Company Quick10K Filing
GTY Technology
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 52 $367
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-13 Quarter: 2019-03-31
10-K 2019-03-18 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-16 Annual: 2017-12-31
10-Q 2017-11-13 Quarter: 2017-09-30
10-Q 2017-08-11 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-24 Annual: 2016-12-31
10-Q 2016-12-12 Quarter: 2016-09-30
8-K 2020-01-14 Regulation FD, Exhibits
8-K 2019-12-12 Other Events, Exhibits
8-K 2019-11-07 Earnings, Exhibits
8-K 2019-10-14
8-K 2019-09-16 Shareholder Vote
8-K 2019-08-09 Earnings, Exhibits
8-K 2019-08-08 Officers, Exhibits
8-K 2019-07-02 Other Events, Exhibits
8-K 2019-06-24 Regulation FD, Exhibits
8-K 2019-06-04 Enter Agreement, Other Events, Exhibits
8-K 2019-05-20 Officers
8-K 2019-05-13
8-K 2019-05-07 Earnings, Officers, Exhibits
8-K 2019-02-19 Regulation FD, Exhibits
8-K 2019-02-19 Enter Agreement, M&A, Sale of Shares, Shareholder Rights, Control, Officers, Amend Bylaw, Shell Status, Other Events, Exhibits
8-K 2019-02-14 Shareholder Vote
8-K 2019-02-08 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2019-02-07 Shareholder Vote, Other Events
8-K 2019-02-07 Other Events, Exhibits
8-K 2019-02-04 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-02-01 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-01-22 Regulation FD, Exhibits
8-K 2019-01-14
8-K 2019-01-14 Regulation FD, Exhibits
8-K 2018-12-28 Enter Agreement, Exhibits
8-K 2018-11-23 Other Events
8-K 2018-11-13 Other Events, Exhibits
8-K 2018-10-30 Enter Agreement, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-10-22 Other Events, Exhibits
8-K 2018-10-10 Enter Agreement, Sale of Shares, Exhibits
8-K 2018-09-12 Enter Agreement, Sale of Shares, Regulation FD, Other Events, Exhibits
8-K 2018-08-28
8-K 2018-06-27 Shareholder Vote
8-K 2018-01-03
GTYH 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1. Organization and Business Operations
Note 2. Going Concern and Liquidity
Note 3. Summary of Significant Accounting Policies
Note 4. Business Combination
Note 5. Intangible Assets (Successor)
Note 6. Related Party Transactions
Note 7. Share-Based Compensation
Note 8. Leases
Note 9. Commitments and Contingencies
Note 10. Shareholders' Equity
Note 11. Segment Reporting
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4.Controls and Procedures
Part II. Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds From Registered Securities
Item 6.Exhibits.
EX-2.1 tm1919488d1_ex2-1.htm
EX-31.1 tm1919488d1_ex31-1.htm
EX-31.2 tm1919488d1_ex31-2.htm
EX-32.1 tm1919488d1_ex32-1.htm
EX-32.2 tm1919488d1_ex32-2.htm

GTY Technology Earnings 2019-09-30

GTYH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
SLP 490 46 10 33 24 8 14 479 73% 34.8 17%
CSLT 434 257 71 154 96 -30 -24 387 62% -15.9 -12%
KEYW 424 704 417 495 129 -23 20 696 26% 34.3 -3%
PDFS 409 230 35 81 45 -9 -2 322 55% -133.9 -4%
BCOV 396 170 97 171 100 -18 -10 375 58% -36.2 -11%
CPSI 388 345 178 277 147 18 38 511 53% 13.4 5%
GTYH 367 504 135 11 7 -52 -47 342 60% -7.3 -10%
SNCR 326 644 493 331 184 -184 -91 339 56% -3.7 -29%
TEUM 266 247 77 80 47 -19 -9 261 59% -28.6 -8%
HIVE 255 140 130 150 96 -23 -19 202 64% -10.8 -16%

10-Q 1 tm1919488-1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

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

 

For the transition period from            to         

 

GTY TECHNOLOGY HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Massachusetts   001-37931   83-2860149
(State or other jurisdiction of incorporation)   (Commission File Number)   (IRS Employer Identification No.)

 

1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: (702) 945-2898

 

Not Applicable

(Former name or former address, if changed since last report)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.0001 per share   GTYH   Nasdaq Stock Market LLC

 

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

None.

 

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  x  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  x  No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x
Non-accelerated filer ¨   Smaller reporting company ¨
Emerging growth company x      

 

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 x

 

As of November 7, 2019, 52,207,635 shares of common stock, par value $0.0001 per share were outstanding.

 

 

 

 

 

GTY TECHNOLOGY HOLDINGS INC.

 

Form 10-Q

 

For the Quarter Ended September 30, 2019

 

Table of Contents

 

    Page No.
  PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Unaudited Condensed Consolidated Balance Sheets 3
     
  Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss 4
     
  Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) 5
     
  Unaudited Condensed Consolidated Statements of Cash Flows 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
     
Item 4. Controls and Procedures 40
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 41
     
Item 1A. Risk Factors 41
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
     
Item 6. Exhibits 42

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

   Successor   Predecessor 
   September 30,
   December 31,
 
   2019   2018 
Assets          
Current assets:          
Cash and cash equivalents  $16,884   $13,217 
Investments   -    1,398 
Accounts receivable, net   8,732    5,988 
Prepaid expenses and other current assets   1,577    1,250 
Total current assets   27,193    21,853 
           
Property and equipment, net   2,896    1,124 
Right of use assets   6,154    - 
Loan receivable - related party   -    177 
Intangible assets, net   123,631    1,564 
Goodwill   332,976    2,518 
Other assets   2,473    2,332 
Total assets  $495,323   $29,568 
           
Liabilities, Temporary Equity and Shareholders’ Equity (Deficit)          
Current liabilities:          
Accounts payable and accrued expenses  $5,372   $5,969 
Contract liabilities   16,151    11,732 
Notes payable and accrued expenses - related party   76    - 
Warrant liability   -    87 
Financing lease obligations - current portion   547    138 
Lease liability - current portion   1,761    - 
Contingent consideration - current portion   12,208    - 
Notes payable   -    450 
Total current liabilities   36,115    18,376 
           
Contract and other long-term liabilities   1,596    3,215 
Deferred rent   -    62 
Long-term debt, less current portion   -    433 
Deferred tax liability   37,089    - 
Financing lease obligations - less current portion   953    268 
Lease liability - less current portion   4,623    - 
Contingent consideration - less current portion   55,478    2,092 
Total liabilities   135,854    24,446 
           
Commitments and contingencies          
Preferred stock   -    42,264 
           
Shareholders’ equity (deficit):          
Common stock, par value $0.0001; 400,000,000 shares authorized; 52,822,633 shares issued and 52,207,635 shares outstanding as of September 30, 2019, net of treasury stock   5    - 
Exchangeable shares, no par value, 5,568,096 shares issued and outstanding as of September 30, 2019   45,681    - 
Acquired Companies' common stock   -    148 
Additional paid in capital   367,194    7,835 
Accumulated other comprehensive loss   261    (174)
Treasury stock, at cost, 614,998 shares as of September 30, 2019   (5,160)   - 
Accumulated deficit   (48,512)   (44,951)
Total shareholders' equity (deficit)   359,469    (37,142)
Total liabilities, temporary equity and shareholders’ equity (deficit)  $495,323   $29,568 
           

 

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

3

 

 

GTY TECHNOLOGY HOLDINGS INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

   Successor   Predecessor 
   Three Months Ended   February 19, 2019 through   January 1, 2019 through   Three Months Ended   Nine Months Ended 
   September 30, 2019   September 30, 2019   February 18, 2019   September 30, 2018   September 30, 2018 
Revenues  $8,754   $20,034   $4,928   $7,617   $21,021 
Cost of revenues   2,583    7,090    1,614    2,590    6,862 
Gross Profit   6,171    12,944    3,314    5,027    14,159 
                          
Operating  expenses                         
Sales and marketing   3,549    9,086    1,394    2,329    5,975 
General and administrative   5,774    15,804    1,744    3,558    9,983 
Research and development   3,003    7,610    1,580    2,463    6,688 
Amortization of intangible assets   3,830    9,395    -    -    - 
Acquisition costs   442    33,191    151    1,635    1,635 
Change in fair value of contingent consideration   (812)   (812)   -    -    - 
Total operating expenses   15,786    74,274    4,869    9,985    24,281 
Loss from operations   (9,615)   (61,330)   (1,555)   (4,958)   (10,122)
                          
Other income (expense)                         
Interest income (expense)   (65)   248    (170)   (280)   (343)
Loss from repurchase of shares   (128)   (1,032)   -    -    - 
Other income (loss)   (41)   141    12    (488)   239 
Total other expense, net   (234)   (643)   (158)   (768)   (104)
                          
Net loss before income taxes   (9,849)   (61,973)   (1,713)   (5,726)   (10,226)
Benefit from (provision for) income taxes   1,149    2,819    -    (658)   (658)
Net loss   (8,700)   (59,154)   (1,713)   (6,384)   (10,884)
                          
Other comprehensive loss                         
Foreign currency translation gain   75    261    -    -    - 
Total other comprehensive loss   75    261    -    -    - 
Comprehensive loss  $(8,625)  $(58,893)  $(1,713)  $(6,384)  $(10,884)
                          
