What changed in this filing

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Item 1. Financial Statements

2021-08-12 compared with 2021-05-11 · 152 added, 96 removed, 430 unchanged (37% of the section changed)

26 unchanged sentences

$ 0.001 par value— 100,000 shares authorized;

0 shares issued and outstanding at March 31, 2021 and December 31, 2020

0 shares issued and outstanding at June 30, 2021 and December 31, 2020

Stockholders’ deficit:

1 unchanged sentence

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

11,230,482 shares issued and outstanding at March 31, 2021 and December 31, 2020

11,237,056 and 11,230,482 shares issued and outstanding at June 30, 2021 and December 31, 2020

Capital deficiency

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total net sales

14 unchanged sentences

Total other expense, net

Income from continuing operations before income taxes

Income (loss) from continuing operations before income taxes

Income tax (expense) benefit

2 unchanged sentences

Basic and diluted earnings per share:

Earnings per share from continuing operations - Basic and Diluted:

Earnings per share - Basic and Diluted:

Basic earnings per share from continuing operations:

Diluted earnings per share from continuing operations:

Basic earnings per share:

Diluted earnings per share:

Basic weighted-average shares outstanding:

8 unchanged sentences

earnings (loss)

March 31, 2021

Stock-based compensation

Stock option exercises

Components of comprehensive income:

June 30, 2021

earnings (loss)

December 31, 2020

Shares issued under stock-based compensation plans

Stock-based compensation

Stock option exercises

Components of comprehensive income:

June 30, 2021

earnings (loss)

March 31, 2020

Stock-based compensation

Components of comprehensive income:

June 30, 2020

earnings (loss)

December 31, 2019

2 unchanged sentences

Components of comprehensive income:

March 31, 2020

June 30, 2020

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

(Amounts in Thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities

22 unchanged sentences

Principal payments on Senior Credit Facility

Principal payments on ABL Revolver

Proceeds from Senior Notes

1 unchanged sentence

Proceeds from Senior Credit Facility, net of discount

Proceeds from exercises of stock options

Debt issuance costs

8 unchanged sentences

Cash paid (refunded) during the period for:

Income taxes paid

Income taxes (refunded)

Right-to-use assets obtained in exchange for lease obligations:

20 unchanged sentences

The health and safety of CPI employees remain 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.

The Company believes the global impacts from COVID-19 have contributed to certain adverse effects on its supply chain including access to, and higher pricing of, certain raw materials which may continue in the future.

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

The Company believes the global impacts from COVID-19 have contributed to certain adverse effects on its supply chain, including increased lead times for, and higher costs for, certain raw materials and components, as well as a global chip shortage, which are expected to continue in the future.

CPI closely monitors its supply chain and has purchased and may continue to purchase additional inventory to help mitigate potential supply chain constraints.

The current economic environment has affected the available labor pool in the areas in which the Company operates which may result in increased labor cost and turnover in our facilities.

The current economic environment has also affected the available labor pool in the areas in which the Company operates, which has resulted in increased labor cost and turnover in our facilities, challenges hiring production employees and shipping delays.

The Company believes the related cost impacts of all of the foregoing will increase through the second half of 2021 and beyond.

The Company may not be able to pass some or all of these costs through to its customers.

The Company has also experienced increased demand for its products and services.

The Company is experiencing increased production lead times, which is likely to continue through the second half of 2021 and beyond, depending on the duration of the staffing and supply chain challenges and the level of demand from its customers.

The Company will continue to monitor and respond as the situation evolves.

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

See Item 1A, Risk Factors , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) for further discussion of the possible impact of the COVID-19 pandemic on our business.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

1 unchanged sentence

Refer to Note 11, Income Taxes for a discussion of the CARES Act income tax impacts on the Company.

In addition, CPI deferred employer social security payments in 2020 in accordance with the CARES Act.

In addition, CPI deferred employer social security payments in 2020 in accordance with the CARES Act, which are required to be paid in 2021 and 2022.

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

2 unchanged sentences

In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented.

The condensed consolidated balance sheet as of December 31,

2020 is derived from the audited financial statements as of that date.

The condensed consolidated balance sheet as of December 31, 2020 is derived from the audited financial statements as of that date.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

5 unchanged sentences

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

The impact of the discontinued operations was insignificant to the Company’s condensed consolidated statement of operations for the three months ended March 31, 2020.

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, 2021 and 2020.

