UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

OR

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

For transition period from         to

Commission File Number 001-39687

CompoSecure, Inc.

(Exact name of registrant as specified in its charter)

Delaware	85-2749902
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

309 Pierce St.

Somerset, NJ 08873

(908) 518-0500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	CMPO	The Nasdaq Global Market
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock	CMPOW	The Nasdaq Global Market

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

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

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

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

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

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

As of November 06, 2024, there were 88,131,008 shares of the registrant's Class A common stock outstanding.

COMPOSECURE, INC.

Table of Contents

		Page
Part I.	Financial Information	2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
	Consolidated Statements of Stockholders’ Deficit (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited)	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
Part II.	Other Information	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	66
Item 6.	Exhibits	66
Signatures		70

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, and the documents incorporated by reference herein, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although CompoSecure, Inc. (the "Company") believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:

•the ability of CompoSecure to diversify its business and customer base and to achieve enhancements in organic growth and operational efficiency, including for any future acquired companies;

•the ability of CompoSecure to create value for its shareholders and generate robust free cash flow;

•the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees;

•the possibility that the Company may be adversely impacted by other global economic, business, and/or competitive factors;

•the outcome of any legal proceedings that may be instituted against the Company or others;

•future exchange and interest rates; and

•other risks and uncertainties indicated in this report, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC.

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section. The risks described in “Risk Factors” are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Part I - Financial Statements

Item 1. Financial Statements

2

COMPOSECURE, INC.

Consolidated Balance Sheets

($ in thousands, except par value and share amounts)

	September 30, 2024		December 31, 2023
	Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	52,674	$	41,216
Accounts receivable, net	43,799		40,488
Inventories, net	55,090		52,540
Prepaid expenses and other current assets	5,248		5,133
Total current assets	156,811		139,377
Property and equipment, net	23,062		25,212
Right of use assets, net	5,929		7,473
Deferred tax asset	245,102		23,697
Derivative asset - interest rate swap	2,775		5,258
Deposits and other assets	1,762		24
Total assets	$	435,441	$	201,041
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable	9,692		5,193
Accrued expenses	13,473		11,986
Commission payable	2,967		4,429
Bonus payable	7,732		5,616
Current portion of long-term debt	10,000		10,313
Current portion of lease liabilities	2,070		1,948
Current portion of earnout liability	18,527		60
Current portion of tax receivable agreement liability	122		1,425
Total current liabilities	64,583		40,970
Long-term debt, net of deferred finance costs	188,149		198,331
Convertible notes	128,220		127,832
Derivative liability - convertible notes redemption make-whole provision	—		425
Warrant liability	84,505		8,294
Lease liabilities, operating	4,490		6,220
Tax receivable agreement liability	234,117		23,949
Earnout consideration liability	16,386		793
Total liabilities	720,450		406,814
Commitments and contingencies (Note 13)
Redeemable non-controlling interest	—		596,587
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; 250,000,000 shares authorized, 82,677,354 and 19,415,123 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.	8		2
Class B common stock, $0.0001 par value; 75,000,000 shares authorized, no shares and 59,958,422 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.	—		6
Additional paid-in capital	180,356		39,466
Accumulated other comprehensive income	2,569		4,991
Accumulated deficit	(467,942)		(846,825)
Total stockholders' deficit	(285,009)		(802,360)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	435,441	$	201,041

    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

COMPOSECURE, INC.

Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share amounts)

	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net sales	$	107,135	$	96,886	$	319,712	$	290,729
Cost of sales	51,727		47,990		153,019		134,542
Gross profit	55,408		48,896		166,693		156,187
Operating expenses:
Selling, general and administrative expenses	26,316		20,095		74,673		67,627
Income from operations	29,092		28,801		92,020		88,560
Other (expense) income:
Revaluation of earnout consideration liability	(34,530)		6,319		(34,060)		10,540
Revaluation of warrant liability	(74,418)		9,739		(76,211)		1,771
Change in fair value of derivative liability - convertible notes redemption make-whole provision	544		149		425		(364)
Interest expense, net	(5,136)		(5,696)		(15,871)		(17,067)
Loss on extinguishment of debt	(148)		—		(148)		—
Amortization of deferred financing costs	(249)		(314)		(908)		(1,288)
Total other (expense) income, net	(113,937)		10,197		(126,773)		(6,408)
(Loss) income before income taxes	(84,845)		38,998		(34,753)		82,152
Income tax (expense)	(629)		(949)		(51)		(656)
Net (loss) income	$	(85,474)	$	38,049	$	(34,804)	$	81,496
Net (loss) income attributable to redeemable non-controlling interests	$	(43,414)	$	30,574	$	(18,414)	$	65,653
Net (loss) income attributable to CompoSecure, Inc.	$	(42,060)	$	7,475	$	(16,390)	$	15,843
Net (loss) income per share attributable to Class A common stockholders - basic	$	(1.10)	$	0.39	$	(0.58)	$	0.86
Net (loss) income per share attributable to Class A common stockholders - diluted	$	(1.10)	$	0.34	$	(0.58)	$	0.75
Weighted average shares used to compute net (loss) income per share attributable to Class A common stockholders - basic (in thousands)	38,212		19,075		28,110		18,420
Weighted average shares used to compute net (loss) income per share attributable to Class A common stockholders - diluted (in thousands)	38,212		35,765		28,110		35,362

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

COMPOSECURE, INC.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

($ in thousands)

	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net (loss) income	$	(85,474)	$	38,049	$	(34,804)	$	81,496
Other comprehensive (loss) income, net:
Unrealized loss on derivative - interest rate swap, net of tax	(2,279)		(264)		(2,422)		(637)
Total other comprehensive loss, net	(2,279)		(264)		(2,422)		(637)
Comprehensive (loss) income	$	(87,753)	$	37,785	$	(37,226)	$	80,859

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

COMPOSECURE, INC.

