CompoSecure Inc

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us,” “our,” and similar terms refer to CompoSecure, Inc. and its consolidated subsidiaries.

Overview

Founded in 2000, the Company is a technology partner to market leaders, fintechs and consumers enabling trust for millions of people around the globe. The Company’s innovative metal payment card technology and Arculus security and authentication capabilities deliver unique, premium branded experiences, enable people to access and use their assets, protect their digital identities and ensure trust at the point of a transaction.

Mission and Values

The Company’s mission is to combine elegance, simplicity, and security to deliver exceptional experiences and peace of mind in the physical and digital world. The Company’s values are embodied in the following key concepts:

Key Product Overview

The Company led the creation and growth of the metal card form factor through its expertise in material science and has been at the forefront of emerging embedded payment card technology (e.g., the evolution of “tap to transact”). For more than two decades, through its combination of large-scale, advanced manufacturing capabilities and deep technological expertise, the Company has driven key payment card industry innovations in materials science, metal form factor design, dual interface functionality, and security. The distinct value proposition of the Company’s products has resulted in widespread adoption by major banks, financial institutions and fintech innovators to support their acquisition and retention of consumer and business card customers. From 2010 through 2024, the Company produced and sold over 200 million metal payment cards worldwide (i.e., credit and debit cards issued primarily on one of the Visa, MasterCard, American Express, Discover payment networks). In 2024 alone, the Company provided metal payment card solutions for more than 150 branded and co-branded card programs, totaling approximately 30 million payment cards sold. The Company’s metal payment card solutions have generated, and are expected to continue to generate, a significant base of growing, highly profitable revenue. The Company is now accelerating innovation in secure authentication technology solutions with the launch of Arculus

(named for the ancient Roman god of safes and strongboxes). Arculus is a digital security platform with broad industry applicability. Through the convenience of a premium metal card, this technology is designed to solve chronic industry and consumer needs for reliable, trusted and secure authentication solutions - moving beyond passwords, as well as providing enhanced security for storage of digital assets. The Company's Arculus technology is designed to transform a metal payment card into a multifunctional device to support both traditional payments and to act as a ‘tap-to-authenticate’ hardware token allowing for passwordless, and hardware-based, multi-factor authentication.

Recent Developments

Acquisition of Majority Ownership of CompoSecure

In September 2024, Tungsten 2024 LLC ("Tungsten", which subsequently transferred the shares to Resolute Compo Holdings LLC) and its affiliated vehicles (“Resolute”), an investment firm led by David Cote and Tom Knott, became the majority owner of the Company, having acquired 49,290,409 shares of the Class A Common Stock of the Company (the “Class A Common Stock”) for an aggregate purchase price of approximately $372.1 million, or $7.55 per share of Class A Common Stock acquired, representing an approximately 60% voting interest (which has since been diluted by additional share issuances) (the "Resolute Transaction"). Upon completion of the Resolute Transaction, all issued and outstanding shares of Class B Common Stock of the Company (the "Class B Common Stock") were cancelled, eliminating the Company's dual-class structure. The Resolute management team has a proven track record of sourcing, executing, and integrating acquired businesses and then growing and developing those businesses profitably. David Cote brings more than 40 years of operating experience across a wide range of industries. Following a variety of senior executive positions at General Electric Company (“GE”) and TRW Inc. (“TRW”), Mr. Cote served as Executive Chairman of the Board and Chief Executive Officer of Honeywell International Inc. (“Honeywell”) from 2002 to 2017. He has served since February 2020 as Executive Chairman of the Board of Vertiv Holdings Co. (“Vertiv”). Mr. Knott brings more than 14 years of investment experience across a variety of asset classes and investment structures. Most recently, he led the Permanent Capital Strategies group at Goldman Sachs, where his efforts were focused on developing a platform to combine long-term capital and a disciplined acquisition strategy with best-in-class operating capabilities.

In connection with the Resolute Transaction, upon authorization and approval by a special committee of the Board comprised solely of independent and disinterested directors (the “Special Committee”), the Company and a subsidiary entered into a Letter Agreement with an investment entity affiliated with Resolute (the “Letter Agreement”), and the Company and Resolute entered into a Governance Agreement (the "Governance Agreement") to establish certain governance matters, including ongoing obligations regarding the size of the board of directors, election of specified directors including independent directors, as well as other matters. In addition, in connection with the Resolute Transaction, the Company entered into the TRA Amendment (as defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations"), which amends the TRA (as defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations") to, among other things, prevent acceleration of TRA payments that would otherwise be payable as a result of the Resolute Transaction. The TRA Amendment was effective upon the closing of the Resolute Transaction. For more information on the TRA and TRA Amendment, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Controlled Company Status

As a result of the Resolute Transaction, the Company is a “controlled company” within the meaning of the Nasdaq listing rules. As of February 28, 2025, Resolute owned approximately 51% of the voting power of the Company's common stock and therefore is able to control all matters that require approval by the stockholders of the Company, including the election and removal of directors, changes to the Company's organizational documents and approval of acquisition offers and other significant corporate transactions. As a “controlled company” within the meaning of the Nasdaq listing rules, the Company qualifies for and relies on certain exemptions from certain corporate governance requirements.

Spin-Off of Resolute Holdings Management, Inc. in Pro Rata Distribution

On February 28, 2025, the Company completed the spin-off of Resolute Holdings Management, Inc. (“Resolute Holdings”), formerly an indirect, wholly owned subsidiary of the Company (the "Spin-Off"). The distribution of all shares of the common stock, par value $0.0001 per share, of Resolute Holdings (the “Resolute Holdings Common Stock”), to holders of CompoSecure’s Class A Common Stock, as a pro rata dividend occurred on February 28, 2025 (the "Distribution Date"), and Resolute Holdings began trading on The Nasdaq Stock Market LLC on February 28, 2025 under the ticker symbol “RHLD.” Holders of the Company's Class A Common Stock received one (1) share of Resolute Holdings Common Stock for every twelve (12) shares of Class A Common Stock held on February 20, 2025, the record date for the distribution. The distribution of shares of Resolute Holdings will give rise to a taxable gain to the Company and will be treated as a taxable dividend to all existing stockholders of the Company for U.S. federal and applicable state and local tax purposes. Investors should note that Resolute Holdings Management, Inc. is a distinct entity from Resolute Compo Holdings LLC, which acquired CompoSecure shares in September 2024, as described above. The Company's Board believes that investors will value the Resolute Holdings operating management capabilities more favorably if conducted through a stand-alone company than residing within the legacy strategy at the Company.

The CompoSecure Board believes that the aggregate value of the Company and Resolute Holdings will increase over time relative to the stand-alone value of the Company prior to the announcement of the planned Spin-Off, as the Spin-Off will permit investors to invest separately in Resolute Holdings and in the operating businesses of the Company. This structure may also make the Company's and the Resolute Holdings' common stock more attractive to investors as compared to the Company’s common stock before the Spin-Off because the stock would become available to a broader base of investors who seek an investment that offers the growth, risk, and sector prospects of either Resolute Holdings or the Company, but not that of the combined company. The Company's Board also considered factors that might have a negative effect on the Company attributable to the Spin-Off. For example, there can be no assurance as to the future market prices of the common stock of either the Company or Resolute Holdings. Additionally, certain factors such as a lack of Resolute Holdings’ historical financial and performance data as an independent public company may limit investors’ ability to appropriately value the Resolute Holdings common stock. Further, Resolute Holdings is expected to initially operate with limited profitability due to the initial resource investment required to build the capabilities to perform its duties required by the Management Agreement (defined below) with the Company.

Management Agreement with Resolute Holdings

In connection with the Spin-Off, Resolute Holdings and CompoSecure Holdings L.L.C., a wholly-owned subsidiary of the Company ("Holdings", and which solely for the purposes of this section, includes its controlled affiliates), entered into a management agreement (the "Management Agreement") on the Distribution Date, pursuant to which Resolute Holdings is responsible for managing the day-to-day business and operations, and overseeing the strategy of, Holdings and its subsidiaries. Under the Management Agreement, Resolute Holdings is responsible for, among other things, the following services and activities to the fullest extent permitted by Delaware law, the Securities Exchange Act of 1934, the Securities Act of 1933, the Nasdaq listing rules and any other applicable rule or regulation:

•establishing and monitoring Holdings’ objectives, financing activities and operating performance;

•selecting and overseeing Holdings’ management team and their operating performance;

•reviewing and approving Holdings’ compensation and benefit plans, programs, policies and agreements, including with respect to any grants of equity awards to persons providing services to CompoSecure Holdings;

•devising capital allocation strategies, plans and policies of Holdings;

•setting the budget parameters and expense guidelines of CompoSecure Holdings and monitoring compliance therewith;

•identifying, analyzing and overseeing the consummation of business opportunities and potential acquisitions, dispositions and other business combinations;

•originating and recommending opportunities to form or acquire, and structuring and managing, any joint ventures;

•overseeing negotiations with potential participants in any business opportunity under Holdings’ consideration and determining (or delegating to any officer of Holdings the decision to determine) if and when to proceed;

•engaging and supervising, on Holdings’ behalf, independent contractors and third-party service providers;

•reviewing and approving Holdings’ compensation and benefit plans, programs, policies and agreements;

•setting the budget parameters and expense guidelines of Holdings;

•communicating on behalf of Holdings with the holders of any securities of Holdings (i) as required to satisfy any reporting and other requirements of any governmental authority having jurisdiction over Holdings and (ii) to maintain effective relations with such holders;

•overseeing all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which CompoSecure Holdings may be involved or to which CompoSecure Holdings may be subject arising out of CompoSecure Holdings’ day-to-day activities (other than with us or our affiliates);

•counselling CompoSecure Holdings in connection with decisions required by Delaware law to be made by the CompoSecure Board; and

•performing such other services from time to time in connection with the management of the business and affairs of CompoSecure Holdings and its activities as the CompoSecure Board shall reasonably request and/or we shall deem appropriate under the particular circumstances.

