UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2020

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

For the transition period from to

Commission File Number: 001-38745

ATLAS TECHNICAL CONSULTANTS, INC.

(Exact name of registrant as specified in its charter)

Delaware		83-0808563
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

13215 Bee Cave Parkway, Building B, Suite 230, Austin, TX		78738
(Address of principal executive offices)		(Zip Code)

(512) 851-1501

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0001 par value per share	ATCX	Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Class A common stock at an exercise price of $11.50 per share	ATCXW	Nasdaq Stock Market LLC

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

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

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

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

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

As of ~~August 10,~~November 9, 2020, ~~5,767,342~~5,838,929 shares of the registrant’s Class A common stock, par value $0.0001 per share, and ~~23,974,368~~24,678,978 shares of the registrant’s Class B common stock, par value $0.0001 per share, were outstanding.

ATLAS TECHNICAL CONSULTANTS, INC.

Form 10-Q

For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-Q for the period ended ~~June~~September 30, 2020 ( the “Quarterly Report”) of Atlas Technical Consultants, Inc. (the “Company”) on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and ~~involve a number~~Section 21E of ~~risks and uncertainties.~~the Securities Exchange Act of 1934, as amended. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions and estimates, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” ~~“intends,~~“intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations of such words and similar expressions may identify forward- looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report are based on our expectations and beliefs as of the date of this filing concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These ~~forward- looking~~forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions or estimates that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

These risks and uncertainties include, but are not limited to, those described throughout this report, our annual report on Form 10-K for the year ended December 31, 2019 and filed with the Securities and Exchange Commission (“SEC”) on March, 16, 2020, ~~and~~ our quarterly report on Form 10-Q for the period ended March 31, 2020 and filed with the SEC on May 11, 2020, as amended, and our quarterly report on Form 10-Q for the period ended June 30, 2020 and filed with the SEC on August 10, 2020, as amended, particularly the “Risk Factors” sections of such reports and the factors described below:

●

the effect, impact, potential duration or other implications of the novel coronavirus 2019 (“COVID-19”) pandemic and any expectations we may have with respect thereto;

●

the adequacy of our efforts to mitigate cyber security risks and threats, especially with a significant number of employees working remotely due to the COVID-19 pandemic;

●

Operational challenges related to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;

●

the ability to maintain the listing of our Class A common stock on ~~NASDAQ~~the Nasdaq following the Atlas Business ~~Combination;~~Combination (as defined herein);

●

our access to capital to fund expansions, acquisitions, and our working capital needs and our ability to ~~raise~~obtain debt or equity financing ~~in the future;~~on satisfactory terms;

●

our success in retaining or recruiting, or changes required in, our officers, key employees or directors;

●

our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business;

●

our public securities’ potential liquidity and trading;

●

changes adversely affecting the business in which we are engaged;

●

the risks associated with cyclical demand for our services and vulnerability to industry downturns and regional and national downturns;

●

fluctuations in our revenue and operating results;

●

unfavorable conditions or further disruptions in the capital and credit markets;

●

our ability to generate cash, service indebtedness and incur additional indebtedness;

●

competition from existing and new competitors;

●

our ability to integrate any businesses we acquire and achieve projected synergies;

●

the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;

●

our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures;

●

our ability to recruit and retain qualified personnel;

●

risks related to legal proceedings or claims, including liability claims;

●

our dependence on third-party contractors to provide various services;

●

~~our ability to obtain additional capital on commercially reasonable terms;~~

●

safety and environmental requirements and governmental regulations that may subject us to unanticipated liabilities; and

●

general economic ~~conditions.~~conditions and demand for our services.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this ~~Form 10-Q~~Quarterly Report and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Unless specifically indicated otherwise, the forward looking statements in this ~~Form 10-Q~~Quarterly Report do not reflect the potential impact of any divestitures, mergers, acquisitions, or other business combinations that have not been completed as of the date of this filing. In addition, the forward-looking statements in this ~~Form 10-Q~~Quarterly Report are made as of the date of this filing, including expectations based on third-party information and projections that management believes to be reputable, and the Company does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.

~~iii~~

iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ATLAS TECHNICAL CONSULTANTS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

June 30, December 31,
2020 2019
ASSETS
Current assets:
Cash and equivalents $ 16,881 $ 20,185
Accounts receivable, net 88,356 90,775
Unbilled receivables, net 45,501 40,513
Prepaid expenses 4,100 5,266
Other current assets 1,036 812

Total current assets 155,874 157,551

Property and equipment, net 15,439 14,824
Intangible assets, net 88,401 92,389
Goodwill 92,254 85,125
Other long-term assets 2,907 2,884

TOTAL ASSETS $ 354,875 $ 352,773

LIABILITIES, REDEEMABLE PREFERRED STOCK, SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL
Current liabilities:
Trade accounts payable $ 21,296 $ 30,754
Accrued liabilities 10,958 10,085
Current maturities of long-term debt 14,050 10,875
Other current liabilities 11,482 13,712

Total current liabilities 57,786 65,426

Long-term debt, net of current maturities and loan costs 270,915 158,557
Other long-term liabilities 7,791 1,347

Total liabilities 336,492 225,330

COMMITMENTS AND CONTINGENCIES (NOTE 14)

Redeemable preferred stock 145,866 -

Members’ Capital - 127,443
Class A common stock, $0.0001 par value, 400,000,000 shares authorized, 5,767,342 shares issued and outstanding at June 30, 2020 1 -
Class B common stock, $0.0001 par value, 23,974,368 shares authorized, 23,974,368 shares issued and outstanding at June 30, 2020 2 -
Additional paid in capital (23,442 ) -
Non-controlling interest (102,131 ) -
Retained (deficit) (1,913 ) -

Total shareholders’ equity/members’ capital (127,483 ) 127,443

TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK. SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL $ 354,875 $ 352,773

	September 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and equivalents	$	11,635		$	20,185
Accounts receivable, net		108,784			90,775
Unbilled receivables, net		35,820			40,513
Prepaid expenses		5,620			5,266
Other current assets		2,437			812

Total current assets		164,296			157,551

Property and equipment, net		14,717			14,824
Intangible assets, net		88,026			92,389
Goodwill		97,892			85,125
Other long-term assets		3,065			2,884

TOTAL ASSETS	$	367,996		$	352,773

LIABILITIES, REDEEMABLE PREFERRED STOCK, SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL
Current liabilities:
Trade accounts payable	$	26,138		$	30,754
Accrued liabilities		14,443			10,085
Current maturities of long-term debt		14,050			10,875
Other current liabilities		19,135			13,712

Total current liabilities		73,766			65,426

Long-term debt, net of current maturities and loan costs		255,897			158,557
Other long-term liabilities		14,015			1,347

Total liabilities		343,678			225,330

COMMITMENTS AND CONTINGENCIES (NOTE 14)

Redeemable preferred stock		148,535			-

Members’ Capital		-			127,443
Class A common stock, $0.0001 par value, 400,000,000 shares authorized, 5,793,034 shares issued and outstanding at September 30, 2020		1			-
Class B common stock, $0.0001 par value, 24,724,873 shares authorized, 24,724,873 shares issued and outstanding at September 30, 2020		2			-
Additional paid in capital		(23,154	)		-
Non-controlling interest		(98,216	)		-
Retained (deficit)		(2,850	)		-

Total shareholders’ equity/members’ capital		(124,217	)		127,443

TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL	$	367,996		$	352,773

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

ATLAS TECHNICAL CONSULTANTS, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019

Revenues $ 112,715 $ 123,669 $ 222,017 $ 229,280

Cost of revenues (58,714 ) (68,452 ) (117,612 ) (125,624 )
Operating expenses (45,376 ) (47,236 ) (113,741 ) (92,105 )

Operating income (loss) 8,625 7,981 (9,336 ) 11,551

Interest expense (6,398 ) (3,149 ) (12,038 ) (5,534 )
Other income (expense) 18 (486 ) 50 (782 )

Income (loss) before income taxes 2,245 4,346 (21,324 ) 5,235
Income tax expense - (154 ) - (159 )

Net income (loss) from continuing operations 2,245 4,192 (21,324 ) 5,076

Loss from discontinued operations - (64 ) - (213 )

Net income (loss) 2,245 4,128 (21,324 ) 4,863

Provision for non-controlling interest 1,881 - 5,141 -

Redeemable preferred stock dividends (4,533 ) - (6,777 ) -

Net (loss) income attributable to Class A common stock shareholders/members $ (407 ) $ 4,128 $ (22,960 ) $ 4,863

(Loss) Per Class A Common Share $ (0.07 ) N/A $ (0.33 ) N/A

Weighted average of shares outstanding:
Class A common shares (basic and diluted) 5,767,342 N/A 5,767,342 N/A

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

Revenues	$	120,486		$	128,753		$	342,503		$	358,033

Cost of revenues		(62,229	)		(70,623	)		(179,840	)		(196,247	)
Operating expenses		(51,355	)		(47,068	)		(165,096	)		(139,173	)

Operating income (loss)		6,902			11,062			(2,433	)		22,613

Interest expense		(6,310	)		(2,493	)		(18,349	)		(8,027	)
Other (expense) income		(31	)		64			18			(718	)

Income (loss) before income taxes		561			8,633			(20,764	)		13,868
Income tax (expense) benefit		-			45			-			(114	)

Net income (loss) from continuing operations		561			8,678			(20,764	)		13,754

Loss from discontinued operations		-			-			-			(213	)

Net income (loss)		561			8,678			(20,764	)		13,541

Provision for non-controlling interest		3,003			-			8,144			-

Redeemable preferred stock dividends		(4,501	)		-			(11,277	)		-

Net (loss) income attributable to Class A common stock shareholders/members	$	(937	)	$	8,678		$	(23,897	)	$	13,541

(Loss) Per Class A Common Share	$	(0.16	)		N/A		$	(0.49	)		N/A

Weighted average of shares outstanding:
Class A common shares (basic and diluted)		5,774,872			N/A			5,770,411			N/A

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

ATLAS TECHNICAL CONSULTANTS, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CASH FLOWS

(in thousands)

For the six months ended
June 30,
2020 2019
Cash flows from operating activities:
Net (loss) income $ (21,324 ) $ 4,863
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 10,327 10,534
Equity based compensation expense 10,035 569
(Gain) on sale of property and equipment (1 ) (82 )
Write-off of deferred financing costs related to debt extinguishment 1,712 40
Amortization of deferred financing costs 984 121
Provision for bad debts 1,465 569
Changes in assets & liabilities:
Decrease (increase) in accounts receivable and unbilled receivable 1,060 (70 )
Decrease (increase) in prepaid expenses 1,166 (1,656 )
(Increase) decrease in other current assets (224 ) 79
(Decrease) in trade accounts payable (10,142 ) (183 )
(Decrease) in accrued liabilities (947 ) (2,665 )
(Decrease) in other current and long-term liabilities (352 ) (4,701 )
(Increase) in other long-term assets (9 ) (476 )

Net cash (used in) provided by operating activities (6,250 ) 6,942

Cash flows from investing activities:
Purchases of property and equipment (2,133 ) (4,339 )
Proceeds from disposal of property and equipment - 248
Purchase of business, net of cash acquired (10,748 ) -

Net cash (used in) investing activities (12,881 ) (4,091 )

Cash flows from financing activities:
Proceeds from issuance of debt 320,000 178,039
Payment of loan acquisition costs (17,506 ) -
Repayments of debt (189,657 ) (121,358 )
Proceeds from issuance of redeemable preferred stock 141,840 -
Payments of redeemable preferred stock dividends (931 )
Issuance of common stock 10,229 -
Member distributions (21,830 ) (53,400 )
Payment to shareholders associated with Atlas Business Combination (226,318 ) -
Payment of contingent earn-out - (2,500 )
Net cash provided by financing activities 15,827 781

Net change in cash and equivalents (3,304 ) 3,632

Cash and equivalents - beginning of period 20,185 6,509

Cash and equivalents - end of period $ 16,881 $ 10,141

Supplemental information:
Cash paid during the period for:
Interest $ 9,009 $ 2,053
Taxes - 195

Capital assets financed 94 -
Contingent consideration share settled 1,060 -
Dividends due on redeemable preferred stock 1,819 -

	For the nine months ended September 30,
	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(20,764	)	$	13,541
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		15,470			15,603
Equity based compensation expense		10,415			1,383
Loss (gain) on sale of property and equipment		18			(76	)
Write-off of deferred financing costs related to debt extinguishment		1,712			40
Amortization of deferred financing costs		1,740			174
Provision for bad debts		1,081			351
Changes in assets & liabilities:
(Increase) in accounts receivable and unbilled receivable		(2,259	)		(2,899	)
Decrease (increase) in prepaid expenses		209			(170	)
(Increase) in other current assets		(1,625	)		(171	)
(Decrease) increase in trade accounts payable		(6,353	)		2,340
Increase (decrease) in accrued liabilities		4,358			(993	)
Increase (decrease) in other current and long-term liabilities		6,147			(7,944	)
(Increase) in other long-term assets		(24	)		(2,487	)

Net cash provided by operating activities		10,125			18,692

Cash flows from investing activities:
Purchases of property and equipment		(2,743	)		(6,128	)
Proceeds from disposal of property and equipment		224			270
Purchase of business, net of cash acquired		(12,394	)		-

Net cash (used in) investing activities		(14,913	)		(5,858	)

Cash flows from financing activities:
Proceeds from issuance of debt		327,000			179,316
Payment of loan acquisition costs		(17,767	)		(1,274	)
Repayments of debt		(212,170	)		(124,130	)
Proceeds from issuance of redeemable preferred stock		141,840			-
Payments of redeemable preferred stock dividends		(4,583	)		-
Issuance of common stock		10,229			-
Member distributions		(21,830	)		(53,400	)
Distributions to non-controlling interests		(163	)		-
Payment to shareholders associated with Atlas Business Combination		(226,318	)		-
Payment of contingent earn-out		-			(2,500	)
Net cash (used in) financing activities		(3,762	)		(1,988	)

Net change in cash and equivalents		(8,550	)		10,846

Cash and equivalents - beginning of period		20,185			6,509

Cash and equivalents - end of period	$	11,635		$	17,355

Supplemental information:
Cash paid during the period for:
Interest	$	14,873		$	6,880
Taxes		-			1,472

Capital assets financed		123			-
Contingent consideration share settled		1,060			-
Dividends due on redeemable preferred stock		-			-

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

ATLAS TECHNICAL CONSULTANTS, INC. AND SUBSIDIARIES

UNAUDITED STATEMENTS OF SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL

(in thousands)

Consolidated Statement of Shareholders’ Equity and Members’ Capital
Class A Common Stock Class B Common Stock Additional
Paid in Members’ Non-
Controlling Retained Total Shareholders’
Shares Amount Shares Amount Capital Capital Interests Earnings Equity
Balance at December 31, 2018 171,794 171,794
Member distributions - -
Equity based compensation 56 56
Net income 735 735
Balance at March 31, 2019 - - - 172,585 - - 172,585
Member distributions (53,400 ) (53,400 )
Equity based compensation 513 513
Net income 4,128 4,128
Balance at June 30, 2019 - - - 123,826 - - 123,826

Balance at December 31, 2019 127,443 127,443
Member distributions (21,830 ) (21,830 )
Equity based compensation 9,845 9,845
Net (loss) prior to Atlas Business Combination (21,047 ) (21,047 )
Recapitalization in connection with Atlas Business Combination 5,767 1 23,974 2 (23,632 ) (94,411 ) (96,990 ) (215,030 )
Net (loss) post Atlas Business Combination (1,451 ) (1,071 ) (2,522 )
Dividends on redeemable preferred stock (1,809 ) (435 ) (2,244 )
Balance at March 31, 2020 5,767 1 23,974 2 (23,632 ) - (100,250 ) (1,506 ) (125,385 )
Equity based compensation 190 190
Net income 1,773 472 2,245
Dividends on redeemable preferred stock (3,654 ) (879 ) (4,533 )
Balance at June 30, 2020 5,767 1 23,974 2 (23,442 ) - (102,131 ) (1,913 ) (127,483 )

	Consolidated Statement of Shareholders’ Equity and Members’ Capital

	Class A Common Stock				Class B Common Stock					Additional Paid in			Members’			Non- Controlling			Retained			Total Shareholders’
	Shares		Amount		Shares			Amount		Capital			Capital			Interests			Earnings			Equity

Balance at December 31, 2018														171,794									171,794
Member distributions														-									-
Equity based compensation														56									56
Net income														735									735
Balance at March 31, 2019		-		-					-		-			172,585			-			-			172,585
Member distributions														(53,400	)								(53,400	)
Equity based compensation														513									513
Net income														4,128									4,128
Balance at June 30, 2019		-		-					-		-			123,826			-			-			123,826

Member distributions														-									-
Equity based compensation														814									814
Net income														8,678									8,678
Balance at September 30, 2019		-		-					-		-			133,318			-			-			133,318

Balance at December 31, 2019														127,443									127,443
Member distributions														(21,830	)								(21,830	)
Equity based compensation														9,845									9,845
Net (loss) prior to Atlas Business Combination														(21,047	)								(21,047	)
Recapitalization in connection with Atlas Business Combination		5,767		1		23,974			2		(23,632	)		(94,411	)		(96,990	)					(215,030	)
Net (loss) post Atlas Business Combination																	(1,451	)		(1,071	)		(2,522	)
Dividends on redeemable preferred stock																	(1,809	)		(435	)		(2,244	)
Balance at March 31, 2020		5,767		1		23,974			2		(23,632	)		-			(100,250	)		(1,506	)		(125,385	)
Equity based compensation											190												190
Net income																	1,773			472			2,245
Dividends on redeemable preferred stock																	(3,654	)		(879	)		(4,533	)
Balance at June 30, 2020		5,767		1		23,974			2		(23,442	)		-			(102,131	)		(1,913	)		(127,483	)

Equity based compensation											380												380
Net income																	625			(64	)		561
Dividends on redeemable preferred stock																	(3,628	)		(873	)		(4,501	)
Distribution to non-controlling interests																	(163	)					(163	)
Issuance of shares						776			-								6,989						6,989
Conversion of shares		26		-		(26	)		-		(92	)					92						-
Balance at September 30, 2020		5,793		1		24,724			2		(23,154	)		-			(98,216	)		(2,850	)		(124,217	)

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

ATLAS TECHNICAL CONSULTANTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Atlas Technical Consultants, Inc. (the “Company”, “We”, or “Atlas” and formerly named Boxwood Merger Corp. (“Boxwood”)) was a blank check company, incorporated in Delaware on June 28, 2017. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, recapitalization, or other similar business transaction, one or more operating businesses or assets.