Consolidated Statements of Stockholder' Equity (Unaudited)

($ in thousands)

	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2023	19,415,123	$	2	59,958,422	$	6	$	39,466	$	4,991	$	(846,825)	$	(802,360)	$	596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(10,151)		(10,151)		—
Stock-based compensation	—	—		—	—		4,397		—		—		4,397		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		107		—		—		107		—
Net income	—	—		—	—		—		—		4,025		4,025		13,048
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,183,123	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(3,476)						(3,476)		—
Unrealized gain on derivative - interest rate swap	—	—		—	—		—		452		—		452		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		13,048		13,048		(13,048)
Balance as of March 31, 2024	20,598,246	$	2	59,958,422	$	6	$	40,494	$	5,443	$	(839,903)	$	(793,958)	$	596,587
Dividend to Class A shareholders	—	—		—	—		—		—		(8,922)		(8,922)
Distributions to non-controlling interests	—	—		—	—		—		—		(16,016)		(16,016)		—
Special distributions to non-controlling interests	—	—		—	—		—		—		(15,573)		(15,573)		—
Stock-based compensation	—	—		—	—		5,238		—		—		5,238		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		114		—		—		114		—
Net income	—	—		—	—		—		—		11,099		11,099		22,498
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,199,092	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(5,006)		—		—		(5,006)		—
Class A common stock issued pursuant to Class B common stock exchanges	8,050,000	1		(8,050,000)	(1)		—		—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(595)		—		(595)		—
Tax receivable agreement liability	—	—		—	—		(4,582)		—		—		(4,582)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		102,596		102,596		(102,596)
Balance as of June 30, 2024	29,847,338	$	3	51,908,422	$	5	$	36,258	$	4,848	$	(766,719)	$	(725,605)	$	516,489
Distributions to non-controlling interests	—	—		—	—		—		—		(8,696)		(8,696)		—
Stock-based compensation	—	—		—	—		5,634		—		—		5,634		—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

COMPOSECURE, INC.

Consolidated Statements of Stockholder' Equity (Unaudited)

($ in thousands)

Proceeds from employee stock purchase plan, warrants and exercises of options	—	—		—	—		2,674		—		—		2,674		—
Net loss	—	—		—	—		—		—		(42,060)		(42,060)		(43,414)
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, warrants and ESPP transactions	921,594	—		—	—		—		—		—		—		—
Class A common stock issued pursuant to Class B common stock exchanges	51,908,422	5		(51,908,422)	(5)		—		—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(2,279)		—		(2,279)		—
Tax receivable agreement liability	—	—		—	—		12,248		—		—		12,248		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		123,542		—		349,533		473,075		(473,075)
Balance as of September 30, 2024	82,677,354	$	8	—	$	—	$	180,356	$	2,569	$	(467,942)	$	(285,009)	$	—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

COMPOSECURE, INC.

Consolidated Statements of Stockholder' Equity (Unaudited)

($ in thousands)

	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2022	16,446,748	$	2	60,325,057	$	6	$	24,107	$	8,283	$	(924,630)	$	(892,232)	$	600,234
Distributions to non-controlling interests	—	—		—	—		—		—		(9,714)		(9,714)		—
Stock-based compensation	—	—		—	—		4,022		—		—		4,022		—
Net income	—	—		—	—		—		—		2,329		2,329		8,408
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,564,956	—		—	—		—		—		—		—		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		146		—		—		146		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(2,409)		—		—		(2,409)		—
Class A common stock issued pursuant to Class B common stock exchanges	366,635	—		(366,635)	—				—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(1,649)		—		(1,649)		—
Tax receivable agreement liability	—	—		—	—		(290)		—		—		(290)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		12,055		12,055		(12,055)
Balance as of March 31, 2023	18,378,339	$	2	59,958,422	$	6	$	25,576	$	6,634	$	(919,960)	$	(887,742)	$	596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(19,294)		(19,294)		—
Stock-based compensation	—	—		—	—		4,393		—		—		4,393		—
Net income	—	—		—	—		—		—		5,737		5,737		26,973
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and employee stock purchase plan transactions	313,767	—		—	—		—		—		—		—		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		243		—		—		243		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(74)		—		—		(74)		—
Unrealized gain on derivative - interest rate swap, net of tax	—	—		—	—		—		1,276		—		1,276		—
Tax receivable agreement liability	—	—		—	—		(1)		—		—		(1)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		26,973		26,973		(26,973)
Balance as of June 30, 2023	18,692,106	$	2	59,958,422	$	6	$	30,137	$	7,910	$	(906,544)	$	(868,489)	$	596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(9,354)		(9,354)		—
Stock-based compensation	—	—		—	—		4,637		—		—		4,637		—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

8

COMPOSECURE, INC.

Consolidated Statements of Stockholder' Equity (Unaudited)

($ in thousands)

Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		635		—		—		635		—
Net income	—	—		—	—		—		—		7,475		7,475		30,574
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and employee stock purchase plan transactions	601,181	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(643)		—		—		(643)		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(264)		—		(264)		—
Tax receivable agreement liability	—	—		—	—		(1)		—		—		(1)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		30,574		30,574		(30,574)
Balance as of September 30, 2023	19,293,287	$	2	59,958,422	$	6	$	34,765	$	7,646	$	(877,849)	$	(835,430)	$	596,587

The accompanying notes are an integral part of these unaudited consolidated financial statements.

9

COMPOSECURE, INC.

Consolidated Statements of Cash Flows (Unaudited)

($ in thousands)

	Nine months ended September 30,
	2024		2023
Cash flows from operating activities:
Net (loss) income	$	(34,804)	$	81,496
Adjustments to reconcile net (loss) income to net cash provided
by operating activities
Depreciation and amortization	6,932		6,249
Stock-based compensation expense	15,269		13,052
Amortization of deferred finance costs	958		1,262
Loss on extinguishment of debt	148		—
Change in fair value of earnout consideration liability	34,060		(10,540)
Revaluation of warrant liability	76,211		(1,771)
Change in fair value of derivative liability	(425)		364
Deferred tax (benefit)	(4,813)		(1,485)
Changes in assets and liabilities
Accounts receivable	(3,311)		(11,261)
Inventories	(2,550)		(9,614)
Prepaid expenses and other assets	(115)		(87)
Accounts payable	4,499		6,938
Accrued expenses	1,487		4,065
Other liabilities	590		(789)
Net cash provided by operating activities	94,136		77,879
Cash flows from investing activities:
Purchase of property and equipment	(4,782)		(6,669)
Capitalized software expenditures	(729)		—
Net cash used in investing activities	(5,511)		(6,669)
Cash flows from financing activities:
Proceeds from employee stock purchase plan, warrants and exercises of equity awards	2,895		1,024
Payments for taxes related to net share settlement of equity awards	(8,482)		(3,126)
Payment of tax receivable agreement liability	—		(2,193)
Payment of term loan	(10,333)		(18,122)
Deferred finance costs related to debt modification	(1,889)		(256)
Tax distributions to non-controlling members	(34,863)		(38,362)
Special distribution to non-controlling members	(15,573)		—
Dividend to Class A shareholders	(8,922)		—
Net cash used in financing activities	(77,167)		(61,035)
Net increase in cash and cash equivalents	11,458		10,175
Cash and cash equivalents, beginning of period	41,216		13,642
Cash and cash equivalents, end of period	$	52,674	$	23,817
Supplementary disclosure of cash flow information:
Cash paid for interest expense	$	16,987	$	18,296
Supplemental disclosure of non-cash financing activities:
Derivative asset - interest rate swap	$	(2,422)	$	(637)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

