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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

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.)

800 Boylston Street, 16th Floor Boston, MA 02199

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (877) 465-3200

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

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of November 4, 2021, 57,571,046 shares of common stock, par value $0.0001 per share, were outstanding.

Table of Contents

GTY TECHNOLOGY HOLDINGS INC.

Form 10-Q

For the Quarter Ended September 30, 2021

Table of Contents

    

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

3

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

5

Unaudited Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

41

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)

September 30, 

December 31, 

    

2021

  

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

15,327

$

22,800

Accounts receivable, net

11,068

9,994

Prepaid expenses and other current assets

 

4,029

 

2,583

Total current assets

 

30,424

 

35,377

 

 

Property and equipment, net

3,312

3,891

Finance lease right of use assets

778

1,355

Operating lease right of use assets

2,063

2,610

Intangible assets, net

90,196

101,107

Goodwill

284,635

284,635

Other assets

 

3,625

 

3,472

Total assets

$

415,033

$

432,447

 

 

Liabilities and Shareholders’ Equity

 

 

Current liabilities:

Accounts payable and accrued expenses

$

4,939

$

6,366

Deferred revenue - current portion

 

24,994

 

22,304

Finance lease liability - current portion

246

581

Operating lease liability - current portion

799

1,316

Contingent consideration - current portion

317

743

Total current liabilities

 

31,295

 

31,310

Deferred revenue - less current portion

1,785

1,602

Warrant liability

7,063

3,040

Deferred tax liability

17,307

17,494

Contingent consideration - less current portion

45,730

42,530

Term loans, net

24,331

26,632

Finance lease liability - less current portion

3

147

Operating lease liability - less current portion

 

2,735

 

2,927

Total liabilities

 

130,249

 

125,682

 

 

Commitments and contingencies

 

 

Shareholders’ equity:

 

 

Common stock

 

6

 

6

Exchangeable shares

 

50,637

 

54,224

Additional paid in capital

 

398,286

 

380,881

Accumulated other comprehensive income (loss)

 

(55)

 

6

Treasury stock

(8,343)

(5,633)

Accumulated deficit

(155,747)

(122,719)

Total shareholders' equity

 

284,784

 

306,765

Total liabilities and shareholders’ equity

$

415,033

$

432,447

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

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Table of Contents

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(Amounts in thousands, except per share amounts)

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

2020

2021

2020

    

Revenues

$

16,257

$

12,587

$

43,833

$

35,027

Cost of revenues

 

5,914

 

4,620

 

15,872

 

13,541

Gross Profit

 

10,343

 

7,967

 

27,961

 

21,486

Operating expenses

Sales and marketing

4,351

3,875

11,620

12,396

General and administrative

6,281

4,667

17,062

16,607

Research and development

3,277

3,012

9,295

9,383

Amortization of intangible assets

3,668

3,683

10,911

10,998

Restructuring charges

2

3,666

Change in fair value of contingent consideration

1,235

3,599

29

Total operating expenses

18,812

15,239

52,487

53,079

Loss from operations

(8,469)

(7,272)

(24,526)

(31,593)

Other income (expense)

Interest expense, net

(789)

(441)

(2,501)

(1,113)

Loss from repurchase/issuance of shares

(5,333)

(1,390)

Change in fair value of warrant liability

(456)

807

(4,023)

3,104

Gain on extinguishment of debt

3,210

Other income (loss), net

90

(696)

(9)

437

Total other income (expense), net

(1,155)

(330)

(8,656)

1,038

Loss before income taxes

(9,624)

(7,602)

(33,182)

(30,555)

Benefit from income taxes

93

384

154

2,068

Net loss

(9,531)

(7,218)

(33,028)

(28,487)

Net loss per share, basic and diluted

$

(0.17)

$

(0.13)

$

(0.58)

$

(0.53)

Weighted average common shares outstanding, basic and diluted

57,536

53,842

56,960

53,301

Net loss

$

(9,531)

$

(7,218)

$

(33,028)

$

(28,487)

Other comprehensive gain (loss):

Foreign currency translation gain (loss)

608

(783)

(61)

313

Total other comprehensive gain (loss)

608

(783)

(61)

313

Comprehensive loss

$

(8,923)

$

(8,001)

$

(33,089)

$

(28,174)

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

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GTY TECHNOLOGY HOLDINGS INC.

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

(Amounts in thousands, except share amounts)

Three Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common Stock

Exchangeable Shares

Paid in

Treasury

Accumulated

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Income (Loss)

    

Equity

Balance - June 30, 2021

57,512,747

$

6

5,614,121

$

50,637

$

394,950

$

(8,343)

$

(146,216)

$

(663)

$

290,371

Net loss

 

 

 

 

 

 

 

(9,531)

 

 

(9,531)

Foreign currency translation gain

608

608

Share-based compensation

3,336

3,336

Share cancellations

(48,820)

Vested and issued restricted stock units

102,778

Stock option exercises

4,341

Balance - September 30, 2021

 

57,571,046

$

6

 

5,614,121

$

50,637

$

398,286

$

(8,343)

$

(155,747)

$

(55)

$

284,784

Nine Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common Stock

Exchangeable Shares

Paid in

Treasury

Accumulated

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Income (Loss)

    

Equity

Balance - December 31, 2020

 

55,570,282

$

6

 

5,972,779

$

54,224

$

390,232

$

(5,633)

$

(129,030)

$

6

$

309,805

Adjustment for correction of an error - warrant liability

 

 

 

(9,351)

6,311

(3,040)

Balance - December 31, 2020, as adjusted

55,570,282

$

6

5,972,779

$

54,224

$

380,881

$

(5,633)

$

(122,719)

$

6

$

306,765

Net loss

 

 

 

 

 

 

 

(33,028)

 

 

(33,028)

Foreign currency translation loss

(61)

(61)

Share-based compensation

 

 

 

 

7,027

 

 

 

 

7,027

Issuance of common stock

935,633

6,790

6,790

Common stock repurchases

(525,060)

(2,710)

(2,710)

Share cancellations

(48,820)

Vested and issued restricted stock units

1,275,220

Stock option exercises

5,133

 

 

 

 

1

 

 

 

1

Common stock issued for exchangeable shares

358,658

 

 

(358,658)

 

(3,587)

 

3,587

 

 

 

Balance - September 30, 2021

 

57,571,046

$

6

 

5,614,121

$

50,637

$

398,286

$

(8,343)

$

(155,747)

$

(55)

$

284,784

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

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GTY TECHNOLOGY HOLDINGS INC.

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

(Amounts in thousands, except share amounts)

Three Months Ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Exchangeable Shares

Paid in

Treasury

Accumulated

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Income

    

Equity

Balance - June 30, 2020

 

53,804,687

$

5

5,091,800

$

40,918

$

382,232

$

(5,174)

(108,581)

$

1,466

$

310,866

Adjustment for correction of an error - warrant liability

(9,351)

6,477

(2,874)

Adjustment for correction of an error - shares issued for contingent consideration

550,388

10,000

10,000

Balance - June 30, 2020, as adjusted

53,804,687

5

5,642,188

50,918

372,881

(5,174)

(102,104)

1,466

317,992

Net loss

 

(7,218)

(7,218)

Foreign currency translation gain

(783)

(783)

Share-based compensation

2,024

2,024

Vested and issued restricted stock units

88,254

Common stock issued for exchangeable shares

(352,675)

352,675

3,527

(3,527)

Balance - September 30, 2020

 

53,540,266

$

5

 

5,994,863

$

54,445

$

371,378

$

(5,174)

$

(109,322)

$

683

$

312,015

Nine Months Ended September 30, 2020

Accumulated

Additional

Other

Total

Common Stock

Exchangeable Shares

Paid in

Treasury

Accumulated

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Stock

    

Deficit

    

Income

    

Equity

Balance - December 31, 2019

 

52,303,862

$

5

5,568,096

$

45,681

$

369,756

$

(5,174)

(85,015)

$

370

$

325,623

Adjustment for correction of an error - warrant liability

(9,351)

4,180

(5,171)

Balance - December 31, 2019, as adjusted

52,303,862

5

5,568,096

45,681

360,405

(5,174)

(80,835)

370

320,452

Net loss

 

(28,487)

(28,487)

Foreign currency translation gain

313

313

Share-based compensation

6,338

6,338

Share redemption (incremental shares issued)

334,254

2,056

2,056

Shares issued for contingent consideration

336,965

550,388

10,000

1,334

11,334

Vested and issued restricted stock units

 

433,484

Stock option exercises

 

8,080

9

9

Exchangeable shares converted to common stock

123,621

(123,621)

(1,236)

1,236

Balance - September 30, 2020

 

53,540,266

$

5

 

5,994,863

$

54,445

$

371,378

$

(5,174)

$

(109,322)

$

683

$

312,015

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

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

2020

Cash flows from operating activities:

 

  

  

Net loss

$

(33,028)

$

(28,487)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation of property and equipment

 

764

 

439

Amortization of intangible assets

10,911

10,998

Amortization of right of use assets

1,354

1,107

Share-based compensation

7,027

6,338

Deferred income tax benefit

(154)

(2,068)

Loss on issuance/repurchase of shares

5,333

1,390

Change in fair value of warrant liability

4,023

(3,104)

