UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended June 30, 2024

 

OR

 

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 001-40760

 

 

 

ATLANTIC INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 46-5319744
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 

 

270 Slyvan Avenue, Suite 2230    
Englewood Cliffs NJ   07632
(Address of principal executive offices)   (Zip Code)

 

(201) 899-4470

(Registrant’s telephone number, including area code)

 

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

None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 and post 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 12, 2024, 48,728,813 shares of the common stock, $0.00001 par value, of the registrant were outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

      Page
    Explanatory Note ii
PART I   FINANCIAL INFORMATION 1
       
Item 1.   Financial Statements (Unaudited) 1
    Condensed Consolidated Balance Sheets 1
    Condensed Consolidated Statements of Operations 2
    Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 3
    Condensed Consolidated Statements of Cash Flows 4
    Notes to Unaudited Condensed Consolidated Financial Statements 5
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 47
Item 4.   Controls and Procedures 47
       
PART II   OTHER INFORMATION 48
       
Item 1.   Legal Proceedings 48
Item 1a.   Risk Factors 48
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 53
Item 3.   Defaults Upon Senior Securities 53
Item 4.   Mine Safety Disclosures 53
Item 5.   Other Information 53
Item 6.   Exhibits 53
Signatures 54

 

i

 

 

EXPLANATORY NOTE

 

On June 18, 2024, Atlantic International Corp (f/k/a SeqLL, Inc., the “Company”) completed its previously announced merger transaction and reorganization with SeqLL Merger LLC, a Delaware corporation (“SeqLL LLC”), Atlantic Acquisition Corp., a Delaware corporation (“Atlantic”), Atlantic Merger LLC, a Delaware limited liability company and a majority-owned subsidiary of Atlantic (“Atlantic Merger LLC”), Lyneer Investments LLC, a Delaware limited liability company (“Lyneer”) and IDC Technologies, Inc., a California Corporation (“IDC”) in accordance with the terms of the Agreement and Plan of Merger, dated as of May 29, 2023 and subsequently amended on June 23, 2023, October 5, 2023, October 17, 2023, November 3, 2023, January 16, 2024, March 7, 2024, April 15, 2024, June 4, 2024 and June 12, 2024 (the “Merger Agreement”) pursuant to which (i) Atlantic Merger LLC was merged with and into Lyneer with Lyneer continuing as the surviving entity and as an approximately 41.7%-owned subsidiary of Atlantic, and an approximately 58.3%-owned subsidiary of IDC , and (ii) SeqLL LLC was subsequently merged with and into Lyneer, with Lyneer continuing as the surviving entity as a wholly-owned subsidiary of the Company.

 

Pursuant to the terms of the Merger, the Company changed its corporate name from SeqLL Inc. to Atlantic International Corp. and its trading symbol to ATLN.

 

On August 30, 2023, SeqLL Inc affected a one-for-40 reverse stock split of their common stock (the “Reverse Stock Split”).

 

Unless the context otherwise requires, references to the “Company,” “Lyneer,” the “combined organization,” “we,” “our” or “us” in this Quarterly Report on Form 10-Q refer to Lyneer and its subsidiaries prior to completion of the Merger and to Atlantic International Corp. and its subsidiaries after completion of the Merger. In addition, references to “SeqLLC” refer to the registrant prior to the completion of the Merger.

 

The Merger has been accounted for as a reverse capitalization in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Under this method of accounting, Lyneer was deemed to be the accounting acquirer for financial reporting purposes. Following the Merger, the business conducted by Lyneer became the Company’s primary business.

 

Promptly following the Closing, (i) the legacy business and assets of SeqLL were sold, transferred and assigned to SeqLL Omics Inc a newly-formed private entity (“Newco”) pursuant to the asset purchase agreement dated as of May 29, 2023 (the “Asset Purchase Agreement”) and (ii) SeqLL’s existing cash on hand as of the Closing Date, less withholding taxes and any other obligations due under the Asset Purchase Agreement (or any amount withheld for such taxes or other pre-Closing Expenses under the Asset Purchase Agreement) were retained by SeqLL and not transferred under the Asset Purchase Agreement to SeqLL Omics, Inc.

 

Except as otherwise noted, references to “common stock” in this report refer to common stock, $0.00001 par value per share, of the Company.

 

ii

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,
2024
   December 31,
2023
 
     (Unaudited)  
Assets        
Current assets        
Cash and cash equivalents   $439,478   $1,352,927 
Accounts receivable, net of allowance of $1,769,076 and $1,902,140    50,438,814    58,818,832 
Unbilled accounts receivable    7,942,037    5,660,753 
Prepaid expenses and other current assets    5,849,870    4,965,936 
Deposits, current    8,000,000    8,000,000 
Total current assets    72,670,199    78,798,448 
Noncurrent assets           
Property and equipment, net    356,059    432,695 
Right-of-use assets    2,718,545    2,368,677 
Intangible assets, net    33,792,223    36,188,889 
Due from related parties   
    1,150,000 
Deferred tax assets, net    23,790,172    5,242,610 
Other assets    850,659    2,485,290 
Total non-current assets    61,507,658    47,868,161 
Total assets   $134,177,857   $126,666,609 
Liabilities and stockholders’ equity (deficit)           
Current liabilities           
Accounts payable   $433,661   $799,568 
Accrued expenses and other current liabilities    26,727,400    16,044,095 
Due to related parties    2,771,502    4,384,178 
Current operating lease liabilities    1,543,629    1,436,813 
Notes payable, current portion    
    48,680,290 
Notes payable, current portion – related parties    35,000,000    5,127,218 
Line of credit, current portion    1,950,000    85,092,695 
Total current liabilities    68,426,192    161,564,857 
Non-current liabilities           
Line of credit, net of current portion    40,163,261    
 
Notes payable, long term    1,375,000    
 
Noncurrent operating lease liabilities    1,224,996    980,851 
Other liabilities    
    3,474,954 
Total non-current liabilities    42,763,257    4,455,805 
Total liabilities    111,189,449    166,020,662 
Commitments and contingencies    
 
    
 