Net loss   (8,700)   (59,154)   (1,713)   (6,384)   (10,884)
                          
Cumulative preferred stock dividends   -    -    -    (336)   (857)
Deemed dividend for Exchangable Shares - Series C   -    (183)               
Deemed dividend on Series Seed preferred stock                  (37)   (37)
Net loss applicable to common shareholders  $(8,700)  $(59,337)  $(1,713)  $(6,757)  $(11,778)
                          
Net loss per share, basic and diluted  $(0.17)  $(1.18)               
Weighted average common shares outstanding, basic and diluted   52,148,047    50,316,808                

 

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

 

4

 

 

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

Three Months Ended September 30, 2019

 

                                               Accumulated   Total 
                                   Additional           Other   Shareholders’ 
   Common Stock   Class A   Class B   Exchangeable Shares   Paid in   Treasury   Accumulated   Comprehensive   Equity 
Successor  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stock   Deficit   Loss   (Deficit) 
Balance - June 30, 2019   52,155,614   $5    -   $-    -   $-    5,761,741   $47,617   $364,614   $(3,413)  $(39,812)  $186   $369,197 
Net loss   -    -    -    -    -    -    -    -    -    -    (8,700)        (8,700)
Share-based compensation   -    -    -    -    -    -    -    -    556    -    -    -    556 
Measurement period adjustment to Common Stock issued for acquisitions   (4,150)   -    -    -    -    -    -    -    (42)   -    -    -    (42)
Common stock repurchases   (250,000)   -    -    -    -    -    -    -    -    (1,747)   -    -    (1,747)
Stock option exercises   112,526    -    -    -    -    -    -    -    130    -    -    -    130 
Exchangable shares converted to Common Stock   193,645    -    -    -    -    -    (193,645)   (1,936)   1,936    -    -    -    - 
Currency translation gain   -    -    -    -    -    -    -    -                   75    75 
Balance - September 30, 2019   52,207,635   $5    -   $-    -   $-    5,568,096   $45,681   $367,194   $(5,160)  $(48,512)  $261   $359,469 

 

Nine Months Ended September 30, 2019

 

                                       Accumulated   Total 
                                   Additional           Other   Shareholders’ 
   Common Stock   Class A   Class B   Exchangeable Shares   Paid in   Treasury   Accumulated   Comprehensive   Equity 
Successor  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stock   Deficit   Loss   (Deficit) 
Balance - December 31, 2018   -   $-    898,984   $-    13,568,821   $1    -   $-   $-   $-   $9,920   $-   $9,921 
Net loss   -    -    -    -    -    -    -    -    -    -    (59,154)        (59,154)
Ordinary shares no longer subject to possible redemption   -    -    9,216,438    1    -    -    -    -    88,190    -    722    -    88,913 
Private placement of Class A shares, net of costs             12,863,098    2    -    -    -    -    125,256    -    -    -    125,258 
Exchange of shares in GTY Merger   36,547,341    4    (22,978,520)   (3)   (13,568,821)   (1)   -    -    -    -    -    -    - 
Common Stock issued for acquisitions   11,969,004    1    -    -    -    -    -    -    119,688    -    -    -    119,689 
Shares convertible into Common Stock issued for acquisitions   -    -    -    -    -    -    5,761,741    47,617    -    -    -    -    47,617 
Common Stock issued for Exchangeable Shares - Class C   500,000    -    -    -    -    -    -    -    3,860    -    -    -    3,860 
Share-based compensation   -    -    -    -    -    -    -    -    2,867    -    -    -    2,867 
Private placement of Common Stock, net of costs   3,500,000    -    -    -    -    -    -    -    25,450    -    -    -    25,450 
Common stock repurchases   (614,998)   -    -    -    -    -    -    -    -    (5,160)   -    -    (5,160)
Stock option exercises   112,643    -    -    -    -    -    -    -    130    -    -    -    130 
Exchangable shares converted to Common Stock   193,645    -    -    -    -    -    (193,645)   (1,936)   1,936    -    -    -    - 
Currency translation gain   -    -    -    -    -    -    -    -    -    -    -    261    261 
Deemed dividend for Exchangeable Shares - Class C   -    -    -    -    -    -    -    -    (183)   -    -    -    (183)
Balance - September 30, 2019   52,207,635   $5    -   $-    -   $-    5,568,096   $45,681   $367,194   $(5,160)  $(48,512)  $261   $359,469 

 

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

5

 

 

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

Predecessor from December 31, 2018 to February 18, 2019 

 

   Predecessor 
Balance as of December 31, 2018  $(37,142)
Net loss   (1,713)
Stock compensation   61 
Exercise of stock options   13 
Shareholders'/Members' equity activity   5,629 
Balance as of February 18, 2019  $(33,152)

 

Predecessor from June 30, 2018 to September 30, 2018 

 

   Predecessor 
Balance as of June 30, 2018  $(22,957)
Net loss   (6,384)
Stock compensation   627 
Shareholders'/Members' equity activity   (2,335)
Currency translation loss   (59)
Balance as of September 30, 2018  $(31,108)

 

 

Predecessor from December 31, 2017 to September 30, 2018 

 

   Predecessor 
Balance as of December 31, 2017  $(18,613)
Net loss   (10,884)
Stock compensation   670 
Shareholders'/Members' equity activity   (2,222)
Currency translation loss   (59)
Balance as of September 30, 2018  $(31,108)

 

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

 

6

 

 

 

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

   Successor   Predecessor 
   February 19,
2019 through
   January 1, 2019
through
   Nine Months
Ended
 
   September 30,
2019
   February 18,
2019
   September 30,
2018
 
Cash flows from operating activities:               
Net loss  $(59,154)  $(1,713)  $(10,884)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:               
Depreciation of property and equipment   329    177    480 
Amortization of intangible assets   9,395    32    301 
Amortization of right of use assets   861    165    - 
Share-based compensation   2,867    61    647 
Deferred income tax benefit   (2,819)   -    47 
Bad debt expense   20    6    16 
Loss on disposal of property and equipment   2    -    157 
Foreign exchange loss on payment of vested options   21    -    - 
Change in fair value of contingent consideration   (812)   (37)   (46)
Change in fair value of warrant liability   -    (18)   39 
Gain on sale of marketable securities   -    -    (3)
Accrual of Paid In Kind interest   -    -    12 
Repayments of Paid In Kind interest   -    -    (23)
Change in fair value of notes payable converted to stock   -    -    1,387 
Interest expense from notes payable converted to stock   -    -    160 
Change in fair value of put options   -    -    (99)
Changes in operating assets and liabilities:               
Accounts receivable   (4,789)   2,190    (642)
Prepaid expenses and other assets   (150)   202    (615)
Accounts payable and accrued liabilities   (6,202)   (58)   2,676 
Contract and other long-term liabilities   11,402    (723)   2,445 
Lease liabilities   (814)   -    - 
Net cash (used in) provided by operating activities   (49,843)   284    (3,945)
                
Cash flows from investing activities:               
Proceeds from cash held in trust   217,642    -    - 
Proceeds from sale/disposal of property and equipment   -    1    1 
Purchase of marketable securities   -    -    (180)
Proceeds from related party loan   -    -    (25)
Proceeds from the sales of marketable securities   -    1,531    563 
Payment of internal use software   (793)   -    - 
Acquisitions, net of cash acquired   (179,423)   -    - 
Capital expenditures   (196)   (15)   (333)
Net cash provided by investing activities   37,230    1,517    26 
                
Cash flows from financing activities:               
Proceeds from borrowings   -    35    6,231 
Repayments of borrowings   (585)   (69)   (729)
Stock options exercises   130    13    23 
Contingent consideration payments   -    -    (50)
Shareholder advances   -           
Proceeds from issuances of Predeccesor preferred shares   -    -    9,960 
Member distribution   -    (500)   (859)
Dividends   -    -    (924)
Borrowings issuance cost   -    -    (24)
Deferred cash payment for acquisitions   -    -    (150)
Common Stock repurchases   (5,160)   -    - 
Redemption of Class A Ordinary Shares   (113,982)   -    - 
Redemption of Exchangable Shares - Class C   (1,323)   -    - 
Proceeds received from private placement of Class A shares, net of costs   125,258    -    - 
Proceeds received from private placement of Common Stock , net of costs   25,450    -    - 
Repayments of finance lease obligations   (259)   (19)   (110)
Net cash provided by (used in) financing activities   29,529    (540)   13,368 
                
Effect of foreign currency on cash   (84)   (721)   (488)
                
Net change in cash and cash equivalents   16,832    540    8,961 
Cash and cash equivalents, beginning of period   52    13,929    12,441 
Cash and cash equivalents, end of period  $16,884   $14,469   $21,402 
                
Supplemental disclosure of cash flow information:               
Cash paid for interest  $-   $-   $- 
Cash paid for income taxes  $-   $-   $- 
                
Noncash Investing Activity:               
Shares issued for the Acquisition  $172,307   $-   $- 
Reduction in convertible note liability  $1,000   $-   $- 
Exchangable shares converted to Common Stock  $1,936   $-   $- 
Capital leases  $2,714   $-   $- 

 

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

 

7

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Note 1. Organization and Business Operations

 

GTY Technology Holdings Inc. (f/k/a GTY Govtech, Inc.), a Massachusetts corporation (“GTY”, the “Company” or “Successor”), is headquartered in Las Vegas, Nevada.