Amortization of deferred debt issuance costs

648

395

Accrual of paid in kind interest

262

Gain on extinguishment of debt

(3,210)

Bad debt expense

31

90

Loss on disposal of fixed assets

12

Change in fair value of contingent consideration

3,599

29

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(1,118)

 

(1,387)

Prepaid expenses and other assets

 

(1,600)

 

(1,564)

Accounts payable and accrued liabilities

 

(1,454)

 

(1,212)

Deferred revenue and other liabilities

2,868

4,708

Operating lease liabilities

 

(891)

 

(1,202)

Net cash used in operating activities

 

(4,623)

 

(13,530)

 

  

 

  

Cash flows from investing activities:

 

  

 

  

Capital expenditures

(203)

(2,850)

Net cash used in investing activities

 

(203)

 

(2,850)

 

 

  

Cash flows from financing activities:

 

  

 

  

Proceeds from borrowings, net of issuance costs

 

 

14,543

Contingent consideration payments

(825)

(27)

Stock options exercises

1

9

Common stock repurchases

(8,043)

Proceeds from issuance of common stock, net of costs

6,790

Proceeds from disposal of fixed assets

6

30

Repayments of finance lease liabilities

 

(530)

 

(419)

Net cash provided by (used in) financing activities

 

(2,601)

 

14,136

 

  

 

  

Effect of foreign currency on cash

 

(46)

 

88

 

 

Net change in cash and cash equivalents

(7,473)

(2,156)

Cash and cash equivalents, beginning of period

 

22,800

 

8,374

Cash and cash equivalents, end of period

$

15,327

$

6,218

 

  

 

  

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

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOWS DISCLOSURE

(Amounts in thousands)

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

2021

2020

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

1,556

$

566

Cash paid for income taxes

$

387

$

42

Noncash Investing and Financing Activities:

Exchangeable shares issued for contingent consideration

$

$

10,000

Share redemption (incremental shares issued)

$

$

2,056

Purchases of property and equipment included in accounts payable

$

$

37

Shares issued for contingent consideration

$

$

1,334

Exchangeable shares converted to common stock

$

3,587

$

1,236

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

8

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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. and its subsidiaries (“GTY” or the “Company”) 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 Company is headquartered in Boston, Massachusetts and has other offices in the United States and Canada.  The following is a brief description of the Company’s primary subsidiaries and their businesses.

Bonfire, a Procurement Business

Bonfire Interactive Ltd. (“Bonfire” or “Procurement”) was incorporated on March 5, 2012 under the laws of the Province of Ontario. Bonfire is a provider of strategic sourcing and procurement software, serving customers in government, the broader public sector, and various highly regulated commercial vertical markets. Bonfire offers customers and their sourcing professionals a modern software-as-a-service (“SaaS”) application that helps find, engage, evaluate, negotiate and award vendor and supplier contracts. Bonfire delivers workflow automation, data collection and analysis, and collaboration to drive cost savings, compliance, and strategic outcomes. All of Bonfire’s applications are delivered as a SaaS offering, and Bonfire offers implementation and premium support services.

CityBase, a Payments Business

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

eCivis, a Grants Management Business

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

Open Counter, a Permitting Business

Open Counter Enterprises Inc. (“Open Counter” or “Permitting”), a Delaware corporation headquartered in Boston, Massachusetts, 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 provides professional services related to software implementation.

Questica, a Budget Business

Questica Software Inc. (“Questica” and, collectively with Sherpa, “Budget”) is an Ontario corporation organized in 1998 and headquartered in Burlington, Ontario, Canada.  Questica designs and develops budgeting software that supports the unique requirements of the public sector. The Questica suite of products are part of a comprehensive web-based budgeting preparation, performance, management and data visualization solution that enables public sector and non-profit organizations to improve and shorten their budgeting cycles.

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Sherpa, a Budget Business

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

Note 2. Restatement of Previously Issued Financial Statements

On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission together issued a “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”), concluding that SPAC warrants may require classification as a liability rather than equity. The SEC Statement discussed “certain features of warrants issued in SPAC transactions” that “may be common across all entities”. It focused in part on provisions in warrant agreements for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder, and specifically whether the warrant holder is an input into the pricing of a fixed-for-fixed option on equity shares. According to the SEC Staff Statement, if the warrant holder is not an input into such pricing, these provisions would preclude the warrant from being classified in equity and thus require classification as a liability. As a result of the SEC Statement, the Company reevaluated the accounting treatment of the public warrants and private warrants issued in connection with its initial public offering and previously recorded as equity on the Company’s consolidated balance sheet. The Company’s public warrants were correctly classified as equity. Because the Company’s private warrants do not contain a provision whereby the Company can call the warrants, however, the private warrants should have been recorded at fair value as a liability in the Company’s consolidated balance sheet. The Company assessed this error and determined it was not material to previously issued financial statements. Accordingly, the Company has revised, rather than restated, its previously issued 2020 quarterly and annual financial statements in the Company’s filings for 2021 on Forms 10-Q and 10-K filings.  Additionally, the historical quarterly and annual financial statements prior to the business combination were not restated due to the change in accounting as we believe the information is no longer relevant to investors.  

The following tables present the effect of the revision for the financial statement line items adjusted in the affected periods:

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended September 30, 2020

As Previously Reported

Adjustments

As Revised

Change in fair value of warrant liability

$

$

(807)

$

(807)

Net loss

$

8,025

$

(807)

$

7,218

Comprehensive loss

$

8,808

$

(807)

$

8,001

Net loss per share, basic and diluted

$

(0.15)

$

0.02

$

(0.13)

Nine Months Ended September 30, 2020

As Previously Reported

Adjustments

As Revised

Change in fair value of warrant liability

$

$

(3,104)

$

(3,104)

Net loss

$

31,591

$

(3,104)

$

28,487

Comprehensive loss

$

31,278

$

(3,104)

$

28,174

Net loss per share, basic and diluted

$

(0.59)

$

0.06

$

(0.53)

10

Table of Contents

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2020

As Previously Reported

Adjustments

As Revised

Net loss

$

31,591

$

(3,104)

$

28,487

Change in fair value of warrant liability

$

$

(3,104)

$

(3,104)

Condensed Consolidated Balance Sheet

As of December 31, 2020

As Previously Reported

Adjustments

As Revised

Warrant liability

$

$

3,040

$

3,040

Additional paid in capital

$

390,232

$

(9,351)

$

380,881

Accumulated deficit

$

(129,030)

$

6,311

$

(122,719)

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 19, 2021. Certain reclassifications have been made to conform to current period presentation.

Principles of Consolidation

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

Use of Estimates

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

COVID-19 Update

In December 2019, the emergence of a novel coronavirus, or COVID-19, was reported and in March 2020, the World Health Organization, or WHO, characterized COVID-19 as a pandemic.  The broader implications of the global emergence of COVID-19 on the Company’s business, operating results, and overall financial performance continue to remain uncertain and they depend on certain developments, including the duration and spread of the outbreak and variants, vaccination rates, impact on the Company’s customers and its sales cycles, impact on its partners or employees, and impact

11

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

on the economic environment and financial markets, all of which are uncertain and cannot be predicted.  Since March 2020, the Company saw certain new and existing customers halt or decrease investment in infrastructure and, although conditions have improved, the Company expects that certain of its current and potential customers will continue to take actions to reduce operating expenses and moderate cash flows, including by delaying sales and requesting extended billing and payment terms. The Company will continue to actively monitor the situation and may take further actions that alter its business operations, as may be required by federal, state, or local authorities, or that the Company determines are in the best interests of its employees, customers, partners, suppliers, and stockholders.

Significant Accounting Policies

 

There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SEC on February 19, 2021 aside from those described in Note 2.

Fair Value

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

Level 1 — uses quoted prices in active markets for identical assets or liabilities.
Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

The Company’s only material financial instruments carried at fair value as of September 30, 2021 and December 31, 2020, with changes in fair value flowing through current earnings, consist of contingent consideration liabilities recorded in conjunction with business combinations and the fair value of its warrant liabilities are as follows:

Fair Value Measurement at

Reporting Date Using

    

    

Quoted Prices in

    

Significant

    

Active Markets

Other

Significant

Balance as of

for Identical

Observable

Unobservable

September 30, 

Assets

Inputs

Inputs

2021

(Level 1)

(Level 2) 

(Level 3)

Contingent consideration – current

$

317

$

$

$

317

Contingent consideration – long term

 

45,730

 

 

 

45,730

Warrant liability

7,063

7,063

Total liabilities measured at fair value

$

53,110

$

$

$

53,110

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Fair Value Measurement at

Reporting Date Using

    

    

Quoted Prices in

    

Significant

    

Active Markets

Other

Significant

Balance as of

for Identical

Observable

Unobservable

December 31, 

Assets

Inputs

Inputs

2020

(Level 1)

(Level 2) 

(Level 3)

Contingent consideration – current

$

743

$

$

$

743

Contingent consideration – long term

 

42,530

 

 

 

42,530

Warrant liability

3,040

3,040

Total liabilities measured at fair value

$

46,313

$

$

$

46,313

There were no transfers made among the three levels in the fair value hierarchy during the three and nine months ended September 30, 2021.