 
Stockholders’ equity (deficit)           
Common stock, $.00001 par value; 300,000,000 shares authorized; 44,024,715 and 25,423,729 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively    440    254 
Additional paid-in capital    82,766,531    22,449,809 
Accumulated deficit    (59,778,563)   (61,804,116)
Total stockholders’ equity (deficit)    22,988,408    (39,354,053)
Total liabilities and stockholders’ equity (deficit)   $134,177,857   $126,666,609 

 

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

 

1

 

 

ATLANTIC INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

 

  

Three Months Ended
June 30,

   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Service revenue, net  $104,636,273   $89,364,602   $205,259,485   $187,392,724 
Cost of revenue   93,146,627    78,426,842    183,304,457    164,708,406 
Gross profit   11,489,646    10,937,760    21,955,028    22,684,318 
Selling, general and administrative   18,553,150    11,187,268    28,894,187    21,329,274 
Change in fair value of contingent consideration liabilities   
    (400,000)   
    (500,000)
Depreciation and amortization   1,249,054    1,256,985    2,508,608    2,520,804 
(Loss) income from operations   (8,312,558)   (1,106,493)   (9,447,767)   (665,760)
Loss on debt extinguishment   1,213,379    
    1,213,379    
 
Advisory fees paid in the merger   43,000,000    
    43,000,000    
 
Interest expense   4,000,024    4,032,944    9,022,254    7,723,033 
Other expense   

15,607,737

    

    

15,607,737

    

 
Net loss before provision for income taxes   (72,133,698)   (5,139,437)   (78,291,137)   (8,388,793)
Income tax benefit   17,221,979    1,523,345    18,512,574    2,444,418 
Net loss  $(54,911,719)  $(3,616,092)  $(59,778,563)  $(5,944,375)
                     
Net loss per share, basic and diluted
  $(1.96)  $(0.14)  $(2.23)  $(0.23)
                     
Weighted-average shares outstanding, basic and diluted
   28,081,013    25,423,729    26,752,371    25,423,729 

 

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

 

2

 

 

ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

 

   Mezzanine Capital   Members’ Capital (Deficit)   Stockholders’ Equity (Deficit) 
           Non-Redeemable Interests   Common Stock             
   Redeemable Interests   Total Mezzanine Capital   Contributed Capital   Accumulated (Deficit)   Total Members’ Equity/(Deficit)   Shares   Amount   Additional Paid in Capital   Accumulated Deficit   Total Stockholders’ Equity (Deficit) 
Balance - December 31, 2023  $10,663,750   $10,663,750   $11,786,313   $(61,804,116)  $(50,017,803)   25,423,729   $254   $22,449,809   $(61,804,116)  $(39,354,053)
Effect of recapitalization   
 
    
 
    (23,484,032)   61,804,116    38,320,084    -    -    (1,804,116)   61,804,116    60,000,000 
Accretion to redemption value   133,162    133,162    (133,162)   -    (133,162)   -    -    -    -    - 
Exercise of redeemable interests   (10,796,912)   (10,796,912)   10,796,912    -    10,796,912    -    -    -    -    - 
Net loss   -    -    -    -    -    -    -    -    (4,866,844)   (4,866,844)
Capital contribution   -    -   $1,033,969    -    1,033,969    -    -    1,033,969    -    1,33,969 
Balance - March 31, 2024  $-   $-   $-   $-   $-    25,423,729   $254   $21,679,662   $(4,866,844)  $16,813,072 
Net loss   -    -    -    
 
    -         
 
    
 
    (54,911,719)   (54,911,719)
Stock based compensation   -    -    -    -    -    -    -    4,506,066    -    4,506,066 
Recapitalization of legacy company   
 
    
 
    
 
    
 
    
 
    380,648    4    (1,703,193)   -    (1,703,189)
Deemed contribution of debt deconsolidation from related party   -    -    -    -    -    -    -    15,284,178    -    15,284,178 
Advisory fees paid in merger   -    -    -    -    -    18,220,338    182    42,999,818    -    43,000,000 
                        -    -              -    - 
Balance - June 30, 2024  $-   $-   $-   $-   $-    44,024,715   $440   $82,766,531   $(59,778,563)  $22,988,408 

 

   Mezzanine Capital   Members’ Capital (Deficit)   Stockholders’ Equity (Deficit) 
           Non-Redeemable Interests   Common Stock             
   Redeemable Interests   Total Mezzanine Capital   Contributed Capital   Accumulated (Deficit)   Total Members’
(Deficit)
   Shares   Amount   Additional Paid in Capital   Accumulated Deficit   Total Stockholders’ Equity (Deficit) 
Balance - December 31, 2022  $10,165,000   $10,165,000   $9,084,599   $(46,552,096)  $(37,467,497)   -   $-   $-   $-   $- 
Effect of recapitalization   (10,165,000)   (10,165,000)   (9,084,599)   46,552,096    37,467,497    25,423,729    254    21,679,662    (46,552,096)   (24,872,180)
Accretion to redemption value   -    -    -    -    -    -    -    -    -    - 
Net loss   -    -    -    -    -    -    -    -    (2,328,283)   (2,328,283)
Capital contribution   -    -    -    -    -    -    -    652,794    -    652,794 
Balance - March 31, 2023   -   $-   $-   $-   $-    25,423,729   $254   $22,332,456   $(48,880,379)  $(26,547,669)
Accretion to redemption value   -    -    -    -    -    -    -    -    -    - 
Net loss   -    -    -    -    -    -    -    -    (3,616,092)   (3,616,092)
Capital contribution   -    -    -    -    -    -    -    1,697,209    -    1,697,209 
Balance - June 30, 2023  $-   $-   $-   $-   $-    25,423,729   $254   $24,029,665   $(52,496,471)  $(28,466,552)

 

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

 

3

 

 

ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

 

   Six Months Ended
June 30,
 
   2024   2023 
Net loss  $(59,778,563)  $(5,944,375)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization, deferred financing cost   538,840    202,638 
Interest paid in kind   1,239,373    696,768 
Loss on debt extinguishment   1,213,379    
 
Change in estimated fair value of contingent consideration   
    (500,000)
Deferred income taxes   (18,547,562)   (2,444,418)
Settlement claim to be paid in shares   

11,101,671

    

 
Shares issued for services   

43,000,000

    

 
Depreciation and amortization expense   2,508,608    2,520,804 
Share based compensation   4,506,066    
 