Use of Estimates

12 unchanged sentences

In accordance with Securities and Exchange Commission Staff Accounting Bulletin 99, Materiality, codified in Accounting Standards Codification (“ASC”) 250, Presentation of Financial Statements , during the year ended December 31, 2020, the Company corrected two immaterial items relating to estimated sales tax expense and depreciation expense for prior periods presented by revising the condensed consolidated financial statements and other financial information included herein.

For the quarter ended March 31, 2020, the total impact of the prior period adjustment was an increase to “Selling, General and Administrative expenses” (“SG&A”) of $121 for estimated sales tax expense and an increase to “Cost of sales” of $62 for depreciation expense.

The total impact on prior fiscal years 2017 to 2019 was an increase to SG&A for estimated sales tax expense of $1,907 and an increase to “Cost of sales” for depreciation expense of $476.

For the quarter ended June 30, 2020, the total impact of the prior period adjustment was a decrease to “Selling, General and Administrative expenses” (“SG&A”) of $ 2,528 for estimated sales tax expense as this balance related to periods prior to 2020, and an increase to “Cost of sales” of $ 62 for depreciation expense.

For the six months ended June 30, 2020, the total impact of the prior period adjustment was a decrease to SG&A of $ 2,406 for estimated sales tax expense as this balance related to periods prior to 2020, and an increase to “Cost of sales” of $ 124 for

depreciation expense.

Refer to Note 14, Commitments and Contingencies for additional discussion of the estimated sales tax liability recorded in “Accrued expenses” on the condensed consolidated balance sheet.

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

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended March 31, 2020

Six Months Ended June 30, 2021

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended June 30, 2020

Debit and Credit

Prepaid Debit

Intersegment eliminations

Six Months Ended June 30, 2020

Debit and Credit

Prepaid Debit

Intersegment eliminations

Products Net Sales

2 unchanged sentences

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 ® , contactless dual-interface EMV, contactless and magnetic stripe cards, our eco-focused solutions including Second Wave and Earthwise TM “high content” upcycled plastic cards, metal cards, private label credit cards and retail gift cards.

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

Card@Once ® printers and consumables are also included in “Products” net sales, and their associated revenues are recognized at the time of shipping.

5 unchanged sentences

Net sales are recognized for “Services” as the services are performed.

Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, including CPI On-Demand ® personalization, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers and software-as-a-service personalization of instant issuance debit and credit cards.

software-as-a-service personalization of instant issuance debit and credit cards.

The Company also generates “Services” net sales from usage-fees generated from the Company’s patented card design software, known as MYCA TM , which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images.

7 unchanged sentences

Accounts receivable consisted of the following:

March 31, 2021

June 30, 2021

December 31, 2020

3 unchanged sentences

Inventories consisted of the following:

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

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

March 31, 2021

June 30, 2021

December 31, 2020

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 $3,073 and $3,091 for the three months ended March 31, 2021 and 2020, respectively.

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $ 2,668 and $ 3,067 for the three months ended June 30, 2021 and 2020, respectively, and $ 5,741 and $ 6,158 for the six months ended June 30, 2021 and 2020, respectively.

Operating lease right-of-use assets, net of accumulated amortization, are further described in Note 9, Financing and Operating Leases.

Goodwill and Other Intangible Assets

The Company reports all of its goodwill in the Debit and Credit segment at March 31, 2021 and December 31, 2020.

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 March 31 , 2021.

The Company reports all of its goodwill in the Debit and Credit segment at June 30, 2021 and December 31, 2020.

Goodwill is tested for impairment at least annually on October 1 or more frequently when an event occurs or circumstances change that indicate 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 , 2021.

Intangible assets consist of customer relationships, technology and software, and trademarks.

Intangible amortization expense was $1,149 and $1,149 for the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021 and December 31, 2020, intangible assets, excluding goodwill, were comprised of the following:

March 31, 2021

Intangible amortization expense was $ 1,149 and $ 1,149 for the three months ended June 30, 2021 and 2020, respectively, and $ 2,298 and $ 2,298 for the six months ended June 30, 2021 and 2020, respectively.

