UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(~~MARK ONE)~~Mark One)

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

For the ~~quarter~~quarterly period ended September 30, ~~2019~~2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

~~For the transition period from~~to

Commission ~~file number:~~File Number 001-38789

~~PIVOTAL ACQUISITION CORP.~~KLDiscovery Inc.

(Exact Name of Registrant as Specified in ~~Its~~its Charter)

Delaware
~~Delaware~~		61-1898603
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~Incorporation or ~~organization)~~Organization)		(I.R.S. Employer Identification No.)
8201 Greensboro Drive Suite 300 McLean, VA	22102
(Address of Principal Executive Offices)	(Zip Code)

~~c/o Graubard Miller~~

~~The Chrysler Building~~

~~405 Lexington Avenue, 11th Floor~~

~~New York, New York 10174~~

~~(Address of principal executive offices)~~

~~(212)818-8800~~

~~(Issuer’s~~Registrant’s telephone ~~number)~~number, including area code: (703) 288-3380

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~Units, each consisting of one share of Class~~ N/A ~~common stock and one redeemable warrant~~	~~PVT.U~~ N/A	~~New York Stock Exchange~~
~~Class~~ N/A ~~common stock, par value $0.0001 per share~~	~~PVT~~	~~New York Stock Exchange~~
~~Redeemable warrants, exercisable for shares of Class A common stock at an exercise price of $11.50 per share~~	~~PVT WS~~	~~New York Stock Exchange~~

~~Check~~Indicate by check mark whether the ~~issuer~~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 ~~past~~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~~ YES ☒ No NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-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~~ YES ☒ No NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”,~~company,” and “emerging growth company” inRule 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~~Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). ~~Yes~~ YES ☐ NO ☒ ~~No ☐~~

As of November ~~14, 2019, 23,000,000 shares~~11, 2020, there were 42,529,017 of ~~Class A~~the registrant’s common stock, par value $0.0001 per share, ~~and 5,750,000 shares of Class B common stock, par value $0.0001 per share, were issued and outstanding, respectively.~~outstanding.

PART ~~I—FINANCIAL~~I – FINANCIAL INFORMATION

~~Pivotal Acquisition Corp.~~Item 1. Financial Statements

KLDiscovery Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

   September 30,
2019    December 31,
2018
   (unaudited)
ASSETS

Current Assets

Cash
   $ 477,134    $ 19,168
Prepaid expenses and other current assets
   118,884    —




Total Current Assets
   596,018    19,168
Deferred offering costs
   —      133,174
Marketable securities held in Trust Account
   233,279,783    —




Total Assets
   $ 233,875,801    $ 152,342




LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable and accrued expenses
   $ 305,845    $ 969
Income taxes payable
   555,319    —
Accrued offering costs
   —      2,500
Promissory note – related party
   —      125,000




Total Current Liabilities
   861,164    128,469
Deferred underwriting fee
   8,050,000    —




Total Liabilities
   8,911,164    128,469




Commitments

Class A Common Stock, subject to possible redemption, 21,752,975 and no shares at redemption value as of September 30, 2019 and December 31, 2018, respectively
   219,964,630    —
Stockholders’ Equity

Preferred Stock, $0.0001 par value; 1,000,000 authorized; none issued and outstanding
   —      —
Class A Common Stock, $0.0001 par value; 75,000,000 shares authorized; 1,247,025 and no shares issued and outstanding (excluding 21,752,975 and no shares subject to possible redemption) as of September 30, 2019 and December 31, 2018, respectively
   125    —
Class B Common Stock, $0.0001 par value; 10,000,000 shares authorized; 5,750,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018
   575    575
Additionalpaid-in capital
   3,293,092    24,425
Retained earnings (accumulated deficit)
   1,706,215    (1,127 )




Total Stockholders’ Equity
   5,000,007    23,873




TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   $ 233,875,801    $ 152,342

	September 30, 2020			December 31, 2019
	(unaudited)
Current assets
Cash and cash equivalents	$	43,838		$	43,407
Accounts receivable, net of allowance
for doubtful accounts of $7,805 and $7,486, respectively		86,095			96,994
Prepaid expenses		10,312			7,296
Other current assets		778			556
Total current assets		141,023			148,253
Property and equipment
Computer software and hardware		73,343			72,228
Leasehold improvements		27,493			26,963
Furniture, fixtures and other equipment		3,722			3,794
Accumulated depreciation		(76,780	)		(64,682	)
Property and equipment, net		27,778			38,303
Intangible assets, net		114,632			130,568
Goodwill		396,310			395,171
Other assets		2,611			2,617
Total assets	$	682,354		$	714,912
Current liabilities
Current portion of long-term debt, net	$	11,106		$	11,689
Accounts payable and accrued expense		35,964			31,270
Current portion of contingent consideration		677			340
Deferred revenue		4,018			4,851
Total current liabilities		51,765			48,150
Long-term debt, net		467,163			468,932
Contingent consideration		225			482
Deferred tax liabilities		6,712			6,294
Other liabilities		9,776			7,289
Total liabilities		535,641			531,147
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, shares authorized - 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019; shares issued and outstanding - 42,529,017 as of September 30, 2020 and December 31, 2019		4			4
Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of September 30, 2020 and December 31, 2019		-			-
Additional paid-in capital		384,504			381,952
Accumulated deficit		(245,649	)		(205,498	)
Accumulated other comprehensive income		7,854			7,307
Total stockholders' equity		146,713			183,765
Total liabilities and stockholders' equity	$	682,354		$	714,912

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

	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Revenues	$	72,301		$	78,169		$	214,953		$	231,527
Cost of revenues		37,738			42,018			111,472			118,937
Gross profit		34,563			36,151			103,481			112,590

Operating expenses
General and administrative		14,281			12,223			42,534			41,879
Research and development		1,828			1,533			5,134			4,455
Sales and marketing		9,155			12,043			29,460			36,212
Depreciation and amortization		9,234			9,525			27,135			29,243
Total operating expenses		34,498			35,324			104,263			111,789

Income (loss) from operations		65			827			(782	)		801

Other expenses
Other expense		11			(9	)		102			122
Interest expense		12,371			12,034			38,303			36,487
Loss before income taxes		(12,317	)		(11,198	)		(39,187	)		(35,808	)
Income tax provision		390			62			964			391

Net loss	$	(12,707	)	$	(11,260	)	$	(40,151	)	$	(36,199	)

Other comprehensive income (loss), net of tax
Foreign currency translation		2,242			(2,248	)		547			(2,293	)
Total other comprehensive income (loss), net of tax		2,242			(2,248	)		547			(2,293	)
Comprehensive loss	$	(10,465	)	$	(13,508	)	$	(39,604	)	$	(38,492	)

Net loss per share - basic and diluted	$	(0.30	)	$	(0.26	)	$	(0.94	)	$	(0.85	)

Weighted average shares outstanding - basic and diluted		42,529,017			42,497,078			42,529,017			42,390,717

~~Pivotal Acquisition Corp.~~See Notes to Consolidated Financial Statements.

~~Condensed~~ KLDiscovery Inc.

Consolidated Statements of ~~Changes in~~ Stockholders’ Equity

(Unaudited)

~~For the Period from August 2, 2018 (Inception) Through September 30, 2018~~(in thousands, except for share amounts)

   Class A Common Stock    Class B Common Stock    Additional
Paid in
Capital    Accumulated
Deficit Total
Stockholders’
Equity
   Shares    Amount    Shares    Amount
Balance – August 2, 2018 (inception)
   —      $ —      —      $ —      $ —      $ —   $ —
Issuance of Class B common stock to Sponsor⁽¹⁾
   —      —      5,750,000    575    24,425    —   25,000
Net loss
   —      —      —      —      —      (993 ) (993 )












Balance – September 30, 2018 (unaudited)
   —      $ —      5,750,000    $ 575    $ 24,425    $ (993 ) $ 24,007

~~(1)~~

~~Included 750,000 shares subject to forfeiture if the underwriters’ option to purchase additional units was not exercised in full or in part.~~

	Common Stock Issued				Additional paid-in		Treasury		Accumulated			Accumulated other comprehensive
	Shares		Amount		capital		Stock		deficit			income			Total
Balance as of December 31, 2019		42,529,017	$	4	$	381,952	$	-	$	(205,498	)	$	7,307		$	183,765
Share-based compensation		-		-		825		-		-			-			825
Foreign exchange translation		-		-		-		-		-			(4,428	)		(4,428	)
Net loss		-		-		-		-		(12,526	)		-			(12,526	)
Balance as of March 31, 2020		42,529,017		4		382,777		-		(218,024	)		2,879			167,636
Share-based compensation		-		-		814		-		-			-			814
Foreign exchange translation		-		-		-		-		-			2,733			2,733
Net loss		-		-		-		-		(14,918	)		-			(14,918	)
Balance as of June 30, 2020		42,529,017		4		383,591		-		(232,942	)		5,612			156,265
Share-based compensation		-		-		913		-		-			-			913
Foreign exchange translation		-		-		-		-		-			2,242			2,242
Net loss		-		-		-		-		(12,707	)		-			(12,707	)
Balance as of September 30, 2020		42,529,017	$	4	$	384,504	$	-	$	(245,649	)	$	7,854		$	146,713

~~Three and Nine Months Ended September 30, 2019~~

	Common Stock Issued				Additional paid-in		Treasury			Accumulated			Accumulated other comprehensive
	Shares		Amount		capital		Stock			deficit			income			Total
Balance as of December 31, 2018		42,288,870	$	4	$	372,316	$	(2,406	)	$	(147,954	)	$	6,996		$	228,956
Share-based compensation		52,150		-		910		-			-			-			910
Foreign exchange translation		-		-		-		-			-			810			810
Net loss		-		-		-		-			(13,491	)		-			(13,491	)
Balance as of March 31, 2019		42,341,020		4		373,226		(2,406	)		(161,445	)		7,806			217,185
Issuance of common stock		58,534		-		414		-			-			-			414
Share-based compensation		-		-		579		-			-			-			579
Foreign exchange translation		-		-		-		-			-			(855	)		(855	)
Net loss		-		-		-		-			(11,448	)		-			(11,448	)
Balance as of June 30, 2019		42,399,554		4		374,219		(2,406	)		(172,893	)		6,951			205,875
Issuance of common stock		-		-		1,241		-			-			-			1,241
Share-based compensation		-		-		411		-			-			-			411
Foreign exchange translation		-		-		-		-			-			(2,248	)		(2,248	)
Net loss		-		-		-		-			(11,260	)		-			(11,260	)
Balance as of September 30, 2019		42,399,554	$	4	$	375,871	$	(2,406	)	$	(184,153	)	$	4,703		$	194,019

See Notes to Consolidated Financial Statements.

