurance Law (“Order of Liquidation”) with the New York State Department of Financial Services (the “NYSDFS”) and began to negotiate the terms of the Order of Liquidation with the NYSDFS. See Note 20, “Contingencies” for additional information.

The Company also reports an Other segment, which includes the results of operations of SDI and Standard Outdoor and assets of the consolidated Company not assigned to the five reportable segments, including Turning Point deferred taxes and deferred financing fees for the Revolving Credit Facility. Elimination includes the elimination of intercompany accounts between segments.

Accounting policies of these segments are the same as those of the Company. Corporate costs of Turning Point are not directly charged to the three reportable segments in the ordinary course of operations. The Company evaluates the performance of its segments and allocates resources to them based on operating income. In 2018, Turning Point corporate costs were allocated to the segments based on net sales. Turning Point believes this allocation does not reflect the operations of the business. Prior periods have been adjusted to conform to the current year presentation.

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The tables below present financial information about reported segments:

	Three Months Ended September 30,
	Three Months Ended March 31,
(In thousands)	2019			2018
	2020			2019
Revenues
Smokeless Products	$	26,~~187~~495		$	2122,~~743~~544
Smoking Products		3028,~~222~~914			2825,~~079~~519
NewGen Products		4035,~~391~~280			3343,~~527~~565
Insurance		6,544			7,560
Other(1)		679			681
Other(1)		720			686
Total		91,368			92,309
		104,064			91,595
Operating Income (Loss)
Operating Income
Smokeless Products		9,746			7,487
Smokeless Products		9,392			5,861
Smoking Products		12,417			9,946
Smoking Products		12,931			10,861
NewGen Products		477			2,838
NewGen Products		(1,233	)		2,539
Other(1)		(15,977	)		(10,479	)
Insurance		(249	)		(909	)
Total		6,663			9,792
Other(1)		(9,230	)		(7,463	)
Interest expense, net		5,863			4,473
		11,611			10,889
Investment income		(91	)		(144	)
Interest expense		4,680			4,450
Net periodic benefit income, excluding service cost		(87	)		(11	)
Interest and investment income		(777	)		(243	)
Income before income taxes	$	978		$	5,474
Loss on extinguishment of debt		2,117			-
Net periodic benefit (income) expense, excluding service cost		(12	)		(45	)
Income before income taxes	$	5,603		$	6,727
Capital Expenditures
Smokeless products	$	~~1,208~~860		$	~~251~~577
Smoking products		-			-
NewGen products		~~888~~17			~~274~~309
Insurance		6			20
Other(1)		-			15
Other(1)		-			-
Total	$	877		$	901
	$	2,102		$	545
Depreciation and amortization
Smokeless products	$	~~415~~519		$	~~342~~357
Smoking products		-			-
NewGen Products		~~633~~757			~~343~~533
Insurance		33			51
Other(1)		388			330
Other(1)		391			375
Total	$	1,664		$	1,220
	$	1,472		$	1,111

44(1) “Other” includes Turning Point’s corporate costs or assets that are not assigned to the other three reportable segments.

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	Nine Months Ended September 30,
	March 31, 2020			December 31, 2019
	2019			2018
Assets
(In thousands)
Smokeless Products	$	128,406		$	120,723
Revenues
Smoking Products		142,850			145,831
Smokeless Products	$	74,907		$	66,900
NewGen Products		86,650			90,899
Smoking Products		81,104			84,403
Other (1)		118,529			119,645
NewGen Products		125,756			87,089
Discontinued operations		-			33,948
Insurance		21,958			22,775
Total	$	476,435		$	511,046
Other(1)		2,115			1,764
		305,840			262,931
Operating Income
Smokeless Products		26,610			21,049
Smoking Products		33,251			31,855
NewGen Products		9,056			5,511
Insurance		(8,622	)		259
Other(1)		(28,453	)		(24,646	)
		31,842			34,028
Interest expense		13,529			12,556
Interest and investment income		(1,115	)		(620	)
Loss on extinguishment of debt		2,267			2,384
Net periodic benefit (income) expense, excluding service cost		(34	)		176
Income before income taxes	$	17,195		$	19,532
Capital Expenditures
Smokeless products	$	2,310		$	1,140
Smoking products		-			-
NewGen products		1,750			388
Insurance		42			63
Other(1)		15			-
	$	4,117		$	1,591
Depreciation and amortization
Smokeless products	$	1,137		$	1,014
Smoking products		-			-
NewGen Products		1,797			1,139
Insurance		118			163
Other(1)		1,145			936
	$	4,197		$	3,252

45(1) “Other” includes assets not assigned to the three reportable segments. All goodwill has been allocated to reportable segments.

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(In thousands)	September 30, 2019		December 31, 2018
Assets
Smokeless Products	$	111,541	$	99,441
Smoking Products		140,940		142,520
NewGen Products		116,484		95,397
Insurance		38,132		52,169
Other (1)		118,701		32,416
	$	525,798	$	421,943

(1) “Other” includes sales, operating income or assets that are not assigned to the other four reportable segments, such as sales, operating income or assets of SDI and Standard Outdoor, and Turning Point deferred taxes. All goodwill has been allocated to reportable segments.

Revenue Disaggregation- Sales Channel

Revenues of the Smokeless and Smoking segments are primarily comprised of sales made to wholesalers while NewGen sales are made to business to business and business to consumer, both online and through Turning Point’s corporate retail stores. NewGen net sales are broken out by sales channel below.

	NewGen Segment
	NewGen Segment Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019
	2019		2018		2019		2018
Business to business	$	25,279	$	32,463
(In thousands)
Business to consumer		8,134		8,219
Business to Business	$	29,981	$	26,603	$	93,182	$	72,948
Business to consumer- corporate store		1,793		2,799
Business to Consumer - Online		8,367		4,361		25,052		8,095
Other		74		84
Business to Consumer - Corporate store		2,017		2,550		7,381		5,943
Total	$	35,280	$	43,565
Other		26		13		141		103
	$	40,391	$	33,527	$	125,756	$	87,089

Net Sales – Domestic and Foreign

The following table shows a breakdown of consolidated net sales between domestic and foreign.

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
(In thousands)	2019		2018		2019		2018
	2020		2019
Domestic	$	9188,~~956~~247	$	7989,~~215~~450	$	~~273,636~~	$	~~228,590~~
Foreign		53,~~564~~121		42,~~820~~859		~~10,246~~		~~11,566~~
Net Sales	$	97,520	$	84,035	$	283,882	$	240,156
Total	$	91,368	$	92,309

4642

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Note 2421. Related Party Transactions

SDI has engaged the services of CFGI, formerly Pine Hill Group, and Edward J. Sweeney to serve as interim Chief Financial Officer effective May 31, 2017. Mr. Sweeney carries out his role as ~~interim~~ interim Chief Financial Officer of the Company pursuant to an agreement between the Company and CFGI. Mr. Sweeney is a partner at CFGI. The agreement outlines the scope of responsibilities of CFGI, as well as Mr. Sweeney’s role. These include, but are not limited to, services provided to the Company as interim Chief Financial Officer, controllership services, technical accounting and financial reporting services, and risk, valuation and transaction advisory services. CFGI is compensated at an hourly rate for performing services pursuant to the agreement. CFGI is responsible for all payments to Mr. Sweeney. As a result, Mr. Sweeney has received no direct compensation from the Company and the amount of aggregate payments made to CFGI is based on the amount of work performed on the Company’s behalf by all CFGI resources. During the three ~~and nine~~ months ended ~~September~~March 3031, 2020 and 2019, the Company incurred expenses of $0.23 million ~~and $0.7 million~~, ~~respectively,~~ related to services provided by CFGI.

~~Note~~The 25Company entered into a lease agreement for office space for its corporate headquarters from its parent company, Standard General. ~~Statutory~~Rental ~~Information~~payments of $45,000 were paid to Standard General during the three months ended March 31, 2020. No payments were made during the three months ended March 31, 2019.

~~The~~ Note ~~Company’s insurance subsidiary, Maidstone, is subject to insurance laws and regulations in the jurisdictions in which it operates~~22. ~~These~~Subsequent ~~regulations include certain restrictions on the amount of dividends or other distributions available to unitholders.~~Events

~~Under~~Merger ~~the~~and ~~insurance~~Reorganization ~~laws~~Agreement ofwith ~~New~~Turning York State, Maidstone is restricted (on a basis of the lower of 10% of Maidstone’s statutory surplus at the end of the preceding twelve-month period or 100% of Maidstone’s adjusted net investment income for the preceding twelve-month period) as to the amount of dividends that Maidstone may declare or pay in any twelve-month period without prior approval of the NYSDFS. As of September 30, 2019, the maximum amount of dividends that may be paid by Maidstone without approval of the NYSDFS was $-0-. Further, under New York State law, companies may pay cash dividends only from earned surplus on a statutory basis. No dividends were declared or paid by Maidstone during the three or nine months ended September 30, 2019.Point

~~Maidstone~~On isApril ~~subject~~7, to2020, ~~certain~~the ~~risk-based~~Company ~~capital~~entered into an Agreement and Plan of Merger and Reorganization (the “~~RBC~~Merger Agreement”), ~~requirements~~by asand ~~specified~~among by the ~~National~~Company, ~~Association~~Turning Point and Standard Merger Sub, LLC, a wholly-owned subsidiary of ~~Insurance~~the ~~Commissioners~~TPB (“~~NAIC~~Merger Sub”). The ~~Under~~Merger ~~such requirements~~Agreement provides for, among other things, (i) the ~~amount~~merger of ~~capital~~SDI with and ~~surplus~~into ~~maintained~~Merger bySub a(the ~~property~~“Merger”), ~~and~~with ~~casualty~~Merger ~~insurance~~Sub ~~company~~surviving isthe toMerger beas ~~determined~~a wholly-owned onsubsidiary ~~various~~of ~~risk~~Turning ~~factors~~Point. ~~including~~Under ~~risk-based~~the ~~capital~~terms ~~ratios.~~of Inthe ~~August~~Merger ~~2019~~Agreement, ~~Maidstone~~the ~~reported~~holders aof ~~negative~~SDI’s ~~statutory capital~~Class A Common Stock and ~~surplus~~SDI’s toClass ~~the~~B ~~NYSDFS~~Common ~~for~~Stock (collectively, the ~~second~~“SDI ~~quarter~~Common ofStock”) ~~2019.~~will ~~Due~~receive toin the ~~negative~~aggregate, ~~statutory~~in ~~surplus,~~return for ~~the~~their ~~NYSDFS~~SDI ~~requested~~Common ~~that~~Stock, ~~Maidstone~~Turning ~~consent~~Point toVoting anCommon ~~Order~~Stock of(“TPB ~~Liquidation~~Common ~~and~~Stock”) inat ~~August~~a ~~2019~~ratio ~~Maidstone~~of ~~consented~~0.97 toof ~~the~~a ~~filing~~share of aTPB ~~petition~~ Common Stock for ~~the~~each ~~entry~~share of anTPB ~~Order~~Common ofStock ~~Liquidation.~~held Asby ofSDI. ~~September~~SDI ~~30,~~has ~~2019~~divested, or will prior to the ~~NYSDFS~~Merger ~~has~~divest, ~~not~~its ~~yet~~assets ~~filed~~of SDI ~~the~~other ~~petition~~than ~~for~~its ~~the~~TPB ~~entry~~Common ofStock anand ~~Order~~has ofagreed ~~Liquidation~~that its net liabilities at closing will not exceed $25,000. IfThe ~~approved~~Merger is subject to customary closing conditions, anincluding ~~Order~~approval by holders of ~~Liquidation~~a ~~would relieve~~majority of the ~~Company~~aggregate voting power of the SDI ~~assets~~Common Stock and ~~liabilities~~the receipt of ~~Maidstone,~~any ~~which~~applicable ~~would~~regulatory beapprovals. The ~~transferred~~Company toexpects the ~~New~~transaction ~~York~~to ~~Liquidation~~close ~~Bureau~~in the summer of 2020.

~~Statutory~~It ~~combined~~is ~~capital~~a ~~and~~condition ~~(deficit)~~to ~~surplus~~the consummation of the Merger that, as of the effective time of the time of the Merger, the Company have no liabilities other than liabilities included in an estimate of net liabilities delivered to Turning Point, and that the net ~~loss~~liabilities included in such estimate not exceed $25,000. Thus, the Company must discharge substantially all of ~~Maidstone~~its ~~were~~liabilities asprior ~~follows~~to asthe consummation of: the merger, including the indebtedness under the Term Loan. In order to raise the capital needed, along with its existing cash on hand, to retire such liabilities, including this indebtedness, the Company may consider a variety of transactions, including a sale of a portion of its shares of TPB Common Stock.

(In thousands)	September 30, 2019			December 31, 2018
Statutory capital and (deficit) surplus	$	(559	)	$	4,769
Statutory net loss	$	(5,522	)	$	(9,559	)

Maidstone files financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory net income (loss) and statutory (deficit) surplus, as reported to the insurance regulatory authorities, differ in certain respects from the amounts prepared in accordance with GAAP. The main differences between statutory net income (loss) and GAAP net income (loss) relate to deferred acquisition costs, deferred income taxes, unrealized appreciation or decline in value of investments and non-admitted assets.

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~~Note~~Sale ~~26.~~of ~~Subsequent~~Standard ~~Events~~Outdoor

InOn ~~October~~April ~~2019~~7, ~~the~~2020, SDI ~~Board~~transferred all of ~~Directors~~its equity interests in Standard Outdoor, which constituted 100% of ~~Turning~~the ~~Point~~outstanding ~~initiated~~equity interests, to Billboards LLC, a commonly ~~review~~controlled affiliate of ~~strategic~~Standard ~~alternatives~~General, ~~for~~the Company’s controlling shareholder. The purchase consideration of $9.8 million consisted of the ~~third-party~~assumption ~~vaping~~by ~~distribution~~Billboards ~~business~~LLC ~~included~~of ~~within~~$7.2 million of the outstanding indebtedness of Standard ~~NewGen~~Outdoor ~~segment~~(equaling amounts payable under promissory notes issued by Standard Outdoor in past acquisitions), less cash transferred of $0.2 ~~There~~million, ~~can~~and beshares noof ~~assurances~~Turning ~~that~~Point common stock of $2.8 million. The Company expects to record this disposition ~~process~~other ~~will~~than ~~result~~by sale as a common control transaction in the ~~approval~~second orquarter ~~completion~~ of ~~any~~2020 ~~particular~~and ~~strategic~~as ~~alternative~~a result, no gain or ~~transaction~~loss inis ~~the~~expected ~~future~~to be recognized. Any ~~Based~~shortfall, onpreliminarily ~~this~~estimated ~~review~~to be approximately $2.8 million, between consideration received and ~~other~~the ~~factors~~book value of net assets transferred, ~~Turning~~will ~~Point~~be ~~determined~~recorded as an ~~interim~~ equity distribution to its controlling shareholder, Standard General. In accordance with ASC 360, no impairment ~~analysis~~loss was recognized, as of ~~the~~March ~~goodwill~~31, 2020, ~~and~~as ~~other~~a ~~intangible~~result ~~assets~~of ~~recorded~~this inshortfall since the ~~NewGen~~asset ~~segment~~group being disposed of was ~~required.~~tested ~~Turning~~for ~~Point~~recoverability ~~has~~as ~~not~~held ~~yet~~and ~~completed~~used ~~the~~utilizing ~~interim~~an ~~impairment~~estimate ~~analysis~~of ~~and~~undiscounted ~~impairment,~~future ifcash ~~any,~~flows ~~will~~based beon ~~recorded~~the inuse of the ~~fourth~~asset for its remaining useful ~~quarter~~ life, assuming that the disposal transaction would not occur.