On February 14, 2020 (the “Closing Date”), the Company consummated its acquisition of Atlas Intermediate Holdings LLC, a Delaware limited liability company (“Atlas Intermediate”), pursuant to the Unit Purchase Agreement, dated as of August 12, 2019, as amended on January 22, 2020 (the “Purchase Agreement”), by and among the Company, Atlas TC Holdings LLC, a wholly-owned subsidiary of the Company and a Delaware limited liability company (“Holdings”), Atlas TC Buyer LLC, a wholly-owned subsidiary of Holdings and a Delaware limited liability company (the “Buyer”), Atlas Intermediate and Atlas Technical Consultants Holdings LP, a Delaware limited partnership (the “Seller”). The acquisition of Atlas Intermediate pursuant to the Purchase Agreement, together with the other transactions contemplated by the Purchase Agreement is referred to herein as the “Atlas Business Combination.”

Following the consummation of the Atlas Business Combination, the combined company is organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which the Company’s only direct assets will consist of common units of Holdings (“Holdings Units”). The Company is the sole manager of Holdings in accordance with the terms of the amended and restated limited liability company agreement of Holdings (the “Holdings LLC Agreement”) entered into in connection with the consummation of the Atlas Business Combination.

The Company has ~~more than 135~~approximately 140 offices in 41 states, ~~and~~ employs ~~more than 3,200~~approximately 3,300 employees and is headquartered in Austin, Texas.

The Company provides public and private sector clients with comprehensive support in managing large-scale infrastructure improvement programs including engineering, design, program development/management, compliance services, acquisition and project control services, as well as construction engineering and inspection and materials testing.

Services are provided throughout the United States and its territories to a broad base of clients, with no single client representing 10% or more of our revenues for either the quarter ended ~~June~~September 30, 2020 or 2019. Services are rendered primarily on a time and materials and cost-plus basis with approximately 90% of our contracts on that basis and the remainder represented by firm fixed price contracts.

Basis of Presentation

The acquisition of Atlas Intermediate has been accounted for as a reverse recapitalization. Under this method of accounting, Atlas is treated as the acquired company and Atlas Intermediate is treated as the acquirer for financial reporting purposes. Therefore, the consolidated financial results include information regarding Atlas Intermediate as the Company’s predecessor entity. Thus, the financial statements included in this report reflect (i) the historical operating results of Atlas Intermediate prior to the Atlas Business Combination; (ii) the combined results of the Company and Atlas Intermediate following the Atlas Business Combination; (iii) the assets, liabilities and members’ capital of Atlas Intermediate at their historical costs; and (iv) the Company’s equity and earnings per share presented for the period from the Closing Date.

The accompanying interim statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair statement of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year or for any other period. These interim statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K that the Company filed with the SEC on March 16, 2020 and Form 8-K/A filed with the SEC on March 16, 2020.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (as defined herein), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Fiscal Year

The Company’s subsidiaries report ~~the~~their results of operations based on 52 or 53-week periods ending on the Friday nearest December 31, while Atlas reports on a calendar year end. For clarity of presentation, all periods are presented as if the year ended on December 31. During each quarter, our subsidiaries ~~will~~ close on the Friday closest to March 31, June 30, and September 30, and Atlas ~~will close~~closes on the actual calendar day. The impact of the difference between these dates ~~was insignificant.~~has been insignificant to date. The Company has appropriately eliminated all transactions between itself and its subsidiaries when presenting its balance sheet.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounts Receivable and Accrued Billings

The Company records its trade accounts receivable and unbilled receivables at their face amounts less allowances. On a periodic basis, the Company monitors the trade accounts receivable and unbilled receivables from its customers for any collectability issues. The allowance for doubtful accounts is established based on reviews of individual customer accounts, recent loss experience, current economic conditions, and other pertinent factors. As of ~~June~~September 30, 2020 and December 31, 2019, the allowance for trade accounts receivable was $2.9 million and $2.1 million, respectively, while the allowance for unbilled receivables was $0.7 million and $0.6 million, respectively. The allowances reflect the Company’s best estimate of collectability risks on outstanding receivables and unbilled services.

Property and Equipment

Purchases of new assets and costs of improvement to extend the useful life of existing assets are capitalized. Routine maintenance and repairs are charged to expenses as incurred. When an asset is sold or retired, the costs and related accumulated depreciation are eliminated from the accounts, and the resulting gains or losses on disposal are recognized in the accompanying combined statement of operations. The Company depreciates its assets on a straight-line basis over the assets’ useful lives, which range from 3three to 10ten years.

Impairment of Long-Lived Assets

The Company assesses long-lived assets for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. The Company recognizes an impairment if the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. There were no impairment charges for the three months or ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

Goodwill

Goodwill represents the excess of the cost of net assets acquired over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other, we evaluate goodwill annually for impairment on October 1, or whenever events or changes in circumstances indicate the asset may be impaired, using the quantitative method. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If we determine that this threshold is met, then performing the two-step quantitative impairment test is unnecessary. We may elect to bypass the qualitative assessment and proceed directly to the quantitative test for any reporting unit. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. We determine fair value through multiple valuation techniques, and weight the results accordingly. We make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. If the carrying value of our reporting unit exceeds the fair value of our reporting unit, we would calculate the implied fair value as compared to the carrying value to determine the appropriate impairment charge, if any. There were no impairment charges for the three or ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

Revenue Recognition

During the fourth quarter of 2019, we adopted ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective approach to all contracts that were not completed as of the beginning of fiscal year 2019. We utilize the portfolio method practical expedient, which allows companies to account for multiple contracts as a portfolio, instead of accounting for them on a contract by contract basis (commonly known as the contract method). For our time and materials contracts, we apply the ~~as- invoiced~~as-invoiced practical expedient, which permits us to recognize revenue as the right to invoice for services performed. The new standard did not materially affect our consolidated net income, financial position, or cash flows.

Below is a description of the basic types of contracts from which the Company may earn revenue:

Time and Materials Contracts

Under the time and materials (“T&M”) arrangements, contract fees are based upon time and materials incurred. The contracts may be structured as basic time and materials, cost plus a margin or time and materials subject to a maximum contract value (the “ceiling”). Due to the potential limitation of the contract’s ceiling, the economic factors of the contracts subject to a ceiling differ from the economic factors of basic T&M and cost plus contracts.

The majority of the Company’s contracts are for projects where it bills the client monthly at hourly billing or unit rates. The billing rates are determined by contract terms. Under cost plus contracts, the Company charges its clients for contract related costs at cost, an agreed upon overhead rate plus a fixed fee or rate.

Under time and materials contracts with a ceiling, the Company charges the clients for time and materials based upon the work performed however there is a ceiling or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the original or amended ceiling. As the consideration is variable depending on the outcome of the contract renegotiation, the Company will estimate the total contract price in accordance with the variable consideration guidelines and will only include consideration that it expects to receive from the customer. When the Company is reaching the ceiling, the contract will be renegotiated, or we cease work when the maximum contract value is reached. The Company will continue to work if it is probable that the contract will be extended. The Company is only entitled to consideration for the work it has performed, and the ceiling amount is not a guaranteed contract value.

The Company earned approximately 90% of its revenues under T&M contracts during the 3three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

Fixed Price Contracts

Under fixed price contracts, the Company’s clients pay an agreed amount negotiated in advance for a specified scope of work. The Company is guaranteed to receive the consideration to the extent that the Company delivers under the contract. The Company recognizes revenue over a period of time on fixed price contracts using the input method based upon direct costs incurred to date, which are compared to total projected direct costs. Costs are the most relevant measure to determine the transfer of the service to the customer. The Company assess contracts quarterly and may recognize any expected future loss before actually incurring the loss. When the Company is expecting to reach the total consideration under the contract, the Company will begin to negotiate a change order.

Change Orders and Claims

Change orders are modifications of an original contract that effectively change the provisions of the contract without adding new provisions. Either the Company or its client may initiate change orders. They may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer’s written approval of such changes or separate documentation of change order costs that are identifiable. Change orders may take time to be formally documented and terms of such change orders are agreed with the client before the work is performed. Sometimes circumstances require that work progresses before an agreement is reached with the client. If the Company is having difficulties in renegotiating the change order, the Company will stop work if possible, record all costs incurred to date, and determine, on a project by project basis, the appropriate final revenue recognition.

Claims are amounts in excess of the agreed contract price that the Company seeks to collect from its clients or others for client-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. Costs related to change orders and claims are recognized when they are incurred. The Company evaluates claims on an individual basis and recognizes revenue it believes is probable to collect.

Performance Obligations

The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and therefore, is not distinct. However, in some instances, we may also promise to provide distinct goods or services within a contract, resulting in multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. Typically, we sell a customer a specific service and use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

The Company’s performance obligations are satisfied as work progresses or at a point in time. Revenue on our cost- reimbursable contracts is recognized over time using direct costs incurred or direct costs incurred to date as compared to the estimated total direct costs for performance obligations because it best depicts the transfer of control to the customer. Contract costs include labor, subcontractors’ costs and other direct costs.

Gross revenue from services transferred to customers at a point in time is recognized when the customer obtains control of the asset, which is generally upon delivery and acceptance by the customer of the reports and/or analysis performed.

As of ~~June 30,~~September, 2020 and December 31, 2019, we had ~~$621~~$638 million and $601 million of remaining performance obligations, or backlog, respectively of which ~~$373~~$383 million and $371 million, respectively or 60% is expected to be recognized over the next 12 months and the majority of the balance over the next 24 months. Contracts for which work authorizations have been received are included in backlog. Project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in backlog. Most of our government contracts are multi-year contracts for which funding is appropriated on an annual basis, therefore backlog includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. In the case of non-government contracts, backlog includes future revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in backlog to the extent of the remaining estimated amount. Our backlog for the period beyond 12 months may be subject to variation from year-to-year as existing contracts are completed, delayed, or renewed or new contracts are awarded, delayed, or cancelled. As a result, we believe that year-to-year comparisons of the portion of backlog expected to be performed more than one year in the future are difficult to assess and not necessarily indicative of future revenues or profitability.

Contract Assets and Liabilities

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities). Billed and unbilled receivables are reflected on the face of the Consolidated Balance Sheet. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts as of the reporting date and is reported within “other current liabilities” on the Consolidated Balance Sheet. This liability was ~~$279~~$247 thousand and $343 thousand as of ~~June~~September 30, 2020 and December 31, 2019, respectively. Revenue recognized that was included in the contract liability balance at the beginning of the fiscal year was $32 thousand for the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$64~~$96 thousand for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

U.S. Federal Acquisition Regulations

The Company has contracts with the U.S. federal, state and local governments that contain provisions requiring compliance with the U.S. Federal Acquisition Regulations (“FAR”). These regulations are generally applicable to all of its contracts that are directly funded or partially funded by pass through funds from the U.S. federal government. These provisions limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed under forward pricing arrangements. Most of the Company’s government contracts are subject to termination at the convenience of the government. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.

Government contracts that are subject to the FAR are subject to audits performed by the Defense Contract Audit Agency (“DCAA”) and many other state governmental agencies. As such, the Company’s overhead rates, cost proposals, incurred government contract costs and internal control systems are subject to review. During the course of its audits, the DCAA or a state agency may question incurred costs if it believes the Company has accounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards and recommend that the applicable contracting officer disallow such costs. Historically, the Company has not incurred significant disallowed costs because of such audits. However, the Company can provide no assurance that the rate audits will not result in material disallowances of incurred costs in the future. The Company provides for a refund liability to the extent that it expects to refund some of the consideration received from a customer. The liability at ~~June~~September 30, 2020 and December 31, 2019 was $813 thousand.

Disaggregation of Revenues

As described further in Note 2 – Summary of Significant Accounting Policies, the Company has one operating segment, Engineering, Testing, Inspection and Other Consultative Services, which reflects how the Company is being managed. The Company provides public and private sector clients with comprehensive support in managing large-scale infrastructure improvement programs including engineering, design, program development/management, compliance services acquisition and project control services, as well as construction engineering and inspection and materials testing. ~~Public sector clients approximate one-third~~Approximately 50% of the Company’s revenues in each reporting period ~~presented.~~presented are derived from federal, state and local government related projects.

All services performed by the Company are rendered in the United States and its territories via two contract types, time and materials or fixed price contracts. The Company derives 90% of its revenues from T&M contracts, the remainder are earned under fixed price contracts.

Cash Flows

The Company has presented its cash flows using the indirect method and considers all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance limit.

Comprehensive Income

There are no other components of comprehensive income other than net income and the provision for non-controlling interest associated with Holding Units.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts receivable. These risks primarily relate to the concentration of customers who are large, governmental customers and regional governmental customers. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements (“ASC 820”), establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

The three levels of the fair value hierarchy under ASC 820 are described as follows:

Level 1 — Inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that management has the ability to access.

Level 2 — Inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.

Level 3 — Inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company has various financial instruments, including cash and cash equivalents, accounts receivable and payable, accrued liabilities, and long-term debt. The carrying value of the Company’s cash and cash equivalents, accounts receivable, and payable and accrued liabilities approximate their fair value due to their short-term nature. The Company believes that the aggregate fair values of its long-term debt approximates their carrying amounts as the interest rates on the debt are either reset on a frequent basis or reflect current market rates.

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. The allocation of the purchase price to identifiable intangible assets is based on valuations performed to determine the fair values of such assets as of the acquisition dates. Generally, the Company engages a third-party independent valuation specialist to assist in management’s determination of fair values of tangible and intangible assets acquired and liabilities assumed. The fair values of earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. The Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheet. Changes in the estimated fair value of contingent earnout payments are included in operating expenses in the accompanying combined statements of operations.

Several factors are considered when determining contingent consideration liabilities as part of the purchase price, including whether (i) the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (ii) the former owners of the acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of other key employees. The contingent earn-out payments are not affected by employment termination.

The Company reviews and re-assesses the estimated fair value of contingent consideration liabilities on a quarterly basis, and the updated fair value could differ materially from the initial estimates. The Company measures contingent consideration recognized in connection with business combinations at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The Company uses a probability-weighted discounted cash flow approach as a valuation technique to determine the fair value of the contingent consideration liabilities on the acquisition date and at each reporting period. The significant unobservable inputs used in the fair value measurements are projections over the earn-out period, and the probability outcome percentages that are assigned to each scenario. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and amount paid will be recorded in earnings. The Company records the current portion of contingent consideration liability within other current liabilities and the noncurrent portion of contingent consideration liability within other long-term liabilities within its Consolidated Balance Sheet.

The following table summarizes the changes in the fair value of estimated contingent consideration:

Contingent consideration, as of December 31, 2019 $ 1,060
Additions for acquisitions 5,625
Reduction of liability for payment made (1,060 )
Total contingent consideration, as of June 30, 2020 5,625
Current portion of contingent consideration -
Contingent consideration, less current portion $ 5,625

Contingent consideration, as of December 31, 2019	$	1,060
Additions for acquisitions		5,625
Reduction of liability for payment made		(1,060	)
Total contingent consideration, as of September 30, 2020		5,625
Current portion of contingent consideration		-
Contingent consideration, less current portion	$	5,625

Equity Based Compensation

The Company recognizes the cost of services received in an equity based payment transaction with an employee as services are received and record either a corresponding increase in equity or a liability, depending on whether the instruments granted satisfy the equity or liability classification criteria.

The measurement objective for these equity awards is the estimated fair value at the grant date of the equity instruments that the Company is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. The compensation cost for an award classified as an equity instrument is recognized ratably over the requisite service period, including an estimate of forfeitures. The requisite service period is the period during which an employee is required to provide service in exchange for an award.

Consistent with the change in control provisions within the applicable agreements, the Company fully expensed the remaining unamortized value of the stock awards that vested upon the completion of the Atlas Business Combination during the quarter ended March 31, 2020. However, the Company granted restricted stock units during the second quarter of its fiscal year as a means to reward and retain selected management personnel. Please refer to Note 10 – Equity Based Compensation for further information.

Equity compensation was ~~$190~~$380 thousand and ~~$513~~$814 thousand for the three months ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$10,035~~$10,415 thousand and ~~$569~~$1,383 thousand for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

Income Taxes

Following the consummation of the Atlas Business Combination, the Company is organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which the Company’s only direct assets ~~will consist~~consists of common units of Holdings Units. The Company is the sole manager of Holdings in accordance with the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.

Previously, Atlas Intermediate was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the partners and members. As such, no recognition of federal or state income taxes for the Company or its subsidiaries have been provided for in the accompanying consolidated financial statements except as disclosed below.

In addition, there are two C-Corporations (“C-Corp”) subsidiaries for which we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The results of operations prior to the Atlas Business Combination were treated consistently in this manner.

Subsequent to the Atlas Business Combination, the Up-C structure allowed the holders of our Class B common stock, par value $0.0001 per share (the “Class B common stock”) to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass through” entity, for U.S. federal income (and certain state and local) tax purposes following the business combination. One of these benefits is that, for U.S. federal income (and certain state and local) purposes, future taxable income of Atlas that is allocated to the Seller and its limited partners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level.

Income tax relating to the C-Corps is not considered in the provision for non-controlling interest calculation as it is solely the responsibility of the holders of our Class A common stock, par value $0.0001 per share (the “Class A common stock”). The Texas margin tax is considered within the provision of non-controlling interest as it generated through the results of Atlas Intermediate and its subsidiaries.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. At September 30, 2020, we have recorded a full valuation reserve. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Deferred taxes consisted of the following:

June 30,
2020 December 31,
2019

($’s in millions)
Asset:
Current $ 0.1 $ -
Noncurrent 13.0 -
Deferred tax asset, gross 13.1 -
Valuation allowance (13.1 ) -
Deferred tax asset, net $ - $ -

Liability:
Current $ - $ -
Noncurrent 0.6 0.6
Deferred tax liability, gross 0.6 0.6
Valuation allowance - -
Deferred tax liability, net $ 0.6 $ 0.6

	September 30, 2020			December 31, 2019

Asset:
Current	$	172		$	-
Noncurrent		13,081			-
Deferred tax asset, gross		13,253			-
Valuation allowance		(13,253	)		-
Deferred tax asset, net	$	-		$	-

Liability:
Current	$	-		$	-
Noncurrent		619			619
Deferred tax liability, gross		619			619
Valuation allowance		-			-
Deferred tax liability, net	$	619		$	619

There are no net operating loss carryforwards. The Company records its deferred tax liabilities in other long-term liabilities within its Consolidated Balance Sheet.

