What changed in this filing

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Item 1. Financial Statements

2022-08-08 compared with 2022-05-05 · 163 added, 124 removed, 382 unchanged (43% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

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

(in thousands, except share and per share amounts)

Current assets:

19 unchanged sentences

$ 0.001 par value— 100,000 shares authorized;

0 shares issued and outstanding at March 31, 2022 and December 31, 2021

0 shares issued and outstanding at June 30, 2022 and December 31, 2021

Stockholders’ deficit:

1 unchanged sentence

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

11,255,466 shares issued and outstanding at March 31, 2022 and December 31, 2021

11,262,688 and 11,255,466 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Capital deficiency

Accumulated loss

Accumulated earnings (loss)

Total stockholders’ deficit

4 unchanged sentences

Condensed Consolidated Statements of Operations and Comprehensive Income

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

Three Months Ended March 31,

(in thousands, except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Total net sales

11 unchanged sentences

Interest, net

Other income (expense), net

Other (expense) income, net

Loss on debt extinguishment

13 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Deficit

(Dollars in Thousands, Excludes per Share Amounts)

(in thousands, except per share amounts)

earnings (loss)

March 31, 2022

Stock-based compensation

Stock option exercises

Components of comprehensive income:

June 30, 2022

earnings (loss)

December 31, 2021

2 unchanged sentences

Components of comprehensive income:

June 30, 2022

earnings (loss)

March 31, 2021

Stock-based compensation

Stock option exercises

Components of comprehensive income:

June 30, 2021

earnings (loss)

1 unchanged sentence

Stock-based compensation

Stock option exercises

Components of comprehensive income:

March 31, 2021

June 30, 2021

See accompanying notes to condensed consolidated financial statements

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

Three Months Ended March 31,

(in thousands)

Six Months Ended June 30,

Operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

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

Depreciation and amortization expense

8 unchanged sentences

Accounts payable

Accrued expenses

Accrued expenses and other liabilities

Deferred revenue and customer deposits

Other liabilities

Cash (used in) provided by operating activities

6 unchanged sentences

Principal payments on Senior Notes

Principal payments on ABL Revolver

Proceeds from Senior Notes

Proceeds from ABL Revolver, net of discount

Proceeds from exercises of stock options

Debt issuance costs

10 unchanged sentences

Income taxes paid

Income taxes (refunded)

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

11 unchanged sentences

(which, together with its subsidiary companies, is referred to herein as “CPI” or the “Company”) is a payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.

CPI is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which the Company defines as credit, debit and Prepaid Debit Cards issued on the networks of the Payment Card Brands (Visa, Mastercard, American Express and Discover).

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

CPI serves its customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the PCI Security Standards Council by one or more of the Payment Card Brands.

CPI’s leading network of high-security production facilities allows the Company to optimize its solutions offerings and to serve its customers .

CPI is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which the Company defines as credit, debit and Prepaid Debit Cards (defined below) issued on the networks of the Payment Card Brands (Visa, Mastercard ® , American Express ® and Discover ® ).

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

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

CPI serves its customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council by one or more of the Payment Card Brands.

CPI’s leading network of high-security production facilities allows the Company to optimize its solutions offerings and serve its customers .

COVID-19 Update

The COVID-19 pandemic has impacted, and continues to impact, economies and societies globally, including the locations where we, our customers and our suppliers conduct business.

The COVID-19 pandemic and associated counteracting measures implemented by governments and businesses around the world have impacted, and continue to impact, economies and societies globally, including the locations where CPI, its customers and suppliers conduct business.

The Company believes the global impacts from COVID-19, along with other macro-economic factors, have contributed to, among other things certain adverse effects on its supply chain, production lead times, labor availability, employee absenteeism and costs.

Though the Company has implemented measures to attempt to mitigate the impacts of the challenges described above, the Company believes that such impacts, and the associated costs, may continue to increase throughout 2022 and possibly beyond.

The long-term implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain, though the health and safety of CPI employees remains paramount.

The Company believes the global impacts from COVID-19, along with other factors, have contributed to certain adverse effects on its supply chain, including increased lead times for, and higher costs of, certain raw materials and components, such as microchips, which are expected to continue in the future.