4844

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of ~~words~~ words such as "“anticipate,"” "“believe,"” "“expect,"” "“intend,"” "“plan"” and "“will"” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By ~~their~~ their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, actual events may differ materially from those expressed in or or suggested by the forward-looking statements. Any forward-looking statement made by Standard Diversified Inc. (“SDI”) in this Quarterly Report on Form 10-Q speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for SDI to predict these events or how they may affect it. SDI has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to:

•

our ability to execute on our plans to complete the pending Merger with Turning Point Brands, Inc. (“Turning Point”);

•

declining sales of tobacco products, and expected continuing decline of sales, in the tobacco industry overall;

•

Turning Point’s dependence on a small number of third-party suppliers and producers;

•

the possibility that Turning Point will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption;

•

Turning Point’s business may be damaged by events outside of its suppliers’ control, such as the impact of epidemics (e.g., coronavirus), political upheavals, or natural disasters;

•

the possibility that Turning Point’s licenses to use certain brands or trademarks will be terminated, challenged or restricted;

•

failure to maintain consumer brand recognition and loyalty of Turning Point’s customers;

•

substantial and increasing U.S. regulation;

•

regulation of Turning Point’s products by the FDA, which has broad regulatory powers;

•

Turning Point’s products are subject to developing and unpredictable regulation, for example, current court action moving forward certain substantial Pre Market Tobacco Application obligations;

• Some of Turning Point’s products contain nicotine which is considered to be a highly addictive substance;

•

uncertainty related to the regulation and taxation of Turning Point’s NewGen products;

•

possible significant increases in federal, state and local municipal tobacco and vapor-related taxes;

•

possible increasing international control and regulation;

•

Turning Point’s reliance on relationships with several large retailers and national chains for distribution of its products;

•

our amount of indebtedness;

•

the terms of our credit facilities, which may restrict our current and future operations;

•

intense competition and our ability to compete effectively;

•

uncertainty and continued evolution of markets containing Turning Point’s NewGen products;

•

significant product liability litigation;

• the scientific community’s lack of information regarding the long-term health effects of ~~electronic~~certain ~~cigarette,~~substances ~~vaporizer~~contained ~~and~~in ~~e-liquid~~some ~~use~~of our products;

•

requirement to maintain compliance with master settlement agreement escrow account;

•

competition from illicit sources;

•

our reliance on information technology;

•

security and privacy breaches;

•

contamination of Turning Point’s tobacco supply or products;

•

infringement on our intellectual property;

•

third-party claims that we infringe on their intellectual property;

•

failure to manage our growth;

•

failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;

•

fluctuations in our results;

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•

exchange rate fluctuations;

•

adverse U.S. and global economic conditions;

•

sensitivity of end-customers to increased sales taxes and economic conditions;

•

failure to comply with certain regulations;

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•

departure of key management personnel or our inability to attract and retain talent;

•

imposition of significant tariffs on imports into the U.S.;

•

reduced disclosure requirements applicable to emerging growth companies may make Turning Point’s common stock less attractive to investors, potentially decreasing its stock price;

•

failure to maintain Turning Point’s status as an emerging growth company before the five-year maximum time period a company may retain such status;

•

our principal stockholders will be able to exert significant influence over matters submitted to our stockholders and may take certain actions to prevent takeovers;

•

our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our common stock;

•

Turning Point’s certificate of incorporation limits the ownership of Turning Point’s common stock by individuals and entities that are Restricted Investors. These restrictions may affect the liquidity of Turning Point’s common stock and may result in Restricted Investors being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights;

•

future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us;

•

we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; and

•

our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price.

• the highly competitive nature of the out-of-home advertising industry;

• regulations relating to the out-of-home advertising industry;

• business risks relating to the out-of-home advertising industry, such as seasonality, competitiveness, risks from natural disasters and sensitivity to a decline in advertising expenditures, general economic conditions and other external events;

• regulations relating to the insurance industry;

• risks relating to the fact that Maidstone’s capital has fallen below the RBC minimum requirement and thus Maidstone faces restrictions with respect to operating its business and may be placed under rehabilitation or liquidation; and

• business risks relating to the insurance industry, such as competitiveness, industry fragmentation and underwriting risks; and risks relating to reinsurance.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of the historical financial condition and results of operations in conjunction with our interim condensed consolidated financial statements and accompanying notes, which are included elsewhere in this Quarterly Report on Form 10-Q. In addition, this discussion includes forward-looking statements subject to risks and uncertainties which may result in actual results ~~differing~~ differing from statements we make. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in “Risk Factors” in the Company’s Form 10-K for the year ended December 31, ~~2018~~2019, filed with the Securities and Exchange Commission (“SEC”) on March 1116, ~~2019 and in the Company’s Form 10-Q for the quarter ended March 31, 2019, filed with the SEC on May 8, 2019, and the quarter ended June 30, 2019, filed with the SEC on August 7, 2019.~~2020

The following discussion relates to the interim unaudited financial statements of the Company included elsewhere in this Quarterly Report on Form 10-Q. In this discussion, unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Standard Diversified Inc. and our consolidated subsidiaries. References to “SDI” refer to Standard Diversified Inc. without any of its subsidiaries. Dollars are in thousands, except where designated and in per share data. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation.

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Overview

We are a holding company. Our subsidiaries are engaged in the following lines of business:

• Other tobacco products (through Turning Point Brands, Inc. (“Turning Point” or “TPB”), a 50.12% owned subsidiary); and

• ~~Outdoor~~Until its transfer on April 7, 2020, outdoor advertising (through Standard Outdoor LLC (“Standard Outdoor”), a wholly -owned subsidiary), beginning in July 2017~~; and~~.

~~• Insurance (Pillar General Inc. (“Pillar General”), a wholly owned subsidiary), beginning in January 2018.~~46

We ~~are~~Table ~~a diversified holding company with interests in a variety~~ of industries and market sectors. We are continually evaluating our portfolio of subsidiaries and lines of business and may make investment and divestiture decisions that could materially impact us and any of our existing or future lines of business. This may include investment and divestiture decisions to maintain our ownership percentage in Turning Point.Contents

We are continually evaluating our portfolio of subsidiaries and lines of business and may make investment and divestiture decisions that could materially impact us and any of our existing or future lines of business. This may include investment and divestiture decisions to maintain our ownership percentage in Turning Point.

Recent Developments

Merger and Reorganization Agreement with Turning Point

On April 7, 2020, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among SDI, Turning Point and Standard Merger Sub, LLC, a wholly-owned subsidiary of the TPB (“Merger Sub”). The Merger Agreement provides for, among other things, (i) the merger of SDI with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger as a wholly-owned subsidiary of Turning Point. Under the terms of the Merger Agreement, the holders of SDI’s Class A Common Stock and SDI’s Class B Common Stock (collectively, the “SDI Common Stock”) will receive in the aggregate, in return for their SDI Common Stock, Turning Point Voting Common Stock (“TPB Common Stock”) at a ratio of 0.97 of a share of TPB Common Stock for each share of TPB Common Stock held by SDI. SDI has divested, or will prior to the merger divest, its assets of SDI other than its TPB Common Stock and has agreed that its net liabilities at closing will not exceed $25,000. The Merger is subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals. We expect the transaction to close in the summer of 2020.

It is a condition to the consummation of the Merger that, as of the effective time of the time of the Merger, we have no liabilities other than liabilities included in an estimate of net liabilities delivered to Turning Point, and that the net liabilities included in such estimate not exceed $25,000. Thus, we must discharge substantially all of our liabilities prior to the consummation of the merger, including the indebtedness of approximately $25.0 million under our $25.0 million loan (the “Term Loan”) obtained pursuant to that certain Term Loan Agreement, dated as of September 18, 2019 (the “Term Loan Agreement”), between SDI and GACP II, L.P., a Delaware limited partnership (the “Agent”), as administrative agent and collateral agent for the financial institutions (the “Lenders”). In order to raise the capital needed, along with its existing cash on hand, to retire such liabilities, including this indebtedness, we may consider a variety of transactions, including a sale of a portion of our shares of TPB Common Stock that we own.

If the closing of the Merger were to occur on or around June 30, 2020, we would incur an early termination fee of approximately $0.6 million and this amount would reduce, over time, to its floor of $0.5 million, if prepayment occurs on or before September 18, 2020. We have classified the Term Loan as a non-current liability as of March 31, 2020 as the Merger is still subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals.

Sale of Standard Outdoor

On April 7, 2020, SDI transferred all of its equity interests in Standard Outdoor, which constituted 100% of the outstanding equity interests, to Billboards LLC, a commonly controlled affiliate of Standard General, SDI’s controlling shareholder. The purchase consideration of $9.8 million consisted of the assumption by Billboards LLC of $7.2 million of the outstanding indebtedness of Standard Outdoor (equaling amounts payable under promissory notes issued by Standard Outdoor in past acquisitions), less cash transferred of $0.2 million, and shares of Turning Point common stock of $2.8 million. The Company expects to record this disposition other than by sale as a common control transaction in the second quarter of 2020 and as a result, no gain or loss is expected to be recognized. Any shortfall, preliminarily estimated to be approximately $2.8 million, between consideration received and the book value of net assets transferred, will be recorded as an equity distribution to its controlling shareholder, Standard General. In accordance with ASC 360, no impairment loss was recognized, as of March 31, 2020, as a result of this shortfall since the asset group being disposed of was tested for recoverability as held and used utilizing an estimate of undiscounted future cash flows based on the use of the asset for its remaining useful life, assuming that the disposal transaction would not occur.

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Maidstone Insurance

InOn ~~August~~January ~~2019~~14, we2020, ~~reported~~the aNYSDFS ~~negative~~filed ~~statutory~~a ~~capital~~petition ~~and~~for ~~surplus of~~ Maidstone toInsurance ~~the New York State Department of Financial Services~~ (“~~NYSDFS~~Maidstone”). ~~The NYSDFS requested that Maidstone consent~~ to enter an order of liquidation ~~under~~pursuant to Article 74 of the New York ~~State~~Consolidated Insurance ~~law~~Law (“Order of Liquidation”) toin ~~effect~~the aSupreme ~~liquidation~~Court of ~~Maidstone~~the byState of New York, County of Nassau (the ~~NYSDFS~~“Court”) with respect to Maidstone. On ~~August~~January 721, ~~2019~~2020, ~~Maidstone~~the ~~consented~~Court issued an order to show cause establishing February 13, 2020 as the ~~filing~~date of a ~~petition for~~hearing before the Court ~~entry~~with ofrespect anto the Order of Liquidation. ~~Once~~On February 13, 2020, the ~~petition~~Court ~~for~~conducted a hearing with respect to the ~~entry~~Order of anLiquidation and, thereafter, approved the Order of Liquidation. isAs ~~filed~~of February 13, 2020, the control and ~~subsequently~~net ~~approved~~assets byof Maidstone vested with the New York State, weLiquidation ~~expect~~Bureau to(“NYS beLiquidation ~~relieved~~Bureau”). ofWe determined that the ~~assets~~disposal of Maidstone and ~~liabilities~~our Insurance segment operations represents a strategic shift that had a major effect on our results of operations ~~Maidstone~~and, ~~which~~as ~~would~~a ~~be turned~~result, ~~over~~have toreported the ~~New~~disposal ~~York~~as ~~State~~discontinued ~~Liquidation~~operations. ~~Bureau~~See (Note 3, “~~Liquidation~~Discontinued ~~Bureau~~Operations”) to our unaudited condensed consolidated financial statement for further information.

Turning Point ~~Brands~~

~~The Turning Point Board of Directors is reviewing strategic alternatives for Turning Point’s third~~COVID-~~party~~19 vaping distribution business. Turning Point is committed to capitalizing on our core competencies in branding, distribution, product development, and regulatory affairs to create market-leading adult actives products. This includes investing in the FDA PMTA process for our proprietary brands. However, Turning Point believes the expected future returns from third-party vaping distribution may not justify the required investment of human and financial resources going forward. There can be no assurance that this process will result in the approval or completion of any particular strategic alternative or transaction in the future.Impact

~~Solace~~As ~~Technologies~~a ~~Acquisition~~result of the extraordinary situation we are facing, our focus is on the safety and well-being of our colleagues and the communities and customers we serve. As an organization, we have implemented several changes to enhance safety and mitigate health risk in our work environment. For Turning Point’s warehouse and manufacturing operations, these include split shifts, temperature scans, additional contactless hand sanitizing stations, protective equipment, social distancing guidelines, and increased cleaning and sanitization.

InWe ~~July~~canceled ~~2019,~~all ~~Turning~~unnecessary ~~Point~~travel ~~acquired the assets of E-Vape 12, Inc~~ and ~~Solace~~facilitated ~~Technologies~~telecommuting ~~LLC~~where ~~(“Solace”) for $8~~possible.0 ~~million~~Like inmany ~~total consideration~~companies, ~~comprised~~we ofhave ~~$7.7~~changed ~~million~~the inway ~~cash~~we ~~and~~communicate ~~$0.5 million~~through ~~holdback~~increased ~~for~~use 18of videoconferencing ~~months.~~and Ashave ~~additional~~implemented ~~consideration,~~tele-selling ~~Turning~~initiatives ~~Point~~through ~~will~~our ~~issue,~~sales ~~to the former owners, stock equal to $2~~force.31 ~~million~~Some ~~upon the achievement~~ of ~~certain~~these ~~annual~~changes ~~milestones.~~that Inare ~~addition,~~proving ~~88,582~~to ~~performance~~be ~~based~~efficient ~~restricted~~are ~~stock with~~likely ato ~~fair~~remain ~~value~~in-place ofeven ~~$4.62~~after ~~million~~this ~~were~~crisis ~~issued~~and lead to ~~former~~on-going ~~owners~~cost ~~who became employees~~savings. ~~Solace~~Turning ~~is an innovative product development company that~~ Point has ~~grown~~deferred ~~from~~annual ~~the~~compensation ~~creator~~increases offor ~~one~~corporate ofemployees ~~the~~other ~~leading~~than ~~vape~~those ~~juice~~contractually ~~brands~~required. inWe ~~the~~have ~~industry~~also ~~into~~put a ~~leader~~hold ~~of alternative~~on ~~ingredients~~new ~~product~~spending ~~development.~~commitments ~~Turning Point intends to incorporate Solace’s innovative products~~ as ~~well~~we ascautiously ~~the~~manage ~~legacy~~through ~~vapor~~this ~~products into its Nu-X Ventures development engine~~environment.

~~ReCreation~~The ~~Marketing~~dedication ~~Investment~~of our workforce to serve this demand has been remarkable. Turning Point hired additional employees in its Louisville facility and implemented wage increases for its hourly employees to meet increased demand. Turning Point shifted production capacity to manufacture hand sanitizers and have donated bottles to hospitals, nursing homes and first responders in its local communities.

InWe ~~July~~do ~~2019,~~expect COVID-19 to impact results in the future. Turning Point’s ~~obtained~~third-party acigar ~~30%~~wrap ~~stake~~manufacture in ~~Canadian~~the ~~distribution~~Dominican ~~entity~~Republic temporarily closed for three weeks and is slowly ramping back up. In person selling has been dramatically dampened, ~~ReCreation~~which ~~Marketing~~will ~~(“ReCreation”)~~slow new product launches. Select budgeted annual price increases will be delayed. Turning Point ~~may~~expects ~~invest~~these $3issues ~~million~~will ~~through~~be offset by its ~~newly-created~~growing ~~subsidiary,~~B2C platforms. We ~~Turning~~ continue ~~Point~~to ~~Brands~~monitor ~~(Canada)~~this ~~Inc.,~~challenging ~~into~~environment ~~ReCreation,~~closely ~~with~~and ~~options~~will tomake ~~acquire~~necessary upadjustments as needed to amake ~~50%~~sure ~~ownership~~we ~~position.~~are ~~Turning~~serving ~~Point~~our ~~will~~employees ~~receive~~and ~~board~~customers, ~~seats~~while ~~aligned~~also ~~with~~protecting ~~its~~the ~~ownership~~safety ~~position~~of employees and communities.

51Premarket Tobacco Application Deadline Extension

On April 3, 2020, the United States District Court for the District of Maryland agreed to an FDA request filed on March 30, 2020, for a 120-day extension of the premarket tobacco application (“PMTA”) deadline for many e-cigarettes, cigars and other tobacco products. FDA stated that the extension was needed because of the coronavirus outbreak. The U.S. Circuit Court of Appeals for the Fourth Circuit must still issue an order allowing the modification of the original order. An extension would move the deadline from May 12, 2020 to September 9, 2020. Turning Point will work during this additional time period to bolster its premarket filings.