10

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

CompoSecure, Inc. (“CompoSecure” or the “Company”) is a manufacturer and designer of complex metal, composite and proprietary financial transaction cards. The Company was founded and commenced operations in 2000. The Company provides products and services primarily to global financial institutions, plastic card manufacturers, system integrators, and security specialists. The Company is located in Somerset, New Jersey. Since its inception, the Company has established itself as a technology partner to market leaders, fintechs and consumers enabling trust for millions of people around the globe. The Company combines elegance, simplicity and security to deliver exceptional experiences and peace of mind in the physical and digital world. The Company’s innovative payment card technology and metal cards with Arculus secure authentication and digital asset storage capabilities deliver unique, premium branded experiences, enable people to access and use their financial and digital assets, and ensure trust at the point of a transaction.

The Company creates newly innovated, highly differentiated and customized quality financial payment products for banks and other payment card issuers to support and increase their customer acquisition, customer retention and organic customer spend. The Company’s customers consist primarily of leading international and domestic banks and other payment card issuers primarily within the United States (“U.S.”), with additional direct and indirect customers in Europe, Asia, Latin America, Canada, and the Middle East. The Company is a platform for next generation payment technology, security, and authentication solutions. The Company maintains trusted, highly-embedded and long-term customer relationships with an expanding set of global issuers. The Company has established a niche position in the financial payment card market with over 20 years of innovation and experience and is focused primarily on this attractive subsector of the financial technology market. The Company serves a diverse set of direct customers and indirect customers, including some of the largest issuers of credit cards in the U.S.

CompoSecure is operated as an umbrella partnership C corporation (“Up-C”) meaning that the sole asset of CompoSecure, Inc. is its interest in CompoSecure Holdings, L.L.C. ("Holdings") and the related deferred tax asset. Holdings has been an entity taxed as a partnership for U.S. federal income tax purposes and, until the Resolute transaction (described below), was owned by both the historical owners and CompoSecure, Inc. By virtue of control of the board of managers of Holdings, CompoSecure, Inc. operates and controls the business and affairs of CompoSecure. As a result, the Company consolidates the financial results of Holdings and reports a non-controlling interest related to the Holdings units not owned by CompoSecure, Inc.

On August 7, 2024, all of the Class B stockholders of the Company and affiliates of Resolute Compo Holdings, LLC, including Tungsten 2024 LLC ("Resolute") entered into stock purchase agreements, pursuant to which the selling shareholders would exchange their 51,908,422 Class B units (and corresponding Class B shares) for Class A shares, eliminating the Company's existing dual-share class structure. On September 17, 2024, the transactions (the "Resolute Transaction") closed and Resolute became the majority owner of the Company by acquiring 49,290,409 of the Class A Common Stock of the Company for an aggregate purchase price of approximately $372.1 million, or $7.55 per share, representing an approximately 60% voting interest. The Company was not party to stock purchase transactions. Prior to these transactions, Class B holders held Class B units in Holdings. Subsequent to the Resolute Transaction, CompoSecure owned 100% of Holdings. As a result of the Resolute Transaction, the Company no longer has Class B shares outstanding or a non-controlling interest as of September 30, 2024.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are presented in conformity with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the results of operations of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to

11

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

conform to the current year presentation. All dollar amounts are in thousands, unless otherwise noted. Share and per share amounts are presented on a post-conversion basis for all periods presented, unless otherwise noted.

The Company's significant accounting policies are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

Interim Financial Statements

The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("U.S. GAAP") and Article 10 of Regulation S-X of the SEC for interim financial information and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the financial statements reflect all adjustments, consisting solely of normal, recurring adjustments, necessary for the fair presentation of the financial statements for the periods presented. The results disclosed in the Consolidated Statements of Operations for the three and nine month periods ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience, current business factors and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. The Company evaluates the adequacy of its reserves and the estimates used in calculations on an on-going basis. Significant areas requiring management to make estimates include the valuation of equity instruments, measurement of changes in the fair value of earnout consideration liability, estimates of derivative liability associated with the Exchangeable Notes (as defined below), which are marked to market each quarter based on a Lattice model approach, derivative asset for the interest rate swap, changes in the fair value of warrant liabilities, valuation allowances on deferred tax assets which are based on an assessment of recoverability of the deferred tax assets against future taxable income and estimates of the inputs used to calculate the tax receivable agreement liability.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 when the performance obligations under the terms of the Company’s contracts with its customers have been satisfied. This occurs at the point in time when control of the specific goods or services as specified by each purchase order are transferred to customers. Specific goods refers to the products offered by the Company, including metal cards, high security documents, and pre-laminated materials. Transfer of control passes to customers upon shipment or upon receipt, depending on the agreement with the specific customers. ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. The Company did not have any contract assets or liabilities as of September 30, 2024 or December 31, 2023.

The Company invoices its customers at the time at which control is transferred, with payment terms ranging between 15 and 60 days depending on each individual contract. As the payment is due within 60 days of the invoice, a significant financing component is not included within the contracts.

The majority of the Company’s contracts with its customers have the same performance obligation of manufacturing and transferring the specified number of cards to the customer. Each individual card included within an order constitutes a separate performance obligation, which is satisfied upon the transfer of goods to the customer. The

12

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

contract term as defined by ASC 606 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short-term in nature.

Revenue is measured in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of variable consideration such as discounts, rebates, and returns.

The Company’s products do not include an unmitigated right of return unless the product is non-conforming or defective. If the goods are non-conforming or defective, the defective goods are replaced or reworked or, in certain instances, a credit is issued for the portion of the order that was non-conforming or defective. A provision for sales returns and allowances is recorded based on experience with goods being returned. Most returned goods are re-worked and subsequently re-shipped to the customer and recognized as revenue. Historically, returns have not been material to the Company.