At June 30, 2021 and December 31, 2020, intangible assets, excluding goodwill, were comprised of the following:

June 30, 2021

December 31, 2020

3 unchanged sentences

Intangible assets subject to amortization

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of March 31, 2021 was as follows:

2021 (excluding the three months ended March 31, 2021)

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of June 30, 2021 was as follows:

2021 (excluding the six months ended June 30, 2021)

Fair Value of Financial Instruments

7 unchanged sentences

Fair Value as of

Fair Value Measurement at March 31, 2021

Fair Value Measurement at June 30, 2021

(Using Fair Value Hierarchy)

5 unchanged sentences

The aggregate fair value of the Company’s Senior Notes (as defined in Note 10, Long-Term Debt) was based on bank quotes.

The fair value measurement associated with the ABL Revolver (as defined in Note 10, Long-Term Debt) approximates its carrying value as of March 31, 2021, given the close proximity to the date the Company entered into the credit facility on March 15, 2021, and the applicable interest rates and nature of the security interest in Company assets.

The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable each approximate fair value.

1 unchanged sentence

Accrued expenses consisted of the following:

March 31, 2021

June 30, 2021

December 31, 2020

16 unchanged sentences

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Operating lease costs

6 unchanged sentences

Total financing lease costs

Six Months Ended

June 30, 2021

June 30, 2020

Operating lease costs

Variable lease costs

Short-term operating lease costs

Total expense from operating leases

Finance lease cost:

Right-of-use amortization expense

Interest on lease liabilities

Total financing lease costs

The following table reflects balances for operating and financing leases:

March 31, 2021

June 30, 2021

December 31, 2020

12 unchanged sentences

Finance and operating lease ROU assets are recorded in “Plant, equipment, leasehold improvements, and operating lease right-of-use assets, net.” 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 March 31, 2021 were as follows:

2021 (excluding the three months ended March 31, 2021)

Future cash payment with respect to lease obligations as of June 30, 2021 were as follows:

2021 (excluding the six months ended June 30, 2021)

Total lease payments

1 unchanged sentence

Long-Term Debt

At March 31, 2021 and December 31, 2020, long-term debt consisted of the following:

At June 30, 2021 and December 31, 2020, long-term debt consisted of the following:

First Lien Term Loan

6 unchanged sentences

(1) The Senior Notes bear interest at a fixed rate.

The variable interest rate on the ABL Revolver was 1.356% as of March 31, 2021.

The variable interest rate on the First Lien Term Loan and Senior Credit Facility was 5.5 % and 9.5 % , respec tively, as of December 31, 2020.

5 unchanged sentences

as borrower entered into a credit agreement with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility of up to $ 50,000 (the “ABL Revolver”).

In connection with the issuance of the Senior Notes and entry into the ABL Revolver, the Company terminated its existing credit facilities consisting of a $30,000 senior credit agreement, dated as of March 6, 2020, among the Company, CPI CG Inc., as borrower, the lenders party thereto and Guggenheim Credit Services, LLC as administrative agent and collateral agent (the “Senior Credit Facility”), and a $435,000 first lien term loan (the “First Lien Term Loan”), dated as of August 17, 2015 as amended, among the Company, the borrower, the lenders party thereto, GLAS USA LLC, as administrative agent and GLAS Americas LLC, as collateral agent .

In connection with the issuance of the Senior Notes and entry into the ABL Revolver, the Company terminated its existing credit facilities consisting of a $ 30,000 senior credit agreement, dated as of March 6, 2020, among the Company, CPI CG Inc., as borrower, the lenders party thereto and Guggenheim Credit Services, LLC as administrative agent and collateral agent (the “Senior Credit Facility”), and a $ 435,000 first lien term loan, dated as of August 17, 2015 as amended, among the Company, the borrower, the lenders party thereto, GLAS USA LLC, as administrative agent and GLAS Americas LLC, as collateral agent (the “First Lien Term Loan”) .

Net proceeds from the Senior Notes, together with cash on hand and initial borrowings of $ 15,000 under the ABL Revolver, were used to pay in full and terminate the Senior Credit Facility and First Lien Term Loan on March 15, 2021, and to pay related fees and expenses.

As of March 15, 2021, the Company had outstanding borrowings of $ 30,000 , plus accrued and unpa id interest, under the Senior Credit Facility, and $ 304,746 , plus accrued and unpaid interest, under the First Lien Term Loan.

In addition, early termination of the Senior Credit Facility required payment of a “make-whole” premium of $2,635 as an early termination penalty, which was paid on March 15, 2021, and recorded as interest expense on the condensed consolidated statement of comprehensive income for the three months ended March 31, 2021.

interest expense on the condensed consolidated statement of comprehensive income for the six months ended June 30, 2021.