Holdings is required to pay Resolute Holdings a quarterly management fee equal to 2.5% of Holdings' last 12 months' Adjusted EBITDA, as defined in the Management Agreement (the "Management Fee"). Holdings is also required to reimburse Resolute Holdings and its affiliates for their documented costs and expenses incurred on behalf of Holdings other than those expenses related to Resolute Holdings' or their affiliates' personnel who provide services to Holdings under the Management Agreement. The Management Agreement has an initial term of 10 years and shall automatically renew for successive ten-year terms unless terminated in accordance with its terms. Each of Holdings and Resolute Holdings may terminate the Management Agreement upon the occurrence of certain other limited events, and in connection with certain of these limited events, Resolute Holdings has the right to require us to pay a Termination Fee (as defined below), which could be significant and may be paid in cash, shares of common stock or a combination of cash and stock.

Holdings is responsible for all of its costs and expenses and will reimburse Resolute Holdings or its affiliates for its or its affiliates' documented costs and expenses incurred on behalf of Holdings, other than expenses related to Resolute Holdings' or its affiliates' personnel who provide services to Holdings under the Management Agreement. Resolute Holdings will determine, in its sole and absolute discretion, whether a cost or expense will be borne by it or by Holdings. Resolute Holdings may elect not to seek reimbursement for certain expenses during a given quarterly period, but any such determination will not constitute a waiver of reimbursement for such expenses, or similar expenses, in future periods.

The Management Agreement has an initial term of ten years and the term will automatically renew for successive and additional ten-year terms, unless it is terminated in accordance with its terms. Resolute Holdings will have the right to terminate the Management Agreement:

•for any reason upon 180 days' written notice to Holdings before the last day of the initial term or a renewal term;

•upon 60 days' written notice to Holdings before the last day of the initial term or a renewal term in the event of:

◦a default by Holdings in the performance or observance of any material term, condition or covenant contained in the Management Agreement that continues for a period of 30 days after delivery by Resolute Holdings of a written notice to Holdings specifying the default and requesting that it be remedied in the same 30-day period (and the Termination Fee will be payable in accordance with the terms of the Management Agreement); or

◦a termination of the Letter Agreement (and the Termination Fee will be payable in accordance with the terms of the Management Agreement);

•at any time upon Holdings becoming required to register as an investment company under the Investment Company Act of 1940.

Holdings will have the right to terminate the Management Agreement:

•upon 180 days' written notice before the last day of the initial term or a renewal term and payment of the Termination Fee, if two-thirds of the independent directors of the Company (who have not recused themselves with respect to such vote) determine the Management Fee is not fair and the parties fail to reach an understanding on the fee following consultation and mediation procedures set forth in the Management Agreement;

•upon 30 days' prior written notice at any time during the initial term or a renewal term, without payment of the Termination Fee, if any of the following events occur (each, a "Kick-Out Event"):

◦a final judgment (which is not stayed or vacated within 30 days) that Resolute Holdings has committed a felony or material violation of securities laws that has a material adverse effect on Holdings' business or ability of Resolute Holdings to perform its duties under the Management Agreement;

◦a final judgment (subject to a 30-day cure period) that Resolute Holdings has committed fraud against Holdings, misappropriated or embezzled funds of Holdings, acted or failed to act in a manner constituting bad faith, willful misconduct, gross negligence or reckless disregard of its duties; or

◦the bankruptcy or dissolution of Resolute Holdings.

As used in this summary, the term "Termination Fee" means an amount equal to the greatest of:

•as of the effective termination date, the fair market value of the aggregate Management Fee then payable or that would become payable if the Management Agreement were automatically renewed and remained in effect in perpetuity;

•as of the effective termination date, the net present value of the aggregate Management Fee then payable or that would become payable if the Management Agreement were automatically renewed and remained in effect in perpetuity, calculated in accordance with the Management Agreement; and

•four times the aggregate Management Fee that became payable during the 24-month period prior to termination.

The Termination Fee will be payable in cash or, at the option of Holdings, by action of a two-thirds vote of the independent directors of our Board (who have not recused themselves with respect to such vote) and upon written notice thereof, shares of our Class A Common Stock or a combination of shares of Class A Common Stock and cash, provided that the issuance of any shares of Class A Common Stock in connection with the payment of the Termination Fee will be in accordance with applicable laws and stock exchange regulations.

Holdings will, to the fullest extent permitted by Delaware law, reimburse, indemnify and hold harmless Resolute Holdings, its affiliates and the respective directors, officers, employees and stockholders, including the directors, officers, employees, managers, trustees, control persons, partners, stockholders and equityholders ("Manager Indemnified Parties") of and from:

•any and all expenses, losses, damages, liabilities, demands, penalties, costs, charges and claims of any nature whatsoever (excluding the costs described in the below bullet) in respect of or arising from any acts or omissions of such Manager Indemnified Party performed in good faith in accordance with, pursuant to, or in furtherance of, the Management Agreement and not constituting bad faith, fraud, willful misconduct, gross negligence or reckless disregard of duties of such Manager Indemnified Party under the Management Agreement; and

•any and all documented and reasonable out-of-pocket expenses (including fees and out-of-pocket disbursements of counsel) incurred in connection with investigating, preparing or defending any acts or omissions by us or our officers, employees or affiliates performed in accordance with, pursuant to or in furtherance of, the Management Agreement, whether by or through attempted piercing of the corporate veil, by or through a claim, by the enforcement of any judgment or assessment or by any legal or equitable proceeding (including any threatened or ongoing investigative, administrative, judicial or regulatory action or proceeding), or by virtue of any statute, regulation or other applicable law, or otherwise as such expenses are incurred or paid (provided that if it is ultimately finally judicially determined in a court of competent jurisdiction that the aforementioned Manager Indemnified Parties are not entitled to indemnification thereunder, such Manager Indemnified Parties shall reimburse Holdings for any and all documented and reasonable out-of-pocket expenses (including fees and out-of-pocket disbursements of counsel) already paid or reimbursed by Holdings in respect of which such final judicial determination was made).

The Management Agreement contains mutual representations and warranties of Holdings and Resolute Holdings with respect to: due organization and good standing; corporate power and authority; and non-contravention of laws, regulations and contracts by the execution, delivery and performance of the Management Agreement.

The Management Agreement does not create an exclusive relationship between Holdings and its controlled affiliates, on the one hand, and Resolute Holdings, on the other hand. Under the Management Agreement, Holdings and Resolute Holdings or its affiliates may, in their sole and absolute discretion, allocate opportunities among Holdings and any other person to which Resolute Holdings renders services of any kind, or for which Resolute Holdings otherwise acts as an external manager, in any manner that Resolute Holdings deems appropriate. The doctrine of corporate opportunity or any analogous doctrine will not apply to Resolute Holdings or its affiliates, and nothing in the Management Agreement will be construed to impose on Resolute Holdings an express or implied fiduciary duty to Holdings, any of its controlled affiliates or any holders of equity or voting interests in Holdings or such controlled affiliates. The foregoing summary of the material provisions of the Management Agreement is qualified in its entirety by the Management Agreement, the form of which is filed as an exhibit to this annual report.

Strategic Priorities

We are focused on the following strategic priorities in 2025, described in more detail below:

Accelerate Organic Growth

Our more than 20-year track record of providing new and innovative products to the market has given us a leading position in the premium payment card market. We enter 2025 with a strong pipeline for new product development and commercialization focused on providing compelling products to our customers so they can attract and retain consumer and business card accounts. In 2025, we expect to accelerate organic growth through winning new customers, expanding programs with existing customers, and offering new and innovative products and services to existing customers.

Improve Operational Efficiency

We are actively developing and implementing the CompoSecure Operating System, with guidance from David Cote's decades of operational experience. The goal is to deliver consistent excellence across the organization.