Additionally, the Company has a rebate program with certain customers allowing for a rebate based on achieving a certain level of shipped sales during the calendar year. This rebate is estimated and updated throughout the year and recorded against revenues and the related accounts receivable.

Segment Information

The Company is managed and operated as one business, as the entire business is managed by a single management team that reports to the Chief Executive Officer and President. The Company's chief operating decision-maker ("CODM") is its Chief Executive Officer and President, who makes resource allocation decisions and assesses performance based on financial information presented on an aggregate basis. The Company does not operate separate lines of business with respect to any of its products and does not review discrete financial information to allocate resources to separate products or by location. Accordingly, the Company views its business as one reportable operating segment.

Characteristics of the organization which were relied upon in making the determination that the Company operates in one reportable segment include the similar nature of all of the products that the Company sells, the functional alignment of the Company’s organizational structure, and the reports that are regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

Software Development Costs

The Company applies the principals of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use ("ASC 350-40"). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the functions intended. The Company capitalized $331 for the three months ended September 30, 2024 of software development costs. For the nine months ended September 30, 2024, the Company capitalized $729 of software development costs. No software development costs were capitalized during the three and nine months ended September 30, 2023.

Net Income Per Share

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per common share is computed by dividing net income attributable to controlling interest by the weighted-average number of common shares outstanding for the period. The weighted-average number of common shares outstanding during the period includes Class A common stock but is exclusive of Class B common stock as these shares have no economic or participating rights.

Diluted net income per share is computed by dividing the net income allocated to potential dilutive instruments attributable to controlling interest by the basic weighted-average number of common shares outstanding during the period, adjusted for the potentially dilutive shares of common stock equivalents resulting from the assumed exercise of the

13

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

warrants, payment of the earnouts, exercise of the equity awards, exchange of the Class B units and Exchangeable Notes ("securities") only if the effect is not anti-dilutive.

Recent Accounting Pronouncements – Adopted in current fiscal year

On December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which applies to all entities subject to income taxes. For public business entities ("PBEs"), the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business entities ("non-PBEs"), the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The amendments in this update require that public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The new guidance focuses on two specific disclosure areas: rate reconciliation and income taxes paid. The rate reconciliation disclosure requirements differ for PBEs as compared to non-PBEs. The income taxes paid disclosures are the same for all entities. The Company will adopt this ASU on January 1, 2025 and is still assessing the impact that the adoption of this ASU will have on the Company's consolidated financial statements.

On November 27, 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting, The guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analysis. The Company is in the process of evaluating the impact of this ASU on its year end financial reporting as required by the standard.

3. INVENTORIES

The major classes of inventories were as follows:

	September 30, 2024		December 31, 2023
Raw materials	$	54,855	$	50,867
Work in process	3,227		4,110
Finished goods	358		662
Inventory reserve	(3,350)		(3,099)
	$	55,090	$	52,540

The Company monitors inventory costs relative to selling prices and performs physical cycle count procedures on inventories throughout the year to determine if a lower cost or net realizable value reserve is necessary. The Company reviews inventory for slow-moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate. This reserve may fluctuate as the Company's assumptions change due to new information, discrete events, or changes in the business, such as entering new markets or discontinuing a specific product.

14

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life	September 30, 2024		December 31, 2023
Machinery and equipment	5 - 10 years	$	36,739	$	30,311
Furniture and fixtures	3 - 5 years	33		33
Computer equipment	3 - 5 years	2		2
Leasehold improvements	Shorter of lease term or estimated useful life	11,533		10,609
Software	1 - 3 years	1,718		1,718
Construction in progress		1,619		4,189
Total		51,644		46,862
Less: Accumulated depreciation and amortization		(28,582)		(21,650)
Property and equipment, net		$	23,062	$	25,212

Depreciation and amortization expense on property and equipment was $2,331 and $2,078 for the three months ended September 30, 2024 and 2023, respectively. Depreciation and amortization expense on property and equipment was $6,932 and $6,249 for the nine months ended September 30, 2024 and 2023, respectively.

5. DEBT

Exchangeable Senior Notes

On December 27, 2021, the Company merged with Roman DBDR Tech Acquisition Corp ("Roman DBDR") pursuant to a merger agreement dated April 19, 2021 (the "Merger Agreement"), by and among Roman DBDR, Roman Parent Merger Sub, LLC, a wholly-owned subsidiary of Roman DBDR incorporated in the State of Delaware ("Merger Sub"), and Holdings. Pursuant to the terms of the Merger Agreement, a business combination between the Company and Holdings was effected through the merger of Merger Sub with and into Holdings, with Holdings as the surviving company and as a wholly-owned subsidiary of Roman DBDR, now named CompoSecure, Inc. (the "Business Combination"). On April 19, 2021, concurrent with the execution of the Merger Agreement, the Company and its subsidiary, Holdings, entered into subscription agreements (the “Note Subscription Agreements”) with certain investors ("Notes Investors") pursuant to which such Notes Investors, severally and not jointly, purchased on December 27, 2021, the closing date of the Business Combination (the "Closing Date"), senior notes (the “Exchangeable Notes”) issued by Holdings and guaranteed by its operating subsidiaries, CompoSecure, L.L.C. and Arculus Holdings, L.L.C., in an aggregate principal amount of up to $130,000 that were exchangeable into shares of Class A common stock at a conversion price of $11.50 per share, subject to the terms and conditions of an indenture (the "Indenture") entered into by the Company and its subsidiary, Holdings, and the trustee under the Indenture.

The Exchangeable Notes bear interest at a rate of 7% per year, payable semiannually in arrears on each June 15 and December 15, commencing on June 15, 2022, to holders of record at the close of business on the preceding June 1 and December 1 (whether or not such day is a Business Day), respectively. The Exchangeable Notes mature on December 27, 2026. The Company will settle any exchange of the Exchangeable Notes in shares of Class A common stock, with cash payable in lieu of any fractional shares. In connection with the issuance of the Exchangeable Notes, the Company entered into a Registration Rights Agreement, pursuant to which the Notes Investors received certain registration rights with respect to the Class A common stock.