Expenses paid by IDC   
    1,085,393 
Changes in operating assets and liabilities:          
Accounts receivable   8,380,018    19,768,363 
Unbilled accounts receivable   (2,281,284)   (415,153)
Prepaid expenses and other current assets   (883,934)   (2,643,953)
Due from related parties   
    (2,129,374)
Other assets   (115,369)   (821,902)
Right of use assets   (349,868)   237,526 
Accounts payable   (365,907)   407,856 
Due to related parties   (178,707)   (3,378,441)
Income taxes payable   13,913    (1,000)
Accrued expenses and other current liabilities   12,372,620    2,762,802 
Contingent consideration liability   

(6,941,521

)   

 
Operating lease liability   350,961    (233,424)
Net cash (used in)/provided by operating activities   (4,217,266)   9,170,110 
Cash flows from investing activities          
Purchase of property and equipment   (35,306)   (55,540)
Net cash used in investing activities   (35,306)   (55,540)
Cash flows from financing activities          
Borrowings on revolving line of credit   208,497,657    184,834,422 
Payments on revolving line of credit   (213,755,250)   (195,033,099)
Borrowing on credit agreement   1,950,000    
 
Deemed capital contribution from recapitalization   

6,666,216

    
 
Debt issuance costs payment   (19,500)   (40,000)
Net cash provided by/(used in) financing activities   3,339,123    (10,238,677)
Net decrease in cash and cash equivalents   (913,449)   (1,124,107)
Cash and Cash Equivalents – Beginning of period   1,352,927    1,716,161 
Cash and Cash Equivalents – End of period  $439,478   $592,054 
           
Supplemental Disclosures of Cash Flow Information          
Cash paid during the period for:          
Interest  $4,051,095   $5,139,944 
Income Taxes, net of refunds received  $17,100   $73,541 
Non-cash investing and financing activities:          
Derecognition of debt, net related to debt deconsolidation  $(68,946,155)  $
 
Accretion of redeemable units to redemption value  $133,162   $249,375 
Unpaid debt issuance costs added to Term Note  $600,000   $
 
Notes payable issued for amounts due under contingent consideration arrangements  $6,941,521   $
 
Deemed capital contribution  $1,033,969   $
 
Change in related parties  $(6,338,027)  $
 
Deemed capital contribution from merger  $8,617,962   $
 
Liabilities assumed in merger  $1,703,193   $
 
Recapitalization of equity as a result of the Merger  $73,580,989   $
 

 

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

 

4

 

 

ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1: Organization and Nature of Operations

 

On June 18, 2024 (the “Closing Date”), Atlantic International Corp. (“Atlantic” or the “Company,” formerly known as SeqLL Inc.) completed the acquisition (the “Merger”) of Lyneer Investments LLC and its operating subsidiaries, including Lyneer Staffing Solutions, LLC (collectively, “Lyneer”). See Note 2: Merger Agreement for further information.

 

The Company was incorporated in Delaware under the name SeqLL Inc. on April 1, 2014. The Company historically operated as a commercial-stage life science instrumentation and research services company engaged in development of scientific assets and novel intellectual property across multiple “Omics” fields. Pursuant to the terms and Conditions of the Amended and Restated Agreement and Plan of Reorganization dated as of June 4, 2024, as amended (the “Merger Agreement”), all of our current business operations have been sold to SeqLL Omics, a newly formed company owned by our former employees and management, our operating business is now that of Lyneer. Our corporate headquarters have been relocated to 270 Sylvan Avenue, Suite 2230, Englewood Cliffs, New Jersey 07632.

 

Lyneer Investments, LLC (“Lyneer Investments”) is a limited liability company formed in the State of Delaware on January 9, 2018. Lyneer Investments is owned by its members and is now a wholly-owned subsidiary of the Company. The members of Lyneer Investments have limited personal liability for the obligations and debts of Lyneer Investments under Delaware law. Lyneer Holdings, Inc. (“Lyneer Holdings”), a wholly-owned subsidiary of Lyneer Investments, and Lyneer Staffing Solutions, LLC (“LSS”), a wholly-owned subsidiary of Lyneer Holdings, were also incorporated and formed, respectively, in the State of Delaware on January 9, 2018. Lyneer Investments, Lyneer Holdings, and LSS are collectively referred to herein as “Lyneer.”

 

The Company specializes in the placement of temporary and temporary-to-permanent labor across various industries throughout the United States of America (“USA”). The Company primarily places individuals in accounting and finance, administrative and clerical, information technology, legal, light industrial, and medical roles. The Company is also a leading provider of productivity consulting and workforce management solutions. The Company has more than one hundred locations throughout the USA.

 

On August 31, 2021 (the “Acquisition Date” or the “Transaction Date”), IDC Technologies, Inc., a California corporation (“Parent” “IDC” or the “Acquirer”) obtained a controlling financial interest in Lyneer Investments by acquiring ninety (90%) percent of Lyneer Investments’ outstanding equity (the “Transaction”) pursuant to a membership interest purchase agreement (the “Transaction Agreement”) executed with the selling parties (“Sellers”). Following the closing of the Transaction, one of the Sellers, Lyneer Management Holdings, LLC (“LMH”) an entity owned primarily by certain members of the executive management team of the Company continued to own 10% equity interest in Lyneer. The Transaction represented a change of control with respect to Lyneer Investments and was accounted for as a business combination in accordance with the guidance prescribed in Accounting Standard Codification (“ASC”) Topic 805 - Business Combinations (“ASC 805”). Lyneer Investments applied pushdown accounting as of the Acquisition Date.

 

In connection with the Transaction, IDC or Lyneer as co-obligors are required to make additional payments to the Sellers should Lyneer meet certain financial targets, as defined in the Transaction Agreement, within certain timeframes after the Transaction Date. These amounts represent contingent consideration liabilities remeasured at fair value each reporting period, with changes recorded in earnings.

 

5

 

 

In connection with the Transaction, the Sellers agreed to indemnify Lyneer for payment of claims or settlement amounts related to any pending or unasserted actions against Lyneer that arise from events that occurred on or prior to the Transaction Date, as well as legal expenses incurred by Lyneer related to its defense in such matters.

 

Total amounts due from the Sellers under the indemnification provisions of the Transaction amounted to $0 and $2,500,000 as of June 30, 2024 and December 31, 2023, respectively and represented reimbursement for legal fees incurred to which the Company has a right to reimbursement under the Transaction Agreement.