CPI closely monitors its supply chain and has and may continue to purchase additional inventory, compile buffer stock and place orders in advance to help mitigate supply chain constraints.

The current 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.

CPI continues to actively recruit additional employees and offer market competitive salaries to mitigate labor shortages.

Though the Company has implemented measures to mitigate the impacts of the labor and supply chain challenges described above, the Company believes that such impacts, and the associated costs, may continue to increase throughout 2022 and possibly beyond.

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

The Company is experiencing increased production lead times, which it believes are likely to continue throughout 2022 and possibly 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.

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

1 unchanged sentence

The Company deferred employer social security payments in 2020 in accordance with the CARES Act, and the first installment repayment was made in the fourth quarter of 2021.

The second installment payment is permitted to be paid no later than the fourth quarter of 2022.

Refer to Note 8, “Accrued Expenses” for additional discussion.

The second installment payment is permitted to be paid no later than the fourth quarter of 2022 and had not been paid as of June 30, 2022.

Basis of Presentation

16 unchanged sentences

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended March 31, 2021

Six Months Ended June 30, 2022

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended June 30, 2021

Debit and Credit

Prepaid Debit

Intersegment eliminations

Six Months Ended June 30, 2021

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 produced 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.

Items included in “Products” net sales are produced Financial Payment Cards, including contact-EMV ® , contactless dual-interface EMV, contactless and magnetic stripe cards, CPI’s 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.

14 unchanged sentences

Accounts receivable consisted of the following:

March 31, 2022

December 31, 2021

Trade accounts receivable

2 unchanged sentences

Inventories consisted of the following:

March 31, 2022

December 31, 2021

Raw materials

3 unchanged sentences

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

March 31, 2022

December 31, 2021

Machinery and equipment

5 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 $ 2,643 and $ 3,073 for the three months ended March 31, 2022 and 2021, respectively.

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $ 2,604 and $ 2,668 for the three months ended June 30, 2022 and 2021, respectively, and $ 5,248

and $ 5,741 for the six months ended June 30, 2022 and 2021, 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, 2022 and December 31, 2021.

The Company reports all of its goodwill in the Debit and Credit segment at June 30, 2022 and December 31, 2021.

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 March 31, 2022.

The Company did not identify a triggering event requiring a quantitative test for impairment as of June 30, 2022.

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

Intangible amortization expense was $ 967 and $ 1,149 for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022 and December 31, 2021, intangible assets, excluding goodwill, were comprised of the following:

March 31, 2022

December 31, 2021

Intangible amortization expense was $ 967 and $ 1,149 for the three months ended June 30, 2022 and 2021, respectively, and $ 1,933 and $ 2,298 for the six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022 and December 31, 2021, intangible assets, excluding goodwill, were comprised of the following:

Weighted Average

2 unchanged sentences

Intangible assets subject to amortization

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of March 31, 2022 was as follows:

2022 (excluding the three months ended March 31, 2022)

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of June 30, 2022 was as follows:

2022 (excluding the six months ended June 30, 2022)

Fair Value of Financial Instruments

7 unchanged sentences

Fair Value as of

Fair Value Measurement at March 31, 2022

Fair Value Measurement at June 30, 2022

(Using Fair Value Hierarchy)

3 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, 2022, given the applicable variable interest rates and nature of the security interest in Company assets.

The fair value measurement associated with the ABL Revolver (as defined in Note 10, “Long-Term Debt”) approximates its carrying value as of June 30, 2022, given the applicable variable 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 due to their short-term nature.