   Class A Common Stock Class B Common Stock    Additional
Paid in Capital (Accumulated
Deficit) /
Retained
Earnings Total
Stockholders’
Equity
   Shares Amount Shares    Amount
Balance – January 1, 2019
   —   $ —   5,750,000    $ 575    $ 24,425 $ (1,127 ) $ 23,873
Sale of 23,000,000 Units, net of underwriting discount and offering expenses
   23,000,000 2,300 —      —      216,881,122 —   216,883,422
Sale of 6,350,000 Private Placement Warrants
   —   —   —      —      6,350,000 —   6,350,000
Common stock subject to possible redemption
   (21,810,992 ) (2,181 ) —      —      (218,711,906 ) —   (218,714,087 )
Net income
   —   —   —      —      —   456,797 456,797






Balance – March 31, 2019 (unaudited)
   1,189,008 119 5,750,000    575    4,543,641 455,670 5,000,005
Change in value of common stock subject to possible redemption
   40,753 4 —      —      (596,047 ) —   (596,043 )
Net income
   —   —   —      —      —   596,047 596,047






Balance – June 30, 2019 (unaudited)
   1,229,761 123 5,750,000    575    $ 3,947,594 1,051,717 5,000,009
Change in value of common stock subject to possible redemption
   17,264 2 —      —      (654,502 ) —   (654,500 )
Net income
   —   —   —      —      —   654,498 654,498






Balance – September 30, 2019 (unaudited)
   1,247,025 $ 125 5,750,000    $ 575    $ 3,293,092 $ 1,706,215 $ 5,000,007

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

~~Pivotal Acquisition Corp.~~

~~Condensed~~ Consolidated Statements of Cash Flows (Unaudited)

~~(Unaudited)~~(in thousands)

   Nine Months
Ended
September 30,
2019 For the
Period from
August 2,
2018
(Inception)
Through
September 30,
2018
Cash Flows from Operating Activities:

Net income (loss)
   $ 1,707,342 $ (993 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:

Interest earned on marketable securities held in Trust Account
   (3,279,783 ) —
Changes in operating assets and liabilities:

Prepaid expenses and other current assets
   (118,884 ) —
Accounts payable and accrued expenses
   304,876 969
Income taxes payable
   555,319 —


Net cash used in operating activities
   (831,130 ) (24 )


Cash Flows from Investing Activities:

Investment of cash in Trust Account
   (230,000,000 ) —


Net cash used in investing activities
   (230,000,000 ) —


Cash Flows from Financing Activities:

Proceeds from issuance of common stock to Sponsor
   —   25,000
Proceeds from sale of Units, net of underwriting discounts paid
   225,400,000 —
Proceeds from sale of Private Placement Warrants
   6,350,000 —
Proceeds from promissory note – related party
   —   125,000
Repayment of promissory note – related party
   (125,000 ) —
Payment of offering costs
   (335,904 ) (67,500 )


Net cash provided by financing activities
   231,289,096 82,500


Net Change in Cash
   457,966 82,476
Cash – Beginning
   19,168 —


Cash – Ending
   $ 477,134 $ 82,476


Non-cash Investing and Financing Activities:

Deferred underwriting fee payable
   $ 8,050,000 $ —


Initial classification of common stock subject to possible redemption
   $ 218,257,180 $ —


Change in value of common stock subject to possible redemption
   $ 1,707,450 $ —


Deferred offering costs included in accrued offering costs
   $ —   $ 2,500

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Operating activities
Net loss	$	(40,151	)	$	(36,199	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		36,063			37,614
Non-cash interest		14,360			3,597
Stock-based compensation		2,552			1,900
Provision for losses on accounts receivable		3,059			1,846
Deferred income taxes (refunds)		418			(221	)
Change in fair value of contingent consideration		80			-
Changes in operating assets and liabilities:
Accounts receivable		8,365			(13,780	)
Prepaid expenses and other assets		(3,338	)		(3,386	)
Accounts payable and accrued expenses		4,734			(2,511	)
Deferred revenue		(835	)		(820	)

Net cash provided by (used in) operating activities		25,307			(11,960	)
Investing activities
Acquisitions, net of cash acquired		(3,124	)		(650	)
Purchases of property and equipment		(8,377	)		(9,288	)
Net cash used in investing activities		(11,501	)		(9,938	)
Financing activities
Revolving credit facility - draws		29,000			41,500
Revolving credit facility - repayments		(29,000	)		(24,500	)
Payments for capital lease obligations		(688	)		(453	)
Issuance of common stock		-			414
Payments on long-term debt		(12,750	)		(12,750	)
Net cash (used in) provided by financing activities		(13,438	)		4,211
Effect of foreign exchange rates		63			(142	)
Net increase (decrease) in cash		431			(17,829	)
Cash at beginning of period		43,407			23,439
Cash at end of period	$	43,838		$	5,610
Supplemental disclosure:
Cash paid for interest	$	24,857		$	29,770
Income taxes (refunds) paid, net of refunds	$	(311	)	$	325
Significant non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses on the consolidated balance sheets	$	21		$	222

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

~~PIVOTAL ACQUISITION CORP.~~See Notes to Consolidated Financial Statements.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~KLDiscovery Inc.

~~SEPTEMBER~~Notes to Consolidated Financial Statements (Unaudited)

For the Three and Nine Months ended September 30, 2020 and 2019

~~(Unaudited)~~

Note 1 —– Organization, business and ~~Plan~~summary of ~~Business Operations~~significant accounting policies

Organization

KLDiscovery Inc. (the “Company”) provides technology-based litigation support solutions and services including computer e-discovery, data hosting, and managed review, predominantly to top law firms, corporations and government agencies. The majority of the Company’s current business is derived from these services. The Company’s headquarters is located in McLean, Virginia and has 34 locations in 19 countries, 8 data centers and 19 data recovery labs around the globe.

The Company was originally incorporated under the name Pivotal Acquisition Corp. ~~(the “Company”~~(“Pivotal”) ~~was incorporated in Delaware on August 2, 2018~~ as a blank check company ~~whose objective is to acquire, through~~on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, ~~asset acquisition,~~ stock purchase, ~~recapitalization,~~ reorganization or ~~other~~ similar business combination with one or more businesses or ~~entities (a “Business Combination”).~~entities.

~~All activity through September 30,~~On December 19, 2019, ~~relates to~~Pivotal acquired the Company’s formation, the Company’s initial public offering of 23,000,000 units (the “Offering”), the simultaneous sale of 6,350,000 warrants (the “Private Placement Warrants”) in a private placement to Pivotal Acquisition Holdings LLC (the “Sponsor”), an entity affiliated with the Company’s executive officers, the Company’s search for a target business with which to complete a Business Combination and the proposed acquisitionoutstanding shares of LD Topco, Inc. ~~(“LD”~~via a reverse capitalization (the “Business Combination”)~~, as more fully described in Note 6.~~ and was renamed KLDiscovery Inc.

~~The Company has one subsidiary, Pivotal Merger Sub Corp., a wholly owned subsidiary~~Principles of ~~the Company incorporated in Delaware on May 17, 2019 (“Merger Sub”), which was formed solely to effectuate the Merger described in Note 6.~~

~~Liquidity~~

The Company has principally financed its operations from inception using proceeds from the sale of its equity securities to its stockholders prior to the Offering and such amount of proceeds from the Offering that were placed in an account outside of the Trust Account for working capital purposes. As of September 30, 2019, the Company had $477,134 of cash held outside of the Trust Account.

~~Note 2 — Significant Accounting Policies~~

~~Basis of presentation~~consolidation

The accompanying ~~unaudited condensed~~ consolidated financial statements ~~have been~~are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States ~~of America~~ (“U.S. GAAP”~~) for interim financial information and in accordance with the instructions to Form10-Q~~ ~~and Article 8 of RegulationS-X~~ ~~of the Securities and Exchange Commission (“SEC”~~). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying ~~unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form10-K~~ for the period from August 2, 2018 (inception) through December 31, 2018 as filed with the SEC on April 1, 2019, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2018 is derived from the audited financial statements presented in the Company’s Annual Report on Form~~10-K~~ for the period from August 2, 2018 (inception) through December 31, 2018. The interim results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.

~~Principles of consolidation~~

~~The accompanying condensed~~ consolidated financial statements include the accounts of ~~the Company~~KLDiscovery and all of its ~~wholly owned subsidiary.~~subsidiaries. All significant intercompany ~~balances~~accounts and transactions have been eliminated inupon consolidation.

The Business Combination was accounted for as a reverse recapitalization in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, LD Topco, Inc. is considered the acquirer based on facts and circumstances, including the following:

LD Topco, Inc.’s operations comprise the ongoing operations of the combined entity;

The officers of the newly combined company consist of LD Topco, Inc.’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and

The former shareholders of LD Topco, Inc. own a majority voting interest in the combined entity.

As a result of LD Topco, Inc. being the accounting acquirer, the financial reports filed with the Securities and Exchange Commission by the Company subsequent to the Business Combination are prepared “as if” LD Topco, Inc. is the predecessor and legal successor to the Company. The historical operations of LD Topco, Inc. are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of LD Topco, Inc. prior to the Business Combination; (ii) the combined results of the Company and LD Topco, Inc. following the Business Combination on December 19, 2019 (the “Closing Date”); (iii) the assets and liabilities of LD Topco, Inc. at their historical cost; and (iv) KLDiscovery Inc.’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of LD Topco, Inc. in connection with the Business Combination is reflected retroactively to January 1, 2018 and will be utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of LD Topco, Inc.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts ~~of assets~~ and ~~liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.~~

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could changedisclosures in the ~~near term due to one or more future confirming events. Accordingly, the~~consolidated financial statements. Although actual results could differ ~~significantly~~from those estimates, management does not believe that such differences would be material.

Significant estimates include, but are not limited to, the allowance for doubtful accounts, determining the fair values of assets acquired and liabilities assumed, the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the impairment of goodwill, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock and stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

The Company operates in one business segment, providing technology-based litigation support solutions and services.

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with a banking institution where the balances, at times, exceed federally insured limits. Management believes the risks associated with these deposits are limited.

With respect to accounts receivable, the Company performs ongoing evaluations of its customers, generally grants uncollateralized credit terms to its customers, and maintains an allowance for doubtful accounts based on historical experience and management’s expectations of future losses. As of and for the three and nine months ended September 30, 2020 and 2019, the Company did not have a single customer that represented more than five percent (5%) of its consolidated revenues or accounts receivable. The Company believes that the geographic and industry diversity of the Company’s customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk.

Foreign currency

Results of operations for the Company’s non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive income” in the Company’s ~~estimates.~~

~~PIVOTAL ACQUISITION CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” in the Company’s Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

Cash and ~~marketable securities held~~cash equivalents

The Company considers all highly liquid financial instruments with an original maturity of three months or less when purchased to be cash equivalents.