 

Note 2: Merger

 

On May 29, 2023 and subsequently amended on June 23, 2023, October 5, 2023, October 17, 2023, November 3, 2023, January 16, 2024, March 7, 2024 and April 15, 2024, the Company, now known as Atlantic International Corp., a Delaware corporation (“SeqLL”), a Delaware corporation, SeqLL Merger, LLC, a Delaware limited liability company (“SeqLL Merger Sub”), Atlantic Acquisition Corp., a Delaware corporation (“Atlantic”), Atlantic Merger LLC, a Delaware limited liability company and a majority-owned subsidiary of Atlantic (“Atlantic Merger Sub”), Lyneer, IDC and LMH, a Delaware limited liability company (“Lyneer Management”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which (i) Atlantic Merger Sub will be merged with and into Lyneer with the Lyneer continuing as the surviving entity and as an approximately 41.7%- owned subsidiary of Atlantic, and an approximately 58.3%-owned subsidiary of IDC, and (ii) SeqLL Merger Sub will subsequently be merged with and into Lyneer, with Lyneer continuing as the surviving entity and a wholly-owned subsidiary of SeqLL (collectively referred to as the “Merger”).

 

On June 4, 2024, the Company entered into an Amended and Restated Agreement and Plan of Reorganization (the “Amended Merger Agreement”), which amended certain provisions of the Merger Agreement: (i) fixed the number of shares of SeqLL common stock to be issued, (ii) replaced the Cash Consideration that was to be paid with a short-term promissory note, (iii) deleted the requirements of the closing of the Capital Raise and the listing of SeqLL common stock on a national securities exchange as conditions to the closing of the Merger, and (iv) provided for certain additional issuances of SeqLL common stock to IDC if such common stock is not listed on a national securities exchange on or prior to September 30, 2024. On June 12, 2024, the Amended Merger Agreement was amended (“Amendment 1”) to reflect a per share price change from the previous $3.10 to $2.36 and to reflect the Merger price determined by the parties at the time of the Merger.

 

On June 18, 2024 (the “Closing Date”), Atlantic International Corp. (“Atlantic” or the “Company,” formerly known as SeqLL Inc.) completed the acquisition (the “Merger”) of Lyneer.

 

Pursuant to the terms of the Merger, the Company changed its corporate name from SeqLL Inc. to Atlantic International Corp. and its trading symbol to ATLN.

 

The consideration for the Acquisition was the issuance to IDC, the then current owner of Lyneer: (a) a convertible promissory note in the principal amount of $35,000,000 that is due on or before September 30, 2024; and (b) 25,423,729 shares of the Company’s common stock at a market value of $2.36 per share, or $60,000,000 in the aggregate. The shareholders of Atlantic Acquisition Corp. were issued an aggregate of 18,220,338 shares of Company’s common stock at a market value of $2.36 per share or $43,000,000 in the aggregate (the “Atlantic Consideration”). In the event the common stock of Atlantic is not uplisted, either directly or indirectly, by a reverse merger or otherwise, or another opportunistic alternative reasonably acceptable to IDC, has not been approved in writing by Atlantic, on or before September 30, 2024, IDC shall be issued $10 million of additional shares of Atlantic common stock, valued at the then current price of ATLN common stock.

 

6

 

 

In addition, upon the closing of the Merger:

 

  Atlantic entered into an Assignment and Assumption Agreement pursuant to which Atlantic irrevocably assigned and transferred to the Company all of Atlantic’s rights, title and interest to various intangible assets in exchange for a portion of the Atlantic Consideration. The Company assumed all of the employment agreements of Atlantic personnel and paid/or expects to pay approximately $4.4 million of accrued wages and bonuses.  The Company assumed obligations of Atlantic to issue 593,221 shares to certain advisors upon completion of the Merger, and an additional 1.3 million shares under a directors agreement.

 

The Company escrowed 4,704,098 shares of common stock that may be issued to the Company’s stockholders of record as of September 26, 2023, as part of a settlement offer (the “Settlement Offer”) to be commenced within 90 days of the closing of the Merger to settle any claims for the failure to declare and pay certain previously-announced dividends of cash and common stock;

 

In addition, following completion of the Merger, subject to the terms and conditions of an Asset Purchase Agreement dated as of May 29, 2023, between the Company and SeqLL Omics, an entity formed by Daniel Jones, the Company’s former Chairman and Chief Executive Officer, and certain other former employees of the Company for the purpose of carrying on the Company’s pre-Merger business following the Merger following the Merger, SeqLL Omics purchased from the Company for a purchase price of $1,000 all of the Company’s assets, including cash and cash equivalents, and transferred all liabilities other than a promissory note in the principal amount of $1,375,000 to a former co-founder of SeqLL that is due on July 31, 2025 and a one-year leasehold obligation. The remining cash on hand, less certain pre-closing expenses, was transferred to restricted cash for the benefit of the legacy shareholders of SeqLL in exchange for any claims they may have for our failure to effect a cash dividend.

 

Determination of Accounting Acquirer

 

The Merger represents a reverse merger and was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, although SeqLL acquired all of the outstanding equity interests of Lyneer in the Merger, we will be treated as the “acquiree” and Lyneer will be treated as the “acquirer” for financial reporting purposes. Accordingly, the Merger is reflected as the equivalent of Lyneer issuing shares for SeqLL’s net assets, followed by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Merger will be those of Lyneer. There is no accounting effect or change in the carrying amount of the assets and liabilities because of the Merger. The Merger does not represent a business combination accounted for accounting purposes under ASC 805 – Business Combinations, because neither Atlantic Merger LLC nor SeqLL will meet the definition of a business.

 

Having considered Topic 12 of the SEC Financial Reporting Manual, Lyneer has been determined to be the continuing entity for accounting purposes and the Merger represents a reverse recapitalization with regard to Atlantic. We considered the following factors in completing the accounting analysis, with greater weight being given to (a), (d) and (e):

 

a)Lyneer is the largest entity, in terms of substantive operations;

 

7

 

 

b)Subsequent to SeqLL’s sale of assets to SeqLL Omics and immediately prior to consummation of the Merger, SeqLL will have no or nominal assets and no or nominal operations, and will not meet the definition of a business;

 

c)Atlantic Merger LLC has no operations and does not meet the definition of a business;

 

d)Lyneer will comprise the ongoing operations of the combined entity as the only company with historical operations;

 

e)All of the Lyneer employees will continue with the combined entity;

 

f)No affiliate entities or individual stockholders of Lyneer, Atlantic or SeqLL will have voting control on our board of directors following the Merger; and

 

g)Individuals affiliated with Atlantic will be appointed as the Chief Executive Officer and the Chief Operating Officer and Acting Chief Financial Officer of our company following the Merger.