Share Repurchase Authorization

On February 25, 2020, the TPB Board of Directors approved a $50 million share repurchase authorization, which is intended for opportunistic execution based upon a variety of factors including marketing dynamics. The program will be subject to the ongoing discretion of the TPB Board of Directors.

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~~ReCreation~~Organizational isStructure ~~a specialty marketing~~ and ~~distribution~~Overview firm focused on building brands in the Canadian smoking, vaping and alternative products categories. ReCreation’s management has significant expertise in marketing and distributing tobacco and cannabis products throughout Canada. ReCreation’s management and advisory team has over 50 years combined experience building and managing a portfolio of ~~premium~~Turning ~~brands, all supported by an expert team of sales associates working across Canada to provide service to over 30,000 traditional retail outlets and newly-constructed cannabis dispensaries.~~Point

~~Convertible~~Turning ~~Notes~~Point ~~Offering~~is a holding company which owns North Atlantic Trading Company, Inc. (“NATC”), and its subsidiaries, Turning Point Brands, LLC (“TPLLC”), and its subsidiaries, and Turning Point Brands (Canada) Inc. (“TPBC”). NATC includes subsidiaries National Tobacco Company, L.P. (“NTC”), National Tobacco Finance, LLC (“NTFLLC”), North Atlantic Operating Company, Inc. (“NAOC”), North Atlantic Cigarette Company, Inc. (“NACC”), and RBJ Sales, Inc. (“RBJ”). TPLLC includes subsidiaries Intrepid Brands, LLC (“Intrepid”), TPB Beast, LLC (“VaporBeast”), TPB Shark, LLC, and its subsidiaries (collectively, “Vapor Shark”), TPB International, LLC and its subsidiaries (collectively, “IVG”), Nu-X Ventures, LLC (“Nu-X”), Nu-Tech Holdings LLC (“Nu-Tech”), and South Beach Holdings, LLC (“South Beach”).

~~See~~Turning ~~Note~~Point 14is a leading, independent provider of Other Tobacco Products (“~~Notes~~OTP”) ~~Payable~~and adult consumer alternatives. Turning Point estimates the OTP industry generated approximately $11.5 billion of manufacturer revenue in 2019. In contrast to manufactured cigarettes, which have been experiencing declining volumes for decades based on data published by the Alcohol and ~~Long~~Tobacco Tax and Trade Bureau (“TTB”), the OTP industry is demonstrating increased consumer appeal with low to mid-~~term~~single ~~Debt~~digit consumer unit growth as reported by Management Science Associates, Inc. (“MSAi”), ~~for~~a ~~discussion~~third-party ~~regarding~~analytics and information company. Turning Point was the 6th largest competitor in terms of total OTP consumer units sold during 2019. Turning Point sells a wide range of products across the OTP spectrum; however, it does not sell cigarettes. Turning Point’s ~~Convertible~~portfolio ~~Senior~~of ~~Notes~~brands includes some of the most widely recognized names in the OTP industry, such as Zig-Zag®, Beech-Nut®, Stoker’s®, Trophy®, VaporBeast® and VaporFi®. Turning Point currently ships to approximately 900 distributors with an additional 100 secondary, indirect wholesalers in the U.S. that carry and sell its products. Turning Point operates in three segments: (i) Smokeless products, (ii) Smoking products, and (iii) NewGen products. Under the leadership of a senior management team with an average of 24 years of experience in the tobacco industry, Turning Point has grown and diversified its business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

~~Standard~~Turning ~~Outdoor~~Point has identified additional growth opportunities in the emerging alternatives market. In January 2019, it established its subsidiary, Nu-X, a new company and wholly-owned subsidiary dedicated to the development, production and sale of alternative products and acquisitions in related spaces. The creation of Nu-X allows Turning Point to leverage its expertise in traditional OTP management to alternative products. The Turning Point management team has over 100 years of experience navigating federal, state and local regulations that are directly applicable to the growing alternatives market. In July 2019, Turning Point acquired the assets of Solace Technology (“Solace”). Solace is an innovative product development company which established one of the top e-liquid brands and has since grown into a leader in alternative products. Solace’s legacy and innovation will enhance Nu-X’s strong and nimble development engine. In July 2019, Turning Point acquired a 30% stake in ReCreation Marketing (“ReCreation). ReCreation is a specialty marketing and distribution firm focused on building brands in the Canadian smoking, vaping and alternative products categories. The investment will leverage ReCreation’s significant expertise in marketing and distributing tobacco and cannabis products throughout Canada. The investment is part of Nu-X and Turning Point plans to make additional investments, partnerships and acquisitions to drive the business of Nu-X. These endeavors will enable Turning Point to continue to identify unmet customer needs and provide quality products that Turning Point believes will result in genuine customer satisfaction and foster the growth of revenue.

OnTurning ~~May~~Point 7,believes ~~2019,~~there ~~we,~~are meaningful opportunities to grow through ~~Standard~~acquisitions ~~Outdoor,~~and ~~completed~~joint anventures ~~asset~~across ~~acquisition~~all ~~consisting~~product categories. As of ~~nine~~December ~~billboard~~31, ~~structures~~2019, ~~located~~Turning Point’s products are available in ~~Georgia~~approximately 185,000 asU.S. ~~well~~retail aslocations ~~the~~which, ~~ground~~with ~~leases~~the ~~and~~addition ~~advertising~~of ~~contracts relating~~retail tostores ~~such~~in ~~billboard~~Canada, ~~structures~~brings ~~for~~Turning Point’s total ~~consideration~~North American retail presence to an estimated 210,000 points of $0distribution.6 ~~million~~Turning Point’s sales team targets widespread distribution to all traditional retail channels, including convenience stores.

~~SDI~~49

On September 18, 2019, we entered into a Term Loan Agreement (the “Term Loan Agreement”) with GACP II, L.P., a Delaware limited partnership (the “Agent”), as administrative agent and collateral agent for the financial institutions (the “Lenders”). The Term Loan Agreement provides for a term loan of $25.0 million (the “Term Loan”). The Term Loan will be used to (a) repay, in full, all outstanding indebtedness under the Crystal Term Loan (as defined herein), (b) finance the purchase of common stock of Turning Point, (c) finance the repurchase of our common stock, (d) fund certain fees and expenses, and (e) provide working capital. At closing of the Term Loan, we received net proceeds from the Term Loan of $9.1 million.

On March 29, 2019, the duties of Ian Estus, formerly the Chief Executive Officer of SDI, were reassigned by the Board of Directors of the Company (the “Board”), such that Mr. Estus no longer serves as the Chief Executive Officer of the Company, or as an officer in any other position of the Company, or as an officer, director, manager or in any similar position for any of the Company’s subsidiaries. Mr. Estus remains a member of the Board. Also on March 29, 2019, Gregory H.A. Baxter, currently the Executive Chairman of the Board, was appointed by the Board to serve, on an interim basis, as the Chief Executive Officer of the Company, and to replace Mr. Estus on an interim basis in any other position held by Mr. Estus as an officer in any other position of the Company, or as an officer, director, manager or in any similar position for any of the Company’s subsidiaries, to serve in each case until his successor has been duly appointed or until his resignation or removal from any such position by further action of the Board.

Overview of Turning Point

Turning Point is a holding company which owns North Atlantic Trading Company, Inc. (“NATC”), and its subsidiaries, Turning Point Brands, LLC (“TPLLC”), and its subsidiaries, and Turning Point Brands (Canada) Inc. (“TPBC”). NATC includes subsidiaries National Tobacco Company, L.P. (“NTC”), National Tobacco Finance, LLC (“NTFLLC”), North Atlantic Operating Company, Inc. (“NAOC”), North Atlantic Cigarette Company, Inc. (“NACC”), and RBJ Sales, Inc. (“RBJ”). TPLLC includes subsidiaries Intrepid Brands, LLC (“Intrepid”), Vapor Beast, LLC (“VaporBeast”, f/k/a Smoke Free Technologies, Inc.), Vapor Shark, LLC, and its subsidiaries (collectively, “Vapor Shark”, f/k/a The Hand Media), Vapor Acquisitions Company, LLC (“Vapor Supply”), Vapor Finance, LLC (“VFIN”), International Vapor Group, LLC and its subsidiaries (collectively, “IVG”), and Nu-X Ventures, LLC (“Nu-X”).

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Turning Point is a leading, independent provider of Other Tobacco Products (“OTP”) and adult consumer alternatives. Turning Point estimates the OTP industry generated approximately $11 billion of manufacturer revenue in 2018. In contrast to manufactured cigarettes, which have been experiencing declining volumes for decades based on data published by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the OTP industry is demonstrating increased consumer appeal with low to mid-single digit consumer unit growth as reported by Management Science Associates, Inc. (“MSAi”), a third-party analytics and information company. Turning Point was the 6th largest competitor in terms of total OTP consumer units sold during 2018. Turning Point sells a wide range of products across the OTP spectrum; however, it does not sell cigarettes. Turning Point’s portfolio of brands includes some of the most widely recognized names in the OTP industry, such as Zig-Zag®, Beech-Nut®, Stoker’s®, Trophy®, VaporBeast® and VaporFi®. Turning Point currently ships to approximately 800 distributors with an additional 100 secondary, indirect wholesalers in the U.S. that carry and sell its products. Turning Point operates in three segments: (i) Smokeless products, (ii) Smoking products, and (iii) NewGen products. Under the leadership of a senior management team with an average of 23 years of experience in the tobacco industry, Turning Point has grown and diversified its business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

Turning Point has identified additional growth opportunities in the emerging alternatives market. In January 2019, it established its subsidiary, Nu-X Ventures (“Nu-X”), a new company and wholly-owned subsidiary dedicated to the development, production and sale of alternative products and acquisitions in related spaces. The creation of Nu-X allows Turning Point to leverage its expertise in traditional OTP management to alternative products. The Turning Point management team has over 100 years of experience navigating federal, state and local regulations that are directly applicable to the growing alternatives market. In July 2019, Turning Point acquired a 30% stake in ReCreation Marketing (“ReCreation). ReCreation is a specialty marketing and distribution firm focused on building brands in the Canadian smoking, vaping and alternative products categories. The investment will leverage ReCreation’s significant expertise in marketing and distributing tobacco and cannabis products throughout Canada. In November 2018, Turning Point acquired a minority stake in Canadian American Standard Hemp Inc. (“CASH”). The investment in CASH positions Turning Point to meaningfully participate in the market for hemp-derived products. Through its investment in CASH, Turning Point has access to CASH’s proprietary extraction processes enabling the harvest of cannabinoids for use in the creation and distribution of high-quality hemp-derived products. Both investments are part of Nu-X and Turning Point plans to make additional investments, partnerships and acquisitions to drive the business of Nu-X. These endeavors will enable Turning Point to continue to identify unmet customer needs and provide quality products that Turning Point believes will result in genuine customer satisfaction and foster the growth of revenue.

Turning Point believes there are meaningful opportunities to grow through acquisitions and joint ventures across all product categories. As of December 31, 2018, Turning Point’s products are available in approximately 185,000 U.S. retail locations which, with the addition of retail stores in Canada, brings Turning Point’s total North American retail presence to an estimated 210,000 points of distribution. Turning Point’s sales team targets widespread distribution to all traditional retail channels, including convenience stores.

Products

Turning Point operates in three segments: Smokeless products, Smoking products and NewGen products. In ~~Turning~~its ~~Point’s~~ Smokeless products segment, Turning Point (i) ~~manufactures~~manufacture and ~~markets~~ market moist snuff and (ii) contract ~~contracts~~ for and market loose leaf chewing tobacco products. In ~~Turning~~its ~~Point’s~~ Smoking products segment, Turning Point principally (i) ~~markets~~market and ~~distributes~~distribute cigarette papers, tubes, and related products; and (ii) ~~markets~~market and ~~distributes~~ distribute finished cigars and MYO cigar wraps~~; and (iii) processes, packages, markets, and distributes traditional pipe tobaccos~~. In ~~Turning~~its ~~Point’s~~ NewGen products segment, Turning Point (i) ~~markets~~market and ~~distributes~~distribute ~~e-cigarettes~~CBD, ~~e-liquids,~~liquid ~~vaporizers~~ vapor products and certain other products without tobacco and/or nicotine; (ii) ~~markets~~distribute ~~and distributes~~ a wide assortment of ~~vaping and Cannabidiol (“CBD”) related~~ products to non-traditional retail via VaporBeast,; ~~Vapor Shark, Vapor Supply~~ and ~~IVG and IVG; and~~ (iii) ~~markets~~market and ~~distributes~~distribute a wide assortment of ~~vaping and CBD related~~ products to individual consumers via ~~Vapor Shark and~~ VaporFi ~~branded~~B2C ~~retail outlets in addition to~~ online platforms. Turning ~~Points~~Point’s portfolio of brands includes some of the most widely recognized names in the OTP industry, such as Stoker’s® in the Smokeless segment, Zig-Zag® in the Smoking segment, and VaporBeast®, ~~and~~ VaporFi® and Solace© in the NewGen segment.

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Operations

Turning Point’s core tobacco business (Smokeless and Smoking segments) primarily generates revenues from the sale of ~~Turning~~its ~~Point~~ products to wholesale distributors who, in turn, resell the products to retail operations. Turning Point’s acquisition of VaporBeast in ~~the fourth quarter of~~ 2016 expanded ~~Turning~~its ~~Point’s~~ revenue streams as ~~Turning~~it ~~Point~~ began selling directly to non-traditional retail outlets. Turning Point’s acquisitions of Vapor Shark in the second quarter of 2017 and Vapor Supply in the second quarter of 2018 further expanded its selling network by allowing it to directly reach ultimate consumers through Vapor Shark and Vapor World branded retail outlets. Turning Point’s acquisition of IVG in ~~the third quarter of~~ 2018 enhanced its business-to-consumer revenue stream with the addition of the Vapor-Fi ~~branded retail outlets accompanying a robust~~ online platform ~~headlined by VaporFi~~.~~com~~ ~~and DirectVapor.com.~~ Turning Point’s net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

Turning Point relies on long-standing relationships with high-quality, established manufacturers to provide the majority of its produced products. ~~Approximately~~More 85than 80% of Turning Point’s production, as measured by net sales, is outsourced to suppliers. The remaining production consists of ~~Turning~~its ~~Point’s~~ moist snuff tobacco operations located in Dresden, Tennessee, and Louisville, Kentucky; ~~the packaging of Turning Point’s pipe tobacco in Louisville, Kentucky;~~ and the proprietary e-liquids operations located in Louisville, Kentucky~~, and Miami, Florida~~. Turning Point’s principal operating expenses include the cost of raw materials used to manufacture the limited number of its products which ~~Turning~~it ~~Point~~ produces in-house; the cost of finished products, which are generally purchased goods; federal excise taxes; legal expenses; and compensation expenses, including benefits and costs of salaried personnel. Turning Point’s other principal expenses include interest expense and other expenses.

Key Factors Affecting Turning Point’s Results of Operations

Turning Point considers the following to be the key factors affecting its results of operations:

•

Turning Point’s ability to further penetrate markets with its existing products;

•

Turning Point’s ability to introduce new products and product lines that complement its core business;

•

Decreasing interest in some tobacco products among consumers;

•

Price sensitivity in its end-markets;

•

Marketing and promotional initiatives, which cause variability in Turning Point’s results;

•

General economic conditions, including consumer access to disposable income;

•

Cost and increasing regulation of promotional and advertising activities;

• Cost of complying with regulation, including the ~~Remedy~~“deeming ~~Order~~regulations”;

•

Counterfeit and other illegal products in our end-markets;

•

Currency fluctuations;

•

Turning Point’s ability to identify attractive acquisition opportunities in OTP; and

•

Turning Point’s ability to integrate acquisitions.

Overview of Standard Outdoor

Standard Outdoor is an out-of-home advertising business. Revenues include outdoor advertising revenues, while operating expenses primarily include compensation costs, depreciation and rent expense.