Continue Arculus Traction

We believe a payment card can do more — more than their current functionality. The Company's Arculus technology is designed to transform a payment card into a multifunctional device to support both traditional payments and to act as a ‘tap-to-authenticate’ hardware token allowing for passwordless and hardware-based multi-factor authentication. The Company believes its Arculus technology elevates the digital security experience for consumers by seamlessly integrating secure authentication and/or cold storage capabilities into their everyday wallets.

Expand and Diversify Through Acquisitions

Through our Management Agreement with Resolute Holdings, we expect to utilize our core business' ability to generate strong free cash flow to drive growth through accretive M&A transactions. The Resolute Holdings team has extensive, cross-functional expertise in identifying opportunities in attractive markets with robust growth drivers that can both add capabilities to the Company’s core business and further diversify our business mix.

Market Opportunity

Edgar, Dunn and Company, a global financial services and payments consulting firm (“Edgar Dunn”), estimated there would be 10.3 billion addressable payment cards in circulation (from total of over 17 billion) globally in 2024, with 5.2 billion addressable payment cards issued in 2024, and estimates total cards issued will grow to 6.1 billion by 2027. Similarly, McKinsey & Company, a leading management consulting firm, estimates that global payment card revenue is expected to grow 5 percent annually over the next five years, on pace to exceed $3.1 trillion by 2028. Ongoing payment card innovations, particularly dual-interface (“contactless” or “tap-to-pay”) functionality, are expected to support continued physical card use as compared with other payment approaches.

Payment cards are primarily offered by bank issuers through proprietary issuer brands or as co-branded cards that leverage the brand equity and customer base of co-brand partners. Issuers dedicate significant resources to acquire new customers, retain existing customers, and grow customer spend as intense competition drives the need to differentiate their payment card programs. Issuers use advertising and program benefits to attract cardholders and also use brand recognition that relies upon the physical attributes of the payment card itself, including the look, feel and composition of the physical cards.

The Company’s metal payment cards offer issuers the opportunity to provide a premium experience to their cardholders as part of a payment card program’s overall combination of benefits. Traditional plastic card programs are highly commoditized and have historically relied upon offering benefits such as introductory interest rates, discounts, and rewards to win customers. These benefit costs are variable and can be unpredictable. Use of metal payment cards has become an increasingly key differentiator among payment card programs. Relative to traditional program incentives, the cost of a metal payment card is relatively low and predictable, giving card issuers a strong return on investment for premium metal payment cards provided by the Company.

Metal payment cards were initially designed and marketed to payment card issuers targeting relatively small segments of high-net-worth cardholders. Market acceptance within the high-net-worth segment has led issuers to expand their metal payment card offerings to target mass affluent and other customer segments. Issuance of Metal payment cards has grown quickly but remains in early phases of adoption globally. With an estimated 2024 global addressable market of 5.2 billion payment cards issued, the Company’s total penetration is estimated to be less than 0.6%.

The Company believes the payment card market is undergoing a long-term transformation from plastic to metal card form factors. The following key market dynamics support issuer decisions to add metal payment cards to their programs:

•Based on a 2024 market survey conducted by Capuchin Behavioural Science, consumers globally strongly favor metal cards, with 68% of survey respondents stating that if all rewards/benefits were equal, they would prefer a metal card. Technological and manufacturing innovations enable the Company to offer issuers an array of different metal form factors, and added features, with a variety of price points to provide issuers competitive differentiation in their card programs. This range of card offerings is expected to continue to drive adoption of metal payment cards across segments in issuer card portfolios (consumer, small business, corporate, etc.) and card types (credit, debit, loyalty, etc.).

•The Company believes that dual-interface metal payment cards are easier to use than most mobile payment platforms, and that entrenched consumer preference for physical form factors are expected to maintain the role of payment cards in the marketplace notwithstanding the introduction of mobile payment platforms such as Apple Pay® and Google Pay®. It is expected that mobile payment platforms will continue to grow, but not replace physical cards as the dominant transaction model. For example, it has been reported that even ten years after its launch, ApplePay® accounts for only 5.6% of retail sales. Dual-interface cards are more popular among consumers for in-person transactions and online transactions, with one study recently reporting that 77% of consumers preferred using a debit or credit card when buying online.

•Card issuers are considering the adoption of new payment card features, including biometrics, dynamic card verification value (“CVV”), and LED display features, among others. The incremental costs of adding these technologies to payment cards favors the use of metal form factors instead of plastic cards. The Company believes metal cards provide a more durable physical housing versus plastic, thus better preserving the integrity and functionality of any added technologies, driving efficiency in issuer acquisition costs.

•Payment cards remain the primary payment instrument at the point of sale. The introduction of dual-interface cards is expected to continue to drive use of physical cards in stores. It has been reported that payment cards were used in 62% of in-store payments in 2023. Even with the ongoing global expansion of e-commerce, the need for physical card products is not expected to significantly diminish. After more than two decades of e-commerce activity, it is estimated that approximately 16% of total U.S. retail sales in 2024 were completed through e-commerce channels.

The Company’s products and services are designed to serve the convergence of large and growing addressable markets supported by increasing business and consumer demand for solutions supporting contactless payments, enhanced security and fraud protection. The Company believes there is a compelling market opportunity to provide payment card issuers, and other existing and prospective metal card clients, secure authentication solutions to meet the growing demand to enhance consumer security, through the use of a premium metal card as a hardware authentication token -Powered by Arculus. Today’s digital world leaves consumer assets exposed to fraud, hacking and other dangers. Financial institutions, credit card issuers and other businesses are trying to mitigate these dangers, but consumers are faced with antiquated and expensive security solutions that have complicated user experiences including usernames and passwords which remain at risk for being stolen or otherwise compromised. Based on industry reports:

•Identity fraud losses totaled $23 billion in 2023, which is a 13% increase in losses for U.S. adult victims of identity fraud over the prior year, as reported by Javelin Strategy & Research.

•According to the Identity Theft Resource Center's 2024 Annual Data Breach Report, in 2024, there were 3,158 publicly reported data compromises which resulted in 1.3 billion notices being sent out to individuals, representing a 211% increase over the prior year.

•Payment card fraud losses worldwide exceeded $34 billion in 2023, which is a 1% increase over the prior year, per Payments Dive's industry blog.

•Passwords are often identified as the weak link in cybersecurity, with password security issues accounting for 30% of data breaches experienced by users in 2024, according to an analysis by GoodFirms.co.

•PMNTS.com, an industry journal, has reported that 56% of U.S. consumers stated that total protection in mobile apps (i.e. protecting mobile data, accounts, login, purchases, and protection from malware and fraud) are critical in their decision to use or download an app.

•40% of all help desk calls are related to password expirations, changes, and resets, as estimated by Gartner.

•According to the National Consumer Law Center, the U.S. Federal Bureau of Investigation has reported that an estimated $50 million was stolen through SIM-swap attacks in 2023 from approximately 1,075 cases nationwide.

•Worldwide damages from SIM swapping attacks estimated to be $6.5 billion in 2023 (a type of identity theft in which an attacker gains control of a victim's mobile phone number by transferring it to a new SIM card), more than double the damages reported in 2021 and more than six times the damages reported in 2019, as estimated by an industry blog.

•Statista, a global data and business intelligence firm, has estimated the market for passwordless authentication products and services to be approximately $18.4 billion in 2024, and is estimated to grow to approximately $86.4 billion by 2033.

Security attacks are increasing and represent a growing concern to consumers and industry participants. Use of secure authentication through a hardware token provides a high level of security for passwordless authentication. The Company's Arculus secure authentication solutions are expected to address the growing need for more secure, but frictionless solutions - for payment card issuers, financial institutions and other businesses seeking to improve their consumer experience.

Growth Opportunities

The Company is a high-growth, profitable technology company, focused on innovative payments, security, and authentication solutions. The Company has a demonstrated track record of achieving growth in operational scale and financial performance, including:

•Card programs served grew from approximately 60 in 2018 to over 150 in 2024; and

•Metal payment card unit sales grew from 12.6 million in 2018 to about 30 million in 2024.

Even with its long-term track record of growth and leadership in metal payment card solutions, the Company’s sales volume of payment cards in 2024 represented less than 0.6% of estimated addressable market for payment cards, indicating substantial opportunity for further penetration of the global payment card market. Presently, the Company's metal payment card growth activities are targeted in these primary areas:

Domestic Expansion. In 2024, the Company produced metal payment cards for 8 of the top 10 U.S. card issuers. The Company believes there are substantial opportunities to expand adoption of metal form factors for existing client proprietary and co-branded mass affluent card programs in the U.S. which do not currently offer metal payment cards. The number of issuers adopting metal programs continues to increase, and there has been an increase in card issuers expanding their metal card programs to additional proprietary and co-branded portfolios. The Company’s marketing and sales activities target opportunities to expand metal card programs for existing customers in the U.S. and to introduce metal form factors to new card issuer clients in the U.S. The Company has expanded its team of direct sales representatives to target growth opportunities in the U.S.

