What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-05 · 150 added, 131 removed, 466 unchanged (38% of the section changed)

4 unchanged sentences

(Amounts in Thousands, Except Share and Per Share Amounts)

September 30,

Current assets:

19 unchanged sentences

$0.001 par value—100,000 shares authorized;

0 shares issued and outstanding at June 30, 2020 and December 31, 2019

0 shares issued and outstanding at September 30, 2020 and December 31, 2019

Stockholders’ deficit:

1 unchanged sentence

$0.001 par value—100,000,000 shares authorized;

11,229,819 and 11,224,191 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

11,230,482 and 11,224,191 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Capital deficiency

7 unchanged sentences

(Amounts in Thousands, Except Share and Per Share Amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total net sales

12 unchanged sentences

Interest, net

Foreign currency (loss)

Other (expense) income, net

Foreign currency gain (loss)

Other income (expense), net

Total other expense, net

(Loss) income from continuing operations before income taxes

Income tax benefit (expense)

Income from continuing operations before income taxes

Income tax (expense) benefit

Net income (loss) from continuing operations

1 unchanged sentence

Net income (loss)

Basic net income (loss) per share from continuing operations:

Diluted net income (loss) per share from continuing operations:

Basic net income (loss) per share:

Diluted net income (loss) per share:

Basic and Diluted net income (loss) per share from continuing operations:

Basic and Diluted net income (loss) per share:

Basic weighted-average shares outstanding:

12 unchanged sentences

earnings (loss)

March 31, 2020

June 30, 2020

Shares issued under stock-based compensation plans

Stock-based compensation

Components of comprehensive (loss) income:

June 30, 2020

September 30, 2020

comprehensive

4 unchanged sentences

Components of comprehensive (loss) income:

June 30, 2020

September 30, 2020

comprehensive

earnings (loss)

March 31, 2019

June 30, 2019

Shares issued under stock-based compensation plans

2 unchanged sentences

Reclassification adjustment to foreign currency loss

June 30, 2019

September 30, 2019

comprehensive

6 unchanged sentences

Reclassification adjustment to foreign currency loss

June 30, 2019

September 30, 2019

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

(Amounts in Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

1 unchanged sentence

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Loss (income) from discontinued operation

Loss from discontinued operations

Depreciation and amortization expense

12 unchanged sentences

Cash provided by (used in) operating activities - continuing operations

Cash provided by (used in) operating activities - discontinued operation

Cash used in operating activities - discontinued operations

Investing activities

28 unchanged sentences

The Company defines “Financial Payment Cards” as credit, debit and Prepaid Debit Cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® in the United States and Interac, in Canada).

We define “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account.

The Company defines “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account.

The Company also offers an instant card issuance solution, which provide card issuing bank customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.

5 unchanged sentences

After the payment of liabilities and transaction costs, including employee termination costs, the sale did not have a significant impact on cash, and no significant loss on sale was recorded.

In connection with the disposition of the Canadian subsidiary, the Company released the related cumulative translation adjustment of $1,329 from “Accumulated Other Comprehensive Loss” on the condensed consolidated balance sheet into “Foreign Currency Loss” on the condensed consolidated statement of operations during the six months ended June 30, 2019.

The Canadian subsidiary was not a significant operating segment and was part of the Other reportable segment.

4 unchanged sentences

The adverse effects of the COVID-19 pandemic have become widespread, including in the locations where the Company operates and its custom ers and suppliers conduct business.

The health and safety of CPI’s employees remains paramount, and the Company continues to follow the safety precautions and other appropriate measures recommended by the Centers for Disease Control and Prevention.

The health and safety of CPI’s employees remains paramount, and the Company continues to follow response protocols based on precautions and other appropriate measures recommended by the Centers for Disease Control and Prevention as well as various state and local executive orders, health orders and guidelines.

All of CPI’s operations remain open and continue to provide direct and essential support to the financial services industry.

Ho wever, the Company may experience constrained supply, curtailed customer demand or impacts on CPI’s workforce that could materially adversely impact the business, results of operations and overall financial performance in future periods.

While CPI’s net sales in the second quarter and first half of 2020 increased over the prior year, the Company experienced lower customer demand than expected (which CPI believes is primarily attributable to the COVID-19 pandemic), and the Company may experience further effects in the Company’s results of operations and overall financial performance in future periods.