~~Overview of Pillar General~~50

On January 2, 2018, Pillar General acquired all of the outstanding capital stock of Interboro Holdings, Inc. (“Interboro”) for a cash purchase price of $2.5 million. Under the name Maidstone Insurance Company (“Maidstone”), Maidstone offered personal automobile and homeowner’s insurance, primarily in the state of New York. The results of Maidstone are included in our condensed consolidated results as of January 2, 2018, the date of acquisition.

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~~During~~On ~~the~~April ~~nine months ended September 30~~7, ~~2019~~2020, we ~~recorded~~transferred ~~impairment~~our ~~charges~~equity ofinterests ~~$0.8~~in ~~million~~Standard ~~and~~Outdoor ~~$2.0 million related~~ to ~~the~~Billboards ~~full impairment of the goodwill and intangible asset balances~~LLC, ~~respectively,~~ inan ~~our~~affiliate ~~Insurance segment. This impairment was a result~~ of ~~changes~~our inparent ~~the future outlook for the Insurance segment and certain other factors impacting recoverability~~company, ~~identified~~Standard ~~in the first quarter of 2019~~General. AsSee aNote ~~result~~22, ~~there~~“Subsequent ~~are no~~Events” ~~goodwill~~to orour ~~intangible~~condensed consolidated ~~assets~~financial ~~balances~~statements ~~remaining~~for infurther ~~our Insurance segment~~information.

In addition, Maidstone is subject to certain risk-based capital (“RBC”) requirements as specified by the National Association of Insurance Commissioners (“NAIC”). Under such requirements, the amount of capital and surplus maintained by a property and casualty insurance company is to be determined on various risk factors including risk-based capital ratios. In August 2019, the Company reported a negative statutory capital and surplus to the NYSDFS. The NYSDFS requested that the Company consent to an Order of Liquidation to effect a liquidation of the Company by the NYSDFS. On August 7, 2019, Maidstone consented to the filing of a petition for the entry of an Order of Liquidation. As of September 30, 2019, the NYSDFS had not yet filed the petition for entry of the Order of Liquidation.

Segment Information

We operate in ~~five~~four reportable segments; (1) Smokeless products, (2) Smoking products, (3) NewGen products, ~~(4) Insurance~~ and (54) Other, which includes our out-of-home advertising business and SDI holding company, as well as certain unallocated Turning Point amounts. Turning Point’s Smokeless products segment, Smoking products segment and NewGen products segment are described above within Overview of Turning Point – Products. ~~The Insurance segment products include auto and homeowners property and casualty insurance.~~

As a result of the approval of the Order of Liquidation on February 13, 2020 and the disposal of our Insurance segment, including its classification as a discontinued operation, we no longer report an Insurance segment.

Critical Accounting Policies and Uses of Estimates

~~There~~Other than the update below, there have been no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Form 10-K for the year ended December 31, ~~2018~~2019, filed with the Securities and Exchange Commission on March 1116, ~~2019~~2020.

Discontinued Operations

A business is classified as discontinued operations if the disposal represents a strategic shift that will have a major effect on operations or financial results and meets the criteria to be classified as held for sale or is disposed of by sale or otherwise. Significant judgments are involved in determining whether a business meets the criteria for discontinued operations reporting and the period in which these criteria are met. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. Accounting Standards Update (“ASU”) 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.

Recent Accounting Pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Quarterly Report for a description of recently issued accounting pronouncements, including those recently adopted.

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~~Consolidated~~ Results of Operations

The table and discussion set forth below relate to our condensed consolidated results of operations:. The results of the Insurance segment were reclassified to discontinued operations as of February 13, 2020 as a result of the approval of the Order of Liquidation. As such, the Insurance segment is included in our net loss from discontinued operations, in the table below.

Comparison of the Three Months Ended ~~September~~March 3031, ~~2019~~2020 to the Three Months Ended ~~September~~March 3031, ~~2018~~2019

	Three Months Ended September 30,
	Three Months Ended March 31,						% Change
(in thousands)	2019			2018			% Change
(In thousands, except percentage change)	2020			2019
Revenues
Net Sales:
Smokeless Products	$	26,~~187~~495		$	2122,~~743~~544			2017.45	%
Smoking Products		3028,~~222~~914			2825,~~079~~519			713.63	%
NewGen Products		4035,~~391~~280			3343,~~527~~565			20-19.50	%
Insurance		6,544			7,560			-13.4	%
Other		679			681			-0.3	%
Other		720			686			5.0	%
Total net sales		91,368			92,309			-1.0	%
Total revenues	$	104,064		$	91,595			13.6	%
Cost of sales		49,928			51,784			-3.6	%
Operating Income
Gross Profit:
Smokeless Products	$	9,392		$	5,861			60.2	%
Smokeless products		13,874			12,073			14.9	%
Smoking Products		12,931			10,861			19.1	%
Smoking products		16,132			13,484			19.6	%
NewGen Products		(1,233	)		2,539			-148.6	%
NewGen products		11,425			14,907			-23.4	%
Insurance		(249	)		(909	)		-72.6	%
Other		9			61			-85.2	%
Other		(9,230	)		(7,463	)		23.7	%
Total gross profit		41,440			40,525			2.3	%
Total operating income		11,611			10,889			6.6	%
Selling, general and administrative expenses		34,777			30,733			13.2	%
Interest expense		4,680			4,450			5.2	%
Total operating income		6,663			9,792			-32.0	%
Interest and investment income		(777	)		(243	)		219.8	%
Interest expense, net		5,863			4,473			31.1	%
Loss on extinguishment of debt		2,117			-			100.0	%
Investment income		(91	)		(144	)		-36.8	%
Net periodic benefit income, excluding service cost		(1287	)		(4511	)		~~-73~~690.39	%
Income before income taxes		~~5,603~~978			65,~~727~~474			-1682.71	%
Income tax expense		~~2,236~~946			1,~~436~~774			55-46.7	%
Net income		3,367			5,291			-36.4	%
Net income from continuing operations		32			3,700			-99.1	%
Amounts attributable to noncontrolling interests		(3,133	)		(3,924	)		-20.2	%
Net income attributable to noncontrolling interests		(1,637	)		(3,260	)		-49.8	%
Net income attributable to SDI	$	234		$	1,367			-82.9	%
Net (loss) income from continuing operations attributable to SDI		(1,605	)		440			-464.8	%
Net loss from discontinued operations, net of tax		(1,712	)		(3,983	)		-57.0	%
Net loss attributable to SDI	$	(3,317	)	$	(3,543	)		-6.4	%

~~Total~~Net ~~revenues~~sales. For the three months ended ~~September~~March 3031, ~~2019~~2020, ~~total~~consolidated ~~revenues~~net ~~were~~sales ~~$104.1~~decreased ~~million,~~to ~~an increase of~~ $1291.54 million, ~~or 13.6%,~~ from $9192.6 3 million for the three months ended ~~September~~March 3031, ~~2018. The increase in total revenue was primarily driven by volume growth across all Turning Point segments in~~ 2019, ~~partially~~a ~~offset~~decrease byof a $0.9 million or 1.0%. ~~million~~The ~~reduction~~decrease in ~~insurance~~net ~~premiums~~sales ~~earned~~was asprimarily ~~a result~~driven ofby ~~the~~lower ~~decision~~volume toin ~~cease~~Turning ~~writing~~Point’s ~~new~~NewGen ~~policies~~segment ~~during~~in ~~2019~~2020.

~~Total operating income.~~ For the three months ended ~~September~~March 3031, ~~2019~~2020, ~~total~~net ~~operating~~sales ~~income~~in ~~was~~the ~~$11.6~~Smokeless ~~million,~~products ansegment ~~increase~~increased ofto $026.75 million, ~~or 6.6%,~~ from $1022.95 million for the three months ended ~~September~~March 3031, ~~2018.~~2019, ~~This~~an increase ~~was~~of ~~primarily~~$4.0 ~~due~~million toor ~~increases~~17.5%. inFor ~~Turning~~the ~~Point’s~~three ~~operating~~months ~~income~~ended inMarch ~~the~~31, ~~Smokeless~~2020, volume increased 16.7% and ~~Smoking~~price/mix ~~Products~~increased ~~segments~~0.8%. ~~These~~The ~~increases~~increase ~~were~~in ~~partially~~net ~~offset~~sales was primarily driven by the continuing double-digit ~~shift~~volume togrowth anof ~~operating~~Stoker’s® ~~loss~~MST inpartially ~~Turning~~offset ~~Point's~~by ~~NewGen~~declining ~~Products~~sales ~~segment~~in ~~driven~~chewing ~~primarily~~tobacco, bylargely attributable ~~$2.0~~to ~~million~~long-term ofsegment ~~new~~erosion, ~~product~~and ~~launch~~a ~~costs~~continuing ofshift ~~Nu-X~~to lower price products.

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~~Interest expense.~~ For the three months ended ~~September~~March 3031, ~~2019~~2020, ~~interest~~net ~~expense~~sales ~~was~~in the Smoking products segment increased to $428.79 million ~~compared~~from to $425.5 million for the three months ended ~~September~~ 30March 31, ~~2018.~~2019, ~~This~~an increase of $03.24 million ~~was~~or ~~primarily~~13.3%. ~~due~~For tothe athree ~~higher~~months ~~average~~ended ~~outstanding~~March ~~debt~~31, ~~balances~~2020, asvolume aincreased ~~result~~10.9% ofand ~~the~~price/mix ~~Convertible~~increased ~~Senior~~2.4%. ~~Notes~~The ~~entered~~increase ~~into~~in ~~during~~net ~~the~~sales ~~three~~is ~~months~~primarily ~~ended~~related ~~September~~to 30double digit growth in US rolling papers, ~~2019~~partially offset by a $0.5 million decline in non-focus cigars and MYO pipe.

~~Interest~~For ~~and~~the ~~investment~~three ~~income.~~months ~~Interest~~ended ~~and~~March ~~investment~~31, ~~income~~2020, ~~relating~~net tosales ~~investment~~in of the ~~MSA~~NewGen ~~escrow~~products ~~deposits~~segment asdecreased ~~well~~to as$35.3 ~~SDI’s~~million ~~cash~~from ~~and cash equivalents was~~ $043.86 million for the three months ended ~~September~~March 3031, 2019, ~~compared~~a todecrease of $08.23 million ~~for~~or 19.0%. The decrease in net sales is the ~~three~~result ~~months~~of ~~ended~~the ~~September~~continued 30impact of vapor market disruption and wind-down of the V2 business, partially ~~2018~~offset by positive contributions from CBD, Solace and other Nu-X products.

~~Loss on extinguishment of debt.~~ For the three months ended ~~September~~March 3031, 2020 and 2019, wenet ~~had~~sales ain ~~loss~~the onOther ~~extinguishment~~segment ofwas ~~debt of~~ $20.17 million, ~~due~~all toof ~~Turning Point~~which ~~paying~~relates ~~off~~to the ~~2018~~Standard ~~Second~~Outdoor ~~Lien Credit Facility and SDI paying off the Crystal Term Loan~~business. ~~For the three months ended September 30, 2018, there was no gain or loss on extinguishment of debt.~~

~~Net~~Gross ~~periodic~~profit. ~~benefit~~For ~~income~~the three months ended March 31, ~~excluding~~2020, ~~service~~consolidated ~~cost~~gross profit increased to $41.4 ~~For~~million from $40.5 million for the three months ended ~~September~~March 3031, 2019, ~~net~~an ~~periodic~~increase ~~benefit~~of ~~income,~~$0.9 ~~excluding~~million ~~service~~or ~~cost was~~2.3%. ~~approximately~~Gross ~~$12,000~~profit as a percentage of ~~income~~revenue ~~compared~~increased to ~~approximately $~~45~~,000~~.4% for the three months ended ~~September~~March 3031, ~~2018~~2020, compared to 43.9% for the three months ended March 31, 2019.

~~Income before income taxes.~~ For the three months ended ~~September~~March 3031, ~~2019~~2020, ~~income~~gross ~~before~~profit ~~income~~in ~~taxes~~the ~~was~~Smokeless products segment increased to $513.69 million ~~compared~~from to $612.71 million for the three months ended ~~September~~March 3031, ~~2018.~~2019, ~~This~~an increase ~~decrease~~ of $1.18 million ~~was~~or ~~primarily~~14.9%. ~~due~~Gross profit as a percentage of net sales decreased to 52.4% of net sales for the ~~factors~~three ~~noted~~months ~~above~~ended March 31, 2020, from 53.6% of net sales for the three months ended March 31, 2019, primarily as a as a result of mix.

~~Income~~For ~~tax~~the ~~expense~~three months ended March 31, 2020, gross profit in the Smoking products segment increased to $16.1 ~~Our~~million ~~income~~from ~~tax~~$13.5 ~~expense~~million ~~was~~for the three months ended March 31, 2019, an increase of $2.26 million or 19.6%. Gross profit as a percentage of net sales increased to 55.8% of net sales for the three months ended ~~September~~March 3031, 2020, from 52.8% of net sales for the three months ended March 31, 2019, as a result of increased US rolling paper sales and isa ~~attributable~~continued todecline ~~Turning~~in ~~Point’s~~the ~~income~~low margin cigar business. ~~Income~~ ~~tax~~For ~~expense~~the ~~was~~three months ended March 31, 2020 cigar sales were $0.7 million compared to $1.41 million for the three months ended ~~September~~March 3031, ~~2018~~2019.

~~Net~~For ~~income~~the three months ended March 31, 2020, gross profit in the NewGen products segment decreased to $11.4 ~~Due~~million from $14.9 million for the three months ended March 31, 2019, a decrease of $3.5 million or 23.4%. Gross profit as a percentage of net sales decreased to 32.4% of net sales for the ~~factors~~three ~~described~~months ~~above~~ended March 31, 2020, from 34.2% of net ~~income~~sales for the three months ended ~~September~~March 3031, 2019 ~~and~~as ~~2018~~a ~~was~~result of the decline in net sales. For the three months ended March 31, 2020, gross profit included $32.48 million ~~and~~of tariff expenses compared to $52.30 million for the three months ended March 31, ~~respectively~~ 2019.

~~Amounts~~For ~~attributable to noncontrolling interests. Income attributable to noncontrolling interests of $3.1 million and $3.9 million for~~ the three months ended ~~September~~March 3031, ~~2019~~2020 and ~~2018~~2019, ~~respectively,~~gross ~~was~~profit ~~related~~in to the ~~shareholders~~Other ofsegment ~~Turning~~was ~~Point~~approximately ~~other~~$9,000 ~~than~~and ~~SDI.~~$61,000, ~~The~~respectively, ~~decrease~~all ~~was~~of ~~directly~~which ~~attributable~~relates to the ~~decrease~~Standard inOutdoor ~~Turning Point’s net income~~business.

~~Net~~Selling, ~~income~~general, ~~attributable~~and toadministrative ~~SDI~~expenses. For the three months ended ~~September~~March 3031, ~~2019~~2020, ~~net~~selling, ~~income~~general, ~~attributable~~and administrative expenses increased to ~~SDI~~$34.8 ~~was~~million from $30.7 million for the three months ended March 31, 2019, an increase of $4.0 million or 13.2%. ~~million~~Selling, ~~compared~~general toand ~~net~~administrative ~~income~~expenses in the three months ended March 31, 2020 included $0.5 million of Turning Point stock options, restricted stock and incentives expense, $1.40 million ~~for~~of Turning Point transaction expenses and $5.9 million of expense related to PMTA. Selling, general and administrative expenses in the three months ended ~~September~~March 3031, ~~2018~~2019 included $0.7 million of stock option, arestricted ~~decrease~~stock and incentives expense, $0.9 million of transaction costs, $1.10 million orin 82corporate and vapor restructuring and $0.9%4 million of new product launch costs for Nu-X products. ~~This~~The ~~decrease~~Other ~~was~~segment, which aincludes ~~result~~the corporate expenses of ~~the~~SDI ~~items~~and ~~discussed~~Standard ~~above~~Outdoor included $2.4 million and $2.3 million of selling, general and administrative expenses for three months ended March 31, 2020 and 2019, respectively.