1 unchanged sentence

Accrued expenses consisted of the following:

March 31, 2022

December 31, 2021

Accrued payroll and related employee expenses

Accrued employee performance bonus

Employer payroll tax, including social security deferral

Accrued employee performance bonuses

Employer payroll taxes, including social security deferral

Accrued rebates

1 unchanged sentence

Accrued interest

Operating and financing lease liability (current portion)

Current operating and financing lease liabilities

Total accrued expenses

8 unchanged sentences

Three Months Ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Operating lease costs

2 unchanged sentences

Total expense from operating leases

Finance lease cost:

Finance lease costs:

Right-of-use amortization expense

1 unchanged sentence

Total financing lease costs

Six Months Ended

June 30, 2022

June 30, 2021

Operating lease costs

Variable lease costs

Short-term operating lease costs

Total expense from operating leases

Finance lease costs:

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, 2022

December 31, 2021

Operating leases:

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

Operating lease liability (current)

Long-term operating liability

Current operating lease liabilities

Non-current operating lease liabilities

Total operating lease liabilities

2 unchanged sentences

Accumulated depreciation

Total financing leases in property, equipment and leasehold improvements, net

Financing lease liability (current)

Long-term financing liability

Total financing leases in property, equipment and leasehold

___ improvements, net

Current financing lease liabilities

Non-current financing lease liabilities

Total financing lease liabilities

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, 2022 were as follows:

2022 (excluding the three months ended March 31, 2022)

Future cash payment with respect to lease obligations as of June 30, 2022 were as follows:

2022 (excluding the six months ended June 30, 2022)

Total lease payments

1 unchanged sentence

Long-Term Debt

At March 31, 2022 and December 31, 2021, long-term debt consisted of the following:

At June 30, 2022 and December 31, 2021, long-term debt consisted of the following:

ABL Revolver (1)

Unamortized deferred financing costs

2 unchanged sentences

Long-term debt, net of current maturities

On March 15, 2021, the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc.

(the “Issuer”), of $ 310,000 aggregate principal amount of 8.625 % Senior Notes due 2026 and related guarantees.

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

The average effective variable interest rate on outstanding borrowings under the ABL Revolver was 2.997 % as of June 30, 2022.

On March 15, 2021, the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc., of $ 310,000 aggregate principal amount of 8.625 % Senior Secured Notes due 2026 (the “Senior Notes”) and related guarantees.

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

Interest is payable on the Senior Notes on March 15 and September 15 of each year.

On March 15, 2021, the Company and CPI CG Inc., as borrower, entered into a Credit Agreement with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent, providing for an ABL Revolver of up to $ 50,000 (the “ABL Revolver”).

On March 15, 2021, the Company and CPI CG Inc., 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”).

The ABL Revolver matures on the earliest to occur of March 15, 2026 and the date that is 90 days prior to the maturity of the Senior Notes.

On March 3, 2022, the Company and CPI CG Inc.

1 unchanged sentence

1 to the Credit Agreement (the “Amendment”), which amended the ABL Revolver.

The Amendment, among other things, increased the available borrowing capacity under the ABL Revolver to $ 75,000 , increased the uncommitted accordion feature to $ 25,000 from $ 15,000 , and revised the interest rate provisions to replace the ABL Revolver’s prior LIBOR interest benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York.

Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to the applicable term SOFR rate selected and adjusted for a credit spread, plus an applicable interest rate margin based on the average unused capacity of the facility.

The Company may select a one, three or six month term SOFR rate, which is adjusted for a credit spread of 0.10 % to 0.30 % depending on the term selected.

Through March 31, 2023, the applicable interest rate margin ranges from 1.50 % to 1.75 % depending on the average unused capacity of the facility for the previous quarter.

The unused portion of the ABL Revolver commitment accrues a commitment fee, which ranges from 0.375 % to 0.50 % per annum, based on the average daily borrowing capacity under the ABL Revolver over the immediately preceding month.

Unused commitment fee expense was $ 62 and $ 8 for the three months ended March 31, 2022 and 2021, respectively.

The Amendment, among other things, increased the available borrowing capacity under the ABL Revolver to $ 75,000 , increased the uncommitted accordion feature to $ 25,000 from $ 15,000 , and revised the interest rate provisions to replace the prior LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York.

Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to SOFR and adjusted for a credit spread, plus an interest rate margin.

The Company may select a one, three or six month term SOFR, which is adjusted for a credit spread of 0.10 % to 0.30 % depending on the term selected.

For each quarter through March 31, 2023, the applicable interest rate margin ranges from 1.50 % to 1.75 % depending on the average unused capacity of the facility for the previous quarter.

The unused portion of the ABL Revolver commitment accrues a monthly commitment fee, which ranges from 0.375 % to 0.50 % per annum, based on the average daily borrowing capacity under the ABL Revolver over the previous month.