T he Company may experience constrained supply, curtailed customer demand or impacts on CPI’s workforce that could materially adversely impact the business, results of operations and overall financial performance in future periods.

While CPI’s net sales in the third quarter and first nine months of 2020 increased over the prior year, the Company experienced lower customer demand than expected (which CPI believes is primarily attributable to the COVID-19 pandemic), and the Company may experience further effects in the Company’s results of operations and overall financial performance in future periods.

There can be no assurance that the Company’s strategies will be successful in effectively managing the Company’s resources and mitigating the negative impact of the COVID-19 pandemic on the business and operating results.

See Part II, Item 1A – Risk Factors in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 for further discussion of the possible impact of the COVID-19 pandemic on the business.

See Part II, Item 1A – Risk Factors in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 for further discussion of the possible impact of the COVID-19 pandemic on the business.

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law.

The CARES Act, among other things, includes provisions relating to refundable payroll

tax credits, deferment of employer side social security payments, changes in net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

CPI is continuing to evaluate the applicability of the CARES Act to the Company, and the potential impacts on the business.

Refer to Note 12, Income Taxes – Continuing Operations, for a discussion of the CARES Act income tax refund the Company has applied for.

In addition, the Company has applied for the deferment of employer side social security payments during the second quarter of 2020.

While the Company is participating in certain programs under the CARES Act, the Act and its guidance are subject to change, and there is no guarantee that CPI will continue to meet eligibility requirements or that such programs will provide meaningful benefit to the Company.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, changes in net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

CPI is continuing to evaluate and apply certain provisions of the CARES Act that may benefit the Company.

Refer to Note 12, Income Taxes – Continuing Operations, for a discussion of the CARES Act income tax impacts.

In addition, the Company has deferred employer side social security payments starting with the second quarter of 2020.

While the Company is participating in certain programs under the CARES Act, the Act and its guidance are subject to change.

Basis of Presentation

20 unchanged sentences

The effective date of ASU 2016-13 was amended by ASU 2019-10, Credit Losses Effective Dates.

Since CPI is a smaller reporting company, adoption of this accounting standard is effective for the Company for fiscal years

beginning after December 15, 2022, and interim periods therein, with early adoption permitted.

Since CPI is a smaller reporting company, adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods therein, with early adoption permitted.

The Company has elected not to early adopt this accounting standard in the current fiscal year 2020.

The Company is evaluating the impact of adoption of this standard, and does not anticipate the application of ASU 2016-13 will have a material impact on the Company’s consolidated financial position and results of operations.

The Company is evaluating the impact

of adoption of this standard, and does not anticipate the application of ASU 2016-13 will have a material impact on the Company’s consolidated financial position and results of operations.

Adjustment of Prior Period Financial Statements for Immaterial Items

In accordance with Securities and Exchange Commission Staff Accounting Bulletin 99, Materiality, codified in ASC 250, Presentation of Financial Statements, the Company corrected two immaterial items relating to estimated sales tax expense and depreciation expense for all prior periods presented by revising the condensed consolidated financial statements and other financial information included herein.

The total impact on prior years for estimated sales tax expense was $1,907 and depreciation expense was $476.

These adjustments represent the expenses pertaining to the period of 2017 to 2020, including an increase to estimated sales tax expense recorded in Selling, General and Administrative expenses (“SG&A”) of $168 and $396, and depreciation expense in Cost of sales of $62 and $187, for the three and nine months ended September 30, 2019, respectively.

In addition, the Company recorded sales tax expense in SG&A of $293 and depreciation expense of $124 for the nine months ended September 30, 2020.

The estimated sales tax expense determined during the quarter ended June 30, 2020 was $2,700, and the estimate reduced primarily due to probable customer collections of $500, resulting in $2,200 estimated expense recorded to the prior periods of 2017 to 2020.

The Company disaggregates its net sales by major source as follows:

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Debit and Credit

4 unchanged sentences

In most instances, this occurs over time as cards are manufactured for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed.

For work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

For work performed but not completed and

unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

Items included in “Products” net sales are manufactured Financial Payment Cards, including contact-EMV ® , dual-interface EMV, contactless and magnetic stripe cards, Second Wave TM , metal, private label credit cards and retail gift cards.