Income tax expense (benefit) was $0.0 million and ~~$0.2~~($0.0) million for the three months ended ~~June~~September 30, 2020 and 2019, respectively and $0.0 and ~~$0.2~~$0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

Income tax expense for the three and ~~six~~nine months ended ~~June 30,~~September, 2019 and the period beginning January 1, 2020 through the Closing Date differs from the 21% statutory federal tax rate and various state tax rates applied to the Company’s pre-tax income due to only certain C-Corp subsidiaries being subject to recognition of federal or state income taxes in the Company’s Consolidated Statement of Operations.

The rate reconciliation for the period from the Atlas Business Combination through ~~June~~September 30, 2020 is as follows:

Three Months Ended
June 30,
2020 Atlas Business Combination Through
June 30,
2020

Pre-tax (income) loss (2,245 ) $ 277
Statutory tax rate 26 % 26 %
Tax (expense) benefit (584 ) 72
Deferred tax asset valuation reserve 584 (72 )
Income tax expense, net $ - $ -

	Three Months Ended September 30, 2020			Atlas Business Combination Through September 30, 2020

Pre-tax loss		64		$	663
Statutory tax rate		26	%		26	%
Tax benefit		17			172
Deferred tax asset valuation reserve		(17	)		(172	)
Income tax expense, net	$	-		$	-

Redeemable Preferred Stock

On February 14, 2020, in connection with the consummation of the Atlas Business Combination, Holdings and GSO COF III AIV-2 LP (“GSO AIV-2”) entered into a subscription agreement, dated February 14, 2020 (the “Subscription Agreement”) pursuant to which, GSO AIV-2 purchased 145,000 units of a new class of Series A Senior Preferred Units of Holdings (the “Preferred Units”) at a price per Preferred Unit of $978.21 for an aggregate cash purchase price of $141,840,450, which represents a 2.179% original issue discount on the Preferred Units (such purchase, the “GSO Placement”).

The GSO Placement was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D promulgated thereunder.

The Preferred Units rank senior in priority to all other existing and future equity securities of Holdings with respect to liquidation preference and distribution rights.

The Preferred Units have a liquidation preference of $1,000 per Preferred Unit (the “Liquidation Preference”).

Subject to any limitations set forth in the Atlas Credit Agreement (as defined in Note 7 – Long-Term Debt), the Preferred Units pay a dividend of 5% per annum, plus either an additional 6.25% per annum in cash or 7.25% per annum in additional Preferred Units, at Holdings’ option, payable quarterly in arrears.

If a cash dividend is not able to be made because of a limitation under the Atlas Credit Agreement, then the Liquidation Preference with respect to any Unit shall increase to 3.5625% in any quarter until a cash dividend can be made.

The Preferred Units do not possess voting rights and are not convertible into any other security of Holdings.

Holdings may redeem the Preferred Units beginning on the second anniversary of the Closing Date at a price of 103% of the Liquidation Preference (the “Redemption Premium”), and on the third anniversary of their issuance at the Liquidation Preference, in each case plus accrued and unpaid dividends. The Preferred Units may only be redeemed by Holdings within the first two years of the Closing Date upon a change of control as described below, in which case such Preferred Units will be redeemed at a customary ~~make- whole~~make-whole amount as if the Preferred Units were redeemed on the second anniversary.

Subject to the terms of Holdings’ and its subsidiaries’ senior credit agreements, Holdings will be required to redeem the Preferred Units at the Redemption Premium, plus accrued and unpaid dividends, in the event of (i) a change of control, (ii) sales or other dispositions of all or substantially all of Holdings’ assets and (iii) the insolvency or bankruptcy of Holdings or any of its material subsidiaries.

Finally, holders of the Preferred Units may require Holdings to redeem their Preferred Units at the Liquidation Preference, plus accrued and unpaid dividends, beginning on the eighth anniversary of the Closing Date, subject to certain customary limitations.

Redeemable preferred stock, as of December 31, 2019 $ -
Additions 141,840
Accrued paid in kind dividends 3,988
Accretion of discount 38
Redeemable preferred stock, as of June 30, 2020 $ 145,866

Redeemable preferred stock, as of December 31, 2019	$	-
Additions		141,840
Accrued paid in kind dividends		6,629
Accretion of discount		66
Redeemable preferred stock, as of September 30, 2020	$	148,535

Segment

The Company has one operating and reporting segment, Engineering, Testing, Inspection and Other Consultative Services. This financial information is reviewed regularly by our chief operating decision maker to assess performance and make decisions regarding the allocation of resources and is equivalent to our consolidated information. Our chief operating decision maker does not review below the consolidated level. Our chief operating decision maker is our Chief Executive Officer.

Recent Accounting Pronouncements

In February 2016, FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this accounting standard update are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the requirements of ASU 2016-02 and its impact on the consolidated and combined financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for the Company commencing after December 15, 2022. The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.

NOTE 3 – ATLAS BUSINESS COMBINATION

On the Closing Date, the Company completed the acquisition of Atlas Intermediate and its subsidiaries and in return the Atlas Intermediate members: (i) received 24.0 million shares of Class B common stock in the Company, (ii) repaid the $171.5 million of outstanding debt and interest accrued and due lender, (iii) ~~payment of $10.9~~paid$10.9 million of seller incurred acquisition-related costs, (iv) ~~settlement~~settled $1.1 million of contingent consideration associated with the SCST, Inc. acquisition and (v) paid $2.2 million of change in control payments due certain executives. This was paid for with: (i) $20.7 million of cash raised from ~~SPAC~~special purpose acquisition company (“SPAC”) shareholders and the private placement discussed herein, (ii) the issuance of redeemable preferred stock in the amount of $141.8 million and (iii) the issuance of new debt in the amount of $271.0 million as discussed in Note 7 – Long-Term Debt.

The shares of non-economic Class B common stock of the Company, which entitles each holder to one vote per share, are redeemable on a one-for-one basis for shares of Class A common stock at the option of the Unit Holders (formerly members) as their lock-up ~~period~~periods expire. Upon the redemption by any Class B common stock shares for Class A common stock, a corresponding number of shares of Class B common stock will be cancelled.

In connection with the Company’s entry into the Atlas Business Combination, the Company agreed to issue and sell in a private placement an aggregate of 1,000,000 shares of Class A common stock for a purchase price of $10.23 per share, and aggregate consideration of $10.2 million (the “Private Placement”). The Private Placement was consummated concurrently with the Closing Date and the proceeds of the Private Placement were used to fund a portion of the consideration paid to the Atlas Intermediate members.

Because the holders of our Class B common stock have effective control of the combined company after the Closing Date through ~~its~~their majority voting interests in both the Company and, accordingly, Atlas Intermediate, the Atlas Business Combination was accounted for as a reverse recapitalization. Although the Company was the legal acquirer, Atlas Intermediate was the accounting acquirer. As a result, the reports filed by the Company subsequent to the Atlas Business Combination are prepared “as if” Atlas Intermediate is the predecessor and legal successor to the Company. The historical operations of Atlas Intermediate are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Atlas Intermediate prior to the Atlas Business Combination; (ii) the combined results of the Company and Atlas Intermediate following the Atlas Business Combination; (iii) the assets, liabilities and members’ capital of Atlas Intermediate at their historical cost; and (iv) the Company’s equity and earnings per share for the period from the Closing Date.

NOTE 4 – BUSINESS ACQUISITIONS

In February 2020, the Company acquired Long Engineering (“LONG”), a land surveying and engineering company headquartered in Atlanta, Georgia. The aggregate purchase price consideration paid in connection with this stock acquisition was ~~$10.5~~$10.7 million in cash, subject to customary closing working capital adjustments plus an earnout of up to ~~$12~~$12.0 million contingent upon the achievement of certain financial targets to be paid upon the first, second and third anniversaries of the closing.

In September 2020, the Company acquired AltaVista Solutions (“Alta Vista”), a provider of testing and inspection services primarily to infrastructure clients. Alta Vista is headquartered in Oakland, California and has offices in California and New York. The purchase agreement calls for the Company to pay Alta Vista up to $15.1 million in the form of cash and stock consideration. The Company has accrued for $6.2 million of cash consideration to be paid subsequent to the balance sheet date within “Other Current Liabilities” on its unaudited Consolidated Balance Sheet. The Company issued 776,197 shares of Class B common stock to the former owners of Alta Vista and this represented $7.0 million of the total consideration paid. Total consideration may also be increased or decreased based on results in future years. Final value will be subject to customary closing working capital adjustments and the resolution of certain contingencies.

The Company did not acquire any entities during 2019.

Acquisition costs of approximately ~~$0.6~~$0.4 million have been expensed in 2020 in the Consolidated Statement of Operations within operating expenses.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition:

Cash $ -
Accounts receivable 4,846
Property and equipment 1,423
Other long-term assets 14
Intangible assets 3,491
Liabilities (778 )

Net assets acquired $ 8,996

Consideration paid (cash and rollover equity) $ 10,500
Contingent earnout liability at fair value (cash) 5,625

Total consideration 16,125

Excess consideration over the preliminary amounts assigned to the net assets acquired (goodwill) $ 7,129

	LONG			Alta Vista
Cash	$	-		$	314
Accounts receivable		5,094			2,787
Unbilled receivable					4,258
Property and equipment		1,423			306
Other current and long-term assets		14			707
Intangible assets		3,491			3,400
Liabilities		(778	)		(2,312	)

Net assets acquired	$	9,244		$	9,460

Consideration paid (cash and rollover equity)	$	10,748		$	15,098
Contingent earnout liability at fair value (cash)		5,625			-

Total consideration		16,373			15,098

Excess consideration over the preliminary amounts assigned to the net assets acquired (goodwill)	$	7,129		$	5,638

The above purchase price allocations are tentative and preliminary and subject to further updates as we complete the purchase price allocation.

NOTE 5 – PROPERTY AND EQUIPMENT, NET

The Company depreciates its assets on a straight-line basis over the assets’ useful lives, which range from 3three to 10ten years. Property and equipment consist of the following:

June 30, December 31, Average
2020 2019 life

Furniture and fixtures $ 3,071 $ 2,793 3-5 years
Equipment and vehicles 31,959 29,504 3-10 years
Computers 19,349 15,122 3 years
Leasehold improvements 5,065 4,936 3-5 years
Construction in progress 48 2,503
Less: Accumulated depreciation and amortization (44,053 ) (40,034 )

$ 15,439 $ 14,824

	September 30,			December 31,			Average
	2020			2019			Life

Furniture and fixtures	$	3,245		$	2,793		3-5 years
Equipment and vehicles		31,668			29,504		3-10 years
Computers		19,590			15,122		3 years
Leasehold improvements		5,201			4,936		3-5 years
Construction in progress		129			2,503
Less: Accumulated depreciation and amortization		(45,116	)		(40,034	)

	$	14,717		$	14,824

Property and equipment under capital leases:

June 30, December 31,
2020 2019

Computer equipment $ 1,532 $ 1,241
Less accumulated depreciation (783 ) (557 )
$ 749 $ 684

	September 30,			December 31,
	2020			2019

Computer equipment	$	1,575		$	1,241
Less accumulated depreciation		(897	)		(557	)
	$	678		$	684

Capital leases for computer equipment have an average lease term of five years with minimum lease payments as follows:

2020 (six months remaining) $ 165
2021 354
2022 353
2023 269
2024 73
Thereafter -
$ 1,214

2020 (three months remaining)	$	91
2021		364
2022		363
2023		279
2024		97
Thereafter		18
	$	1,212

Depreciation expense was approximately ~~$1.5~~$1.3 million for the three months ended ~~June~~September 30, 2020 and 2019, respectively and ~~$2.9~~$4.2 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

NOTE 6 – GOODWILL AND INTANGIBLES

The carrying amount, including changes therein, of goodwill was as follows:

Balance as of December 31, 2019 $ 85,125
Acquisitions 7,129
Disposals -
Measurement period adjustments -
Balance as of June 30, 2020 $ 92,254

Balance as of December 31, 2019	$	85,125
Acquisitions		12,767
Disposals		-
Measurement period adjustments		-
Balance as of September 30, 2020	$	97,892

The Company did not recognize any impairments of goodwill in the three or ~~six~~nine months ended ~~June~~September 30, 2020 or 2019.

Intangible assets as of ~~June~~September 30, 2020 and December 31, 2019 consist of the following:

June 30, 2020 December 31, 2019 Remaining
Gross
amount Accumulated amortization Net book
value Gross
amount Accumulated amortization Net book value useful life
(in years)
Definite life intangible assets:
Customer relationships $ 109,130 $ (28,940 ) $ 80,190 $ 106,620 $ (23,759 ) $ 82,861 18.8
Tradenames 19,601 (11,487 ) 8,114 18,620 (9,282 ) 9,338 9.8
Non-competes 600 (503 ) 97 600 (410 ) 190 2.5

Total intangibles $ 129,331 $ (40,930 ) $ 88,401 $ 125,840 $ (33,451 ) $ 92,389

	September 30, 2020							December 31, 2019							Remaining
	Gross amount		Accumulated amortization			Net book value		Gross amount		Accumulated amortization			Net book value		useful life (in years)
Definite life intangible assets:
Customer relationships	$	111,130	$	(31,547	)	$	79,583	$	106,620	$	(23,759	)	$	82,861		18.5
Tradenames		21,001		(12,608	)		8,393		18,620		(9,282	)		9,338		9.5
Non-competes		600		(550	)		50		600		(410	)		190		2.3

Total intangibles	$	132,731	$	(44,705	)	$	88,026	$	125,840	$	(33,451	)	$	92,389

Amortization expense for the three months ended ~~June~~September 30, 2020 and 2019 was $3.8 million and ~~$3.7~~$3.8 million, respectively, and was ~~$7.5~~$11.3 million and ~~$7.6~~$11.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

Amortization of intangible assets for the next five years and thereafter is expected to be as follows:

2020 (six months remaining) $ 6,984
2021 11,860
2022 11,267
2023 10,978
2024 10,924
Thereafter 36,388
$ 88,401

2020 (three months remaining)	$	3,376
2021		12,527
2022		11,933
2023		11,528
2024		11,124
Thereafter		37,538
	$	88,026

NOTE 7 – LONG-TERM DEBT

In October 2017, concurrent with the closing of the acquisition of Moreland Altobelli Associates, LLC (“Moreland”), Atlas Intermediate obtained a bridge loan from Regions Bank in the amount of $42.0 million. In November 2017, concurrent with the closing of the Consolidated Engineering Laboratories (“ETS”) acquisition, Atlas Intermediate entered into a credit agreement with a group led by Regions Bank providing a term loan of $95.0 million and a revolving credit facility of $30.0 million secured by the assets owned by Atlas Intermediate. Proceeds from the credit agreement were used to fund the acquisition of ETS, repayment of the bridge loan, and for a redemption of $15.2 million of initial equity contributions made by the initial members once overall leverage amounts were determined. The credit agreement is scheduled to mature in November 2022 with quarterly principal payments required beginning December 2017. Interest is compounded based on the variable rate in effect.

ATC Group Partners (“ATC”) had a business loan agreement (the “Loan Agreement”) maturing on January 29, 2020. The Loan Agreement included a revolving credit facility that shall not exceed $45 million. Security for the loan was provided by a first- priority interest in substantially all of ATC’s assets and a promissory note. Borrowings under the Loan Agreement bear interest at the one-month London Interbank Offered Rate (LIBOR) plus a margin based on the total leverage ratio as defined in the Loan Agreement.

In March 2019, subsequent to the merger with ATC ~~the~~Group Partners (“ATC”), we repaid all outstanding ~~balance~~balances on the ~~Loan Agreement was paid~~combined entity’s loan agreements in full and terminated ~~and the existing Atlas credit facility was amended to provide~~our prior loan agreements. These loan agreements were replaced with a term loan of $145.0 million and a revolving credit facility of $50.0 million, inof which $31.8 million was funded at closing ~~(“Atlas~~(the “Atlas Credit Facility”). Proceeds of the Atlas Credit Facility were used to repay existing debt of $123.9 million and fund a shareholder distribution of $52.8 million made in April 2019.

The Atlas Credit Facility was secured by assets of Atlas Intermediate. The Atlas Credit Facility ~~requires~~required quarterly principal payments of $2.719 million through March 31, 2023, and then $3.625 million until the final maturity in March 2024, and ~~bears~~bore interest at an annual rate of LIBOR plus a margin ranging from 275 to 425 basis points determined by the Company’s Consolidated Leverage Ratio, as ~~defined.~~defined in the Atlas Credit Facility. For the interest payment made in the in the quarter ended December 31, 2019, the applicable margin was 375 basis points and the total interest rate was 5.500%.

The Atlas Credit Facility was scheduled to mature in March 2024. However, in connection with the consummation of the Atlas Business Combination, the Atlas Credit Facility was repaid and a new credit arrangement (the “Atlas Credit Agreement”) was entered into with Macquarie Capital (the “Lender” or “Lead Arranger”). The Atlas Credit Agreement called for a term loan (the “Term Loan”) in the amount of $281.0 million and revolving letter of credit (the “Revolver”) in the amount of $40.0 million of which ~~$24.0~~$12.0 million was drawn upon through ~~June~~September 30, 2020. The term loan proceeds were used to repay the existing Atlas Credit Facility in the amount of $171.0 million and partially fund the Atlas Business Combination and the LONG acquisition.

Under the terms of the Atlas Credit Agreement, the Term Loan and Revolver are set to ~~expire~~mature on February 14, 2027 and February 14, 2025, respectively. Interest is payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. The interest rates under the Atlas Credit ~~Facility will be~~Agreement are equal to either (i) Adjusted LIBOR as defined in the Atlas Credit Agreement, plus 4.75%, or (ii) an Alternate Base Rate as defined in the Atlas Credit Agreement, plus 3.75%.

The Atlas Credit Agreement is guaranteed by Holdings and secured by (i) a first priority pledge of the equity interests of subsidiaries of Holdings and Atlas Intermediate and (ii) a first priority lien on substantially all other assets of Holdings, Atlas Intermediate and all of their direct and indirect subsidiaries.

On March 31, 2020, the terms of the Atlas Credit Agreement were modified to reduce the maturity of the Term Loan by one year to February 14, 2026 from February 14, 2027. The interest rate for the Term Loan was increased to (i) Adjusted LIBOR as defined in the Atlas Credit Agreement, plus 6.25%, or (ii) an Alternate Base Rate as defined in the Atlas Credit Agreement, plus 5.25%. The interest rate for the Revolver was increased to (i) Adjusted LIBOR as defined in the Atlas Credit Agreement, plus 5.0%, or (ii) an Alternate Base Rate as defined in the Credit Agreement, plus 4.0%. The modification also increased rate of amortization applicable to the Term Loan to 5.0% per annum (commencing on June 30, 2020).