International Expansion. The Company’s net sales from non-U.S. metal payment card programs in 2024 totaled $77 million, over four times its 2018 net sales of $19 million from non-U.S. programs. The Company believes that issuers in international markets are still in the early stages of adoption of metal form factors and largely untapped opportunities exist across major markets in Europe, Asia, India, the Middle East, and Latin America. In these regions, issuers are developing awareness of the relatively low cost and attractive economics of metal payment card programs. The Company has continued to grow its team of international direct sales representatives and third-party distribution partners to further support growth in markets outside of the U.S.

Fintech Issuers. Innovative new issuers, including digital challenger banks and other emerging fintechs, are increasingly seeking premium physical touch points to enhance their typically digital-only customer relationships. Fintech is a word formed from the combination of “financial” and “technology” and is used to describe new technologies to deliver financial services to help businesses and consumers manage their financial activities.

Technology and Innovation. Since its founding, the Company’s growth has been driven by the transformative security and payments technologies it has developed and commercialized for large, mainstream markets. The Company expects to maintain its technological advantages over competitors with consistent research and development activities to drive new and innovative metal form factors and card features, including the Arculus portfolio of secure authentication and digital asset storage solutions, which provide opportunities for expanded revenue and profitability. In addition to new products and revenue opportunities, the Company’s research and development team is continually focused on improvements in manufacturing processes to drive efficiency, increase capacity, improve sustainability, and reduce waste to support enhanced operating leverage and profitability. The Company's use of 65% post-consumer recycled stainless steel in its metal card products is a major sustainability advantage over plastic cards.

Key Products

The Company is a category leader in the design and manufacture of premium metal payment cards. Its metal payment cards are currently issued typically on the Visa®, Mastercard®, American Express®, and China Union Pay® payment networks.

The Company has a track record of more than two decades of pioneering continuous payment card innovation in metal form factors. In 2003, for the American Express® Centurion® program, the Company created the world’s first metal payment card and, in 2009, the Company developed the first commercialized metal payment cards with embedded EMV®chips (EMV is an acronym derived from the names Europay, Mastercard and Visa, and is a high-security payment protocol for payment cards which utilizes an embedded microprocessor that, when paired with an EMV® enabled payment terminal, authenticates cardholder transactions; EMV® cards are often called “chip cards). In 2010, for the JP Morgan Chase Sapphire Preferred® program, the Company created the first metal payment card targeting the mass affluent segment, significantly expanding the potential number of cardholders that issuers could address with metal payment cards. In 2017, the Company introduced the first large-scale NFC-integrated dual-interface metal payment cards for the American Express® Platinum® program. NFC refers to the near-field communications protocol which enables RFID (i.e., radio-frequency identification) communications between payment cards and payment terminals. Dual-interface payment cards today comprise the majority of the Company’s sales volume because of the speed and convenience they offer to cardholders. In 2022, the Company began offering payment cards with Arculus Authenticate and Arculus Cold Storage functionality. The Company has key US and international patents and trade secrets in many facets of metal card form factors and manufacturing processes, including the integration of NFC technology into metal payment cards.

The Company provides its clients customized and highly differentiated financial payment products in order to support and grow the acquisition, retention, and spending of cardholders. The Company leverages the latest innovations in security and functionality to provide its clients with payment cards that deliver elevated, premium experiences to cardholders. The Company offers a variety of metal payment cards, at different price points and using an array of metal and metal-polymer hybrid constructions, that allow clients to customize their payment card programs to target specific cardholder segments. The Company's payment cards are tailored to specific client and payment card program requirements. The Company’s primary metal form factors include:

In addition, as payment card issuers face growing demand for enhanced security and other distinctive features for their card programs, the Company in 2022 began offering its customers the opportunity to include the following new and innovative features in their payment cards:

•Biometric cards - This feature adds on-card biometric sensors for added security. The Company offers a fingerprint sensor on the card body so that the card can only be used at point-of-sale by the cardholder who has enrolled their unique fingerprint to the card, which is stored in the chip module in the card.

•Dynamic CVV –Adding dynamic CVV technology to metal cards as an additional security feature converts the 3-digit CVV code from a static number printed on the back of the card to one on a tiny e-ink screen that refreshes periodically. As the cardholder must physically possess the card to have all the necessary information to make a purchase, this technology aims to fight the $34 billion payment card fraud crisis facing the credit card industry.

•LED – This feature can be added to the Company’s Metal Veneer cards, enabling the issuing bank logo (or other elements) on the face of the card to light up with LEDs when a contactless transaction is initiated at the point of sale.

Arculus Business Solutions: The Company's Arculus technology is designed to transform a metal payment card into a multifunctional device to support both traditional payments and to act as a ‘tap-to-authenticate’ hardware token allowing for passwordless and hardware-based multi-factor authentication. Leveraging a familiar form factor (payment card) as an authentication key allows for a frictionless user experience, delivers improved security, and continues to enhance the brand for card issuers and co-brand partners. The Arculus Business Solutions offer customizable security features that can be seamlessly integrated into the Company’s premium metal cards to drive consumer acquisition for the Company's clients and a high-quality experience for their consumers. The Company believes its Arculus technology elevates the digital security experience for consumers by seamlessly integrating secure authentication and/or cold storage capabilities into their everyday wallets.

The Company’s primary Arculus Business Solutions are:

•Payments + Arculus Authenticate – The Arculus Authenticate solutions can be seamlessly integrated and paired with the Company’s payment cards, allowing consumers to make secure transactions and gain secure access to personal accounts, all from the same metal card. This custom security solution enables card issuers and other businesses to build multi-factor authentication solutions for their customers, through the convenience of the Company’s premium metal cards —Powered by Arculus. Arculus Authenticate is a customizable feature designed to fit into each client’s information technology infrastructure with ease, enabling them to meet the specific needs of their customers. With over 26 billion passwords exposed by hackers in January 2024 alone, Arculus Authenticate provides a more secure option for businesses and their customers, offering a best-in-class, passwordless and hardware-based, secure authentication experience. The Arculus Authenticate solutions are FIDO2 certified, and the Company has obtained approval by Mastercard and Visa to produce metal payment cards with authentication capabilities. FIDO2 refers to Fast Identity Online, a technology which enables users to leverage common devices to easily authenticate to online services in both mobile and desktop environments. The Arculus Authenticate solutions allow clients to generate and store their FIDO2 security key on a custom branded metal card, rather than a clunky and generic USB dongle or other hardware token, resulting in a smooth customer experience and increased brand loyalty with eachtap-to-authenticate interaction.

•White-Labeled Cold Storage – The Company provides white-labeled cold storage wallets in the form of a premium metal cards, to give consumers the ability to make transactions and store the private keys to their digital assets in the same metal cards. The Arculus Cold Storage solutions work across exchanges, marketplaces, and platforms to bring convenience into the world of self-custody — allowing consumers to simply and securely access their digital assets.

•Payments + Arculus Cold Storage – The Company provides the combination of Arculus Cold Storage combined in premium metal payment cards to give consumers the ability to make transactions and store the private keys to their digital assets in the same metal cards. The Arculus Cold Storage solutions work across exchanges, marketplaces, and platforms to bring convenience into the world of self-custody — allowing consumers to simply and securely access their digital assets. As digital assets try to establish their value in the world, card issuers offering metal payment cards featuring Arculus Cold Storage signal a future-forward mindset to their customers. The Arculus Cold Storage solutions can integrate directly into existing card issuer infrastructures. Arculus technology is built to fit with and promote client branding. From white-labeled mobile applications to custom metal cards, Arculus provides secure solutions that amplify client brands into their consumer's everyday wallets.

•Payments + Arculus Authenticate + Arculus Cold Storage –The Company also offers combined its Arculus Authenticate solutions and Arculus Cold Storage solutions to enable card issuers and other businesses to build multi-factor authentication solutions for their customers and offer consumers the ability to make transactions and store the private keys to their digital assets – all on the same metal cards.