3 unchanged sentences

and other countries and an unregistered trademark elsewhere.

The EMV trademark is owned by EMVCo, L LC .

The EMV trademark is owned by EMV Co, L LC .

Services Net Sales

15 unchanged sentences

The Company did not retain significant continuing involvement with the discontinued operation subsequent to the disposal.

The impact of the discontinued operations was insignificant to the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2020 and 2019.

The impact of the discontinued operations was insignificant to the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2020 and 2019.

Accounts Receivable

Accounts receivable consisted of the following:

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Inventories consisted of the following:

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

Plant, equipment, leasehold improvements and operating lease right-of-use assets consisted of the following:

June 30, 2020

September 30, 2020

December 31, 2019

6 unchanged sentences

Operating lease right-of-use assets, net of accumulated amortization

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $3,005 and $3,104 for the three months ended June 30, 2020 and 2019, respectively, and $6,034 and $6,163 for the six months ended June 30, 2020 and 2019, respectively.

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $2,831 and $3,167 for the three months ended September 30, 2020 and 2019, respectively, and $8,989 and $9,455 for the nine months ended September 30, 2020 and 2019, respectively.

Operating lease right-of-use assets, net of accumulated amortization, are further described in Note 10, Financing and Operating Leases.

Goodwill and Other Intangible Assets

The Company reports all of its goodwill in its Debit and Credit segment at June 30, 2020 and December 31, 2019.

The Company reports all of its goodwill in the Debit and Credit segment at September 30, 2020 and December 31, 2019.

Goodwill is tested for impairment at least annually on October 1 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable.

The Company did not identify a triggering event requiring a quantitative test for impairment as of June 30 , 2020.

The potential negative implications of COVID-19, and a related potential decline in the Company’s total fair value of invested capital and financial performance for reporting units with goodwill, could require the Company to perform a quantitative test for goodwill impairment in future quarters.

The Company did not identify a triggering event requiring a quantitative test for impairment as of September 30 , 2020.

Intangible assets consist of customer relationships, technology and software, trademarks and non-compete agreements.

Intangible amortization expense was $1,149 and $1,164 for the three months ended June 30, 2020 and 2019, respectively, and $2,298 and $2,328 for the six months ended June 30, 2020 and 2019.

At June 30, 2020 and December 31, 2019, intangible assets, excluding goodwill, were comprised of the following:

June 30, 2020

Intangible amortization expense was $1,149 and $1,159 for the three months ended September 30, 2020 and 2019, respectively, and $3,447 and $3,487 for the nine months ended September 30, 2020 and 2019.

At September 30, 2020 and December 31, 2019, intangible assets, excluding goodwill, were comprised of the following:

September 30, 2020

December 31, 2019

4 unchanged sentences

Intangible assets subject to amortization

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of June 30, 2020 was as follows:

2020 (excluding the six months ended June 30, 2020)

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of September 30, 2020 was as follows:

2020 (excluding the nine months ended September 30, 2020)

Fair Value of Financial Instruments

7 unchanged sentences

Fair Value as of

Fair Value Measurement at June 30, 2020

Fair Value Measurement at September 30, 2020

September 30,

(Using Fair Value Hierarchy)

11 unchanged sentences

Accrued liabilities consisted of the following:

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

Accrued employee performance bonus

Employer payroll tax, including social security deferral

Accrued rebates

3 unchanged sentences

Total accrued expenses

The sales tax liability is further described in Note 15, Commitments and Contingencies.

The estimated sales tax liability is further described in Note 15, Commitments and Contingencies and Note 1, Business Overview and Summary of Significant Accounting Policies.

Financing and Operating Leases

5 unchanged sentences

The right to control is deemed to occur when the Company has the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets.

As a result of the adoption of ASC 842, the Company recorded $8,025 of operating ROU assets, and corresponding operating lease liabilities of $8,813 on January 1, 2019, relating to existing real estate operating leases.

As a result of the adoption of ASC 842, the Company recorded

$8,025 of operating ROU assets, and corresponding operating lease liabilities of $8,813 on January 1, 2019, relating to existing real estate operating leases.