Unused commitment fee expense was $ 115 and $ 54 for the six months ended June 30, 2022 and 2021, respectively.

The fee percentage and calculation of the unused commitment fee changes, effective April 1, 2023, to between 0.375 % and 0.50 % (determined based on the average revolver usage over a specified period of time) of the unused portion of the facility.

The ABL Revolver includes limitations on the Company’s ability to borrow in certain situations, including limitations based on the calculation of a borrowing capacity and during periods in which the amount available to borrow under the ABL Revolver is less than $ 7,500 .

The borrowing capacity represents the net availability under the ABL

Revolver and is calculated as the lesser of a) the total of certain eligible assets, including cash, accounts receivable and inventories, further reduced by stated contribution percentages and adjustments or b) the $ 75,000 of available borrowing capacity under the ABL Revolver (“Borrowing Base”).

The ABL Revolver includes limitations on the Company’s ability to borrow in certain situations, including limitations based on the calculation of a borrowing capacity and further limitations that are triggered if the amount

available to borrow under the ABL Revolver is less than $ 7,500 .

The borrowing capacity represents the net availability under the ABL Revolver and is calculated as the lesser of a) the total of certain eligible assets, including cash, accounts receivable and inventories, further reduced by stated contribution percentages and adjustments or b) the $ 75,000 of available borrowing capacity under the ABL Revolver (“Borrowing Base”).

The Borrowing Base is further reduced by credit line reserves, letters of credit, as well as the loan ledger balance outstanding on the ABL Revolver.

Additionally, commencing with the month immediately following a date on which borrowing availability is below $ 7,500 and until such time that borrowing availability equals or exceeds $ 7,500 for 30 consecutive days, the Company must maintain a fixed charge coverage ratio (as defined in the credit agreement for the ABL Revolver) greater than 1.00 , calculated for the trailing 12 months in order to borrow under the ABL Revolver.

Additionally, commencing with the month immediately following a date on which borrowing capacity is below $ 7,500 and until such time that borrowing capacity equals or exceeds $ 7,500 for 30 consecutive days, the Company must maintain a fixed charge coverage ratio (as defined in the Credit Agreement for the ABL Revolver) greater than 1.00 , calculated for the trailing 12 months, in order to borrow under the ABL Revolver.

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

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 year ended December 31, 2021.

On March 11, 2022, the Issuer used the available borrowing capacity under the ABL Revolver to fund the redemption of $ 20,000 aggregate principal amount of the Senior Notes at a redemption price equal to 103 % of the principal amount thereof plus accrued and unpaid interest thereon to the redemption date.

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 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;

On March 11, 2022, the Company used the available borrowing capacity under the ABL Revolver to fund the redemption of $ 20,000 aggregate principal amount of the Senior Notes at a redemption price equal to 103 % of the principal amount thereof plus accrued and unpaid interest thereon to the redemption date.

The Senior Notes are guaranteed by the Company and certain of its current and future wholly-owned domestic subsidiaries (other than CPI CG Inc.

as the issuer of the Senior Notes) that guarantee the ABL Revolver.

The Senior Notes are secured by substantially all of the assets of CPI CG Inc.

and the guarantors, subject to customary exceptions.

The ABL Revolver is guaranteed by the Company and its subsidiaries (other than CPI CG Inc.

as borrower and excluded subsidiaries), and is secured by substantially all of the assets of CPI CG Inc.

and the guarantors, subject to customary exceptions.

The Senior Notes and the ABL Revolver contain covenants limiting the ability of the Company, CPI CG Inc.

and the Company’s restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock;

create or incur liens;

1 unchanged sentence

make certain investments;

create restrictions on the ability of the Issuer and its restricted subsidiaries to pay dividends to the Company or make other intercompany transfers;

create restrictions on the ability of CPI CG Inc.

and its restricted subsidiaries to pay dividends to the Company or make other intercompany transfers;

transfer or sell assets;

2 unchanged sentences

The Company has obligations to make an offer to repay the Senior Notes, requiring prepayment in advance of the maturity date, upon the occurrence of certain events including a change of control, certain asset sales and based on an annual excess cash flow calculation.