 

Note 3: Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed unaudited consolidated financial statements of the Company are prepared following the requirements of the United States Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that is required by accounting principles generally accepted in the U.S (“U.S. GAAP”) for complete financial statements can be condensed or omitted. Certain information and footnote disclosures normally included in our annual audited financial statements for the fiscal year ended December 31, 2023 have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of income for the interim periods ended June 30, 2024 and 2023.

 

These Financial Statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2023. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for a full year.

 

The condensed unaudited consolidated financial statements reflect the operations of Lyneer Investments and our wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. We operate as one operating segment.

 

Liquidity

 

Significant assumptions underlie this belief, including, among other things, that there will be no material adverse developments in our business, liquidity, capital requirements and that our credit facilities with lenders will remain available to us.

 

In accordance with Accounting Standards Codification (“ASC”) Topic 205-40 – Going Concern, Management evaluates whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern. This evaluation includes considerations related to financial and other covenants contained in the Company’s credit facilities, as well as forecasted liquidity. On August 12, 2024 the Company entered into the extended forbearances with its lenders, under which the lenders, waived all existing events of default as of the date of the agreements and agreed to forbear from exercising its rights and remedies with respect to such events of default under the ABL Credit Agreement dated as of August 31, 2021, as amended and restated (the “Revolver”) and the Term Note through September 30, 2024. The Company is in discussions and negotiations to refinance the Revolver. The Company continues to borrow under this facility in its normal course of business.

 

8

 

 

Russia-Ukraine Conflict and Israel-Hamas War

 

During the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the region and around the world. To date, this has not had a material effect on the Company’s operations. The Company continues to closely monitor the ongoing conflict and related sanctions, which could impact the Company’s business, financial results and results of operations in the future.

 

During October 2023, Hamas launched an attack on southern Israel from the Gaza Strip, and the ensuing war has created disruption in the region and around the world. To date, this has not had a material effect on the Company’s operations. The Company continues to closely monitor the ongoing war, but believes it will not impact the Company’s business, financial results and results of operations in the future.

 

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. The Company evaluates its estimated assumptions based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and outcomes may differ from management’s estimates and assumptions. Changes in estimates are reflected in reported results in the period in which they become known.

 

Net Loss per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities if their effect is antidilutive. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury stock and if-converted methods. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.

 

Joint and Several Liability Arrangements

 

In connection with the Transaction, Lyneer has entered into several debt facilities under which it is jointly and severally liable for repayment with IDC. The Company measures obligations resulting from joint and several liability arrangements in accordance with ASC 405-40 – Obligations Resulting from Joint and Several Liability Arrangements (“ASC 405-40”). ASC 405-40 requires that when determining the amount of liability to recognize under a joint and several obligation, a reporting entity which is an obligor under a joint and several liability arrangement first look to the terms of a related agreement with its co-obligors and record an amount equal to what it is obligated to pay under that agreement, plus any amount it expects to pay on behalf of the co-obligors. If no agreement with the co-obligors exists a reporting entity should recognize the full amount that it could be required to pay under the joint and several liability obligations. The amounts recognized in the Company’s financial statements represents its portion of amounts Lyneer expects to repay under its respective joint and several liability agreements as of June 30, 2024 and December 31, 2023, respectively. As of the date of the Merger, the Company deconsolidated its joint and several debt obligations as it believes it is reasonably probable that IDC has the ability to repay their portion. See Note 8: Debt for more information and discussion regarding the Debt Allocation agreement.

 

Contingent Consideration

 

For business combinations that require additional assets — such as cash, notes, or equity securities — to be transferred to the selling parties in the event certain future events occur or conditions are met (“contingent consideration”), the Company recognizes the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the business combination. The Company’s contingent consideration is classified as a liability and measured at fair value at each reporting date until the contingency is resolved, with any changes in fair value recognized in the Company’s consolidated statements of operations. The measurement period for the Company’s contingent consideration arrangements expired on August 31, 2023, at which time amounts owed by the Company to its former owners were computed and represent fixed amounts. On January 16, 2024, six notes payable with equivalent terms, except to the amount of principal and interest, were issued to the Sellers.

 

Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company assesses, on a quarterly basis, the likelihood that deferred tax assets will be realized in accordance with the provisions of ASC Topic 740 — “Income Taxes” (“ASC 740”). ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. The assessment considers all available positive or negative evidence, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

 

9

 

 

Recent Accounting Pronouncements

 

Standards Recently Adopted

 

None.

 

Standards Not Yet Adopted

 

In December 2023, the FASB issued ASU 2023-09 – Income Taxes (“ASU 2023-09”) to enhance income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The guidance is effective for reporting periods after December 15, 2024, for public companies. Early adoption is permitted. The Company plans to adopt ASU 2023-09 for the reporting period December 31, 2024. The Company does not believe ASU 2023-09 or any other recently issued but not yet effective accounting pronouncements will have a material effect on its consolidated financial statements.

 

Note 4: Revenue Recognition and Accounts Receivable

 

The Company’s disaggregated revenues are as follows:

 

  

Three Months Ended
June 30,

   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Temporary placement services  $103,897,666   $88,298,049   $203,570,568   $185,361,351 
Permanent placement and other services   738,607    1,066,553    1,688,917    2,031,373 
Total service revenues, net  $104,636,273   $89,364,602   $205,259,485   $187,392,724 

 

When disaggregating revenue, the Company considered all of the economic factors that may affect its revenues. Because all its revenues are from placement services, there are no differences in the nature, timing and uncertainty of the Company’s revenues and cash flows from its revenue generating activities. For the three months ended June 30, 2024 and June 30, 2023, revenues from the Company’s largest customer accounted for approximately 14% and 17% of consolidated revenues, respectively and 14% and 16% of consolidated revenues for the six months ended June 30, 3024 and 2023, respectively. No other customers accounted for more than 10% of the Company’s consolidated revenues in either period. Economic factors specific to this customer could impact the nature, timing and uncertainty of the Company’s revenues and cash flows.

