Priority Technology Holdings, Inc. annual report, FY2017

Business context and reporting period

The filing is the fiscal 2017 Form 10-K of M I Acquisitions, Inc., a blank-check company, for the year ended December 31, 2017. It is not an operating-company 10-K for Priority Technology Holdings, Inc. The company’s activity was limited to seeking a business combination; it reported no operating revenue.

After year-end, M I agreed to acquire Priority Holdings, LLC, a payment-processing provider, and said it expected to complete the transaction in June 2018. The deal was pending as of the filing date, March 27, 2018.

Financial results and position

• 2017 other income included $399,166 of trust-account interest and $427,701 of settlement income from a prospective transaction that did not proceed. These items largely offset expenses.
• At year-end, cash outside the trust was $172,196; restricted trust assets were $55.1 million. Working capital deficit was $206,276.
• Total liabilities were $1.45 million, including a $1.06 million deferred underwriting fee payable upon a business combination and a $27,500 note payable. No long-term debt or off-balance-sheet arrangements were reported.
• Operating cash flow was negative; the filing does not present a meaningful operating margin because the company had no operating revenue.

Material changes versus the prior comparable period

Net loss increased from $107,995 in 2016 to $124,854 in 2017. Operating costs rose substantially, while trust interest increased and the company recorded $427,701 of settlement income in 2017. Cash outside the trust declined from $362,535 to $172,196. The trust balance increased to $55.1 million, primarily reflecting interest and trust-account activity.

Outlook, risks and unusual items

• The proposed Priority transaction set an enterprise value of $947.835 million, with equity consideration calculated by subtracting closing net debt and dividing by $10.30 per share, subject to adjustments. Priority’s debt would also be assumed as specified in the agreement.
• Up to 9.8 million additional shares could be issued under earn-outs tied to Priority’s 2018 and 2019 Adjusted EBITDA and specified stock-price hurdles. These are transaction terms, not guidance for M I’s standalone operations.
• M I extended its business-combination deadline to April 19, 2018 with a $132,753 sponsor-funded trust deposit. It could seek two further one-month extensions. Failure to complete a combination within the permitted period would trigger redemption of public shares and liquidation; warrants would expire worthless.
• The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management said available funds might not support operations through the expected transaction timing, and additional financing might be needed; availability and terms were uncertain.
• Other risks include deal closing conditions, integration and synergy execution, financing, possible shareholder redemptions that reduce available cash, claims against trust assets, dilution, and conflicts of interest involving insiders and related parties.
• The filing reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-controls attestation.

Important facts for investors to verify

• Confirm the transaction’s final terms, closing status, financing, closing net debt calculation, and share issuance against subsequent filings.
• Assess the company’s going-concern warning, available cash outside the trust, extension funding, and ability to meet expenses before closing.
• Review Priority’s separate financial statements and operating metrics; this filing does not provide a clear summary of Priority’s revenue, profit, cash flow, debt, or liquidity.
• Verify the earn-out calculations, potential dilution, sponsor-related arrangements, and redemption levels affecting cash available after the transaction.
• Check the reported 2016 loss per share: the statements of operations show $(0.06), while the earnings-per-share note shows $(0.04).