After the three-year anniversary of the Closing Date, which will occur on December 27, 2024, the Exchangeable Notes will be redeemable at any time and from time to time by the Company, in whole or in part, (i) if the Last Reported Sale Price of the Class A common stock exceeds 130% of the exchange price as defined in Indenture then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading

15

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (ii) so long as a registration statement registering the resale of all Exchange Shares is effective and available for use by holders of Exchangeable Notes during the entirety of the period from and including the date notice of redemption is given to and including the date of redemption. The notice period for any redemption will be no less than 30 scheduled trading days. The redemption price in any such redemption shall be equal to (a) 100% of the principal amount of the Exchangeable Notes to be redeemed, plus (b) accrued and unpaid interest to, but excluding, the redemption date. The redemption price is payable in cash.

Per the terms of the Indenture, holders of Exchangeable Notes in connection with any such redemption will receive a make-whole payment equal to the aggregate dollar value of all interest payable from the date the Company delivers notice of such redemption through the maturity of the Exchangeable Notes. The redemption Make-Whole Amount is payable, at the Company’s option, in cash or through an increase in the exchange rate then applicable to the Exchangeable Notes by an amount equal to (i) the redemption Make-Whole Amount divided by (ii) the five day Volume Weighed Average Price ("VWAP") with regard to the Class A common stock during the five trading period beginning on the trading day immediately following the notice of redemption.

Holders of Exchangeable Notes may exchange their notes in whole or in part, at any time or from time to time, for shares of the Company’s Class A common stock, par value $0.0001 per share up, to a maximum exchange rate of 99.9999 shares per $1,000 principal amount after adjustments as defined in the Indenture.

The Exchangeable Notes contain customary anti-dilution adjustments, taking into account the agreed terms in the Indenture. To avoid doubt, among other customary adjustments, this includes anti-dilution protections for dividends and distributions of the Company's capital stock, assets and indebtedness. Per the terms of the Indenture, the following are the anti-dilution adjustments of the exchange rate:

a.If the Company exclusively issues shares of common stock as a dividend or distribution on shares of the common stock, or if the Company effects a share split or share combination;

b.If the Company issues to all or substantially all holders of the common stock any rights, options or warrants (other than pursuant to a stockholders' rights plan) entitling them, for a period of not more than 45 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of the common stock at a price per share that is less than the average of the last reported sale prices of the common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the date of announcement of such issuance;

c.If the Company distributes shares of its capital stock, evidences of its indebtedness, other assets or property of the Company or rights, options or warrants to acquire its capital stock or other securities of the Company, to all or substantially all holders of the common stock;

d.If any cash dividend or distribution is made to all or substantially all holders of the common stock;

e.If the Company or any of its Subsidiaries make a payment in respect of a tender or exchange offer for the common stock, to the extent that the cash and value of any other consideration included in the payment per share of the common stock exceeds the average of the last reported sale prices of the common stock over the 10 consecutive trading day period commencing on, and including, the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer.

The exchange rate will in no event be adjusted down pursuant to the provisions described above, except to the extent a tender or exchange offer is announced but not consummated.

If the Company undergoes a “fundamental change” (as defined in the Indenture), subject to certain conditions, the exchange rate will be adjusted per the adjustment table included in the Indenture. If a fundamental change occurs at any

16

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

time prior to the maturity date, each holder shall have the right, at such holder’s option, to require the Company to repurchase for cash all of such holder’s Exchangeable Notes at a repurchase price equal to 100% of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest thereon. There is no make-whole payment associated with a fundamental change redemption.

Holders of Exchangeable Notes will be entitled to the resale registration rights under the resale Registration Rights Agreement. If a Registration default occurs, additional interest will accrue, equal to 0.25% in the first 90 days and 0.50% after the 91st day after the Registration Default (which includes that the Registration Statement has not been filed, or deemed effective or ceases to be effective).

The Indenture contains customary terms and covenants and events of default. Upon an event of default as defined in the Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the Exchangeable Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Exchangeable Notes to be due and payable immediately, and upon any such declaration, the same shall become and shall automatically be immediately due and payable. Upon an event of default in the payment of interest, the Company may elect the sole remedy to be the payment of additional interest of 0.25% for the first 90 days after the occurrence of such an event of default and 0.50% for days 91-180 after the occurrence of such an event of default.

On June 11, 2024, the Company paid a special cash dividend to Class A shareholders of CompoSecure, Inc., and made a corresponding distribution to Class B unitholders of Holdings. As a result of the special cash dividend and distribution, the conversion price was adjusted to $10.98 per share, which resulted in an adjustment to the exchange rate to 91.0972 shares of the Company’s Class A Common Stock per $1,000 principal amount of Notes exchanged. On September 17, 2024, the Resolute Transaction closed, where a majority interest of the Company was acquired through privately negotiated sales. See Note 6 for additional information on the special cash dividend and sale of the majority interest.

The sale of the majority interest and subsequent filing of a Schedule 13D report with the SEC by Resolute on September 19, 2024 triggered the occurrence of a “Make-Whole Fundamental Change” (as defined in the Indenture), pursuant to which the Company, on September 20, 2024, issued a Notice of Make-Whole Fundamental Change to the holders of the Exchangeable Notes to notify the holders that the exchange rate for the Exchangeable Notes has been temporarily increased from 91.0972 shares of Class A Common Stock per $1,000 principal amount of Notes to 104.5199 shares of Class A Common Stock per $1,000 principal amount of notes. This temporary increase in the exchange rate resulted in an adjustment of the conversion price to $9.57 per share from September 19, 2024 to November 29, 2024. Following that date, the conversion price will revert back to $10.98 per share and the exchange rate will revert back to 91.0972 shares of the Company’s Class A Common Stock per $1,000 principal amount of Notes. A notice was sent to all holders of Exchangeable Notes on October 9, 2024 providing details of these choices.

The Company assessed all of the terms and features of the Exchangeable Notes in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the Exchangeable Notes, including the conversion, put and call features. In consideration of these provisions, the Company determined that the optional redemption with a make-whole provision feature required bifurcation as it is a derivative. The fair value of this derivative was determined based on the difference between the fair value of the Exchangeable Notes with the redemption with a make-whole provision feature and the fair value of the Exchangeable Notes without the redemption with a make-whole provision feature. The Company employed a Lattice model to determine the fair value of the derivative. Upon issuance of the Exchangeable Notes, the fair value of the derivative was $552 and was recognized as a derivative liability with an offsetting amount recorded as a debt discount reducing the carrying value of the Exchangeable Notes on the Closing Date, or December 27, 2021. The optional redemption with a make-whole provision feature is measured at fair value on a quarterly basis and the change in the fair value for the period is recorded on the consolidated statements of operations. The Company performed a valuation of the derivative liability and determined that the fair value of the derivative liability was $0 at September 30, 2024 and $425 at December 31, 2023. The Company recorded a favorable change in fair value of $544 and $149 for the three months ended September 30, 2024 and September 30, 2023, respectively. The Company recorded a favorable change in fair value of $425 for the nine months ended September 30, 2024 and an unfavorable change in fair value of $364 for the nine months ended September 30, 2023.