The modifications to the Atlas Credit Agreement resulted from the exercise of the market-flex rights by the lead arranger in connection with the syndication process, which, in addition, required the payment of an upfront fee in an amount equal to 2% of the currently outstanding Term Loans, which was paid during April 2020. The market-flex rights were included in the Atlas Credit Agreement and were exercised by the lead arranger upon completion of the time period allowed to complete a syndication process.

The Company has been in compliance with the terms of the Atlas Credit Facility and Atlas Credit Agreement as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

Long-term debt consisted of the following:

June 30,
2020

December 31,
2019

Atlas credit facility - term loan $ - $ 136,844
Atlas credit agreement - term loan 277,488 -
Atlas credit facility - revolving loan 34,300
Atlas credit agreement - revolving 24,000 -

Subtotal 301,488 171,144

Less: Loan costs, net (16,523 ) (1,712 )

Less current maturities of long-term debt (14,050 ) (10,875 )

Long-term debt $ 270,915 $ 158,557

	September 30, 2020			December 31, 2019

Atlas credit facility - term loan	$	-		$	136,844
Atlas credit agreement - term loan		273,975			-
Atlas credit facility - revolving loan					34,300
Atlas credit agreement - revolving		12,000			-

Subtotal		285,975			171,144

Less: Loan costs, net		(16,028	)		(1,712	)

Less current maturities of long-term debt		(14,050	)		(10,875	)

Long-term debt	$	255,897		$	158,557

Aggregate long-term principal payments subsequent to ~~June~~September 30, 2020, are as follows (amounts in thousands):

2020 (six months remaining) $ 7.025
2021 14.050
2022 14.050
2023 14.050
2024 14.050
Thereafter 238.263
$ 301.488

2020 (three months remaining)	$	3,513
2021		14,050
2022		14,050
2023		14,050
2024		14,050
Thereafter		226,262
	$	285,975

NOTE 8- SHAREHOLDERS’ EQUITY

Shares Outstanding

Prior to the Atlas Business Combination, the Company was a ~~special purpose acquisition company~~SPAC with no operations, formed as a vehicle to ~~affect~~effect a business combination with one or more operating businesses. After the consummation of the Atlas Business Combination, the Company became a holding company whose sole material operating asset consists of its interest in Atlas Intermediate.

The following table summarizes the changes in the outstanding stock and warrants from the Closing Date through ~~June~~September 30, 2020:

Class A Common Stock Class B Common Stock Warrants Private Placement Warrants
Beginning Balance, as of Closing Date 5,767,342 23,974,368 20,000,000 3,750,000
Issuances - - - -
Transfers to Class A from Class B - - - -
Shares Outstanding at June 30, 2020 5,767,342 23,974,368 20,000,000 3,750,000

	Class A Common Stock		Class B Common Stock			Warrants		Private Placement Warrants
Beginning Balance, as of Closing Date		5,767,342		23,974,368			20,000,000		3,750,000
Issuances		-		776,197			-		-
Transfers to Class A from Class B		25,692		(25,692	)		-		-
Shares Outstanding at September 30, 2020		5,793,034		24,724,873			20,000,000		3,750,000

Class A Common Stock – At ~~June~~September 30, 2020, there were ~~5,767,342~~5,793,034 shares of Class A common stock issued and outstanding. Holders of the Company’s Class A common stock are entitled to one vote for each share. The Company is authorized to issue 400,000,000 shares of Class A common stock with a par value of $0.0001 per share.

Class B Common Stock – At ~~June~~September 30, 2020, there were ~~23,974,368~~24,724,873 shares of Class B common stock issued and outstanding. Class B common stock was issued to the holders of ~~Holding~~Holdings Units in Atlas Intermediate in connection with the Atlas Business Combination and are non-economic but entitle the holder to one vote per share. The Company is not authorized to issue any ~~additional~~ shares of Class B common stock with a par value of $0.0001 per ~~share.~~share to the general public but can issue additional shares of Class B common stock to Atlas acquisition targets as part of the consideration paid with the approval of the Company’s Board of Directors.

Public Warrants – In November 2018, the Company consummated its initial public offering of units, each consisting of one share of Class A common stock and one-half of one warrant (“Public Warrant”). At ~~June~~September 30, 2020, there were 20,000,000 Public Warrants outstanding. Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share. The Public Warrants will expire five years after the closing of the Atlas Business Combination or earlier upon redemption or liquidation. The Company may call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant with not less than 30 days’ notice provided to the Public Warrant holders. However, this redemption right can only be exercised if the last sale price of the Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-day trading period ending three business days before we send the notice of redemption to the Public Warrant holders.

Private Placement Warrants – Upon closing of the Boxwood initial public offering, ~~the~~Boxwood Sponsor LLC (the “Sponsor”) purchased an aggregate of 3,750,000 warrants at a price of $1.00 per warrant (the “Private Placement Warrants” and together with the Public Warrants, the “Warrants”). Each Private Placement Warrant is exercisable for one share of Class A common stock at a price of $11.50. The Private Placement Warrants are identical to the Public Warrants discussed above, except (i) they will not be redeemable by the Company so long as they are held by the Sponsor and (ii) they may be exercisable by the holders on a cashless basis. At ~~June~~September 30, 2020, there were 3,750,000 Private Placement Warrants outstanding.

Private Placement

In connection with the Company’s entry into the Contribution Agreement, the Company agreed to issue and sell in a private placement an aggregate of 1,000,000 shares of Class A common stock for a purchase price of $10.23 per share, and aggregate consideration of $10.2 million (the “Private Placement”). The Private Placement was consummated concurrently with the Closing Date and the proceeds of the Private Placement were used to fund a portion of the cash consideration paid to the Unit Holders.

Non-controlling Interest

~~The~~As of September 30, 2020, the Company ownership and voting structure is comprised of holders of our Class A common stock that participate 100% in the results of Atlas Technical Consultants, Inc. and 19.4% in Atlas Intermediate and its subsidiaries and holders of our Class B common stock that participate in the results of Atlas Intermediate and its subsidiaries until their Class B common stock is converted to Class A common stock. The holders of our Class B common stock participate in 80.6% of Atlas Intermediate and its subsidiaries. In connection with the Atlas Business Combination, it was determined that the results of Atlas Intermediate and its subsidiaries would be fully consolidated within the results of the Company.

Due to the participation of the holders of our Class B common stock in the results of Atlas Intermediate and subsidiaries, a non-controlling interest was deemed to exist. Non-controlling ownership interests in Atlas Intermediate and its subsidiaries are presented in the Consolidated Balance Sheet within shareholders’ equity as a separate component. In addition, consolidated net income includes earnings attributable to both the shareholders and the non-controlling interests.

As holders of our Class B common stock transition to holders of Class A common stock, we adjust our additional paid in capital and non-controlling interest within our Unaudited Consolidated Balance Sheet and the provision for non-controlling interest in our unaudited Statement of Operations. Class B common stock holders may convert their shares to Class A common stock at their discretion as their contractual lock-ups expire after the Atlas Business Combination.

During the quarter ended September 30, 2020, we distributed $163 thousand to the non-controlling interests. No previous distributions have been made to the non-controlling interests since the Atlas Business Combination.

NOTE 9 – LOSS PER SHARE

The Atlas Business Combination was structured as a reverse capitalization by which the Company issued stock for the net assets of Atlas Intermediate accompanied by a recapitalization. Earnings per share is calculated for the Company only for periods after the Atlas Business Combination due to the reverse recapitalization.

(Loss) per share was calculated as follows:

Three Months Ended June 30,
2020 Closing Date Through June 30,
2020
Numerator:
Net income (loss) post Atlas Business Combination $ 2,245 $ (277 )
Provision for non-controlling interest 1,881 5,141
Redeemable preferred stock dividends (4,533 ) (6,777 )
Net (loss) attributable to Class A common shares - basic and diluted $ (407 ) $ (1,913 )

Denominator:
Weighted average shares outstanding - basic and diluted 5,767,342 5,767,342

Net (loss) per Class A common share, basic and diluted $ (0.07 ) $ (0.33 )

	Three Months Ended September 30, 2020			Closing Date Through September 30, 2020
Numerator:
Net income post Atlas Business Combination	$	561		$	284
Provision for non-controlling interest		3,003			8,144
Redeemable preferred stock dividends		(4,501	)		(11,278	)
Net (loss) attributable to Class A common shares - basic and diluted	$	(937	)	$	(2,850	)

Denominator:
Weighted average shares outstanding - basic and diluted		5,774,882			5,770,411

Net (loss) per Class A common share, basic and diluted	$	(0.16	)	$	(0.49	)

The Company had the following shares that were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive for the periods presented but could potentially dilute basic earnings per share in future periods:

Three Months Ended June 30,
2020 Closing Date Through June 30,
2020
Warrants 20,000,000 20,000,000
Private placement warrants 3,750,000 3,750,000
Total 23,750,000 23,750,000

	Three Months Ended September 30, 2020		Closing Date Through September 30, 2020
Warrants		20,000,000		20,000,000
Private placement warrants		3,750,000		3,750,000
Total		23,750,000		23,750,000

NOTE 10 – EQUITY BASED COMPENSATION

In December 2017, Atlas Intermediate’s Parent granted service-based Class A units to certain members of Atlas’ management. As of December 31, 2017, 1,000 units were authorized and reserved for issuance with 504 granted in December 2017. The Class A units granted provide for service-based vesting annually over 4 years from the grant date.

In April 2019, Atlas Intermediate’s Parent granted service-based Class A units to certain members of Atlas’ management. As of January 1, 2019, 1,666 units were authorized and reserved for issuance with 973.65 units granted as of December 31, 2019. The Class A units granted provide for service-based vesting annually over 4 years from the grant date. The grant date fair value was determined using assumptions about the current waterfall expected payout.

In connection with the Atlas Business Combination, the outstanding shares were vested under the change of control provisions within the agreements. The shares are currently reflected as Class B Common Shares and may be converted to Class A Common Shares as the employee lock-up agreements expire.

The following summarizes the activity of Class A unit awards during the period ended ~~June~~September 30, 2020:

Number of unvested Class A units Grant date fair value
Unvested Class A units as of December 31, 2019 1,226 $ 12,117
Granted - -
Vested and converted to Class B Common Stock (1,226 ) -
Forfeited - -
Unvested Class A units as of June 30, 2020 - $ 12,117

	Number of unvested Class A units			Grant date fair value
Unvested Class A units as of December 31, 2019		1,226		$	12,117
Granted		-			-
Vested and converted to Class B Common Stock		(1,226	)		-
Forfeited		-			-
Unvested Class A units as of September 30, 2020		-		$	12,117

Equity compensation relating to the Class A units that were converted to Class B Common Shares upon the Atlas Business Combination was $9,845 thousand ~~and $56~~during the quarter ended March 31, 2020. Expense associated with the Class A units that were subsequently converted to Class B Common Shares was $814 thousand for the ~~quarters~~three months ended ~~March 31, 2020~~September 30, 2019 and ~~2019, respectively, and $569~~$1,383 thousand for the ~~six~~nine months ended ~~June~~September 30, 2019.

During the second quarter of 2020, the Company awarded 510,136 restricted share units (“RSUs”) to approximately ninety employees at a grant day fair market value of $8.95 per share. The Company estimates the fair value of the RSUs as the closing price of the Company’s Class A Common Stock on the grant date of the award, which is expensed over the applicable vesting period. The vesting period for these RSUs is equal annual tranches, pro ratably over three years, and there is no performance requirement attached to the RSUs other than continued service to the Company. The Company expensed ~~$190~~$380 thousand during the three months ended ~~June~~September 30, 2020 and $570 thousand since their issuance in the second quarter 2020.

NOTE 11 – RELATED-PARTY TRANSACTIONS

During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company leased office space from former owners of acquired companies that became shareholders and/or officers of the Company. The Company recognized lease expenses under these leases within the Statement of Operations in the amount of ~~$160~~$161 thousand and ~~$161~~$162 thousand for the quarters ended ~~June~~September 30, 2020 and 2019, respectively, and ~~$322~~$483 thousand and ~~$323~~$485 thousand for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

During the three months ended ~~June~~September 30, 2020 and 2019, the Company performed certain environmental consulting work for an affiliate of one of its principal shareholders or members and collected fees related to these services in the amount of ~~$73~~$135 thousand and

~~$14~~ $73 thousand, respectively. Related party revenues were ~~$126~~$261 thousand and ~~$47~~$181 thousand for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

On February 3, 2020, the Company entered into a subscription agreement with SCST, Inc., a California corporation, pursuant to which it agreed to acquire 105,977 shares of Class A common stock (the “SCST Stock”), for an aggregate purchase price of $1.1 million, in a private placement not registered under the Securities Act, in reliance on the exemption from Registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The issuance of the SCST Stock was completed in connection with the Atlas Business Combination and served to settle the contingent consideration to them as of December 31, 2019.

On February 14, 2020, the Company entered into a non-interest bearing short-term loan with the former owners of Atlas Intermediate to purchase insurance contracts in the amount of $1.4 million. The loan has not been repaid as of the date of these financial statements and is accounted for in Accrued Liabilities within the Consolidated Balance Sheet. This was repaid during the quarter ended June 30, 2020.

NOTE 12 —– EMPLOYEE BENEFIT PLANS

The Company maintains employee savings plans which allow for voluntary contributions into designated investment funds by eligible employees. The Company may, at the discretion of its Board of Managers, make additional contributions to these plans. The Company has expensed ~~$1.8~~$1.6 and ~~$1.1~~$1.4 million for the three months ended ~~June~~September 30, 2020 and ~~$3.1 million,~~2019, respectively, and ~~$2.0~~$4.7 million and $3.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

NOTE 13 – DISCONTINUED OPERATIONS

In June 2017, ATC decided ~~that it would~~to wind down the operations of its Power and Industrial (P&I) operation by the end of 2017 due to the loss of one of P&I’s major customers. On December 27, 2017, ATC entered into an asset purchase agreement with a third party, which was the final step in finalizing the terms of the shutdown of the P&I service line. ATC completed the sale during 2018 which resulted in an immaterial gain. No other operations were discontinued from January 1, 2019 through December 31, 2019.

The P&I service line’s activity in the combined balance sheet and combined statement of cash flows were not material. The loss from discontinued operations presented in the combined statement of operations for the three and six months ended June 30, 2020 and 2019 consisted of the following:

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Revenues $ - $ - $ - $ -
Cost of revenues - (177 ) - (177 )
Operating expenses - 113 - (36 )
Operating loss - (64 ) - (213 )
Depreciation and amortization - - - -
Other Income/(Expense) - - - -
Loss from discontinued operations $ - $ (64 ) $ - $ (213 )

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues	$	-	$	-	$	-	$	-
Cost of revenues		-		-		-		(177	)
Operating expenses		-		-		-		(36	)
Operating loss		-		-		-		(213	)
Depreciation and amortization		-		-		-		-
Other Income/(Expense)		-		-		-		-
Loss from discontinued operations	$	-	$	-	$	-	$	(213	)

NOTE 14 – COMMITMENTS AND CONTINGENCIES

The Company is subject to certain claims and lawsuits typically filed against engineering companies, alleging primarily professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, against such claims. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on its financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

The Company leases office space, laboratory facilities, and automobiles under operating lease agreements and has options to renew most leases. These leases expire at varying dates through 2025. The Company also rents equipment on a job-by-job basis.

Future minimum payments under noncancelable operating leases as of ~~June~~September 30, 2020 are as follows:

2020 (six months remaining) $ 5,806
2021 8,974
2022 6,478
2023 6,049
2024 3,031
Thereafter 3,860
$ 34,198

2020 (three months remaining)	$	2,903
2021		8,974
2022		6,478
2023		6,049
2024		3,031
Thereafter		3,860
	$	31,295

Rental expense associated with facility and equipment operating leases for the three months ended ~~June~~September 30, 2020 and 2019 was ~~$3.2~~$3.3 million during each quarter, and $9.6 million and ~~$3.2 million, respectively, and $6.3 million and $5.9~~$9.2 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

During 2020, the Company entered into an agreement with its fleet management company pursuant to which it would receive rebates of $1.3 million to be repaid over three years at an interest rate of 2.85% per annum. The rebates were secured by title to selected vehicles within the Company’s owned vehicles in Georgia and California.

Remaining payments are as follows:

2020 (three months remaining)	$	113
2021		454
2022		454
2023		160
	$	1,181

NOTE 15 – COVID-19 PANDEMIC

In the first quarter of 2020, the COVID-19 outbreak spread quickly across the globe. Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies. Various containment measures, which included stay-at-home orders and restrictions on the operations of businesses, while aiding in the prevention of further outbreak, have resulted in a severe drop in general economic activity, volatility in the financial markets and an economic downturn.

As a result, there have been three financial responses from the U.S. Government in addition to interest rate cuts by the U.S. Federal Reserve Board which were initially done to stabilize the U.S. stock markets. They include: the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020, the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020 (the “CARES Act”).

In connection with the CARES Act, we have opted to defer the deposit and payment of the employer’s share of Social Security taxes. Under the CARES Act,deferrals are currently allowed from March 27, 2020 through December 31, 2020. The Company has not taken any other additional assistance under the CARES Act nor expects any other tax benefits derived from the program. As of September 30, 2020, the Company has deferred payment of $5.4 million relating to its share of Social Security taxes and this liability is recorded within other long-term liabilities on its Consolidated Balance Sheet.

During the second quarter of 2020, we reduced our workforce through various actions. We routinely assess our staffing levels to make certain that we continue to appropriately service our clients and maintain shareholder value. As a safety focused organization, since the outbreak of COVID-19 and continuing throughout the third quarter, we have encouraged our employees to work from home wherever possible and to honor all shelter in place rules put forth by their State or local governments.

We continue to monitor the credit quality and access to capital for our non-governmental clients as this can be an indication of their ability to go forth with future projects and continue to pay for contracted services. As an infrastructure company, the work we do is currently deemed essential by Federal, State and local governments but any change from that designation could have a negative result on our business as well as our peers.

We are in compliance with our debt covenants as of ~~June~~September 30, 2020 and we expect that we will continue to be for the foreseeable future.