During the second quarter of 2021, the Company used $ 15,000 of cash on hand to pay down the ABL Revolver to zero and had no borrowings outstanding thereunder as of June 30, 2021.

The Senior Notes bear interest at a rate of 8.625 % per annum and mature on March 15, 2026.

5 unchanged sentences

The Senior Notes are guaranteed by the Company and certain of its current and future wholly-owned domestic subsidiaries (other than the Issuer) that guarantee the ABL Revolver, and are secured by substantially all of the assets of the Issuer and the guarantors, subject to customary exceptions.

The ABL Revolver is guaranteed by the Company and its

subsidiaries (other than the Issuer and excluded subsidiaries), and is secured by substantially all of the assets of the Issuer and the guarantors, subject to customary exceptions.

The ABL Revolver is guaranteed by the Company and its subsidiaries (other than the Issuer and excluded subsidiaries), and is secured by substantially all of the assets of the Issuer and the guarantors, subject to customary exceptions.

The Senior Notes and the ABL Revolver contain covenants limiting the ability of the Company, the Issuer and the Company’s restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock;

8 unchanged sentences

The annual excess cash flow calculation is determined pursuant to the terms of that certain Indenture, dated as of March 15, 2021, by and among Issuer, the Company, the subsidiary guarantors and U.S.

Bank National Association, with any required prepayments to be made after the issuance of the Company’s annual financial statements.

Bank National Association, as trustee, with any required prepayments to be made after the issuance of the Company’s annual financial statements.

As of December 31, 2020, $ 8,027 of debt principal was classified as a current liability as a result of an excess free cash flow calculation for 2020 pursuant to the terms of the Senior Credit Facility and the First Lien Term Loan.

3 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 debt issuance costs recorded on the Senior Notes were $7,558 and are reported as a reduction to the long-term debt balance in the quarter ended March 31, 2021.

The net discount and debt issuance costs on the ABL Revolver were $2,144 and are recorded as other assets (current and long term) on the condensed consolidated balance sheet as of March 31, 2021.

During the three months ended March 31, 2021, the Company recorded a $5,048 loss on debt extinguishment relating to the unamortized deferred financing costs and debt discount in connection with the termination of the Senior Credit Facility and First Lien Term Loan.

During the three months ended March 31, 2021, the Company recognized an income tax expense of $1,360 on a pre-tax income of $3,770, representing an effective income tax rate of 36.1%.

For the three months ended March 31, 2020, the Company recognized an income tax benefit of $465 on a pre-tax income of $1,317, representing an effective income tax rate of (35.3)%.

For the three months ended March 31, 2021 and 2020, the effective tax rate differs from the U.S.

The debt issuance costs recorded on the Senior Notes were $ 7,558 and are reported as a reduction to the long-term debt balance as of June 30, 2021.

The net discount and debt issuance costs on the ABL Revolver were $ 2,144 and are recorded as other assets (current and long term) on the condensed consolidated balance sheet as of June 30, 2021.

During the six months ended June 30, 2021, the Company recorded a $ 5,048 loss on debt extinguishment relating to the unamortized deferred financing costs and debt discount in connection with the termination of the Senior Credit Facility and First Lien Term Loan.

During the three months ended June 30, 2021, the Company recognized an income tax expense of $ 2,522 on a pre-tax income of $ 8,754 , compared to an income tax benefit of $ 3,115 on a pre-tax loss from continuing operations of $ 1,832 for the prior year period.

During the six months ended June 30, 2021, the Company recognized an income tax expense of $ 3,882 on pre-tax income of $ 12,524 , representing an effective income tax rate of 31.0 %.

For the six months ended June 30, 2020, the Company recognized an income tax benefit of $ 3,580 on a pre-tax loss from continuing operations of $ 515 , representing an effective income tax rate of 695.1 %.

For the six months ended June 30, 2021 and 2020, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

5 unchanged sentences

Effective income tax rate

During the six months ended June 30, 2021, the Company received cash income tax refunds of $ 6,003 related primarily to U.S.

federal income taxes for prior tax years, including net operating loss (“NOL”) carrybacks relating to the CARES Act.

As of June 30, 2021, the Company has an income tax receivable on the condensed consolidated balance sheet relating to certain remaining U.S.

federal income tax receivables including CARES Act income tax refunds, net of current income tax provisional amounts due.

The Company believes that it is reasonably possible that $ 317 of its unrecognized tax benefits may be recognized in the next one year period as a result of settlement with the taxing authorities.