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.

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 CPI CG Inc., the Company, the subsidiary guarantors and U.S.

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

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 remaining unamortized debt issuance costs recorded on the Senior Notes were $ 5,612 and is reported as a reduction to the long-term debt balance as of March 31, 2022.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1,930 and is recorded as other assets (current and long term) on the condensed consolidated balance sheet as of March 31, 2022.

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, as described earlier.

During the three months ended March 31, 2022, the Company recognized an income tax expense of $ 3,718 on pre-tax income of $ 9,720 , compared to income tax expense of $ 1,360 on pre-tax income of $ 3,770 for the prior year period.

For the three months ended March 31, 2022 and 2021, the effective tax rate differs from the U.S.

The remaining unamortized debt issuance costs recorded on the Senior Notes were $ 5,261 and is reported as a reduction to the long-term debt balance as of June 30, 2022.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1,800 and are recorded as other assets (current and long term) on the condensed consolidated balance sheet as of June 30, 2022.

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, as described earlier.

During the three months ended June 30, 2022, the Company recognized an income tax expense of $ 1,742 on pre-tax income of $ 7,893 , compared to income tax expense of $ 2,522 on pre-tax income of $ 8,754 for the prior year period.

During the six months ended June 30, 2022, the Company recognized an income tax expense of $ 5,460 on pre-tax income of $ 17,613 , representing an effective income tax rate of 31.0 %.

For 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, 2022 and 2021, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

4 unchanged sentences

Effective income tax rate

The net change in the valuation allowance during the three months ended March 31, 2022 was an increase of $ 611 .

The change was fully comprised of an increase due to the more restrictive interest deduction limitation in Section 163(j) of the Internal Revenue Code that took effect in 2022.

The net change in the valuation allowance during the six months ended June 30, 2022 was an increase of $ 432 .

The increase was due to the more restrictive interest deduction limitation in Section 163(j) of the Internal Revenue Code that took effect in 2022.

Stockholders’ Deficit

7 unchanged sentences

Three Months Ended

Six Months Ended

Basic weighted-average common shares outstanding

25 unchanged sentences

The Company’s motion to dismiss the complaint is currently pending.

Additionally, a third party, Infineon, has filed requests for Inter Parties Reexamination proceedings concerning each of the four patents.

Additionally, a third party, Infineon, has filed requests for Inter Parties Reexamination (“IPR”) proceedings concerning each of the four patents.

As a result, the Delaware District Court stayed the case pending resolution of the requests for reexamination.

Should the reexamination requests be denied or should the patents survive reexamination by the United States Patent Office, the Company intends to defend the suit vigorously.

Thus far, the United States Patent Office has instituted proceedings with respect to two of the IPR requests and the others remain pending.

proceedings in the patent office are scheduled to run through April 6, 2023.

Should the remaining reexamination requests be denied or should the patents survive reexamination by the United States Patent Office, the Company intends to defend the suit vigorously.

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

Due to the stage of this matter, the Company is unable to predict the outcome or the possible loss or range of loss, if any, associated with this matter, and no liability has been recorded as of March 31, 2022 .

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

3 unchanged sentences

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, 2022 and December 31, 2021 was $ 1,004 and $ 1,019 , respectively, and is recorded in a ccrued expenses in the condensed consolidated balance sheets.

The estimated liability for sales tax as of June 30, 2022 and December 31, 2021 was $ 936 and $ 1,019 , 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 primarily due to the Company remitting cash to the applicable state tax authorities for historical sales tax and interest.

3 unchanged sentences

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 & administrative (“SG&A”).

During the three months ended March 31, 2022 and 2021,

the Company recorded a sales tax benefit of $ 12 and $ 80 , respectively, within SG&A for current activity relating to updates to the estimated liability.

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

During the six months ended June 30, 2022 and 2021, the Company recorded sales tax expense of $ 52 and sales tax benefit of $ 465 , respectively, within SG&A for current activity relating to updates to the estimated liability.

Stock-Based Compensation

4 unchanged sentences

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 March 31, 2022, there were 940,221 shares of Common Stock available for grant under the Omnibus Plan.