57Total operating income. For the three months ended March 31, 2020, total operating income was $6.7 million, a decrease of $3.1 million, or 32.0%, from $9.8 million for the three months ended March 31, 2019. This decrease was primarily due to increases in Turning Point’s selling, general and administrative expenses for the three months ended March 31, 2020, as described above.

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~~Comparison~~Interest ofexpense, net. For the ~~Nine~~three ~~Months~~months ~~Ended~~ended ~~September~~March 3031, ~~2019~~2020, interest expense, net was $5.9 million compared to $4.5 million for the ~~Nine~~three ~~Months~~months ended ~~Ended~~March ~~September~~31, 302019. This increase of $1.4 million was primarily as a result of the amortization of the debt discount on the Convertible Senior Notes of $1.8 million, ~~2018~~from $3.9 million for the three months ended March 31, 2019. Increased interest expense also resulted from the higher overall average outstanding debt balance of SDI.

	Nine Months Ended September 30,
(in thousands)	2019			2018			% Change
Revenues
Smokeless Products	$	74,907		$	66,900			12.0	%
Smoking Products		81,104			84,403			-3.9	%
NewGen Products		125,756			87,089			44.4	%
Insurance		21,958			22,775			-3.6	%
Other		2,115			1,764			19.9	%
Total revenues	$	305,840		$	262,931			16.3	%
Operating Income
Smokeless Products	$	26,610		$	21,049			26.4	%
Smoking Products		33,251			31,855			4.4	%
NewGen Products		9,056			5,511			64.3	%
Insurance		(8,622	)		259			-3429.0	%
Other		(28,453	)		(24,646	)		15.4	%
Total operating income		31,842			34,028			-6.4	%
Interest expense		13,529			12,556			7.7	%
Interest and investment income		(1,115	)		(620	)		79.8	%
Loss on extinguishment of debt		2,267			2,384			-4.9	%
Net periodic benefit (income) expense, excluding service cost		(34	)		176			-119.3	%
Income before income taxes		17,195			19,532			-12.0	%
Income tax expense		6,569			4,153			58.2	%
Net income		10,626			15,379			-30.9	%
Amounts attributable to noncontrolling interests		(12,973	)		(9,962	)		30.2	%
Net (loss) income attributable to SDI	$	(2,347	)	$	5,417			-143.3	%

Investment income. Investment income relating to investment of the MSA deposits was approximately $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

~~Total~~Net ~~revenues~~periodic benefit income, excluding service cost. For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, ~~total~~net ~~revenues~~periodic ~~were~~benefit ~~$305.8 million~~income, anexcluding ~~increase~~service ofcost was approximately $420.91 million, orcompared ~~16.3%,~~to ~~from~~approximately $~~262.9 million~~11,000 for the ~~nine~~three months ended ~~September~~March 3031, ~~2018. The increase in total revenues was primarily driven by volume growth in Turning Point’s NewGen segment which includes an additional eight additional months of IVG results in~~ 2019~~, and sales from Turning Point’s newly launched Nu-X alternative products~~.

~~Total~~Income ~~operating~~before income taxes. For the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, ~~total~~income ~~operating~~before income taxes was $311.80 million, acompared ~~decrease~~to of $25.25 million, ~~or 6.4%, from $34.0 million~~ for the ~~nine~~ three months ended ~~September~~March 3031, ~~2018~~2019. This decrease ~~was primarily due to impairment losses recorded on our goodwill and other intangible assets in our Insurance segment~~ of $24.85 million. ~~This impairment loss~~ was ~~coupled~~ ~~with~~primarily adue combined $6.1 million of higher other operating expenses and incurred losses and loss adjustment expenses in our Insurance segment. The increased expenses are partially offset by Turning Point’s net $5.5 million gain related to ~~the~~ ~~settlement of~~ the ~~VMR~~factors ~~Distribution~~noted ~~and Supply agreement (VMR Agreement) during the second quarter of 2019, as well as $1~~above.~~0 million less of transactional costs.~~

58Income tax expense. Our income tax expense of $0.9 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively and was solely related to Turning Point and the income before income taxes of Turning Point. Turning Point’s income tax expense was 22.4% of income before income taxes for the three months ended March 31, 2020, compared to and 21.3% for the three months ended March 31, 2019.

Net income from continuing operations. Due to the factors described above, net income for the three months ended March 31, 2020 and 2019 was approximately $32,000 and $3.7 million, respectively.

Net income attributable to noncontrolling interests. Income attributable to noncontrolling interests of $1.6 million and $3.3 million for the three months ended March 31, 2020 and 2019, respectively, was related to the shareholders of Turning Point other than the Company. The decrease was directly attributable to the decrease in Turning Point’s net income.

Net (loss) income from continuing operations attributable to SDI. For the three months ended March 31, 2020, net loss from continuing operations attributable to SDI was $1.6 million compared to net income of $0.4 million for the three months ended March 31, 2019, a decrease of $2.0 million or 463.9%. This decrease was a result of the items discussed above.

Net loss from discontinued operations, net of tax. Due to the approval of the Order of Liquidation on February 13, 2020, we reclassified the results of our Insurance segment to discontinued operations. The current and prior period amounts relate entirely to the net loss of our Insurance segment. For the three months ended March 31, 2020, the net loss from discontinued operations, net of tax of $1.7 million consisted of the loss on disposal of the Insurance segment of $1.0 million and the net loss on operations of $0.7 million for the period from January 1, 2020 to February 13, 2020. For the three months ended March 31, 2019, the net loss from discontinued operations, net of tax of $4.0 million included an impairment loss on goodwill and other intangible assets of $2.8 million and a loss from operations of $1.6 million. These losses were offset by an income tax benefit of $0.4 million for the three months ended March 31, 2019.

Net loss attributable to SDI. For the three months ended March 31, 2020, net loss attributable to SDI was $3.3 million compared to $3.5 million for the three months ended March 31, 2019, an increase of $0.2 million or 6.5%. This increase was a result of the items discussed above.

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Interest expense. For the nine months ended September 30, 2019, interest expense was $13.5 million compared to $12.6 million for the nine months ended September 30, 2018. This increase of $0.9 million was primarily due to a higher average outstanding debt balances and higher interest rates during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

Interest and investment income. Interest and investment income relating to investment of the MSA escrow deposits as well as SDI’s cash and cash equivalents was approximately $1.1 million for the nine months ended September 30, 2019, compared to $0.6 million for the nine months ended September 30, 2018.

Loss on extinguishment of debt. For the nine months ended September 30, 2019, loss on extinguishment of debt was $2.3 million as the result of Turning Point’s payment on its 2018 Second Lien Credit Facility and SDI’s repayment of the Crystal Term Loan. For the nine months ended September 30, 2018, loss on extinguishment of debt was $2.4 million as a result of Turning Point refinancing its credit facility in the first quarter of 2018.

Net periodic benefit (income) expense, excluding service cost. For the nine months ended September 30, 2019, net periodic benefit (income) expense, excluding service cost was approximately $34,000 of income compared to $0.2 million for the nine months ended September 30, 2018.

Income before income taxes. For the nine months ended September 30, 2019, income before income taxes was $17.2 million compared to $19.5 million for the nine months ended September 30, 2018. This decrease of $2.3 million was primarily due to the factors noted above.

Income tax expense. Our income tax expense was $6.6 million for the nine months ended September 30, 2019 and attributable to Turning Point’s income offset by an increase in income tax benefit on Maidstone due to a reversal of deferred tax liability, which provided an income tax benefit during the nine months ended September 30, 2019. Income tax expense was $4.2 million for the nine months ended September 30, 2018.

Net income. Due to the factors described above, net income for the nine months ended September 30, 2019 and 2018 was $10.6 million and $15.4 million, respectively.

Amounts attributable to noncontrolling interests. Income attributable to noncontrolling interests of $13.0 million and $10.0 million for the nine months ended September 30, 2019 and 2018, respectively, was related to the shareholders of Turning Point other than SDI and was directly attributable to the increase in Turning Point’s net income.

Net (loss) income attributable to SDI. For the nine months ended September 30, 2019, net loss attributable to SDI was $(2.3) million compared to net income of $5.4 million for the nine months ended September 30, 2018, a decrease of $7.7 million or 143.3%. This decrease was a result of the items discussed above.

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Segment Results of Operations

Turning Point and Other segment

The table and discussion set forth below relate to the results of operations of the three Turning Point segments, as well as our Other reportable segment, which includes non-allocated amounts of Turning Point, SDI and Standard Outdoor:

Comparison of the Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018

	Three Months Ended September 30,
(in thousands)	2019		2018		% Change
Net sales
Smokeless products	$	26,187	$	21,743		20.4	%
Smoking products		30,222		28,079		7.6	%
NewGen products		40,391		33,527		20.5	%
Other		720		686		5.0	%
Total net sales		97,520		84,035		16.0	%
Cost of sales		54,636		47,742		14.4	%
Gross profit
Smokeless products		13,587		11,020		23.3	%
Smoking products		16,619		14,814		12.2	%
NewGen products		12,610		10,377		21.5	%
Other		68		82		-17.1	%
Total gross profit		42,884		36,293		18.2	%
Selling, general and administrative expenses		31,024		24,495		26.7	%
Operating income	$	11,860	$	11,798		0.5	%

Net sales. For the three months ended September 30, 2019, overall net sales increased to $97.5 million from $84.0 million for the three months ended September 30, 2018, an increase of $13.5 million or 16.0%. The increase in net sales was primarily driven by Turning Point volume growth across all segments in 2019.

For the three months ended September 30, 2019, net sales in the Smokeless products segment increased to $26.2 million from $21.7 million for the three months ended September 30, 2018, an increase of $4.4 million or 20.4%. For the three months ended September 30, 2019, volume increased 15.1% and price/mix increased 5.3%. The increase in net sales was primarily driven by the continuing double-digit volume growth of Stoker’s® MST partially offset by declining sales in chewing tobacco, largely attributable to long-term segment erosion, and a continuing shift to lower price products.

For the three months ended September 30, 2019, net sales in the Smoking products segment increased to $30.2 million from $28.1 million for the three months ended September 30, 2018, an increase of $2.1 million or 7.6%. For the three months ended September 30, 2019, volume increased 3.6% and price/mix increased 4.0%. The increase in net sales is primarily related to increased wrap sales.

For the three months ended September 30, 2019, net sales in the NewGen products segment increased to $40.4 million from $33.5 million for the three months ended September 30, 2018, an increase of $6.9 million or 20.5%. The increase in net sales was primarily driven by $6.3 million of Nu-X alternative products sales in the quarter (which includes our acquisition of Solace) and an additional two months of IVG net sales in 2019, offset by declines in the existing vapor businesses in September.

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For the three months ended September 30, 2019 and 2018, net sales in the Other segment was $0.7 million, all of which relates to the Standard Outdoor business.

Gross profit. For the three months ended September 30, 2019, gross profit increased to $42.9 million from $36.3 million for the three months ended September 30, 2018, an increase of $6.6 million or 18.2%. Gross profit as a percentage of revenue was 44.0% for the three months ended September 30, 2019 and 43.2% for the three months ended September 30, 2018.

For the three months ended September 30, 2019, gross profit in the Smokeless products segment increased to $13.6 million from $11.0 million for the three months ended September 30, 2018, an increase of $2.6 million or 23.3%. Gross profit as a percentage of net sales increased to 51.9% of net sales for the three months ended September 30, 2019, from 50.7% of net sales for the three months ended September 30, 2018, primarily as a result of increased MST volume.

For the three months ended September 30, 2019, gross profit in the Smoking products segment increased to $16.6 million from $14.8 million for the three months ended September 30, 2018, an increase of $1.8 million or 12.2%. Gross profit as a percentage of net sales increased to 55.0% of net sales for the three months ended September 30, 2019, from 52.8% of net sales for the three months ended September 30, 2018, as a result of increased wrap sales and a continued decline in the low margin cigar business. For the three months ended September 30, 2019 cigar sales were $1.0 million compared to $1.3 million for the three months ended September 30, 2018.

For the three months ended September 30, 2019, gross profit in the NewGen products segment increased to $12.6 million from $10.4 million for the three months ended September 30, 2018, an increase of $2.2 million or 21.5%. Gross profit as a percentage of net sales increased to 31.2% of net sales for the three months ended September 30, 2019, from 31.0% of net sales for the three months ended September 30, 2018, primarily as a result of the addition of proprietary Nu-X CBD and IVG, a business-to-consumer operation which generally has higher margins. For the three months ended September 30, 2019, gross profit included $2.6 million of tariff expenses.

For the three months ended September 30, 2019 and 2018, gross profit for the Other segment was $0.1 million, respectively, all of which relates to the Standard Outdoor business.

Selling, general and administrative expenses. For the three months ended September 30, 2019, selling, general and administrative expenses increased to $31.0 million from $24.5 million for the three months ended September 30, 2018, an increase of $6.5 million or 26.7%. Selling, general and administrative expenses included $3.7 million of expense relating to the inclusion of an additional two months of IVG activity, $2.0 million of new product launch costs for Nu-X products and $1.0 million of stock options, restricted stock and incentives expense. The increased expenses were offset by $0.6 million less of transactional costs for the three months ended September 30, 2019 as compared to three months ended September 30, 2018.

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Comparison of the Nine Months Ended September 30, 2019 to the Nine Months Ended September 30, 2018

	Nine Months Ended September 30,
(in thousands)	2019		2018		% Change
Net sales
Smokeless products	$	74,907	$	66,900		12.0	%
Smoking products		81,104		84,403		-3.9	%
NewGen products		125,756		87,089		44.4	%
Other		2,115		1,764		19.9	%
Total net sales		283,882		240,156		18.2	%
Cost of sales		159,217		136,147		16.9	%
Gross profit
Smokeless products		39,723		34,546		15.0	%
Smoking products		43,841		43,158		1.6	%
NewGen products		40,899		26,111		56.6	%
Other		202		194		4.1	%
Total gross profit		124,665		104,009		19.9	%
Selling, general and administrative expenses		84,201		70,240		19.9	%
Operating income	$	40,464	$	33,769		19.8	%

Net sales. For the nine months ended September 30, 2019, overall net sales increased to $283.9 million from $240.2 million for the nine months ended September 30, 2018, an increase of $43.7 million or 18.2%. The increase in net sales was primarily driven by volume growth in the NewGen segment which includes an additional eight months of IVG results in 2019, and sales from the newly launched Nu-X alternative products.

For the nine months ended September 30, 2019, net sales in the Smokeless products segment increased to $74.9 million from $66.9 million for the nine months ended September 30, 2018, an increase of $8.0 million or 12.0% primarily due to the continuing volume growth of Stoker’s® MST.

For the nine months ended September 30, 2019, net sales in the Smoking products segment decreased to $81.1 million from $84.4 million for the nine months ended September 30, 2018, a decrease of $3.3 million or 3.9%. The net sales decline is primarily attributable to the delay of Canadian paper orders in the first half of the year as a result of new packaging regulations in Canada and declining sales in the low-margins cigar business.

For the nine months ended September 30, 2019, net sales in the NewGen products segment increased to $125.8 million from $87.1 million for the nine months ended September 30, 2018, an increase of $38.7 million or 44.4%. The increase in net sales was primarily driven by $11.4 million of Nu-X alternative products sales year to date (including the Solace acquisition) and an additional eight months of IVG net sales in 2019.

For the nine months ended September 30, 2019, net sales in the Other segment was $2.1 million, compared to $1.8 million for the nine months ended September 30, 2018. The increase in net sales of $0.3 million in Other related to Standard Outdoor’s out-of-home advertising business, driven by a full three quarters of results on two asset acquisitions, which were acquired during the nine months ended September 30, 2018.

Gross profit. For the nine months ended September 30, 2019, gross profit increased to $124.7 million from $104.0 million for the nine months ended September 30, 2018, an increase of $20.7 million or 19.9%. Gross profit as a percentage of revenue was 43.9% for the nine months ended September 30, 2019 and 43.3% for the nine months ended September 30, 2018. The increase in gross profit was primarily due to higher margins in the Smokeless segment from increased MST volume and higher margins in the NewGen segment resulting from the addition of proprietary Nu-X CBD and IVG, a business-to-consumer operation which generally has higher margins.