 

On February 19, 2019 (the “Closing Date”), the Company consummated several acquisitions (collectively, the “Acquisition”), pursuant to which it (i) acquired each of Bonfire Interactive Ltd. (“Bonfire”), CityBase, Inc. (“CityBase”), eCivis Inc. (“eCivis”), Open Counter Enterprises Inc. (“Open Counter”), Questica Inc. and Questica USCDN Inc. (together, “Questica”) and Sherpa Government Solutions LLC (“Sherpa” and together with Bonfire, CityBase, eCivis, Open Counter and Questica, the “Acquired Companies”) and (ii) became the parent company of its predecessor entity, GTY Technology Holdings Inc., a blank check company incorporated in the Cayman Islands (“GTY Cayman”). Until the Acquisition, GTY Cayman did not engage in any operations nor generate any revenues.

 

In connection with the closing of the Acquisition, the Company changed its name from GTY Govtech, Inc. to GTY Technology Holdings Inc. and became a successor issuer to GTY Cayman and continued the listing of its common stock and warrants on the Nasdaq Capital Market (“NASDAQ”) under the symbols “GTYH” and “GTYHW,” respectively. As of June 2019, the Company’s warrants are no longer listed on any exchange. 

 

GTY is a public sector SAAS company which offers a cloud-based suite of solutions primarily for North American state and local governments. GTY’s cloud-based suite of solutions for state and local governments addresses functions in procurement, payments, grant management, budgeting and permitting. The following is a brief description of each of the Acquired Companies.

 

Bonfire

 

Bonfire Interactive Ltd. was incorporated on March 5, 2012 under the laws of the Province of Ontario, and its wholly-owned subsidiary, Bonfire Interactive US Ltd., was incorporated in the United States on January 8, 2018. Bonfire is a provider of strategic sourcing and procurement software, serving customers in government, the broader public sector, and various highly-regulated commercial vertical markets.

 

Bonfire offers customers and their sourcing professionals a modern SaaS application that helps find, engage, evaluate, negotiate and award vendor and supplier contracts. Bonfire delivers workflow automation, data collection and analysis, and collaboration to drive cost savings, compliance, and strategic outcomes. All of Bonfire’s applications are delivered as a SaaS offering, and Bonfire offers implementation and premium support services.

 

CityBase

 

CityBase, a Delaware corporation headquartered in Chicago, provides dynamic content, digital services, and integrated payments via a SaaS platform that includes technological functionality accessible via web and mobile, kiosk, point-of-sale, and other channels. CityBase software integrates its platform to underlying systems of record, billing, and other source systems, and configures payments and digital services to meet the requirements of its customers, which include government agencies and utility companies.

 

eCivis

 

eCivis, a Delaware corporation headquartered in Los Angeles, California, is a leading SaaS provider of grants management and indirect cost reimbursement solutions that enable its customers to standardize and streamline complex grant processes in a fully integrated platform. The eCivis platform consists of four core cloud-based products including grants research, grants management, sub-recipient management, and cost allocation and recovery. To assist its customers in the implementation of its cloud-based products, eCivis offers one-time implementation services, including data integration, grants migration and change management. Additionally, eCivis provides ongoing grants management training, cost allocation plan consulting and cost recovery services.

 

Open Counter

 

Open Counter, a Delaware corporation headquartered in San Francisco, California, is a developer and provider of software tools for cities to streamline permitting and licensing services for municipal governments. Open Counter provides customers with software through a hosted platform and also provides professional services related to software implementation.

 

8

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Questica

 

Questica, Inc., Questica USCDN Inc., and its wholly-owned subsidiary Questica Ltd., design and develop budgeting software that supports the unique requirements of the public sector. The Questica suite of products are part of a comprehensive web-based budgeting

preparation, performance, management and data visualization solution that enables public sector and non-profit organizations to improve and shorten their budgeting cycles. 

 

Questica Inc. was organized in 1998 as an Ontario corporation, maintains two offices located in Burlington, Ontario, Canada and serves the healthcare, K-12, higher education and local government verticals primarily in North America. Questica USCDN was organized in 2017 as an Ontario corporation and Questica Ltd. was incorporated in 2017 in the United States as a Delaware corporation. Questica Ltd. is located in Huntington Beach, California, primarily serving the non-profit market and services a limited number of customers in the public and private sector. The majority of the Questica Ltd.’s customers are located in the United States and Canada, and as well as some international customers, primarily located in the United Kingdom and Africa.

 

Sherpa

 

Sherpa is a Colorado limited liability company headquartered in Denver, Colorado, established in 2004. Sherpa is a leading provider of public sector budgeting software and consulting services that help state and local governments create and manage budgets and performance. Customers purchase Sherpa’s software and then engage its consulting services to configure the software and receive training on how to manage the software going forward. Following implementation, customers continue to use the software in exchange for maintenance or subscription fees.

 

Note 2. Going Concern and Liquidity

 

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $48.5 million at September 30, 2019, a net loss of approximately $59.2 million and approximately $49.8 million net cash used in operating activities for the successor period from February 19, 2019 through September 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is attempting to further expand its customer base; scale up its production of various products; and increase revenues; however, the Company’s cash position may not be sufficient to support its daily operations through the next twelve months from the date of filing this 10-Q. The ability of the Company to continue as a going concern is dependent upon its ability to raise additional funds by way of a public or private offering and its ability to further generate sufficient revenues. While the Company believes in the viability of its platform and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect.

 

The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019 and the Company’s Current Report Form 8-K/A filed with the SEC on March 18, 2019. Certain reclassifications have been made to conform to current period presentation.

 

9

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

The Acquisition was accounted for as a business combination using the acquisition method of accounting. The Company’s financial statement presentation distinguishes the results of operations into two distinct periods: (i) the period before the consummation of the Acquisition, which includes the period from January 1, 2019 to the Closing Date (the “2019 Predecessor Period”), the three and nine months ended September 30, 2018 (the “2018 Predecessor Period”) and (ii) the period after consummation of the Acquisition which includes the period including and after the Closing Date to September 30, 2019 (“2019 Successor Period”), and the three months ended September 30, 2019. The accompanying condensed consolidated financial statements include a black line division which indicates that the Acquired Companies and the Company’s financial information are presented on a different basis and are therefore, not comparable.

 

Determining the fair value of certain assets and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions. See Note 4 – Business Combination for a discussion of the estimated fair values of assets and liabilities recorded in connection with the Acquisition.

 

The historical financial information of GTY Cayman prior to the Acquisition is not being reflected in the Predecessor financial statements as these historical amounts have been determined not to be useful to a user of the financial statements. GTY Cayman’s operations prior to the Acquisition, other than income from the Trust Account (as defined in Note 10. Shareholders’ Equity) investments and transaction expenses, were nominal.

 

The Company believes that Predecessor activities related to investments, intangible assets, stock-based compensation, goodwill, fair value measurements and notes payable were either quantitatively or qualitatively immaterial. Therefore, the Company did not disclose these Predecessor activities in the following unaudited footnotes.

 

Principles of Consolidation

 

The Successor Period condensed consolidated financial statements include all accounts of the Company and its subsidiaries. The Predecessor Period condensed consolidated financial statements include all accounts of the Acquired Companies and the Acquired Companies’ subsidiaries. All material intercompany transactions and balances have been eliminated in the accompanying condensed consolidated financial statements.

 

Segments

 

The Company has six operating segments. The Company’s Chief Executive Officer and Chief Financial Officer, who jointly are the Company’s chief operating decision maker, review financial information for each of the Acquired Companies, together with certain consolidated operating metrics, to make decisions about how to allocate resources and to measure the Company’s performance. See Note 11.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash includes cash held in checking and savings accounts. Cash equivalents are comprised of investments in money market mutual funds. Cash and cash equivalents are recorded at cost, which approximates fair value.

 

Accounts Receivable

 

Accounts receivable consists of amounts due from our customers, which are primarily located throughout the United States and Canada. Accounts receivable are recorded at the invoiced amount, do not require collateral, and do not bear interest.

 

The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the Company’s customers may have an inability to meet financial obligations, such as bankruptcy and significantly aged receivables outstanding. Uncollectible receivables are written-off in the period management believes it has exhausted every opportunity to collect payment from the customer. Bad debt expense is recorded when events or circumstances indicate an additional allowance is required based on the Company’s specific identification approach.

 

The allowance for doubtful accounts for the Successor as of September 30, 2019 and for the Predecessor as of December 31, 2018 was immaterial. Bad debt expense for all periods presented was immaterial.

 

10

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, and accounts receivable. Cash accounts in a financial institution at times may exceed the Federal depository insurance coverage of $250,000. As of September 30, 2019 and December 31, 2018, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Additionally, all Canadian Dollars (“CDN”) institution amounts are covered by Canada Deposit Insurance Corporation, or CDIC insurance.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include revenue recognition, the carrying value of goodwill, the fair value of acquired intangibles, the capitalization of software development costs, and the useful lives intangible assets, stock-based compensation, contingent consideration and the valuation allowance of deferred tax assets resulting from net operating losses.  