Consumer Products: For consumers, the Company launched Arculus in October 2021 with the introduction of the Arculus Cold Storage Wallet for simple and secure storage of digital assets for consumers. The Arculus Cold

Storage Wallet is a revolutionary cold storage wallet for securing digital assets. The risk of loss of valuable assets by consumers and other industry participants is driving the need for more advanced security solutions to protect these digital assets against fraud and theft. It is estimated that about $2.2 billion of cryptocurrencies was stolen in 2024, a 21% increase from 2023, with the number of individual hacking incidents growing from 231 in 2023 to 303 in 2024. The Company believes the use of the Arculus Cold Storage Wallet could substantially reduce the risk of catastrophic loss of valuable assets. Wallets enable users to access and monitor their digital assets and initiate transactions. Hot storage wallets generate and store private and public keys and digitally sign transactions within Internet-connected devices where storage of the keys is hosted by a third-party custodian. For example, digital asset exchanges today typically provide their customers hot storage wallets with the exchange having custody of the user’s private keys (which refers to codes needed for a user to access their digital assets). By contrast, cold storage wallets store private keys in the custody of the user, eliminating custodial-based security vulnerabilities. Though typically more convenient for day-to-day transaction activity than cold storage, Hot storage wallets are more prone to risk of fraud and cyber-theft, as well as the risk of bankruptcy, withdrawal freezes and other liquidity risks of hot storage wallet operators. Even in light of the recent turmoil in the digital asset markets, the Company believes digital assets will continue to have a significant impact on new global financial and security frameworks and will present significant monetization opportunities. Crypto.com reported that global cryptocurrency users increased 6.4% in the first half of 2024, rising from 580 million in December 2023 to 617 million by June 2024. Statista reported 6 million cryptocurrency wallets (inclusive of hot and cold storage) at year end 2016. This figure grew to an estimated 400 million by year end 2024. The cold storage market is nascent but projected to grow rapidly, as consumers increasingly seek out enhanced security for storage of their digital assets and look to maintain custody of their private keys.

Arculus protects digital assets with a secure and convenient metal card and mobile application, giving the user control of their private keys. The Arculus Cold Storage Wallet utilizes a three-factor authentication solution, comprised of (i) a biometric feature found on the vast majority of mobile devices, requiring the physical presence of the registered user -something you are, (ii) a personal identification number, or PIN, which is stored in the secure element of the card -something you know, and (iii) possession of the metal card itself and presentation of that card to the mobile device using the Arculus mobile application -something you have. The card is a premium, metal card with a chip module and antenna used to enable the card to communicate with a smart phone or similar NFC-enabled device operating the Arculus mobile application for “tap-to-transact” functionality. By simply tapping the card to the back of the phone, the user can digitally sign transactions with their private keys, which are generated using advanced cryptography and stored on the card. The companion mobile application is available as a free download on the Apple Store® and Google Play® store. The Arculus metal card was designed, and is manufactured, by the Company at its existing manufacturing facilities.

The Arculus Cold Storage Wallet allows users to easily and securely buy and swap digital assets, providing the convenience of hot storage with the security of cold storage. Commercial sales of the Arculus Cold Storage wallet commenced in the fourth quarter of 2021. Compared with existing cold storage wallet products available in the market, the Arculus Cold Storage Wallet offers a secure, user-friendly, and feature-rich solution that utilizes the Company’s expertise in NFC-integrated metal card design and production. In 2022, the Arculus Cold Storage Wallet was recognized by ABI Research, an independent industry research firm, as the most innovative cold storage hardware wallet in the industry. The Arculus Cold Storage wallet supports specific digital assets, including Bitcoin, Ethereum, non-fungible tokens (NFTs) and others, and the Company plans to increase the number and type of digital assets supported, including that it may support purchase and swap transactions for digital assets it does not currently support. Updated support lists are maintained on the Company's Arculus consumer website atwww.getarculus.com.

To the Company’s knowledge, the following features of the Arculus Cold Storage Wallet are unique in the industry as such features are not currently available in the wallet offerings of the Company’s primary competitors:

•Cold Storage: Private keys remain in an offline environment kept in a metal card using a CC EAL 6 secure element (which refers to Common Criteria Evaluation Assurance Level 6, an international standard established bywww.commoncriteriaportal.org, which is used to evaluate the security implementation in information technology software and hardware).

•Three-Factor Authentication: Advanced security across: (1) biometric (i.e., fingerprint and/or facial recognition); (2) personal identification number (PIN); and (3) NFC connection with the Arculus card.

•Innovative Form Factor: Digital asset key storage solution contained in a slim, metal card form factor, which does not require a battery or charging, offering a premium user experience and heightened hardware protection through an easy-to-use, NFC connection (“tap-to-transact”).

•Fully Featured Mobile Application: Easily send, receive, purchase and swap digital assets.

The Company has arrangements in place with third party liquidity partners to provide Arculus customers with digital asset purchase and/or swap transactions. In addition, Arculus customers can effect peer-to-peer/send & receive transfers using the Arculus Cold Storage Wallet and three-factor authentication technology, providing the end user significantly more protection against theft, fraud and hacking as compared to the use of custodial hot storage. The Company provides a visual interface for Arculus users to access the blockchain to make peer-to-peer send & receive transfers; Arculus does not control the user’s assets during such transfers.

Competitive Strengths

As a pioneer in payments and security technology, the Company possesses key competitive differentiators it leverages to expand its leadership position in metal payment card solutions and in commercializing Arculus secure authentication and digital asset storage solutions. These differentiators include:

Innovation. The Company has been a leader and innovator for decades in the payment cards industry, including the first metal payment card (2003), the first mass affluent metal payment card (2010), the first metal “tap-to-pay” credit card (2016), the first metal NFC-enabled cold storage hardware device (2021), the first metal NFC-enabled hardware authentication token (2022), and a pipeline of new product features including LED display features, biometric security features, glass and mirror-finish payment card constructions, dynamic CVV, and product and solution expansion planned for the Arculus platform. In addition to new products and revenue opportunities, the Company’s research and development efforts are continually focused on improvements in manufacturing processes to improve efficiency, increase capacity, improve sustainability, and reduce waste to support enhanced operating leverage and profitability.

Embedded Client Relationships. The Company has been serving its two largest clients, American Express and JP Morgan Chase, for nearly seventeen years, building strong relationships with key personnel. For these major and numerous other clients, the Company has produced metal payment cards for over 150 card programs, including issuer proprietary and co-branded programs. The Company has also steadily grown the number of customers it serves, increasing from approximately 30 in 2016 to more than 125 in 2024.

Scale. In 2024, the Company produced approximately 30 million metal payment cards. Leveraging its manufacturing and support facilities in Somerset, New Jersey, the Company has developed the ability to provide volume and quality at a scale the Company believes is much larger than current metal payment card competitors’ existing metal card output. The Company believes that its ability to produce metal payment card volume and quality at scale is critical to the success of very large payment card programs, while also driving manufacturing efficiencies and related cost advantages. In addition, the Company has separate manufacturing operations designed to optimize smaller quantity production runs for pilot or specialized card programs.

Patents and Trade Secrets. Leveraging its decades of experience, the Company has developed extensive trade secrets in creating graphic effects on metal cards, heavily customized equipment and machinery and proprietary coatings, as well as the knowledge and ability to blend various metals and polymers to create unique composites. The Company has a strong focus on protecting its proprietary intellectual property. As of February 2025, the Company had more than 65 U.S. and foreign (utility and design) patents issued, more than 35 U.S. and foreign (utility and design) patent applications pending, and new technologies under development. The Company expects to continue to develop innovations for payment card form factor design, components and manufacturing methods, many of which are reflected in patent applications, which may also include further technological innovations for the Arculus platform.

Clients

The Company maintains trusted, highly-embedded and long-term customer relationships with an expanding set of global issuers. The Company has developed long-term relationships with its largest customers, including nearly twenty-one years with American Express and nearly seventeen years with JP Morgan Chase, across multiple RFP cycles with both companies.

The proven value proposition of the Company’s premium metal payment cards supports card issuers’ acquisition and retention of consumer and business card customers. For each of its largest issuer relationships, the Company serves numerous distinct issuer-branded and co-branded card programs, diversifying the Company’s revenues even within individual clients.

For example, the Company supports the following proprietary and co-branded programs:

These card portfolios create recurring revenue streams driven by issuer demand for the Company's metal payment cards to support new customer acquisition and replacement card activity for lost and stolen cards, account fraud, and natural card reissuance cycles that occur each year.

As payment card issuers seek ways to drive differentiation in their market, the Company’s premium metal payment cards have become a key component of its clients’ customer-facing marketing messages. Moreover, issuers who do not offer a premium card product are increasingly realizing that they risk losing market share.

The Company and its major clients have entered into multi-year master agreements which provide general terms and conditions. These clients then typically provide single-order, blanket-order and/or multi-year statements of work which set forth prices and quantities of payment cards. For most other clients, the relationship is governed by individual purchase orders instead of master agreements.

The Company’s largest clients are JP Morgan Chase and American Express. Together these clients represented 63.2% (or individually, approximately 37.0% and 26.2%, respectively) of our net sales for the year ended December 31, 2024, and 70.5% (or individually, approximately 41.7% and 28.8%, respectively) of our net sales for the year ended December 31, 2023.