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For the nine months ended September 30, 2019, gross profit in the Smokeless products segment increased to $39.7 million from $34.5 million for the nine months ended September 30, 2018, an increase of $5.2 million or 15.0%. Gross profit as a percentage of net sales increased to 53.0% of net sales for the nine months ended September 30, 2019, from 51.6% of net sales for the nine months ended September 30, 2018. The increase in gross profit as a percentage of revenue is primarily due to efficiencies realized in the growing Stoker’s® MST line.

For the nine months ended September 30, 2019, gross profit in the Smoking products segment increased to $43.8 million from $43.2 million for the nine months ended September 30, 2018, an increase of $0.7 million or 1.6%. Gross profit as a percentage of net sales increased to 54.1% of net sales for the nine months ended September 30, 2019, from 51.1% of net sales for the nine months ended September 30, 2018, as a result of a continued decline in the low margin cigar business.

For the nine months ended September 30, 2019, gross profit in the NewGen products segment increased to $40.9 million from $26.1 million for the nine months ended September 30, 2018, an increase of $14.8 million or 56.6%. Gross profit as a percentage of net sales increased to 32.5% of net sales for the nine months ended September 30, 2019, from 30.0% of net sales for the nine months ended September 30, 2018, primarily as a result of the addition of proprietary Nu-X CBD and IVG, a business-to-consumer operation which generally has higher margins. For the nine months ended September 30, 2019, gross profit included $6.6 million of tariff expenses.

For the nine months ended September 30, 2019 and 2018, gross profit for the Other segment was $0.2 million, all of which relates to the Standard Outdoor business.

Selling, general and administrative expenses. For the nine months ended September 30, 2019, selling, general and administrative expenses increased to $84.2 million from $70.2 million for the nine months ended September 30, 2018, an increase of $14.0 million or 19.9%. The increase was related to $13.9 million of an additional eight months of IVG expenses, $2.2 million additional compensation expense related to stock options, restricted stock and incentives expense and $3.7 million additional new product launch costs for Nu-X products. The increased expenses are partially offset by a net $5.5 million gain related to the settlement of the VMR Distribution and Supply agreement (VMR Agreement) during the second quarter of 2019, as well as $1.0 million less of transactional costs. Refer to Note 21, “Legal Settlement”, of Notes to Consolidated Financial Statements for additional information on the settlement.

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Insurance Segment

The table and discussion set forth below relate to the results of operations of our Insurance segment:

Comparison of the Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018

	For the Three Months Ended
(in thousands)	September 30, 2019			September 30, 2018			% Change
Insurance premiums earned	$	6,055		$	7,088			-14.6	%
Net investment income		210			309			-32.0	%
Other income		279			163			71.2	%
Total revenues		6,544			7,560			-13.4	%
Incurred losses and loss adjustment expenses		4,790			5,790			-17.3	%
Other operating expenses		2,003			2,679			-25.2	%
Total operating costs and expenses		6,793			8,469			-19.8	%
Loss before income taxes		(249	)		(909	)		-72.6	%
Net loss	$	(249	)	$	(909	)		-72.6	%

Insurance premiums earned. For the three months ended September 30, 2019, insurance premiums earned decreased by approximately $1.0 million, or 14.6%, to $6.1 million, as compared to $7.1 million for the three months ended September 30, 2018. We are no longer writing new policies in the Insurance segment.

Net investment income. For the three months ended September 30, 2019 net investment income decreased by approximately $0.1 million to $0.2 million, as compared to $0.3 million for the three months ended September 30, 2018. This was primarily due to a decrease in our fixed maturity available for sale securities balance since the third quarter of 2018.

Other income. We recognized $0.3 million of other income for the three months ended September 30, 2019, compared to $0.2 million for the three months ended September 30, 2018. Other income includes service and takeout fees, installment and late fees collected by Maidstone, and broker fees collected from non-affiliated insurance companies when acting as an agent. Service and takeout fees are in the form of credits for writing business from the state assigned pool. These credits can be used to reduce the amount of business written in the future or sold to third-party insurance companies for them to reduce their exposure to the assigned risk pool.

Incurred losses and loss adjustment expenses. For the three months ended September 30, 2019, incurred losses and loss adjustment expenses were $4.8 million, a decrease of $1.0 million, or 17.3%, compared to $5.8 million for the three months ended September 30, 2018. These amounts are based on individual case estimates for reported claims and a factor for incurred but not reported (“IBNR”) claims.

Other operating expenses. We incurred other expenses of $2.0 million for the three months ended September 30, 2019 compared to $2.7 million for the three months ended September 30, 2018, a decrease of $0.7 million. The decrease was due to a decrease in other operating expenses of $0.8 million and an increase in policy acquisition costs of $0.1 million. Other operating expenses consists of acquisition and underwriting expenses, salaries and benefits, depreciation, amortization and other general and administrative expenses.

Net loss. Due to the decrease in incurred losses and loss adjustment expenses combined with the decrease in other operating expenses, which exceeded the decrease in revenues, net loss for the three months ended September 30, 2019 was $0.2 million, compared to net loss of $0.9 million for the three months ended September 30, 2018, for the insurance business.

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Comparison of the Nine Months Ended September 30, 2019 to the Period January 2, 2018 to September 30, 2018

(in thousands)	For the Nine Months Ended September 30, 2019			For the Period from January 2, 2018 to September 30, 2018		% Change
Insurance premiums earned	$	20,362		$	21,539		-5.5	%
Net investment income		767			679		13.0	%
Other income		829			557		48.8	%
Total revenues		21,958			22,775		-3.6	%
Incurred losses and loss adjustment expenses		20,506			17,007		20.6	%
Impairment loss on goodwill and other intangible assets		2,826			-		100.0	%
Other operating expenses		7,248			5,509		31.6	%
Total operating costs and expenses		30,580			22,516		35.8	%
(Loss) income before income taxes		(8,622	)		259		-3429.0	%
Income tax benefit		(420	)		-		100.0	%
Net (loss) income	$	(8,202	)	$	259		-3266.8	%

Insurance premiums earned. For the nine months ended September 30, 2019, insurance premiums earned decreased by $1.1 million, or 5.5%, to $20.4 million, as compared to $21.5 million for the period from January 2, 2018 to September 30, 2018. We are no longer writing new policies in the Insurance segment.

Net investment income. For the nine months ended September 30, 2019 net investment income increased by $0.1 million to $0.8 million, as compared to $0.7 million for the period from January 2, 2018 to September 30, 2018.

Other income. We recognized $0.8 million of other income for the nine months ended September 30, 2019, an increase of $0.2 million compared to $0.6 million for the period from January 2, 2018 to September 30, 2018. Other income includes service and takeout fees, installment and late fees collected by Maidstone, and broker fees collected from non-affiliated insurance companies when acting as an agent. Service and takeout fees are in the form of credits for writing business from the state assigned pool. These credits can be used to reduce the amount of business written in the future or sold to third-party insurance companies for them to reduce their exposure to the assigned risk pool.

Incurred losses and loss adjustment expenses. For the nine months ended September 30, 2019, incurred losses and loss adjustment expenses were $20.5 million, an increase of $3.5 million compared to $17.0 million for the period from January 2, 2018 to September 30, 2018. These amounts are based on individual case estimates for reported claims and a factor for incurred but not reported (“IBNR”) claims.

Impairment loss on goodwill and other intangible assets. For the nine months ended September 30, 2019, we recorded an impairment loss of $2.8 million on our Insurance segment goodwill and other intangible assets. There was no impairment loss recorded for the period from January 2, 2018 to September 30, 2018.

Other operating expenses. We incurred other expenses of $7.2 million for the nine months ended September 30, 2019 compared to $5.5 million for the period from January 2, 2018 to September 30, 2018, an increase of $1.7 million. The increase was due to an increase in policy acquisition costs of $2.8 million, including purchase accounting adjustments included in 2018, offset by a decrease in other operating expenses of $1.1 million. Other operating expenses consists of acquisition and underwriting expenses, salaries and benefits, depreciation, amortization and other general and administrative expenses.

Income tax benefit. We recognized $0.4 million of income tax benefit during the nine months ended September 30, 2019 due to the reversal of deferred tax liabilities recorded as a part of the acquisition of Maidstone. No income tax benefit was recorded during the period from January 2, 2018 to September 30, 2018.

Net (loss) income. Due to the impairment loss, coupled with the increases in incurred losses and loss adjustment expenses and other operating expenses, which were not offset by revenues, net loss for the nine months ended September 30, 2019 was $(8.2) million, compared to net income of $0.3 million for the period from January 2, 2018 to September 30, 2018, for the insurance business.

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Liquidity and Capital Resources

~~The~~As ~~following~~mentioned ~~table~~previously, ~~summarizes~~in ~~our~~connection ~~condensed~~with ~~consolidated~~the ~~statements~~closing of ~~cash~~the ~~flows~~proposed ~~for~~Merger with Turning Point, we expect to prepay the ~~nine~~Term ~~months~~Loan ~~ended~~and ~~September~~its $25.0 million outstanding principal balance plus an early termination fee at the time of the Merger. If the closing of the Merger were to occur on or around June 30, ~~2019~~2020, we would incur an early termination fee of approximately $0.6 million and ~~2018:~~this amount would reduce, over time, to its floor of $0.5 million, if prepayment of the Term Loan occurs on or before September 18, 2020. We have classified the Term Loan as a non-current liability as of March 31, 2020 as the Merger is still subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals. In order to raise the capital needed, along with our existing cash on hand, to retire such liabilities, including this indebtedness, we may consider a variety of transactions, including a sale of a portion of our shares of TPB Common Stock.

	Nine months ended September 30,
(In thousands)	2019		2018
Net cash flow provided by (used in):
Operating activities	$	6,669	$	(9,765	)
Investing activities		22,163		(29,765	)
Financing activities		77,027		36,490
Net increase (decrease) in cash	$	105,859	$	(3,040	)

Turning Point’s principal uses for cash are working capital, debt service, and capital expenditures. Turning Point believes its cash flows from operations and borrowing availability under their 2018 Revolving Credit Facility are adequate to satisfy its operating cash requirements for the foreseeable future.

~~Operating~~Our ~~activities. Net~~working ~~cash~~capital, ~~provided~~which ~~by operating~~we ~~activities~~define ~~represents~~as ~~the~~current ~~cash~~assets ~~receipts~~less ~~and~~current ~~cash~~liabilities, ~~disbursements~~decreased ~~from~~by ~~all~~$5.3 ofmillion ~~our~~to ~~activities other than investing activities and financing activities~~$137.3 ~~Changes~~million inat ~~cash~~March ~~from~~31, ~~operating activities reflect~~2020, ~~among~~compared ~~other~~with ~~things,~~$142.6 ~~the~~million ~~timing of~~at ~~cash~~ December ~~collections from customers~~31, ~~payments to suppliers, timing of payments to customers to settle insurance claims and changes in payments related to insurance policy acquisition costs~~2019.

Net cash provided by operating activities was $6.7 million for the nine months ended September 30, 2019, compared to net cash used in operating activities of $9.8 million for the nine months ended September 30, 2018, an increase of $16.5 million. The increase in net cash provided by operating activities was primarily the result of an increase in net cash provided by operations of Turning Point, as Turning Point provided $20.0 million of operating activities cash flow for the nine months ended September 30, 2019, compared to $1.0 million for the nine months ended September 30, 2018, an increase of $19.0 million, primarily due to changes in working capital accounts and increased net income for the current period.

(In thousands)	March 31, 2020		December 31, 2019
Current Assets	$	199,812	$	234,372
Current Liabilities		62,522		91,771
Working Capital	$	137,290	$	142,601

~~Investing~~The ~~activities. Net~~following ~~cash~~table ~~provided~~summarizes byour ~~investing~~condensed ~~activities~~consolidated ~~was~~statements ~~$22.2~~of ~~million for the nine months ended September 30, 2019, compared to net~~ cash ~~used~~flows ~~in investing activities of $29.8 million~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2018.~~2020 The increase in cash provided by investing activities was primarily due to the change in MSA escrow deposits from investments to cash holdings as well as a result of proceeds from the sale and ~~maturity of fixed maturity securities, available-for-sale and lower cash paid for acquisitions in the nine months ending September 30,~~ 2019.:

	Three Months Ended March 31
(In thousands)	2020			2019
Net cash flow provided by (used in) continuing operations:
Operating activities	$	14,125		$	11,852
Investing activities		(5,816	)		801
Financing activities		(11,281	)		(16,613	)
Net decrease in cash from continuing operations		(2,972	)		(3,960	)
Net decrease in cash from discontinued operations		(2,441	)		(1,145	)
Net decrease in cash	$	(5,413	)	$	(5,105	)

Operating activities. Net cash provided by operating activities of continuing operations represents the cash receipts and cash disbursements from all of our activities other than investing activities and financing activities. Changes in cash from operating activities reflect, among other things, the timing of cash collections from customers, payments to suppliers.

Net cash provided by operating activities of continuing operations was $14.1 million, compared to net cash provided by operating activities of $11.9 million for the three months ended March 31, 2019, an increase of $2.2 million, primarily due to changes in working capital accounts.

Investing activities. Net cash used in investing activities of continuing operations was $5.8 million, compared to net cash provided by investing activities of $0.8 million for the three months ended March 31, 2019, a decrease of $6.6 million. This decrease of $6.6 million included a cash outflow from disposal of the Insurance segment of $4.9 million. The remaining decrease in cash used in investing activities of $1.7 million was primarily due to the change in Turning Point’s MSA escrow deposits from investments to cash holdings.

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Financing activities. Net cash used in financing activities was $11.3 million for the three months ended March 31, 2020, compared to net cash used in financing activities of $16.6 million for the three months ended March 31, 2019, an increase of $5.3 million. The increase in cash was primarily due Turning Point’s payment of its revolving credit facility in 2019.

Turning Point Dividends

Turning Point’s most recent dividend of $0.05 per common share was paid on April 10, 2020, to shareholders of record at the close of business on March 20, 2020.

Share Repurchases

On June 29, 2017, our Board of Directors authorized a program, effective immediately, to repurchase shares of our Class A common stock or Class B common stock, par value $0.01 per share, constituting, in the aggregate, up to 5% of the outstanding shares of our common stock. Shares of common stock may be repurchased in the open market or through negotiated transactions. The program may be terminated or suspended at any time at the discretion of the Company. Pursuant to this program, we repurchased 50,000 shares of common stock during the three months ended March 31, 2020 for a cost of $0.7 million at an average price of $14.15 per share.

On February 25, 2020, Turning Point’s Board of Directors approved a $50.0 million share repurchase authorization, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The authorization is subject to the ongoing discretion of the Turning Point Board of Directors. The total number of shares repurchased for the three months ended was 134,130 shares for a total cost of $2.6 million and an average price per share of $19.59.