 

Contracts asset consists of unbilled accounts receivable of $7,942,037 and $5,660,753 as of June 30, 2024 and December 31, 2023, respectively.

 

Accounts receivable is as follows:

 

   June 30,
2024
   December 31,
2023
 
Accounts receivable  $52,207,890   $60,720,972 
Allowance for doubtful accounts   (1,769,076)   (1,902,140)
Accounts receivable, net  $50,438,814   $58,818,832 

 

The Company did not recognize any bad debt expense during the periods ended June 30, 2024 and 2023.

 

None of the Company’s customers accounted for more than 10% of the Company’s accounts receivable as of June 30, 2024 and December 31, 2023.

 

10

 

 

Note 5: Property and Equipment

 

Property and equipment consisted of the following:

 

   June 30,
2024
   December 31,
2023
   Estimated
Useful Life
Computer equipment and software  $765,767   $730,941   3 years
Office equipment   94,876    94,876   5 years
Furniture and fixtures   169,258    168,778   7 years
Leasehold improvements   18,420    18,420   Lesser of lease term or asset life
Total  $1,048,321   $1,013,015    
Less: accumulated depreciation and amortization   (692,262)   (580,320)   
Property and equipment, net  $356,059   $432,695    

 

Total depreciation expense of $50,722 and $58,652 was recorded during the three months ended June 30, 2024 and 2023, respectively and $111,942 and $124,138 was recorded during the six months ended June 3024 and 2023, respectively and is included in “depreciation and amortization” in the accompanying consolidated condensed statements of operations.

 

Note 6: Intangible Assets

 

Intangible assets consisted of the following:

 

   June 30, 2024   December 31, 2023 
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
 
Customer Relationships  $35,000,000   $(6,617,777)  $28,382,223   $35,000,000   $(5,451,111)  $29,548,889 
Trade Name   12,400,000    (6,990,000)   5,410,000    12,400,000    (5,760,000)   6,640,000 
Total intangible assets  $47,400,000   $13,607,777   $33,792,223   $47,400,000   $(11,211,111)  $36,188,889 

 

Total amortization expense of $1,198,333 was recorded during each of the three months ended June 30, 2024 and 2023 and $2,396,666 was recorded during each of the six months ended June 30, 2024 and 2023. The Company continuously monitors for events and circumstances that could indicate that it is more likely than not that its finite lived intangible assets and other long-lived assets are impaired or not recoverable (a triggering event), requiring an interim impairment test. During the six months ended June 30, 2024, the Company considered a number of factors including, but not limited to, current macroeconomic conditions such as inflation, economic growth, and interest rate movements, industry and market considerations, and overall financial performance of the Company. Based on the analysis of relevant events and circumstances, the Company concluded a triggering event had not occurred as of June 30, 2024.

 

Note 7: Leases

 

We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our capitalized financing and right-of-use assets and lease liabilities.

 

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. To determine the discount rate to use in determining the present value of the lease payments, we use the rate implicit in the lease if determinable, otherwise we use our incremental borrowing rate.

 

The Company maintains operating leases for corporate and field offices. The Company’s leases have initial terms ranging from one month to three years, some of which include the option to renew, and some of which include an early termination option. During the six months ended June 30, 2024, the Company extended certain of its leases for periods ranging from one to three years.

 

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The following table summarizes the weighted average remaining lease term and discount rate for operating leases as of June 30, 2024 and December 31, 2023:

 

   June 30,
2024
   December 31,
2023
 
Weighted average remaining lease term for operating leases   2.24 years    1.75 years 
Weighted average discount rate for operating leases   6.24%   4.22%

 

The following table summarizes the future minimum payments for operating leases as of June 30, 2024, due in each year ending December 31:

 

 

Year

  Minimum
Lease
Payments
 
2024  $823,650 
2025   1,202,381 
2026   336,137 
2027   240,424 
2028   167,126 
Thereafter   166,522 
Total lease payments   2,936,240 
Less: imputed interest   (167,615)
Present value of operating lease liabilities  $2,768,625 

 

Note 8: Debt

 

Some of the Company’s debt obligations consist of joint and several liabilities with the Company’s parent which are accounted for under ASC 405 – Debt (“ASC 405”). Lyneer will remain jointly and severally liable with the Company’s parent to the lenders of the debt obligations until such time as such joint and several indebtedness is restructured. As of the date of the Merger, the Company deconsolidated the joint and several liabilities with regard to the Debt Allocation Agreement, dated December 31, 2023, between Lyneer and IDC. See below for further discussion.

 

The table below provides a breakdown of the Company’s recognized debt:

 

   June 30,
2024
   December 31,
2023
 
Revolver  $40,163,261   $85,092,695 
Term note   
    34,223,489 
Seller notes   
    7,875,000 
Earnout notes   
    8,366,915 
Earnout notes – related party   
    5,127,218 
Credit Agreement   1,950,000    
 
Promissory Note   1,375,000    
 
Merger Note – related party   35,000,000    
 
Less: unamortized debt issuance costs
   
    (1,785,114)
Total debt  $78,488,261   $138,900,203 
           
Current portion  $36,950,000   $138,900,203 
Non-current portion  $41,538,261   $
 

 

12

 

 

The revolving credit facility (the “Revolver”) and Term Note contain certain customary financial and non-financial covenants that the Company is required to comply with. The Company and its lenders executed multiple amendments to its debt facilities in anticipation of the closing of the Merger. The multiple amendments executed since 2023 were in response to the delayed closing of the Merger. As of the issuance date of the Company’s June 30, 2024 unaudited financial statements, the Ninth Amendment to the Revolver and Tenth Amendment to the Term Note represent the currently effective amendments to each respective debt facility, as described further below. As of August 12, 2024, the lenders waived all existing events of default as of the date of the agreement and agreed to forbear from exercising their rights and remedies with respect to such events of default under the credit facilities through September 30, 2024.

