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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-03-30 · 45 added, 46 removed, 107 unchanged (46% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized or reported within the time periods specified in SEC rules and regulations and that such information is accumulated and communicated to our management, including our principal executive officer (CEO) and chief financial officer (CFO) and, as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of the CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures as of December 31, 2020.

Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2019 due to the material weaknesses in our internal control over financial reporting described in Report of Management on Internal Control Over Financial Reporting.

Report of Management on Internal Control over Financial Reporting

Based on that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2020.

b) Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

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Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2020.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on this assessment, management determined that the Company did not maintain effective internal control over financial reporting as of December 31, 2019 due to lack of sufficient accounting and financial reporting resources, deficiencies in certain aspects of our financial statement review and close processes, and functional limitations of the accounting and financial reporting system.

Specifically, the Company did not maintain adequate reconciliation processes and management oversight related to the accounting for certain settlement activities with the Company’s sponsor banks, merchants and ISOs and for the accounting for certain chargeback revenues and related costs in the correct accounting periods in accordance with U.S.

Also, certain accounting entries lacked sufficient supporting documentation and evidence of review.

These control deficiencies resulted in misstatements to our annual or interim financial statements in reporting periods

in 2018, 2017, and prior periods.

These control deficiencies constitute material weaknesses and could result in a material misstatement in our annual or interim consolidated financial statements in the future.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) the Internal Control - Integrated Framework (2013) .

Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2020.

As a result of these weaknesses, in December 2018 the Company hired an experienced Chief Financial Officer with significant public accounting and reporting experience and throughout 2019 has hired additional accounting and finance staff with significant public accounting and reporting experience.

We also engaged third party consultants to assist in the preparation of our financial statements and SEC disclosures.

Beginning in 2019, we also began to implement additional policies and procedures to enhance our internal controls with respect to timely reconciliations.

As we continue to evaluate and improve our internal control over financial reporting, additional measures to remediate the material weaknesses or modifications to certain of the remediation procedures described above may be necessary, including improvements to, or replacement of the accounting and financial reporting system.

Management is committed to improving our internal control processes and meets with our Audit Committee on a regular basis to monitor the status of remediation activities.

Management believes that, once fully completed, the measures described above should remediate the material weaknesses identified and strengthen our internal control over financial reporting.

In previous years, management determined that the Company did not maintain effective internal control over financial reporting due to the lack of sufficient accounting and financial reporting resources, deficiencies in certain aspects of our financial statement review and close processes, and functional limitations of the accounting and financial reporting system.

Specifically,

the Company did not maintain adequate reconciliation processes and management oversight related to the accounting for certain settlement activities with the Company’s sponsor banks, merchants and ISOs and for the accounting for certain chargeback revenues and related costs in the correct accounting periods in accordance with U.S.

Also, certain accounting entries lacked sufficient supporting documentation and evidence of review.

These control deficiencies constituted material weaknesses.

As a result of identifying material weaknesses in internal control over financial reporting, we implemented numerous improvements to remediate these control weaknesses.

These improvements included:

• Accounting and financial reporting resources - in December 2018 the Company hired an experienced Chief Financial Officer with significant public accounting and reporting experience and during 2019, the Company hired additional accounting and finance resources with requisite expertise and significant experience in public accounting, financial reporting and internal controls;

• Financial statement review and closing processes – we implemented policies and procedures to ensure consistent application of adequate controls are performed in the monthly, quarterly and annual financial statement closing process, and personnel exercising these controls are adequately trained to perform these functions;

• Functional limitations of the accounting and financial reporting system – enhanced financial statement preparation and analysis capabilities have been achieved through implementation of automated software that remediated weaknesses in the accounting system;

• Reconciliation processes and management oversight related to the accounting for certain settlement activities – we implemented policies and procedures to ensure consistent application of adequate controls are performed in the reconciliation of all settlement accounts and personnel exercising these controls are adequately trained to perform these functions;

• Supporting documentation and review of accounting entries - we implemented policies and procedures to consistently ensure all journal entries are supported by adequate documentation and are reviewed and approved by supervisory personnel.

After completing our testing of the design and operating effectiveness of these new control procedures, we concluded that we have remediated the previously identified material weaknesses as of December 31, 2020.

d) Attestation Report of Independent Registered Public Accounting Firm

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There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Subsequent to 2017 and in connection with the identification of the material weakness described above, the Company has taken, or plans to take a number of remediation activities designed to remediate such material weakness, as described above.

OTHER INFORMATION

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(a) (1) Our consolidated financial statements listed below are set forth in " Item 8 - Financial Statements and Supplementary Data " of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Report s of Independent Registered Public Accounting Firm s

Consolidated Balance Sheets as of December 31, 20 20 and December 31, 201 9

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(2) Financial Statement Schedules

Exhibit Description

Second Amended and Restated Contribution Agreement, dated as of April 17, 2018, by and among Priority Investment Holdings, Priority Incentive Equity Holdings, LLC and M I Acquisitions, Inc.

(incorporated by reference to Annex A to the Company's Proxy Statement on Schedule 14(a), filed July 5, 2018).

Agreement and Plan of Merger by and among the Company, Finxera Holdings, Inc., Prime Warrior Acquisition Corp., and Stone Point Capital LLC.

Second Amended and Restated Certificate of Incorporation of Priority Technology Holdings, Inc.

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Form of Independent Director Agreement (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed March 29, 2019).

Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-4/A, filed December 26, 2018).

Asset Purchase Agreement by and between MRI Payments LLC, MRI Software LLC, and Priority Real Estate Technology LLC, dated August 31, 2020 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 1, 2020).

Support Agreement, dated as of March 5, 2021, by and among the Stockholders and Finxera

Debt Commitment Letter, dated as of March 5, 2021, between Priority Holdings, LLC and Truist Securities, Inc.

Preferred Stock Commitment Letter, dated as of March 5, 2021, among the Company and certain affiliates of Ares Capital Management LLC

Consent of Independent Registered Public Accounting Firm.

Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

2 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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* Filed herewith

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PRIORITY TECHNOLOGY HOLDINGS, INC.

March 30, 2020

/s/ Thomas C.

March 31, 2021 /s/ Thomas C.

President, Chief Executive Officer and Chairman

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Thomas C.

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

March 30, 2020

(Principal Executive Officer) March 31, 2021

/s/ Michael Vollkommer

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Chief Financial Officer

(Principal Financial Officer)

March 30, 2020

/s/ Pamela Teft

(Principal Financial Officer) March 31, 2021

/s/ Pamela Tefft

Controller and Chief Accounting Officer

(Principal Accounting Officer)

March 30, 2020

/s/ John Priore

Vice-Chairman

March 30, 2020

(Principal Accounting Officer) March 31, 2021

/s/ John Priore Vice-Chairman March 31, 2021

/s/ Michael Passilla

Michael Passilla

March 30, 2020

/s/ William Gahan

William Gahan

March 30, 2020

/s/ Matthew Kearney

Matthew Kearney

March 30, 2020

Director March 31, 2021

/s/ Marietta C.

Director March 31, 2021

/s/ Christina M.

March 30, 2020

Director March 31, 2021

/s/ Stephen W.

Director March 31, 2021

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

What changed 10-K

Item 9A. Controls and Procedures