NOTE 16 – SUBSEQUENT EVENT

On ~~July 29,~~October 19, 2020, the Company ~~entered into a definitive agreement~~announced the commencement of (i) its offer to ~~acquire Alta Vista Solutions, Inc.~~each holder of its outstanding warrants, including the public warrants and the private placement warrants (collectively, the “warrants”), each to purchase shares of Class A common stock, par value $0.0001 per share (“~~Alta Vista”~~Class A common stock”)~~. The purchase agreement calls for~~, of the Company, the opportunity to ~~pay Alta Vista up~~receive 0.185 shares of Class A common stock in exchange for each outstanding warrant tendered by the holder and exchanged pursuant to ~~$14.6 million~~the offer (the “Offer”), and (ii) the solicitation of consents (the “Consent Solicitation”) from holders of the warrants to amend the Warrant Agreement, dated as of November 15, 2018, by and between the Company and Continental Stock Transfer & Trust Company, which governs all of the warrants (the “Warrant Amendment”), to provide that each warrant not tendered in the ~~form~~Offer would be worth 0.1665 of ~~cash and stock consideration upon closing,~~a share of Class A common stock.

As of October 19, 2020, an affiliate of BlueCrest Capital Management Ltd., which ~~is expected~~holds 8,870,000 public warrants, representing approximately 37.3% of the total warrants outstanding, has agreed to tender its warrants in the ~~third quarter 2020. Consideration may also be increased~~Offer and to consent to the Warrant Amendment in the Consent Solicitation, pursuant to a Tender and Support Agreement with the Company. Additionally, the Sponsor a related party, which holds 3,750,000 private placement warrants, representing approximately 15.8% of the total warrants outstanding, has agreed to tender its warrants in the Offer and to consent to the Warrant Amendment in the Consent Solicitation, pursuant to a Tender and Support Agreement with the Company. Accordingly, since holders of approximately 53.1% of the total warrants outstanding have agreed to consent to the Warrant Amendment in the Consent Solicitation, if the other conditions described in the Prospectus/Offer to Exchange filed with the SEC on October 19, 2020 are satisfied or ~~decreased based on results in future years. Final value~~waived, then the Warrant Amendment will be ~~subject to customary closing working capital adjustments and the resolution of certain contingencies.~~adopted.

~~Alta Vista is headquartered~~The Offer and Consent Solicitation are made solely upon the terms and conditions in ~~Oakland, California~~a Prospectus/Offer to Exchange and ~~provides testing~~other related offering materials that are being distributed to holders of the warrants. The Offer and ~~inspection services primarily~~Consent Solicitation will be open until midnight (end of day), Eastern Standard Time, on November 16, 2020, or such later time and date to ~~infrastructure clients. Alta Vista has 100 employees and has offices in California and New York.~~which the Company may extend.

~~ITEM 2~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited financial statements and accompanying notes included herein. This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors included in our Annual Report on Form 10-K, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements.

For purposes of this section, “we,” “us,” “our,” the “Company” and “Atlas” refers to Atlas Technical Consultants, Inc.(formerly named Boxwood Merger Corp.) and its subsidiaries. The Atlas Business Combination (as defined below) was accounted for as a reverse recapitalization where the Company was the legal acquirer but treated as the accounting acquiree. All references to operations prior to the Atlas Business Combination reflect the results of Atlas Intermediate Holdings LLC, a Delaware limited liability company (“Atlas Intermediate”) and its subsidiaries. Since Atlas Intermediate was determined to be the accounting acquirer, the information included below will include the results of Atlas Intermediate and its subsidiaries through the Atlas Business Combination and will include the Company, including Atlas Intermediate, for transactions occurring after the Atlas Business Combination.

OVERVIEW

On February 14, 2020 (the “Closing Date”), the Company consummated its acquisition of Atlas Intermediate pursuant to the Unit Purchase Agreement, dated as of August 12, 2019, as amended on January 22, 2020 (the “Purchase Agreement”), by and among the Company, Atlas TC Holdings LLC, a wholly-owned subsidiary of the Company and a Delaware limited liability company (“Holdings”), Atlas TC Buyer LLC, a wholly-owned subsidiary of Holdings and a Delaware limited liability company, Atlas Intermediate and Atlas Technical Consultants Holdings LP, a Delaware limited partnership (the “Seller”). The acquisition of Atlas Intermediate pursuant to the Purchase Agreement together with the other transactions contemplated by the Purchase Agreement is referred to herein as the “Atlas Business Combination.”

Following the consummation of the Atlas Business Combination, we are organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and continues to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings (the “Holdings Units”). We are the sole manager of Holdings in accordance with the terms of the amended and restated limited liability company agreement of Holdings entered into in connection with the consummation of the Atlas Business Combination.

Headquartered in Austin, Texas, we are a leading provider of professional and technical testing, inspection engineering and consulting services, offering solutions to public and private sector clients in the transportation, commercial, water, government, education and industrial markets. With approximately ~~135~~140 offices located throughout the United States, we provide a broad range of mission-critical technical services, helping our clients test, inspect, plan, design, certify and manage a wide variety of projects across diverse end markets.

We act as a trusted advisor to our clients, helping our clients design, engineer, inspect, manage and maintain civil and commercial infrastructure, servicing the existing structures as well as helping to build new structures. However, we do not perform any construction, and do not take construction risk.

We provide a broad range of mission-critical technical services, ranging from providing inspection services in small projects to managing significant aspects of large, multi-year projects. For the ~~six~~nine months ~~ending June~~ended September 30, 2020, we:

●

Performed more than ~~20,000~~40,000 projects, with average revenue per project of less than $10,000; and

●

Delivered more than 90% of our projects under “time & material” and “cost-plus” contracts.

We have long-term relationships with a diverse set of clients, providing a base of repeating clients, projects and revenues. Approximately 90% of our revenues are derived from projects that have used our services at least twice in the past three years and more than 95% of our revenues are generated from client relationships longer than 10 years, with greater than 25% of revenues generated from relationships longer than 30 years. Examples of such long-term customers include the Texas ~~Department~~and Georgia Departments of Transportation, US Postal Service, Gwinnett County Georgia, New York City Housing Authority, San Francisco International Airport, Stanford University, Port of Oakland, United Rentals, Inc., Speedway, Walmart, Inc., and Apple Inc.

Our broad base of customers spans a diverse set of end markets including the transportation, commercial, water, government, education and industrial sectors. Our customers include government agencies, quasi-public entities, schools, hospitals, utilities and airports, as well as private sector clients across many industries.

Our services require a high degree of technical expertise, as our clients rely on us to provide testing, inspection and quality assurance services to ensure that structures are designed, engineered, built and maintained in accordance with building codes, regulations and the highest safety standards. As such, our services are delivered by a highly-skilled, technical employee base that includes scientists, engineers, inspectors and other field experts. As of ~~June~~September 30, 2020, our technical staff represented ~~75%~~approximately 80% of our ~~3,200~~approximately 3,300 employees. Our services are typically provided under contracts, some of which are long-term with long lead times between when contracts are signed and when our services are performed. As such, we have a significant amount of contracted backlog, providing for a high degree of visibility with respect to revenues expected to be generated from such backlog. As of ~~June~~September 30, 2020, our contracted backlog was estimated to be approximately ~~$621~~$638 million. See “—Backlog” below for additional information relating to our backlog.

For the three months ended ~~June~~September 30, 2020, we recognized approximately ~~$112.7~~$120.5 million of gross revenues, ($~~0.4)~~0.9) million of net loss relating to the holders of our Class A common stock, par value $0.0001 per share (the “Class A common stock”), and ~~$15.4~~$19.0 million of adjusted EBITDA. For the ~~six~~nine months ended ~~June~~September 30, 2020, we recognized approximately ~~$222.0~~$342.5 million of gross revenues, ($~~1.9)~~2.9) million of net loss relating to the holders of our Class A common stock, par value $0.0001 per share (the “Class A common stock”), and ~~$28.3~~$47.2 million of adjusted EBITDA. For a definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to historical combined net income (loss), see “—Non-GAAP Financial Matters” below.

COVID-19 Pandemic

The domestic and global crisis resulting from the outbreak of the COVID-19 pandemic, and the measures being taken to address and limit the spread of the virus, have already adversely affected the U.S. economy and financial markets, resulting in an economic downturn that has negatively impacted the demand for our services. This crisis has affected our operations and liquidity in a number of ways. Project delays have negatively impacted our revenue, and if continued or exacerbated, could result in a material adverse effect to our business. Additionally, a prolonged downturn could ultimately result in an overall decrease in demand for our services. Although we cannot currently predict with certainty the full extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted, we will continue to monitor the safety of our employees during the COVID-19 pandemic, and we are evaluating, and will continue to evaluate, the impact of COVID-19 on our current projects. Our top priority is to protect our employees and their families, as well as our clients.

HOW WE EVALUATE OUR OPERATIONS

We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of this information is financial information that is prepared in accordance with generally accepted accounting principles (“GAAP”), while other information may be financial in nature and may not be prepared in accordance with GAAP. Historical information is periodically compared to budgets, as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining management and employee compensation.

We evaluate our overall business performance based primarily on a combination of four financial metrics: revenue, backlog, adjusted EBITDA and liquidity measures. These are key measures used by our management team and board of directors to understand and evaluate our operational performance, to establish budgets and to develop short and long-term operational goals.

Revenue

Revenues for services are derived from billings under contracts (which are typically of short duration) that provide for specific time, material and equipment charges, or lump sum payments and are reported net of any taxes collected from customers. We recognize revenue as it is earned at estimated collectible amounts.

Revenue is recognized as services are performed and amounts are earned in accordance with the terms of a contract. We generally contract for services to customers based on either a fixed fee or hourly rates. In such contracts, our efforts, measured by time incurred, typically are provided in less than a year and represent the contractual milestones or output measure, which is the contractual earnings pattern. For contracts with fixed fees, we recognize revenues as amounts become billable in accordance with contract terms, provided the billable amounts are consistent with the services delivered and are earned. Expenses associated with performance of work may be reimbursed with a markup depending on contractual terms. Revenues include the markup, if any, earned on reimbursable expenses. Reimbursements include billings for travel and other out-of-pocket expenses and third-party costs, such as equipment rentals, materials, subcontractor costs and outside laboratories, which is included in cost of revenues in the accompanying combined statement of income.

Backlog

We analyze our backlog, which we define as fully awarded and contracted work or revenue we expect to realize for work completed, to evaluate operations and future revenue potential. Our contracted backlog includes revenue we expect to record in the future from signed contracts. In order to calculate backlog, we determine the amounts for contracted projects that are fully funded, and then determine the respective revenues expected to be realized upon completion of work. We use backlog to evaluate company revenue growth as it typically follows growth in backlog.

Adjusted EBITDA

We view adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of performance. We define adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization and adjustments for certain ~~one- time~~one-time or non-recurring ~~items adjustments.~~items. For more information on adjusted EBITDA, as well as a reconciliation to the most directly comparable GAAP measure, please see “—Non-GAAP Financial Measures” below.

COMPONENTS AND FACTORS AFFECTING OUR OPERATING RESULTS

Revenue

We generate revenue primarily by providing infrastructure-based testing, inspection, certification, engineering, and compliance services to a wide range of public- and private-sector clients. Our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs. We generally utilize a cost-to-cost approach in applying the percentage-of-completion method of revenue recognition. Under this approach, revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred.

Cost of Revenue

Cost of revenue reflects the cost of personnel and specifically identifiable costs associated with revenue.

Operating Expense

Operating expense includes corporate expenses, including personnel, occupancy, and administrative expenses, including depreciation and amortization.

Interest Expense

Interest expense consists of contractual interest expense on outstanding debt obligations including amortization of deferred financing costs and other related financing expenses.

Other Income (Expense)

Other income or expense reflects the gains or losses, including the costs and related accumulated depreciation recapture, resulting from the disposal of an asset when such asset is sold or retired.

Income Tax Expense

Following the consummation of the Atlas Business Combination, we are organized in an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which ~~the~~ our only direct assets ~~will consist~~consists of common units of ~~Holdings Units.~~Holdings. We are the sole manager of Holdings in accordance with the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.

Previously, Atlas Intermediate was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the partners and members. As such, no recognition of federal or state income taxes for us or our subsidiaries have been provided for in the accompanying consolidated financial statements except as disclosed below.

The State of Texas imposes a margin tax, with an effective rate of 0.7%, based on the prior year’s Texas-sourced gross receipts. This tax is treated as an income tax and accrued in the accounting period in which the taxable gross receipts are recognized. The State of Texas margin tax was insignificant ~~in 2019~~for the nine months ended September 30, 2020 and ~~2018.~~2019. In addition, there are two C-Corp subsidiaries for which we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The results of operations prior to the Atlas Business Combination were treated consistently in this manner.

Subsequent to the Atlas Business Combination, the Up-C structure allowed the holders of our Class B common stock, par value $0.0001 per share (the “Class B common stock”) to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass through” entity, for U.S. federal income (and certain state and local) tax purposes following the Atlas Business Combination. One of these benefits is that, for U.S. federal income (and certain state and local) purposes, our future taxable income that is allocated to Seller and its limited partners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level.

Income tax relating to the C-Corps is not considered in the provision for non-controlling interest calculation as it is solely the responsibility of the holders of our Class A common stock. The Texas margin tax is considered within the provision of non-controlling interest as it generated through the results of Atlas Intermediate and its subsidiaries.

Although the majority of our wholly-owned subsidiaries are structured as limited liability companies and considered pass through entities for federal and state income tax purposes, we do have two entities that are registered as C-Corps under federal income tax law. For those C-Corp entities, we are subject to income tax assessments within their jurisdictions on their current operations. Additionally, our Texas domiciled subsidiaries are subject to the Texas ~~Franchise Tax.~~margin tax as discussed above.

Income tax expense and our effective tax rates can be affected by many factors, including changes in our mix of pre-tax losses/earnings, the effect of non-controlling interest in income of consolidated subsidiaries, our acquisition strategy, available tax incentives and credits, changes in judgment regarding the realizability of our deferred tax assets, changes in existing tax laws and our assessment of uncertain tax positions. Our tax returns are routinely audited by the taxing authorities and settlements of issues raised in these audits may affect our effective tax rate.

Net Income (loss) From Continuing Operations

Net income from continuing operations reflects our operating income after taking into account costs and expenses for a given period, while excluding any gain or loss from discontinued operations.

Loss From Discontinued Operations

Loss from discontinued operations includes our non-recurring gains or losses realized in connection with the disposition of an asset or component of the business that results in discontinued operations.

Provision for Non-controlling Interest

Our ownership and voting structure is comprised of holders of our Class A common stock that participate 100% in the results of Atlas Technical Consultants, Inc. and 19.4% in Atlas Intermediate and its subsidiaries and holders of our Class B common stock that participate in the results of Atlas Intermediate and its subsidiaries until their Class B common stock is converted to Class A common stock. The holders of our Class B common stock participate in 80.6% of Atlas Intermediate and its subsidiaries. In connection with the Atlas Business Combination, it was determined that the results of Atlas Intermediate and its subsidiaries would be fully consolidated within the results of the Company.

Due to the participation of the holders of our Class B common stock in the results of Atlas Intermediate and subsidiaries, a non-controlling interest was deemed to exist. Consolidated net income includes earnings attributable to both the shareholders and the non-controlling interests.

The provision for non-controlling interest relates to pre-tax income subsequent to the Atlas Business Combination and does not include a pro-rata share of taxes as federal and state income taxes are attributable only to the holders of our Class A common stock under the Up-C structure.

Redeemable Preferred Stock Dividends

On February 14, 2020, in connection with the consummation of the Atlas Business Combination, Holdings and GSO COF III AIV-2 LP (“GSO AIV-2”) entered into a subscription agreement (the “Subscription Agreement”) pursuant to which, GSO AIV-2 purchased 145,000 units of a new class of Series A Senior Preferred Units of Holdings (the “Preferred Units”) at a price per Preferred Unit of $978.21 for an aggregate cash purchase price of $141,840,450, which represents a 2.179% original issue discount on the Preferred Units (such purchase, the “GSO Placement”).

The Preferred Units rank senior in priority to all other existing and future equity securities of Holdings with respect to liquidation preference and distribution rights.

The Preferred Units have a liquidation preference of $1,000 per Preferred Unit (the “Liquidation Preference”).

Subject to any limitations set forth in the Atlas Credit Agreement (as defined below), the Preferred Units pay a dividend of 5% per annum, plus either an additional 6.25% per annum in cash or 7.25% per annum in additional Preferred Units, at Holdings’ option, payable quarterly in arrears.

If a cash dividend is not able to be made because of a limitation under the Atlas Credit Agreement, then the Liquidation Preference with respect to any Preferred Unit shall increase to 3.5625% in any quarter until a cash dividend can be made.

The Preferred Units do not possess voting rights and are not convertible into any other security of Holdings.

Net Income (loss) Attributable to Class A Common Stock (Previously Members)

Net income (loss) attribution to holders of our Class A common stock represents our results after the provision for non- controlling interest, the effect of all taxes under the Up-C structure for the period subsequent to the Atlas Business Combination, and dividends due on redeemable preferred stock.

Net income (loss) for the historical results of Atlas Intermediate prior to the Atlas Business Combination are also reported within this line item.

RESULTS OF OPERATIONS

Consolidated Results of Operations

The following table represents our selected results of operations for the periods indicated.