17

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

The expected term of the Exchangeable Notes was equal to the period through December 27, 2026 as this represents the point at which the Exchangeable Notes will mature unless earlier exchanged in accordance with their terms prior to such date. For the quarters ended September 30, 2024 and September 30, 2023, the Company recognized $2,425 and $2,416 of interest expense, respectively, related to the Exchangeable Notes at the effective interest rate of 7.4%. For the nine months ended September 30, 2024 and September 30, 2023, the Company recognized $7,219 and $7,167 of interest expense, respectively, related to the Exchangeable Notes at the effective interest rate of 7.4%. The fair value of the Company’s Exchangeable Notes without the make-whole feature, was approximately $190,000 and $118,000, as of September 30, 2024 and December 31, 2023 respectively.

In connection with the issuance of the Exchangeable Notes, the Company incurred approximately $2,600 of debt issuance costs, which primarily consisted of underwriting fees, and allocated these costs to the liability component and recorded as a reduction in the carrying amount of the debt liability on the balance sheet. The portion allocated to the Exchangeable Notes is amortized to interest expense over the expected term of the Exchangeable Notes using the effective interest method.

Credit Facility

On July 26, 2016, the Company, through its subsidiary, Holdings, entered into a $120,000 credit facility (the “2016 Credit Facility”) with J.P. Morgan Chase (“JPMC”) as the lending agent that provided the Company with a revolving credit facility with a maximum borrowing capacity of $40,000 (the “2016 Revolver”) and a term loan of $80,000 (the “2016 Term Loan”) that was scheduled to mature in July 2021. The 2016 Credit Facility was subsequently amended in July 2019, November 2020 and December 2021 (the “2021 Credit Facility”) to increase the borrowing capacity of the 2016 Revolver and the 2016 Term Loan and to extend the maturity date of the 2016 Credit Facility. The 2021 Credit Facility increased the overall borrowing capacity of the credit facility to $310,000 comprised of a revolving credit facility with a maximum borrowing capacity of $60,000 (the “2021 Revolver”) and a term loan of $250,000 (the “2021 Term Loan”). The 2021 Credit Facility was set to mature on December 16, 2025. The 2021 Credit Facility was also amended in February 2023, May 2023 and March 2024 to (i) transition the 2021 Credit Facility from bearing interest based on LIBOR to SOFR, (ii) to remove certain lenders who no longer wanted to participate in the 2021 Credit Facility, and (iii) to allow the Company to repurchase outstanding shares of common stock, common stock warrants and Exchangeable Notes in an aggregate amount not to exceed $40,000 The 2021 Credit Facility was accounted for as a modification and approximately $1,800 of additional costs incurred in connection with the modification were capitalized as debt issuance costs.

On August 7, 2024, the Company entered into a Fourth Amended and Restated Credit Agreement with JPMC (the “2024 Credit Facility” and collectively with the 2021 Credit Facility, the “Credit Facilities”) and the lenders party thereto to refinance the 2021 Credit Facility. The 2024 Credit Facility amended and restated the 2021 Credit Facility in its entirety. In conjunction with the 2024 Credit Facility, the maximum borrowing capacity of the overall credit facility was increased to $330,000 comprised of a term loan of $200,000 (the “2024 Term Loan”) and a revolving credit facility of $130,000 (the “2024 Revolver”). Two lenders who participated in the 2021 Credit Facility did not participate in the 2024 Credit Facility and transferred their debt to other lenders. The 2024 Credit Facility is set to mature on August 7, 2029. The 2024 Credit Facility was accounted for as an extinguishment for the two lenders who transferred their debt and as a modification for all other remaining lenders. As a result, the Company wrote-off approximately $148 in unamortized debt issuance costs related to the lenders who did not participate in the 2024 Credit Facility which is included in Loss on Extinguishment of Debt in Other Expense in the accompanying consolidated statements of operations.

In conjunction with the 2024 Credit Facility, the Company incurred approximately $686 in lender fees and $147 in other third-party fees related to the 2024 Revolver and approximately $1,056 in lender fees and $225 in other third-party fees related to the 2024 Term Loan. The $1,056 of lender fees related to the 2024 Term Loan have been capitalized and these fees, along with $832 of unamortized debt issuance costs related to the 2021 Credit Facility, will be amortized into interest expense through the maturity date of the 2024 Term Loan using the effective interest method. Similarly, $686 of lender fees and $147 of other third-party fees related to the 2024 Revolver have been capitalized as an other long-term asset and will be amortized into interest expense through the maturity date of the 2024 Revolver using the straight-line method. The $225 other third-party fees related to the 2024 Term Loan were expensed as incurred.

18

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

The Company’s Credit Facilities, including the 2024 Credit Facility, require the Company to make quarterly principal payments until maturity, at which point a balloon principal payment is due for the outstanding principal. The Credit Facilities also require the Company to make monthly interest payments as well as pay a quarterly unused commitment fee of 0.35% for any unused portion of the revolving credit facilities. Both the 2021 Credit Facility and the 2024 Credit Facility provide for the Company to prepay the term loans without penalty or premium. The Credit Facilities are secured by substantially all of the assets of the Company.

Interest on the revolving credit facilities and the term loans are based on the outstanding principal amount during the interest period multiplied by the quoted SOFR rate plus the which can range from 1.75% to 2.75% based on the Company's leverage ratio. As of September 30, 2024 the effective interest rate on the 2024 Revolver and 2024 Term Loan was 7.30% per year. As of September 30, 2023 the effective interest rate on the 2021 Revolver and 2021 Term Loan was 7.99% per year.

The Company recognized $4,257 and $4,997 of interest expense related to the Revolver and the Term Loan for the quarter ended September 30, 2024 and September 30, 2023, respectively. The Company recognized $13,077 and $14,870 of interest expense related to the Revolver and the Term Loan for the nine months ended September 30, 2024 and September 30, 2023, respectively.

The Credit Facilities contain certain financial covenants including a minimum interest coverage ratio, a maximum total debt to EBITDA ratio and a minimum fixed charge coverage ratio. As of September 30, 2024 and December 31, 2023, the Company was in compliance with all financial covenants. The fair value of the Company's credit facilities approximate the carrying value for all periods presented.