Accounts receivable

Accounts receivable are recorded at original invoice amounts less an estimate for doubtful receivables based on a review of outstanding amounts monthly. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history. Accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

Computer software, property and equipment

Computer software, property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Computer software and hardware		3 to 5 years
Leasehold improvements		Shorter of lease term or useful life
Furniture, fixtures and other equipment		3 to 5 years

Gains or losses on disposals are included in ~~Trust Account~~results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and betterments are capitalized, while the costs of maintenance and repairs are expensed as incurred. Property under capital leases are depreciated using the straight-line method over the lease term.

AtDepreciation expense totaled $4.3 million and $4.5 million for the three months ended September 30, 2020 and 2019, respectively, and includes amortization of assets recorded under capital leases. Depreciation expense totaled $12.8 million and $13.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Internal-use software development costs

The Company capitalizes certain internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. Capitalized software costs are depreciated over the estimated useful life of the underlying project on a straight-line basis. The Company’s estimated useful life of capitalized software costs varies between three and five years, depending on management’s expectation of the economic life of various software. Capitalized software depreciation costs are recorded as a component of cost of revenue.

Capitalized software costs are reflected as part of “Intangible assets, net” in the Company’s Consolidated Balance Sheets and totaled $17.6 million and $13.5 million, net of accumulated amortization, as of September 30, 2020 and December 31, 2019, respectively.

Goodwill

Goodwill represents the excess of the total consideration paid over identified intangible and tangible assets of the Company and its acquisitions. The Company tests its goodwill for impairment at the reporting unit level on an annual basis on October 1, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the October 1 testing date, the Company determined there is one entity-wide reporting unit.

The Company considered COVID-19 as an indicator of impairment to the value of goodwill and intangible assets and performed a qualitative assessment. Management considered factors that could be affected by COVID-19 such as impact to stock price, consequences of “stay-at-home” orders, impacts to competitors due to COVID-19, changes in demand, and updates to the Company forecasts among other factors. Management concluded that there was no impairment of goodwill and intangible assets during the nine months ended September 30, 2020.

Debt issuance costs

Debt issuance costs are stated at cost, net of accumulated amortization, and are amortized over the term of the debt using both the straight-line and the effective yield methods. U.S. GAAP requires that the effective yield method be used to amortize debt acquisition costs; however, if the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method, the straight-line method may be used. The amortization for funded term debt is calculated according to the effective yield method and revolving and unfunded term debt is calculated according to the straight-line method. Debt issuance costs related to funded term debt is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Debt issuance costs related to revolving and unfunded term debt is presented in “Other current assets” in the Company’s Consolidated Balance Sheets.

Revenue recognition

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019, utilizing the modified retrospective method. The Company’s adoption of ASC 606 did not result in material changes to the Company’s revenue recognition.

As an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”), the JOBS Act allowed us to delay adoption of new or revised accounting pronouncements applicable to public companies until December 31, 2019, which is when such pronouncements are made applicable to private companies. We elected to use this extended transition period and there were no material differences for revenue recognition between the three and nine months ended September 30, 2020 and September 30, 2019.

Revenues are recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. Performance obligations in the Company’s contracts represent distinct or separate service streams that are provided to its customers.

The Company evaluates its revenue contracts with customers based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied.

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2020 and September 30, 2019 (in thousands):

	Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
eDiscovery services	$	48,021	$	52,910	$	147,056	$	161,075
Managed review		14,015		14,025		36,847		35,944
Legal technology services		62,036		66,935		183,903		197,019
Data recovery		10,265		11,234		31,050		34,508
Total revenue	$	72,301	$	78,169	$	214,953	$	231,527

Performance Obligations and Timing of Revenue Recognition

We primarily sell services and products that fall into the ~~assets held~~categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the ~~Trust Account were~~contract) or (2) a series of distinct products or services that are substantially ~~invested~~the same and have the same pattern of transfer to the customer.

(1)

eDiscovery services, which provides end-to-end eDiscovery services support including collections, processing, analytics, hosting, production and professional services;

(2)

Managed review services which provides the staffing necessary to review large complex data sets; and

(3)

Data recovery, which offers data restoration, data erasure and data management.

We generate the majority of our revenues by providing Legal Technology services to our clients. All of our eDiscovery service contracts are time and materials types of arrangements.

Time and materials arrangements are based on units of data stored or processed. Unit-based revenues are recognized as services are provided, based on either the amount of data stored or processed, the number of concurrent users accessing the information or the number of pages or images processed for a client, at agreed upon per unit rates. We recognize revenues for these arrangements utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain of our eDiscovery contracts are subscription-based, fixed fee arrangements, which have tiered pricing based on the quantity of data hosted. For a fixed monthly fee, our clients receive a variety of optional eDiscovery services, which are included in ~~money market funds.~~addition to the data hosting. We recognize revenues for these arrangements based on predetermined monthly fees as determined in our contractual agreements, utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Managed review services are time and materials types of arrangements. These agreements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. We recognize revenues for these arrangements based on hours

incurred and contracted rates utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Data recovery services are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of a data recovery on a predetermined device. For the recovery services performed by the Company’s technicians, the revenue is recognized at a point in time, when the recovered data is sent to the customer.

Data erasure services are fixed fee arrangements for which revenue is recognized at a point in time, when the certificate of erasure is sent to the customer.

Ontrack PowerControls offers term license subscriptions for customers with on-premises installations of the software pursuant to contracts that are historically one to four years in length. The term license subscriptions include maintenance, support, as well as access to future software upgrades and fixes. The license and the additional support services are deemed to be one performance obligation, and thus revenue for these arrangements is recognized ratably over the term of the agreement.

Net loss per common share

~~Net~~Basic net loss per common share is ~~computed~~determined by dividing net loss by the weighted average number of common shares outstanding ~~for~~during the period. ~~The Company applies thetwo-class~~ method in calculating earnings per share. Shares of common stock subject to possible redemption at September 30, 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants to purchase 29,350,000 shares of Class A common stock that were sold in the Offering and the private placement in the calculation of diluted loss per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted loss per share is the same as basic loss per share for the period presented.

~~Reconciliation of~~Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

On December 19, 2019, the Company completed a reverse merger with Pivotal Acquisition Corp. whereby the Company received 34,800,000 shares for its outstanding 3,707,564 shares, effecting a 1-to-9.3862 stock exchange. The ~~Company’s net income is adjusted~~per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the ~~portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses~~quarterly financial statements of the Company. ~~Accordingly, basic and diluted loss per share~~The impact of the stock exchange is ~~calculated as follows:~~

   Three Months
Ended
September 30,
2019    ne Months
Ended
September 30,
2019    For the
Period from
August 2,
2018
(Inception)
Through
September 30,
2018
Net income (loss)
   $ 654,498    $ 1,707,342    $ (993 )
Less: Income attributable to common stock subject to possible redemption
   (831,541 )    (2,434,928 )    —






Adjusted net loss
   $ (177,043 )    $ (727,586 )    $ (993 )






Weighted average shares outstanding, basic and diluted
   6,979,761    6,701,184    5,000,000






Basic and diluted net loss per common share
   $ (0.03 )    $ (0.11 )    $ (0.00 )

~~Recent accounting pronouncements~~

~~Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect~~also shown on the Company’s ~~condensed consolidated financial statements.~~Statements of Stockholders’ Equity.

~~Note 3 — Public Offering~~Accounting standards not yet adopted

Pursuant to the Offering, the Company sold 23,000,000 Units at a price of $10.00 per Unit, including 3,000,000 Units subject to the underwriters’ over-allotment option. Each Unit consists of one share of Class A common stock and one redeemable warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment.

~~Note 4 — Commitments~~

~~The underwriters of the Offering are entitled to a deferred fee of three andone-half~~ percent (3.5%) of the gross proceeds of the Offering, or $8,050,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement executed in connection with the Offering.

~~PIVOTAL ACQUISITION CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

On February 4, 2019, a managing member of the Sponsor entered into a forward purchase contract with the Company to purchase, in a private placement to occur concurrently with the consummation of the Company’s initial Business Combination, up to $150,000,000 of the Company’s securities subject to certain conditions. In connection with the ~~signing of the Merger Agreement (defined below), the managing member of the Sponsor indicated that up to $50,000,000 of the commitment could be utilized in connection~~transaction with ~~the Merger (defined below) if necessary, to satisfy the minimum cash requirement under the Merger Agreement. Except~~Pivotal, as discussed in ~~Note 8, there~~more detail in “Note 2, Acquisitions,” the Company elected to be an Emerging Growth Company under the JOBS Act and take advantage of the extended transition period of delaying the adoption of new or revised accounting standards until such time as those standards apply to private companies. This may make the comparison of the Company’s consolidated financial statements to other public companies not meaningful due to the differences in accounting standards being applied.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and the Company is currently ~~no binding commitment or agreement~~evaluating the impact that Topic 842 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance is intended to ~~purchase any securities and the amount, type and number of securities to be purchased by the managing member of the Sponsor, if any, will not be known until~~introduce a later date. Accordingly, the managing member of the Sponsor may not agree to purchase any securities, in which case the Company may need to arrange alternate financing to complete the Business Combination.

~~The Company’s stockholders prior~~revised approach to the ~~Offering (the “Initial Stockholders”), the holders~~recognition and measurement of the Private Placement Warrants (and underlying shares of Class A common stock) and the holders of any securities issued upon conversion of working capital loans made by the Company’s Sponsor, officers, directors or their affiliates or pursuant to the forward purchase contract, are entitled to registration rights with respect to their securities pursuant tocredit losses, emphasizing an agreement dated as of January 31, 2019. The holders of the majority of the securities are entitled to demand that the Company register these securities at any time commencing after expiration of the transfer restrictions. In addition, the holders have certain “piggy-back” registration rightsupdated model based on ~~registration statements filed after the Company’s consummation of a Business Combination.~~

~~Note 5 — Stockholders’ Equity~~

~~Preferred Stock~~

expected losses rather than incurred losses. The Company is ~~authorized~~required to ~~issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights~~adopt Topic 326 effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and ~~preferences as may be determined from time~~the Company is currently evaluating the impact that Topic 326 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to ~~time by~~ the ~~Company’s board of directors. As of September 30, 2019~~general principles for income taxes. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December ~~31, 2018, there are no shares of preferred stock issued or outstanding.~~

~~Common Stock~~

15, 2020. Early adoption, including the adoption in any interim period, is permitted for all entities. The Company is ~~authorized~~currently evaluating the potential impact of adoption of the pronouncement on its consolidated financial statements but does not expect the impact to issue 75,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock, both with a par value of $0.0001 per share. As of September 30, 2019 and December 31, 2018, there were 1,247,025 and no shares of Class A common stock issued and outstanding, respectively, excluding 21,752,975 and no shares subject to possible redemption, respectively, and 5,750,000 shares of Class B common stock issued and outstanding.be material.

Note 2 – Acquisitions

~~Note 6 — Merger Agreement~~

Pivotal Acquisition Corp.