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
(in thousands, except per share data)

Revenues $ 112,715 $ 123,669 $ 222,017 $ 229,280

Cost of revenues (58,714 ) (68,452 ) (117,612 ) (125,624 )
Operating expenses (45,376 ) (47,236 ) (113,741 ) (92,105 )

Operating income (loss) 8,625 7,981 (9,336 ) 11,551

Interest expense (6,398 ) (3,149 ) (12,038 ) (5,534 )
Other income (expense) 18 (486 ) 50 (782 )

Income (loss) before income taxes 2,245 4,346 (21,324 ) 5,235
Income tax expense - (154 ) - (159 )

Net income (loss) from continuing operations 2,245 4,192 (21,324 ) 5,076

Loss from discontinued operations - (64 ) - (213 )

Net income (loss) 2,245 4,128 (21,324 ) 4,863

Provision for non-controlling interest 1,881 - 5,141 -

Redeemable preferred stock dividends (4,533 ) - (6,777 ) -

Net (loss) income attributable to Class A common stock shareholders/members $ (407 ) $ 4,128 $ (22,960 ) $ 4,863

(Loss) Per Class A Common Share $ (0.07 ) N/A $ (0.33 ) N/A

Weighted average of shares outstanding:
Class A common shares (basic and diluted) 5,767,342 N/A 5,767,342 N/A

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except per share data)

Revenues	$	120,486		$	128,753		$	342,503		$	358,033

Cost of revenues		(62,229	)		(70,623	)		(179,840	)		(196,247	)
Operating expenses		(51,355	)		(47,068	)		(165,096	)		(139,173	)

Operating income (loss)		6,902			11,062			(2,433	)		22,613

Interest expense		(6,310	)		(2,493	)		(18,349	)		(8,027	)
Other (expense) income		(31	)		64			18			(718	)

Income (loss) before income taxes		561			8,633			(20,764	)		13,868
Income tax benefit (expense)		-			45			-			(114	)

Net income (loss) from continuing operations		561			8,678			(20,764	)		13,754

Loss from discontinued operations		-			-			-			(213	)

Net income (loss)		561			8,678			(20,764	)		13,541

Provision for non-controlling interest		3,003			-			8,144			-

Redeemable preferred stock dividends		(4,501	)		-			(11,277	)		-

Net (loss) income attributable to Class A common stock shareholders/members	$	(937	)	$	8,678		$	(23,897	)	$	13,541

(Loss) Per Class A Common Share	$	(0.16	)		N/A		$	(0.49	)		N/A

Weighted average of shares outstanding:
Class A common shares (basic and diluted)		5,774,872			N/A			5,770,411			N/A

Comparison of the three months ~~and six months~~ ended ~~June~~September 30, 2020 to the three ~~and six~~ months ended ~~June~~September 30, 2019 ~~respectively:~~:

Overview of Financial Results

This quarter, we saw an increase in our backlog to ~~$620.7~~$637.7 million or ~~1.6%~~4.4% compared to ~~June~~September 30, ~~2019.~~2019 due in part to the LONG and Alta Vista acquisitions. Revenues were lower this quarter in comparison to the ~~comparable~~ prior year quarter due to the effects of the COVID-19 pandemic ~~due to~~and related shelter in place orders in select markets but operating income increased slightly due to our cost containment efforts at the pandemic’s onset. This was our strongest quarter from a revenue generating perspective in 2020 despite the fact that we continue to have both clients and employees working remotely. This is consistent with 2019 as the three months ended September 30, 2019 was also our highest revenue generating quarter in 2019.

Interest expense was higher due to the higher borrowings associated with the Atlas Business Combination and the dividends on redeemable preferred stock were a result of the Atlas Business Combination.

Revenue

Revenue for the three months ended ~~June~~September 30, 2020 decreased ~~($11.0)~~$8.3 million, or ~~(9%)~~6%, to ~~$112.7~~$120.5 million as compared to ~~$123.7~~$128.8 million for the corresponding prior year period.

The decrease in revenue for the three months ended ~~June~~September 30, 2020 was primarily attributable to shelter in place orders and other similar restrictions, such as capacity restrictions and social distancing requirements in large metropolitan areas on the West Coast and Eastern seaboard in the amount of ~~($15.4)~~$10.5 million. We also saw a net decrease of $2.5 million when comparing the quarter ended September 30, 2020 to same period in 2019 as we provided a higher volume of services in 2019 to one of our key clients that did not recur at a similar volume during 2020. The services rendered were a new service offering for us in 2019 and we continue to leverage that offering to other nationwide clients; timing of services may vary when comparing each period when comparing our results of operations.

The completion of the acquisition of Long Engineering (“LONG”) in February 2020 served to add $4.4 million to our quarterly ~~revenues along with our~~revenues. Our expansion into new markets in Texas served to also deliver revenue growth to partially offset the ~~decrease in revenues associated with COVID-19.~~

impacts of COVID-19 when comparing the three months ended September 30, 2020 to 2019.

Cost of Revenue

Cost of revenue for the three months ended ~~June~~September 30, 2020 decreased ~~($9.8)~~$8.4 million, or ~~(14%)~~12%, to ~~$58.7~~$62.2 million as compared to ~~$68.5~~$70.6 million for the corresponding prior year period. The decrease in cost of revenues was due mainly to the decrease in revenues, but the percentage decrease was higher than the revenue decrease of ~~(9%)~~6% due to the fact that a contract in 2019 that did not recur in 2020 relied significantly on outside subcontractors.

We earn a lower margin on work performed by others than that performed by ourselves. This is evidenced by the fact that cost of revenue, as a percentage of revenue, decreased to ~~52.1%~~51.6% from ~~55.4%~~54.9% for the three months ended ~~June~~September 30, 2020 when compared to the three months ended ~~June~~September 30, 2019.

Operating Expense

Operating expense for the three months ended ~~June~~September 30, 2020 ~~decreased ($1.9)~~increased $4.3 million, or ~~(4%)~~9%, to ~~$45.4~~$51.4 million as compared to ~~$47.2~~$47.1 million for the corresponding prior year period. For the three months ended ~~June~~September 30, 2020, operating expense, as a percentage of revenue, increased to ~~40.3%~~42.6% from ~~38.2%~~36.6% for the three months ended ~~June~~September 30, 2019.

The Company continues to be cognizant of the impacts of COVID-19 pandemic on its operations and has made ~~conscious~~ efforts to ~~reduce excess~~either delay or eliminate overhead ~~personnel~~ costs ~~via various measures during the current quarter in response to the COVID-19 pandemic.~~where appropriate. The ~~decrease~~increase in costs ~~were~~was not consistent with the decrease in revenues as we ~~remained responsible for the benefits associated with employees either furloughed or covered under union contracts. We also~~have incurred professional service-related fees associated with public company oversight, required filings and ~~associated filings.~~previously-announced contemplated equity offering as well as incurred higher medical costs in comparison to the prior year.

Interest Expense

Interest expense for the three months ended ~~June~~September 30, 2020 increased ~~$3.3~~$3.8 million, or ~~103%~~153%, to ~~$6.4~~$6.3 million as compared to ~~$3.1~~$2.5 million for the corresponding prior year period. The increase in interest expense is due to higher borrowings and interest rates in comparison to the prior year and higher amortization of deferred financing fees for the Atlas Credit Agreement in comparison to Atlas Credit Facility.

Other Income (Expense)

Other income (expense) for the three months ended ~~June~~September 30, 2020 and 2019 was $0.0 million and ~~($0.5)~~$0.1 million, respectively. ~~We recorded a lease termination charge associated with an acquired company~~There was no significant activity in ~~2019, and this did not repeat in 2020.~~either period.

Income Tax Expense

Income tax expense for the three months ended ~~June~~September 30, 2020 was $0.0 million compared to income tax expense of ~~$0.2~~$0.0 million for the three months ended ~~June~~September 30, 2019.

Prior to the Atlas Business Combination and reorganization as an Up-C structure for income tax purposes, we were treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the partners and members. As such, no recognition of federal or state income taxes for the Company or our subsidiaries has been provided for in the accompanying consolidated financial statements, except for margin taxes in the State of Texas and a few of our subsidiary C-Corp entities. The margin taxes are treated as income taxes, with an effective rate of 0.7%, based on the prior year’s

Texas-sourced gross receipts.

The effective rate of the Company for the three months ended ~~June~~September 30, 2020 was 0% as we did not believe that it was more likely than not that we would utilize the benefit or deferred tax asset generated by applying the statutory rate of 26% to our pre-tax loss that resulted during the three months ended ~~June~~September 30, 2020. As such, we fully reserved for the deferred tax asset which reduced our effective tax rate to 0%.

Loss From Discontinued Operations

~~Other loss~~Loss from discontinued operations was $0.0 million for the three months ended ~~June~~September 30, 2020 ~~decreased ($0.1) million, or 100%, to $0.0 million as compared to $0.1 million for the corresponding prior year period.~~

~~The decrease in loss from discontinued operations for the three months ended June 30, 2020 was attributable to the closure~~and 2019. We closed of the Power & Industrial (P&I) business unit in late 2018 with some closing transactions recorded in 2019 in early 2019.

Provision for Non-controlling Interest

The provision for non-controlling interest for the three months ended ~~June~~September 30, 2020 increased by ~~$1.9~~$3.0 million, or 100%, to ~~$1.9~~$3.0 million from $0.0 million for the corresponding ~~prior year~~ period. ~~This increase~~The provision is ~~due to~~new for 2020 as there was a reverse recapitalization created by the Atlas Business Combination whereby the holders of our Class B common stock only share in the results of Atlas Intermediate and its subsidiaries based upon their ownership percentage in relation to total common stockholders. This treatment is effective from the Atlas Business Combination ~~until~~throughout the exchange of Class B common stock to Class A common stock.

Redeemable Preferred Stock Dividends

Redeemable preferred stock dividends for the three months ended ~~June~~September 30, 2020 increased by $4.5 million or 100% to $4.5 million from $0.0 million for the ~~quarter~~three months ended ~~June~~September 30, 2019. This increase is due to $141.8 million of redeemable preferred stock that we issued in connection with the Atlas Business Combination.

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to the ~~six~~nine months ended ~~June~~September 30, 2019:

Overview of Financial Results

For the ~~six~~nine months ended ~~June~~September 30, 2020, we have seen an increase in our backlog to a record level of ~~$620.7~~$637.7 million or ~~1,6%~~4.4% compared to ~~June~~September 30, 2019. Revenues were slightly lower in comparison to the comparable period due to the effects of the COVID-19 pandemic. We have incurred an operating loss thus far due to the costs associated with the consummation of the Atlas Business Combination in the first quarter.

Interest expense was higher due to the higher borrowings associated with the Atlas Business Combination and the dividends on redeemable preferred stock that were ~~also a result of~~issued in connection with the Atlas Business Combination.

Revenue

Revenue for the ~~six~~nine months ended ~~June~~September 30, 2020 decreased ~~($7.3)~~$15.5 million, or ~~(3%)~~4%, to ~~$222.0~~$342.5 million as compared to ~~$229.3~~$358.0 million for the corresponding prior year period.

The decrease in revenue for the ~~six~~nine months ended ~~June~~September 30, 2020 was primarily attributable to shelter in place orders and other similar restrictions, such as capacity restrictions and social distancing requirements, in large metropolitan areas on the West Coast and Eastern seaboard in the amount of ~~($15.2)~~$25.7 million. The completion of the acquisition of Long Engineering (“LONG”) in February 2020 served to add ~~$6.4~~$11.2 million to our ~~quarterly~~ revenues ~~along with our expansion into new markets in Texas~~ offset the decrease in revenues associated with COVID-19.

Cost of Revenue

Cost of revenue for the ~~six~~nine months ended ~~June~~September 30, 2020 decreased ~~($8.0)~~$16.4 million, or ~~(6%)~~8%, to ~~$117.6~~$179.8 million as compared to ~~$125.6~~$196.2 million for the corresponding prior year period. The decrease in cost of revenues was due mainly to the decrease in revenues, but the percentage decrease was higher than the revenue decrease of ~~(3%)~~4% due to the fact that a contract in 2019 that did not recur in 2020 relied significantly on outside subcontractors.

We earn a lower margin on work performed by others than that performed by ourselves. This is evidenced by the fact that cost of revenue, as a percentage of revenue, decreased to ~~53.0%~~52.5% from 54.8% for the ~~six~~nine months ended ~~June~~September 30, 2020 when compared to the ~~six~~nine months ended ~~June~~September 30, 2019.

Operating Expense

Operating expense for the ~~six~~nine months ended ~~June~~September 30, 2020 increased ~~$21.6~~$25.9 million, or ~~23%~~19%, to ~~$113.7~~$165.1 million as compared to ~~$92.1~~$139.2 million for the corresponding prior year period. For the ~~six~~nine months ended ~~June~~September 30, 2020, operating expense, as a percentage of revenue, increased to ~~51.2%~~48.2% from ~~40.2%~~38.9% for the ~~six~~nine months ended ~~June~~September 30, 2019.

The increase in operating expense for the ~~six~~nine months ended ~~June~~September 30, 2020 was primarily attributable to the consummation of the Atlas Business Combination as the Company expensed ~~$7.0~~$7.5 million of acquisition related costs and $12.0 million of costs incurred with change of control provisions contained within employment agreements and our former Management Incentive Plan. These transaction-related items comprised ~~8.5%~~5.7% of the ~~11.0%~~9.3% change in operating expenses as a percentage of revenues when comparing the ~~six~~nine months ended ~~June~~September 30, 2020 to ~~June~~September 30, 2019. The remainder of the ~~change~~increase was ~~primarily associated with~~attributable to legal, accounting and insurance costs related to our status as a newly public ~~company costs.~~company.

Interest Expense

Interest expense for the ~~six~~nine months ended ~~June~~September 30, 2020 increased ~~$6.5~~$10.3 million, or ~~118%~~129%, to ~~$12.0~~$18.3 million as compared to ~~$5.5~~$8.0 million for the corresponding prior year period. The increase in interest expense is due to higher borrowings and interest rates in comparison to the prior year, the write-off of $1.7 million of deferred financing fees relating to the Atlas Credit Facility, and higher amortization of deferred financing fees for the Atlas Credit Agreement in comparison to the Atlas Credit Facility.

Other Income (Expense)

Other income (expense) for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was $0.0 million and ($~~0.8)~~0.7) million, respectively. We recorded a lease termination charge and settlements with former owners associated with an acquired company induring 2019, and this did not repeat in 2020.

Income Tax Expense

Income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2020 was $0.0 million compared to income tax expense of ~~$0.2~~$0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019.

Texas-sourced gross receipts.

The effective rate of the Company for the ~~six~~nine months ended ~~June~~September 30, 2020 was 0% as we did not believe that it was more likely than not that we would utilize the benefit or deferred tax asset generated by applying the statutory rate of 26% to our pre-tax loss that resulted during the period between the Atlas Business Combination through ~~June~~September 30, 2020. As such, we fully reserved for the deferred tax asset which reduced our effective tax rate to 0%.

Loss From Discontinued Operations

~~Other loss~~Loss from discontinued operations for the ~~six~~nine months ended ~~June~~September 30, 2020 decreased ~~($0.2)~~$0.2 million, or 100%, to $0.0 million as compared to $0.2 million for the corresponding prior year period.

The decrease in loss from discontinued operations for the ~~six~~nine months ended ~~June~~September 30, 2020 was attributable to the closure of the P&I business unit in late 2018 with some closing transactions recorded in 2019.

Provision for Non-controlling Interest

The provision for non-controlling interest for the ~~six~~nine months ended ~~June~~September 30, 2020 increased by ~~$5.1~~$8.1 million, or 100%, to ~~$5.1~~$8.1 million from $0.0 million for the corresponding period. This increase is due to the reverse recapitalization created by the Atlas Business Combination whereby the holders of our Class B common stock only share in the results of Atlas Intermediate and its subsidiaries based upon their ownership percentage in relation to total common stockholders. This treatment is effective from the Atlas Business Combination until the exchange of Class B common stock to Class A common stock.

Redeemable Preferred Stock Dividends

Redeemable preferred stock dividends for the ~~six~~nine months ended ~~June~~September 30, 2020 increased by ~~$6.8~~$11.3 million or 100% to ~~$6.8~~$11.3 million from $0.0 million for the ~~quarter~~nine months ended ~~June~~September 30, 2020. This increase is due to $141.8 million of redeemable preferred stock that we issued in connection with the Atlas Business Combination.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity and capital resources are our cash and cash equivalents balances, cash flow from operations, borrowings ~~capacity~~ under our Credit Agreement (as defined below), and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt and acquisition expenditures. We believe our sources of liquidity, including cash flow from operations, existing cash and cash equivalents and borrowing capacity under ~~our~~the Atlas Credit ~~Facility and Atlas Loan~~ Agreement will be sufficient to meet projected cash requirements for at least the next twelve months. We continue to assess our business operations and the impact that COVID-19 may have on our financial results and liquidity. Due to the effect of the COVID-19 pandemic and related project delays, we have experienced a reduction in revenues and ~~thus expected~~our cash flows ~~from operations~~ in comparison to the previous comparable period. We will continue to monitor our capital requirements thereafter to ensure our needs are in line with available capital resources and we will continue to monitor the impact of COVID-19 to our liquidity. We believe that we have adequate liquidity resources for the next twelve months.

Other than the impact on cash flows from operations relating to the decrease in revenues relating to COVID-19, we have not experienced other liquidity decreases.

Cash Flows

The following table sets forth our cash flows for the periods indicated.

For the six months ended
June 30,
2020 2019
($ in thousands)
Net cash (used in) provided by operating activities $ (6,250 ) $ 6,942
Net cash used in investing activities (12,881 ) (4,091 )
Net cash provided by financing activities 15,827 781
Net (decrease) increase in cash and cash equivalents $ (3,304 ) $ 3,632

	For the nine months ended September 30,
	2020			2019
	($ in thousands)
Net cash provided by operating activities	$	10,125		$	18,692
Net cash used in investing activities		(14,913	)		(5,858	)
Net cash (used in) provided by financing activities		(3,762	)		(1,988	)
Net (decrease) increase in cash and cash equivalents	$	(8,550	)	$	10,846

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to the ~~six~~nine months ended ~~June~~September 30, 2019

Cash and Cash Equivalents.

At ~~June~~September 30, 2020 and ~~June~~September 30, 2019, we had ~~$16.9~~$11.6 million and ~~$10.1~~$17.4 million of cash and cash equivalents, respectively. Due to the fact that our operating companies closed on ~~June 26,~~September 25, 2020, the Friday closest to ~~June~~September 30, 2020 as disclosed in Note 1- Organization and Basis of Presentation to our unaudited financial statements as of and for the ~~six~~nine months ended ~~June~~September 30, 2020, we collected ~~$5.7~~$3.0 million of net cash from ~~June 26,~~September 25, 2020 through ~~June~~September 30, 2020 that was applied to outstanding receivable balances. This did not affect our working capital as of ~~June~~September 30, 2020 or our cash flows generated from operating activities for the ~~six~~nine months ended ~~June~~September 30, 2020. However, this would increase our liquidity to ~~$39~~$42 million as of ~~June~~September 30, 2020. ~~This situation did not occur at June 30, 2019.~~

Operating Activities

Cash flow from operating activities is primarily generated from operating income from our professional and technical testing, inspection engineering and consulting services.

Net cash ~~used in~~provided by operating activities was ~~($6.3)~~$10.1 million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ~~net cash provided of $7.0~~$18.7 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The decrease of ~~($13.3)~~$8.6 million was due to payments of accounts payable and accrued expenses mainly relating to costs associated with the Atlas Business Combination and other public company costs.