The components of operating and finance lease costs were as follows:

1 unchanged sentence

Three Months Ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Total operating lease costs

3 unchanged sentences

Total financing lease costs

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Total operating lease costs

4 unchanged sentences

The following table reflects balances for operating and financing leases:

June 30, 2020

September 30, 2020

December 31, 2019

13 unchanged sentences

Financing and operating lease liabilities are recorded in “Accrued expenses” and “Other long-term liabilities.”

Future cash payment with respect to lease obligations as of June 30, 2020 were as follows:

2020 (excluding six months ended June 30, 2020)

Future cash payment with respect to lease obligations as of September 30, 2020 were as follows:

2020 (excluding nine months ended September 30, 2020)

Total lease payments

1 unchanged sentence

Long-Term Debt

At June 30, 2020 and December 31, 2019, long-term debt consisted of the following:

At September 30, 2020 and December 31, 2019, long-term debt consisted of the following:

September 30,

First Lien Term Loan

5 unchanged sentences

Long-term debt, net of current maturities

(1) The interest rate on the First Lien Term Loan was 6.38%, and 6.71% as of June 30, 2020, and December 31, 2019, respectively.

The interest rate on the Senior Credit Facility, which was entered into on March 6, 2020, was 9.50% as of June 30, 2020.

On August 17, 2015, the Company entered into a first lien credit facility (the “First Lien Credit Facility”) with a syndicate of lenders providing for a $435,000 first lien term loan (the “First Lien Term Loan”) and a $40,000 revolving

credit facility (the “Revolving Credit Facility”).

(1) The interest rate on the First Lien Term Loan was 5.5%, and 6.71% as of September 30, 2020, and December 31, 2019, respectively.

The interest rate on the Senior Credit Facility, which was entered into on March 6, 2020, was 9.5% as of September 30, 2020.

The First Lien Term Loan matures on August 17, 2022 and the Revolving Credit Facility was terminated concurrently with the Company entering into a new senior credit facility on March 6, 2020.

1 unchanged sentence

(now known as CPI CG Inc.) (the “Borrower”), entered into a super senior credit agreement with Guggenheim Credit Services, LLC (“Guggenheim”), Vector Capital Credit Opportunity Master Fund, L.P., Guggenheim, as administrative agent and collateral agent, and certain other lenders from time to time party thereto (the “Senior Credit Agreement” and together with all ancillary documents thereto, the “Senior Credit Facility”).

The Senior Credit Facility matures on May 17, 2022, and provides for the extension of credit to the Borrower in the form of super senior term loans in an aggregate principal amount of $30,000, which ranks senior in priority to the Company’s First Lien Term Loan.

The Senior Credit Facility matures on May 17, 2022, and provides for the extension of credit to the Borrower in the form of super senior term loans in an aggregate principal amount of $30,000, and ranks senior in priority to the Company’s First Lien Term Loan.

The Senior Credit Facility and the First Lien Term Loan are secured by substantially all of the Company’s assets constituting equipment, inventory, receivables, cash and other tangible and intangible property.

14 unchanged sentences

These costs are amortized as an adjustment to interest expense over the life of the borrowing using the effective-interest rate method.

The discount on the Senior Credit Facility was $1,400,

and financing costs were $3,215, and both were recorded as a reduction to the long-term debt balance in the quarter ended March 31, 2020.

The net discount and debt issuance costs on the Senior Credit Facility as included within financing activities on the condensed consolidated statement of cash flows relates to cash flows during the six months ended June 30, 2020.

The discount on the Senior Credit Facility was $1,400, and financing costs were $3,215, and both were recorded as a reduction to the long-term debt balance in the quarter ended March 31, 2020.

Income Taxes – Continuing Operations

During the three months ended June 30, 2020, the Company recognized an income tax benefit of $4,414 on a pre-tax loss of $4,298, compared to an income tax expense of $777 on a pre-tax income of $2,329 for the prior year period.

During the six months ended June 30, 2020, the Company recognized an income tax benefit of $5,357 on pre-tax loss of $2,798, representing an effective income tax rate of 191.5%.

For the six months ended June 30, 2019, the Company recognized an income tax expense of $1,180 on a pre-tax loss of $365, representing an effective income tax rate of (323.3)%.

For the six months ended June 30, 2020 and 2019, the effective tax rate differs from the U.S.