The current statement of work issued pursuant to the Company's master services agreement with American Express (the “Amex Agreement”) was extended during 2023, and will be up for renewal on July 31, 2026. Typically, the Company renews such client agreements upon their expiration in the ordinary course of business. Under the Amex Agreement, American Express reserves annual capacity of products and is required to order a certain percentage of that capacity from the Company, and the Company may charge American Express for a portion of that capacity even if American Express orders below capacity for any given year. Subject to compliance by American Express with any existing purchase commitments and in line with industry common practice, American Express may terminate the Amex Agreement (i) for convenience pursuant to written notice, or (ii) for cause if the Company commits a material breach and does not remedy it within a prescribed time period. The Company may terminate the Amex Agreement if American Express does not make required payments, and does not remedy the non-payment within a prescribed time period. In addition, subject to compliance by American Express with any existing purchase commitments, American Express may terminate individual orders entered into under the Amex Agreement with prior written notice.

The Company’s master service agreement and related statement of work with JP Morgan Chase (the “Chase Agreement”) was extended during 2023, and will be up for renewal on December 31, 2028. Typically, the Company renews such client agreements upon their expiration in the ordinary course of business. Under the Chase Agreement, JP Morgan Chase agreed to purchase its metal payment cards only from the Company during the term of the Chase Agreement. Under the Chase Agreement, JP Morgan Chase reserves annual capacity of products. Subject to compliance by JP Morgan Chase with any purchase commitments to the Company and in line with industry common practice, JP Morgan Chase may terminate the Chase Agreement (i) for convenience pursuant to written notice, or (ii) if the Company commits a material breach and does not remedy it within a prescribed time period. The Company may terminate the Chase Agreement if JP Morgan Chase does not make required payments, and does not remedy the non-payment within a prescribed time period.

Sales and Marketing

The Company markets and sells its metal payment card products to U.S. and international card issuers, as well as distributors and resellers, primarily for international card markets. Sales activities are designed to develop and foster deep relationships with key payment cards issuers throughout the world. Through these activities, the Company works to strengthen relationships and expand metal payment card programs with existing clients and to identify and complete sales to new clients. The Company has two primary sales channels, as follows:

Direct Sales. The Company has direct sales representatives in the U.S., Europe, Asia and South America, supported by client relationship managers and solutions architects. The Company establishes direct engagement between its sales team and issuers in various regions across the world, with success driven by an iterative and collaborative process. The Company’s sales team focuses on issuer portfolios on a program-by-program basis.

Indirect Sales. The Company has been expanding its relationships with a variety of card ecosystem partners, such as plastic card manufacturers and personalization partners throughout the world. Personalization is the process of encoding, programming and printing, embossing or laser engraving a payment card with the cardholder’s name, account number and other information. These relationships enable the Company to reach more card issuers, some of whom prefer to run all card purchasing through their existing relationships. Distribution partners are able to offer their customers a broader range of card form factors and special features, bringing the Company into a sales process as the metal payment card expert, as well as the secure authentication and digital asset storage solutions expert. The Company’s distribution partners operate global sales teams. In these relationships, the Company typically sells its metal payment cards to its distribution partners at a wholesale price and the distributor then resells the cards to its customers, typically on an integrated basis with the distributor’s personalization, fulfillment and other card-related services (with prices to their customers under the sole control of the distribution partner). The Company also uses a variety of marketing communications, including conferences and trade show attendance, print and digital advertisements and social media marketing, targeted at card issuers and consumers, and designed to demonstrate and expand the demand for metal payment cards.

Business-to-Business Sales. The Company targets marketing and sales of its Arculus Business Solutions to existing payment card issuer clients and their co-brand partners, as well as other traditional financial institutions, fintech companies, digital asset exchanges and other businesses. For example, the Company offers a partner-branded (or “white-labeled”) version of the Arculus Authenticate and the Arculus Cold Storage solutions, as well as other Arculus products and/or services. The Company believes this model solves the client’s need to provide their consumers enhanced security. The Company believes these targeted sales and marketing activities will drive the Arculus portfolio of solutions to consumers through a variety of channels, while also diversifying the Arculus revenue streams into a combination of hardware sales and recurring revenues from transaction processing fees, subscription fees and licensing fees.

Business-to-Consumer Sales. The Company’s direct-to-consumer strategy expects to generate sales via the Internet, physical retail and other channels. The Company’s online direct-to-consumer strategy includes selling products through its own Arculus-branded e-commerce website, as well as other Internet distribution channels, including Amazon.com®, Walmart.com®, NewEgg.com®, TikTok® and other online distributors.

Competition

The market for payment cards is highly competitive. The Company competes with providers of other incentives and initiatives, including rewards programs and traditional plastic card manufacturers. The Company also competes with several other manufacturers of cards containing some metal. However, most of the Company’s competitors in card manufacturing are large, diversified businesses with areas of strategic focus outside of the payment cards market, and their card operations focus primarily on lower margin plastic card manufacturing. The Company believes that most competitive metal card manufacturers have substantially less production capacity, less technical expertise in the metal form factor, a limited selection of metal card designs and constructions, and less extensive supplier relationships for the raw materials needed for metal cards. The Company’s metal card products compete with other card manufacturers, including Idemia France S.A.S., Thales DIS France SA, CPI Card Group, Giesecke & Devrient GmbH, Federal Card Systems, Kona I, BioSmart Co., Ltd., and ICK International.

Competitive factors in selling metal payment cards include primarily product quality, the ability to manufacture high volumes of cards, the ability to deliver finished cards on fixed schedules enabling card issuers (and their personalization partners) to meet consumer demand for metal payment cards, the range of products offered, innovation in metal form factor design and construction and technological innovation to enhance the cardholder experience, product features and price. The Company competes favorably across all of these factors, in the following ways:

•The Company is the pioneer and market leader in production of metal payment cards, with over two decades of experience in designing and manufacturing metal payment cards to meet the needs of large card issuers and brands, and maintains its leadership of bringing innovation to the payment card marketplace.

•The Company has the facilities, personnel, manufacturing equipment, and processes to manufacture metal payment cards at scale while maintaining high quality standards.

•The Company has developed valuable relationships with clients, raw material suppliers, personalization partners, distributors, and equipment manufacturers.

•The Company maintains long-term contracts with its largest clients, which are also some of the largest card issuers in the world, across a diversified portfolio of proprietary and co-brand payment card programs.

The market for digital security, authentication and digital asset storage products and services is highly fragmented today. The Company's Arculus Business Solutions compete for business sales with other providers of security, authentication and digital asset storage products and services. The Company offerings of Arculus Authenticate and Arculus Cold Storage, and its ability to combine payment cards with secure authentication and digital asset storage solutions, positions the Company to address a specific, growing need of payment card issuers, fintechs, and other businesses seeking to enhance their customers’ security. The Company’s primary competitor in the secure authentication solutions market is Yubikey®, which is a stand-alone hardware device typically connected to a computer for authentication functionality, as well as Capital One's AirKey TM technology.

The market for cold storage is highly competitive. Presently, most cold storage wallets are sold directly to consumers, and the Company faces competition from existing products and potential new product launches from existing storage businesses and new entrants. However, most of the Company’s competitors in the cold storage wallet market do not presently offer products and services with the range of security features and enhanced user interface/user experience of the Arculus Cold Storage Wallet. The Company’s primary competitors in the cold storage wallet market include Ledger SAS, Trezor®, CoolWallets®, KeepKey®, Coldcard TM, BitBox®, Ballet TM, and Ellipal®, among others.

Cold storage wallets also compete as a category of products against hot storage wallets to serve digital asset holders. Hot storage wallets generate and store private keys and public keys and digitally sign transactions within Internet-connected devices where a digital asset holder’s private keys are under the custody of a third party, typically in a cloud-based, hosted environment that may be vulnerable to cyber-theft. Consumers are increasingly shifting to self-custody of their private keys via cold storage wallets for the enhanced security benefits. Further, the Company also believes that its Arculus Cold Storage Wallet delivers a cold storage solution that eliminates much of the user experience friction historically associated with competing legacy cold storage wallet products. The Company provides a physical, branded touchpoint through the sleek metal card that the Company believes will be preferred by financial institutions and other branded stakeholders in the market for digital assets over less tangible, digital-only hot storage Wallets. Hot storage wallets and related solutions include wallets typically provided by digital asset exchanges to their customers and the related backend software solutions enabling hot storage wallets.

Manufacturing

The Company designs and manufactures its metal payment cards using highly specialized equipment, significantly modified to meet the Company’s particular production methods and card constructions. The Company’s engineers have designed and implemented proprietary equipment modifications, process automation, and efficiency initiatives to drive significant improvements in manufacturing scale and productivity. The rollout of these initiatives is an ongoing process and continues with an increased focus on automation throughout the manufacturing process, which is expected to result in further improvements in manufacturing yields and labor efficiency, enabling the Company to meet client demand and withstand competitive pricing pressures. The Company’s research and development personnel bring substantial expertise in material science enabling the Company to design and produce difficult-to-replicate metal form factors, and to be a leader in technological innovations for payment cards.