Investing Activities

Net cash used in investing activities was ($~~12.9)~~14.9) million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared to ($~~4.1)~~5.8) million for the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~$8.8~~$9.1 million increase in cash used was related to our acquisition of LONG in February 2020 and Alta Vista in September 2020.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$15.8~~($3.8) million for the ~~six~~nine months ended ~~June~~September 30, 2020, compared ~~$0.8~~to ($2.0) million for the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~$15.0~~$1.8 million increase toin net cash ~~provided by~~used in financing activities was primarily due to the ~~$10.2 million received from~~payment of preferred stock dividends which are a result of the ~~issuance~~redeemable preferred stock which was a result of ~~Common Stock during~~ the Atlas Business Combination.

The Company did raise additional money during 2020 through the Atlas Credit Agreement, described herein, and the issuance of redeemable preferred stock which was used to pay a distribution to the former owners of Atlas Intermediate, acquire LONG and pay off the Atlas Credit Facility.

Working Capital

Working capital, or current assets less current liabilities, ~~increased $1.6~~decreased $11.8 million, or 2%12%, to ~~$98.1~~$90.5 million at ~~June~~September 30, 2020 from ~~$96.5~~$102.3 million at ~~June~~September 30, 2019. This ~~increase~~decrease in working capital is due to the impacts of the COVID-19 pandemic on our revenues coupled with our higher interest expense and redeemable preferred stock dividends which was a result of the Atlas Business Combination. This was offset by $10.8 million of working capital additions that resulted from the LONG ~~acquisition.~~and Alta Vista acquisitions during 2020.

Debt Arrangements

In October 2017, concurrent with the closing of the acquisition of Moreland Altobelli Associates, LLC (“Moreland”), we obtained a bridge loan from Regions Bank in the amount of $42.0 million. In November 2017, concurrent with the closing of the Consolidated Engineering Laboratories (“ETS”) acquisition, we entered into a credit agreement with a group led by Regions Bank providing a term loan of $95.0 million and a revolving credit facility of $30.0 million secured by some of our assets owned by Atlas Intermediate. Proceeds from the Atlas Loan Agreement were used to fund the acquisition of ETS, repayment of the bridge loan, and for a redemption of $15.2 million of initial equity contributions made by the initial members once overall leverage amounts were determined. The Atlas Loan Agreement provided for a scheduled maturity date in November 2022 and quarterly principal payments beginning in December 2017 with interest compounded based on the variable rate in effect.

ATC was party to a business loan agreement (the “ATC Loan Agreement”) which provided for a scheduled maturity date of January 29, 2020. The ATC Loan Agreement included a revolving credit facility of $45.0 million. Security for the loan was provided by a first-priority interest in substantially all of ATC’s assets and a promissory note. Borrowings under the ATC Loan Agreement bore interest at the one-month London Interbank Offered Rate (“LIBOR”) plus a margin based on the total leverage ratio as defined in the ATC Loan Agreement.

In March 2019, subsequent to the merger with ATC ~~the~~Group Partners (“ATC”), we repaid all outstanding balances ofon the ~~Atlas Loan Agreement and the ATC Loan Agreement were paid~~combined entity’s loan agreements in full and ~~the ATC Loan Agreement was terminated. The Atlas Loan Agreement was amended to provide~~terminated our prior loan agreements. These loan agreements were replaced with a term loan ~~in the amount~~ of $145.0 million and a revolving credit facility of $50.0 million, of which $31.8 million was funded at closing ~~(collectively, the~~(the “Atlas Credit Facility”). Proceeds of the Atlas Credit Facility were used to repay existing debt of $123.9 million and fund a ~~stockholder~~shareholder distribution of $52.8 million made in April 2019.

The Atlas Credit Facility was secured by assets of Atlas Intermediate. The Atlas Credit Facility required quarterly principal payments of $2.719 million through March 31, 2023, and then $3.625 million until the final maturity in March 2024, and bore interest at an annual rate of LIBOR plus a margin ranging from 275 to 425 basis points determined by the Company’s Consolidated Leverage Ratio, as defined ~~therein.~~in the Atlas Credit Facility. For the interest payment made in the in the quarter ended December 31, 2019, the applicable margin was 375 basis points and the total interest rate was 5.500%.

The Atlas Credit Facility was scheduled to mature in March 2024. However, in connection with the consummation of the Atlas Business Combination, the Atlas Credit Facility was repaid and we entered into a new credit arrangement (the “Atlas Credit Agreement”) was entered into with Macquarie Capital (the “Lender” or “Lead Arranger”). The Atlas Credit Agreement called for a term loan (the “Term Loan”) in the amount of $281.0 million and revolving letter of credit (the “Revolver”) in the amount of $40.0 million of which ~~$24.0~~$12.0 million was drawn upon through ~~June~~September 30, 2020. The term loan proceeds were used to repay the existing Atlas Credit Facility in the amount of $171.0 million and partially fund the Atlas Business Combination and the acquisition of LONG.

Under the terms of the Atlas Credit Agreement, the Term Loan and Revolver are set to expire on February 14, 2027 and February 14, 2025, respectively. Interest iswas payable monthly or at the end of the applicable interest period in arrears on any outstanding borrowings. The interest rates under the Atlas Credit ~~Facility will be~~Agreement equal to either (i) Adjusted LIBOR (as defined in the Atlas Credit Agreement), plus 4.75%, or (ii) an Alternate Base Rate (as defined in the Atlas Credit Agreement), plus 3.75%.

On March 31, 2020, the terms of the Atlas Credit Agreement were modified to reduce the maturity of the Term Loan by one year to February 14, 2026 from February 14, 2027. The interest rate for the Term Loan was increased to (i) Adjusted LIBOR Rate as defined in the Atlas Credit Agreement, plus 6.25%, or (ii) an Alternate Base Rate as defined in the Atlas Credit Agreement, plus 5.25%. The interest rate for the Revolver was increased to (i) Adjusted LIBOR Rate as defined in the Atlas Credit Agreement, plus 5.0%, or (ii) an Alternate Base Rate as defined in the Atlas Credit Agreement, plus 4.0%. The modification also increased rate of amortization applicable to the Term Loan to 5.0% per annum (commencing on June 30, 2020).

The modifications to the Atlas Credit Agreement resulted from the exercise of the market-flex rights by the ~~lead arranger~~Lead Arranger in connection with the syndication process, which, in addition, required the payment of an upfront fee in an amount equal to 2% of the currently outstanding Term Loans, which was paid subsequent in April 2020. The market-flex rights were included in the Atlas Credit Agreement and were exercised by the ~~lead arranger~~Lead Arranger upon completion of the time period allowed to complete a syndication process.

The Company has been in compliance with the terms of the Atlas Credit Facility and Atlas Credit Agreement as of ~~June 30, 2020 and~~ December 31, 2019 and September 30, 2020, respectively.

Our debt balances are summarized as follows:

	September 30, 2020			December 31, 2019
	(in thousands)
Atlas credit facility	$	-		$	171,144
Atlas credit agreement		285,975			-
Subtotal		285,975			171,144
Less: Loan costs, net		(16,028	)		(1,712	)
Less current maturities of long-term debt		(14,050	)		(10,875	)
Long-term debt	$	255,897		$	158,557

June 30,
2020 December 31,
2019
(in thousands)
Atlas credit facility $ - $ 171,144
Atlas credit agreement 301,488 -
Subtotal 301,488 171,144
Less: Loan costs, net (16,523 ) (1,712 )
Less current maturities of long-term debt (14,050 ) (10,875 )
Long-term debt $ 270,915 $ 158,557

The following table presents, in millions, scheduled maturities of the Company’s debt as of ~~June~~September 30, 2020:

2020 (six months remaining) $ 7.0
2021 14.0
2022 14.0
2023 14.0
2024 14.0
Thereafter 238.5
$ 301.5

2020 (three months remaining)	$	3.5
2021		14.1
2022		14.1
2023		14.0
2024		14.0
Thereafter		226.3
	$	286.0

Our average effective interest rate on our total debt, exclusive of amortization of deferred debt issuance costs, during the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was ~~6.8%~~6.9% and 6.1%, respectively.

Interest expense, inclusive of amortization of deferred debt issuance costs, in the consolidated statements for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was ~~$12.0~~$18.3 million and ~~$5.5~~$8.0 million, respectively.

Other Commitments and Contingencies

In connection with our acquisition of LONG in February 2020, we may be required to pay $12.0 million in earnout bonuses upon the achievement of certain performance targets. This amount may be paid in installments over the first, second and third anniversaries of the acquisition. We have currently accrued $5.6 million as the fair value of that liability within other long-term liabilities within our Consolidated Balance Sheet at ~~June~~September 30, 2020.

In November 2019, we entered into a financing arrangement of our business-related insurance policies and the amount remaining is ~~$1.6~~$0.4 million as of ~~June~~September 30, 2020.

The Company enters into operating leases relating to office space and equipment leases in the ordinary course of business. Remaining amounts due, in millions, as of ~~June~~September 30, 2020 are as follows:

2020 (three months remaining)	$	2.9
2021		9.0
2022		6.5
2023		6.0
2024		3.0
Thereafter		3.9
	$	31.3

2020 (six months remaining) $ 5.8
2021 9.0
2022 6.5
2023 6.0
2024 3.0
Thereafter 3.9
$ 34.2

Remaining payments are as follows:

2020 (three months remaining)	$	0.1
2021		0.5
2022		0.5
2023		0.1
	$	1.2

Off-Balance Sheet Arrangements

As of ~~June~~September 30, 2020, we had no material off-balance sheet arrangements.

Effects of Inflation

Based on the analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with GAAP. We define adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, further adjusted to reflect non-cash equity compensation as well as certain one-time or non-recurring items.

We believe adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts are either non-recurring or can vary substantially within the industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that results will be unaffected by the items excluded from ~~Adjusted~~adjusted EBITDA. Our computations of adjusted EBITDA may not be identical to other similarly titled measures of other companies. The following table presents reconciliations of adjusted EBITDA to net income, our most directly comparable financial measure calculated and presented in accordance with GAAP.

For the three months ended
June 30, For the six-months ended
June 30,
2020 2019 2020 2019
(in $ millions) (in $ millions)
Net (loss) income $ 2.2 $ 4.1 $ (21.3 ) $ 4.9
Interest 6.4 3.1 12.0 5.5
Taxes - 0.2 - 0.2
Depreciation and amortization 5.4 5.4 10.3 10.5
EBITDA 14.0 12.8 1.0 21.1

EBITDA for acquired business prior to acquisition date⁽¹⁾ $ - $ 0.9 $ 0.8 $ 1.7
One time legal/transaction costs and other non-recurring charges⁽²⁾ 1.2 3.1 15.9 4.8
Non-cash equity compensation⁽³⁾ 0.2 0.5 10.6 0.6

Adjusted EBITDA $ 15.4 $ 17.3 $ 28.3 $ 28.2

	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020			2019
	(in $ millions)				(in $ millions)
Net (loss) income	$	0.6	$	8.7	$	(20.8	)	$	13.5
Interest		6.3		2.5		18.3			8.0
Taxes		-		-		-			0.2
Depreciation and amortization		5.2		5.1		15.5			15.6
EBITDA		12.1		16.3		13.0			37.3

EBITDA for acquired business prior to acquisition date⁽¹⁾	$	-	$	0.5	$	0.8		$	2.2
One time legal/transaction costs and other non-recurring charges⁽²⁾		6.5		3.6		22.4			8.4
Non-cash equity compensation⁽³⁾		0.4		0.8		11.0			1.4

Adjusted EBITDA	$	19.0		21.2	$	47.2		$	49.3

(1)	Includes the EBITDA of LONG (which we acquired in February 2020) for the period January 1, 2020 through the date of the ~~respective~~ acquisition and January 1, 2019 through ~~June~~September 30, 2019.
(2)	Includes professional service-related service fees such as legal, accounting, tax, valuation and other consulting relating as well as change in control payments relating to the Atlas Business Combination. Additionally, it includes other acquisition related professional fees, previous owner expenses and costs to shut down the telecom division.
(3)	Includes the amortization of the unvested portion of our 2017 and 2019 Management Incentive Plan grants that vested immediately upon the consummation of the Atlas Business Combination pursuant to change in control provisions contained within the applicable agreements, compensation that was earned and accrued for in the three months ended March 31, 2020 that will be share settled subsequent to June 30, 2020, and the amortization of unvested restricted share units granted in May 2020 to key management personnel.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The information called for by this item is not required as we are a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer, Chief Financial Officer and the Chief Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s management, including the Chief Executive Officer, Chief Financial Officer and the Chief Accounting Officer, concluded that, as of ~~June~~September 30, 2020, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

We review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis, to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three-month period ended ~~June~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to COVID-19. We are continually monitoring and assessing the effects of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Currently, we are not a party to any material litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority against us. From time to time, we are involved in various legal matters and proceedings concerning matters arising in the ordinary course of business. We currently believe that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

Other than the items noted below, there have been no material changes in any risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we intend to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We cannot predict if investors will find our common stock less attractive because we may rely on these ~~exemptions.~~exemptions and reduced disclosure obligations. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

The growth of our business through acquisitions may expose us to various risks and we cannot assure you that we will achieve synergies and cost savings in connection with prior or future acquisitions.

We have pursued and selected accretive acquisitions of complementary businesses and technologies in the past and we may continue to do so in the future. We may not achieve anticipated benefits and cost savings in connection with prior or future acquisitions within the anticipated time frames or at all. A variety of risks could cause us not to realize some or all of these expected benefits. These risks include, among others, higher than expected standalone overhead expenses, difficulties in integrating the operations and assets of the acquired business and personnel, delays in the anticipated timing of activities related to such initiatives, potential losses of key employees and customers of the acquired business, and the incurrence of other unexpected costs associated with operating the business. Moreover, our implementation of cost savings initiatives may disrupt our operations and performance, and our estimated cost savings from such initiatives may be based on assumptions that prove to be inaccurate. If, for any reason, the benefits we realize are less than our estimates or our improvement initiatives adversely affect our operations or cost more or take longer to implement than we project, or if our assumptions prove inaccurate, our results of operations may be materially and adversely affected.

In addition, our operating results from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill, or other long-lived assets, particularly if economic conditions worsen unexpectedly. These changes could materially adversely affect our results of operations, financial condition, stockholders’ equity, and cash flows.

Our failure to comply with a variety of complex procurement rules and regulations could damage our reputation and result on our being liable for penalties, including termination of our government contracts, disqualification from bidding on future government contracts, suspension or debarment from government contracting.

We must comply with laws and regulations relating to government contracts, which affect how we do business with our customers and may impose added costs on our business. Some significant laws and regulations that affect us include:

	●	federal, state, and local laws and regulations (including the FAR) regarding the formation, administration, and performance of government contracts;

	●	the Civil False Claims Act, which provides for substantial civil penalties for violations, including for submission of a false or fraudulent claim to the U.S. government for payment or approval; and

	●	federal, state, and local laws and regulations regarding procurement integrity including gratuity, bribery and anti-corruption requirements as well as limitations on political contributions and lobbying.

Any failure to comply with applicable laws and regulations could result in contract termination, damage to our reputation, price or fee reductions or suspension or debarment from contracting with the government, each of which could materially adversely affect our business, results of operations and financial condition.

In addition, federal, state, and local government entities may revise existing contract rules and regulations or adopt new contract rules and regulations at any time and may also face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors. Any of these changes could impair our ability to obtain new contracts or renew contracts under which we currently perform when those contracts are eligible for ~~recompetition.~~re-competition.

Cyber security breaches of our systems and information technology could adversely impact our ability to operate.

We need to protect our own internal trade secrets and other business confidential information from disclosure. We face a number of threats to our computer and information systems, including risks associated with unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to our and our clients’ proprietary or classified information. For example, in the past certain of our subsidiaries have been subject to external malicious ransom attacks of their data. We rely on industry-accepted security measures and technology to securely maintain all confidential and proprietary information on our information systems. We have devoted and will continue to devote significant resources to the security of our computer systems, but they are still vulnerable to these threats. A user who circumvents security measures can misappropriate confidential or proprietary information, including information regarding us, our personnel and/or our clients, or cause interruptions or malfunctions in operations. As a result, we can be required to expend significant resources to protect against the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. Any of these events can damage our reputation and have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Class A common stock.

Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our Class A common stock.

Outbreaks of communicable diseases, including the on-going global pandemic related to COVID-19, ~~have~~ had and could continue to have, a negative impact on our business, financial condition and results of operations; and could in the future have. directly or indirectly, a material and adverse effect on our business, financial condition and results of operations. The duration and extent to which this will impact our future financial condition and results of operations remains uncertain.

Global or national health concerns, including the outbreak of pandemic or contagious disease, can negatively impact the global economy and, therefore, demand and pricing for our services. For example, the domestic and global crisis resulting from the outbreak of the COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have already adversely affected the U.S. economy and financial markets, resulting in an economic downturn that has negatively impacted the demand for our services. Shelter in place orders in large metropolitan areas have negatively impacted our revenue, and itif continued or exacerbated, or reordered in areas where such shelter in place orders have been lifted, could result in a material effect to our business. Furthermore, the COVID-19 pandemic also raises the possibility of an extended global economic downturn, which could ultimately result in an overall decrease in demand for our services and may impact the ability of our customers to pay for our services. For example, if a client’s financial difficulties become severe, the client may be unwilling or unable to pay our invoices in the ordinary course of business, which could adversely affect collections of both our accounts receivable and unbilled services.

As a result of the COVID-19 pandemic, we have an increased number of employees working remotely. As a result, we may have increased cyber security and data security risks, due to increased use of home Wi-Fi networks and virtual private networks, as well as increased disbursement of physical machines. While we implement IT controls to reduce the risk of a cyber-security and data security breach, there is no guarantee that these measures will be adequate to safeguard all systems with an increased number of employees working remotely.

At this time, we are monitoring and will continue to monitor, the safety of our employees during the COVID-19 pandemic and the impact of the COVID-19 pandemic on our cash flows and on the credit and financial markets. We are evaluating, and will continue to evaluate, the impact of COVID-19 pandemic on current projects, but the full effects of the COVID-19 pandemic on our operations are still unknown. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the timing and effectiveness of any vaccine and the impact of these and other factors on our employees and clients. The extension of mandates for many individuals to substantially restrict daily activities and for business to curtail or cease normal operations within the cities and municipalities we operate in could further negatively impact future results as well as the re-designation of infrastructure spending to non-essential services. Disruptions to capital markets due to the uncertainty surrounding the length and severity of the COVID-19 pandemic could delay the timing of our customers’ capital projects. In addition, the timing of payments from our commercial customers may be impacted.