On ~~May 20,~~December 19, 2019, ~~as amended on October 30, 2019,~~Pivotal, the ~~Company entered into an Agreement and Plan of Reorganization (“Merger Agreement”) by and among~~legal predecessor company, consummated the ~~Company, Merger Sub, LD and Carlyle Equity Opportunity GP, L.P. (solely as representative of the stockholders of LD).~~

~~Pursuant to the Merger Agreement, Merger Sub will merge with and into LD,~~Business Combination with LD surviving the merger (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Transactions”). As a result of the Transactions, LD will become a wholly owned subsidiary of the Company, with theTopco, Inc. The stockholders of LD ~~becoming securityholders of the Company. In connection with the Merger Agreement, the stockholders of LD will receive~~Topco, Inc. received an aggregate of 34,800,000 shares of ~~the Company’s~~Pivotal common stock. The former stockholders of LD ~~will~~Topco, Inc. also have the right to receive up to 2,200,000 shares of the Company’s common stock if (i) a change in control occurs or (ii) the reported closing sale price of the Company’s common stock exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the ~~Transactions.~~Business Combination. The Company also assumed 29,350,000 warrants, each of which entitles the holder to purchase shares of the Company’s common stock beginning on February 4, 2020 at an exercise price of $11.50 per share as part of the Business Combination.

As part of the Business Combination, on December 19, 2019, the Company issued $200 million aggregate principal amount of 8% convertible debentures (“Debentures”) due in 2024. The ~~Transactions will be consummated subject~~proceeds of the Debentures were used in part to ~~the deliverables~~repay LD Topco, Inc.’s outstanding Second Lien Facility (as defined below) and ~~provisions as further described in the Merger Agreement.~~

~~PIVOTAL ACQUISITION CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

Note ~~7 —~~3 – Fair ~~Value Measurements~~value measurements

The Company ~~follows the guidance~~accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 defines fair value, establishes a fair value hierarchy for ~~its~~assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value, and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 – Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires significant judgments to be made by the Company.

The Company believes that the fair values of its current assets and current liabilities (cash, accounts receivable, accounts payable, and other current liabilities) approximate their reported carrying amounts.

The Company estimates the fair value of contingent purchase consideration based on the present value of the consideration expected to be paid during the remainder of the earn-out period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. During 2019, the Company acquired three companies for total consideration of $5.5 million, of which $2.0 million was in cash, $1.5 million was in deferred payments which were subsequently paid, $1.2 million was in stock and contingent consideration ($1.0 million which was recorded at its estimated fair value of $0.8 million). The fair value of future expected acquisition-related contingent consideration obligations was $0.9 million and $0.8 million at September 30, 2020 and December 31, 2019, respectively.

The significant unobservable inputs used in the fair value measurements of the Company’s contingent purchase consideration include its measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these individual inputs would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is indirectly proportional to the fair value of contingent purchase consideration and a change in the assumptions used for the future cash flows is directly proportional to the fair value of contingent purchase consideration. The Company, using additional information as it becomes available, reassesses the fair value of the contingent purchase consideration on a quarterly basis.

Any change in the fair value of contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense in the Company’s Consolidated Statements of Comprehensive Loss.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the periods ended September 30, 2020 and December 31, 2019 (in thousands):

Balance at December 31, 2018	$	-
Contingent consideration		774
Change in fair value of contingent consideration		48
Balance at December 31, 2019	$	822

Payment of contingent consideration		-
Change in fair value of contingent consideration		80
Balance at September 30, 2020	$	902

Management estimates that the carrying amount of the Company’s long-term debt approximates its fair value because the interest rates on these instruments are subject to changes in market interest rates or are consistent with prevailing interest rates.

Note 4 – Leasing arrangements

The Company leases office space and certain equipment under operating and capital lease agreements, expiring in various years through 2027. Certain leases contain annual rent escalation clauses.

Rent expense totaled $3.4 million and $3.7 million for the three months ended September 30, 2020 and 2019, respectively. Rent expense totaled $11.0 million and $11.2 million for the nine months ended September 30, 2020 and 2019, respectively.

As part of an effort to optimize the Company’s real estate footprint, during the three months ended September 30, 2020 the Company recorded $1.2 million in lease termination related expenses which were included in cost of goods sold and operating expenses in our consolidated statements of comprehensive loss.

For years subsequent to September 30, 2020, future minimum payments for all operating and capital lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases are as follows (in thousands):

December 31,	Capital Leases			Operating Leases
2020 (3 months)	$	886		$	2,384
2021		1,586			9,209
2022		1,346			8,277
2023		721			7,736
2024		-			6,597
Thereafter		-			13,103
Total	$	4,539		$	47,306
Less interest on lease obligations		(464	)
		4,075
Less current portion		(886	)
Non-current portion	$	3,189

~~re-measured~~Note 5 – Long term debt

The table below summarizes the components of the Company’s long-term debt (in thousands):

	September 30, 2020			December 31, 2019
First lien facility due 2022	$	293,250		$	306,000
Convertible debenture notes due 2024		206,423			200,000
Total debt		499,673			506,000
Less: unamortized original issue discount		(17,109	)		(19,806	)
Less: unamortized debt issuance costs		(4,295	)		(5,573	)
Total debt, net		478,269			480,621

Current portion of debt		17,000			17,000
Less: current portion of unamortized original issue discount		(4,170	)		(3,687	)
Less: current portion of unamortized debt issuance costs		(1,724	)		(1,624	)
Total current portion of debt, net		11,106			11,689
Total long term debt, net	$	467,163		$	468,932

2016 Credit Agreement

On December 9, 2016, certain subsidiaries of the Company entered into a credit agreement (as amended or supplemented to date, the “2016 Credit Agreement”) with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (“First Lien Facility”) and $125.0 million (“Second Lien Facility”) were to mature on December 9, 2022 and December 9, 2023, respectively. The Second Lien Facility was repaid on December 19, 2019 in connection with the consummation of the Business Combination.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter beginning on March 31, 2017 of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusts every interest rate period, which can be one, two, three or six months in duration and is decided by the Company, or to the extent consented to by all Appropriate Lenders (as defined in the 2016 Credit Agreement), 12 months thereafter. Interest payment dates include the last day of each interest period and any maturity dates of the First Lien Facility; however, if any interest period exceeds three months, the respective dates that fall every three months after the beginning of an interest period is also an interest payment date. For each interest period, the interest rate per annum is 5.875% plus the Adjusted Eurocurrency Rate which is defined as an amount equal to the Statutory Reserve Rate (as defined in the 2016 Credit Agreement) multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. At September 30, 2020, the balance due was $293.3 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.000%. At December 31, 2019, the balance due was $306.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.61463%.

The First Lien Facility is secured by substantially all the Company’s assets and contains financial covenants. As of September 30, 2020 and December 31, 2019, the Company was in compliance with all covenants.

The 2016 Credit Agreement includes a mandatory prepayment within 10 days after delivery of the annual audited financial statements commencing with the year ending December 31, 2016, in an amount equal to the Excess Cash Flow Percentage of Excess Cash Flow for such Fiscal Year, as defined in the 2016 Credit Agreement. There were no mandatory prepayments with respect to the nine months ended September 30, 2020 and 2019.

Revolving Credit Facility

The 2016 Credit Agreement also provides for an unfunded revolver commitment for borrowing up to $30.0 million, maturing December 9, 2021 (the “Revolving Credit Facility”). Borrowings under the Revolving Credit Facility may be limited by certain financial covenants of the 2016 Credit Agreement including the First Lien Net Leverage Ratio. The Company may draw up to $30.0 million, on a term loan basis, with an adjustable interest rate of 5.375%, 5.625%, or 5.875% based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR. As of September 30, 2020 and December 31, 2019, the balance was zero under the Revolving Credit Facility.

As of September 30, 2020, there was $29.2 million available capacity for borrowing under the revolving loan commitment due to the $0.8 million of letters of credit outstanding (See Note 9 – Commitments and ~~reported~~contingencies).

Convertible Debentures

On December 19, 2019, the Company issued the Debentures in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts then outstanding under the Revolving Credit Facility. At September 30, 2020, the balance due under the Convertible Debentures was $206.4 million. At December 31, 2019, the balance due under the Convertible Debentures was $200.0 million.

The Debentures mature on December 19, 2024 unless earlier converted, redeemed or repurchased, and bear interest at an annual rate of 4.00% in cash, payable quarterly, and 4.00% in kind, accrued quarterly, on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, the Company will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding. The additional payment will accrue from the last payment date for the additional payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption.

At any time, upon notice as set forth in the Debentures, the Debentures are redeemable at the Company’s option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures are convertible into shares of the Company’s common stock at the option of the Debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event the Company elects to redeem any Debentures, the holders have a right to purchase common stock from the Company in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit the Company’s ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate the Company’s subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately. As of September 30, 2020, the Company was in compliance with all covenants.

Note 6 – Equity incentive plan

On December 19, 2019, the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The Compensation Committee did not increase the share reserve under the 2019 Plan in 2020. As of September 30, 2020, 7,500,000 shares of common stock, $0.0001 par value per share (the “Common Stock”) were reserved under the 2019 Plan, of which 1,767,156 shares of Common Stock remained available for issuance.

On March 29, 2016, the Company adopted the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The 2016 Plan was terminated on December 19, 2019 and all outstanding awards were cancelled for no consideration.

Stock option activity

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options Outstanding, December 31, 2019		514,710		$	9.90		10.0	$	-
Granted		4,137,750			8.49
Forfeited		(248,101	)		9.08
Expired		-
Options Outstanding, September 30, 2020		4,404,359		$	8.46		9.3	$	-
Options Exercisable, September 30, 2020		-		$	-		-	$	-

(1)	Aggregate intrinsic value represents the difference between the estimated fair value of the underlying Common Stock (as defined below) and the exercise price of outstanding, in-the-money options. There were no in-the-money options as of September 30, 2020 or December 31, 2019.

No stock options were exercised during the nine months ended September 30, 2020 and 2019 under the 2019 Plan or the 2016 Plan.

The following table summarizes additional information on stock option grants and vesting (in thousands):

	2016 Plan				2019 Plan
	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Total fair value of stock options granted	$	-	$	2,492	$	9,241	$	-
Total fair value of options vested		-		1,439		-		-

Time-based vesting stock options

Under the 2016 Plan, time-based vesting stock options vested over a five-year period, subject to graded vesting schedules, and expired 10 years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by us was $37.16 during the nine months ended September 30, 2019.

Under the 2016 Plan, for the three months ended September 30, 2020 and 2019, the Company recognized $0.0 million and $0.4 million of stock-based compensation expense in connection with time-based stock options, respectively. Under the 2016 Plan, for the nine months ended September 30, 2020 and 2019, the Company recognized $0.0 million and $1.9 million of stock-based compensation expense in connection with time-based stock options, respectively. As of September 30, 2020, there was no unrecognized stock-based compensation expense as the 2016 Plan was terminated during 2019 and all options were forfeited.