Payment cards require high security throughout the manufacturing process, and the Company maintains extensive policies, procedures and staff to assure compliance with the payment card industry security standards, payment network and client requirements.

The Company’s manufacturing operations are designed to meet the needs of its diverse range of client payment card programs. The following diagram demonstrates the Company’s role in the payment card marketplace:

The Company leases an aggregate of approximately 241,000 square feet in five (5) facilities, all located in Somerset, New Jersey (U.S.A.), enabling the Company to manufacture its products on an integrated basis across its facilities. The Company uses high-security ground freight (such as armored vehicles) for delivery of finished payment cards to the Company’s clients or, more frequently, directly to personalization partners selected by the Company’s clients. Personalization partners provide cardholder personalization and fulfillment services.

Supply Chain

The Company has developed and maintains a valuable and extensive network of suppliers, which provide the Company with EMV chips, various types of metal, adhesives, signature panels, magnetic stripes, payment network logos (including holographic) and other materials for payment card production. The Company believes that the raw materials needed to produce its payment card products are available from multiple sources at reasonable prices In light of recent chip shortages, the Company has established a multi-year purchase commitment with one of its EMV chip suppliers. As a result, the Company presently does not anticipate any raw materials shortages. The Company obtains its raw materials from suppliers located in the U.S., Japan, China, Italy and France. Primary suppliers for EMV chips are leading semiconductor manufacturers. The Company maintains constant vigilance concerning supply chain risks and evaluates alternate suppliers to assure availability, quality, performance, service, price and other features.

Research and Development & Intellectual Property

The Company’s research and development team is comprised of material scientists, engineers and technicians devoted to the invention and development of new metal form factors, card features, secure authentication and digital asset storage technology and applications. The work of the research and development team is then made available by the Company’s sales team to its existing and new customers, and rapidly deployed into the Company’s manufacturing operations for production of customer orders.

The Company has extensive and global intellectual property rights, such as design and utility patents and patent applications, trade secrets, confidential information, trademarks, service marks, trade names, and copyrights. The Company also maintains licensed rights to certain manufacturing technology relating to dual-interface antennae, and may, from time to time, enter into similar commercial agreements if needed or desirable for its manufacturing operations.

The Company relies on a combination of registered (such as patents, trademarks, service marks, etc.) and unregistered (such as trade secrets, confidential information, etc.) programs for its intellectual property protection throughout the world. As of February 2025, the Company had more than 65 U.S. and foreign patents issued, more than 35 pending U.S. and foreign patent applications, and 35 families of U.S. and foreign trademarks/service marks registered and/or applied for across 27 jurisdictions. The Company’s 42 distinct utility patent families have an average remaining lifetime of over 11 years (of their 20-year terms from filing date, assuming eventual grant and all annuities paid); its 8 design patent families have an average of 74% of their lifetime remaining (of 10 – 25-year terms, depending upon jurisdiction), and its registered trademarks/service marks have ten-year terms renewable indefinitely with ongoing use. The Company expects to continue to develop innovations for payment card form factor design, features, components and manufacturing methods, as well as secure authentication and digital asset storage solutions, many of which are reflected in patent applications.

Government Regulations

The payments industry is generally subject to extensive government regulation — both in the United States and internationally (where the Company's products are sold, including in the UK, the EU and Asia) — and any new laws and regulations, or industry standards or revisions made to existing laws, regulations or industry standards (or changes in interpretations or enforcement) affecting the payments industry may materially or adversely affect the Company’s business.

As a metal card supplier, the Company has obtained and maintains certifications from the payment networks enabling the Company to manufacture payment cards that operate on their networks. Payment network certification requires compliance with the payment card industry security standards for physical card characteristics and for card manufacturing operations and facilities. The payment networks and their member financial institutions routinely update, generally expand and modify applicable requirements. Any changes in payment network rules or standards that increase the cost of doing business or limit the Company’s ability to manufacture payment cards that operate on their networks may adversely affect the results of operations of the Company’s business. The Company is required to submit to periodic audits, self-assessments, or other assessments of its compliance with the payment card industry security standards. The Company has maintained payment network certifications for many years and believes that it can continue to renew such certifications. The Company also recognizes that the expensive and complex certification process, and the operational compliance required to obtain and maintain certification, acts as a significant barrier to new businesses seeking to enter the payment cards market.

The Company ships certain of its products to customers (or their personalization partners) located in the UK, the EU, India, Asia, the Middle East and Australia. In connection with such shipments, the Company is sometimes required to comply with import regulations and related procedures. In addition, the products which the Company ships to non-U.S. locations are designed and manufactured to comply with the requirements of the payment networks located in those locations, including American Express, Visa, MasterCard and JCB, among others

In addition, the Company is prohibited from doing business with individuals, entities, countries, and territories that are targets of economic or trade sanctions that the U.S. Department of the Treasury’s Office of Foreign Assets Controls (“OFAC”), the U.S. Department of Commerce’s Bureau of Industry and Security, and various foreign authorities administer or enforce. If the Company’s compliance programs are found to be deficient, it could lose key relationships with clients or their personalization partners. Fines or penalties for violations of these rules may be severe and efforts to remediate any violations issues may be costly, may result in diversion of management and staff time and effort, and may still not guarantee compliance.

The Company’s metal payment card fabrication business does not receive any cardholder personally identifiable information, as that information is handled directly by the Company’s clients or their personalization partners. As a result, the Company’s payment card operations are not directly subject to compliance with federal, state and foreign privacy statutes and regulations relating to protection of such information.

Digital assets are recent technological innovations subject to evolving regulatory schemes. Approaches to digital asset regulation vary globally, with some jurisdictions actively legislating, others interpreting existing laws to apply, and others not taking any stance or expressly declining to regulate. Accordingly, there is no single uniform regulatory framework applicable to our Arculus Cold Storage Wallet, or to digital assets, and laws that do apply at times may overlap.

In recent years, adverse market events in the digital asset space led to increased attention and scrutiny by regulators, legislators and market participants alike. These market events include, among other things, the high-profile bankruptcies and insolvencies of several well-known digital asset-focused entities, most notably FTX and its affiliates, as well as litigation and regulatory enforcement actions. In addition, bankruptcy and other courts have faced novel questions, including concerning the ownership of digital assets held by custodians, the enforceability of customer terms and conditions and the priority of creditors. Such market events led to a legislative and regulatory push in the U.S. to require greater transparency and disclosure concerning digital asset market activities and led to more restrictive, rather than more liberal or flexible, U. S. federal government approach to digital assets and a slew of new civil and criminal enforcement actions by U.S. regulators.

Following the January 20, 2025 inauguration of Donald Trump as the President, however, the United States has seen material changes in the U.S. federal government’s approach to digital assets that indicate a more crypto-friendly stance. Among other things, President Trump’s public statements and executive orders, his appointment of the first-ever White House Special Advisor for AI and crypto, his creation of a national Working Group on Digital Assets Markets and his appointment of pro-crypto leadership to U.S. federal agencies, including the U.S. Securities and Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Treasury appear to signal more digital asset-friendly regulatory environment.

It is possible that a shift in U.S. government approach to digital assets could influence regulatory decisions affecting cold storage wallets which facilitate transactions in digital assets, such as the Arculus Cold Storage Wallet. The Company expects that, partly as a result of the regulatory changes it expects, the Company will effect changes in its support for storage and peer-to-peer transfers, and that it may support purchase and swap transactions for digital assets it does not currently support. The Company’s decisions on whether to support purchase and swap transactions in particular digital assets will be based on a combination of consumer demand, technical integration capabilities, regulatory compliance, third-party partner capabilities, market conditions, competitive intelligence concerning peer activities and management discretion. In the U.S, uncertainty exists concerning the proper application of the securities laws and related guidance to digital asset transactions and market participants, including questions whether and when certain digital assets may be deemed “securities.” and, thus, subject to U.S. federal and state securities law requirements, and such questions currently are being litigated in U.S. courts. The Company relies upon legal and regulatory analysis of legal counsel with expertise in the digital asset industry including to determine whether a digital asset transaction constitutes a transaction in a security. The Company does not believe the storage and peer-to-peer/send & receive functionality provided by the Arculus Cold Storage Wallet involves purchases, sales or other transactions effected by the Company (or any party other than the sender and the recipient). Further, the Company is not compensated for such user-directed activities. However, it is possible that regulators may determine that user-directed peer-to-peer transfers using the Arculus Cold Storage Wallet involve transactions in securities, and that such transactions are effected by the Company. Such a determination could impose on the Company certain registration and compliance requirements, including with respect to broker-dealer and/or securities exchange regulations. If the Company is found to be in violation of U.S. federal securities laws, the Company could be subject to significant monetary penalties, censure or other actions that may have a material and adverse effect on the Company. The Company believes that the likelihood of such eventualities has diminished, but has not disappeared, in light of the U.S. political developments described above.