As of September 30, 2024 and December 31, 2023, there were no balances outstanding on the Revolver. As of September 30, 2024, there was $130,000 available for borrowing under the 2024 Revolver.

The balances payable under all borrowing facilities are as follows:

	September 30, 2024						December 31, 2023
	Term Loan		Exchangeable Notes		Total debt		Term Loan		Exchangeable Notes		Total debt
Loan Balance	$	199,980	$	130,000	$	329,980	$	210,313	$	130,000	$340,313
Less: current portion of term loan (scheduled payments)	(10,000)		—		(10,000)		(10,313)		—		(10,313)
Less: net deferred financing costs	(1,831)		(1,780)		(3,611)		(1,669)		(2,168)		(3,837)
Total Long Term debt	$	188,149	$	128,220	$	316,369	$	198,331	$	127,832	$	326,163
Derivative liability - redemption with make-whole provision			$	—					$	425

The maturity of all the borrowings facilities is as follows:

Remainder of 2024	$	—
2025	199,980
2026	130,000
Total	$	329,980

19

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

In order to hedge the Company’s exposure to variable interest rate fluctuations related to the $310,000 of borrowings under its 2021 Credit Facility, the Company entered into two interest rate swap agreements with Bank of America on January 11, 2022, the first of which had an effective date of January 5, 2022 (the “January 2022 Swap”), and the second of which had an effective date of December 5, 2023 (the “December 2023 Swap” and, collectively with the January 2022 Swap, the “Interest Rate Swap Agreements”). The January 2022 Swap expired on December 5, 2023 while the December 2023 Swap is set to expire on December 2025. Both the January 2022 Swap and the December 2023 Swap are settled at the end of the month between the parties. The December 2023 Swap has a notional amount of $125,000 and was designated as a cash flow hedge for accounting purposes.

The Company determined the fair value of the Interest Rate Swap Agreements to be zero at the inception of the agreements and $2,775 and $5,258 at September 30, 2024 and December 31, 2023 respectively. The Company reflects the realized gains and losses of the actual monthly settlement activity of the Interest Rate Swap Agreements through interest income or expense in its consolidated statements of operations. The Company reflects the unrealized changes in fair value of the Interest Rate Swap Agreements at each reporting period in other comprehensive income. A derivative asset or liability is recognized at each reporting period in the Company’s consolidated balance sheets for the Interest Rate Swap Agreements. Interest related to the Interest Rate Swap Agreements converted from LIBOR to SOFR at the same time as the amendment of 2021 Credit Facility in February 2023.

6. EQUITY STRUCTURE

Shares Authorized

As of September 30, 2024, the Company had authorized a total of 250,000,000 shares for issuance designated as Class A common stock, 75,000,000 designated as Class B common stock and 10,000,000 shares designated as preferred stock. As of September 30, 2024, there were 82,677,354 shares of Class A common stock issued and outstanding, no shares of Class B common stock issued and outstanding and no shares of Preferred Stock issued and outstanding.

Issuance of Common Stock

In the quarter ended September 30, 2024, the Company issued 921,594 new shares of Class A common stock pursuant primarily to the vesting of certain restricted stock units ("RSUs"), and exercises of stock options, as well as employee stock purchase plan transactions ("ESPP") and warrants during the quarter. The Class A common stock issued pursuant to the vesting of RSUs were issued net of shares withheld for applicable taxes.

In the nine months ended September 30, 2024, the Company issued 3,303,809 new shares of Class A common stock pursuant primarily to the vesting of certain RSUs, and exercises of stock options, as well as ESPP and warrants during the quarter. The Class A common stock issued pursuant to the vesting of RSUs were issued net of shares withheld for applicable taxes.

During May 2024, certain holders of the shares of Class B common stock exchanged an aggregate of 8,050,000 Class B units in Holdings (together with the corresponding number of shares of the Company's Class B common stock) in exchange for 8,050,000 shares of Class A common stock (the "Exchange"). Upon the Exchange, the exchanged shares of Class B common stock and the corresponding number of shares of Class B units were canceled. Immediately following the Exchange, pursuant to the Underwriting Agreement, dated as of May 8, 2024, (the “Underwriting Agreement”), by and among the Company, Holdings, the Representatives, the Underwriters and the Selling Stockholders named therein, the Selling Stockholders sold 8,050,000 shares of the Company’s Class A common stock to the Underwriters (the "Secondary Offering"). The Company did not receive any proceeds from the sale of the shares of Class A common stock by the selling stockholders. As a result of these transactions, the number of outstanding shares of the Company’s Class B common stock decreased by 8,050,000 and the number of outstanding shares of the Company’s Class A common stock increased by 8,050,000. Transaction costs of $586 were incurred and expensed related to this transaction.

On August 9, 2024, all of the Class B stockholders of the Company and Resolute entered into the Resolute Transaction was completed on September 17, 2024, eliminating the Company's existing dual-share class structure. At the

20

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

closing, the selling stockholders exchanged their 51,908,422 Class B units (and corresponding Class B shares) for Class A shares and Resolute became the majority owner of the Company by acquiring 49,290,409 of such Class A shares. Prior to the Resolute Transaction, Class B holders held units in Holdings. Subsequent to the Resolute Transaction, CompoSecure owned 100% of Holdings. The Company did not receive any proceeds from the sale of the shares of Class A company stock by the selling shareholders. Transaction costs of $2,726 were incurred and expensed related to this transaction.

Warrants

As of September 30, 2024, the Company had 22,415,189 public warrants outstanding. Until the expiration date of December 27, 2026, each public warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment, at any time commencing 30 days after the completion of the Business Combination. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares.

Special Dividend and Distribution

On May 6, 2024, the Company announced a special cash dividend of $0.30 per share to Class A stockholders. A corresponding distribution of $0.30 per share was also announced for Class B unitholders of Holdings. Both the dividend and the distribution were paid on June 11, 2024. Dividends of $8,922 were disbursed to Class A stockholders and distributions of $15,573 were disbursed to Class B unitholders.

Non-Controlling Interest

Non-controlling interests represent direct interests held in Holdings other than by the Company immediately after the Business Combination. The non-controlling interests in the Company are represented by Class B units, or such other equity securities in the Company as the Board may establish in accordance with the terms hereof. Since the potential cash redemptions of the non-controlling interests are outside the control of the Company, such non-controlling interests are classified as temporary equity on the consolidated balance sheet in accordance with ASC 480. Income tax benefit or expense is applied to the income attributable to the controlling interest as the income attributable to the non-controlling interest is pass-through income.