During the three months ended September 30, 2020, the Company recognized an income tax expense of $1,402 on a pre-tax income of $7,211, compared to an income tax expense of $2,258 on a pre-tax income of $1,629 for the prior year period.

During the nine months ended September 30, 2020, the Company recognized an income tax benefit of $2,178 on a pre-tax income of $6,696, representing an effective income tax rate of (32.5%).

For the nine months ended September 30, 2019, the Company recognized an income tax expense of $3,618 on a pre-tax income of $912, representing an effective income tax rate of 396.7%.

For the nine months ended September 30, 2020 and 2019, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

September 30,

Tax at federal statutory rate

7 unchanged sentences

The CARES Act increases the Internal Revenue Code Section 163(j) interest deduction limit for 2019 and 2020, and allows for the acceleration of refunds of alternative minimum tax credits.

For the six months ended June 30, 2020, the Company estimated a tax benefit for certain provisions in the CARES Act including the carryback of losses and the increase to the interest deduction limitation, resulting in a tax rate benefit of 127.9% .

In addition, the Company has recorded a partial valuation allowance due to the limitation on the deductibility of interest expense with an income tax rate impact of 18.9% for the six months ended June 30, 2020.

The Company’s income tax receivable on the condensed consolidated balance sheet as of June 30 , 2020, relates primarily to U.S.

For the nine months ended September 30, 2020, the Company estimated a tax benefit for certain provisions in the CARES Act including the carryback of losses and the increase to the interest deduction limitation, resulting in a tax rate benefit of 54.7%.

In addition, the Company has adjusted the partial valuation allowance due to the limitation on the deductibility of interest expense with an income tax rate benefit during for the nine months ended September 30, 2020.

The Company’s income tax receivable on the condensed consolidated balance sheet as of September 30, 2020, relates primarily to U.S.

federal income tax receivables relating to prior tax years, including NOL carrybacks relating to the CARES Act income tax refund.

Additionally, the income tax receivable relates to tax benefits based on our pre-tax loss and income tax provision through June 30, 2020.

In the six months ended June 30 , 2019, t he effective tax rate differs from the federal U.S.

Additionally, the income tax receivable relates to tax benefits based on our pre-tax income and income tax provision through September 30, 2020.

In the nine months ended September 30, 2019, the effective tax rate differs from the federal U.S.

statutory rate primarily due to the impact of tax expense recorded related to the partial valuation allowance due to the limitation on the deductibility of interest expense.

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net income (loss) from continuing operations

10 unchanged sentences

Net income (loss) per share - Diluted:

The Company reported a net loss for the six months ended June 30, 2019.

Accordingly, the potentially dilutive effect of 864,257 stock options and 11,201 restricted stock units were excluded from the computation of diluted earnings per share as of June 30, 2019, as their inclusion would be anti-dilutive.

The Company reported a net loss for the three and nine months ended September 30, 2019.

Accordingly, the potentially dilutive effect of 840,819 stock options and 9,256 restricted stock units were excluded from the computation of diluted earnings per share as of September 30, 2019, as their inclusion would be anti-dilutive.

Commitments and Contingencies;

18 unchanged sentences

Under the Settlement, (i) all claims that were or could have been asserted in the Derivative Suit were resolved and discharged, (ii) the Company agreed to implement certain corporate governance reforms, and (iii) the Company’s insurer agreed to pay fees and expenses awarded to the plaintiff’s counsel in the amount of $343 and a service award to the plaintiff of a nominal amount.

There was no liability necessary to be recorded for the Settlement as of June 30, 2020, or December 31, 2019.

In addition to the matters described above, the Company is subject to routine legal proceedings in the ordinary course of business.

The Company believes that the ultimate resolution of these matters will not have a material adverse effect on its business, financial condition or results of operations.

There was no liability necessary to be recorded for the Settlement as of September 30, 2020, or December 31, 2019.

In addition to the matters described above, the Company may be subject to routine legal proceedings in the ordinary course of business.

The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations.

Estimated Sales Tax Liability

The Company is in the process of evaluating and finalizing a state sales tax liability analysis for states in which it has economic nexus, and collecting exemption documentation from its customers.

It is probable that the Company will be subject to sales tax liabilities plus interest and penalties in certain states and therefore has estimated a liability of $2,700 as of June 30, 2020, which is included in accrued expenses in the condensed consolidated balance sheets, and selling, general, and administrative expenses in the condensed consolidated statements of operations.