The Company does not currently buy, swap or exchange digital assets for its Arculus Cold Storage Wallet customers. Instead, all purchase and swap transactions by consumers using the Arculus Cold Storage Wallet are currently executed between the consumer and one or more third-party partners. To the extent that digital assets are designated by regulators as securities or commodities, the Company may need to partner with third-party registered securities or commodities brokers or dealers, or exchanges, to facilitate purchase and swap transactions by Arculus Cold Storage Wallet customers. If the Company is not able to obtain such partnering arrangements or if a regulator determines that such partnering arrangements, standing alone, do not relieve the Company of an independent licensing obligation, and if the Company does not itself register as a broker, dealer or exchange, the inability to support purchase and swap transactions in such digital assets could have a material adverse effect on the Company’s business, financial condition and results of operations.

It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, interpretations, policies, rules or guidance directly or indirectly affecting a digital asset network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use digital assets, or to exchange digital assets for either fiat currency or other virtual currency.

As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies, including FinCEN, have been examining the operations of digital asset networks, with particular focus on the extent to which digital assets can facilitate money laundering or fund criminal or terrorist enterprises and ensure the safety and soundness of exchanges or other service providers that take custody of digital assets for users. Many of these state and federal agencies have established consumer advisories regarding the risks posed to investors in digital assets. In addition, federal and state agencies, and other regulatory bodies in other countries have issued rules or guidance about the treatment of digital asset transactions or requirements for businesses engaged in digital asset activity. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against digital asset businesses or enacted restrictive regimes following adverse publicity arising from hacks, consumer harm, or criminal activity involving digital assets. Accordingly, government authorities may continue to interpret existing laws and regulations, or propose new ones, to regulate certain wallet providers as intermediaries in digital asset transactions. In addition, governments or regulatory authorities may impose new or additional licensing, registration or other compliance requirements on participants in the digital asset industry, which may include the Company’s present or future Arculus Cold Storage Wallet activities. For an additional discussion of regulatory risks related to future government actions, please see “Risk Factors — Regulatory changes or actions may restrict the use of the Arculus Cold Storage Wallet or digital assets in a manner that adversely affects the Company’s business, prospects or operations”. These ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the nature of an investment in digital asset derivatives and/or the ability of the Arculus Cold Storage Wallet to continue to operate.

Various foreign jurisdictions may adopt policies, laws, regulations or directives that affect digital assets or a digital asset network, generally. The effect of any existing regulation or future regulatory change on the Arculus Cold Storage Wallet or digital assets is challenging to predict, but such changes could be substantial and adverse to the Arculus Cold Storage Wallet. Various foreign jurisdictions have adopted, and may continue to adopt in the near future, laws, regulations or directives that may impact digital assets, particularly with respect to digital asset exchanges and service providers that fall within such jurisdictions’ regulatory scope. Such laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of digital assets by users, merchants and service providers outside the United States. In addition, despite what appears to be a more favorable U.S. governmental approach, under the Trump Administration, to digital assets, the occurrence of adverse digital asset market events could materially and negatively affect the U.S. regulatory and legislative outlook for digital assets, and could result in greater restrictions being placed on digital assets market participants or increased regulatory enforcement and other litigation. This could impede the growth or sustainability of the digital asset economy in these jurisdictions as well as in the United States and elsewhere, or otherwise negatively affect the value of digital assets.

Positively Impacting our Environment and Community

To solidify the Company's long-standing commitment to making sustainable choices, in 2022 and 2023, the Company began a strategic project to formalize its approach to environment, social and governance matters ("ESG"). The Company's ESG efforts are driven by a management ESG Committee, led by the Chief Operations Officer, joined by the Chief Transformation Officer, General Counsel and Head of Corporate Communications. The ESG Committee, working across all key business functions, is responsible for the development and implementation of the Company's ESG program, which includes assessing our existing ESG efforts, understanding stakeholder perspectives, identifying areas for improvement that align with our business, and working collaboratively to support programs designed to implement and assess our ESG initiatives. The Company's Board of Directors provides support for and oversight of our ESG program.

The pillars of the Company's ESG program are:

• Positively impacting our environment and community; and

• Doing business in a responsible way.

The Company's approach to ESG has included identifying programs and activities already in place, as well as initiating new programs and practices, and developing qualitative and quantitative ways to measure the Company's achievements and impact across various aspects of ESG. In the following sections, the Company has included a summary of its initiatives and activities in this report and expects to issue a standalone ESG report within the next several months.

Sustainability & Environmental Protection

The Company has been proactively pursuing environmentally friendly products for over 20 years and achieved carbon neutral operations in 2023 and 2024 through a combination of production efficiencies and purchasing carbon offsets. The use of recycled stainless steel plays an important role in the Company’s sustainable design as most of the Company’s metal card products contain 65% post-consumer recycled stainless steel.

In 2023, the Company:

•was awarded the EcoVadis Silver Medal. EcoVadis is an independent provider of business sustainability ratings, and the EcoVadis Medals recognize eligible companies that have completed the EcoVadis assessment process and demonstrated a relatively strong management system that addresses sustainability criteria. The Silver Medal is awarded to companies in the top 15% (85+ percentile) compared to all 150,000+ EcoVadis-rated companies over the previous 12 months.

•renewed its ISO 14001 certification continuing to improve its sustainability operations by reducing waste, improving efficiency and enhancing operations using a systematic approach;

•reduced water usage by approximately 31.5% compared to 2022, resulting in water savings of about 1.5 million gallons through the introduction of new production processes;

•improved its energy efficiency by converting approximately 70% of lighting fixtures in our facilities to LED;

•implemented a card return/recycling program to support closed-loop material use;

•developed new shipment packaging designs utilizing 100% recycled cardboard components; and

•initiated an enhanced supplier engagement program to align the Company's ESG initiatives to customer and supplier activities.

In 2024, the Company:

•was awarded the EcoVadis Silver Medal for the second consecutive year, and improved its EcoVadis score by seven points (from 60 in 2023 to 67 in 2024), demonstrating significant progress in integrating ESG principles into its operations;

•renewed its ISO 14001 certification;

•achieved ISO/IEC 27001 certification, a globally recognized information security management system standard, for its premium card manufacturing operations; and

•further improved its energy efficiency by converting approximately 100% of lighting fixtures in our facilities to LED.

The Company’s manufacturing operations are subject to compliance with Federal, state and local environmental protection regulations, including those governing the emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and groundwater contamination. The Company believes that its operations are in material compliance with environmental requirements and that environmental matters will not have a material adverse effect on its business, operations, financial condition or results of operations.

The metal raw material used in the manufacture of the Company’s metal payment cards is typically comprised of mostly post-consumer recycled materials. In addition, the Company believes that its metal form factors permit a greater opportunity for recycling and/or repurposing expired payment cards as compared to plastic cards. Some card issuers provide postage paid return shipping materials to their cardholders so that the expired cards are returned for destruction/recycling (as metal payment cards cannot typically be shredded with consumer shredding machines).

Human Capital/Employees

As of March 1, 2025, the Company had approximately 1,000 full-time employees, and 7 part-time employees, including approximately 46% female and 54% male employees, and representing over 85% racial/ethnic minorities.

The Company is committed to upholding and promoting human rights in all aspects of its operations. The Company believes in the inherent dignity and equal rights of every individual, and recognizes a responsibility to respect and protect these rights. As an Equal Opportunity Employer, the Company does not discriminate against any employee or job applicant based on race, ethnicity, religion, national origin, sex, physical or mental disability, or age.

The Company focuses human capital efforts on attracting and retaining employees with skills and experience which benefit the business and support the Company's mission and values. Compensation programs are competitive, including base wage and salary rates, annual cash incentives, long-term equity incentives, medical, dental and vision insurance an employee stock purchase plan, paid time off, and employee assistance program, and other benefits. The Company also fosters ongoing management development through training and promotions, and conducts annual employee surveys to measure employee engagement and satisfaction.

The Company promotes honest, ethical and respectful conduct. The Company's Code of Conduct, which we updated in 2024, sets the standards for appropriate behavior, and employees are required to follow these standards and participate in regular training programs. The Company encourages employees to bring forward issues and concern, and maintain a whistleblower hotline system. The Company conducts ongoing employee training programs for ethics, anti-harassment and other important programs and policies. The Company and its employees participate in community initiatives to enhance the lives of people in the communities in which the Company and its employees work and live through volunteerism, charitable giving and other support.

The Company considers relations with its employees to be good and has never experienced any work stoppages or strikes as a result of labor disputes.

Additional Information

Our website iswww.composecure.com. We make available through the “Investors” section atwww.ir.composecure.com, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after filing such materials with or furnishing such documents to the Securities and Exchange Commission (the “SEC”). The information found on our website is not a part of this or any other report filed with or furnished to the SEC. The SEC maintains a site that contains reports, proxy and information statements, and other information regarding issues, such as the Company, that file electronically with the SEC atwww.sec.gov.