 

Revolver

 

The Company maintains a Revolver as a co-borrower with its parent company IDC with an initial available borrowing capacity of up to $125,000,000, when originally executed in 2021. The facility was partially used to finance the acquisition of Lyneer Investments by IDC in August 2021, with additional borrowing capacity available under the Revolver to finance the Company’s working capital. All the Company’s cash collections and disbursements are currently linked with bank accounts associated with the Lender and funded using the Revolver. These borrowings are determined by the Company’s availability based on a formula of billed and unbilled accounts receivable as defined in the loan agreement. The Revolver matures on August 31, 2025, at which time all outstanding balances are due and payable. There are no scheduled or required principal payments on the Revolver prior to its maturity date. The Company may prepay amounts owed under the Revolver at any time prior to its maturity date without penalty.

 

As of June 30, 2024, and December 31, 2023, the Company has recognized liability balances on the Revolver of $40,163,261 and $85,092,695, respectively.

 

Borrowings under the Revolver are classified as either Secured Overnight Financing Rate (“SOFR”) Revolving Credit Loans, SOFR FILO Loans, Base Rate Revolving Credit Loans, Base Rate FILO Loans, or Swing-Line Loans. Applicable Margins for each loan type under the original facility are as follows:

 

 

Average Availability

  SOFR
Revolving
Credit Loans
   Base Rate
Revolving
Credit Loans
   SOFR
FILO
Loans
   Base Rate
FILO
Loans
 
Greater than $83,333,333.33   1.75%   0.75%   2.75%   1.75%
Greater than $41,666,666.66 but less than or equal to $83,333,333.33   2.00%   1.00%   3.00%   2.00%
Less than $41,666,666.66   2.25%   1.25%   3.25%   2.25%

 

Swing Line Loans on the Revolver bear interest at a rate equal to the Base Rate plus the Applicable Margin.

 

On May 5, 2023, the Company entered into the Third Amendment to the Revolver. The Third Amendment to the Revolver was treated as a modification after the Company’s analysis according to ASC 470 – Debt and as such, the Company is deferring the amendment fee and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. The amendment fee was $750,000, split evenly between IDC and the Company. Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

13

 

 

The Third Amendment to the Revolver increased the applicable margin thresholds for various products as follows:

 

 

Average Availability

  SOFR
Revolving
Credit Loans
   Base Rate
Revolving
Credit Loans
   SOFR
FILO
Loans
   Base Rate
FILO
Loans
 
Greater than $83,333,333.33   2.25%   1.25%   3.25%   2.25%
Greater than $41,666,666.66 but less than or equal to $83,333,333.33   2.50%   1.50%   3.50%   2.50%
Less than $41,666,666.66   2.75%   1.75%   3.75%   2.75%

 

On August 31, 2023, the Company entered into the Fourth Amendment and Forbearance Agreement to the Revolver (the “Fourth Amendment to the Revolver”) which decreased the available borrowing capacity to $100,000,000. The applicable margins were raised to: (i) 4.75% per annum with respect to SOFR Revolving Credit Loans, (ii) 3.75% per annum with respect to Base Rate Revolving Credit Loans, (iii) 5.75% per annum with respect to SOFR FILO Loans, and (iv) 4.75% per annum with respect to Base Rate FILO Loans. Pursuant to the terms of the Fourth Amendment to the Revolver, the remaining amounts owed under the Revolver will be split between IDC and Lyneer at the closing of the Merger, with Lyneer retaining availability of up to $40,000,000 under a new revolving credit facility having terms similar to those under the existing Revolver.

 

The Fourth Amendment to the Revolver was treated as a debt extinguishment after the Company’s analysis according to ASC 470. The total amendment fee was $1,550,000 and the structuring fee was $100,000, split evenly between IDC and the Company, and will be amortized as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Fees paid other than to the lenders are expensed as incurred.

 

The Company and its lenders did not execute a fifth amendment and forbearance agreement. Instead, on January 30, 2024, the Company entered into the Limited Consent and Sixth Amendment and Forbearance Agreement (the “Sixth Amendment to the Revolver”) with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through March 15, 2024, revising financial ratios with the first ratio being due June 30, 2024, and entering into a schedule for repayment of the over-advance. The Sixth Amendment to the Revolver represents a limited waiver and requires the Company to complete certain actions subsequent to completion of the proposed Merger and the public offering. Following the closing of the proposed Merger, issuance of the Merger Note and successfully raising $20 million of gross proceeds in a public offering of securities, the Company will be required to direct a portion of the proceeds raised to specified creditors, execute limited pledge and guarantee agreements and provide other customary covenants. The events of default are waived for a limited period until March 15, 2024, at which time the Company is required to refinance or restructure the credit facility. The Sixth Amendment to the Revolver contains certain customary financial and non-financial covenants.

 

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The Sixth Amendment to the Revolver was treated as a modification after the Company’s analysis according to ASC 470 and as such, the Company is deferring the $750,000 amendment, forbearance and structuring fees, split evenly between IDC and the Company, and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

On April 17, 2024, the Company entered into the Limited Consent and Seventh Amendment and Forbearance Agreement (the “Seventh Amendment to the Revolver”) with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through July 31, 2024, and eliminated certain financial ratios. The maturity date of the Revolver was accelerated to July 31, 2024 and the available borrowing capacity decreased to $70,000,000 and further decreasing to $40,000,000 upon the consummation of the Merger. Additionally, the sublimit for letters of credit was decreased to $6,000,000, further decreasing to $0 upon the consummation of the Merger.

 

The Seventh Amendment to the Revolver was treated as a debt extinguishment after the Company’s analysis according to ASC 470 and a loss of $1,213,379 is included in “loss on debt extinguishment” in the accompanying consolidated statements of operations. Any existing unamortized costs will be amortized as an adjustment to interest expense over the remaining term using the effective interest method. Fees paid other than to the lenders are expensed as incurred.

 

The additional forbearances represent limited waivers and require the Company to complete certain actions subsequent to completion of the proposed Merger and the public offering. The events of default are waived for a limited period until July 31, 2024, at which time the Company is required to refinance or restructure the credit facility. The extended forbearances contain certain customary financial and non-financial covenants.