Due to the complexity of the analysis and remaining information needed from customers, the Company expects that this estimate will change in the future and could exceed the original estimate .

In addition, any amounts related to prior sales taxes that are recovered from customers would be recorded in future periods and reduce the estimated expense.

The Company is evaluating a state sales tax liability analysis for states in which it has economic nexus, and collecting exemption documentation from its customers.

It is probable that the Company will be subject to sales tax liabilities plus interest and penalties relating to historical activity in certain states.

The liability for sales tax was estimated and recorded during the quarter ended June 30, 2020, and the Company has estimated a liability of $2,100 as of September 30, 2020, which is recorded in a ccrued expenses in the condensed consolidated balance sheets.

Due to the estimates involved in the analysis, the Company expects that the estimated liability will change in the future, and could exceed the original estimate.

Additionally, the liability may be reduced by the payment of sales tax directly to the applicable states.

A mounts that are recovered from customers will reduce the estimated expense when probable of collection.

Future changes to the liability estimate that impact the condensed consolidated statements of operations will be recorded within selling, general, and administrative expenses.

Litigation Settlement

13 unchanged sentences

The Company had reserved 800,000 shares of common stock for issuance under the Omnibus Plan.

Effective March 25, 2017, the Omnibus Plan was amended and restated, providing for an increase in the number of shares of Common Stock

authorized for issuance thereunder by 400,000.

Effective March 25,

2017, the Omnibus Plan was amended and restated, providing for an increase in the number of shares of common stock authorized for issuance thereunder by 400,000.

The increase was made effective in the fourth quarter of 2017 by stockholder approval in accordance with applicable law, after which the Company had reserved 1,200,000 shares of common stock for issuance.

As of June 30, 2020, there were 367,703 shares available for grant under the Omnibus Plan.

During the six months ended June 30, 2020, and during the fiscal year ended December 31, 2019, the Company did not grant any awards of non-qualified stock options.

As of September 30, 2020, there were 365,967 shares available for grant under the Omnibus Plan.

During the nine months ended September 30, 2020, and during the fiscal year ended December 31, 2019, the Company did not grant any awards of non-qualified stock options.

The following is a summary of the activity in outstanding stock options under the Omnibus Plan:

1 unchanged sentence

Outstanding as of December 31, 2019

Outstanding as of June 30, 2020

Options vested and exercisable as of June 30, 2020

Options vested and expected to vest as of June 30, 2020

Outstanding as of September 30, 2020

Options vested and exercisable as of September 30, 2020

Options vested and expected to vest as of September 30, 2020

The following is a summary of the activity in unvested stock options under the Omnibus Plan:

2 unchanged sentences

Unvested as of December 31, 2019

Unvested as of June 30, 2020

Unvested options as of June 30, 2020, will vest as follows:

Total unvested options as of June 30, 2020

Unvested as of September 30, 2020

Unvested options as of September 30, 2020, will vest as follows:

2020 (excluding nine months ended September 30, 2020)

Total unvested options as of September 30, 2020

The following table summarizes the changes in the number of outstanding restricted stock units:

Outstanding as of December 31, 2019

Outstanding as of June 30, 2020

During the six months ended June 30, 2020, and during the fiscal year ended December 31, 2019, the Company did not grant any awards of restricted stock units.

Unvested restricted stock units of 928 as of June 30, 2020, will vest entirely by the end of 2020.

Outstanding as of September 30, 2020

During the nine months ended September 30, 2020, and during the fiscal year ended December 31, 2019, the Company did not grant any awards of restricted stock units.

Outstanding restricted stock units have vested entirely as of September 30, 2020.

On October 2, 2020, the Company granted 180,001 restricted stock units to employees.

The restricted stock unit awards contain conditions associated with continued employment or service, and generally vest two years from the date of grant.

On the vesting date, shares of common stock will be issued to the award recipients.

During the year ended December 31, 2017, the Company granted awards of 932,837 cash performance units with a grant-date fair value of $663.

These awards settled in cash in three annual payments on the first, second and third

anniversaries of the date of grant.

These awards settled in cash in three annual payments on the first, second and third anniversaries of the date of grant.