Under the 2019 Plan, time-based vesting stock options generally vest over a three-year period and expire not more than 10 years from the date of grant. The weighted-average fair value per share of time-based vesting stock options granted by us was $2.19, during the nine months ended September 30, 2020.

Under the 2019 Plan, for the three months ended September 30, 2020, the Company recognized $0.9 million of stock-based compensation expense in connection with time-based stock options. Under the 2019 Plan, for the nine months ended September 30, 2020, the Company recognized $2.5 million of stock-based compensation expense in connection with time-based stock options. As of September 30, 2020, there was $7.2 million of unrecognized stock-based compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of 2.3 years.

Performance-based vesting stock options

Performance-based vesting stock options generally vested upon the satisfaction of performance- and market-based criteria, based on the Principal Stockholders’ (as defined in the 2016 Plan) internal rate of return on their investment in the Company as measured following their sale of at least 70% of the Principal Stockholders total holdings in the Company, and expired 10 years from the date of grant. The weighted-average fair value per share of performance-based vesting stock options granted by us was $0 and $37.16 during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there were no stock options with performance-based vesting outstanding, as the 2016 Plan was terminated and all options were forfeited.

Award Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during the nine months ended September 30, 2020 and 2019. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employees under both the 2019 Plan and the 2016 Plan:

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Expected volatility	37.63% - 41.24%	36.92%
Expected term (in years)	6.0	6.5
Dividend yield	0.00%	0.00%
Risk free interest rate	1.43% - 0.30%	2.42%

A discussion of management’s methodology for developing each of the assumptions used in the valuation model follows

Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of comparable companies.

Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the three and nine months ended September 30, 2020 and 2019, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

Dividend yield – The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resembles the expected life of the option.

Stock-based award activity

During the nine months ended September 30, 2020, the Company granted to certain non-employee directors 136,956 restricted stock units (“RSUs”) for their initial appointment to the Company’s board of directors (the “Board”) and for continued service, which awards are subject to a three or one-year vesting period. Accordingly, the Company will recognize the grant-date fair value of the stock awards, ratably over the vesting period. During the three and nine months ended September 30, 2020, the Company recognized $0.2 million as stock-based compensation expense related to this grant.

During the nine months ended September 30, 2019, the Company granted to certain non-employee directors 7,223 stock awards. These stock awards were issued to non-employee directors in satisfaction of their annual retainer payments and are not subject to any vesting conditions, and thus became issued and outstanding shares on the grant date. Accordingly, the Company recognized the grant-date fair value of the stock awards of $0.7 million as stock-based compensation expense concurrent with the grant date of the awards during the three and nine months ended September 30, 2019.

Stock-based compensation expense

Stock-based compensation expense is included in the Company’s Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Cost of revenues	$	339	$	144	$	1,020	$	442
General and administrative		350		127		841		1,045
Research and development		65		24		205		67
Sales and marketing		159		116		486		346
Total	$	913	$	411	$	2,552	$	1,900

Restricted stock units

The Company granted RSUs to certain employees which are subject to certain vesting criteria. The RSUs become eligible to begin vesting upon a liquidity event (as defined in the award agreements governing the RSUs). The amount and timing of the vesting of the RSUs is dependent on the type and timing of the liquidity event as it relates to the Business Combination date of December 19, 2019. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Business Combination, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs is generally subject to continued employment.

RSU activity

The following table summarizes the Company’s RSU activity under the 2019 Plan:

Description	RSUs Outstanding

Balance at December 31, 2019		-
Granted		1,402,312
Forfeited		(73,827	)
Expired		-
Balance at September 30, 2020		1,328,485

The Company determined that the achievement of the liquidity event was not probable and therefore no expense was recorded during the three or nine months ended September 30, 2020.

Note 7 – Equity

The Company is authorized to issue up to 200,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, $0.0001 par value per share. Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. The holders of the Common Stock are entitled to receive dividends out of assets legally available at the time and in the amounts as the Board may from time to time determine. In the event of any liquidation, dissolution or winding up of the Company, the assets of the Company shall be distributed ratably among the holders of the then outstanding Common Stock.

Warrants

On December 19, 2019, in connection with the consummation of the Business Combination, the Company assumed (i) 23,000,000 warrants (the “Public Warrants”), (ii) 4,585,281 warrants (the “Private Warrants”) and (iii) 1,764,719 warrants (the “Debenture Holder Warrants” and together with the Public Warrants and the Private Warrants, the “Warrants”). These Warrants qualified for equity accounting as the Warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The Warrants were measured at fair value at ~~each reporting period,~~the time of issuance and~~non-financial~~ classified as equity. ~~assets and liabilities that arere-measured~~ ~~and reported at fair value at least annually.~~

~~The fair value~~Each Warrant entitles the holder to purchase one share of Common Stock for $11.50 per share. If held by the initial purchaser of the ~~Company’s financial assets and liabilities reflects management’s estimate of amounts that~~Private Warrant or certain permitted transferees, the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:


~~Level 1:~~		~~Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability~~purchase can occur ~~with sufficient frequency and volume to provide pricing information on an ongoing basis.~~

~~Level 2:~~		Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

~~Level 3:~~		~~Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.~~

~~The following table presents information about the Company’s assets that are measured at fair value~~ on a ~~recurring basis at September 30, 2019, and indicates~~cashless basis. The Warrants will expire on December 19, 2024 or earlier upon redemption or liquidation.

If the ~~fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:~~

Description
   Level    September 30, 2019
Assets:

Marketable securities held in Trust Account
   1    $ 233,279,783

~~Note 8 — Subsequent Events~~

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the condensed consolidated financial statements were issued. Except as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.

On October 30, 2019, the Company entered into an amendment to the Merger Agreement to extend the outside date which would allow a party to terminate the agreement under certain circumstances if the Merger had not been consummated by such date from October 31, 2019 to November 6, 2019.

On November 7, 2019, Pivotal, the Company and MGG Investment Group, LP (“MGG”) entered into a commitment letter pursuant to the Forward Purchase Contract. The commitment letter provides that, subject to the terms and conditions set forth therein, Pivotal and MGG may enter into definitive documentation pursuant to which Pivotal may borrow, and MGG and/or certain of its affiliates have agreed to lend, up to $150 million of 5-year convertible notes (the “Convertible Notes”), with that principal amount being reduced to the extent that more than $80 million remains in the trust account after giving effect to any redemptions by the public stockholders. As an example, if the trust account holds $130 million in cash after giving effect to such redemptions, then Pivotal may issue $100 million in Convertible Notes. The Convertible Notes will pay interest at a rate of 8% per year, with 4% being paid in cash and 4% being paid in additional Convertible Notes. Pivotal will have the option to require the Convertible Notes to be converted into shares of Pivotal common stock at the then-current stock price if thereported last ~~reported~~ sale price of the ~~Pivotal common stock~~Company’s Common Stock equals or exceeds $18.00 per share for any 20 trading days inwithin a 30-trading day period ending three business days before the Company sends the notice of redemption to the Warrant holders, the Company may redeem all the Public Warrants at a price of $0.01 per Warrant upon not less than 30 ~~trading-day period. Pivotal may repay all or a portion of~~days’ prior written notice.

If the ~~Convertible Notes (including any paid-in kind interest) at any time without any prepayment penalty. In~~Company calls the ~~event of such a prepayment, the holders of the Convertible Notes~~Public Warrants for redemption, management will have the option to ~~purchase~~require all holders that wish to exercise the Public Warrants to do so on a cashless basis. The exercise price and number of shares of ~~Pivotal common stock, at any time prior to the maturity~~Common Stock issuable upon exercise of the ~~Convertible Notes,~~Warrants may be adjusted in ~~an amount equal to~~certain circumstances including in the ~~amount~~event of ~~Convertible Notes prepaid~~a stock dividend, or recapitalization, reorganization, merger or consolidation. The Warrants will not be adjusted for issuance of Common Stock at a price ~~equal~~below its exercise price. The Company will not be required to net cash settle the Warrants.

The Private Warrants are identical to the ~~average closing share price for Pivotal common stock for~~Public Warrants except that the ~~five trading days prior to the date of the repayment. All principal and accrued but unpaid interest~~Private Warrants will be ~~due~~exercisable on a cashless basis and ~~payable~~be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the ~~fifth anniversary of~~same basis as the consummation of the Business Combination. The commitment letter provides that under the definitive documentation governing the Convertible Notes, Pivotal will be restricted from selling any additional senior or junior debt securities while the Convertible Notes are outstanding without the prior consent of the holders of the Convertible Notes. Such definitive documentation will also contain certain other affirmative covenants customarily includedPublic Warrants.

Shares Subject to Forfeiture

On December 19, 2019, in ~~similar debt instruments issued by public companies. The closing of the issuance of the Convertible Notes (the “Note Closing”) is conditioned upon~~connection with the consummation of the Business Combination, ~~being scheduled~~550,000 shares of Common Stock held by Pivotal Acquisition Holdings LLC were subjected to ~~occur immediately~~an additional lockup that will be released only if the last reported sale price of the Common Stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of Common Stock does not equal or exceed $15.00 within five years from the Closing Date, such shares of Common Stock will be forfeited to the Company for no consideration. These shares are reported as outstanding in our financial statements.

Note ~~Closing,~~8 – Income taxes

A valuation allowance has been established against our net U.S. federal and state deferred tax assets, including net operating loss (“NOL”) carryforwards. As a result, our income tax position is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. During the three months ended September 30, 2020 and 2019, the Company recorded an income tax provision of $0.4 million and $0.1 million, respectively, resulting in an effective tax rate of (3.3)% and (0.6)%, respectively. During the nine months ended September 30, 2020 and 2019, the Company recorded an income tax provision of $1.0 million and $0.4 million, respectively, resulting in an effective tax rate of (2.6)% and (1.1)%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences and the valuation allowance against our domestic deferred tax assets.

Note 9 – Commitments and contingencies

The Company is involved in various legal proceedings, which may arise occasionally in the normal course of business. While the ultimate results of such matters generally cannot be predicted with certainty, management does not expect such matters to have a material effect on the financial position and results of operations as of September 30, 2020.

The Company has four letters of credit totaling $0.8 million as additional security for lease guarantees related to four leased properties.

Risks and Uncertainties

Impacts of COVID-19 pandemic on KLDiscovery’s Business

The potential impacts of the ongoing COVID-19 pandemic on the Company’s business are currently not estimable or determinable. The Company has made modifications to employee travel, employee work locations, and cancellation of certain events, among other modifications. During 2020, the Company implemented a salary exchange program pursuant to which certain employees have taken a temporary reduction in salary through December 31, 2020 that ranges from 2% to 20% in exchange for receiving 417,673 stock options and 211,207 RSUs to purchase shares of Common Stock in future periods. The Company also initiated limited furloughs for certain employees. 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 it determines is in the best interests of its employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on the Company’s business, including the effects on its customers and prospects, or on its financial results for the remainder of fiscal year 2020.