During the three months ended March 31, 2022, the Company granted 10,888 awards of non-qualified stock options.

As of June 30, 2022, there were 920,657 shares of Common Stock available for grant under the Omnibus Plan.

During the six months ended June 30, 2022, the Company granted 30,452 awards of non-qualified stock options.

The Company did no t grant any awards of non-qualified stock options during the six months ended June 30, 2021.

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

1 unchanged sentence

Outstanding as of December 31, 2021

Outstanding as of March 31, 2022

Options vested and exercisable as of March 31, 2022

Options vested and expected to vest as of March 31, 2022

Outstanding as of June 30, 2022

Options vested and exercisable as of June 30, 2022

Options vested and expected to vest as of June 30, 2022

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

2 unchanged sentences

Unvested as of December 31, 2021

Unvested as of March 31, 2022

Unvested stock options of 134,375 as of March 31, 2022 have a seven year term and are expected to vest ratably over a two-year period on each anniversary of the grant date.

The fair value of the stock option awards granted during the three months ended March 31, 2022, was

Unvested as of June 30, 2022

Unvested stock options of 151,349 as of June 30, 2022 have a seven year term and are expected to vest ratably over a two-year period on each anniversary of the grant date.

The fair value of the stock option awards granted during the six months ended June 30, 2022, was

determined using a Black-Scholes option-pricing model with the following weighted-average assumptions:

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Expected term in years (1)

8 unchanged sentences

Outstanding as of December 31, 2021

Outstanding as of March 31, 2022

Outstanding as of June 30, 2022

The restricted stock unit awards contain conditions associated with continued employment or service.

1 unchanged sentence

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

Compensation expense for the Omnibus Plan for the three months ended March 31, 2022 and 2021 was $ 961 and $ 51 , respectively.

As of March 31, 2022, the total unrecognized compensation expense related to unvested options and restricted stock units is $ 3,459 , which the Company expects to recognize over an estimated weighted-average period of approximately 1.4 years.

Compensation expense for the Omnibus Plan for the three months ended June 30, 2022 and 2021 was $ 1,001 and $ 47 , respectively.

Compensation expense for the Omnibus Plan for the six months ended June 30, 2022 and 2021 was $ 1,962 and $ 98 , respectively.

As of June 30, 2022, the total unrecognized compensation expense related to unvested options and restricted stock units is $ 2,701 , which the Company expects to recognize over an estimated weighted-average period of approximately 1.23 years.

Segment Reporting

The Company has identified reportable segments that represent 10% or more of its net sales, EBITDA (as defined below) or total assets, or when the Company believes information about the segment would be useful to the readers of the financial statements.

readers of the financial statements.

The Company’s chief operating decision maker is its Chief Executive Officer, who is charged with management of the Company and is responsible for the evaluation of operating performance and decision making about the allocation of resources to operating segments based on measures, such as net sales and EBITDA.

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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, 2022, the Company’s reportable segments were as follows:

As of June 30, 2022, the Company’s reportable segments were as follows:

● Debit and Credit;

3 unchanged sentences

Products produced by this segment primarily include EMV and non-EMV Financial Payment Cards, including contact and contactless cards, and Earth Elements TM Eco-Focused 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 also sells Card@Once instant card issuance solutions, and private label credit cards that are not issued on the networks of the Payment Card 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.

This segment also provides a variety of integrated card services, including card personalization and fulfillment services and

instant issuance services.

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

This segment also provides a variety of integrated card services, including card personalization and fulfillment services and instant issuance services.

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

Prepaid Debit Segment

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This segment also produces Financial Payment Cards issued on the networks of the Payment Card Brands that are included in the tamper-evident security packages.

The Prepaid Debit segment operation is audited for compliance by multiple Payment Card Brands.

The Prepaid Debit segment facilities and operations are audited for compliance with the standards of the Payment Card Industry Security Standards Counsel by multiple Payment Card Brands.

The Other segment includes corporate expenses.

Performance Measures of Reportable Segments

Net Sales and EBITDA of the Company’s reportable segments for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021, 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, 2022 and 2021:

The following table provides a reconciliation of total segment EBITDA to net income for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

Six Months Ended

Total segment EBITDA

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