 

Property and Equipment

 

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the condensed consolidated statement of operations in the period realized. Property, plant and equipment is depreciated using the straight-line method over five (5) to fifteen (15) years. Internal-use software is amortized on a straight-line basis over its estimated useful life or five (5) years.

 

Leasehold improvements are amortized over the shorter of the useful lives or the term of the respective leases.

 

Capitalized Software Costs

 

The Company capitalizes costs incurred during the application development stage related to the development of internal-use software and enterprise cloud computing services. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. For the three months ended September 30, 2019 and the period from February 19, 2019 to September 30, 2019, the Company capitalized $0.2 million and $0.8 million for internal use software, respectively.

 

Intangible Assets (Successor) 

 

Intangible assets consist of acquired customer relationships, acquired developed technology, trade names and non-compete agreements which were acquired as part of the Acquisition. The Company determines the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the economic benefits are consumed.

 

Goodwill (Successor)

 

Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed, and it is presented as Goodwill in the accompanying condensed consolidated balance sheet of the Successor.   Under ASC 350, Intangibles – Goodwill and Other (“ASC 350”), goodwill is not amortized but is subject to periodic impairment testing.  ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  In our evaluation of goodwill for impairment, which will be performed annually during the fourth quarter, we first assess qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is required to perform the quantitative goodwill impairment test. As a result of the Acquisition, the Company acquired goodwill during the Successor Period. There was minimal goodwill prior to the Acquisition. The Company did not identify any significant events or circumstances that would require it to perform an impairment test as of September 30, 2019. As such, there was no impairment recognized during the Successor Period. 

 

11

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Business Combinations (Successor)

 

The Company accounts for business acquisitions using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — Business Combinations, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s condensed consolidated statements of operations.

 

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s condensed consolidated financial statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the three months ended September 30, 2019, adjustments were made within the permitted measurement period that resulted in (i) an increase in the aggregate consideration of the Acquisition of $0.4 million relating to the settlement of the working capital adjustments, and (ii) the conversion of $0.04 stock consideration to cash consideration for the correction of an investor’s status to a non-accredited investor (the “Measurement Period Adjustments). These Measurement Period Adjustments have been reflected as current period adjustments in the three months ended September 30, 2019 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The Measurement Period Adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period. See Note 4.

 

Impairment of long-lived assets

 

The Company reviews long-lived assets, including property and equipment and intangible assets and goodwill for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss is recognized when the asset’s carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value. There were no impairments recorded for all periods presented.

 

Leases

 

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right of use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred.

 

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term. 

 

The Company accounted for leases prior to January 1, 2019 under ASC Topic 840.

 

Fair Value (Successor)

 

The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value.

 

  · Level 1 — uses quoted prices in active markets for identical assets or liabilities.

 

  · Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

  · Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

 

12

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

The Company’s only material financial instruments carried at fair value as of September 30, 2019, with changes in fair value flowing through current earnings, consist of contingent consideration liabilities recorded in conjunction with business combinations and are as follows (in thousands):

 

       Fair Value Measurement at
Reporting Date Using
 
   Balance as of
September 30,
2019
   Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2) 
   Significant
Unobservable
Inputs
(Level 3)
 
Contingent consideration – current  $12,208   $            -   $                 -   $12,208 
Contingent consideration – long term   55,478    -    -    55,478 
Total liabilities measured at fair value  $67,686   $-   $-   $67,686 

 

There were no transfers made among the three levels in the fair value hierarchy during the period after consummation of the Acquisition, which includes the period including and after the Closing Date to September 30, 2019.

 

The following table presents additional information about Level 3 liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Changes in Level 3 liabilities measured at fair value from February 18, 2019 to September 30, 2019 were as follows (in thousands):

 

Contingent consideration - February 18, 2019  $2,685 
Fair value of contingent consideration - Bonfire   325 
Fair value of contingent consideration - CityBase   48,410 
Fair value of contingent consideration - eCivis   5,859 
Fair value of contingent consideration - Questica   9,311 
Fair value of contingent consideration - Sherpa   1,898 
Change in valuation   (812)
Change due to fluctuation in foreign currency   10 
Contingent consideration - September 30, 2019  $67,686 

 

The change in valuation was due, in part, to the decreased probabilities of the achievement of certain milestones of some of the acquired entities.

 

The fair value of the Company’s contingent consideration liabilities recorded as part of the Acquisition has been classified within Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments due to the sellers based on each company’s achievement of annual earnings targets in certain years and other events considered in certain transaction documents. The initial fair values of the contingent consideration were calculated through the use of either Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements for each of the Acquired Companies. The analyses utilized the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, were further discounted by a credit spread assumption to account for credit risk. The contingent consideration is revalued to fair value each period, and any increase or decrease is recorded in operating income (loss). The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

 

13

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term nature of these instruments.

 

The Company measures certain assets at fair value on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill and other intangible assets.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Foreign Currency Translation and Transactions

 

The assets, liabilities and results of operations of certain consolidated entities are measured using their functional currency, which is the currency of the primary foreign economic environment in which they operate. Upon consolidating these entities with the Company, their assets and liabilities are translated to U.S. dollars at currency exchange rates as of the condensed consolidated balance sheet date and their revenues and expenses are translated at the weighted average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating these entities’ condensed consolidated financial statements are reported in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and total other comprehensive loss on the condensed consolidated statements of operations.

 

 Revenue Recognition

 

 The Company adopted the Financial Accounting Standards Board (“FASB”) new revenue recognition framework, ASC 606, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2017 using the full retrospective approach. The adoption of this standard did not have a material impact on prior revenue recognition or on opening equity, as the timing and measurement of revenue recognition for the Company is materially the same under ASC 606 as it was under the prior relevant guidance.

 

With the adoption of Topic 606, revenues are recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. If the consideration promised in a contract includes a variable amount, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenues recognized will not occur.

 

The Company determines the amount of revenues to be recognized through application of the following steps:

 

  · Identification of the contract, or contracts with a customer;

 

  · Identification of the performance obligations in the contract;

 

  · Determination of the transaction price;

 

  · Allocation of the transaction price to the performance obligations in the contract; and

 

  · Recognition of revenues when or as the Company satisfies the performance obligations.

 

For contracts where the period between when the Company transfers a promised service to the customer and when the customer pays is one year or less, the Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component.

 

The Company has made a policy election to exclude from the measurement of the transaction price all taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue producing transaction and collected by the Company from a customer. Such taxes may include but are not limited to sales, use, value added and certain excise taxes. 

 

14

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts) 

 

Disaggregation of Revenues

 

   Successor   Predecessor 
   Three Months
Ended
   February 19,
2019 through
   January 1, 2019
through
   Three Months
Ended
   Nine Months
Ended
 
   September  30,
2019
   September 30,
2019
   February 18,
2019
   September 30,
2018
   September 30,
2018
 
Subscriptions, support and maintenance  $5,920   $13,393   $3,253   $5,156   $14,424 
Professional services   2,449    5,287    1,269    1,369    4,604 
License   344    1,302    383    876    1,672 
Asset sales   41    52    23    216    321 
Total revenues  $8,754   $20,034   $4,928   $7,617   $21,021 

 

Revenues

 

Subscription, support and maintenance. The Company provides software hosting services that provide customers with access to software related support and updates during the term of the arrangement. Revenues are recognized ratably over the contract term as the customer simultaneously receives and consumes the benefits of the subscription service, as the service is made available to the Company. The first year of subscription fees are typically payable within 30 days after the execution of a contract, and thereafter upon renewal. The Company initially records subscription fees as contract liabilities and recognize revenues on a straight-line basis over the term of the agreement.

 

Our contracts may include variable consideration in the form of usage fees, which are constrained and recognized once the uncertainties associated with the constraint are resolved, which is when usage occurs and the fee is known.

 

Subscription, support and maintenance revenues also includes kiosk rentals and on-premise support or maintenance pertaining to license sales. Revenues from kiosk rentals and on-premise support are recognized on a straight-line basis over the support period.

 

Revenues from subscription, support and maintenance comprised approximately 68% and 67% of total revenues for the three months ended September 30, 2019 and the 2019 Successor Period, respectively.

 

Professional services. The Company’s professional services contracts generate revenues on a time and materials, fixed fee or subscription basis. Revenues are recognized as the services are rendered for time and materials contracts. Revenues are recognized when the milestones are achieved and accepted by the customer or on a proportional performance basis for fixed fee contracts. Revenues are recognized ratably over the contract term for subscription contracts. The milestone method for revenue recognition is used when there is substantive uncertainty at the date the contract is entered into whether the milestone will be achieved. Training revenues are recognized as the services are performed. Revenues from professional services comprised approximately 28% and 26% of total revenues for the three months ended September 30, 2019 and the 2019 Successor Period, respectively.

 

License. Revenues from distinct licenses are recognized upfront when the software is made available to the customer, which normally coincides with contract execution, as this is when the customer has the risks and rewards of the right to use the software. Revenues from licenses comprised approximately 4% and 6% of total revenues for the three months ended September 30, 2019 and the 2019 Successor Period.

 

Asset sales. Revenues from asset sales are recognized when the asset, typically a kiosk, has been received by the client and is fully operational and ready to accept transactions, which is when the customer obtains control and has the risks and rewards of the asset. Asset sales were less than 1% of total revenues for the three months ended September 30, 2019 and the 2019 Successor Period. 

 

Contract Liabilities

 

Contract liabilities primarily consist of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for subscription services to the Company’s SaaS offerings and related implementation and training. The Company recognizes contract liabilities as revenues when the services are performed, and the corresponding revenue recognition criteria are met. The Company receives payments both upfront and over time as services are performed. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. Contract liabilities are reduced as services are provided and the revenue recognition criteria are met. Contract liabilities that are expected to be recognized as revenues during the succeeding twelve-month period are recorded in current liabilities as contract liabilities, and the remaining portion is recorded in long-term liabilities as contract liabilities, non-current. Revenues of approximately $6.3 million, $2.2 million, and $8.1 million were recognized for the 2019 Successor Period, the 2019 Predecessor Period, and the nine months ended September 30, 2018, respectively, that was included in the contract liabilities balances at the beginning of the respective periods.

 

Cost of revenues

 

Cost of revenues primarily consists of salaries and benefits of personnel relating to our hosting operations and support, implementation, and grants research. Cost of revenues includes data center costs including depreciation of the Company’s data center assets, third-party licensing costs, consulting fees, and the amortization of acquired technology from recent acquisitions.

15

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Stock Based Compensation

 

The Company expenses stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

 

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates, involve inherent uncertainties and the application of management’s judgment.

 

Expected Term — The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

 

Expected Volatility — The Company computes stock price volatility over expected terms based on comparable companies’ historical common stock trading prices.

 

Risk-Free Interest Rate — The Company bases the risk-free interest rate on the U.S. Treasuries implied yield with an equivalent remaining term.

 

Expected Dividend — The Company has never declared or paid any cash dividends on common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in valuation models.

 

The following are the assumptions used for the stock option grant on February 19, 2019:

 

Exercise price  $1.82 
Expected term (years)   5.1 
Expected stock price volatility   74%
Risk-free rate of interest   2%

 

In accordance with ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, the Company records forfeitures as they occur.

 

Net Loss per Share

 

Net loss per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share is computed similar to basic net income per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Due to the net loss for the Successor Period, diluted and basic loss per share are the same.

 

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at September 30, 2019 are as follows:

 

Warrants to purchase common stock   27,093,334 
Unvested restricted stock units   944,962 
Options to purchase common stock   278,623 
Total   28,316,919 

 

Income Taxes

 

Deferred income taxes are provided for the tax effects of temporary differences between (i) the carrying amounts of assets and liabilities for financial reporting purposes and (ii) the amounts used for income tax purposes and operating loss carryforwards and credits using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. The Company assesses the likelihood that deferred tax assets will be realized and recognizes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, the Company has provided a full valuation allowance against its deferred tax assets as it believes the objective and verifiable evidence of its historical pretax net losses outweighs any positive evidence of its forecasted future results. Although the Company believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business. The Company will continue to monitor the positive and negative evidence, and it will adjust the valuation allowance as sufficient objective positive or negative evidence becomes available. No tax related impact was recorded in the financial statements as a result of the adoption of ASU No. 2016-09. 

 

16

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

The Company evaluates its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized. Potential interest and penalties associated with any uncertain tax positions are recorded as a component of income tax expense. Through September 30, 2019, the Company has not identified any material uncertain tax positions for which liabilities would be required to be recorded.

 

As a result of the Acquisition, a temporary difference between the book fair value and tax basis for the assets acquired of $39.9 million was created, resulting in a deferred tax liability and additional goodwill.

 

The following is a rollforward of the Company’s deferred tax liability from February 19, 2019 to September 30, 2019 (in thousands):

 

Balance - February 19, 2019  $(39,908)
Income tax benefit (associated with the amortization of intangible assets)   2,819 
Balance - September 30, 2019  $(37,089)

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets of approximately $3.6 million, lease liability of approximately $3.8 million.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The Company has not determined the impact of this guidance on its financial statements.

 

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements and expects to adopt the new standard in the first quarter of 2020.

 

Note 4. Business Combination

 

Successor

 

Business Combination

 

On February 19, 2019, the Company consummated the Business Combination, pursuant to which it acquired each of Bonfire, CityBase, eCivis, Open Counter, Questica, and Sherpa. In connection with the closing of the Business Combination (the “Closing”), pursuant to the GTY Agreement between the Company, GTY Cayman, and GTY Technology Merger Sub, Inc. (“GTY Merger Sub”), merged with and into GTY Cayman, with GTY Cayman surviving the merger as a direct, wholly-owned subsidiary of the Company, and in connection therewith the Company changed its name from GTY Govtech, Inc. to GTY Technology Holdings Inc. This acquisition qualifies as a business combination under ASC 805. Accordingly, the Company recorded all assets acquired and liabilities assumed at their acquisition-date fair values, with any excess recognized as goodwill.

 

17

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Bonfire Acquisition

 

Under the Bonfire Agreement, at Closing, the Company acquired Bonfire for aggregate consideration of approximately $48.0 million in cash and 2,156,014 shares of Company common stock (valued at $10.00 per share) and 2,161,741 shares of Bonfire Exchangeco, each of which is exchangeable for shares of Company common stock on a one-for-one basis at any time of the holder’s choosing. Of the shares issued to Bonfire Holders, 2,008,283 shares of Company common stock and 2,093,612 exchangeable shares in the capital stock of Bonfire Exchangeco (the “Bonfire Exchangco Shares”) are subject to transfer restrictions for one year, which such transfer restrictions may be lifted earlier if, subsequent to the Closing, (i) the last sale price of the Company common stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after Closing, or (ii) the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the right to exchange their shares of Company common stock for cash, securities or other property. In addition, approximately $3.1 million in cash and 690,000 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the Bonfire Holders.

 

Additionally, in accordance with the Bonfire Agreement, 1,218,937 unvested options to purchase shares of Bonfire common stock were converted into 408,667 options to purchase shares of Company common stock.

 

During the 2019 Successor Period, 193,645 shares of the Bonfire Exchangeco Shares were converted into the Company’s Common Stock on a one-for-one basis. The Bonfire Exchangeco Shares were subject to the transfer restrictions described above, and the Common Stock issued for these shares is subject to the same transfer restrictions, discussed above.

 

For the three months ended September 30, 2019, the Company recorded a measurement period adjustment for the decrease in aggregate consideration of $0.1 million relating to the settlement of the working capital adjustment in accordance with the Bonfire Agreement.

 

CityBase Acquisition

 

Under the CityBase Agreement, at Closing, the Company acquired CityBase for aggregate consideration of approximately $62.2 million in cash and 3,155,961 shares of Company common stock (valued at $10.00 per share). Each CityBase Holder may elect to have their shares subject to transfer restrictions for up to one year or to have their shares subject to redemption at the Company’s option for a promissory note in an amount equal to $10.00 per share redeemed, which note would bear interest at a rate of 8% per annum in the first year after issuance and 10.0% per annum thereafter (subject to an increase of 1% for each additional 6 months that has elapsed without full payment of such note(s)) (which option was not exercised and expired on the 90th day after the Closing). Prior to the consummation of the Business Combination, certain of the CityBase Holders agreed to purchase 380,937 Class A Ordinary Shares of GTY Cayman with the proceeds they would have otherwise received from the closing of the CityBase Transaction, which resulted in an approximate $3.8 million reduction to the amount of cash payable to the CityBase Holders. In addition, approximately $2.1 million in cash and 1,000,000 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the CityBase Holders.

 

For the three months ended September 30, 2019, the Company recorded measurement period adjustments for (i) the increase in the aggregate consideration of $0.2 million relating to the settlement of the working capital adjustment in accordance with the CityBase Agreement, and (ii) the conversion of $0.04 stock consideration to cash consideration for the correction of an investor’s status to a non-accredited investor. 

 

eCivis Acquisition

 

Under the eCivis Agreement and the eCivis Letter Agreement, at Closing, the Company acquired eCivis for aggregate consideration of approximately $14.0 million in cash and 2,883,433 shares of Company common stock (valued at $10.00 per share) (including 525,060 shares of Company common stock which are redeemable for cash at any time in the sole discretion of the Company for a price of $10.00 per share). The shares not subject to a redemption right are subject to transfer restrictions for one year, provided; however, such transfer restrictions may be lifted earlier if, subsequent to the Closing, (i) the last sale price of the Company common stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after Closing, or (ii) the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the right to exchange their shares of Company common stock for cash, securities or other property. In addition, approximately $3.6 million in cash and 242,200 shares of Company common stock were deposited into escrow for a period of up to one year to cover certain indemnification obligations of the eCivis Holders.

 

18

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

For the three months ended September 30, 2019, the Company recorded a measurement period adjustment for the increase in aggregate consideration of $0.5 million relating to the settlement of the working capital adjustment in accordance with the eCivis Agreement and the eCivis Letter Agreement.

 

Open Counter Acquisition

 

Under the Open Counter Agreement and the Open Counter Letter Agreement, at Closing, the Company acquired Open Counter for aggregate consideration of approximately $9.7 million in cash and 1,580,990 shares of Company common stock (valued at $10.00 per share) that were issued to the holders of Open Counter capital stock (the “Open Counter Holders”) (including 100,000 shares of Company common stock which have subsequently been redeemed for a promissory note at the sole discretion of the Company within seven days of the Closing. Such promissory note would bear interest at a rate of 8% per annum in the first year after issuance and 10.0% per annum thereafter (subject to an increase of 1% for each additional 6 months that has elapsed without full payment of such note(s))). The shares that were not subject to a redemption right are subject to transfer restrictions for one year, provided; however, such transfer restrictions may be lifted earlier if, subsequent to the Closing, (i) the last sale price of the Company common stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after Closing, or (ii) the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the right to exchange their shares of Company common stock for cash, securities or other property. In addition, approximately $1.3 million in cash and 164,554 shares of Company common stock were deposited into escrow for a period of one year to cover certain indemnification obligations of the Open Counter Holders. 

 

Questica Acquisition

 

Under the Questica Agreement and the Questica Letter Agreement, at Closing, the Company indirectly acquired Questica for aggregate consideration of approximately $44.4 million in cash and an aggregate of 2,600,000 Class A exchangeable shares in the capital stock of Questica Exchangeco, which is exchangeable into shares of the Company’s common stock, and 1,000,000 Class B shares in the capital stock of Questica Exchangeco, which is not exchangeable into shares of Company common stock, that were issued to the holders of Questica capital stock (the “Questica Holders”). In accordance with the Questica Shareholder Agreement, dated as of February 12, 2019, by and among the Company and certain Questica Holders (the “Questica Shareholder Agreement”), 500,000 Class C exchangeable shares in the capital stock of Questica Exchangeco had been redeemable at the sole discretion of the Company at any time for $5.0 million plus all accrued and unpaid dividends, and may be exchanged for shares of Company common stock beginning on the sixty-first day following the Closing for a number of shares of Company common stock equal to $5.0 million plus accrued and unpaid dividends divided by the lesser of (i) $10.00 or (ii) the 5-day volume weighted average price (“VWAP”) at the time of exchange. In June 2019, these shares were redeemed for 500,000 shares of the Company common stock at the market price of $7.72, or $3.9 million, and transferred to permanent equity, and $1.3 million of cash. The incremental $0.2 million above the stated redemption price was recorded as a deemed dividend in the accompanying condensed consolidated financial statements. The Class A exchangeable shares in the capital stock of Questica Exchangeco are subject to transfer restrictions for one year, provided; however, such transfer restrictions may be lifted earlier if, subsequent to the Closing, (i) the last sale price of the Company common stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after Closing, or (ii) the Company consummates a subsequent liquidation, merger, share exchange or other similar transaction which results in all of its shareholders having the right to exchange their shares of Company common stock for cash, securities or other property. In addition, approximately $0.1 million in cash and 800,000 of the exchangeable shares described above were deposited into escrow for a period of one year to cover certain indemnification obligations of the Questica Holders.

 

Sherpa Acquisition

 

Under the Sherpa Agreement and the Sherpa Letter Agreement, at Closing, the Company indirectly acquired Sherpa for aggregate consideration of approximately $4.2 million in cash and 100,000 shares of Company common stock (valued at $10.00 per share) all of which are redeemable for a promissory note bearing interest equal to 5.5% per annum in the first year subsequent to issuance and 8.0% per annum thereafter at the sole discretion of the Company within seven days of the Closing. In addition, approximately $0.9 million in cash was deposited into escrow for a period of one year to cover certain indemnification obligations of the Questica Holders.

 

19

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

For the three months ended September 30, 2019, the Company recorded a measurement period adjustment for the decrease in aggregate consideration of $0.2 million relating to the settlement of the working capital adjustment in accordance with the Sherpa Agreement and the Sherpa Letter Agreement.

 

During the three months ended September 30, 2019, the Company made the Measurement Period Adjustments that resulted in (i) an increase in the aggregate consideration of the Acquisition of $0.4 million relating to the settlement of the working capital adjustments, and (ii) the conversion of $0.04 stock consideration to cash consideration for the correction of an investor’s status to a non-accredited investor.  The following is a summary of the revised consideration paid and issued to each Acquired Company including the Measurement Period Adjustments (in thousands):

 

   Cash
Consideration
   Stock
Consideration
   Contingent
Consideration
   Total   Adjusted
Net Assets
   Goodwill   Intangibles   Deferred
Tax
Liability
 
Bonfire  $50,971   $50,078(1)   $325   $101,374   $3,639   $81,867   $22,668   $6,800 
CityBase   64,507    41,518    48,410    154,435    782    119,945    48,155    14,447 
eCivis   18,073    31,256    5,859    55,188    (1,788)   47,878    12,997    3,899 
OpenCounter   10,958    17,455    -    28,413    (1,441)   22,524    10,471    3,141 
Questica   44,494    31,000 (2)   9,311    84,805    3,652    57,479    33,821    10,147 
Sherpa   4,891    1,000    1,898    7,789    1,066    3,283    4,914    1,474 
Total  $193,894   $172,307   $65,803   $432,004   $5,910   $332,976   $133,026   $39,908 

 

(1)  Includes $21.6 million of convertible stock consideration

(2)  Includes $31.0 million of convertible stock consideration

 

The following table represents the revised preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values, including the Measurement Period Adjustments discussed above. The following revised allocations are considered preliminary and may change within the permissible measurement period, not to exceed one year (in thousands):

 

   Bonfire   CityBase   eCivis   OpenCounter   Questica   Sherpa   Total 
Cash  $4,641   $2,191   $136   $107   $6,763   $632   $14,470 
Accounts receivable, net   323    1,018    720    46    1,257    587    3,951 
Prepaid expense and other current assets   607    170    340    -    77    33    1,227 
Fixed assets   118    500    56    29    182    2    887 
Loan receivable - related party   -    175    -    -    -    -    175 
Right of use assets   1,315    -    901    -    296    -    2,512 
Other assets   369    783    30    -    1,061    -    2,243 
Intangible assets   22,668    48,155    12,997    10,471    33,821    4,914    133,026 
Goodwill   81,867    119,945    47,878    22,524    57,479    3,283    332,976 
Accounts payable and accrued expenses   (1,085)   (1,192)   (582)   (123)   (910)   (188)   (4,080)
Contract liabilities   (1,221)   (816)   (1,635)   (484)   (2,774)   -    (6,930)
Lease liability - short term   (366)   -    -    -    (296)   -    (662)
Deferred tax liability   (6,800)   (14,447)   (3,899)   (3,141)   (10,147)   (1,474)   (39,908)
Other current liabilities   -    -    (3)   (491)   (767)   -    (1,261)
Capital lease obligations - current portion   -    (139)   -    -    -    -    (139)
Contract and other long-term liabilities   (60)   (1,646)   (56)   -    -    -    (1,762)
Capital lease obligation, less current portion   -    (262)   -    -    -    -    (262)
Long term debt   -    -    -    (525)   -    -    (525)
Lease liability - long term   (1,002)   -    (901)   -    -    -    (1,903)
Contingent consideration - pre-existing   -    -    (794)   -    (1,237)   -    (2,031)
Total consideration  $101,374   $154,435   $55,188   $28,413   $84,805   $7,789   $432,004 

 

Transaction Costs

 

Transaction costs incurred by the Company associated with the Acquisition were $33.2 million from February 19, 2019 through September 30, 2019.

 

20

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Note 5. Intangible Assets (Successor)

 

The Company recognized goodwill and certain identifiable intangible assets in connection with business combinations. See Note 4.

Identifiable intangible assets consist of the following as of September 30, 2019 for the Successor (in thousands):

 

                                   Intangible Asset
Amortization
     
                                   for the Period
February 19, 2019
     
   Economic                               Through     
   Life (Years)   Bonfire   CityBase   eCivis   OpenCounter   Questica   Sherpa   Gross Total   September 30, 2019   Net Total 
                                         
Patents / Developed Technology   8   $10,197   $31,789   $3,637   $5,469   $6,090   $1,140   $58,322   $4,477   $53,845 
Trade Names / Trademarks   1 - 10    3,491    8,038    2,573    1,217    1,880    306    17,505    1,241    16,264 
Customer Relationships   10    8,723    7,840    6,641    3,678    25,721    3,396    55,999    3,432    52,567 
Non-Compete Agreements   3    257    488    146    107    130    72    1,200    245    955 
        $22,668   $48,155   $12,997   $10,471   $33,821   $4,914   $133,026   $9,395   $123,631 

 

Amortization expense recognized by the Company related to intangible assets for the three months ended September 30, 2019 and the period from February 19, 2019 to September 30, 2019 (Successor) was $3.8 million and $9.4 million, respectively. Amortization expense recognized by the Predecessor for the period from January 1, 2019 through February 18, 2019, the three months ended September 30, 2018, and the nine months ended September 30, 2018 (predecessor) was $0.03 million, $0.2 million and $0.3 million, respectively.

 

The estimated aggregate future amortization expense for intangible assets is as follows (in thousands):

 

Three months ended December 31, 2019  $3,829 
Year ended December 31, 2020   15,052 
Year ended December 31, 2021   15,010 
Year ended December 31, 2022   15,010 
Year ended December 31, 2023   15,010 
Year ended December 31, 2024   15,010 
Thereafter   44,710 
   $123,631 

 

Note 6. Related Party Transactions

 

Convertible Note

 

On August 8, 2018, GTY Cayman issued the Convertible Note to GTY Investors, LLC (the “Sponsor”), pursuant to which GTY Cayman was able to borrow up to $1 million from the Sponsor from time to time. The Convertible Note does not bear interest. The Sponsor has the option to convert any amounts outstanding under the Convertible Note, up to $1.0 million in the aggregate, into warrants at a conversion price of $1.50 per warrant. The terms of such warrants will be identical to the private placement warrants. During the period ended March 31, 2019, GTY drew down $0.4 million on the Convertible Note, resulting in $1.0 million principal amount outstanding. The $1.0 million principal amount was offset against amounts due from the Sponsor (see “Agreements and Arrangements with Certain Institutional Investors”) and, as of September 30, 2019, there was no amount outstanding under the Convertible Notes.

 

Agreements and Arrangements with Certain Institutional Investors

 

On February 13, 2019, GTY Cayman, the Sponsor, William D. Green, Joseph M. Tucci and Harry L. You (Messrs. Green, Tucci and You, collectively, the “Founders”) entered into agreements and arrangements with certain institutional investors pursuant to which a total of 1,500,000 Class A Ordinary Shares of GTY Cayman were not redeemed in connection with the business combination (the “Outstanding Cayman Shares”). The holder of Outstanding Cayman Shares which were converted into shares of the Company’s common stock on the Closing Date on a one-for-one basis is entitled to put such shares to the Sponsor and the Founders for a purchase price equal to the price at which GTY Cayman redeemed Class A Ordinary Shares in connection with the business combination, $10.29 (the “redemption price”), payment of such purchase price is guaranteed by the Company, and to receive from the Company a cash payment, if and to the extent necessary, but not to exceed $250,000, in order to provide such shareholder with at least a 5% return on such shares above the redemption price. With respect to 1,000,000 of the Outstanding Cayman Shares, GTY Cayman engaged a broker-dealer to facilitate the purchase of the Outstanding Cayman Shares by an institutional investor prior to the Closing for $9.90 per share and agreed to pay such broker-dealer an amount per share in cash equal to the difference between the redemption price and $9.90. In addition, the Sponsor and the Founders entered into agreements prior to the Closing pursuant to which they were obligated to reimburse the holders of an additional 1,942,953 Class A Ordinary Shares that were not redeemed in connection with the business combination (the “Outstanding Class A Shares”) for losses that may be incurred upon the sale of the Outstanding Class A Shares within a specified period following the Closing, up to an agreed-upon limit, and the Company has agreed to guarantee such reimbursement obligations of the Sponsor. During the Q1 2019 Successor Period, the Company, on behalf of the Sponsor, paid $4.0 million for losses incurred upon the sale of the Outstanding Class A Shares and, in turn, the Company reduced its convertible note liability for $1.0 million (see “Convertible Note”). During the nine months ended September 30, 2019, the Sponsor reimbursed the Company for the remaining $3.0 million for such losses on the Outstanding Class A Shares. As of September 30, 2019, the Outstanding Class A Shares are no longer guaranteed by the Founders or the Company. 

 

21

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Note 7. Share-Based Compensation

 

Stock Options

 

In connection with the Acquisition, the Company adopted a stock option plan and issued 408,667 stock options to employees. The total fair value of the stock options at the grant date was $3.6 million.

 

A summary of stock option activity is as follows:

 

   Number of Shares   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life (in years)   Total Intrinsic Value 
Outstanding as of February 18, 2019   -   $-    -   $- 
Granted   408,667    1.82    8.2    - 
Exercised   (112,643)   1.16         - 
Forfeited/expired   (17,401)   1.16         - 
Outstanding as of September 30, 2019   278,623   $2.13    8.2   $1,316 
Options vested and exercisable   80,988   $2.12    8.1   $383 

 

For the three months ended September 30, 2019 and the period from February 19, 2019 to September 30, 2019, the Company recorded approximately $0.3 million and $2.4 million, respectively, of share-based compensation expense related to the options. As of September 30, 2019, the Company has $1.2 million of unrecognized share-based compensation cost. During the Successor Period, share-based compensation expense is recorded as a component of general and administrative expenses.

 

Restricted Stock Units

 

During the Successor Period, the Company issued 1,049,237 restricted stock units (“RSUs”) to employees as annual performance awards. A portion of the RSUs will vest in ratable annual installments over either two or four years, as applicable, from the grant date, and the remaining RSUs will vest subject to the achievement of certain performance conditions over a three-year performance period, in each case, assuming continuous service by the employees through the applicable vesting dates. The RSUs granted to the Company’s Chief Executive Officer are subject to two different sets of performance-vesting criteria: (i) one RSU grant will vest on the last day of any 120-day trading period ending prior to the third anniversary of the grant date, to the extent that during such period, the average closing price per share of the Company’s common stock equals or exceeds $20, and under certain circumstances, the RSUs may vest if the stock price hurdle is achieved prior to the fourth anniversary of the grant date; and (ii) the other RSU grant will vest subject to the achievement of certain performance conditions over a one-year performance period. In each case, vesting of the RSUs is generally subject to the Chief Executive Officer’s continuous service through each vesting date.

 

22

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

A summary of the Company's restricted stock units and related information is as follows:

 

   Number of Shares   Weighted Average
Grant Price
 
Unvested as of as of February 18, 2019   -   $- 
Granted   1,049,237    9.53 
Forfeited/expired   (104,275)   - 
Unvested as of September 30, 2019   944,962   $9.52 

 

For the three months ended September 30, 2019 and the period from February 19, 2019 to September 30, 2019, the Company recorded approximately $0.2 million and $0.4 million, respectively, of share-based compensation expense related to the RSUs. As of September 30, 2019, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock units of $8.5 million. The weighted average remaining contractual term of unvested RSUs that is time based is approximately one year at September 30, 2019. 758,550 of the RSUs granted above contained performance conditions. No stock-based compensation was recognized during the three months ended September 30, 2019 for these performance RSUs, since achievement of such performance metrics was not considered probable.

 

Note 8. Leases

 

The Company leases office space under agreements classified as operating leases that expire on various dates through 2023. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases.

 

At September 30, 2019, the Company had operating lease liabilities of approximately $6.4 million and right of use assets of approximately $6.2 million, which are included in the condensed consolidated balance sheet.

 

The following summarizes quantitative information about the Company’s operating leases (dollars in thousands):

 

Three Months Ended September 30, 2019 (Successor Period)

 

   Bonfire   CityBase   eCivis   Questica   Total 
Operating leases                         
Operating lease cost  $109   $153   $77   $95   $434 
Variable lease cost   -    -    -    -    - 
Operating lease expense   109    153    77    95    434 
Short-term lease rent expense   -    -    -    -    - 
Total rent expense  $109   $153   $77   $95   $434 

 

   Bonfire   CityBase   eCivis   Questica   Total 
Operating cash flows from operating leases  $108   $163   $77   $34   $382 
Right-of-use assets exchanged for operating lease liabilities  $-   $-   $-   $3,140   $3,140 
Weighted-average remaining lease term – operating leases   2.7    2.2    2.0    10.7    6.8 
Weighted-average discount rate – operating leases   9.9%   10.0%   8.0%   4.8%   7.0%

 

23

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Nine Months Ended September 30, 2019 (Successor/Predecessor Period)

 

   Bonfire   CityBase   eCivis   Questica   Total 
Operating leases                         
Operating lease cost  $210   $464   $232   $164   $1,070 
Variable lease cost   -    -    -    -    - 
Operating lease expense   210    464    232    164    1,070 
Short-term lease rent expense   -    -    -    -    - 
Total rent expense  $210   $464   $232   $164   $1,070 

 

   Bonfire   CityBase   eCivis   Questica   Total 
Operating cash flows from operating leases  $332   $485   $232   $101   $1,150 
Right-of-use assets exchanged for operating lease liabilities  $1,292   $1,541   $920   $3,450   $7,203 
Weighted-average remaining lease term – operating leases   2.7    2.2    2.7    10.7    6.9 
Weighted-average discount rate – operating leases   9.9%   10.0%   8.0%   4.8%   7.0%

 

As of September 30, 2019, future minimum lease payments under non-cancellable operating are as follows (in thousands):

 

   Bonfire   CityBase   eCivis   Questica   Total 
Three months ended December 31, 2019  $113   $164   $77   $36   $390 
Year Ended December 31, 2020   452    662    309    427    1,850 
Year Ended December 31, 2021   463    458    309    408    1,638 
Year Ended December 31, 2022   235    -    129    410    774 
Year Ended December 31, 2023   -    -    -    365    365 
Year Ended December 31, 2024   -    -    -    2,754    2,754 
Total   1,263    1,284    824    4,400    7,771 
Less present value discount   (164)   (126)   (84)   (1,013)   (1,387)
Operating lease liabilities  $1,099   $1,158   $740   $3,387   $6,384 

 

Note 9. Commitments and Contingencies

 

Successor

 

Legal Proceedings

 

From time to time, the Companies may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company.

 

Indemnification

 

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor have it been sued in connection with these indemnification arrangements.

 

As of September 30, 2019, and December 31, 2018, the Company has not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably estimable.

 

24

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Note 10. Shareholders’ Equity

 

Initial Public Offering Redemption Shares

 

In connection with a shareholder meeting called to approve the business combination, the Company provided the holders of its outstanding Class A ordinary shares sold in the Company’s initial public offering (the “public shareholders”) with the opportunity to redeem all or a portion of their public shares. The public shareholders were entitled to redeem their public shares for a pro rata portion of the remaining balance in the trust account established in connection with the Company’s initial public offering for the benefit of the Company’s public shareholders and into which substantially all of the proceeds from the initial public offering were deposited (the “Trust Account”). The remaining 20,289,478 GTY Cayman public shares were recorded at a redemption value and classified as temporary equity upon the completion of the initial public offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In connection with the Business Combination, 11,073,040 Class A ordinary shares of GTY were redeemed for $114.0 million, at a per share price of approximately $10.29. The remaining 9,216,438 shares with a redemption value of $88.9 million were transferred to permanent equity.

 

Subscription Agreement

 

Immediately prior to the Closing, pursuant to subscription agreements (the “Subscription Agreements”), dated as of various dates from January 9, 2019 through February 12, 2019, by and among GTY and certain institutional and accredited investors party thereto (the “Subscribed Investors”), GTY Cayman issued to the Subscribed Investors an aggregate of 12,863,098 Class A ordinary shares of GTY for $10.00 per share, for an aggregate cash purchase price of approximately $126.4 million and paid fees of $1.1 million, including three such Subscription Agreements with certain CityBase holders (including Michael Duffy, the chief executive officer of CityBase) for an aggregate of 380,937 Class A ordinary shares of GTY at a price of $10.00 per share, for an aggregate cash purchase price of approximately $3.8 million. The Class A ordinary shares of GTY issued to the Subscribed Investors were cancelled and exchanged on a one-for-one basis for shares of Company common stock at the Closing.

 

In connection with the Subscription Agreements, immediately prior to the Closing, the Sponsor surrendered to GTY Cayman for cancellation (at no cost to GTY) 231,179 Class B (founder) shares, which have been retroactively adjusted in the accompanying statement of stockholders equity, and sold 500,000 private placement warrants held by it to an accredited investor in a private placement for an aggregate of $250,000 or $0.50 per warrant (which was $1.00 per warrant less than the price originally paid for such warrants).

 

GTY Merger Share Exchange

 

In connection with the GTY Merger, all of the issued and outstanding shares of GTY Cayman were exchanged for an equal number of shares of GTY common stock and immediately before the exchange, each outstanding unit was separated into its component Class A ordinary share and warrant.  Upon the exchange, 22,978,520 Class A and 13,568,821 Class B shares of GTY Cayman were exchanged for an aggregate of 36,547,341 shares of common stock of GTY.

 

Shares issued in the Acquisition

 

As part of the consideration for the Acquisition, the Company issued (a) 11,973,154 shares of common stock (as adjusted by the Measurement Period Adjustment below), of which 3,937,907 are redeemable at the option of the Company (the “Acquisition Redemption Shares”), (b) 2.6 million Class A and 0.5 million Class C shares (the “Class C Shares”) of Questica Exchangeco (the “Questica Shares”) and 2,161,741 shares of Bonfire Exchangeco shares (collectively, the “Exchange Shares”) that are exchangeable into an equal number of common stock.  The Exchange Shares are recorded as common shares of the Company.  The Company also issued 1,000,000 Class B shares of Questica Shares which are not exchangeable for common stock and thus have no value. The shares issued as consideration in the Acquisition were valued at $10 per share in the accompanying condensed consolidated financial statements. 

 

The 0.5 million Class C Shares were redeemable at the option of the shareholder at $10 per share, and thus the Company had classified the Class C Shares in the capital stock of Questica Exchangeco as temporary equity in accordance with ASC 480 - "Distinguishing Liabilities from Equity." In June 2019, these shares were redeemed for 0.5 million shares of Common Stock at the market price of $7.72, or $3.9 million, and transferred to permanent equity, and $1.3 million of cash. The incremental $0.2 million above the stated redemption price was recorded as a deemed dividend in the accompanying condensed consolidated financial statements.  

In April 2019, 193,645 shares of the Bonfire Exchangeco Shares were converted into the Company’s Common Stock on a one-for-one basis (see Note 4).

 

For the three months ended September 30, 2019, there was a Measurement Period Adjustment to change $41,500, or 4,150 shares, of stock consideration to cash consideration (see Note 4).

 

25

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Common Stock – GTY is authorized to issue 400,000,000 shares of common stock with a par value of $0.0001 per share.

 

In March 2019, the Company redeemed 100,000 shares of common stock for a promissory note in the principal amount of $1,000,000, bearing interest at a rate of 8% per annum in the first year after issuance and 10.0% per annum thereafter (subject to an increase of 1% for each additional 6 months that has elapsed without full payment of such note(s)) and included these in Treasury Stock in the accompanying condensed consolidated balance sheets.

 

In April 2019, the Company repurchased 264,998 shares of common stock for $2.6 million.  These shares were included in Treasury Stock in the accompanying condensed consolidated balance sheets at the stock price on the date of the repurchases, or $2.4 million, and the remaining $0.2 million is included in Loss from repurchase of shares in the condensed consolidated statements of operations and comprehensive loss.

 

In June 2019, the Company issued 3.5 million shares of common stock in a registered direct offering for $25.5 million, at a price of $7.70 per share, net of $1.5 million of offering costs.

 

In June 2019, two Bonfire employees cashless exercised 284 stock options and the Company issued 117 shares of common stock. For the three months ended September 30, 2019, Bonfire employees exercised 112,526 stock options for the issuance of shares of common stock. See Note 7.

 

In July 2019, in accordance with the eCivis Agreement and the eCivis Letter Agreement, the Company repurchased 250,000 shares of common stock for $2.5 million. These shares were included in Treasury Stock in the accompanying condensed consolidated balance sheets at the stock price on the date of the repurchases, or $1.7 million, and the remaining $0.8 million is included in Loss from repurchase of shares in the condensed consolidated statements of operations and comprehensive loss.

  

Preferred Shares – GTY is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share. As of September 30, 2019, there were no preferred shares issued or outstanding.

 

Warrants

 

At September 30, 2019, there were a total of 27,093,334 warrants outstanding. The warrants were originally sold as part of the units offered in the IPO. Each warrant entitles the holder thereof to purchase one share of common stock at a price of $11.50 per share, subject to adjustments. The warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants.

 

The Company may call the warrants for redemption, in whole and not in part, at a price of $0.01 per warrant, upon not less than 30 days’ prior written notice of redemption to each warrant holder, if, and only if, the reported last sale price of common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders. The warrants were determined to be equity classified in accordance with ASC 815, Derivatives and Hedging.

 

26

 

 

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

(Amounts in tables in thousands, except share and per share amounts)

 

Note 11. Segment Reporting

 

The Company conducts the business through the following six operating segments: Bonfire, CityBase, eCivis, Open Counter, Questica and Sherpa.

 

The accounting policies of the operating segments are the same as those described in Note 3. Non-allocated interest expense and various other administrative costs are reflected in Corporate. Corporate assets include cash and cash equivalents, prepaid expenses and other current assets. The following provides operating information about the Company’s reportable segments for the periods presented (in thousands):

 

   GTY   Bonfire   CityBase   eCivis   OpenCounter   Questica   Sherpa   Eliminations   Total 
Successor                                             
Three Months Ended September 30, 2019                                             
Total revenue  $-   $1,174   $1,551   $1,638   $407   $3,083   $901   $-   $8,754 
Cost of goods sold   -    277    958    454    105    653    136    -    2,583 
Loss from operations   (2,441)   (1,634)   (4,354)   17    (614)   (537)   (52)   -    (9,615)
                                              
Successor                                             
February 19, 2019 through September 30, 2019                                             
Total revenue  $-   $2,385   $4,634   $3,200   $929   $6,311   $2,575   $-   $20,034 
Cost of goods sold   -    643    3,168    1,087    263    1,468    461    -    7,090 
Loss from operations   (21,989)   (7,911)   (12,821)   (1,885)   (1,363)   (12,611)   (2,750)   -    (61,330)
                                              
Predecessor                                             
January 1, 2019 through February 18, 2019                                             
Total revenue  $-   $593   $820   $673   $298   $1,913   $631        $4,928 
Cost of goods sold   -    124    746    267    51    296    130    -    1,614 
Loss from operations   -    (741)   (1,499)   (265)   46    550    354    -    (1,555)
                                              
Predecessor                                             
Three Months Ended September 30, 2018                                             
Total revenue  $-   $845   $1,640   $1,250   $393   $2,420   $1,069   $-   $7,617 
Cost of goods sold   -    216    1,225    457    135    498    59    -    2,590 
Loss from operations   -    (1,478)   (3,497)   (444)   (350)   114    697    -    (4,958)
                                              
Predecessor                                             
Nine Months Ended September 30, 2018                                             
Total revenue  $-   $2,255   $4,082   $3,745   $1,213   $7,583   $2,143   $-   $21,021 
Cost of goods sold   -    554    3,023    1,283    373    1,458    171    -    6,862 
Loss from operations   -    (3,572)   (7,691)   (821)   (348)   1,096    1,214    -    (10,122)