On March 27, 2020, the President signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, NOL carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, NOL carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of taxable income. As permitted under the CARES Act, we are deferring payroll taxes due in 2020 to 2021 and 2022. We continue to analyze other aspects of the CARES act as well as similar tax legislation in other countries we operate but do not believe they will have a meaningful impact to our results.

Note 10 – Related parties

On December 22, 2015, the Company entered into a consulting agreement with Carlyle Investment Management, LLC, an affiliate of The Carlyle Group, Inc., for advisory, consulting and other services in relation to the strategic and financial management of the Company. For the nine months ended September 30, 2019, the Company recognized $0.8 million in management consulting fees, reflected within “General and administrative expenses” in the accompanying consolidated Statements of Comprehensive Loss. The consulting agreement was terminated on December 19, 2019.

In connection with the ~~proceeds from~~Business Combination, the ~~Convertible Notes able~~Company assumed Debentures of which $103.2 million are owed to ~~be used~~affiliates of MGG Investment Group, an affiliate of Kevin Griffin, a director of the Company as of September 30, 2020. For the three months ended September 30, 2020 and 2019, the Company recognized $3.1 million and $0 million in interest expense, respectively, related to ~~fund~~ the ~~minimum cash consideration set forth~~Debentures. For the nine months ended September 30, 2020 and 2019, the Company recognized $9.0 million and $0 million in interest expense, respectively, related to the ~~Merger Agreement.~~

Executive Summary — a general description of our business and key highlights for the three and nine months ended September 30, 2020.

Results of Operations — an analysis of our results of operations in our condensed consolidated financial ~~statements~~statements.

Liquidity and ~~related notes thereto included elsewhere in this report.~~Capital Resources — an analysis of our cash flows, sources and uses of cash, commitments and contingencies and quantitative and qualitative disclosures about market risk.

Critical Accounting Policies and Estimates — a discussion of critical accounting policies requiring judgments and estimates.

Collections and Processing Services: We have remote and onsite collection services. Our proprietary workflows and tools allow us to ingest, extract native file metadata and index in a normalized format. We have near duplication tools to quickly discard duplicative or irrelevant data, significantly minimizing the data that needs to be reviewed. Our analytics include predictive coding which allows us to automatically classify millions of documents in a matter of hours. We offer email threading that looks at relationships between email messages to identify the most content inclusive messages to avoid redundant review and we have language identification that can automatically identify the primary language in all documents in the data set. The collection of data is billed either by the unit or hour and the data that is processed and produced is billed by gigabyte, page or by file.

Forensics and Consulting Services: We provide the expertise and tools needed to extract and analyze digital evidence to support a client’s legal matter. Our forensics experts help extract critical evidence, recover any data that individuals may have sought to erase or hide, retrieve key data buried in documents and organize data contained in multiple information sources to give our clients the insight and knowledge they need. Our forensics and consulting services are billed by either hour or unit.

Professional Services: We manage complex eDiscovery matters and partner with our clients to assist through the lifecycle of a case. Our professional services are billed on an hourly basis.

Managed Review Services: We use our extensive eDiscovery project management experience, technological excellence and global presence to provide clients with a secure, seamless and cost-effective managed review solution. We assemble review teams of experienced legal professionals for any type of case. Each team member is a qualified attorney who has passed a selective screening process and has received training from a KLDiscovery review manager to ensure the most efficient and defensible review of a client’s documents. Document review managers have extensive project management experience to oversee the entire review process and work with the client’s legal team as an integrated partner. Our industry experts have developed advanced managed review processes and tools and deliver services in state-of-the-art facilities, handle subject matter versatility, are platform agnostic, possess expert working knowledge of predictive coding and technology assisted review workflows, have multilingual capabilities and focus on quality. Our managed review services are billed on an hourly basis.

Hosting: We have flexible technology options and platforms to host our clients’ data for the life of the matter. We offer secure data centers around the globe to support data across jurisdictions and privacy laws. Hosting is billed by gigabyte.

Subscription: We offer subscription pricing options to provide cost predictability over time. Subscriptions cover a range of our services and are typically a fixed fee billed monthly for contract terms averaging 1 to 3 years.

Data Recovery Services: We recover lost data from devices that store digital information, including data centers, cloud, business servers, workstations, laptops and mobile devices. Pricing is per device.

PowerControls and Data Recovery Software: We enable search and recovery of data from database files and physically sound devices. Pricing is typically an annual or multi-year agreement at a fixed price.

Acquisition, financing and transaction costs generally represented by non-ordinary course earn-out valuation changes, rating agency fees, letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

Strategic initiatives expenses relate to costs resulting from pursuing strategic business opportunities. We do not consider the amounts to be representative of the day-to-day operating performance of our business.

Management fees, stock compensation and other primarily represents consulting fees and portions of compensation paid to our employees and executives through stock-based instruments. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may not align with the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation to better understand the long-term performance of our core business.

Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract or a change in the makeup of our personnel often related to an acquisition. We do not consider the amount of restructuring costs to be a representative component of the day-to-day operating performance of our business.

Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

our cash expenditures or future requirements for capital expenditures;

changes in, or cash requirements for, our working capital needs;

interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

any cash income taxes that we may be required to pay;

any cash requirements for replacements of assets that are depreciated or amortized over their estimated useful lives and may have to be replaced in the future; or

all non-cash income or expense items that are reflected in our statements of cash flows.

	For the Three Months Ended September 30,
(in millions)	2020			2019
Revenues	$	72.3		$	78.2
Cost of revenues		37.7			42.1
Gross profit		34.6			36.1
Operating expenses		34.5			35.3
Income from operations		0.1			0.8
Interest expense		12.4			12.0
Other expense		-			-
Loss before income taxes		(12.3	)		(11.2	)
Income tax provision		0.4			0.1
Net loss		(12.7	)		(11.3	)
Total other comprehensive (loss) income, net of tax		2.2			(2.2	)
Comprehensive loss		(10.5	)		(13.5	)

	For the Three Months Ended September 30,
(in millions)	2020			2019
Net Loss	$	(12.7	)	$	(11.3	)
Interest expense		12.4			12.0
Income tax expense		0.4			0.1
Depreciation and amortization expense		12.2			12.6
EBITDA	$	12.3		$	13.4
Acquisition, financing and transaction costs		1.3			0.7
Strategic Initiatives:
Sign-on bonus amortization		-			0.1
Non-recoverable draw		-			0.9
Total strategic initiatives		-			1.0
Management fees, stock compensation and other		1.0			0.7
Restructuring costs		1.6			0.3
Systems establishment		0.5			0.7
Adjusted EBITDA	$	16.7		$	16.8

	For the Nine Months Ended September 30,
(in millions)	2020			2019
Revenues	$	215.0		$	231.5
Cost of revenues		111.5			118.9
Gross profit		103.5			112.6
Operating expenses		104.3			111.8
(Loss) income from operations		(0.8	)		0.8
Interest expense		38.3			36.5
Other expense		0.1			0.1
Loss before income taxes		(39.2	)		(35.8	)
Income tax provision		1.0			0.4
Net loss		(40.2	)		(36.2	)
Total other comprehensive income (loss), net of tax		0.6			(2.3	)
Comprehensive loss		(39.6	)		(38.5	)

	For the Nine Months Ended September 30,
(in millions)	2020			2019
Net Loss	$	(40.2	)	$	(36.2	)
Interest expense		38.3			36.5
Income tax expense		1.0			0.4
Depreciation and amortization expense		36.1			37.6
EBITDA	$	35.2		$	38.3
Acquisition, financing and transaction costs		1.6			3.5
Strategic Initiatives:
Sign-on bonus amortization		0.2			0.4
Non-recoverable draw		0.3			2.9
Total strategic initiatives		0.5			3.3
Management fees, stock compensation and other		2.7			2.8
Restructuring costs		2.3			1.6
Systems establishment		1.6			2.0
Adjusted EBITDA	$	43.8		$	51.5

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Net cash provided by (used in):
Operating activities	$	25,307		$	(11,960	)
Investing activities	$	(11,501	)	$	(9,938	)
Financing activities	$	(13,438	)	$	4,211
Effect of foreign exchange rates	$	63		$	(142	)
Net increase (decrease) in cash	$	431		$	(17,829	)

As of September 30, 2019, we had marketable securities held in the Trust Account of $233,279,783 (including approximately $3,280,000 of interest income) primarily consisting of money market funds. Interest income on the balance in the Trust Account maywould be ~~used by us to pay taxes. Through September 30, 2019, we did not withdraw any interest earned on the Trust Account.~~

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account not previously released to us (less taxes payable and deferred underwriting commissions) to complete our initial business combination. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

As of September 30, 2019, we had cash of $477,134 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.

considered off-balance sheet arrangements. We do not ~~believe we will need~~participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to ~~raise additional funds in order to meet expenditures required~~as variable interest entities, which would have been established for ~~operating our business. However, if our estimates~~the purpose of ~~the costs~~facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of ~~identifying a target business, undertakingin-depth~~ ~~due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior~~other entities or purchased any nonfinancial assets.

Recent Accounting Pronouncements

See Note 1 to our ~~initial business combination. In order to fund working capital deficiencies or finance transaction costs~~consolidated financial statements included elsewhere in ~~connection with an intended initial business combination, our Sponsor, officers~~this Quarterly Report on Form 10-Q for a summary of accounting standards not yet adopted.

Critical Accounting Policies and ~~directors or their respective affiliates may, but are not obligated to, loan us funds as may be required on anon-interest~~ basis. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post business combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our Sponsors, officers, directors or their respective affiliates as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.

Moreover, we may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our trust account or because we become obligated to redeem a significant number of our public shares upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account.

~~Off-balance~~ ~~sheet financing arrangements~~Estimates

We ~~did not have anyoff-balance~~ ~~sheet arrangements as of September 30, 2019.~~

~~Contractual obligations~~

~~We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.~~

~~Critical accounting policies~~

~~The preparation of~~prepare our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

~~Common stock subject to possible redemption~~

~~We account for our common stock subject to possible redemption~~ in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the ~~guidance~~facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the controlcertain of the ~~holder or subject~~estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. There were no changes to ~~redemption upon the occurrence of uncertain events not solely within~~ our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside ofcritical accounting policies from those described in our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed consolidated balance sheets.

~~Net loss per common share~~

~~We apply thetwo-class~~ method in calculating earnings per share. Shares of common stock subject to possible redemption which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjustedAnnual Report on Form 10-K for the ~~portion of income that is attributable to common stock subject to possible redemption,~~year ended December 31, 2019, as ~~these shares only participate in~~filed with the ~~earnings of the Trust Account~~Securities and ~~not our income or losses.~~Exchange Commission (the “SEC”) on March 26, 2020.