Long-Term Debt

As of ~~September~~March 3031, ~~2019~~2020, ~~the~~we ~~Company~~were ~~was~~ in compliance with the financial and restrictive covenants in ~~its~~our existing debt instruments. The following table provides outstanding balances under our debt instruments as of:

(In thousands)	~~September~~March 3031, ~~2019~~2020			December 31, ~~2018~~2019
2018 First Lien Term Loan	$	~~148~~144,000		$	~~154~~146,000
2018 Second Lien Term Loan		-			40,000
Convertible Senior Notes		172,500			172,500
SDI Crystal Term Loan		-			15,000
SDI GACP Term Loan		25,000			25,000
SDI GACP Term Loan		25,000			-
Standard Outdoor Promissory Notes		7,242			8,447
Standard Outdoor Promissory Notes		8,584			9,950
Note payable - IVG		-			4,240
Convertible Senior Notes		172,500			-
Gross notes payable and long-term debt		348,742			356,187
Note payable - IVG		4,240			4,000
Less deferred finance charges		(7,191	)		(7,558	)
Total Notes Payable and Long-Term Debt		358,324			222,950
Less debt discount		(30,333	)		(32,083	)
Less: deferred finance charges and debt discount		(12,216	)		(4,903	)
Less current maturities		(13,743	)		(16,977	)
Less: current maturities		(15,958	)		(9,431	)
Net notes payable and long-term debt	$	297,475		$	299,569
	$	330,150		$	208,616

2018 Credit Facility

~~The~~On ~~2018~~March ~~Credit~~7, ~~Facility~~2018, ~~contains~~Turning ~~customary~~Point ~~events~~entered ofinto ~~default~~a ~~including~~$250 ~~payment~~million ~~defaults,~~credit ~~breaches~~facility consisting of ~~representations~~a ~~and~~$160 ~~warranties,~~million ~~covenant~~2018 ~~defaults,~~First ~~cross-defaults~~Lien toTerm ~~certain~~Loan ~~other~~with ~~material indebtedness~~Fifth inThird ~~excess~~Bank, ofas ~~specified~~administrative ~~amounts~~agent, ~~certain~~and ~~events~~other oflenders, and ~~bankruptcy~~a ~~and~~$50 ~~insolvency,~~million ~~certain~~2018 ~~ERISA~~Revolving ~~events,~~Credit ~~judgments~~Facility in(the ~~excess~~“2018 ofSecond ~~specified~~Lien ~~amounts~~Credit Facility,” and, ~~change~~collectively, inthe ~~control~~“2018 ~~defaults.~~First ~~The~~Lien ~~2018~~ Credit Facility”) ~~also~~in ~~contains~~addition ~~certain~~to ~~negative covenants~~a ~~customary~~$40 ~~for~~million ~~facilities~~2018 ofSecond ~~these~~Lien ~~types~~Term ~~including~~Loan ~~covenants~~(together ~~that,~~with ~~subject~~the to2018 ~~exceptions~~First ~~described~~Lien inCredit Facility, the “2018 Credit Facility,”) ~~restrict~~with ~~the~~Prospect ~~ability~~Capital ofCorporation, ~~Turning~~as ~~Point~~administrative ~~and its subsidiary guarantors: (i) to pledge assets~~agent, ~~(ii)~~and toother ~~incur additional indebtedness~~lenders, ~~(iii)~~The to2018 ~~pay~~Credit ~~dividends,~~Facility ~~(iv)~~retained tothe ~~make~~$40 ~~distributions,~~million ~~(v)~~accordion tofeature ~~sell~~of ~~assets,~~the ~~and~~2017 ~~(vi)~~Credit ~~to make investments~~Facility.

~~2018 First Lien Credit Facility~~56

The 2018 First Lien Term Loan and the 2018 Revolving Credit Facility bear interest at LIBOR plus a spread of 2.75% to 3.50% based on Turning Point’s senior leverage ratio. The 2018 First Lien Term Loan has quarterly required payments of $2.0 million beginning June 30, 2018, increasing to $3.0 million on June 30, 2020, and increasing to $4.0 million on June 30, 2022. The 2018 First Lien Credit Facility has a maturity date of March 7, 2023. The 2018 First Lien Term Loan is secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors thereunder, including a pledge of Turning Point’s capital stock, other than certain excluded assets (the “Collateral”). In connection with the Senior Notes offering, we entered into a First Amendment (the “Amendment”) to the First Lien Credit Agreement, with Fifth Third Bank, as administrative agent, and other lenders and certain other lending other lending parties thereto. The Amendment was entered into primarily to permit us to issue up to $200 million of convertible senior notes, enter into certain capped call transactions in connection with the issuance of such notes and to use the proceeds from the issuance of the notes to repay amounts outstanding under our Second Lien Credit Agreement and use the remaining proceeds for acquisitions and investments in connection with the Amendment, fees of $0.7 million were incurred. The 2018 First Lien Credit Facility contains certain financial covenants, which were amended in connection with the Convertible Senior Notes offering in the third quarter of 2019. The covenants include maximum senior leverage ratio of 3.00x with step-downs to 2.50x, a maximum total leverage ratio of 5.50x with step-downs to 5.00x, and a minimum fixed charge coverage ratio of 1.20x. Based on an excess cash covenant for the facility, a principal payment of $4.5 million was due in the second quarter of 2019. All parties agreed to waive the payment, resulting in consent fees of $0.1 million. The weighted average interest rate of the 2018 First Lien Term Loan was 5.04% as of September 30, 2019. As of September 30, 2019, Turning Point had no borrowings outstanding under the 2018 Revolving Credit Facility. The $50.0 million unused portion of the 2018 Revolving Credit Facility is reduced by letters of credit from Fifth Third Bank totaling $2.7 million, resulting in $47.3 million of availability under the 2018 Revolving Credit Facility at September 30, 2019.

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The 2018 ~~Second~~Credit ~~Lien~~Facility contains customary events of default including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, and change in control defaults. The 2018 Credit Facility also contains certain negative covenants customary for facilities of these types including covenants that, subject to exceptions described in the 2018 Credit Facility, restrict the ability of Turning Point and its subsidiary guarantors: (i) to pledge assets, (ii) to incur additional indebtedness, (iii) to pay dividends, (iv) to make distributions, (v) to sell assets, and (vi) to make investments.

2018 First Lien Credit Facility: The 2018 ~~Second~~First Lien Term Loan and the 2018 Revolving Credit Facility ~~bore~~bear interest at LIBOR plus a ~~rate~~spread of 2.75% ~~LIBOR~~to ~~plus 7~~3.0050% based on Turning Point’s senior leverage ratio. The 2018 First Lien Term Loan has quarterly required payments of $2.0 million beginning June 30, 2018, increasing to $3.0 million on June 30, 2020, and ~~had~~increasing to $4.0 million on June 30, 2022. The 2018 First Lien Credit Facility has a maturity date of March 7, ~~2024~~2023. The 2018 ~~Second~~First Lien Term Loan ~~was~~ is secured by a ~~second~~first priority ~~interest~~lien inon substantially all of the assets of the borrowers and the guarantors thereunder, including a pledge of Turning Point’s capital stock, other than certain excluded assets (the “Collateral”). In connection with the Senior Notes offering, we entered into a First Amendment (the “Amendment”) to the First Lien Credit Agreement, with Fifth Third Bank, as administrative agent, and other lenders and certain other lending other lending parties thereto. The Amendment was ~~guaranteed~~entered byinto primarily to permit us to issue up to $200 million of convertible senior notes, enter into certain capped call transactions in connection with the ~~same~~issuance ~~entities~~of assuch notes and to use the proceeds from the issuance of the notes to repay amounts outstanding under our 2018 ~~First~~Second Lien ~~Term~~Credit ~~Loan~~Facility and use the remaining proceeds for acquisitions and investments. In connection with the Amendment, fees of $0.7 million were incurred. The 2018 ~~Second~~First Lien Credit Facility ~~contained~~contains certain financial covenants, ~~including~~which awere amended in connection with the Convertible Senior Notes offering in the third quarter of 2019. The covenants include maximum senior leverage ratio of 3.~~75x~~00x with step-downs to 32.50x, a maximum total leverage ratio of 45.~~75x~~50x with step-downs to 45.~~50x~~00x, and a minimum fixed charge coverage ratio of 1.~~10x~~20x. In the first quarter of 2020, the financial covenants were amended to permit certain add-backs related to PMTA in the definition of Consolidated EBITDA for the period of October 1, 2019 until September 30, 2020. In connection with the amendment, fees of $0.2 million were incurred. Based on an excess cash covenant for the facility, a principal payment of $4.5 million ~~principal payment~~ was ~~made~~due in the second quarter of 2019. All parties agreed to waive the payment, resulting in consent fees of $0.21 million. ~~loss~~The onweighted ~~extinguishment~~average interest rate of ~~debt.~~the ~~Turning~~2018 ~~Point~~First ~~used~~Lien aTerm ~~portion~~Loan ofwas ~~the~~3.74% ~~proceeds~~as ~~from~~of ~~the~~March ~~issuance~~31, of2020. ~~the~~As ~~Convertible~~of ~~Senior~~March ~~Notes~~31, to2020, ~~prepay~~Turning ~~all~~Point ~~outstanding~~had ~~amounts~~no ~~related~~borrowings tooutstanding under the 2018 ~~Second~~Revolving ~~Lien~~ Credit Facility. inThe ~~the~~$50.0 ~~third~~million ~~quarter~~unused portion of ~~2019.~~the ~~The~~2018 ~~principal~~Revolving ~~paid~~Credit Facility inis ~~the~~reduced ~~third~~by ~~quarter~~letters of ~~2019~~credit ~~amounted~~from toFifth Third Bank totaling $353.57 million, ~~and~~resulting ~~the transaction resulted~~ in a $146.23 million ~~loss~~of onavailability ~~extinguishment~~under ofthe ~~debt~~2018 Revolving Credit Facility at March 31, 2020.

2018 Second Lien Credit Facility: The 2018 Second Lien Credit Facility bore interest at a rate of LIBOR plus 7.00% and had a maturity date of March 7, 2024. The 2018 Second Lien Term Loan was secured by a second priority interest in the Collateral and was guaranteed by the same entities as the 2018 First Lien Term Loan. Based on an excess cash covenant for the facility, a $4.5 million principal payment was made in the second quarter of 2019, resulting in $0.2 million loss on extinguishment of debt. Turning Point used a portion of the proceeds from the issuance of the Convertible Senior Notes to prepay all outstanding amounts related to the 2018 Second Lien Credit Facility in the third quarter of 2019. The principal paid in the third quarter of 2019 amounted to $35.5 million, and the transaction resulted in a $1.2 million loss on extinguishment of debt.

Convertible Senior Notes

In July 2019, Turning Point closed an offering of $172.5 million in aggregate principal amount of the 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes will mature on July 15, 2024, unless earlier repurchased, redeemed or converted. The Convertible Senior Notes are senior unsecured obligations.

The Convertible Senior Notes are convertible into approximately 3,202,808 shares of Turning Point voting common stock under certain circumstances prior to maturity at a conversion rate of 18.567 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.86 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. Upon conversion, Turning Point may pay cash, shares of its common stock or a combination of cash and stock, as determined by Turning Point at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of September 30, 2019.57

~~The~~ ~~excess~~Table of the principal amount of the liability over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Convertible Senior Notes using the effective interest rate method.Contents

The Convertible Senior Notes are convertible into approximately 3,202,808 shares of Turning Point ~~incurred~~voting ~~debt~~common ~~issue~~stock ~~costs~~under ~~and~~certain ~~allocated~~circumstances ~~the~~prior ~~total~~to ~~amount~~maturity toat ~~the~~a ~~liability~~conversion ~~and~~rate ~~equity~~of ~~components~~18.567 shares per $1,000 principal amount of the Convertible Senior Notes, ~~based~~which onrepresents ~~their~~a ~~relative~~conversion ~~values.~~price ~~The~~of ~~debt~~approximately ~~issue costs~~$53.86 ~~attributable~~per share, subject to ~~the~~adjustment ~~liability~~under ~~component~~certain ~~are~~conditions, ~~amortized~~but towill not be adjusted for any accrued and unpaid interest. Upon ~~expense~~conversion, ~~over~~Turning ~~the~~Point ~~term~~may pay cash, shares of ~~the~~its ~~Convertible~~common ~~Senior~~stock ~~Notes~~or ~~using~~a ~~the~~combination ~~effective~~of ~~interest~~cash ~~method~~and stock, as determined by Turning Point at its discretion. ~~Issuance~~The ~~costs~~conditions ~~attributable~~required to allow the ~~equity~~holders ~~component~~to ~~were~~convert ~~netted~~their ~~with~~Convertible ~~the~~Senior ~~equity~~Notes ~~component~~ were innot ~~stockholders’~~met ~~equity~~as of March 31, 2020.

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for the issuance of the Convertible Senior Notes, Turning Point separated the Convertible Senior Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated conversion feature. The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the Convertible Senior Notes and the fair value of the liability component of the Convertible Senior Notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”), $35.0 million, will be amortized to interest expense using an effective interest rate of 7.5% over the expected life of the Convertible Senior Notes. The equity component is not remeasured as long as it continues to meet the criteria for equity classification. Interest expense includes $1.8 million of amortization for the three months ended March 31, 2020.

In accounting for the debt issuance costs related to the issuance of the Convertible Senior Notes, Turning Point allocated the total amount incurred to the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component are amortized to the interest expense using the effective interest method over the expected life of the Convertible Senior Notes, $4.7 million, and the debt issuance costs attributable to the equity component, $1.2 million, are netted with the equity component of stockholders’ equity (deficit).

In connection with the Convertible Senior Notes offering, Turning Point entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of $53.86 per and a cap price of $82.86 per and are exercisable when and if the Convertible Senior Notes are converted. Turning Point paid $20.53 million for these capped calls and charged that amount to additional paid-in capital.

Note Payable – IVG

In September 2018, Turning Point issued a note payable to IVG’s former shareholders (the “IVG Note”). The IVG Note iswas $4.0 million principal with 6.0% interest compounding ~~annually~~ annually and ~~matures~~matured on March 5, 2020. All principal and accrued and unpaid interest under the IVG Note iswere subject to indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018. The carrying amount of the IVG Note ~~was~~of $4.2 million aswas deposited into an escrow account pending agreement with the sellers of ~~September~~any ~~30,~~indemnification ~~2019~~obligations.

68Unsecured Loan

~~Table~~On April 6, 2020, Turing Point’s 2018 First Lien Credit Facility was amended to allow for an unsecured loan under the Coronavirus Aid, Relief, and Economic Security Act of ~~Contents~~2020 (“CARES”). On April 17, 2020, National Tobacco Company, L.P., a wholly-owned subsidiary of the Company, entered into a loan agreement with Regions Bank guaranteed by the Small Business Administration for a $7.5 million unsecured loan. The proceeds of the loan were received on April 27, 2020. The loan is scheduled to mature on April 17, 2022 and has a 1.00% interest rate.

SDI Term Loan

On September 18, 2019, we entered into ~~a Term Loan Agreement (~~the “Term Loan Agreement~~”) with GACP II~~, ~~L.P.,~~which aprovided ~~Delaware limited partnership (the “Agent”), as administrative agent and collateral agent~~ for the ~~financial institutions (the “Lenders”). The~~ Term Loan ~~Agreement provides for a term loan~~ of $25.0 million ~~(the “Term Loan”)~~. The Term Loan will be used to (a) repay, in full, all outstanding indebtedness under the Crystal Term Loan, (b) finance the purchase of common stock of Turning Point, (c) finance the repurchase of our common stock, (d) fund certain fees and expenses, and (e) provide working capital.

On ~~February~~Table 2, 2018, we and our Outdoor advertising subsidiaries (the “Borrowers”) entered into a term loan agreement with Crystal Financial LLC (“Crystal Term Loan”). The Crystal Term Loan provided for an initial term loan of $10.0 million and a commitment to provide additional term loans of up to $15.0 million. The Crystal Term Loan bore interest at a rate equal to the three-month “Libor Rate” as published in The Wall Street Journal plus 7.25%. Interest under the Crystal Term Loan agreement was payable monthly and was also subject to an agency fee of $50,000, payable upon execution of the agreement, and annually thereafter. In addition, the Crystal Term Loan was subject to a one-time commitment fee of $350,000, which was paid upon execution of the agreement. The principal balance was payable at maturity, on February 2, 2023. In August 2018, we borrowed an additional $5.0 million under the Crystal Term Loan. This borrowing is subject to the same terms as the initial borrowing. On September 18, 2019, in connection with entering into the Term Loan, all amounts outstanding under the Crystal Term Loan were repaid. The repayment resulted in a $1.0 million loss on extinguishment of debt for the third quarter of 2019.Contents

The Term Loan bears interest at a rate equal to the three-month “Libor Rate” as published in The Wall Street Journal plus 9.00%. Interest under the Term Loan Agreement is payable monthly with the principal balance due on September 18, 2024. The Term Loan was subject to a closing fee of $0.5 million, which was paid upon execution of the Term Loan Agreement. Additionally, the Term Loan is subject to an agent monitoring fee of $25 thousand, payable quarterly. An early termination fee shall be due at any time if on or prior to the third anniversary of the closing of the Term Loan, we prepay or repay (whether voluntarily or mandatorily), or are required to prepay or repay, the Term Loan in whole or in part. Prior to the first anniversary of the closing of the Term Loan, the early termination fee is the greater of (a) 2.0% of amount of the Term Loan or $0.5 million, or (b) the interest on the Term Loan that would have accrued during the first year following closing, less actual interest payments paid through the date of prepayment. Any time after the first anniversary of the closing of the Term Loan and prior to the third anniversary, the early termination fee reduces to 1.0% of the amount of the Term Loan or $0.25 million. Our obligations under the Term Loan Agreement are secured by all of the shares of Turning Point stock owned by us. In connection with the closing of the proposed Merger with Turning Point, as more fully described in Note 22, we expect to prepay the Term Loan at the time of the Merger. The Merger is subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals. We expect the transaction to close in the summer of 2020. If the closing of the Merger were to occur on or around June 30, 2020, we would incur an early termination fee of approximately $0.6 million and this amount would reduce, over time, to its floor of $0.5 million, if prepayment occurs on or before September 18, 2020. We have classified the Term Loan as a non-current liability as of March 31, 2020 as the Merger is still subject to customary closing conditions, including approval by holders of a majority of the aggregate voting power of the SDI Common Stock and the receipt of any applicable regulatory approvals. In order to raise the capital needed, along with its existing cash on hand, to retire such liabilities, including this indebtedness, we may consider a variety of transactions, including a sale of a portion of our shares of TPB Common Stock.