The following tables present 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 contingent consideration liabilities measured at fair value from December 31, 2020 to September 30, 2021 were as follows:

Contingent consideration – December 31, 2020

    

$

43,273

Change in fair value of contingent consideration

 

3,599

Payments of contingent consideration

(825)

Contingent consideration – September 30, 2021

$

46,047

On February 19, 2019, the Company consummated several acquisitions (collectively, the “Acquisition”), pursuant to which it acquired each of Bonfire, CityBase, eCivis , Open Counter, Questica and Sherpa (together with Bonfire, CityBase, eCivis, Open Counter and Questica, the “Acquired Companies”).

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 fair values of the contingent consideration were calculated through the use of either Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements for each of the Acquired Companies. The analyses utilized the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, were further discounted by a credit spread assumption to account for credit risk. The contingent consideration is revalued to fair value each period, and any increase or decrease is recorded in operating income (loss). The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

13

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Changes in the warrant liability measured at fair value from December 31, 2020 to September 30, 2021 were as follows:

Warrant liability – December 31, 2020

$

3,040

Change in fair value of warrant liability

 

4,023

Warrant liability – September 30, 2021

$

7,063

The warrant liability was estimated using a Black-Scholes model derived from a Monte Carlo simulation of the Company’s outstanding public warrants.  These inputs were primarily derived from the implied volatility of the traded public warrant price.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and term loans 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.

Disaggregation of Revenues

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2021

2020

2021

  

2020

Subscriptions, support and maintenance

$

11,649

$

8,986

$

33,147

  

$

25,144

Professional services

 

3,245

 

2,903

 

9,064

  

 

8,530

License

 

112

 

674

 

256

  

 

1,300

Asset sales

 

1,251

 

24

 

1,366

  

 

53

Total revenues

$

16,257

$

12,587

$

43,833

  

$

35,027

Revenues

Subscription, support and maintenance. The Company delivers its solutions primarily as a subscription service that provides customers with access to SaaS 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, as the service is made available by 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 recognizes revenues on a straight-line basis over the term of the agreement.

The Company’s 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 support or maintenance pertaining to license sales. Revenues from kiosk rentals and support are recognized on a straight-line basis over the support period.

14

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Revenues from subscription, support and maintenance comprised approximately 72% and 71% of total revenues for the three months ended September 30, 2021 and 2020 and 76% and 72% for the nine months ended September 30, 2021 and 2020, respectively.

Professional services.    The Company’s professional services contracts generate revenues on a time and materials or fixed fee 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. Training revenues are recognized as the services are performed. Revenues from professional services comprised approximately 20% and 23% of total revenues for the three months ended September 30, 2021 and 2020 and 21% and 24% for the nine months ended September 30, 2021 and 2020, respectively.

License. Revenues from distinct licensed software 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 less than 1% and 5% of total revenues for the three months ended September 30, 2021 and 2020 and approximately less than 1% and 4% for the nine months ended September 30, 2021 and 2020, respectively.

Asset sales. Revenues from asset sales are recognized when the asset, typically a kiosk, has been received by the customer 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 comprised approximately 8% and less than 1% of total revenues for the three months ended September 30, 2021 and 2020 and approximately 3% and less than 1% for the nine months ended September 30, 2021 and 2020, respectively.

Restructuring Charges

On March 30, 2020, the Company implemented a global restructuring plan which resulted in an approximate 10% reduction of the Company’s workforce.  This action was intended to streamline the Company’s operational reporting and reduce operating cash outflows.  The Company recorded pre-tax restructuring charges of approximately $3.7 million which is comprised of one-time employee termination benefits paid over a weighted-average period of approximately 10 months.  The final termination payment occurred in March 2021.  

Net Loss per Share

Net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed similarly to basic net income per share of common stock 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 three and nine months ended September 30, 2021 and 2020, diluted and basic loss per share are the same.

Securities that could potentially dilute net loss per share in the future that were not included in the computation of diluted loss per share at September 30, 2021 and 2020 are as follows:

2021

2020

Warrants to purchase common stock

    

27,093,334

27,093,334

Unvested restricted stock units

 

3,883,241

2,965,861

Options to purchase common stock

 

240,421

249,566

Total

 

31,216,996

30,308,761

15

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Income Taxes

In determining the quarterly benefit from income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss, adjusted for discrete items arising in that quarter.  The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21% as a result of state taxes, foreign taxes and changes in the Company’s valuation allowance for domestic income taxes.  For the three and nine months ended September 30, 2021 and 2020, the Company recorded a $0.1 million, $0.4 million, $0.2 million, and $2.1 million benefit from income taxes, respectively.  

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements.  The standard removes, modifies, and adds certain disclosure requirements.  The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2020, the Company adopted ASU 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 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 Accounting Standards Codification (“ASC”) 350-40 – Internal Use Software, in order to determine which costs to capitalize and recognize as an asset and which costs to expense.  The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes.   ASU 2019-12 simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for the Company in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

16

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Note 4. Intangible Assets

The Company recognized goodwill and certain identifiable intangible assets in connection with business combinations. Identifiable intangible assets consist of the following as of September 30, 2021 and December 31, 2020:

September 30, 2021

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Patents / Developed Technology

$

60,084

$

(19,617)

$

40,467

Trade Names / Trademarks

16,348

(4,431)

11,917

Customer Relationships

51,003

(13,341)

37,662

Non-Compete Agreements

1,162

(1,012)

150

Total Intangibles

$

128,597

$

(38,401)

$

90,196

December 31, 2020

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Patents / Developed Technology

$

60,084

$

(14,026)

$

46,058

Trade Names / Trademarks

16,348

(3,227)

13,121

Customer Relationships

51,003

(9,514)

41,489

Non-Compete Agreements

1,162

(723)

439

Total Intangibles

$

128,597

$

(27,490)

$

101,107

Amortization expense recognized by the Company related to intangible assets was $3.7 million for each of the three months ended September 30, 2021 and September 30, 2020 and was $10.9 million and $11.0 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

The estimated aggregate future amortization expense for intangible assets is as follows:

Three months ending December 31, 2021

 

3,700

Year ending December 31, 2022

 

14,276

Year ending December 31, 2023

 

14,224

Year ending December 31, 2024

 

14,263

Year ending December 31, 2025

14,224

Thereafter

 

29,509

$

90,196

Note 5. Leases

The Company leases office space under agreements classified as operating leases that expire on various dates through 2030. 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.

At September 30, 2021, the Company had operating right of use assets of approximately $2.1 million and operating lease liabilities of approximately $3.5 million, which are included in the condensed consolidated balance sheet.

17

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

The Company purchases kiosks that are funded by finance leases that expire on various dates through 2023 and are included in fixed assets.  At September 30, 2021, the Company had finance lease right of use assets of $0.8 million and finance lease liabilities of approximately $0.2 million.  

The following summarizes quantitative information about the Company’s leases:

Three Months Ended September 30, 2021:

Grants

    

Procurement

    

Payments

    

Management

Budget

    

Total

Finance lease cost

 

  

 

  

 

  

 

  

Amortization of right-of-use assets

$

$

58

$

$

$

58

Interest

14

14

Operating lease cost

115

115

30

109

369

Total lease cost

$

115

$

187

$

30

$

109

$

441

Nine Months Ended September 30, 2021:

    

Grants

Procurement

    

Payments

    

Management

Budget

    

Total

Finance lease cost

Amortization of right-of-use assets

$

$

126

$

$

$

126

Interest

66

66

Operating lease cost

345

345

81

326

1,097

Total lease cost

$

345

$

537

$

81

$

326

$

1,289

    

Grants

 

Procurement

    

Payments

    

Management

Budget

    

Total

Weighted-average remaining lease term – finance leases

N/A

0.6

N/A

N/A

0.6

Weighted-average remaining lease term – operating leases

 

0.7

 

0.2

1.3

 

9.0

 

6.8

Weighted-average discount rate – finance leases

N/A

13.0

%  

N/A

N/A

13.0

%

Weighted-average discount rate – operating leases

 

9.9

%  

 

10.0

%  

8.0

%  

 

4.8

%  

 

6.2

%

As of September 30, 2021, future minimum lease payments under non-cancellable leases are as follows:

    

Grants

Operating

Finance

Procurement

    

Payments

    

Management

Budget

    

Leases

 

Leases

Three months ending December 31, 2021

$

119

$

113

$

30

$

97

$

359

$

108

Year Ending December 31, 2022

 

245

123

 

426

 

794

157

Year Ending December 31, 2023

 

10

 

380

 

390

Year Ending December 31, 2024

 

 

364

 

364

Year Ending December 31, 2025

413

413

Thereafter

 

 

2,088

 

2,088

Total

$

364

$

113

$

163

$

3,768

$

4,408

$

265

Less present value discount

 

(22)

(30)

(9)

(813)

(874)

(16)

Present value of lease liabilities

$

342

$

83

$

154

$

2,955

$

3,534

$

249

18

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Note 6. Term Loans

Credit Facility

On February 14, 2020, the Company entered into an unsecured term loan credit facility (“February 2020 Credit Facility”) that provided for borrowing of term loans in an aggregate principal amount of $12.0 million.  The credit facility had a maturity date of twelve months from the borrowing date of the term loans.  On the closing date, the Company fully drew on the credit facility net of deferred issuance costs of $0.7 million.  The $0.7 million of deferred issuance costs included $0.4 million of fees to be applied against interest and $0.3 million of other issuance costs.  Amounts outstanding under the credit facility bore interest from the date the term loans were first made until the last day of the fiscal month immediately following the six-month anniversary of such initial borrowing date at a rate per annum equal to twelve percent.  Commencing on the first day of each fiscal month thereafter, the interest rate increased by one percent per annum until the termination date.  The February 2020 Credit Facility was terminated on November 13, 2020 and $0.2 million of unamortized deferred issuance costs were expensed and included in other income, net.

On November 13, 2020, the Company entered into a senior secured term loan facility (“November 2020 Credit Facility”) that provides for borrowing of term loans in an aggregate principal amount of $25,000,000. The November 2020 Credit Facility has a maturity date of 30 months from the borrowing of the term loans. On the closing date, the Company fully drew on the November 2020 Credit Facility and replaced the February 2020 Credit Facility. Amounts outstanding under the November 2020 Credit Facility accrue interest at a rate of eight percent plus LIBOR and two percent payment-in-kind (“PIK”) interest.  The November 2020 Credit Facility is supported by a security interest in the assets of the Company and includes certain financial covenants pertaining to annual recurring revenue, revenue, and cash.  As of September 30, 2021, the Company was compliant with all financial covenants.

For the three and nine months ended September 30, 2021 and 2020, the Company recognized $0.9 million, $0.4 million, $2.6 million, and $1.0 million of interest expense, including amortization of deferred issuance costs, respectively, under the February 2020 and November 2020 Credit Facilities.  At September 30, 2021, the Company had accrued approximately $0.3 million of accrued cash interest and $0.5 million of PIK interest.

The Company’s term loan is summarized as follows:

November 2020
Credit Facility

Principal

$ 25,000

Payment-in-kind ("PIK") accrued interest

465

Unamortized deferred issuance costs

(1,134)

Term loans, net

$ 24,331

Maturity date

May 2023

Interest rate

8% + LIBOR

PIK interest rate

2%

Paycheck Protection Plan Loans (PPP Loans)

In April and May 2020, the Company’s subsidiaries CityBase, eCivis, and Sherpa received $2.0 million, $0.9 million and $0.2 million, respectively, in loan proceeds from the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration of the United States government.  This program was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was created to provide fast and direct economic assistance for American workers, families, small businesses, and preserves jobs for American industries.  The Company

19

Table of Contents

NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

used the funds to support the compensation expenses related to its U.S. employees.  These loans mature two years from the date of issuance and accrue interest at a rate of one percent per annum, and the Company accounted for these loans in accordance with ASC 470.  During the nine months ended September 30, 2021, the Company recognized $3.2 million in gains on extinguishment of debt associated with the forgiveness of these loans.  As of September 30, 2021, all outstanding loans under the PPP had been forgiven.

Note 7. Commitments and Contingencies

Legal Proceedings

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

Indemnification

Additionally, 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 that 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 that the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements.

As of September 30, 2021 and December 31, 2020, the Company has not accrued a liability for any legal proceedings, claims or indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with them is not probable or reasonably estimable.

Note 8. Shareholders’ Equity

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

On November 25, 2020, the Company entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“B. Riley”) and Needham & Company (“Needham” and together with B. Riley, the “Sales Agents”) with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $10.0 million through B. Riley and Needham as its sales agents. The issuance and sale, if any, of shares of common stock by the Company under the At Market Sales Agreement will be made pursuant to the Company’s effective registration statement on Form S-3.  During the three months ended March 31, 2021, the Company sold 935,633 of common shares for $6.8 million in proceeds.

During the three months ended March 31, 2021, the Company issued 358,658 of common shares for the same number of exchangeable shares to the former shareholders of Questica and Bonfire.

On August 25, 2021, the Company instructed its current transfer agent to cancel 48,820 common shares erroneously designated to be issued to a former eCivis shareholder.  The former eCivis shareholder received cash consideration instead of shares as part of the Acquisition, and the Company’s previous transfer agent failed to cancel these shares.

20

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Share Redemptions

Under the agreements with eCivis, the Company acquired eCivis for aggregate consideration of approximately $14.0 million in cash and 2,883,433 shares of Company common stock, including 703,631 shares of the Company’s common stock which are redeemable for cash at any time in the sole discretion of the Company for a price of $10.00 per share (the “Redeemable Shares”).  Upon redemption of the Redeemable Shares, the Company must simultaneously redeem additional shares from the holder equal to 40% of the number of Redeemable Shares being redeemed (the “Additional Shares”) at $10 per share.  If the Redeemable Shares were not redeemed by February 12, 2020 and February 12, 2021, the Company was required to issue additional shares, as calculated based on the number of outstanding Redeemable Shares. In June 2019, 178,571 Redeemable Shares and 71,428 Additional Shares were redeemed and the Company recorded a $0.8 million loss.  During February 2020, the Company issued 334,254 Additional Shares and recorded a $2.1 million loss.  The remaining 525,060 shares of common stock were redeemed for a total of $8.0 million and the Company recorded a $5.3 million loss during the three months ended March 31, 2021.

Preferred Shares – GTY is authorized to issue 25,000,000 preferred shares with a par value of $0.0001 per share. As of September 30, 2021 and December 31, 2020, there were no preferred shares issued or outstanding.

Warrants

At September 30, 2021 and December 31, 2020, there were a total of 27,093,334 warrants outstanding including 18,400,000 public warrants and 8,693,334 private warrants. The warrants were originally sold as part of the units offered in the Company’s initial public offering and expire five years from the date of the Acquisition or February 2024. 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 public 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 private warrants are not callable for redemption and are marked to market and included in warrant liabilities with non-cash fair value adjustments recorded into earnings during each reporting period.

Note 9. Share-Based Compensation

Stock Options

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

21

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

A summary of stock option activity is as follows:

    

    

    

Weighted

    

Average

Weighted

Remaining

Average

Contractual

Total

Number of

Exercise

Life (in

Intrinsic

Shares

Price

years)

Value

Outstanding as of December 31, 2020

 

245,904

$

2.26

 

7.0

$

1,130

Granted

 

 

 

 

Exercised

 

(5,133)

1.16

Forfeited/expired

 

(350)

1.16

Outstanding as of September 30, 2021

 

240,421

$

2.28

 

6.2

$

1,099

Options vested and exercisable

 

218,133

$

2.28

6.2

$

998

For the three months ended September 30, 2021 and 2020, the Company recorded approximately less than $0.1 million and $0.1 million, respectively, of share-based compensation expense related to the options. As of September 30, 2021, the Company has less than $0.1 million of unrecognized share-based compensation cost to be recognized over 0.4 years.

Restricted Stock Units

Subsequent to the Acquisition, the Company adopted a plan to issue restricted stock units (“RSUs”) to employees as annual performance awards.  RSUs may vest in ratable annual installments over either two or four years, as applicable, from the date, or RSUs may 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.

A summary of the Company's RSU’s and related information is as follows:

    

    

Weighted Average

Number of Units

Grant Price

Unvested as of December 31, 2020

 

3,280,290

$

4.94

Granted

 

2,017,209

6.46

Vested

(1,064,660)

4.82

Forfeited/expired

 

(349,598)

5.35

Unvested as of September 30, 2021

 

3,883,241

$

5.72

For the three months ended September 30, 2021 and 2020, the Company recorded approximately $3.3 million and $1.9 million, respectively, of share-based compensation expense related to the RSUs. As of September 30, 2021, the Company had unrecognized share-based compensation expense related to all unvested RSUs of approximately $14.9 million. The weighted average remaining contractual term of unvested RSUs is approximately 1.0 year at September 30, 2021.  947,276 of the unvested RSUs contain performance conditions subject to achieving segment specific revenue and profitability metrics.  

22

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Note 10. Segment Reporting

The Company conducts its business through the following five operating segments: Procurement, Payments, Grants Management, Permitting, and Budget.

The accounting policies of the operating segments are the same as those described in Note 3. The following provides operating information about the Company’s reportable segments for the periods presented:

    

Corporate

    

Procurement

    

Payments

    

Grants Management

    

Permitting

    

Budget

    

Total

Three Months Ended September 30, 2021

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Total revenue

$

2,690

4,172

1,925

720

6,750

$

16,257

Cost of revenues

 

516

2,245

895

170

2,088

 

5,914

Income (loss) from operations

 

(2,088)

(687)

(3,865)

(1,296)

(424)

(109)

 

(8,469)

Amortization of intangible assets

666

1,386

326

302

988

3,668

Depreciation expense

1

44

87

9

9

106

256

Interest income (expense), net

(863)

74

(789)

Benefit from (provision for) income taxes

93

93

Three Months Ended September 30, 2020

 

  

Total revenue

$

2,100

1,903

1,878

669

6,037

$

12,587

Cost of revenues

 

369

1,289

821

143

1,998

 

4,620

Income (loss) from operations

 

(1,421)

(875)

(4,043)

(814)

(473)

354

 

(7,272)

Amortization of intangible assets

666

1,385

330

303

999

3,683

Depreciation expense

45

57

24

4

96

226

Interest income (expense), net

(414)

(24)

(2)

(1)

(441)

Benefit from (provision for) income taxes

227

237

132

(212)

384

Nine Months Ended September 30, 2021

 

  

Total revenue

$

7,791

9,220

5,509

2,058

19,255

$

43,833

Cost of revenues

 

1,481

5,738

2,190

492

5,971

 

15,872

Income (loss) from operations

 

(5,934)

(2,087)

(13,258)

(3,107)

(1,294)

1,154

 

(24,526)

Amortization of intangible assets

1,976

4,111

976

901

2,947

10,911

Depreciation expense

138

267

26

15

318

764

Interest income (expense), net

(2,562)

1

54

6

(2,501)

Benefit from (provision for) income taxes

(5)

159

154

 

 

  

Nine Months Ended September 30, 2020

 

 

  

Total revenue

$

5,503

5,957

4,831

1,907

16,829

$

35,027

Cost of revenues

 

1,120

4,419

2,274

427

5,301

 

13,541

Loss from operations

 

(8,354)

(4,026)

(14,506)

(3,240)

(1,846)

379

 

(31,593)

Amortization of intangible assets

1,992

4,119

980

904

3,003

10,998

Depreciation expense

91

190

32

5

121

439

Interest income (expense), net

(1,031)

2

(81)

(4)

1

(1,113)

Benefit from (provision for) income taxes

1,031

925

528

(416)

2,068

As of September 30, 2021

 

 

  

Goodwill

$

68,744

88,327

45,140

21,956

60,468

$

284,635

Assets

 

19,787

92,652

101,166

54,051

26,762

120,615

 

415,033

As of December 31, 2020

 

 

  

Goodwill

$

68,744

88,327

45,140

21,956

60,468

$

284,635

Assets

 

31,407

92,841

110,339

55,676

28,474

113,710

 

432,447

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

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NOTES TO CONDENSED CONSOLIDATED STATEMENTS

(UNAUDITED)

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

Note 11. Subsequent Events

The Company has evaluated events from September 30, 2021 through the date the financial statements were issued. There were no subsequent events that need disclosure.

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Item 2.   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 Annual Report on Form 10-K filed with the SEC on February 19, 2021. 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 that 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, 2020 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 (i) 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 (ii) 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 this 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, CityBase, eCivis, Open Counter, Questica and Sherpa. Through our operating subsidiaries, we serve some of the fastest growing segments in the government technology sector, specifically 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 generate any revenues. We recognized an opportunity to replace costly legacy on-premises software systems with scalable and efficient SaaS products. Our search led to the acquisition (the “Acquisition”) of Bonfire, CityBase, eCivis, Open Counter, Questica, and Sherpa on February 19, 2019.

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 continue to increase our customer base by leveraging our comprehensive product portfolio with our existing customer base, investing in direct sales to new customers, and using relationships with other companies that offer complementary products and services.

We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second and third quarters of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the public sector. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into in any given month of any quarter will generally come up for

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renewal at that same time in subsequent years. This seasonality is reflected in our invoicing and cash flows with our highest collections occurring in the second half of each calendar year.

Our variable consideration or usage fee revenue is also dependent on the payment patterns of our customers’ constituents.  Historically, a high percentage of these usage fees have been earned in the second and fourth quarters of each year.  This seasonality is also reflected in our revenues and cash flows during the respective periods.

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 that 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.

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. We also intend to invest in new and improved information technology solutions to support our business. 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 Relationships.    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 whether we succeed 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 deliver our solutions primarily as a subscription service and provide customers with access to SaaS-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. 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 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 support or maintenance pertaining to license sales. Revenues from kiosk rentals and support are recognized on a straight-line basis over the support period.

Revenues from subscription, support and maintenance comprised approximately 72% and 71% of total revenues for the three months ended September 30, 2021 and 2020 and 76% and 72% for the nine months ended September 30, 2021 and 2020, respectively.

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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 regarding whether the milestone will be achieved. Training revenues are recognized as the services are performed. Revenues from professional services comprised approximately 20% and 23% of total revenues for the three months ended September 30, 2021 and 2020 and 21% and 24% for the nine months ended September 30, 2021 and 2020, respectively.

License. Revenues from distinct licensed software are recognized upfront when that 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 less than 1% and 5% of total revenues for the three months ended September 30, 2021 and 2020 and approximately less than 1% and 4% for the nine months ended September 30, 2021 and 2020, respectively.

Asset sales. Revenues from asset sales are recognized when the asset, typically a kiosk, has been received by the customer 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 comprised approximately 8% and less than 1% of total revenues for the three months ended September 30, 2021 and 2020 and approximately 3% and less than 1% for the nine months ended September 30, 2021 and 2020, respectively.

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.

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 that 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 scale our business, but at a lower rate over time.

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Results of Operations

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Total revenues

Our total revenues were $16.3 million for the three months ended September 30, 2021. Excluding the $0.1 million impact of purchase accounting, our total non-GAAP revenues for the three months ended September 30, 2021 was $16.4 million compared to $12.7 million for the three months ended September 30, 2020, representing a 29% increase. 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. The change in revenues for each operating segment is provided in the following table (in thousands, except percentages):

 

Generally Accepted Accounting Principles (“GAAP”)

Non-GAAP

 

Total

Total

Increase /

Increase /

Total

Total

Increase /

Increase /

 

Revenues

Revenues

(Decrease)

(Decrease)

Revenues

Revenues

(Decrease)

(Decrease)

 

    

2021

    

2020

    

in Dollars

    

in %

    

2021

    

2020

    

in Dollars

    

in %

 

Procurement

 

$

2,690

$

2,100

$

590

28

%

$

2,690

$

2,100

$

590

28

%

Payments

4,172

1,903

2,269

119

%

4,277

2,031

2,246

111

%

Grants Management

1,925

1,878

47

3

%

1,925

1,878

47

3

%

Permitting

720

669

51

8

%

720

669

51

8

%

Budget

6,750

6,037

713

12

%

6,750

6,037

713

12

%

Total

 

$

16,257

$

12,587

$

3,670

29

%

$

16,362

$

12,715

$

3,647

29

%

A reconciliation of non-GAAP revenues and other non-GAAP financial measures is included in the section titled “Reconciliation of Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q.

Total cost of revenues

Our total cost of revenues for the three months ended September 30, 2021 increased primarily as a result of costs associated with our asset sales, headcount additions to support our revenue growth and share-based compensation resulting from the grant of restricted stock units. The change in cost of revenues for each operating segment is due to the following (in thousands, except percentages):

 

Total Cost of

Total Cost of

Increase /

Increase /

 

Revenues

Revenues

(Decrease)

(Decrease)

 

    

2021

    

2020

    

in Dollars

    

in %

 

Procurement

$

516

$

369

$

147

40

%

Payments

2,245

1,289

956

74

%

Grants Management

895

821

74

9

%

Permitting

170

143

27

19

%

Budget

2,088

1,998

90

5

%

Total

 

$

5,914

$

4,620

$

1,294

28

%

Procurement

Procurement’s total cost of revenues increased by $0.1 million or 40% primarily due to a $0.1 million or 45% increase in salaries and benefits driven by a 30% increase in average headcount from September 30, 2020 to September 30, 2021.

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Payments

Payments’ total cost of revenues increased by $1.0 million or 74% primarily due to a $0.6 million increase in costs associated with our asset sales, a $0.1 million increase in bank fees, a $0.1 million increase in costs associated with finance lease liabilities, and a $0.1 million increase in amortization of internal-use software.

Grants Management

Grants Management’s total cost of revenues increased by $0.1 million or 9% primarily due to a $0.3 million or 271% increase in the cost of third-party contractors offset by a $0.1 million or 60% decrease in royalty costs.

Permitting

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

Budget

Budget’s total cost of revenues increased by $0.1 million or 5% primarily due to a $0.3 million or 34% increase in salaries and wages and a $0.2 million or 104% increase in share-based compensation related to the issuance of restricted stock units, partially offset by a $0.3 million or 54% decrease in royalty costs.

Operating expenses (sales and marketing, general and administrative, and research and development)

Our operating expenses (including sales and marketing, general and administrative and research and development expenses) for the three months ended September 30, 2021 have increased due primarily to an increase in share-based compensation expense resulting from the issuance of restricted stock units, salaries and wages from an increase in headcount, reestablishment of business travel, and expansion of third-party costs to support operations. The change in operating expenses for each operating segment is due to the following (in thousands, except percentages):

 

Total

Total

 

Operating

Operating

Increase /

Increase /

 

Expenses

Expenses

(Decrease)

(Decrease)

 

    

2021

    

2020

    

in Dollars

    

in %

 

Procurement

 

$

2,195

$

1,940

$

255

13

%

Payments

3,558

3,271

287

9

%

Grants Management

1,998

1,541

457

30

%

Permitting

671

696

(25)

(4)

%

Budget

3,399

2,669

730

27

%

Corporate

2,088

1,437

651

45

%

Total

 

$

13,909

$

11,554

$

2,355

20

%

Procurement

Procurement’s total operating expense increased by $0.3 million or 13% due to a $0.1 million or 28% increase in research and development expenses, a $0.1 million or 14% increase in general and administration expenses, and a $0.1 million or 5% increase in sales and marketing expenses. The increase in research and development expenses is due to a $0.1 million or 16% increase in salaries and wages primarily driven by a 10% increase in average headcount from September 30, 2020 to September 30, 2021. The increase in general and administration expenses is primarily due to an increase in share-based compensation expense resulting from the issuance of restricted stock units.  The increase in sales and marketing costs was primarily due to an increase in third-party costs to support marketing.