~~Recent accounting standards~~

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.

Following the consummation of the Offering, the net proceeds of the Offering, including amounts in the Trust Account, may be invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in US treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposureInterest Rate Risk

We are subject to interest rate ~~risk.~~market risk in connection with our long-term indebtedness. Our principal interest rate exposure relates to outstanding amounts under the $340 million First Lien Facility as well as the Revolving Credit Facility of $30 million. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. Assuming the amounts outstanding at September 30, 2020 are fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our annualized interest expense by approximately $0.1 million. We do not currently hedge our interest rate exposure.

Exchange Rate Risk

Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive (loss) income” in our consolidated balance sheets included elsewhere in this Quarterly Report on Form 10-Q.

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” in our consolidated statements of comprehensive loss included

elsewhere in this Quarterly Report on Form 10-Q. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

During the three months ended September 30, 2020 and 2019, we generated the equivalent of $13.3 million and $17.5 million, respectively, of U.S. dollar-denominated revenues in non-U.S. subsidiaries. Each 100 basis point increase or decrease in the average foreign currency rate to U.S. dollar exchange rate for the three-month period would have correspondingly changed our revenues by approximately $0.1 million and $0.2 million for each of the three months ended September 30, 2020 and 2019. During the nine months ended September 30, 2020 and 2019, we generated the equivalent of $41.9 million and $50.8 million, respectively, of U.S. dollar-denominated revenues in non-U.S. subsidiaries. Each 100 basis point increase or decrease in the average foreign currency rate to U.S. dollar exchange rate for the nine-month period would have correspondingly changed our revenues by approximately $0.4 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively. We do not currently hedge our exchange rate exposure.

Item 4. Controls and ~~Procedures~~Procedures.

Evaluation of Disclosure Controls and Procedures

~~Disclosure~~Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to ~~ensure~~provide reasonable assurance that information we are required to ~~be disclosed by us~~disclose in ~~our~~reports that we file or submit under the Exchange Act ~~reports~~ is recorded, processed, summarized, and reported within the time periods specified in ~~the SEC’s~~SEC rules and forms, and that such information is accumulated and communicated to our management, including our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer or persons performing similar functions,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Under the supervision and with the participation~~Management’s Report on Internal Controls over Financial Reporting

This Quarterly Report on Form 10-Q does not include a report of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2019, as such term is defined in Rules~~13a-15(e)~~ ~~and15d-15(e)~~ under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

~~Changes in Internal Control Over Financial Reporting~~

~~There was no change in~~management’s assessment regarding our internal control over financial reporting ~~that occurred~~(as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) due to a transition period established by rules of the SEC.

Changes to Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during ~~the~~our most ~~recently completed~~recent fiscal quarter ~~covered by this Quarterly Report on Form10-Q~~that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitation on the Effectiveness of Internal Control

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

~~PART II - OTHER INFORMATION~~Part II. Other Information

Item 5. 1. Legal Proceedings.

In the ordinary conduct of our business, we are subject to lawsuits, arbitrations and administrative proceedings from time to time. We vigorously defend these claims; however, no assurances can be given as to the outcome of any pending legal proceedings. We believe, based on currently available information, that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on our business, financial condition, liquidity or results of operations.

Item 1A. Risk Factors.

Except as noted below, there have been no material changes to the risk factors disclosed in “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on March 26, 2020.

An outbreak of disease or similar public health threat, such as a novel strain of coronavirus, could have an ongoing material adverse impact on the Company’s business, operating results and financial condition.

We are vulnerable to the general economic effects of disease outbreaks and similar public health threats. COVID-19 began to spread globally in late 2019 and has been declared a pandemic by the World Health Organization and is impacting worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. We have offices in 19 countries, including regions significantly impacted by COVID-19. In March 2020, we transitioned the majority of our workforce to a remote working model, whereby employees execute their job functions from home leveraging a two-factor authenticated and secure VPN. A majority of our workforce continues to work remotely for the near term. Additionally, our document review business, which has always been conducted entirely at our facilities, has transitioned to a remote model to ensure continuity of operations. In April and May 2020, the Company implemented a salary exchange program pursuant to which certain employees took a temporary reduction in salary that ranged from 2% to 20% in exchange for receiving stock options to purchase Common Stock of the Company and restricted stock units of Common Stock. In July 2020, the Company extended the salary reduction program through December 31, 2020 and initiated limited furloughs for certain employees. Revenues decreased by $16.5 million, or 7.1%, to $215.0 million for the nine months ended September 30, 2020 as compared to $231.5 million for the nine months ended September 30, 2019, primarily due to the impacts of COVID-19 as many clients have delayed the start of new matters and court systems were widely closed for a period of time and subsequently slow to reopen. With the ongoing pandemic and possible additional shutdowns, our sales force and in-person services may continually be impacted, which could impact our sales and operating results. The extent to which COVID-19 will impact our results, including the ability of our customers to continue to pay in a timely manner, is dependent on future developments, which are uncertain and unpredictable, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. While it is not possible at this time to estimate the full impact that COVID-19 could have on our business, the ongoing COVID-19 pandemic and the measures taken by the governments of countries affected could adversely impact our business, financial condition or results of operations.

We process, store and use personal and other special datasets on behalf of some of our clients, which subjects us to governmental regulation and other legal obligations related to privacy and information security, and our actual or perceived failure to comply with such obligations could harm our business and reputation.

We collect, store, transmit, use, disclose and process data that was collected from or about natural persons or their devices (“personally identifiable information” or “PII”) and other sensitive client data. In addition to terms in our contractual arrangements with our clients, there are numerous federal, state, local and foreign laws, regulations and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of such PII and other personal or client data, the scope of which is continually evolving and subject to differing interpretations. We and our clients must comply with such laws, regulations and directives and we and our clients may be subject to significant consequences, including penalties and fines, for our failure to comply.

For example, on May 25, 2018, the General Data Protection Regulation 679/2016 (“GDPR”) replaced the Data Protection Directive 95/46/EC with respect to the processing of PII in the European Union. The GDPR imposes several stringent requirements for controllers and processors of PII (including non-E.U. processors who process personal data on behalf of E.U. controllers), including, for example, more robust internal accountability controls, a strengthened individual data rights regime, shortened timelines for mandatory data breach notifications, limitations on retention and secondary use of information and additional obligations when we contract with third parties in connection with the processing of PII. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the E.U. member states may result in fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. Complying with the GDPR has required us to implement additional internal processes to ensure that we collect and process PII in a compliant way and re-draft of all our standard contracts to meet specific articles within the GDPR. As we continue to operate under the GDPR, compliance may become onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EEA to the United States. For example, on July 16, 2020, the E.U.-U.S. Privacy Shield Framework, which allows for the transfer of personal data from the US to the EU, was invalidated by the European Court of Justice (“CJEU”). Three of our group companies are accredited under the Privacy Shield program to legitimize the transfer of personal data from the EEA to the US. Although the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate PII transfer mechanism) upon which we rely for intra group transfers of PII (and is the most widely used transfer mechanism by our clients), it made clear that use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals. The future of the standard contractual clauses remains uncertain and may be

invalidated in future by European courts or supervisory authorities. We could be impacted by changes in law as a result of a future review of transfer mechanisms by European supervisory authorities under the GDPR. If further legal bases for transferring PII from Europe to the United States are invalidated, or if we are unable to transfer PII between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results.

Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others (including clients), a loss of client confidence, damage to our brand and reputation or a loss of clients, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with clients. For example, some countries have adopted laws mandating that PII regarding clients in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

Additionally, in connection with some of our product initiatives, we expect that our clients may increasingly use our cloud services to store and process PII and other regulated data. We post on our websites and, where appropriate, within our products, our privacy policies and practices concerning the treatment of PII that we hold as a “controller.” While we include minimum privacy or information security commitments in our contracts, E.U. requirements may make it so that we will be unable to do business without such commitments. Any failure by us to timely amend client contracts to conform to changing data protection laws, or to comply with our posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the privacy or information security commitments contained in our contracts could result in proceedings against us by governmental entities or others, including individual rights of action, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the increased attention focused upon any liability we may have as a result of lawsuits or regulatory actions could also harm our reputation or otherwise impact the growth of our business. Furthermore, although we market and sell products to our clients to help them comply with federal, state, local and foreign laws, regulations and directives, including the GDPR, our clients are responsible for ensuring they are in compliance with such laws, regulations and directives. Any failure by our clients to comply could result in significant consequences to them, including penalties and fines, and despite the existence of contractual exclusions and marketing disclaimers which make their responsibility for their own compliance clear, our clients may file claims or seek indemnification from us, which may result in reputational harm and require us to expend time, effort and costs to defend such claims or respond to indemnification requests.

In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-regulatory standards that either legally or contractually apply to our clients or us. Any significant change to applicable laws, regulations, directives or industry practices regarding the collection, storage, transmission, processing, use or disclosure of our clients’ data, or regarding the manner in which the express or implied consent of clients for the collection, storage, transmission, processing, use and disclosure of such data is obtained, could require us to modify our solutions and features, possibly in a material manner, and may limit our ability to develop new services and features that make use of the data that our clients voluntarily share with us. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to clients or other third parties, our privacy-related legal obligations or any compromise of security that results in the unauthorized access to, use, release or transfer of PII or other client data, may result in governmental enforcement actions, litigation, negative media attention or public statements against us by consumer advocacy groups or others and could cause our clients to lose trust in us, which would have an adverse effect on our reputation and business. Our clients may also accidentally disclose their passwords or store them on a mobile device that may be lost or stolen, resulting in unauthorized access to their data and creating the perception that our systems are not secure against third-party access. Additionally, if employees or third parties that we work with, such as contractors, vendors or developers, violate applicable laws or our policies, such violations may also put our clients’ information at risk and could in turn have an adverse effect on our business.

We have expanded our involvement in the delivery and provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue to do so in the future. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against us resulting from the failures of cloud computing providers which we may partner with. While we do limit this in our contractual agreements with clients, the failure to comply with data protection laws and regulations by our clients and business partners who provide cloud computing services could have a material adverse effect on our business. Some cloud computing providers have been reluctant to provide us with information which we need in order to comply with E.U. privacy laws, and some providers refuse to offer legally compliant terms or offer terms that are commercially reasonable. We will need to modify our procurement processes in response to changing client and regulatory demands. If we fail to do so correctly, or in a timely manner, we may experience disruptions in client relationships, or receive regulatory inquiries or be the subject of government enforcement actions, which may in turn cause a material loss in revenues or damage our brand and reputation.

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

In August 2018, we issued to our Sponsor an aggregate of 5,750,000 shares of Class B common stock in exchange for a capital contribution of $25,000, or approximately $0.004 per share. Such shares were issued in connection with our organization pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”).