Catastrophic events may adversely impact our business operations.

Our business operations may be adversely impacted by force majeure, or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters as well as terrorist attacks. Such events could result in the closure of offices, interruption of projects, and the relocation of employees. We typically remain obligated to perform our services after a such extraordinary events unless the contract contains a force majeure clause that relieves us of our contractual obligations. If we are not able to react quickly to a force majeure event, our operations may be affected significantly, which would have a negative impact on our business operations.

Further, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational, support, hosted services, and sales activities. Despite our implementation of network security measures, we are vulnerable to disruption, infiltration, or failure of these systems or third-party hosted services in the event of a major earthquake, fire, power loss, telecommunications failure, cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, lengthy interruptions in our services, breaches of data security, and loss of critical data and could harm our future operating results.

Our largest stockholder collectively holds a substantial majority of our common stock.

Holders of our common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation. Bernhard Capital Partners Management, LP and certain related affiliates (“Bernhard Capital Partners”) owns over a majority of the voting power of our common stock. Bernhard Capital Partners has the ability to determine the outcome of certain matters requiring stockholder approval, including mergers and other material transactions, and is able to cause or prevent certain changes in the composition of our board of directors or a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company. The existence of a significant stockholder may also have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our company.

So long as Bernhard Capital Partners continues to control a significant amount of our common stock, they will continue to be able to strongly influence all matters requiring stockholder approval, regardless of whether or not other stockholders believe that a potential transaction is in their own best interests. In any of these matters, the interests of Bernhard Capital Partners may differ or conflict with the interests of our other stockholders. In addition, Bernhard Capital Partners and its affiliates may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers. Bernhard Capital Partners and its affiliates may acquire or seek to acquire assets that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue. Moreover, this concentration of stock ownership may also adversely affect the trading price of our common stock to the extent investors perceive a disadvantage in owning stock of a company with a controlling stockholder.

The market price of our common stock may be affected by low trading volume.

Although a trading market for our Class A common stock exists on the NASDAQ, the trading volume has not been significant, due in part to a substantial number of our outstanding shares of our common stock being subject to contractual lock-ups and other legal restrictions. Additionally, a large percentage of our common stock is currently made up of Class B common stock, which is not listed on a public exchange but is exchangeable (along with Holdings Units) for shares of Class A common stock. The market price for shares of our Class A common stock may be made more volatile because of the relatively low volume of trading. When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares. Low volume can also reduce liquidity, which could adversely affect the market price of our shares of Class A common stock.

Shares of Class A common stock issued pursuant to the terms of the Holdings LLC Agreement or upon exercise of any of our Public Warrants or Private Placement Warrants, will increase the number of shares eligible for resale in the public market.

Pursuant to the terms of Holdings LLC Agreement, Atlas Holdings and its limited partners (the “Continuing Members”) may redeem any or all of the shares of Class B common stock issued to them along with a corresponding number of Holdings Units, for an equal number of shares of Class A common stock. If the underwriters exercise in full their option to purchase additional shares, the selling stockholder will redeem a portion of its Class B common stock and Holdings Units in exchange for the Class A common stock to be sold as part of the exercise of such option.

Furthermore, we have (i) 20,000,000 outstanding exercisable Public Warrants to purchase 20,000,000 shares of Class A common stock at an exercise price of $11.50 per share and (ii) 3,750,000 Private Placement Warrants outstanding exercisable for 3,750,000 shares of common stock at an exercise price of $11.50 per share.

Shares of Class A common stock issued pursuant to the terms of the Holdings LLC Agreement, or upon exercise of any of the Warrants, will increase in the number of shares of Class A common stock eligible for resale in the public market. Additionally, we may sell additional shares of our Class A common stock in subsequent offerings and cannot predict the size of future issuances of our Class A common stock or securities convertible into Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock will have on the market price of our Class A common stock. Sales of a substantial number of such shares in the public market, or the perception that such sales could occur, may adversely affect the market price of Class A common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ~~FROM REGISTERED SECURITIES~~

On ~~February 3,~~September 29, 2020, the Company ~~entered into a subscription agreement with SCST,~~issued to AVS Holding Services, Inc., a California corporation pursuant to which it agreed to acquire 105,977 shares of Class A common stock (the “SCST Stock”), for an aggregate purchase price of $1.1 million in exchange for the contingent consideration liability that arose from their acquisition in November 2018, in a private placement not registered under the Securities Act, in reliance on the exemption from Registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The issuance of the SCST Stock was completed in connection with the ~~Atlas Business Combination.~~

~~Additionally, on February 14, 2020, in connection with the Atlas Business Combination, GSO was issued 1,200,000 shares~~acquisition of Class F common stock pursuant to a letter agreement, dated as of February 14, 2020 (the “Founder Shares Transfer Letter”), as consideration for the purchase of Preferred Units made pursuant to the Subscription Agreement, which converted automatically into 1,200,000 Class A common stock. The Class F common stock issued was not registered under the Securities Act, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.

~~Additionally, on February 14, 2020, in connection with the Atlas Business Combination, the Company issued the Seller 23,974,368~~Alta Vista Solutions 776,197 shares of Class B common stock along with an equal number of Holdings Units that are redeemable on a one-for-one basis for shares of Class A common ~~stock in exchange for common units of Atlas TC Holdings LLC held by the Seller pursuant to the Purchase Agreement.~~stock. The Class B common stock issued was not registered under the Securities Act, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

ITEM 6. EXHIBITS.

Exhibit Number		Description
3.1		Second Amended and Restated Certificate of Incorporation of Atlas Technical Consultants, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2020).
3.2		Second Amended and Restated Bylaws of Atlas Technical Consultants, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2020).
4.1		Specimen Class A common stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File No. 333-228018), filed with the SEC on November 15, 2018).
4.2		Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (File No. 333-228018), filed with the SEC on November 15, 2018).
4.3		Warrant Agreement, dated November 15, 2018, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 21, 2018).
4.4		Amended and Restated Limited Liability Company Agreement of Atlas TC Holdings LLC, dated as of February 14, 2020 (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2020).
~~10.1~~		~~Form of RSU Award Agreement (Director) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form S-8 filed with the SEC on April 17, 2020).~~
~~10.2*†~~		~~Employment Agreement, dated as of May 11, 2020, by and between Atlas Technical Consultants, Inc. and David Quinn.~~
~~10.3*†~~		~~Employment Agreement, dated as of May 11, 2020, by and between Atlas Technical Consultants, Inc. and Gary Cappa.~~
10.4*		~~Employment Agreement, dated as of May 11, 2020, by and between Atlas Technical Consultants, Inc. and Walter Powell.~~
~~10.5*†~~		~~Form of RSU Award Agreement (Employee)~~
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance ~~Document.~~Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Filed Herewith

†

Management contract and compensatory arrangement in which any director or named executive officer participates

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this ~~10th~~9th day of ~~August,~~November, 2020.

	ATLAS TECHNICAL CONSULTANTS, INC.

	/s/ David D. Quinn, Sr.
	Name:	David D. Quinn, Sr.
	Title:	Chief Financial Officer
		(Principal Financial Officer)

	/s/ Walter Powell
	Name:	Walter Powell
	Title:	Chief Accounting Officer
		(Principal Accounting Officer)

	/s/ L. Joe Boyer
	Name:	L. Joe Boyer
	Title:	Chief Executive Officer
		(Principal Executive Officer)

4547

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		Page

PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
Item 22..	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	3941
Item 4.	Controls and Procedures	3941

PART ~~II.~~II - OTHER INFORMATION		42
Item 1.	Legal Proceedings	4042
Item 1A.	Risk Factors	4342
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds ~~from Registered Securities~~	43
~~Item 3.~~	~~Defaults Upon Senior Securities~~	44
~~Item 4.~~	~~Mine Safety Disclosures~~	44
~~Item 5.~~	~~Other Information~~	4445
Item 6.	Exhibits	4446

	June 30,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and equivalents	$	16,881		$	20,185
Accounts receivable, net		88,356			90,775
Unbilled receivables, net		45,501			40,513
Prepaid expenses		4,100			5,266
Other current assets		1,036			812

Total current assets		155,874			157,551

Property and equipment, net		15,439			14,824
Intangible assets, net		88,401			92,389
Goodwill		92,254			85,125
Other long-term assets		2,907			2,884

TOTAL ASSETS	$	354,875		$	352,773

LIABILITIES, REDEEMABLE PREFERRED STOCK, SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL
Current liabilities:
Trade accounts payable	$	21,296		$	30,754
Accrued liabilities		10,958			10,085
Current maturities of long-term debt		14,050			10,875
Other current liabilities		11,482			13,712

Total current liabilities		57,786			65,426

Long-term debt, net of current maturities and loan costs		270,915			158,557
Other long-term liabilities		7,791			1,347

Total liabilities		336,492			225,330

COMMITMENTS AND CONTINGENCIES (NOTE 14)

Redeemable preferred stock		145,866			-

Members’ Capital		-			127,443
Class A common stock, $0.0001 par value, 400,000,000 shares authorized, 5,767,342 shares issued and outstanding at June 30, 2020		1			-
Class B common stock, $0.0001 par value, 23,974,368 shares authorized, 23,974,368 shares issued and outstanding at June 30, 2020		2			-
Additional paid in capital		(23,442	)		-
Non-controlling interest		(102,131	)		-
Retained (deficit)		(1,913	)		-

Total shareholders’ equity/members’ capital		(127,483	)		127,443

TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK. SHAREHOLDERS’ EQUITY AND MEMBERS’ CAPITAL	$	354,875		$	352,773

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019

Revenues	$	112,715		$	123,669		$	222,017		$	229,280

Cost of revenues		(58,714	)		(68,452	)		(117,612	)		(125,624	)
Operating expenses		(45,376	)		(47,236	)		(113,741	)		(92,105	)

Operating income (loss)		8,625			7,981			(9,336	)		11,551

Interest expense		(6,398	)		(3,149	)		(12,038	)		(5,534	)
Other income (expense)		18			(486	)		50			(782	)

Income (loss) before income taxes		2,245			4,346			(21,324	)		5,235
Income tax expense		-			(154	)		-			(159	)

Net income (loss) from continuing operations		2,245			4,192			(21,324	)		5,076

Loss from discontinued operations		-			(64	)		-			(213	)

Net income (loss)		2,245			4,128			(21,324	)		4,863

Provision for non-controlling interest		1,881			-			5,141			-

Redeemable preferred stock dividends		(4,533	)		-			(6,777	)		-

Net (loss) income attributable to Class A common stock shareholders/members	$	(407	)	$	4,128		$	(22,960	)	$	4,863

(Loss) Per Class A Common Share	$	(0.07	)		N/A		$	(0.33	)		N/A

Weighted average of shares outstanding:
Class A common shares (basic and diluted)		5,767,342			N/A			5,767,342			N/A

	For the six months ended June 30,
	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(21,324	)	$	4,863
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		10,327			10,534
Equity based compensation expense		10,035			569
(Gain) on sale of property and equipment		(1	)		(82	)
Write-off of deferred financing costs related to debt extinguishment		1,712			40
Amortization of deferred financing costs		984			121
Provision for bad debts		1,465			569
Changes in assets & liabilities:
Decrease (increase) in accounts receivable and unbilled receivable		1,060			(70	)
Decrease (increase) in prepaid expenses		1,166			(1,656	)
(Increase) decrease in other current assets		(224	)		79
(Decrease) in trade accounts payable		(10,142	)		(183	)
(Decrease) in accrued liabilities		(947	)		(2,665	)
(Decrease) in other current and long-term liabilities		(352	)		(4,701	)
(Increase) in other long-term assets		(9	)		(476	)

Net cash (used in) provided by operating activities		(6,250	)		6,942

Cash flows from investing activities:
Purchases of property and equipment		(2,133	)		(4,339	)
Proceeds from disposal of property and equipment		-			248
Purchase of business, net of cash acquired		(10,748	)		-

Net cash (used in) investing activities		(12,881	)		(4,091	)

Cash flows from financing activities:
Proceeds from issuance of debt		320,000			178,039
Payment of loan acquisition costs		(17,506	)		-
Repayments of debt		(189,657	)		(121,358	)
Proceeds from issuance of redeemable preferred stock		141,840			-
Payments of redeemable preferred stock dividends		(931	)
Issuance of common stock		10,229			-
Member distributions		(21,830	)		(53,400	)
Payment to shareholders associated with Atlas Business Combination		(226,318	)		-
Payment of contingent earn-out		-			(2,500	)
Net cash provided by financing activities		15,827			781

Net change in cash and equivalents		(3,304	)		3,632

Cash and equivalents - beginning of period		20,185			6,509

Cash and equivalents - end of period	$	16,881		$	10,141

Supplemental information:
Cash paid during the period for:
Interest	$	9,009		$	2,053
Taxes		-			195

Capital assets financed		94			-
Contingent consideration share settled		1,060			-
Dividends due on redeemable preferred stock		1,819			-

	Consolidated Statement of Shareholders’ Equity and Members’ Capital
	Class A Common Stock				Class B Common Stock				Additional Paid in			Members’			Non- Controlling			Retained			Total Shareholders’
	Shares		Amount		Shares		Amount		Capital			Capital			Interests			Earnings			Equity
Balance at December 31, 2018													171,794									171,794
Member distributions													-									-
Equity based compensation													56									56
Net income													735									735
Balance at March 31, 2019				-				-		-			172,585			-			-			172,585
Member distributions													(53,400	)								(53,400	)
Equity based compensation													513									513
Net income													4,128									4,128
Balance at June 30, 2019				-				-		-			123,826			-			-			123,826

Balance at December 31, 2019													127,443									127,443
Member distributions													(21,830	)								(21,830	)
Equity based compensation													9,845									9,845
Net (loss) prior to Atlas Business Combination													(21,047	)								(21,047	)
Recapitalization in connection with Atlas Business Combination		5,767		1		23,974		2		(23,632	)		(94,411	)		(96,990	)					(215,030	)
Net (loss) post Atlas Business Combination																(1,451	)		(1,071	)		(2,522	)
Dividends on redeemable preferred stock																(1,809	)		(435	)		(2,244	)
Balance at March 31, 2020		5,767		1		23,974		2		(23,632	)		-			(100,250	)		(1,506	)		(125,385	)
Equity based compensation										190												190
Net income																1,773			472			2,245
Dividends on redeemable preferred stock																(3,654	)		(879	)		(4,533	)
Balance at June 30, 2020		5,767		1		23,974		2		(23,442	)		-			(102,131	)		(1,913	)		(127,483	)

	June 30, 2020			December 31, 2019

	($’s in millions)
Asset:
Current	$	0.1		$	-
Noncurrent		13.0			-
Deferred tax asset, gross		13.1			-
Valuation allowance		(13.1	)		-
Deferred tax asset, net	$	-		$	-

Liability:
Current	$	-		$	-
Noncurrent		0.6			0.6
Deferred tax liability, gross		0.6			0.6
Valuation allowance		-			-
Deferred tax liability, net	$	0.6		$	0.6

	Three Months Ended June 30, 2020			Atlas Business Combination Through June 30, 2020

Pre-tax (income) loss		(2,245	)	$	277
Statutory tax rate		26	%		26	%
Tax (expense) benefit		(584	)		72
Deferred tax asset valuation reserve		584			(72	)
Income tax expense, net	$	-		$	-

Cash	$	-
Accounts receivable		4,846
Property and equipment		1,423
Other long-term assets		14
Intangible assets		3,491
Liabilities		(778	)

Net assets acquired	$	8,996

Consideration paid (cash and rollover equity)	$	10,500
Contingent earnout liability at fair value (cash)		5,625

Total consideration		16,125

Excess consideration over the preliminary amounts assigned to the net assets acquired (goodwill)	$	7,129

2020 (six months remaining)	$	165
2021		354
2022		353
2023		269
2024		73
Thereafter		-
	$	1,214

	June 30, 2020							December 31, 2019							Remaining
	Gross amount		Accumulated amortization			Net book value		Gross amount		Accumulated amortization			Net book value		useful life (in years)
Definite life intangible assets:
Customer relationships	$	109,130	$	(28,940	)	$	80,190	$	106,620	$	(23,759	)	$	82,861		18.8
Tradenames		19,601		(11,487	)		8,114		18,620		(9,282	)		9,338		9.8
Non-competes		600		(503	)		97		600		(410	)		190		2.5

Total intangibles	$	129,331	$	(40,930	)	$	88,401	$	125,840	$	(33,451	)	$	92,389

2020 (six months remaining)	$	6,984
2021		11,860
2022		11,267
2023		10,978
2024		10,924
Thereafter		36,388
	$	88,401

2020 (six months remaining)	$	7.025
2021		14.050
2022		14.050
2023		14.050
2024		14.050
Thereafter		238.263
	$	301.488

	Three Months Ended June 30, 2020			Closing Date Through June 30, 2020
Numerator:
Net income (loss) post Atlas Business Combination	$	2,245		$	(277	)
Provision for non-controlling interest		1,881			5,141
Redeemable preferred stock dividends		(4,533	)		(6,777	)
Net (loss) attributable to Class A common shares - basic and diluted	$	(407	)	$	(1,913	)

Denominator:
Weighted average shares outstanding - basic and diluted		5,767,342			5,767,342

Net (loss) per Class A common share, basic and diluted	$	(0.07	)	$	(0.33	)

	Number of unvested Class A units			Grant date fair value
Unvested Class A units as of December 31, 2019		1,226		$	12,117
Granted		-			-
Vested and converted to Class B Common Stock		(1,226	)		-
Forfeited		-			-
Unvested Class A units as of June 30, 2020		-		$	12,117

2020 (six months remaining)	$	5,806
2021		8,974
2022		6,478
2023		6,049
2024		3,031
Thereafter		3,860
	$	34,198

	For the three months ended June 30,				For the six-months ended June 30,
	2020		2019		2020			2019
	(in $ millions)				(in $ millions)
Net (loss) income	$	2.2	$	4.1	$	(21.3	)	$	4.9
Interest		6.4		3.1		12.0			5.5
Taxes		-		0.2		-			0.2
Depreciation and amortization		5.4		5.4		10.3			10.5
EBITDA		14.0		12.8		1.0			21.1

EBITDA for acquired business prior to acquisition date⁽¹⁾	$	-	$	0.9	$	0.8		$	1.7
One time legal/transaction costs and other non-recurring charges⁽²⁾		1.2		3.1		15.9			4.8
Non-cash equity compensation⁽³⁾		0.2		0.5		10.6			0.6

Adjusted EBITDA	$	15.4	$	17.3	$	28.3		$	28.2