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Payments

Payments’ total operating expense increased by $0.3 million or 9% primarily due to a $0.2 million increase in commissions and a $0.1 million increase in share-based compensation expense resulting from the issuance of restricted stock units.

Grants Management

Grants Management’s total operating expense increased by $0.5 million or 30% primarily due to a $0.4 million or 59% increase in sales and marketing costs and a $0.1 million or 19% increase in general and administrative expenses. The increase in sales and marketing costs was primarily due to a $0.2 million or 43% increase in salaries and benefits driven by a 36% increase in average headcount from September 30, 2020 to September 30, 2021, a $0.2 million increase in third-party commissions expense, and a $0.1 million increase in commissions. The increase in general and administration expenses is primarily due to a $0.1 million increase in share-based compensation expense resulting from the issuance of restricted stock units.

Permitting

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

Budget

Budget’s total operating expenses increased by $0.7 million or 27% primarily due to a $0.5 million or 53% increase in general and administrative expenses and a $0.2 million or 34% increase in research and development expenses.  The increase in general and administrative expenses was due to a $0.7 million increase in share-based compensation expense, partially offset by a $0.1 million or 30% decrease in salaries and wages and a $0.1 million or 16% decrease in third-party costs.  The increase in research and development expenses was due to a $0.1 million increase in salaries and wages and a $0.1 million or 114% increase in share-based compensation expense resulting from the issuance of restricted stock units.  The increase in salaries and wages was primarily driven by a declining U.S. dollar relative to the Canadian dollar.

Corporate

Corporate expenses are primarily comprised of outside services including legal, accounting and consulting fees, payroll and related expenses, corporate insurance, and share-based compensation.  Corporate expenses increased by $0.7 million or 45% due primarily to a $0.5 million or 237% increase in salaries and wages and a $0.2 million increase in share-based compensation expense.  The increase in salaries and wages was primarily due to a 200% increase in average headcount from September 30, 2020 to September 30, 2021.  

Other operating expenses

Amortization of intangible assets

Amortization of intangible assets consists of the amortization of finite lived intangibles resulting from the Acquisition as described in Note 4 of the notes to our condensed consolidated financial statements.

Acquisition costs

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.

Restructuring costs

On March 30, 2020, the Company implemented a global restructuring plan which resulted in an approximate 10% reduction of the Company’s workforce.  This action was intended to streamline the Company’s operational reporting and reduce operating cash outflows.  The Company recorded pre-tax restructuring charges of approximately $3.7 million which

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was comprised of one-time employee termination benefits paid over a weighted average period of approximately 10 months.  

Change in fair value of contingent consideration

The change in fair value of contingent consideration consists of any adjustments to the contingent consideration liability since the Acquisition.

Other income (expense)

Interest income (expense)

Interest income (expense) is primarily comprised of the investments held by GTY Corporate, offset by interest under the November 2020 Credit Facility.

Loss on repurchase/issuance of shares

Loss on repurchase/issuance of shares is comprised of the difference in fair value between the price in which shares are issued and the market value on the date of grant.

Change in fair value of warrant liability

Change in fair value between the current price of the Company’s warrants and the previously reported price.

Other income (loss)

Other income (loss) is comprised primarily of unrealized gains and losses associated with transactions in currencies that are not denominated in U.S. Dollars.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Total revenues

Our total revenues were $43.8 million for the nine months ended September 30, 2021. Excluding the $0.4 million impact of purchase accounting, our total non-GAAP revenues for the nine months ended September 30, 2021 was $44.2 million compared to $35.6 million for the nine months ended September 30, 2020, representing a 24% increase. 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. The change in revenues for each operating segment is provided in the following table (in thousands, except percentages):

Generally Accepted Accounting Principles (“GAAP”)

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total 

 

Total 

 

Increase /

Increase /

Total 

 

Total

Increase /

Increase /

    

Revenues

Revenues

    

(Decrease)

    

(Decrease) 

    

Revenues 

    

Revenues

    

(Decrease) 

    

(Decrease) 

 

2021

2020

 in Dollars

in %

2021

2020

in Dollars

in %

Procurement

$

7,791

$

5,503

$

2,288

 

42

%  

$

7,791

$

5,526

$

2,265

 

41

%

Payments

 

9,220

 

5,957

 

3,263

 

55

%  

 

9,551

 

6,352

 

3,199

 

50

%

Grants Management

 

5,509

 

4,831

 

678

 

14

%  

 

5,509

 

4,851

 

658

 

14

%

Permitting

 

2,058

 

1,907

 

151

 

8

%  

 

2,058

 

1,907

 

151

 

8

%

Budget

 

19,255

 

16,829

 

2,426

 

14

%  

 

19,255

 

16,980

 

2,275

 

13

%

Total

$

43,833

$

35,027

$

8,806

 

25

%  

$

44,164

$

35,616

$

8,548

 

24

%

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Total cost of revenues

Our total cost of revenues for the nine months ended September 30, 2021 increased primarily as a result of headcount additions to support our revenue growth and share-based compensation resulting from the grant of restricted stock units. The change in cost of revenues for each operating segment is due to the following (in thousands, except percentages):

`

    

    

    

    

 

 

Total Cost

 

Total Cost

 

 

 

of 

 

of 

Increase /

Increase /

 

Revenues

 

Revenues

(Decrease)

(Decrease)

2021

2020

in Dollars

 in %

Procurement

$

1,481

$

1,120

$

361

 

32

%

Payments

 

5,738

 

4,419

 

1,319

 

30

%

Grants Management

 

2,190

 

2,274

 

(84)

 

(4)

%

Permitting

 

492

 

427

 

65

 

15

%

Budget

 

5,971

 

5,301

 

670

 

13

%

Total

$

15,872

$

13,541

$

2,331

 

17

%

Procurement

Procurement’s total cost of revenues increased by $0.4 million or 32% primarily due to a $0.3 million or 31% increase in salaries and benefits and a $0.1 million increase in amortization of internal-use software. The increase in salaries and benefits was primarily driven by a declining U.S. dollar and a 13% increase in average headcount from September 30, 2020 to September 30, 2021.

Payments

Payments’ total cost of revenues increased by $1.3 million or 30% primarily due to a $0.7 million increase in costs associated with our asset sales, a $0.5 million increase in bank fees and a $0.2 million increase in amortization of internal-use software, partially offset by a $0.1 million decrease in costs associated with kiosk operations.

Grants Management

Grants Management’s total cost of revenues decreased by $0.1 million or 4% primarily due to a $0.2 million decrease in royalties, offset by a $0.1 million increase in share-based compensation expense associated with the issuance of restricted stock units.

Permitting

Permitting’s total cost of revenues increased by $0.1 million primarily due to a $0.1 million or 15% increase in salaries and wages due to a 20% increase in headcount from September 30, 2020 to September 30, 2021.

Budget

Budget’s total cost of revenues increased by $0.7 million or 13% primarily due to a $0.7 million or 24% increase in salaries and wages and a $0.4 million increase in share-based compensation expense, partially offset by a $0.5 million decrease in royalties. The increase in salaries and wages is primarily due to a 23% increase in average headcount from September 30, 2020 to September 30, 2021.

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Operating expenses (sales and marketing, general and administrative, and research and development)

Our operating expenses (including sales and marketing, general and administrative and research and development expenses) for the nine months ended September 30, 2021 have decreased due primarily to the restructuring plan implemented in March 2020. The change in operating expenses for each operating segment is due to the following (in thousands, except percentages):

 

 

Operating

Operating

Increase /

Increase /

 

Expenses

Expenses

(Decrease)

(Decrease)

 

    

2021

    

2020

    

in Dollars

    

in %

 

Procurement

$

6,420

$

6,259

$

161

 

3

%

Payments

 

9,429

 

11,526

 

(2,097)

 

(18)

%

Grants Management

 

5,435

 

4,816

 

619

 

13

%

Permitting

 

1,959

 

2,300

 

(341)

 

(15)

%

Budget

 

8,799

 

7,974

 

825

 

10

%

Corporate

 

5,935

 

5,511

 

424

 

8

%

Total

$

37,977

$

38,386

$

(409)

 

(1)

%

Procurement

Procurement’s total operating expense increased by $0.2 million or 3% primarily due to a $0.4 million or 33% increase in research and development expenses and a $0.2 million or 16% increase in general and administrative expenses, partially offset by a $0.4 million or 12% decrease in sales and marketing expenses.  The $0.4 million increase in research and development expenses was primarily driven by a $0.3 million decrease in internal-use software capitalization and a $0.1 million increase in share-based compensation resulting from the issuance of restricted stock units.  The $0.2 million increase in general and administrative expenses is due to a $0.1 million or 9% increase in salaries and wages and a $0.1 million increase in share-based compensation expense.  The increase in salaries and wages was driven by a 9% increase in average headcount from September 30, 2020 to September 30, 2021.  The $0.4 million decrease in sales and marketing expenses was due primarily to a $0.2 million or 8% decrease in salaries and wages and a $0.2 million decrease in share-based compensation expense.  The $0.2 million decrease in salaries and wages is due primarily to a 9% decrease in average headcount from September 30, 2020 to September 30, 2021.  

Payments

Payments’ total operating expense decreased by $2.1 million or 18% primarily due to a $1.0 million or 23% decrease in research and development expenses, a $0.8 million or 29% decrease in sales and marketing expenses and $0.3 million or 7% decrease in general and administrative expenses.  The $1.0 million decrease in research and development expenses is primarily due to a $0.8 million or 21% decrease in salaries and wages and a $0.2 million decrease in share-based compensation expense.  The decrease in salaries and wages was driven primarily by a 15% decrease in average headcount from September 30, 2020 to September 30, 2021.  The $0.8 million decrease in sales and marketing expenses is due to a $0.8 million decrease in share-based compensation expense.  The $0.3 million decrease in general and administrative expenses is primarily due to a $0.4 million decrease in share-based compensation expense.

Grants Management

Grants Management’s total operating expense increased by $0.6 million or 13% primarily due to a $0.7 million or 43% increase in sales and marketing costs and a $0.1 million or 9% increase in research and development expenses, partially offset by a $0.2 million or 11% decrease in general and administrative expense. The $0.7 million in increase in sales and marketing is mainly due to a $0.3 million increase in third-party commissions expense, a $0.3 million or 23% increase in salaries and a $0.2 million increase in commissions. The increase in research and development expenses is due primarily due to a $0.1 million or 6% increase in salaries and wages driven by a 3% increase in average headcount from September 30, 2020 to September 30, 2021. The $0.2 million decrease in general and administrative expenses is primarily due to a $0.2 million decrease in rent expense.

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Table of Contents

Permitting

Permitting’s total operating expenses decreased by $0.3 million or 15% primarily due a $0.2 million or 24% decrease in sales and marketing expenses and a $0.1 million or 34% decrease in general and administrative expenses. The $0.2 million decrease in sales and marketing is primarily due to a $0.2 million or 32% decrease in salaries and benefits driven by a 22% decrease in average headcount from September 30, 2020 to September 30, 2021.   The $0.1 million decrease in general and administrative costs is primarily due to a $0.1 million decrease in salaries and wages.

Budget

Budget’s total operating expenses increased by $0.8 million or 10% primarily due to a $0.5 million or 10% increase in general and administrative expenses, and a $0.3 million or 20% increase in research and development expenses. These increases are primarily due to an increase in share-based compensation expense resulting from the issuance of restricted stock units.

Corporate

Corporate expenses are primarily comprised of outside services including legal, accounting and consulting fees, payroll and related expenses, corporate insurance, and share-based compensation.  Corporate expenses increased by $0.4 million or 8% due primarily due to a $0.2 million increase in insurance expense and a $0.2 million or 22% increase in salaries and wages.  

Other operating expenses

Amortization of intangible assets

Amortization of intangible assets consists of the amortization of finite lived intangibles resulting from the Acquisition as described in Note 4 of the notes to our condensed consolidated financial statements.

Acquisition costs

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.

Restructuring costs

On March 30, 2020, the Company implemented a global restructuring plan which resulted in an approximate 10% reduction of the Company’s workforce.  This action was intended to streamline the Company’s operational reporting and reduce operating cash outflows.  The Company recorded pre-tax restructuring charges of approximately $3.7 million which was comprised of one-time employee termination benefits paid over a weighted average period of approximately 10 months.  

Change in fair value of contingent consideration

The change in fair value of contingent consideration consists of any adjustments to the contingent consideration liability since the Acquisition.

Other income (expense)

Interest income (expense)

Interest income (expense) is primarily comprised of the investments held by GTY Corporate, offset by interest under the November 2020 Credit Facility.

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Loss on repurchase/issuance of shares

Loss on repurchase/issuance of shares is comprised of the difference in fair value between the price in which shares are issued and the market value on the date of grant.

Change in fair value of warrant liability

Change in fair value between the current price of the Company’s warrants and the previously reported price.

Other income (loss)

Other income (loss) is comprised primarily of unrealized gains and losses associated with transactions in currencies that are not denominated in U.S. Dollars.

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 certain financial measures that have not been prepared in accordance with GAAP (“non-GAAP financial measures”), which include (i) non-GAAP revenues, (ii) non-GAAP gross profit and non-GAAP gross margin and (iii) non-GAAP loss from operations.

We use these non-GAAP financial measures internally in analyzing our financial results and believe that these metrics are 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 financial measures may differ from the items excluded from, or included in, similar non-GAAP financial measures used by other companies in the same industry. Non-GAAP financial measures 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 these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Non-GAAP Revenues. Non-GAAP revenues are defined as GAAP revenues adjusted for the impact of purchase accounting resulting from a company’s business combination which reduced its acquired contract liabilities to fair value. The Company believes that presenting non-GAAP revenues is useful to investors as it eliminates the impact of the purchase accounting adjustments to revenues to allow for a direct comparison between current and future periods.

Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is defined as GAAP gross profit adjusted for the impact of purchase accounting resulting from a company’s business combination and share-based compensation included in cost of revenues. Non-GAAP gross margin is defined as non-GAAP gross profit divided by non-GAAP revenues. The Company believes that presenting non-GAAP gross profit and margin is useful to investors as it eliminates the impact of the purchase accounting adjustments to allow for a direct comparison between periods.

Non-GAAP Loss from Operations. Non-GAAP loss from operations is defined as GAAP loss from operations adjusted for the impact of purchase accounting to revenues resulting from a company’s business combination, the amortization of acquired intangible assets, share-based compensation, acquisition related costs, goodwill impairment expense, restructuring charges and the change in fair value of contingent consideration. The Company believes that presenting non-GAAP loss from operations is useful to investors as it eliminates the impact of certain non-cash and acquisition related expenses to allow a direct comparison of loss from operations between all periods presented.

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Below is a reconciliation of non-GAAP revenues, non-GAAP gross profit and non-GAAP gross margin and non-GAAP loss from operations to their most directly comparable GAAP financial measures (in thousands, except percentages):

Three Months Ended

 

September 30, 

June 30

September 30, 

 

    

2021

    

2021

    

2020

 

Revenues

$

16,257

$

14,317

$

12,587

 

Purchase accounting adjustment to revenue

105

104

128

 

Non-GAAP Revenues

 

$

16,362

$

14,421

$

12,715

Gross Profit

 

$

10,343

$

9,101

$

7,967

Purchase accounting adjustment to revenue

105

104

128

Share-based compensation

447

363

225

Non-GAAP Gross Profit

 

$

10,895

$

9,568

$

8,320

Gross Margin

64

%

64

%

63

%

Non-GAAP Gross Margin

67

%

66

%

65

%

Loss from operations

 

$

(8,469)

$

(7,921)

$

(7,272)

Purchase accounting adjustment to revenue

105

104

128

Amortization of intangibles

3,668

3,644

3,683

Share-based compensation

3,336

1,868

2,024

Restructuring charges

2

Change in fair value of contingent consideration

1,235

1,250

Non-GAAP Loss from operations

 

$

(125)

$

(1,055)

$

(1,435)

Nine Months Ended September 30, 

 

    

2021

    

2020

 

Revenues

 

43,833

 

35,027

Purchase accounting adjustment to revenue

 

331

 

589

Non-GAAP Revenues

$

44,164

$

35,616

Gross Profit

 

27,961

21,486

Purchase accounting adjustment to revenue

 

331

589

Share-based compensation

1,102

575

Non-GAAP Gross Profit

$

29,394

$

22,650

Gross Margin

 

64

%  

 

61

%  

Non-GAAP Gross Margin

 

67

%  

 

64

%  

Loss from operations

$

(24,526)

$

(31,593)

Purchase accounting adjustment to revenue

 

331

 

589

Amortization of intangibles

 

10,911

 

10,998

Share-based compensation

 

7,027

 

6,338

Restructuring charges

3,666

Change in fair value of contingent consideration

 

3,599

 

29

Non-GAAP Loss from Operations

$

(2,658)

$

(9,973)

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Table of Contents

Below is a reconciliation of non-GAAP revenues to revenues by operating segment:

Three Months Ended September 30, 

Grants

Total

    

Procurement

    

Payments

    

Management

    

Permitting

    

Budget

    

Revenues

 

Revenues 2021

$

2,690

$

4,172

$

1,925

$

720

$

6,750

$

16,257

Purchase accounting adjustment to revenues

105

105

Non-GAAP Revenues 2021

$

2,690

$

4,277

$

1,925

$

720

$

6,750

$

16,362

 

Revenues 2020

$

2,100

$

1,903

$

1,878

$

669

$

6,037

$

12,587

Purchase accounting adjustment to revenues

 

 

128

 

 

 

128

Non-GAAP Revenues 2020

$

2,100

$

2,031

$

1,878

$

669

$

6,037

$

12,715

% change

 

28

%  

 

111

%  

 

3

%  

 

8

%  

 

12

%  

 

29

%

Nine Months Ended September 30, 

Grants

Total

    

Procurement

    

Payments

    

Management

    

Permitting

    

Budget

    

Revenues

 

Revenues 2021

$

7,791

$

9,220

$

5,509

$

2,058

$

19,255

$

43,833

Purchase accounting adjustment to revenues

331

331

Non-GAAP Revenues 2021

$

7,791

$

9,551

$

5,509

$

2,058

$

19,255

$

44,164

 

Revenues 2020

$

5,503

$

5,957

$

4,831

$

1,907

$

16,829

$

35,027

Purchase accounting adjustment to revenues

 

23

 

395

 

20

 

 

151

 

589

Non-GAAP Revenues 2020

$

5,526

$

6,352

$

4,851

$

1,907

$

16,980

$

35,616

% change

 

41

%  

 

50

%  

 

14

%  

 

8

%  

 

13

%  

 

24

%

Liquidity and Capital Resources

As of September 30, 2021, we had a cash balance of approximately $15.3 million. From the date of the Acquisition through  September 30, 2021, our liquidity needs have been satisfied through proceeds from the January–February 2020 private investment in public equity, or PIPE, transactions, proceeds from our initial public offering that were released in February 2019 from the trust account established in connection with such offering for the benefit of our shareholders, proceeds from our June 2019 registered direct offering, proceeds from our February 2020 and November 2020 credit facilities, proceeds from issuances of stock under our at-the-market offering program, and loan proceeds in April–May 2020 from the Paycheck Protection Program.

Our unaudited 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.

We are attempting to further expand our customer base, scale up production of various products; and increase revenues; 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 revenues. While we believe in the viability of our platforms, and in our ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect.

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Table of Contents

COVID-19 Update

In December 2019, the emergence of a novel coronavirus, or COVID-19, was reported and in March 2020, the World Health Organization, or WHO, characterized COVID-19 as a pandemic. We responded by immediately restricting non-essential travel and enabled work-from-home protocols. Shortly thereafter, and in line with guidance provided by government agencies and international organizations, we restricted all travel, mandated a work-from-home policy across our global workforce, and moved all in-person customer-facing events to virtual ones.

As a result of the pandemic, we saw certain new and existing customers since March 2020 halt, defer or decrease investment in infrastructure; other customers postpone the implementation of projects, thus causing delays in services revenue; and an impact on new business pipeline and large deals. Although conditions have improved, we expect that certain of our current and potential customers will continue to take actions to reduce operating expenses and moderate cash flows during the remainder of 2021, including by delaying sales and requesting extended billing and payment terms.

The broader implications of the global emergence of COVID-19 on our business, operating results, and overall financial performance, remain uncertain and they depend on certain developments, including the duration and spread of the outbreak, the emergence and prevalence of COVID-19 variants, vaccination rates, the impact on our customers and our sales cycles, impact on our partners or employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. We are conducting business as usual with certain continuing limitations to employee travel, employee work locations, and marketing events, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations, as may be required by evolving guidance from public health officials and federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders.

Historical Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated:

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

  

2020

  

Net cash used in operating activities

$

(4,623)

$

(13,530)

Net cash used in investing activities

$

(203)

$

(2,850)

Net cash provided by (used in) financing activities

$

(2,601)

$

14,136

Net Cash Used In Operating 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 nine months ended September 30, 2021, net cash used in operations was $4.6 million resulting from our net loss of $33.0 million and changes in operating assets and liabilities of $2.2 million, offset by net non-cash expenses of $30.6 million. The $30.6 million of non-cash expenses was comprised of $10.9 million of amortization of intangible assets acquired as a result of the Acquisition, $7.0 million from share-based compensation resulting from our issuance of stock options and restricted stock units, a $5.3 million loss associated with the redemption of common stock, a $4.0 million change in fair value of warrant liability, and a $3.6 million change in contingent consideration, offset by a $3.2 million gain on extinguishment of debt. The changes in operating assets and liabilities of $2.2 million was comprised primarily of a $1.6 million increase in prepaid expenses and other assets, a $1.5 million decrease in accounts payable and accrued liabilities, a $1.1 million increase in accounts receivable, and a $0.9 million decrease in operating lease liabilities, offset by a $2.9 million increase in deferred revenue.


For the nine months ended September 30, 2020, net cash used in operations was $13.5 million resulting from our net loss of $28.5 million and changes in operating assets and liabilities of $0.7 million, offset by net non-cash expenses of $15.6 million. The $15.6 million of non-cash expenses was comprised of $11.0 million of amortization of intangible assets

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Table of Contents

acquired as a result of the Acquisition, $6.3 million from share-based compensation resulting from our issuance of stock options and restricted stock units and a $1.4 million loss on issuance of shares, offset by $3.1 million change in fair value of warrant liability and $2.1 million of deferred tax benefits related to the tax and book basis difference on the amortization of intangible assets. The changes in operating assets and liabilities of $0.7 million was comprised primarily of a $1.4 million increase in accounts receivable, a $1.2 million decrease in accounts payable and a $1.6 million increase in prepaid expenses, offset by a $4.7 million increase in contract and other long-term liabilities.

Net Cash Used In Investing Activities

Our primary investing activities have consisted of capital expenditures.

For the nine months ended September 30, 2021, cash used in investing activities was $0.2 million resulting from capital expenditures.

For the nine months ended September 30, 2020, cash used in investing activities was $2.9 million resulting largely from $2.5 million of capital expenditures associated with lease improvements and furniture purchases at Questica’s new facility.

Net Cash Provided By (Used in) Financing Activities

For the nine months ended September 30, 2021, cash used in financing activities was $2.6 million primarily due to $8.0 million in redemptions of common shares, $0.8 million in contingent consideration payments, and $0.5 million in repayments of finance lease liabilities, offset by $6.8 million in proceeds from the issuance of common stock.


For the nine months ended September 30, 2020, cash provided by financing activities was $14.1 million primarily due to $11.3 million of proceeds from the issuance of our term loan, net of issuance costs and $3.2 million of proceeds from loans provided under the Payment Protection Program, offset by $0.4 million in repayments of finance lease obligations.

Critical Accounting Policies and Use of Estimates

See Note 3 of the notes to our unaudited 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. We have no guarantees or obligations other than those which arise out of normal business operations.

Contractual Obligations and Commitments

As of September 30, 2021, there were no significant changes to our contractual obligations from those presented as of December 31, 2020 in our Annual Report on Form 10-K filed with the SEC on February 19, 2021.

Item 3.   Quantitative and Qualitative Disclosures About Market Risks

During the three and nine months ended September 30, 2021, there were no material changes to our interest rate risk disclosures, market risk disclosures and foreign currency exchange rate risk disclosures reported in our Annual Report on Form 10-K filed with the SEC on February 19, 2021 for the year ended December 31, 2020.

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Table of Contents

Item 4.   Controls and Procedures

Evaluation of 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 Principal 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 three and nine months ended September 30, 2021, 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 Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective excluding the accounting for warrants as described in Note 2.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

During the nine months ended September 30, 2021 and in response to the SEC Statement on April 12, 2021, the Company has identified a material weakness associated with its accounting for warrants.  The Company inappropriately relied upon the broad consensus among special purpose acquisition companies that these warrants were subject to equity treatment under a fixed accounting model.  However, consistent with the SEC Statement, the Company revised its historical financial statements to account for the private warrants as liabilities.  The Company is in the process of implementing new policies to remediate the material weakness, mainly the adoption of new policies and procedures associated with the accounting of non-routine and complex transactions.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above.  Except as otherwise described herein, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Notwithstanding the identified material weaknesses, management has concluded that the consolidated financial statements included in this quarterly report on Form 10-Q present fairly, in all material respects, the Company's financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. generally accepted accounting principles (U.S. GAAP).

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

On March 19, 2021, the Company received a request from the Securities and Exchange Commission (the “SEC”) for documents relating to the Company’s business combination consummated on February 19, 2019 and related transactions, including those described in a Form 8-K filed by the Company on February 14, 2019.  The Company has cooperated in the SEC’s investigation and intends to cooperate with any additional requests it receives from the SEC.

Item 1A.Risk Factors

The reader should carefully consider, in connection with the other information in this Quarterly Report on Form 10-Q, the factors discussed in the section entitled “Risk Factors” of our 2020 Annual Report on Form 10-K.  These factors could cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.

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

None.

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Table of Contents

Item 6.Exhibits.

Exhibit Number

    

Description

3.1

Amended and Restated Bylaws of the Company (f/k/a GTY Govtech, Inc.) dated July 26, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 27, 2021).

4.1

Assignment and Acknowledgement among the Company, Continental Stock Transfer & Trust Company and  Broadridge Corporate Issuer Solutions, Inc. dated as of September 20, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2021).

4.2

Amendment to Warrant Agreement between the Company and Broadridge Corporate Issuer Solutions, Inc. dated as of September 20, 2021 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2021).

10.1*

Amended and Restated Employment Agreement dated July 1, 2021 between the Company and TJ Parass.(1)

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*

Inline XBRL Instance Document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101)

* Filed herewith.

**Furnished herewith.

(1) By mutual consent, the parties corrected a typographical error in this agreement. A corrected and complete copy of it is included as Exhibit 10.1 to this Form 10-Q.

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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 4th day of November, 2021.

GTY TECHNOLOGY HOLDINGS INC.

   

/s/ TJ Parass

Name:

TJ Parass

Title:

Chief Executive Officer

(Principal Executive Officer)

/s/ John Curran

Name:

John Curran

Title:

Chief Financial Officer

(Principal Financial Officer)

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