The cash performance units were based on the performance of the Company’s stock, measured based on the Company’s stock price at each of the first, second, and third anniversaries of the grant date compared to the Company’s stock price on the date of grant.

1 unchanged sentence

The cash performance units were accounted for as a liability and remeasured to fair value at the end of each reporting period.

During the six months ended June 30, 2020, the third tranche of the cash performance units vested and the Company made a cash payment of $68 to the award recipients.

There are no outstanding cash performance units as of June 30 , 2020.

Compensation expense for the Omnibus Plan for the three months ended June 30, 2020 and 2019 was $18 and $161, respectively.

Compensation expense for the six months ended June 30, 2020 and 2019 was $59 and $308, respectively.

As of June 30, 2020, the total unrecognized compensation expense related to unvested options, and restricted stock units is not significant, and the expense is expected to be recognized over an estimated weighted-average period of less than one year.

During the nine months ended September 30, 2020, the third tranche of the cash performance units vested and the Company made a cash payment of $68 to the award recipients.

There are no outstanding cash performance units as of September 30 , 2020.

Compensation expense for the Omnibus Plan for the three months ended September 30, 2020 and 2019 was $25 and $9, respectively.

Compensation expense for the nine months ended September 30, 2020 and 2019 was $84 and $317, respectively.

As of September 30, 2020, the total unrecognized compensation expense related to unvested options, and restricted stock units is not significant, and the expense is expected to be recognized over an estimated weighted-average period of less than one year.

CPI Holdings I, Inc.

3 unchanged sentences

Under the provisions of the Option Plan, stock options could be granted to employees, directors and consultants at an exercise price greater than or equal to (and not less than) the fair market value of a share on the date the option was granted.

As a result of the Company’s adoption of its Omnibus Plan, no further awards will be made under the Option Plan.

During the year ended December 31, 2019, the remaining 6,600 outstanding shares in the Option Plan were exercised.

As such, there were no outstanding shares remaining as of December 31, 2019 or June 30, 2020.

There was no compensation expense related to options previously granted under the Option Plan, for the three and six months ended June 30 , 2020 and 2019.

Following the Company’s adoption of its Omnibus Plan, no awards have been made under the Option Plan.

All options under the Option Plan were exercised, and there were no outstanding shares remaining.

As such, there were no outstanding shares remaining as of December 31, 2019 or September 30, 2020.

There was no compensation expense related to options previously granted under the Option Plan, for the three and nine months ended September 30 , 2020 and 2019.

Segment Reporting

5 unchanged sentences

The Company’s chief operating decision maker uses EBITDA to perform periodic reviews and comparison of operating trends and to identify strategies to improve the allocation of resources amongst segments.

As of June 30, 2020, the Company’s reportable segments were as follows:

As of September 30, 2020, the Company’s reportable segments were as follows:

● Debit and Credit,

● Prepaid Debit, and

The Other category includes the Company’s corporate office and, for the three and six months ended June 30, 2019, a less significant operating segment that historically derived its revenue from the production of financial payment cards and retail gift cards in Canada.

The Other category includes the Company’s corporate office and, for the three and nine months ended September 30, 2019, a less significant operating segment that historically derived its revenue from the production of financial payment cards and retail gift cards in Canada.

The Company’s Canadian subsidiary was sold on April 1, 2019.

1 unchanged sentence

Performance Measures of Reportable Segments

Net Sales and EBITDA of the Company’s reportable segments for the three and six months ended June 30, 2020 and 2019, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Net Sales and EBITDA of the Company’s reportable segments for the three and nine months ended September 30, 2020 and 2019, were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Debit and Credit

Prepaid Debit

The following table provides a reconciliation of total segment EBITDA from continuing operations to net income (loss) from continuing operations for the three and six months ended June 30, 2020 and 2019:

The following table provides a reconciliation of total segment EBITDA from continuing operations to net income (loss) from continuing operations for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Total segment EBITDA from continuing operations

4 unchanged sentences

Balance Sheet Data of Reportable Segments

Total assets of the Company’s reportable segments at June 30, 2020 and December 31, 2019, were as follows:

June 30, 2020

Total assets of the Company’s reportable segments at September 30, 2020 and December 31, 2019, were as follows:

September 30, 2020

December 31, 2019

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements