GTY Technology (GTYH) 10-Q 2019 Q2 Quarterly report

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 June 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.   x

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

As of August 9, 2019, 52,156,018 shares of common stock, par value $0.0001 per share, were issued and outstanding.

GTY TECHNOLOGY HOLDINGS INC.

Form 10-Q

For the Quarter Ended June 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	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42

2

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
	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	25,444		$	13,217
Investments		-			1,398
Accounts receivable, net		8,331			5,988
Prepaid expenses and other current assets		2,142			1,250
Total current assets		35,917			21,853
Property and equipment, net		2,679			1,124
Right of use assets		3,221			-
Loan receivable - related party		-			177
Intangible assets, net		127,461			1,564
Goodwill		332,602			2,518
Other assets		2,418			2,332
Total assets	$	504,298		$	29,568
Liabilities, Temporary Equity and Shareholders’ Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses	$	8,687		$	5,969
Contract liabilities		12,807			11,732
Notes payable and accrued expenses - related party		76			-
Warrant liability		-			87
Financing lease obligations - current portion		544			138
Lease liability - current portion		1,664			-
Contingent consideration - current portion		12,169			-
Notes payable		-			450
Total current liabilities		35,947			18,376
Contract and other long-term liabilities		1,634			3,215
Deferred rent		-			62
Long-term debt, less current portion		-			433
Deferred tax liability		38,238			-
Financing lease obligations - less current portion		1,091			268
Lease liability - less current portion		1,858			-
Contingent consideration - less current portion		56,333			2,092
Total liabilities		135,101			24,446
Commitments and contingencies
Preferred stock		-			42,264
Shareholders’ equity (deficit):
Common stock, par value $0.0001; 400,000,000 shares authorized; 52,520,612 shares issued and 52,155,614 shares outstanding  as of June 30, 2019, net of treasury stock		5			-
Exchangeable shares, no par value, 5,761,741 shares issued and outstanding as of June 30, 2019		47,617			-
Acquired Companies' common stock		-			148
Additional paid in capital		364,614			7,835
Accumulated other comprehensive income (loss)		186			(174	)
Treasury stock, at cost, 364,998 shares as of June 30, 2019		(3,413	)		-
Accumulated deficit		(39,812	)		(44,951	)
Total shareholders' equity (deficit)		369,197			(37,142	)
Total liabilities, temporary equity and shareholders’ equity (deficit)	$	504,298		$	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			Six Months Ended
	June 30, 2019			June 30, 2019			February 18, 2019			June 30, 2018			June 30, 2018
Revenues	$	8,246		$	11,280		$	4,928		$	6,614		$	13,404
Cost of revenues		2,931			4,507			1,614			2,174			4,273
Gross Profit		5,315			6,773			3,314			4,440			9,131
Operating  expenses
Sales and marketing		4,159			5,537			1,394			2,034			3,645
General and administrative		7,676			10,030			1,744			3,469			6,425
Research and development		3,135			4,607			1,580			2,295			4,225
Amortization of intangible assets		3,872			5,565			-			-			-
Acquisition costs		(2,280	)		32,749			151			-			-
Total operating expenses		16,562			58,488			4,869			7,798			14,295
Loss from operations		(11,247	)		(51,715	)		(1,555	)		(3,358	)		(5,164	)
Other income (expense)
Interest income (expense)		(108	)		313			(170	)		(34	)		(62	)
Loss from repurchase of shares		(904	)		(904	)		-			-			-
Other income		187			182			12			557			727
Total other income (expense), net		(825	)		(409	)		(158	)		523			665
Net loss before income taxes		(12,072	)		(52,124	)		(1,713	)		(2,835	)		(4,499	)
Income tax benefit		1,670			1,670			-			-			-
Net loss		(10,402	)		(50,454	)		(1,713	)		(2,835	)		(4,499	)
Other comprehensive income
Foreign currency translation gain		186			186			-			-			-
Total other comprehensive income		186			186			-			-			-
Comprehensive loss	$	(10,216	)	$	(50,268	)	$	(1,713	)	$	(2,835	)	$	(4,499	)
Net loss		(10,402	)		(50,454	)		(1,713	)		(2,835	)		(4,499	)
Cumulative preferred stock dividends		-			-			-			(262	)		(521	)
Deemed dividend for Exchangable Shares - Series C		(183	)		(183	)
Net loss applicable to common shareholders	$	(10,585	)	$	(50,637	)	$	(1,713	)	$	(3,097	)	$	(5,020	)
Net loss per share, basic and diluted	$	(0.22	)	$	(1.03	)
Weighted average common shares outstanding, basic and diluted		49,159,484			48,942,828

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 June 30, 2019
Successor																											Accumulated
														Series C													Other
	Common Stock					Class A				Class B				Exchangeable Shares				Additional			Treasury			Accumulated			Comprehensive		Total Shareholders'
	Shares			Amount		Shares		Amount		Shares		Amount		Shares		Amount		Paid in Capital			Stock			Deficit			Income		Equity (Deficit)
Balance - March 31, 2019		48,420,495		$	5		-	$	-		-	$	-		5,761,741	$	47,617	$	333,727		$	(1,000	)	$	(29,410	)	$	-	$	350,939
Net loss		-			-		-		-		-		-		-		-		-			-			(10,402	)				(10,402	)
Common Stock issued for Exchangeable Shares - Class C		500,000			-		-		-		-		-		-		-		3,860			-			-			-		3,860
Share-based compensation		-			-		-		-		-		-		-		-		1,760			-			-			-		1,760
Private placement of Common Stock, net of costs		3,500,000			-		-		-		-		-		-		-		25,450			-			-			-		25,450
Common Stock repurchases		(264,998	)		-		-		-		-		-		-		-		-			(2,413	)		-			-		(2,413	)
Cashless stock option exercises		117			-		-		-		-		-		-		-		-			-			-			-		-
Currency translation gain		-			-		-		-		-		-		-		-		-			-			-			186		186
Deemed dividend for Exchangeable Shares - Class C		-			-		-		-		-		-		-		-		(183	)		-			-			-		(183	)
Balance - June 30, 2019		52,155,614		$	5		-	$	-		-	$	-		5,761,741	$	47,617	$	364,614		$	(3,413	)	$	(39,812	)	$	186	$	369,197

Successor															Six Months Ended June 30, 2019
																															Accumulated
																															Other
	Common Stock					Class A						Class B						Exchangeable Shares				Additional			Treasury			Accumulated			Comprehensive		Total Shareholders'
	Shares			Amount		Shares			Amount			Shares			Amount			Shares		Amount		Paid in Capital			Stock			Deficit			Income		Equity (Deficit)
Balance - December 31, 2018		-		$	-		898,984		$	-			13,568,821		$	1			-	$	-	$	-		$	-		$	9,920		$	-	$	9,921
Net loss		-			-		-			-			-			-			-		-		-			-			(50,454	)				(50,454	)
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		11,973,154			1		-			-			-			-			-		-		119,730			-			-			-		119,731
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		-			-		-			-			-			-			-		-		2,311			-			-			-		2,311
Private placement of Common Stock, net of costs		3,500,000			-		-			-			-			-			-		-		25,450			-			-			-		25,450
Common Stock repurchases		(364,998	)		-		-			-			-			-			-		-		-			(3,413	)		-			-		(3,413	)
Cashless stock option exercises		117
Currency translation gain		-			-		-			-			-			-			-		-		-			-			-			186		186
Deemed dividend for Exchangeable Shares - Class C		-			-		-			-			-			-			-		-		(183	)		-			-			-		(183	)
Balance - June 30, 2019		52,155,614		$	5		-		$	-			-		$	-			5,761,741	$	47,617	$	364,614		$	(3,413	)	$	(39,812	)	$	186	$	369,197

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 March 31, 2018 to June 30, 2018
		Predecessor
Balance as of March 31, 2018	$	(17,982	)
Net loss		(2,835	)
Stock compensation		169
Shareholders'/Members' equity activity		402
Balance as of June 30, 2018	$	(20,246	)
Predecessor from December 31, 2017 to June 30, 2018
		Predecessor
Balance as of December 31, 2017	$	(15,902	)
Net loss		(4,499	)
Stock compensation		212
Shareholders'/Members' equity activity		(57	)
Balance as of June 30, 2018	$	(20,246	)

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

5

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

	Successor			Predecessor
	February 19,			January 1, 2019 through			Six Months
	2019 through June 30, 2019			February 18, 2019			Ended June 30, 2018
Cash flows from operating activities:
Net loss	$	(50,454	)	$	(1,713	)	$	(4,499	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		185			177			151
Amortization of intangible assets		5,565			32			99
Amortization of right of use assets		256			165			-
Share-based compensation		2,311			61			212
Deferred income tax benefit		(1,670	)		-			-
Bad debt expense		11			6			-
Loss on disposal of property and equipment		-			-			50
Foreign exchange loss on payment of vested options		14			-			-
Change in fair value of contingent consideration		-			(37	)		-
Change in fair value of warrant liability		-			(18	)		-
Unrealized gain on marketable securities		-			-			(50	)
Gain on sale of marketable securities		-			-			39
Accrual of Paid In Kind interest		-			-			8
Changes in operating assets and liabilities:
Accounts receivable		(4,365	)		2,190			(872	)
Prepaid expenses and other assets		(816	)		202			(423	)
Accounts payable and accrued liabilities		4,991			(781	)		1,091
Net cash (used in) provided by operating activities		(43,972	)		284			(4,194	)
Cash flows from investing activities:
Proceeds from cash held in trust		217,642			-			-
Proceeds from sale of property and equipment		-			-			1
Purchase of marketable securities		-			-			(335	)
Proceeds from the sales of marketable securities		-			1,531			344
Acquisitions, net of cash acquired		(179,008	)		-			-
Capital expenditures		(621	)		(15	)		(64	)
Net cash provided by (used in) investing activities		38,013			1,516			(54	)
Cash flows from financing activities:
Proceeds from borrowings		-			35			4,157
Repayments of borrowings		(409	)		(69	)		(15	)
Stock options exercised		-			13			1
Contingent consideration payments		-			-			(50	)
Proceeds from issuances of Predecessor preferred shares		-			-			602
Member distribution		-			(500	)		(659	)
Common Stock repurchases		(3,413	)		-			-
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			-			-
Proceeds from disposal of fixed assets		-			1			-
Repayments of finance lease obligations		(131	)		(19	)		(6	)
Net cash provided by (used in) financing activities		31,450			(539	)		4,030
Effect of foreign currency on cash		(99	)		(721	)		(793	)
Net change in cash and cash equivalents		25,392			540			(1,011	)
Cash and cash equivalents, beginning of period		52			13,929			12,441
Cash and cash equivalents, end of period	$	25,444		$	14,469		$	11,430
Supplemental disclosure of cash flow information:
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-
Noncash Investing Activity:
Stock consideration for the Acquisitions	$	172,349		$	-		$	-
Reduction in convertible note liability	$	1,000		$	-		$	-
Capital leases	$	1,363

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

6

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 public warrants on the Nasdaq Capital Market (“NASDAQ”) under the symbols “GTYH” and “GTYHW,” respectively. 

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 software technologies for the procurement and vendor or supplier sourcing industry across 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 does not market or sell professional 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. Its customers 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 and cost allocation plan consulting.

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.

7

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 capital and operating budgeting software. 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 U.S. 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 engage its consulting services to configure the software and train customers on how to manage the software going forward. Following implementation, customers continue to use the software in perpetuity while paying 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 $39.8 million at June 30, 2019, a net loss of approximately $50.5 million and approximately $44.0 million net cash used in operating activities for the successor period from February 19, 2019 through June 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 revenue; 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 revenue. 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 (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in condensed consolidated financial statements prepared in accordance with U.S. 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.

8

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 six months ended June 30, 2018 (the “2018 Predecessor Period”) and (ii) the period after consummation of the Acquisition which includes the three months ended June 30, 2019 and the period including and after the Closing Date to June 30, 2019 (“2019 Successor Period”), the period including and after the Closing Date to March 31, 2019 (“Q1 2019 Successor Period”) and the three months ended June 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 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 12.

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.

9

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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

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 June 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 U.S. 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 5 to 15 years. Internal-use software is amortized on a straight-line basis over its estimated useful life or 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.

Intangible Assets (Successor) 

Intangible assets consist of acquired customer relationships, acquired developed technology, trade name 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.

10

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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, to be performed annually during the third 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, was determine 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 us to perform an impairment test as of June 30, 2019. As such, there was no impairment recognized during the Successor Period. 

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.

 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 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 result 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.

11

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

· 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.

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

			Fair Value Measurement at Reporting Date Using
	Balance as of June 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	$	12,169	$	-	$	-	$	12,169
Contingent consideration – long term		56,333		-		-		56,333
Total liabilities measured at fair value	$	68,502	$	-	$	-	$	68,502

There were no transfers made among the three levels in the fair value hierarchy during the three months ended June 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 June 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 due to fluctuation in foreign currency		14
Contingent consideration - June 30, 2019	$	68,502

There was no material change in fair value of contingent consideration from the closing of the Acquisition (February 18, 2019) through June 30, 2019. 

12

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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.

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.

13

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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. 

Disaggregation of Revenues

	Successor				Predecessor
	Three Months Ended		February 19, 2019 through		January 1, 2019 through		Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019		February 18, 2019		June 30, 2018		June 30, 2018
Subscriptions, support and maintenance	$	5,456	$	7,473	$	3,253	$	4,892	$	9,268
Professional services		2,116		2,838		1,269		1,453		3,235
License		663		958		383		269		796
Asset sales		11		11		23		-		105
Total revenues	$	8,246	$	11,280	$	4,928	$	6,614	$	13,404

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. Revenue is 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 revenue 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.

Revenue from subscription, support and maintenance comprised approximately 66% of total revenues for the three months ended June 30, 2019 and the 2019 Successor Period.

Professional services.     The Company’s professional services contracts generate revenue 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 26% and 25% of total revenues for the three months ended June 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 8% of total revenues for the three months ended June 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 June 30, 2019 and the 2019 Successor Period. 

14

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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 $3.9 million, $5.6 million, $2.2 million, $3.3 million and $7.2 million were recognized for the three months ended June 30, 2019, the 2019 Successor Period, the 2019 Predecessor Period, the three months ended June 30, 2018 and the six months ended June 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.

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 and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and 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 company’s 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.

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	%

15

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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 June 30, 2019 are as follows:

Warrants to purchase common stock	27,093,334
Unvested restricted stock units	1,049,237
Options to purchase common stock	392,188
Total	28,534,759

Income Taxes

Deferred income taxes are provided for the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and 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 evidence becomes available. No tax related impact was recorded in the financial statements as a result of the adoption of ASU No. 2016-09. 

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 June 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 Company’s 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 June 30, 2019 (in thousands):

Balance - January 1, 2019	$	(39,908	)
Income tax benefit (associated with the amortization of intangible assets)		1,670
Balance - June 30, 2019	$	(38,238	)

16

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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 U.S. 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.

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 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.

17

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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.

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.

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 still 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, 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 $3.6 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.

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, which 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, 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 $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. 

18

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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, 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 $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.

The following is a summary of consideration paid and issued to each Acquired Company (in thousands):

	Cash Consideration		Stock Consideration			Contingent Consideration		Total		Adjusted Net Assets			Goodwill		Intangibles		Deferred Tax Liability
Bonfire	$	51,068	$	50,078	(1)	$	325	$	101,471	$	3,639		$	81,964	$	22,668	$	6,800
CityBase		64,261		41,560			48,410		154,231		782			119,741		48,155		14,447
eCivis		17,592		31,256			5,859		54,707		(1,788	)		47,397		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		5,105		1,000			1,898		8,003		1,066			3,497		4,914		1,474
Total	$	193,478	$	172,349		$	65,803	$	431,630	$	5,910		$	332,602	$	133,026	$	39,908

(1) Includes $21.6 million of convertible stock consideration

(2) Includes $31.0 million of convertible stock consideration

19

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

The following table represents the preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition-date fair values. Accordingly, such 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		81,964			119,741			47,397			22,524			57,479			3,497			332,602
Accounts payable and accrued expenses		(1,084	)		(1,191	)		(582	)		(124	)		(911	)		(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	$	101,472		$	154,232		$	54,707		$	28,412		$	84,804		$	8,003		$	431,630

Transaction Costs

Transaction costs incurred by the Company associated with the Business Combination were $32.7 million from February 19, 2019 through June 30, 2019.

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 June 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		June 30, 2019		Net Total
Patents / Developed Technology	8	$	10,197	$	31,789	$	3,637	$	5,469	$	6,090	$	1,140	$	58,322	$	2,653	$	55,669
Trade Names / Trademarks	1 - 10		3,491		8,038		2,573		1,217		1,880		306		17,505		735		16,770
Customer Relationships	10		8,723		7,840		6,641		3,678		25,721		3,396		55,999		2,032		53,967
Non-Compete Agreements	3		257		488		146		107		130		72		1,200		145		1,055
		$	22,668	$	48,155	$	12,997	$	10,471	$	33,821	$	4,914	$	133,026	$	5,565	$	127,461

Amortization expense recognized by the Company related to intangible assets for the three months ended June 30, 2019 and the period from February 19, 2019 to June 30, 2019 (Successor) was $3.9 million and $5.6 million, respectively. Amortization expense recognized by the Predecessor for the period from January 1, 2019 through February 18, 2019, the three months ended June 30, 2018, and the six months ended June 30, 2018 (predecessor) was $0.03 million, $0.05 million and $0.1 million, respectively.

20

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

The estimated aggregate amortization expense for intangible assets over the next five years ending December 31 and thereafter is as follows (in thousands):

Six months ended December 31, 2019	$	7,658
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		44,711
	$	127,461

Note 6. Related Party Transactions

Convertible Note

On August 8, 2018, GTY Cayman issued the Convertible Note to 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 and the Sponsor agreed to waive all unpaid principal under the Convertible Note until the earlier of May 1, 2019 or the consummation of the business combination. 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 a receivable from related party of $4.0 million for a guarantee (see “Agreements and Arrangements with Certain Institutional Investors”). As of June 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”). An aggregate of 500,000 of such shares are subject to a lock-up pursuant to which such shares may not be transferred until the 91st day following Closing without the consent of the Company and the Founders, and the holder of Outstanding Cayman Shares is entitled to put such shares to the Sponsor and the Founders following the lock-up period 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 which 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 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 are obligated to reimburse the holders of 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. During the Q1 2019 Successor Period, the Company 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”), resulting a $3.0 million loss on the sale of the Outstanding Class A Shares. The Company recorded this $3.0 million loss as a component of acquisition expenses during the Q1 2019 Successor Period. During the three months ended June 30, 2019, the Sponsor paid the Company $3.0 million for such loss on the Outstanding Class A Shares. The Company reversed the component of acquisition expenses that was recorded for such loss in the Q1 2019 Successor Period. As of June 30, 2019, with the $4.0 million payment for losses, such 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 Business Combination, 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 (in thousands)
Outstanding as of February 18, 2019		-		$	-		-	$	-
Granted		408,667			1.82		8.1		-
Exercised		(284	)		1.16		-		-
Forfeited/expired		(16,195	)		1.16		-		-
Outstanding as of June 30, 2019		392,188		$	1.85		8.5	$	1,962
Options vested and exercisable		169,813		$	1.49		8.5	$	910

For the three months ended June 30, 2019 and the period from February 19, 2019 to June 30, 2019, the Company recorded $1.5 million and $2.1 million, respectively, of share-based compensation expense related to the options. As of June 30, 2019, the Company has $1.5 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

On May 17, 2019, 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.

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 January 1, 2019		-	$	-
Granted		1,049,237		9.53
Unvested as of June 30, 2019		1,049,237	$	9.53

For the three months ended June 30, 2019 and the period from February 19, 2019 to June 30, 2019, the Company recorded $0.2 million of share-based compensation expense related to the RSUs. As of June 30, 2019, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock units of $9.8 million. The weighted average remaining contractual term of unvested RSUs that is time based is approximately 1.5 years at June 30, 2019. 758,550 of the RSU’s granted above contained performance conditions.No stock-based compensation was recognized during the three months ended June 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 June 30, 2019, the Company had operating lease liabilities of approximately $3.5 million and right of use assets of approximately $3.2 million, which were included in the condensed consolidated balance sheet.

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

22

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Three Months Ended June 30, 2019 (Successor Period)

	Bonfire		CityBase		eCivis		Questica		Total
Operating leases
Operating lease cost	$	106	$	155	$	77	$	35	$	373
Variable lease cost		-		-		-		-		-
Operating lease expense		106		155		77		35		373
Short-term lease rent expense		-		-		-		-		-
Total rent expense	$	106	$	155	$	77	$	35	$	373

	Bonfire			CityBase			eCivis			Questica			Total
Operating cash flows from operating leases	$	105		$	162		$	77		$	34		$	378
Right-of-use assets exchanged for operating lease liabilities	$	-		$	-		$	-		$	-		$	-
Weighted-average remaining lease term – operating leases		3.3			2.5			3.2			3.1			2.7
Weighted-average discount rate – operating leases		10.0	%		10.0	%		8.0	%		4.8	%		9.2	%

Six Months Ended June 30, 2019 (Successor/Predecessor Period)

	Bonfire		CityBase		eCivis		Questica		Total
Operating leases
Operating lease cost	$	210	$	311	$	154	$	68	$	743
Variable lease cost		-		-		-		-		-
Operating lease expense		210		311		154		68		743
Short-term lease rent expense		-		-		-		-		-
Total rent expense	$	210	$	311	$	154	$	68	$	743

	Bonfire			CityBase			eCivis			Questica			Total
Operating cash flows from operating leases	$	207		$	323		$	154		$	67		$	751
Right-of-use assets exchanged for operating lease liabilities	$	1,271		$	1,541		$	920		$	310		$	4,042
Weighted-average remaining lease term – operating leases		3.3			2.5			3.2			3.1			2.7
Weighted-average discount rate – operating leases		10.0	%		10.0	%		8.0	%		4.8	%		9.2	%

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

23

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

	Bonfire			CityBase			eCivis			Questica			Total
Nine months ended December 31, 2019	$	218		$	327		$	154		$	71		$	770
Year Ended December 31, 2020		448			662			309			78			1,497
Year Ended December 31, 2021		464			458			309			58			1,289
Year Ended December 31, 2022		238			-			129			60			427
Year Ended December 31, 2023		-			-			-			15			15
Total		1,368			1,447			901			282			3,998
Less present value discount		(193	)		(157	)		(100	)		(26	)		(476	)
Operating lease liabilities	$	1,175		$	1,290		$	801		$	256		$	3,522

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 Companies are not presently a party to any legal proceedings that, if determined adversely to the Companies, would have a material adverse effect on the Companies.

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 June 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.

Note 10. Shareholders’ Equity

Initial Public Offering Redemption Shares

The Company provided its holders of the outstanding Class A ordinary shares sold in the initial public offering (“public shareholders”) with the opportunity to redeem all or a portion of their public shares in connection with a shareholder meeting called to approve the business combination. The public shareholders were entitled to redeem their public shares for a pro rata portion of the amount then in 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.

24

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

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 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, 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.  

Common Stock – GTY was 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 on Share Repurchases 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.

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

In June 2019, the Company entered into an agreement to make a "Make Whole" payment of $0.7 million, included in the condensed consolidated statements of operations and comprehensive loss, in conjunction with an agreement for investors to buy a portion of the Acquisition Redemption Shares at a price less than the previously agreed redemption price.  The "Make Whole" payment and share repurchase will be consummated in July 2019. The Company accrued this Make Whole payment of $0.7 million as a component of accrued expenses as of June 30, 2019.

As of June 30, 2019, there were 52,520,612 shares of common stock issued and 52,155,614 outstanding, net of 364,998 shares of treasury stock.

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

Warrants

At June 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.

Note 12. Segment Reporting

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

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

 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 June 30, 2019
Total revenue	$	-		$	785		$	2,147		$	1,154		$	395		$	2,359		$	1,406		$	-		$	8,246
Cost of goods sold		-			259			1,318			427			122			550			255			-			2,931
Loss from operations		(1,308	)		(3,864	)		(4,559	)		(768	)		(507	)		(708	)		466			-			(11,247	)
Successor
February 19, 2019 through June 30, 2019
Total revenue	$	-		$	1,211		$	3,083		$	1,562		$	522		$	3,228		$	1,674		$	-		$	11,280
Cost of goods sold		-			366			2,211			633			158			813			326			-			4,507
Loss from operations		(19,548	)		(6,277	)		(8,467	)		(1,902	)		(749	)		(12,074	)		(2,698	)		-			(51,715	)
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 June 30, 2018
Total revenue	$	-		$	751		$	1,197		$	1,360		$	429		$	2,570		$	307		$	-		$	6,614
Cost of goods sold		-			190			897			438			115			495			39			-			2,174
Loss from operations		-			(1,307	)		(2,421	)		(140	)		78			420			12			-			(3,358	)
Predecessor
Six Months Ended June 30, 2018
Total revenue	$	-		$	1,410		$	2,442		$	2,495		$	820		$	5,163		$	1,074		$	-		$	13,404
Cost of goods sold		-			338			1,798			826			238			960			113			-			4,273
Loss from operations		-			(2,094	)		(4,194	)		(377	)		2			982			517			-			(5,164	)
Successor
As of June 30, 2019
Goodwill	$	-		$	81,964		$	119,740		$	47,398		$	22,525		$	57,478		$	3,497		$	-		$	332,602
Assets		402,358			108,337			166,800			61,310			31,889			92,627			7,029			(366,052	)		504,298
Predecessor
As of December 31, 2018
Goodwill	$	-		$	-		$	123		$	585		$	-		$	1,810		$	-		$	-		$	2,518
Assets		-			6,329			7,215			2,621			316			11,710			1,377			-			29,568

Revenues from North America customers accounted for greater than 90% of the Company’s revenues for the periods presented.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and in our Current Report on Form 8-K/A filed with the SEC on March 18, 2019. Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors which could materially affect such forward-looking statements can be found in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018 and elsewhere in this Form 10-Q. Investors are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to investors because they permit investors to view the Company’s performance using the same tools that management uses and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting related to the Acquisition. See “Reconciliation of Non-GAAP Revenues” below for more information and reconciliations of such measures to the nearest comparable GAAP measures.

Overview

We are a public sector company that offers a cloud-based suite of solutions primarily for North American state and local governments. Our six wholly-owned subsidiaries are Bonfire Interactive Ltd. (“Bonfire”), CityBase, Inc. (“CityBase”), eCivis, Inc. (“eCivis”), Open Counter Enterprises Inc. (“Open Counter”), Questica Inc. (“Questica”), and Sherpa Government Solutions (“Sherpa”). Through our operating subsidiaries, we serve some of the fastest growing segments in the government technology sector, including procurement, payments, grants management, permitting, and budgeting.

We were formed on August 11, 2016 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “business combination”). Until the business combination, we did not engage in any operations nor generated any revenue. We recognized an opportunity to replace costly legacy systems with scalable and efficient Software as a Service, or SaaS, products. Our search led to the acquisition (the “Acquisition”) of Bonfire, CityBase, eCivis, Open Counter, Questica, and Sherpa on February 19, 2019 (the “Closing Date”).

Our customers are primarily located in the United States and Canada, including counties, municipalities, special districts, law enforcement agencies and public school districts. We plan to increase our customer base by leveraging our comprehensive product portfolio with our existing customer base, investing in direct sales to new customers, and utilizing partnerships with complementary products and services.

The Acquisition was accounted for as a business combination under U.S. GAAP and resulted in a change in accounting basis as of the date of the Acquisition. As a result, our condensed consolidated financial statements for the period beginning on February 19, 2019 are presented on a different basis than that for the periods before February 19, 2019, and therefore are not comparable. As a result of the application of the acquisition method of accounting, our condensed consolidated financial statements and certain presentations are separated into two distinct periods to indicate the different ownership and accounting basis between the periods presented: (i) the period before the consummation of the Acquisition, which includes the period from January 1, 2019 to the Closing Date (“2019 Predecessor Period”) and the six months ended June 30, 2018 (the “2018 Predecessor Period”), and (ii) the periods on and after the consummation of the acquisition, which includes the period including and after the Closing Date to June 30, 2019 (“2019 Successor Period”), the period including and after the Closing Date to March 31, 2019 (“Q1 2019 Successor Period”) and the three months ended June 30, 2019.

Expansion and Further Penetration of Our Customer Base.    We employ a strategy that focuses on acquiring new customers and growing our relationships with existing customers over time. We believe significant opportunity exists for us to acquire new customers as well as expand the use of our platforms by selling additional products and increasing the number of users within our current customers’ organizations.

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Investment in Growth.    We plan to continue to invest in our business so that we can capitalize on our market opportunity. We intend to continue to grow our sales and marketing team to acquire new customers and to increase sales to existing customers. We intend to continue to grow our research and development team to extend the functionality and range of our applications to bring new and improved solutions to accounting and finance. However, we expect our sales and marketing expenses and research and development expenses as a percentage of revenues to decrease over time as we grow our revenues and gain economies of scale by increasing our customer base and increase sales to our existing customer base. We believe that these investments will contribute to our long-term growth, although they may adversely affect our profitability in the near term.

Leveraging Partnerships.    We plan to continue to strengthen and expand our relationships with technology vendors, professional services firms, and resellers. These relationships enable us to increase the speed of deployment and offer a wider range of integrated services to our customers. We intend to support these existing relationships, seek additional relationships and further expand our channel of resellers to help us increase our presence in existing markets and to expand into new markets. Our business and results of operations will be significantly affected by our success in leveraging and expanding these relationships.

Market Adoption of Our Platforms.    A key focus of our sales and marketing efforts is creating market awareness about the benefits of our cloud-based SaaS platforms. The market for SaaS solutions is less mature than the market for on-premise software applications, and potential customers may be slow or unwilling to migrate from their legacy solutions. Our business and operating results will be significantly affected by the degree to and speed with which organizations adopt our solutions.

Key Components of our Results of Operations

Revenues

Subscription, support and maintenance. We provide 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 us. The first year of subscription fees are typically payable within 30 days after the execution of a contract, and thereafter upon renewal. We initially record 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 included in the transaction price in the period in which the 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 66% of total revenues for the 2019 Successor Period.

Professional services.     Our 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 25% of total revenues for the 2019 Successor Period.

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 8% of total revenues for 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. Revenues from asset sales comprised less than 1% of total revenues for the 2019 Successor Period. 

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.

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Operating Expenses

Sales and marketing

Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including salaries, sales commissions and incentives and benefits, travel and related costs, outside consulting fees, marketing programs, including lead generation, and costs of advertising and trade shows. We defer sales commissions and amortize them ratably over the expected customer life. We expect sales and marketing expenses will increase as we expand our direct sales teams and increase sales through our strategic relationships and resellers.

Research and development

Research and development expenses consist primarily of salaries and benefits associated with our engineering, product and quality assurance personnel. Research and development expenses also include the cost of third-party contractors. Other than internal-use software development costs that qualify for capitalization, research and development costs are expensed as incurred. We expect research and development costs to increase as we develop new solutions and make improvements to our existing platforms.

General and administrative

General and administrative expenses consist primarily of salaries and benefits with our executive, finance, legal, human resources, compliance and other administrative personnel, accounting, auditing and legal professional services fees, recruitment costs, and other corporate-related expenses. We expect that general and administrative expenses will increase as we incur the costs of compliance associated with being a publicly-traded company, including legal, audit and consulting fees.

Results of Operations

We accounted for the Acquisition as a business combination, which resulted in a new basis of accounting. Refer to Note 3 of the notes to our condensed consolidated financial statements for additional information. As a result of the Acquisition, our condensed consolidated financial statements for the period after February 19, 2019 is presented on a different basis than that for the periods before February 19, 2019 due to the application of purchase accounting as of February 19, 2019 and, therefore, are not comparable. To illustrate the effective date of the new basis of accounting, the results below are separated by a black line.

The Acquisition resulted in the following principal impacts for the period subsequent to the Acquisition date:

· A reduction in revenues in the 2019 Successor Period as a result of the contract liabilities at the Acquisition date being recorded at fair value, an amount less than its then carrying value;

· Increased amortization expense resulting from recording of intangible assets at fair value. We record amortization of acquired developed technology in cost of revenues, amortization of customer relationships in sales and marketing expenses, and amortization of covenants not to compete and tradename intangible assets in general and administrative expenses;

· Contingent consideration issued as part of the Acquisition was recorded at fair value each period with changes in fair value recorded in general and administrative costs; and

· Transaction costs were expensed as incurred as a separate line item in our condensed consolidated statement of operations;

We believe reviewing our operating results for the six months ended June 30, 2019 by combining the results of the 2019 Predecessor Period and 2019 Successor Period (“S/P Combined Period”) is more useful in discussing our overall operating performance when compared to the 2018 Predecessor Period.

Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

Total revenues

Our total revenues for the three months ended June 30, 2019 increased on a year-over-year basis. This increase was driven by an increase in the number of customers, an increase in the number of users added by existing customers and an increase in the number of products purchased by existing customers.

Our total revenues were $8.2 million. Excluding the $1.7 million impact of purchase accounting, our total non-GAAP revenues for the three months ended June 30, 2019 was $9.9 million compared to $6.6 million for the quarter ended June 30, 2018 on a comparable basis, representing a 50% increase. The change in revenues for each operating segment is due to the following (in thousands, except percentages):

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	Three Months Ended June 30,
	Generally Accepted Accounting Principles (“GAAP”)										Non-GAAP
	Total Revenues 2019		Total Revenues 2018		Increase / (Decrease) in Dollars			Increase / (Decrease) in %			Total Revenues 2019		Total Revenues 2018		Increase / (Decrease) in Dollars		Increase / (Decrease) in %
Bonfire	$	785	$	751	$	34			5	%	$	1,121	$	751	$	370		49	%
CityBase		2,147		1,197		950			79	%		2,302		1,197		1,105		92	%
eCivis		1,154		1,360		(206	)		(15	)%		1,505		1,360		145		11	%
Open Counter		395		429		(34	)		(8	)%		582		429		153		36	%
Questica		2,359		2,570		(211	)		(8	)%		2,986		2,570		416		16	%
Sherpa		1,406		307		1,099			358	%		1,449		307		1,142		372	%
Total	$	8,246	$	6,614	$	1,632			25	%	$	9,945	$	6,614	$	3,331		50	%

Bonfire’s, CityBase’s and Open Counter’s revenues increased primarily due to increased customers from the prior year. Questica’s revenues increased due primarily to an increase in subscription and support and maintenance revenue. Sherpa’s revenues increased due primarily to an increase in professional services.

Total cost of revenues

Our total cost of revenues for the three months ended June 30, 2019 have increased on a year-over-year basis. The increase was driven by an increase in headcount in hosting operations and professional services, an increase in hosting costs due to customer expansion, and an increase in third-party product partnership costs. The change in cost of revenues for each operating segment is due to the following (in thousands, except percentages):

	Three Months Ended June 30,
	Total Cost of Revenues 2019		Total Cost of Revenues 2018		Increase / (Decrease) in Dollars			Increase / (Decrease) in %
Bonfire	$	259	$	190	$	69			36	%
CityBase		1,318		897		421			47	%
eCivis		427		438		(11	)		(3	)%
Open Counter		122		115		7			6	%
Questica		550		495		55			11	%
Sherpa		255		39		216			554	%
Total	$	2,931	$	2,174	$	757			35	%

Bonfire

Bonfire’s total cost of revenues increased due primarily to an 11% increase in average headcount from June 30, 2018 to June 30, 2019, consistent with the increase in revenue. The remaining increase was from additional hosting tools and services to support the higher number of customers supported on the platform.

CityBase

CityBase’s total cost of revenues increased due primarily to banking fees associated with the addition of a major customer in 2018.

eCivis

eCivis’ total cost of revenues was materially consistent year-over-year.

Open Counter

Open Counter’s total cost of revenues was materially consistent year-over-year.

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Questica

Questica’s total cost of revenues increased by due primarily to an increase in professional services costs to support the increase in revenue.

Sherpa

Sherpa’s total cost of revenues increased due primarily to an increase in professional services costs to support the increase in revenue. 

Operating expenses (excluding amortization of intangible assets and acquisition costs)

Our total operating expenses (excluding amortization of intangible assets and acquisition costs) for the three months ended June 30, 2019 have increased due primarily to increases in headcount in sales and marketing, general and administrative, and research and development resulting from growth in the business. The change in operating expenses for each operating segment is due to the following (in thousands, except percentages):

	Three Months Ended June 30,
	Total Operating Expenses 2019		Total Operating Expenses 2018		Increase / (Decrease) in Dollars			Increase / (Decrease) in %
Bonfire	$	3,743	$	1,869	$	1,874			100	%
CityBase		3,743		2,720		1,023			38	%
eCivis		1,132		1,062		70			7	%
Open Counter		477		236		241			102	%
Questica		1,625		1,656		(31	)		(2	)%
Sherpa		451		255		196			77	%
Corporate		3,799		0		3,799			N/A
Total	$	14,970	$	7,798	$	7,172			92	%

Bonfire

Bonfire’s total operating expense increased due to a 213% increase in sales and marketing, a 43% increase in research and development and a 9% increase in general and administrative costs. The increase in sales and marketing was primarily due to stock-based compensation of $1.3 million and 13 net new hires, the increase in research and development was primarily due to $0.1 million of stock-based compensation and 5 net new hires between June 30, 2018 and June 30, 2019 and the increase in general and administrative expenses were due to $0.2 million of stock-based compensation.

CityBase

CityBase’s total operating expense increased due primarily to an increase in research and development headcount.

eCivis

eCivis’ total operating expense increased primarily due to a 50% increase in sales and marketing, and a 20% increase in research and development offset by a 24% decrease in general and administrative costs. The increase in sales and marketing was primarily due to 5 net new hires and the increase in research and development was primarily due to 2 net new hires between June 30, 2018 and June 30, 2019. The decrease in general and administrative costs was primarily due to lower oversight costs at the company level post-Acquisition.

Open Counter

Open Counter’s total operating expense increased due primarily to an increase in net new hires from 6 to 10 between June 30, 2018 and June 30, 2019.

Questica

Questica’s total operating expense was materially consistent year-over-year.

Sherpa

Sherpa’s total operating expenses increased due primarily to a 77% increase in general and administrative costs as a result of increases in salaries and wages.

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Corporate

Corporate expenses primarily comprised of outside services including legal, accounting and consulting fees, payroll and related expenses, corporate insurance, and stock-based compensation.

Other operating expenses

Acquisition costs consists primarily of Acquisition transaction costs, capital market advisory fees, and bonuses incurred as a result of the transaction or a change in control. Amortization of intangible assets consists of the amortization of finite lived intangibles resulting from the Acquisition as described in Note 3 of the notes to our condensed consolidated financial statements.

Other income (expense)

Interest income was primarily due to the investments held by GTY Corporate.

Successor/Predecessor (“S/P”) Combined Period Compared to the Six Months Ended June 30, 2018

Total revenues

Our total revenues for the S/P Combined Period increased on a year-over-year basis. This increase was driven by an increase in the number of customers, an increase in the number of users added by existing customers and an increase in the number of products purchased by existing customers. Our revenues for the S/P Combined Period were $16.2 million. Excluding the $2.6 million impact of purchase accounting and combining the results of the 2019 Predecessor Period and 2019 Successor Period, our total non-GAAP adjusted revenues for the six months ended June 30, 2019 would have been $18.8 million compared to $13.4 million for the six months ended June 30, 2018 on a comparable basis, representing a 40% increase. The change in revenues for each operating segment is due to the following (in thousands, except percentages): 

	Six Months Ended June 30,
							Generally Accepted Accounting Principles (“GAAP”)								Non-GAAP
	February 19, 2019 through June 30, 2019		January 01, 2019 through February 18, 2019		Total S/P Combined 2019		Total Revenues 2018		Increase / (Decrease) in Dollars			Increase / (Decrease) in %			Total Revenues 2019		Total Revenues 2018		Increase / (Decrease) in Dollars		Increase / (Decrease) in %
Bonfire	$	1,211	$	593	$	1,804	$	1,410	$	394			28	%	$	2,188	$	1,410	$	778		55	%
CityBase		3,083		820		3,903		2,442		1,461			60	%		4,125		2,442		1,683		69	%
eCivis		1,562		673		2,235		2,495		(260	)		(10	)%		2,765		2,495		270		11	%
Open Counter		522		298		820		820		0			0	%		1,110		820		290		35	%
Questica		3,228		1,913		5,141		5,163		(22	)		0	%		6,230		5,163		1,067		21	%
Sherpa		1,674		631		2,305		1,074		1,231			115	%		2,361		1,074		1,287		120	%
Total	$	11,280	$	4,928	$	16,208	$	13,404	$	2,804			21	%	$	18,779	$	13,404	$	5,375		40	%

Bonfire’s, CityBase and Open Counters’ revenues increased primarily due to increased customers from the prior year. Questica’s revenues increased due primarily to an increase in subscription and support and maintenance revenue. Sherpa’s revenues increased due primarily to an increase in professional services.

Total cost of revenues

Our total cost of revenues for the S/P Combined Period have increased on a year-over-year basis. The increase was driven by an increase in headcount in hosting operations and professional services, an increase in hosting costs due to customer expansion, and an increase in third-party product partnership costs. The change in cost of revenues for each operating segment is due to the following (in thousands, except percentages):

	Six Months Ended June 30,
	February 19, 2019 Through June 30, 2019		January 01, 2019 through February 18, 2019		Total S/P Combined 2019		Total Cost of Revenues 2018		Increase / (Decrease) in Dollars			Increase / (Decrease) in %
Bonfire	$	366	$	124	$	490	$	338	$	152			45	%
CityBase		2,211		746		2,957		1,798		1,159			64	%
eCivis		633		267		900		826		74			9	%
Open Counter		158		51		209		238		(29	)		(12	)%
Questica		813		296		1,109		960		149			16	%
Sherpa		326		130		456		113		343			304	%
Total	$	4,507	$	1,614	$	6,121	$	4,273	$	1,848			43	%

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Bonfire

Bonfire’s total cost of revenues increased primarily to a 31% increase in average headcount from June 30, 2018 to June 30, 2019, consistent with the increase in revenue. The remaining increase was from additional hosting tools and services to support the higher number of customers supported on the platform.

CityBase

CityBase’s total cost of revenues increased due primarily to banking fees associated with the addition of the major customer in 2018.

eCivis

eCivis’ total cost of revenues increased due primarily to a 24% increase in professional services headcount costs and a 15% increase in third-party product partnership costs.

Open Counter

Open Counter’s total cost of revenues decreased by 12% due primarily to a decrease in subcontractor costs.

Questica

Questica’s total cost of revenues increased by 16% due primarily to an increase in professional services costs to support the increase in revenue.

Sherpa

Sherpa’s total cost of revenues increased due primarily to an increase in professional services costs to support the increase in revenue. 

Operating expenses

Our total operating expenses for the S/P Combined Period have increased due primarily to increases in headcount in sales and marketing, general and administrative, and research and development resulting from growth in the business. The change in operating expenses for each operating segment is due to the following (in thousands, except percentages):

	Six Months Ended June 30,
	February 19, 2019 Through June 30, 2019		January 01, 2019 through February 18, 2019		Total S/P Combined 2019		Total Operating Expenses 2018		Increase / (Decrease) in Dollars		Increase / (Decrease) in %
Bonfire	$	5,371	$	1,210	$	6,581	$	3,166	$	3,415		108	%
CityBase		5,160		1,518		6,678		4,836		1,842		38	%
eCivis		1,628		575		2,203		2,047		156		8	%
Open Counter		674		202		876		580		296		51	%
Questica		2,462		1,066		3,528		3,222		306		9	%
Sherpa		636		147		783		444		339		76	%
Corporate		4,243		-		4,243		-		4,243		N/A
Total	$	20,174	$	4,718	$	24,892	$	14,295	$	10,597		74	%

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Bonfire

Bonfire’s total operating expense increased due to a 198% increase in sales and marketing, a 60% increase in research and development and a 59% increase in general and administrative costs. The increase in sales and marketing was primarily due to stock-based compensation expense of $1.3 million and 13 net new hires, the increase in research and development was primarily due to 5 net new hires between June 30, 2018 and June 30, 2019 and the increase in general and administrative expenses were due to $0.9 million of stock-based compensation.

CityBase

CityBase’s total operating expense increased due to an increase in research and development headcount.

eCivis

eCivis’ total operating expense increased due to a 44% increase in sales and marketing and a 21% increase in research and development offset by a 20% decrease in general and administrative costs. The increase in sales and marketing was primarily due to 5 net new hires and the increase in research and development was primarily due to 2 net new hires between June 30, 2018 and June 30, 2019. The decrease in general and administrative costs was primarily due to lower oversight costs at the company level post-Acquisition.

Open Counter

Open Counter’s total operating expense increased due primarily to an increase in net new hires from 6 to 10 between June 30, 2018 and June 30, 2019.

Questica

Questica’s total operating expense was materially consistent year-over-year.

Sherpa

Sherpa’s total operating expenses increased due primarily to a 76% increase in general and administrative costs as a result of increases in salaries and wages.

Corporate

Corporate expenses primarily comprised of outside services including legal, accounting and consulting fees, payroll and related expenses, corporate insurance, and stock-based compensation.

Other operating expenses

Acquisition costs consists primarily of Acquisition transaction costs, capital market advisory fees, and bonuses incurred as a result of the transaction or a change in control. Amortization of intangible assets consists of the amortization of finite lived intangibles resulting from the Acquisition as described in Note 3 of the notes to our condensed consolidated financial statements.

Other income (expense)

Interest income during the S/P Combined Period was primarily due to the investments held by GTY Corporate during the 2019 Successor Period.

Reconciliation of Non-GAAP Revenues

To supplement our condensed consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, we have provided a financial measure that has not been prepared in accordance with GAAP: non-GAAP revenues.

We use non-GAAP revenues internally in analyzing our financial results and believe this metric is useful to investors, as a supplement to the corresponding GAAP measure, in evaluating our ongoing operational performance and trends. However, it is important to note that particular items we exclude from, or include in, our non-GAAP revenues may differ from the items excluded from, or included in, similar non-GAAP revenue used by other companies in the same industry. Non-GAAP revenues should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of non-GAAP revenues to revenues. A reconciliation of non-GAAP revenues has been provided.

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Non-GAAP revenues are defined as GAAP revenues adjusted for the impact of purchase accounting resulting from the Acquisition. As the Acquisition occurred on February 19, 2019, we believe reviewing our operating results for the S/P Combined Period is more useful in discussing our overall operating performance when compared to the same period in the prior year.

Below is a reconciliation of non-GAAP revenues to revenues (in thousands, except percentages):

	Three Months Ended June 30,
	Bonfire			CityBase			eCivis			Open Counter			Questica			Sherpa			Total Revenue
GAAP Revenues - 2019	$	785		$	2,147		$	1,154		$	395		$	2,359		$	1,406		$	8,246
Purchase accounting adjustment to revenue		336			155			351			187			627			43			1,699
Non-GAAP Revenues - 2019	$	1,121		$	2,302		$	1,505		$	582		$	2,986		$	1,449		$	9,945
Predecessor Revenue 2018	$	751		$	1,197		$	1,360		$	429		$	2,570		$	307		$	6,614
% change		49	%		92	%		11	%		36	%		16	%		372	%		50	%

	Six Months Ended June 30,
	Bonfire			CityBase			eCivis			Open Counter			Questica			Sherpa			Total Revenue
Pro forma Revenues - S/P combined Period 2019	$	1,804		$	3,903		$	2,235		$	820		$	5,141		$	2,305		$	16,208
Purchase accounting adjustment to revenue		384			222			530			290			1,089			56			2,571
(Non-GAAP) Pro forma as Adjusted Revenues 2019	$	2,188		$	4,125		$	2,765		$	1,110		$	6,230		$	2,361		$	18,779
Predecessor Revenue 2018	$	1,410		$	2,442		$	2,495		$	820		$	5,163		$	1,074		$	13,404
% change		55	%		69	%		11	%		35	%		21	%		120	%		40	%

Liquidity and Capital Resources

As of June 30, 2019, we had a cash balance of approximately $25.4 million. Through June 30, 2019, our liquidity needs were satisfied through proceeds from our initial public offering and funds held in the Trust Account (see Note 10-Shareholders’ Equity-to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q), proceeds from the PIPE Transaction (as defined below), and proceeds from our June 2019 registered direct offering.

Our condensed consolidated financial statements have been prepared assuming that we 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, we had an accumulated deficit of approximately $39.8 million at June 30, 2019, a net loss of approximately $50.5 million and approximately $44.0 million net cash used in operating activities for the successor period from February 19, 2019 through June 30, 2019. These factors raise substantial doubt about our ability to continue as a going concern.

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

PIPE Transaction

Immediately prior to the closing of the business combination (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 Cayman and certain institutional and accredited investors party thereto (the “Subscribed Investors”), GTY Cayman issued to the Subscribed Investors an aggregate of 12,853,098 Class A ordinary shares of GTY for $10.00 per share, for an aggregate cash purchase price of approximately $126.3 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 Cayman at a price of $10.00 per share, for an aggregate cash purchase price of approximately $3.8 million (the “PIPE Transaction”). The Class A ordinary shares of GTY Cayman issued to the Subscribed Investors were cancelled and exchanged on a one-for-one basis for shares of Company common stock at the Closing.

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Historical Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated (amounts in thousands):

	Successor			Predecessor
	February 19, 2019 through June 30, 2019			January 1, 2019 through February 18, 2019			January 1, 2018 through June 30, 2018
Net cash (used in) provided by operating activities	$	(43,972	)	$	284		$	(4,194	)
Net cash provided by (used in) investing activities	$	38,013		$	1,516		$	(54	)
Net cash provided by (used in) financing activities	$	31,450		$	(539	)	$	4,030

Net Cash (Used in) Provided by Activities

Our net loss and cash flows from operating activities are significantly influenced by the Acquisition and our investments in headcount and infrastructure to support anticipated growth.

For the Successor Period, net cash used in operations was $44.0 million resulting from our net loss of $50.5 million and changes in operating assets and liabilities of $0.2 million and offset by net non-cash expenses of $6.7 million. The $6.7 million of non-cash expenses was comprised of $5.6 million of amortization of intangible assets acquired as a result of the Acquisition and $2.3 million from share-based compensation offset by $1.7 million of deferred tax benefits related to the tax and book basis difference on the amortization of intangible assets.

For the Predecessor Period, net cash provided by operations was $0.3 million resulting from our changes in operating assets and liabilities of $1.6 million and net non-cash expenses of $0.4 million offset by our net loss of $1.7 million. The $1.6 million of net cash flows provided as a result of changes in our operating assets and liabilities was primarily due to a $2.2 million decrease in accounts receivable resulting from seasonality in billings and offset by a $0.8 million decrease in accounts payable. The $0.4 million of non-cash expenses was primarily comprised of $0.2 million of depreciation of property and equipment.

For the six months ended June 30, 2018, net cash used in operations was $4.2 million resulting from our net loss of $4.5 million and offset by changes in operating assets and liabilities of $0.2 million and net non-cash expenses of $0.5 million. The $0.2 million of net cash flows provided as a result of changes in our operating assets and liabilities was due to a $1.1 million increase in accounts payable and accrued liabilities offset by a $0.9 million increase in accounts receivable and a $0.4 million increase in prepaid expenses. The $0.5 million of non-cash expenses was primarily comprised of $0.2 million of depreciation of property and equipment and share-based compensation. 

Net Cash Provided by (Used in) Investing Activities

Our primary investing activities have consisted of investments in marketable securities and capital expenditures. In February 2019, we completed our Acquisition and the resulting cash flow impact is described below in the Successor Period.

For the Successor Period, cash provided by investing activities was $38.0 million resulting from $217.6 million of proceeds from cash held in a trust and offset primarily due to the Acquisition which had a cash purchase price of $179.0 million net of cash acquired.

For the Predecessor Period, cash provided by investing activities was $1.5 million due to a $1.5 million sale of marketable securities by Questica.

For the six months ended June 30, 2018, cash used in investing activities was $0.1 million resulting from the purchase of capital expenditures.

Net Cash Provided By (Used in) Financing Activities

For the Successor Period, cash provided by financing activities was $31.5 million primarily as a result of the private placement of Class A shares of $125.3 million and proceeds received from the successful registered direct offering of common stock of $25.5 million, net of costs and offset primarily by the redemption of shares in the amount of $118.7 million.

For the Predecessor Period, cash used in financing activities was $0.5 million primarily as a result of member distributions of $0.5 million.

For the six months ended June 30, 2018, cash provided by financing activities was $4.0 million primarily as a result of $4.2 million of proceeds from borrowings.

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Critical Accounting Policies and Use of Estimates

See Note 3 of the notes to our condensed consolidated financial statements.

Recent Accounting Pronouncements

The impact of recently issued accounting standards is set forth in Note 3, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet transactions. Other than the guarantees described in Note 9-Shareholders’ Equity-Agreements and Arrangements with Certain Institutional Investors-to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q, we have no guarantees or obligations other than those which arise out of normal business operations. 

Contractual Obligations and Commitments

As of June 30, 2019, there were no significant changes to our contractual obligations from those presented as of December 31, 2018 in our Current Report Form 8-K/A filed with the SEC on March 18, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

During the six months ended June 30, 2019, there were no material changes to our interest rate risk disclosures, market risk disclosures and foreign currency exchange rate risk disclosures reported in our Current Report Form 8-K/A filed with the SEC on March 18, 2019 for the year ended December 31, 2018.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Financial Officer, to allow timely decisions regarding required disclosure.

The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

With respect to the quarter ended June 30, 2019, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, the Company’s Chief Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

Changes in Internal Control over Financial Reporting 

In our Annual Report on Form 10-K for the year ended December 31, 2018, we disclosed that the Acquired Companies identified certain material weaknesses in their internal controls over financial reporting. These material weaknesses related to: (i) deficiencies in Bonfire’s period end financial statement close process, (ii) each of CityBase’s, eCivis’s, Open Counter’s and Sherpa’s limited segregation of duties with regard to financial reporting activities such as payroll entry and processing due to the size of their respective accounting departments and (iii) deficiencies in Questica’s period end financial statement close process resulting from, among other things, the preparation of financial statements for the proxy statement/prospectus with a different fiscal year end than its historical fiscal year end.

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We believe that, as of June 30, 2019, we have remediated these material weaknesses and improved the effectiveness of our internal control over financial reporting by implementing additional controls related thereto.

The remediation efforts Management took to address the previously identified material weaknesses include, but are not limited to, the following:

· Implementation of specific policies and procedures with detailed instructions to the Acquired Companies in order to adequately communicate the requirements around processes and controls;

· Implementation of controls over manual journal entries and account reconciliations, including improving controls and procedures related to the timeliness and effectiveness of our review and approval procedures;

· Expansion of our financial leadership team by adding employees and external consultants, each with the commensurate knowledge, experience, and training to properly support our financial reporting and accounting functions including overseeing that the first two items listed are timely and adequately implemented; and

· Adoption of formal accounting policies related to non-routine complex transactions, such accounting for business combinations, revenue recognition, equity classification, deferred income taxes and derivative accounting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 

None

Item 1A. Risk Factors

As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 18, 2019, except as follows:

The integration of the business, management and operations of Bonfire, CityBase, eCivis, Open Counter, Questica and Sherpa may prove difficult, disrupt our business and operations, divert management attention and adversely affect the business and financial results of our combined company.

We completed the Acquisition in February 2019, which we believe will result in certain benefits and synergies, including our goal of establishing an efficiently integrated public sector SaaS company through our six operating subsidiaries which, together, we believe can offer solutions to primarily North American state and local governments that may not otherwise be achievable by any one individual business on its own. However, our ability to realize these anticipated benefits depends on the successful integration of the six businesses. The combined company may fail to realize the anticipated benefits of the business combination for a variety of reasons, including the following:

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· the inability to integrate the businesses in a timely and cost-efficient manner or do so without adversely impacting revenue, operations and cash flows;

· the failure of our management team to successfully manage the combined company’s business and operations;

· expected synergies or operating efficiencies may fail to materialize in whole or part, or may not occur within expected time-frames;

· the failure to successfully manage relationships with each company’s customers and their operating results and businesses generally (including the diversion of management time to react to new and unforeseen issues);

· the failure or inability to timely and efficiently integrate and establish new sales forces without materially adversely impacting our relationships with customers;

· the failure to accurately estimate the potential markets and market shares for the combined company’s products, the nature and extent of competitive responses to the business combination and the ability of the combined company to achieve or exceed projected market growth rates;

· the inability to attract key personnel or to retain key personnel with unique talents, expertise or background knowledge as a consequence of both voluntary and involuntary employment actions;

· the failure to successfully advocate the benefits of the combined company for existing and potential customers or general uncertainty regarding the value proposition of the combined entity or its products;

· difficulties forecasting financial results;

· failures in our financial reporting including those resulting from system implementations in the context of the integration, our ability to report or forecast financial results of the combined company and our inability to successfully discover and assess and integrate into our reporting system, any of which may adversely impact our ability to make timely and accurate filings with the SEC and other domestic and foreign governmental agencies; and

· the potential that our due diligence did not fully uncover the risks and potential liabilities of any of Bonfire, CityBase, eCivis, Open Counter, Questica or Sherpa.

The actual integration may result in additional and unforeseen expenses or delays, distract management from other revenue or acquisition opportunities, and increase the combined company’s expenses and working capital requirements, particularly in the short-term. If we are unable to successfully integrate our business and operations in a timely manner, the anticipated benefits of the Acquisition may not be fully realized, or at all, or may take longer to realize than anticipated. Should any of the foregoing or other currently unanticipated risks arise, our business and results of operations may be materially adversely impacted.

Future sales of shares by existing stockholders could cause our stock price to decline.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. In addition, certain holders of our common stock and warrants have “piggy-back” registration rights with respect to registration statements we file. The presence of these additional shares of common stock trading in the public market may have an adverse effect on the market price of our securities.

Exercise of warrants for common stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

As of August 8, 2019, we had warrants to purchase 27,093,334 shares of common stock outstanding. Each whole warrant is exercisable to purchase one share of common stock at $11.50 per share. To the extent such warrants are exercised, additional shares of common stock will be issued, which will result in dilution to the then-existing holders of common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our common stock.

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We may redeem the unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making such warrants worthless.

We have the ability to redeem outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of the 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 we send the notice of redemption to the warrant holders. If and when the warrants become redeemable, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private placement warrants will be redeemable by us so long as they are held by their initial purchasers or their permitted transferees.

We believe our current cash and cash equivalents will be sufficient to fund our business only for a limited amount of time, and if we are not able to raise additional funds, we may be unable to continue as a going concern.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities

(b) On June 7, 2019, pursuant to subscription agreements with certain investors, we sold, in a registered direct offering (the “Offering”), an aggregate of 3,500,000 shares of our common stock at a price of $7.70 per share. The aggregate gross proceeds from the Offering were $26.95 million. No underwriter or placement agent participated in the Offering.

The shares of common stock sold in the Offering were offered and sold by us pursuant to an effective registration statement on Form S-1 (File No. 333-229926), including the prospectus contained therein.

The approximately $25.5 million net proceeds of the Offering were used for general corporate purposes.

(c) The following table shows the stock repurchase activity for the three months ended June 30, 2019:

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs
April 1-30, 2019		264,998	$	10.0		—		—
May 1-31, 2019		—		—		—		—
June 1-30, 2019		—		—		—		—
		264,998	$	10.0		—	$	—

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Item 6.  Exhibits.

Exhibit Number	Description
10.1	Form of Subscription Agreement (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 5, 2019).
10.2	Letter Agreement, dated May 7, 2019, by and between the Registrant and Stephen Rohleder (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 13, 2019).
31.1	Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 9^th day of August, 2019.

GTY TECHNOLOGY HOLDINGS INC.
	/s/ Stephen Rohleder
	Name:	Stephen Rohleder
	Title:	Chief Executive Officer
		(Principal Executive Officer)
	/s/ Harry L. You
	Name:	Harry L. You
	Title:	Chief Financial Officer
		(Principal Financial Officer)

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