On February 4, 2019, we consummated the Offering of 23,000,000 units, including 3,000,000 units subject to the underwriters’ over-allotment option. Each unit consisted of one share of Class A common stock and one redeemable warrant, with each warrant entitling the holder to purchase one share of Class A common stock at a price of $11.50 per share. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $230,000,000. Cantor Fitzgerald & Co. acted as the sole book-running manager and BTIG, LLC acted as lead manager of the offering. The securities sold in the IPO were registered under the Securities Act on a registration statement on Form~~S-1~~ ~~(No.333-229027)~~ ~~which became effective under Section 8(a) of the Securities Act on January 31, 2019.~~

Simultaneously with the consummation of the IPO, we consummated the private placement of 6,350,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, generating total proceeds of $6,350,000. The Private Placement Warrants were purchased by the Sponsor. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The Private Placement Warrants are identical to the warrants included in the units sold in the Offering, except that the Private Placement Warrants are~~non-redeemable~~ and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchaser or its permitted transferees. The purchaser of Private Placement Warrants has agreed not to transfer, assign, or sell any of the Private Placement Warrants or Class A common stock underlying the Private Placement Warrants (except to certain permitted transferees) until 30 days after the completion of our initial Business Combination.

Transaction costs amounted to $13,116,578, consisting of $4,600,000 of underwriting fees, $8,050,000 of deferred underwriting fee and $466,578 of other costs. In addition, as of September 30, 2019, $477,134 of net Offering proceeds is held as cash outside of the Trust Account and is available for working capital purposes.

Item 6. 3. Exhibits and Financial Statement Schedules.

Exhibits

Exhibit Index

Exhibit Number
~~Exhibit No.~~		Description
3.1		Second Amended and Restated Certificate of Incorporation of KLDiscovery Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed December 26, 2019)
~~31.1~~ 3.2		Amended and Restated Bylaws of KLDiscovery Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed December 26, 2019)
10.1 *+		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Christopher Weiler.
10.2 *+		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Dawn Wilson.
10.3 *+		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Krystina Jones.
10.4 *+		Forfeiture of Options Letter, dated August 6, 2020, by and between KLDiscovery Inc. and Christopher Weiler.
10.5 *+		Executive Severance and Novation Agreement, dated September 30, 2020, by and between KLDiscovery Inc. and Christopher Weiler.
10.6*+#		KrolLDiscovery, 2018 Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones.
10.7*+#		KLDiscovery (January – December 2018) Sales Commission Plan Sales Performance Addendum, by and between the Company and Krystina Jones.
10.8*+#		KLDiscovery 2020 Americas Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones.
10.9*+#		KLDiscovery 2020 Sales Commission Plan, Sales Performance Addendum, by and between the Company and Krystina Jones.
31.1*		Certification of ~~Chief~~Principal Executive Officer ~~pursuant~~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*
~~31.2~~		Certification of ~~Chief~~Principal Financial Officer ~~pursuant~~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*
32		Certification of ~~Chief~~Principal Executive Officer ~~and Chief Financial Officer pursuant~~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 Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH
~~101.SCH~~		XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase Document
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document

+	Management contract and compensatory plan and arrangement

#	Certain confidential information contained in this agreement has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

			KLDiscovery Inc.
	~~PIVOTAL ACQUISITION CORP.~~

~~Date: November 14, 2019~~	By:	/s/ ~~Jonathan~~Christopher J. ~~Ledecky~~Weiler
	~~Name:~~	~~Jonathan~~ Christopher J. ~~Ledecky~~Weiler
	~~Title:~~	~~Chairman of the Board and~~		Chief Executive Officer ~~(Principal Executive Officer)~~

	~~By:~~	~~/s/ James H.R. Brady~~
	~~Name:~~	~~James H.R. Brady~~
	~~Title:~~	~~Chief Financial Officer~~ ~~(Principal Financial and Accounting Officer)~~

		Page
	~~Page~~
Part I. Financial Information		1
Item 1. Financial Statements		1
Condensed Consolidated Balance Sheets		1
Condensed Consolidated Statements of ~~Operations~~Loss		2
Condensed Consolidated Statements of Changes in Stockholders’ Equity		3
Condensed Consolidated Statements of Cash Flows		4
Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9 19
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk		11 28
Item 4. Controls and Procedures		11 29
Part II. Other Information		29
Item 5.1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities		11 32
Item 6.3. Exhibits		12 32
Part III. Signatures		13 33


	September 30, 2019		December 31, 2018
	(unaudited)
ASSETS
Current Assets
Cash	$	477,134	$	19,168
Prepaid expenses and other current assets		118,884		—

Total Current Assets		596,018		19,168
Deferred offering costs		—		133,174
Marketable securities held in Trust Account		233,279,783		—

Total Assets	$	233,875,801	$	152,342

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	305,845	$	969
Income taxes payable		555,319		—
Accrued offering costs		—		2,500
Promissory note – related party		—		125,000

Total Current Liabilities		861,164		128,469
Deferred underwriting fee		8,050,000		—

Total Liabilities		8,911,164		128,469

Commitments
Class A Common Stock, subject to possible redemption, 21,752,975 and no shares at redemption value as of September 30, 2019 and December 31, 2018, respectively		219,964,630		—
Stockholders’ Equity
Preferred Stock, $0.0001 par value; 1,000,000 authorized; none issued and outstanding		—		—
Class A Common Stock, $0.0001 par value; 75,000,000 shares authorized; 1,247,025 and no shares issued and outstanding (excluding 21,752,975 and no shares subject to possible redemption) as of September 30, 2019 and December 31, 2018, respectively		125		—
Class B Common Stock, $0.0001 par value; 10,000,000 shares authorized; 5,750,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018		575		575
Additionalpaid-in capital		3,293,092		24,425
Retained earnings (accumulated deficit)		1,706,215		(1,127	)

Total Stockholders’ Equity		5,000,007		23,873

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	233,875,801	$	152,342


	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			For the Period from August 2, 2018 (Inception) Through September 30, 2018
Operating costs	$	274,695		$	1,017,122		$	993

Loss from operations		(274,695	)		(1,017,122	)		(993	)
Other income:
Interest income		1,141,748			3,279,783			—
Unrealized loss on marketable securities held in Trust Account		(15,659	)		—			—

Other income, net		1,126,089			3,279,783			—

Income (loss) before provision for income taxes		851,394			2,262,661			(993	)
Provision for income taxes		(196,896	)		(555,319	)		—

Net income (loss)	$	654,498		$	1,707,342		$	(993	)

Weighted average shares outstanding, basic and diluted⁽¹⁾		6,979,761			6,701,184			5,000,000

Basic and diluted net loss per share⁽²⁾	$	(0.03	)	$	(0.11	)	$	(0.00	)


	Class A Common Stock				Class B Common Stock				Additional Paid in Capital		Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Additional Paid in Capital		Accumulated Deficit			Total Stockholders’ Equity
Balance – August 2, 2018 (inception)		—	$	—		—	$	—	$	—	$	—		$	—
Issuance of Class B common stock to Sponsor⁽¹⁾		—		—		5,750,000		575		24,425		—			25,000
Net loss		—		—		—		—		—		(993	)		(993	)

Balance – September 30, 2018 (unaudited)		—	$	—		5,750,000	$	575	$	24,425	$	(993	)	$	24,007


	Class A Common Stock						Class B Common Stock				Additional Paid in Capital			(Accumulated Deficit) / Retained Earnings			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Additional Paid in Capital			(Accumulated Deficit) / Retained Earnings			Total Stockholders’ Equity
Balance – January 1, 2019		—		$	—			5,750,000	$	575	$	24,425		$	(1,127	)	$	23,873
Sale of 23,000,000 Units, net of underwriting discount and offering expenses		23,000,000			2,300			—		—		216,881,122			—			216,883,422
Sale of 6,350,000 Private Placement Warrants		—			—			—		—		6,350,000			—			6,350,000
Common stock subject to possible redemption		(21,810,992	)		(2,181	)		—		—		(218,711,906	)		—			(218,714,087	)
Net income		—			—			—		—		—			456,797			456,797

Balance – March 31, 2019 (unaudited)		1,189,008			119			5,750,000		575		4,543,641			455,670			5,000,005
Change in value of common stock subject to possible redemption		40,753			4			—		—		(596,047	)		—			(596,043	)
Net income		—			—			—		—		—			596,047			596,047

Balance – June 30, 2019 (unaudited)		1,229,761			123			5,750,000		575	$	3,947,594			1,051,717			5,000,009
Change in value of common stock subject to possible redemption		17,264			2			—		—		(654,502	)		—			(654,500	)
Net income		—			—			—		—		—			654,498			654,498

Balance – September 30, 2019 (unaudited)		1,247,025		$	125			5,750,000	$	575	$	3,293,092		$	1,706,215		$	5,000,007


	Nine Months Ended September 30, 2019			For the Period from August 2, 2018 (Inception) Through September 30, 2018
Cash Flows from Operating Activities:
Net income (loss)	$	1,707,342		$	(993	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Interest earned on marketable securities held in Trust Account		(3,279,783	)		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(118,884	)		—
Accounts payable and accrued expenses		304,876			969
Income taxes payable		555,319			—

Net cash used in operating activities		(831,130	)		(24	)

Cash Flows from Investing Activities:
Investment of cash in Trust Account		(230,000,000	)		—

Net cash used in investing activities		(230,000,000	)		—

Cash Flows from Financing Activities:
Proceeds from issuance of common stock to Sponsor		—			25,000
Proceeds from sale of Units, net of underwriting discounts paid		225,400,000			—
Proceeds from sale of Private Placement Warrants		6,350,000			—
Proceeds from promissory note – related party		—			125,000
Repayment of promissory note – related party		(125,000	)		—
Payment of offering costs		(335,904	)		(67,500	)

Net cash provided by financing activities		231,289,096			82,500

Net Change in Cash		457,966			82,476
Cash – Beginning		19,168			—

Cash – Ending	$	477,134		$	82,476

Non-cash Investing and Financing Activities:
Deferred underwriting fee payable	$	8,050,000		$	—

Initial classification of common stock subject to possible redemption	$	218,257,180		$	—

Change in value of common stock subject to possible redemption	$	1,707,450		$	—

Deferred offering costs included in accrued offering costs	$	—		$	2,500


	Three Months Ended September 30, 2019			ne Months Ended September 30, 2019			For the Period from August 2, 2018 (Inception) Through September 30, 2018
Net income (loss)	$	654,498		$	1,707,342		$	(993	)
Less: Income attributable to common stock subject to possible redemption		(831,541	)		(2,434,928	)		—

Adjusted net loss	$	(177,043	)	$	(727,586	)	$	(993	)

Weighted average shares outstanding, basic and diluted		6,979,761			6,701,184			5,000,000

Basic and diluted net loss per common share	$	(0.03	)	$	(0.11	)	$	(0.00	)


Description	Level		September 30, 2019
Assets:
Marketable securities held in Trust Account		1	$	233,279,783