As of September 30, 2024, the Company did not have any non-controlling interest as a result of the exchange of all Class B shares for Class A shares, in connection with the acquisition of a majority interest in the Company by Resolute, as described above.

7. STOCK-BASED COMPENSATION

The following table summarizes share-based compensation expense included in Selling, general and administrative expenses within the consolidated statements of operations:

	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Stock option expense	$	—	$	33	$	3	$	269
Restricted stock unit expense	4,784		3,875		13,326		10,880
Performance stock unit expense	817		698		1,843		1,796
Employee stock purchase plan	33		31		97		107
Total stock-based compensation expense	$	5,634	$	4,637	$	15,269	$	13,052

21

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

The following table sets forth the options activity under the Holdings' equity plan, which was assumed by the Company, for the nine month period ended September 30, 2024:

Stock Option Activity

	Number of Shares	Weighted Average Exercise Price Per Shares		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2024	3,278,463	$	1.88	2.9	$	11,780
Granted	—	—
Exercised	(2,493,194)	$	1.03	1.7	$	19,241
Outstanding at September 30, 2024	785,269	$	4.62	4.5	$	7,379
Vested and expected to vest at September 30, 2024	785,269	$	4.62	4.5	$	7,379
Exercisable at September 30, 2024	785,269	$	4.62	4.5	$	7,379

Restricted Stock Unit Activity

	Number of Shares
Outstanding at January 1, 2024	5,651,895
Granted	2,124,016
Dividend Equivalent Units on Deferred RSU's	6,085
Vested	(2,204,090)
Forfeited	(51,850)
Nonvested at September 30, 2024	5,526,056

Performance and Market based Stock Unit Activity

	Number of Shares
Outstanding at January 1, 2024	1,107,536
Granted	872,685
Vested	—
Nonvested at September 30, 2024	1,980,221

22

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

Earnouts

	Number of Shares
Outstanding at January 1, 2024	657,160
Granted	—
Vested	—
Nonvested at September 30, 2024	657,160

Incentive Units

Upon consummation of the Business Combination on December 27, 2021, all of the incentive units, whether vested or unvested, outstanding immediately prior to the merger that were not settled as part of the transaction, were assumed by the Company and converted into Class B common stock. No such shares of converted Class B common stock were outstanding as of September 30, 2024.

Unrecognized compensation cost for restricted stock awards and performance and market based stock units as of September 30, 2024 totaled $32,465, and is expected to be recognized over a weighted average period of approximately 1.8 years. No unrecognized compensation expense remained for the incentive units as of September 30, 2024.

8. RETIREMENT PLANS

Defined Contribution Plan

The Company has a 401(k) profit sharing plan for all full-time employees who have attained the age of 21 and completed 90 days of service. The Company matches 100% of the first 1% and then 50% of the next 5% of employee contributions. Retirement plan expense for the three months ended September 30, 2024 and 2023 was approximately $431 and $405, respectively. Retirement plan expense for the nine months ended September 30, 2024 and 2023 was approximately $1,483 and $1,326, respectively.

9. FAIR VALUE MEASUREMENTS

In accordance with ASC 820-10, the Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

The Company’s financial assets and liabilities measured at fair value on a recurring basis, consisted of the following types of instruments as of the following dates:

23

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

	Level 1		Level 2		Level 3		Total
September 30, 2024
Assets Carried at Fair Value:
Derivative asset - interest rate swap	$	—	$	2,775	$	—	$	2,775
Liabilities Carried at Fair Value:
Public warrants	$	84,505	$	—	$	—	$	84,505
Earnout consideration	—		—		34,913		34,913
Derivative liability - redemption with make-whole provision	—		—		—		—
December 31, 2023
Assets Carried at Fair Value:
Derivative asset - interest rate swap	$	—	$	5,258	$	—	$	5,258
Liabilities Carried at Fair Value:
Public warrants	$	8,294	$	—	$	—	$	8,294
Earnout consideration	—		—		853		853
Derivative liability - redemption with make-whole provision	—		—		425		425

Additional information is provided below about assets and liabilities remeasured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.

Derivative asset - interest rate swap

The Company is exposed to interest rate risk on variable interest rate debt obligations. To manage interest rate risk, the Company entered into an interest rate swap agreement on January 5, 2022. See Note 5.

Warrant liabilities

As a result of the Business Combination, the Company assumed a warrant liability related to previously issued warrants in connection with Roman DBDR's initial public offering. The warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the consolidated balance sheet. The warrant liabilities were remeasured at September 30, 2024, with changes in fair value presented within revaluation of warrant liabilities in the consolidated statement of operations.

The following table provides a reconciliation of the ending balances for the warrant liabilities remeasured at fair value:

	Warrant Liabilities
Estimated fair value at December 31, 2023	$	8,294
Change in estimated fair value	76,211
Estimated fair value at September 30, 2024	$	84,505

The public warrants were valued using the quoted market price as the fair value at the end of each balance sheet date.

Earnout Consideration

Certain prior holders of Holdings equity interests have the right to receive an aggregate of up to 7,500,000 additional shares of the Company's common stock in earnout consideration based on the achievement of certain stock price thresholds. The earnout consideration mat be payable as (a) 3,750,000 additional shares of in the event the volume-

24

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

weighted average price of the Company's Class A Common Stock equals or exceeds $15.00 per share for any 20 trading days within any 30 consecutive trading day period ending on or prior to December 27, 2024, and (b) 3,750,000 additional shares in the event the volume-weighted average price of the Company's Class A Common Stock equals or exceeds $20.00 per share for any 20 trading days within any 30 consecutive trading day period ending on or prior to December 27, 2025.

Earnout consideration (not including the holders under ASC 718) was determined to be a derivative instrument in accordance with ASC 815 and were accounted as derivative liabilities, initially valued at fair value in accordance with ASC 815-40-30-1. The liability for earnout consideration is remeasured at each reporting period at fair value, with changes in fair value recorded in earnings in accordance with ASC 815. The Company established the initial fair value for the earnout consideration at the Closing Date on December 27, 2021 using a Monte Carlo simulation model. The following table provides a reconciliation of the ending balances for the earnout consideration liabilities remeasured at fair value:

Earnout Consideration Liabi