As such, this balance is reflected in “Accrued expenses” in the Company’s condensed consolidated balance sheet as of June 30, 2021.

In March 2020, the CARES Act was signed into law.

The CARES Act allows companies with net operating losses (“NOLs”) originating in 2018, 2019, or 2020 to carry back those losses for five years and temporarily eliminates the tax law provision that limits the use of NOLs to 80% of taxable income.

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 three months ended March 31, 2020 , the Company recorded an estimated 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 250.9%.

The Company’s income tax receivable on the condensed consolidated balance sheet as of March 31, 2021, 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.

The Company believes that it is reasonably possible that approximately $852 of its unrecognized tax benefits may be recognized in the next one year period as a result of settlement with the taxing authorities.

As such, this balance is reflected in “Accrued expenses” in the Company’s condensed consolidated balance sheet as of March 31, 2021.

The CARES Act allowed companies with NOLs originating in 2018, 2019, or 2020 to carry back those losses for five years and temporarily eliminated the tax law provision that limits the use of NOLs to 80% of taxable income.

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

For the six months ended June 30, 2020, the Company recorded an estimated 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 643.0 % .

Stockholders’ Deficit

7 unchanged sentences

Three Months Ended

Six Months Ended

Net income from continuing operations

3 unchanged sentences

Diluted weighted-average common shares outstanding

Earnings per share from continuing operations - Basic and Diluted:

Earnings (loss) per share from discontinued operations - Basic and Diluted:

Earnings per share - Basic and Diluted:

Basic earnings per share from continuing operations:

Basic earnings per share from discontinued operations:

Basic earnings per share:

Diluted earnings per share from continuing operations:

Diluted earnings per share from discontinued operations:

Diluted earnings per share:

Commitments and Contingencies

15 unchanged sentences

The patents all relate to antenna technology.

SPS alleges that the Company incorporates the patented technology into its products that use contactless communication.

SPS alleges that the Company

incorporates the patented technology into its products that use contactless communication.

The Company does not manufacture antennas;

2 unchanged sentences

The Company intends to investigate and pursue its rights relating to the claims and to defend the suit vigorously.

However, no assurance can be

given that this matter will be resolved favorably.

Accordingly, it is not yet possible to reliably determine any potential liability that could result from this matter in the event of an adverse determination, and no liability has been recorded as of March 31, 2021 or December 31, 2020.

However, no assurance can be given that this matter will be resolved favorably.

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

1 unchanged sentence

Estimated Sales Tax Liability

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.

The Company has continued to evaluate a state sales tax liability analysis for states in which it has economic nexus and to collect 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 estimated liability for sales tax as of March 31, 2021 and December 31, 2020 was $1,805 and $1,696, respectively, and is recorded in a ccrued expenses in the condensed consolidated balance sheets.

The liability increased from the estimate recorded in the prior period due to ongoing activity.

In addition, as the Company remits cash to the applicable state tax authorities for historical sales tax and interest, the liability balance will decrease.

The estimated liability for sales tax as of June 30, 2021 and December 31, 2020 was $ 1,549 and $ 1,696 , respectively, and is recorded in a ccrued expenses in the condensed consolidated balance sheets.

The liability decreased from the estimate recorded in the prior period due to ongoing activity.

As the Company remits cash to the applicable state tax authorities for historical sales tax and interest, the liability balance decreases.

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

1 unchanged sentence

Sales tax recovered from customers reduces the estimated expense when it is received or probable of collection .

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

Future changes to the liability that impact the condensed consolidated statements of operations will be recorded within SG&A.

During the six months ended June 30, 2021, the Company recorded a sales tax benefit of $ 465 within SG&A for current activity relating to sales tax recovered from customers and net changes to the estimated liability.

Stock-Based Compensation

3 unchanged sentences

Omnibus Incentive Plan (the “Omnibus Plan”) pursuant to which cash and equity based incentives may be granted to participating employees, advisors and directors.

The Company had reserved 1,200,000 shares of common stock for issuance under the Omnibus Plan.

As of March 31, 2021, there were 185,113 shares available for grant under the Omnibus Plan.

During the three months ended March 31, 2021, and during the fiscal year ended December 31, 2020, the Company did not grant any awards of non-qualified stock options.

On May 27, 2021, the Company’s stockholders approved an amendment and restatement of the Omnibus Plan to, among other things, increase the total number of shares of the Company’s Common Stock reserved and available for issuance thereunder by 1,000,000 shares resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan.