With respect to the maintenance of at least $2.0 million in unrestricted cash and cash equivalents in accounts subject to control agreements in favor of the Agent, as of March 31, 2020, we had approximately $7.1 million in unrestricted cash and cash equivalents in those accounts.

On September 18, 2019, in connection with entering into the Term Loan Agreement, we repaid in full all amounts outstanding under the term loan agreement with Crystal Financial LLC (“Crystal Term Loan”).

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Standard Outdoor Promissory Notes

On January 18, 2018, as partial consideration for an asset purchase of 83 billboard structures located in Alabama, as well as the ground leases and advertising contracts relating to such billboard structures, we issued a promissory note with a face value of $6.5 million. The promissory note was recorded net of a discount of $0.9 million, representing the difference between the face value and fair value at issuance. This discount will be amortized into interest expense using the effective interest rate method over the term of the promissory note. A principal payment of $1.0 million on the promissory note is payable January 1 of each year, beginning January 1, 2020 and ending January 1, 2022, with a $3.5 million final principal payment on January 1, 2023. The promissory note has a 5% fixed coupon interest rate and interest is payable quarterly.

On February 20, 2018, as partial consideration for an asset purchase of 86 billboard structures located in Georgia and Florida, as well as the ground leases and advertising contracts relating to such billboard structures, we issued a promissory note with a face value of $3.5 million. The promissory note was recorded net of a discount of $0.3 million, representing the difference between the face value and fair value at issuance. This discount will be amortized into interest expense using the effective interest rate method over the term of the promissory note. Principal payments began on March 1, 2019, with the remaining principal paid down monthly through March 1, 2022. The promissory note has a 5% fixed coupon interest rate and interest is payable monthly after March 1, 2019.

On April 7, 2020, the Company transferred its equity interest in Standard Outdoor, which included the transfer of the remaining $7.2 million of Standard Outdoor’s outstanding indebtedness, included in the table above. See Note 22, “Subsequent Events” for further information.

Off-balance Sheet Arrangements

During the ~~nine~~three months ended ~~September~~March 3031, 2020 and the year ended December 31, 2019 Turning Point did not execute any forward contracts. ~~During~~At ~~2018~~March 31, 2020, and December 31, 2019, Turning Point ~~executed~~did ~~various~~not have any forward contracts,. ~~none~~Turning ~~of which~~Point ~~met~~had ~~hedge~~swap ~~accounting~~contracts ~~requirements,~~ for ~~the~~a ~~purchase~~notional amount of ~~€14.5~~$70 million ~~with~~at ~~maturity~~March ~~dates~~31, ~~ranging~~2020 ~~from~~and ~~March~~December ~~2018~~31, ~~to January~~ 2019. AtThe ~~September~~fair ~~30,~~values ~~2019,~~of ~~and~~the ~~December~~swap ~~31,~~contracts ~~2018,~~are ~~Turning~~based ~~Point~~upon ~~had~~quoted ~~forward~~market ~~contracts~~prices ~~for~~and ~~the~~resulted in ~~purchase~~a liability of €0$4.0 8 million and €1$2.5 million, respectively, as of March 31, 2020 and December 31, 2019, included in other long-term liabilities.

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Inflation

We believe any effect of inflation at current levels will be minimal. Historically, Turning Point has been able to increase prices at a rate equal to, or greater than, the rate of inflation and believes it will continue to be able to do so for the foreseeable future. In addition, Turning Point has been able to been able to maintain a relatively stable, variable cost structure for ~~our~~its products due, in part, to its successful procurement ~~activities regarding~~with regard to its tobacco products and, in part, to its existing contractual agreement for the purchase of its premium cigarette papers.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

~~Foreign~~Not ~~Currency Sensitivity~~applicable.

There have been no material changes in our exposure to exchange rate fluctuation risk, as reported within our 2018 Annual Report on Form 10-K, during the three months ended September 30, 2019. Please refer to our “Quantitative and Qualitative Disclosures about Market Risk” included in our 2018 Annual Report on Form 10-K filed with the SEC on March 11, 2019.

Credit Risk

There have been no material changes in our exposure to market risk during the three months ended September 30, 2019. Please refer to our “Quantitative and Qualitative Disclosures about Market Risk” included in our 2018 Annual Report on Form 10-K, filed with the SEC on March 11, 2019.

Interest Rate Sensitivity

Turning Point’s March 2018 refinancing resulted in all of its long-term debt instruments having variable interest rates that fluctuate with market rates. To reduce the volatility of future cash flows, Turning Point entered into interest rate swap agreements with lenders under the 2018 Credit Facility in March 2018. As of September 30, 2019, $70 million of Turning Point’s outstanding long-term debt carrying variable rates is covered by the interest rate swap agreements and, thus, effectively bears interest at a fixed rate. Turning Point believes the effect, if any, of reasonably possible near-term changes in interest rates on its consolidated financial position, results of operations, or cash flows would not be significant. A 1% increase in the interest rate would change pre-tax income by approximately $0.8 million per year. Refer to Note 4, “Derivative Instruments” of the notes to condensed consolidated financial statements for additional information regarding the interest rate swaps.

SDI also has exposure to interest rate volatility as a result of the Term Loan. The Term Loan bears interest at variable rates based on a rate equal to the three-month Libor Rate plus 9.00%. A 1% increase in the interest rate would change pre-tax income by approximately $0.3 million per year. We believe the effect, if any, of reasonably possible near-term changes in interest rates on our condensed consolidated financial position, results of operations, or cash flows would not be significant.

Maidstone’s primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because its investments are primarily in marketable debt securities. Maidstone’s available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio an immediate 10% change in interest rates would not have a material effect on the fair market value of Maidstone’s portfolio.

In July 2019, Turning Point issued Convertible Senior Notes with an aggregate principal amount of $172.5 million. Turning Point carries the Convertible Senior Notes at face value less amortized discount on the balance sheet. Since the Convertible Senior Notes bear interest at a fixed rate, Turning Point has no financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Senior Notes changes when the market price of our stock fluctuates, or interest rates change.

Item 4.

Controls and Procedures

WeThe ~~have~~Company’s ~~carried out an evaluation~~management, ~~under the supervision and~~ with the participation of ~~our~~the ~~management,~~Company’s ~~including our Interim~~ Chief Executive Officer and ~~Interim~~ Chief Financial Officer, ofhas evaluated the effectiveness of the ~~design~~Company’s ~~and operation of our~~ disclosure controls and procedures (as ~~defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act~~ of ~~1934,~~March ~~as amended (the “Act”)) as of September 30~~31, ~~2019~~2020. Based ~~upon~~on that evaluation, ~~our Principal~~the Company’s Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that ~~our~~the Company’s disclosure controls and procedures ~~are~~were effective toas ~~provide~~of ~~reasonable~~March ~~assurance that information required to be disclosed by us in the reports that we file or submit under the Act is: (i) recorded~~31, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures2020.

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Changes in Internal Control Over Financial Reporting

~~There~~Other than the steps taken by Turning Point to remediate their material weakness described in our 2019 Annual Report on Form 10-K under “Management’s Report on Internal Control over Financial Reporting”, there were no material changes in the Company’s internal ~~controls~~control over financial reporting during the ~~most~~first ~~recent~~quarter ~~fiscal~~of ~~quarter~~2020.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

We are a party from time to time to various proceedings in the ordinary course of business. For a description of the Master Settlement Agreement, to which Turning Point is a party, see “Notes to Consolidated Financial Statements - Note 2 Summary of Significant Accounting Policies: Risk and Uncertainties.” Other than the proceedings mentioned below, there is no material litigation, arbitration or governmental proceeding currently pending against us or any of our officers or directors in their capacity as such, and we and our officers and directors have not been subject to any such proceeding.

Other major tobacco companies are defendants in product liability claims. In a number of these cases, the amounts of punitive and compensatory damages sought are significant and could have a material adverse effect on ~~our~~Turning Point’s business and results of operations. Turning Point is ~~a defendant in certain cases which have been dormant for many years, which cases have now been dismissed with prejudice. Turning Point is~~ subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or consumption of e-liquids and may be subject to claims in the future relating to ~~our~~its other NewGen products. Turning Point is still evaluating these claims and the potential defenses to them. For example, Turning Point did not design or manufacture the products at issue; rather, ~~Turning Point~~ it was merely the distributor. Nonetheless, there can be no assurance that Turning Point will prevail in these cases, and they could have a material adverse effect on ~~Turning~~our ~~Point’s~~financial ~~business~~position, ~~and~~ results of operations~~. Because of their relative novelty~~, ~~electronic~~or ~~cigarette~~cash ~~and vaporizer product manufacturers and sellers have only recently become subject to litigation~~flows.

Turning Point’s ~~engaged~~franchisors inare ~~discussions~~defendants ~~and~~from ~~mediation~~time ~~with~~to ~~VMR,~~time ~~which~~in ~~was~~the ~~acquired~~ordinary incourse ~~2018~~of business. ~~Pursuant~~In tocertain aof ~~Distribution~~these ~~and~~cases, ~~Supply~~the ~~agreement~~amounts ~~(“VMR~~of ~~Agreement”),~~punitive ~~VMR~~and ~~was~~compensatory damages sought ~~providing~~ are significant. One of Turning Point’s ~~with~~subsidiaries V2is ~~e-cigarettes~~a ~~for~~defendant ~~the~~in ~~exclusive~~a ~~distribution~~lawsuit inbrought ~~bricks-and-mortar~~by ~~stores~~a infranchisee, ~~the~~which ~~United~~claim ~~States.~~has ~~Under~~been ~~the~~filed ~~terms~~but ofnot ~~the~~yet ~~VMR~~served. ~~Agreement,~~In inthat case, the ~~event~~franchisee ofis ~~termination~~seeking ~~following~~compensatory aand ~~change~~punitive indamages ~~control,~~and ~~the~~rescission ~~acquirer was~~of ~~required~~ their tofranchise ~~make~~agreement, aalleging ~~payment~~that to Turning Point’s ~~under~~subsidiary afailed ~~formula~~to ~~designed~~make tocertain ~~provide~~disclosures ~~Turning~~in ~~Point~~the ~~with~~Franchise aDisclosure ~~fair~~Document. ~~share~~The ofsubsidiary ~~the~~is ~~value~~evaluating ~~created~~these byclaims, ~~Turning~~the ~~Point’s~~potential ~~performance~~defenses ~~under~~to ~~the~~them ~~VMR~~as ~~Agreement~~well as available counterclaims. The ~~discussions~~subsidiary ~~have~~believes ~~been~~that ~~completed~~termination ~~and~~of ~~Turning~~the ~~Point received~~franchise ~~$6.7~~agreement ~~million~~was inproper, no damages are due and the ~~second~~franchisee ~~quarter~~is ofbound ~~2019~~by toan ~~settle~~arbitration ~~the~~agreement ~~issue.~~pursuant ~~Net~~to the terms of ~~legal~~their ~~costs~~franchise agreement and ~~reserves~~the ~~for~~Franchise Disclosure ~~anticipated~~Document ~~future~~(and ~~returns~~therefore ~~associated~~it ~~with~~was ~~the~~improper ~~discontinuance,~~to ~~Turning~~pursue ~~Point~~litigation). ~~recorded~~There acan ~~$5.5~~be ~~million~~no ~~gain~~assurance inthat ~~the~~Turning ~~second~~Point ~~quarter~~will prevail in this case, ~~which is~~and ~~recorded~~it ascould have a ~~reduction~~material toadverse ~~selling,~~effect ~~general,~~on our business and ~~administrative~~results ~~expenses~~of operations.

Turning Point has several subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products. As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. Turning Point expects that its subsidiaries will be subject to some such cases and information requests. In the acquisition of the vapor businesses, Turning Point negotiated financial “hold-backs”, which Turning Point expects to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits. To the extent that litigation becomes necessary, Turning Point believes that the subsidiaries have strong factual and legal defenses against claims that it unfairly marketed vapor products.61

On October 8, 2019, the City of New York filed a complaint against twenty-three companies, including IVG and VaporFi, making various allegations including selling to consumers over the age of 18 but under 21. In response, those subsidiaries have ceased all sales into New York City, which was an immaterial market for those businesses. The complaint has not been served on Turning Point’s subsidiaries. If the complaint is served, Turning Point believes that there are strong defenses and expect that the subsidiaries will vigorously defend the claims. Nonetheless, there can be no assurance that Turning Point will prevail, and an adverse result could have a material adverse effect on our business and results of operations.

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~~See~~Turning ~~“Risk~~Point ~~Factors—We~~has ~~may~~several ~~become~~subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products. As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. Turning Point’s subsidiaries are subject to ~~significant~~some ~~product~~information ~~liability~~requests. ~~litigation~~In the acquisition of the vapor businesses, Turning Point negotiated financial “hold-backs”, ~~within~~which ~~our~~Turning ~~2018~~Point ~~Annual~~expects ~~Report~~to onbe ~~Form~~able to use to defray expenses ~~10-K~~ associated ~~for~~with ~~additional~~the ~~details~~information production and the cost of defending any such lawsuits as well as the franchisee lawsuit. To the extent that litigation becomes necessary, Turning Point believes that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed vapor products.

See “Risk Factors—We may become subject to significant product liability litigation” within our 2019 Annual Report on Form 10-K for additional details.

Item 1A.

Risk Factors

In addition to the other information set forth in this ~~Quarterly Report on Form 10-Q~~report, carefully consider the factors discussed in ~~Part~~the ~~I, “Item 1A.~~ ‘Risk Factors”’ insection ~~our~~contained Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 11, 2019, which could materially affect our business, financial condition or future results. Except as set forth below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in our 2019 Annual Report on Form 10-K.

~~Some~~Risks ofRelated ~~Turning Point’s products are subject~~ to ~~developing~~the ~~and unpredictable regulation.~~Merger

~~Some~~The ofpending ~~Turning~~Merger ~~Points~~with ~~NewGen~~Turning ~~products~~Point ~~marketed~~is ~~through its Nu-X subsidiary and similar third-party products sold through its NewGen distribution vehicles may be~~ subject to ~~uncertain~~approval ~~federal, state~~of ~~and~~the ~~local~~Merger ~~regulations~~Agreement ~~concerning~~by ~~hemp,~~our ~~CBD~~stockholders and ~~other non-tobacco consumable products. Enforcement initiatives~~ by ~~those authorities are therefore unpredictable and impossible to anticipate.~~ Turning Point ~~anticipates that all levels of government are likely to seek in some way to regulate these products~~, ~~but~~as the ~~type,~~sole equityholder ~~timing, and impact~~ of ~~such~~Merger ~~regulations remains uncertain~~

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