As of June 30, 2021, there were 1,185,113 shares of Common Stock available for grant under the Omnibus Plan.

During the six months ended June 30, 2021, and during the fiscal year ended December 31, 2020, the Company did no t 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, 2020

Outstanding as of March 31, 2021

Options vested and exercisable as of March 31, 2021

Options vested and expected to vest as of March 31, 2021

Outstanding as of June 30, 2021

Options vested and exercisable as of June 30, 2021

Options vested and expected to vest as of June 30, 2021

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

2 unchanged sentences

Unvested as of December 31, 2020

Unvested as of March 31, 2021

Unvested stock options of 35,496 as of March 31, 2021 will vest entirely in 2021.

Unvested as of June 30, 2021

Unvested stock options of 33,300 as of June 30, 2021 are expected to vest entirely in the second half of 2021.

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

Outstanding as of December 31, 2020

Outstanding as of March 31, 2021

Outstanding as of June 30, 2021

The Company granted 180,001 restricted stock units to employees on October 2, 2020.

1 unchanged sentence

On the vesting date, shares of Common Stock will be issued to the award recipients.

Unvested restricted stock units of 180,001 as of March 31, 2021 will vest entirely in October 2022.

Compensation expense for the Omnibus Plan for the three months ended March 31, 2021 and 2020 was $51 and $41, respectively.

As of March 31, 2021, the total unrecognized compensation expense related to unvested options and restricted stock units is $289, which the Company expects to recognize over an estimated weighted-average period of approximately 1.5 years.

Unvested restricted stock units of 175,502 as of June 30, 2021 are expected to vest entirely in October 2022.

Compensation expense for the Omnibus Plan for the three months ended June 30, 2021 and 2020 was $ 47 and $ 18 , respectively.

Compensation expense for the Omnibus Plan for the six months ended June 30, 2021 and 2020 was $ 98 and $ 59 , respectively.

As of June 30, 2021, the total unrecognized compensation expense related to unvested options and restricted stock units is $ 238 , which the Company expects to recognize over an estimated weighted-average period of approximately 1.3 years.

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 March 31, 2021, the Company’s reportable segments were as follows:

As of June 30, 2021, the Company’s reportable segments were as follows:

● Debit and Credit;

2 unchanged sentences

The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services, including card personalization and fulfilment services, to card-issuing banks primarily in the United States.

Products manufactured by this segment primarily include EMV and non-EMV Financial Payment Cards, including contact and contactless dual-interface cards, and plastic and encased metal cards, and our eco-focused solutions including Second Wave payment cards featuring a core made with recovered ocean bound plastic and Earthwise “high content” plastic cards .

The Company also sells Card@Once instant card issuance solutions, and private label credit cards that are not issued on the networks of the Payment Cards Brands.

The Company provides CPI On-Demand services, where images, personalized payment cards, and related collateral are produced on a one-by-one, on-demand basis for customers.

The Debit and Credit segment operations are each audited for compliance by multiple Payment Card Brands.

The Debit and Credit segment facilities are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

Prepaid Debit Segment

4 unchanged sentences

Performance Measures of Reportable Segments

Net Sales and EBITDA of the Company’s reportable segments for the three months ended March 31, 2021 and 2020, were as follows:

Three Months Ended March 31,

Net Sales and EBITDA of the Company’s reportable segments for the three and six months ended June 30, 2021 and 2020, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Debit and Credit

Prepaid Debit

The following table provides a reconciliation of total segment EBITDA to net income for the three months ended March 31, 2021 and 2020:

The following table provides a reconciliation of total segment EBITDA to net income for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Total segment EBITDA

4 unchanged sentences

Balance Sheet Data of Reportable Segments

Total assets of the Company’s reportable segments at March 31, 2021 and December 31, 2020, were as follows:

March 31, 2021

Total assets of the Company’s reportable segments at June 30, 2021 and December 31, 2020, were as follows:

June 30, 2021

December 31, 2020

2 unchanged sentences

Net Sales to Geographic Locations, Property, Equipment and Leasehold Improvements and Long-Lived Assets

The Company’s Net Sales, Property, Equipment and Leasehold Improvements, and Long-Lived assets relating to geographic locations outside of the United States is insignificant.

Each of the Company’s Net Sales, Property, Equipment and Leasehold Improvements, and Long-Lived Assets relating to geographic locations outside of the United States is insignificant.

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