 

On June 18, 2024, the Company entered into the Limited Consent and Eighth Amendment and Forbearance Agreement (the “Eighth Amendment to the Revolver”) with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through July 15, 2024. The maturity date of the Revolver was extended to August 31, 2025 and the available borrowing capacity was decreased to $60,000,000, decreasing to $40,000,000 upon Atlantic International and/or its subsidiaries or affiliates issuing equity interests generating gross proceeds in an amount not less than $20,000,000 (the “Initial Capital Raise”) and further decreasing upon the issuance or disposition of any indebtedness or equity interest after the Initial Capital Raise of or by (i) any loan party or subsidiary or affiliate thereof or (ii) Atlantic International or any subsidiary or affiliate thereof (the “Secondary Capital Raise”). The maximum consolidated cash balance at the end of any business day was reduced to $1,000,000.

 

On August 12, 2024 the Company entered into the Ninth Amendment with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through September 30, 2024. See Note 18: Subsequent Events for further information.

 

The Revolver contains certain customary financial and non-financial covenants.

 

Total available borrowing capacity on the Revolver as of June 30, 2024 was over-advanced by $357,604.

 

15

 

 

Term Note

 

On August 31, 2021, the Company and IDC as co-borrowers entered into a Term Note in the amount of $30,300,000. The proceeds of this loan were primarily used to finance the acquisition of Lyneer by IDC in August 2021. The Term Note matures on February 28, 2026, at which time all outstanding balances are due and payable. There are no scheduled principal payments on the Term Note prior to its maturity date. The Term Note is subordinated to the Revolver and bears an initial stated rate of 14% per annum.

 

As of June 30, 2024, and December 31, 2023, the Company has recognized liability balances on the Term Note of $0, and $34,223,489, respectively.

 

On May 5, 2023, the Third Amendment to the Term Note revised the stated interest rate which may vary between 14% and 16% per annum, with the cash portion of the stated rate varying from 10% to 11% per annum, and the PIK portion varying from 4% to 5% per annum, based on specified financial ratios and similar metrics.

 

The Third Amendment to the Term Note was treated as a modification after the Company’s analysis according to ASC 470 and as such, the Company is deferring the $100,000 amendment fee and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. IDC paid the $100,000 amendment fee which is included in “capital contribution” on the accompanying condensed consolidated statements of mezzanine capital and members’ capital (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

The Term Note was further amended on June 30, 2023 (the “Fourth Amendment to the Term Note”) to defer the July 1, 2023 Cash Interest payment until August 1, 2023. The Company did not make this payment due to the notice received from the Revolver’s administrative agent of the lender restricting payment on the Term Note. $15,000 was paid with respect to the Fourth Amendment to the Term Note.

 

On August 4, 2023, the Company received notice from the administrative agent of the Term Note that it was in default of the loan agreement due to non-payment of the August 1, 2023, interest payment due and the default rate became effective which is the stated rate plus 2% per annum.

 

The Term Note was further amended and provided a forbearance on August 31, 2023 (the “Fifth Amendment to the Term Note”). The lender waived all existing events of default as of the date of the Fifth Amendment to the Term Note and agreed to forbear from exercising its rights and remedies through November 17, 2023. The Fifth Agreement to the Term Note increased the stated interest rate to 19% per annum and the cash portion of the stated rate increased to 14% per annum. The Fifth Amendment to the Term Note has the same contingencies as the Fourth Amendment to the Revolver.

 

The Fifth Amendment to the Term Note was treated as a modification after the Company’s analysis according to ASC 470 and as such, the Company will amortize any existing unamortized costs using the effective interest method, as an adjustment to interest expense over the remaining term. The structuring fee of $32,500 and the total forbearance fee of $325,000, are the responsibility of IDC, which is included in “capital contribution” on the accompanying consolidated statements of changes in mezzanine capital, members’ capital (deficit) and shareholders’ earnings (deficit). These fees were not paid and as such, was added to the principal of the Term Note. Fees paid other than to the lenders are expensed as incurred, and no gain or loss was recorded on the modification.

 

The Company and IDC did not execute a sixth amendment and forbearance agreement. On January 30, 2024, the Company entered into the Limited Consent and Seventh Amendment (the “Seventh Amendment to the Term Note”) with its lender, under which the lender, waived all existing events of default and agreed to forbear from exercising its rights and remedies with respect to the Term Note through March 15, 2024. The Seventh Amendment to the Term Note has the same contingencies as the Sixth Amendment to the Revolver.

 

On April 17, 2024, the Company entered into the Limited Consent and Eighth Amendment and Forbearance Agreement (the “Eighth Amendment to the Term Note”) with its lender, under which the lender, waived all existing events of default and agreed to forbear from exercising its rights and remedies with respect to the Term Note through July 31, 2024. The Eighth Amendment to the Term Note has the same contingencies as the Seventh Amendment to the Revolver.

 

16

 

 

On June 18, 2024, the Company entered into the Limited Consent and Nineth Amendment and Forbearance Agreement (the “Nineth Amendment to the Term Note”) with its lender, under which the lender, waived all existing events of default and agreed to forbear from exercising its rights and remedies with respect to the Term Note through July 15, 2024. The Nineth Amendment to the Term Note has the same contingencies as the Eighth Amendment to the Revolver.

 

The Seventh Amendment to the Term Note, Eighth Amendment to the Term Note and Ninth Amendment to the Term Note were all accounted for as modifications.

 

On August 12, 2024, the Company entered into the Tenth Amendment and with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Term Note through September 30, 2024. See Note 18: Subsequent Events for further information.

 

The Term Note contains certain customary financial and non-financial covenants that the Company is required to comply with.

 

Seller Notes

 

As part of the purchase price consideration for the Transaction, the Company and IDC as co-borrowers issued various Seller Notes to former owners totaling $15,750,000. Payments on the Seller Notes are due in quarterly installments of $1,575,000, and $3,150,000 due at their amended maturity date of April 30, 2024, and bear interest at an amended fixed rate of 11.25% per annum. The Seller Notes represent unsecured borrowings and are subordinated to the Revolver and to the Term Note.

 

The Company has recognized Seller Note liability balances of $0 and $7,875,000 as of June 30, 2024, and December 31, 2023, respectively.

 

Earnout Notes

 

As contingent consideration milestones are met in connection with the Transaction Agreement, the Company can elect to pay the obligation in cash or issue notes payable. During 2022, the Company and IDC as co-borrowers issued nine notes payable with an aggregate value of $13,494,133. Payments on each of the Earnout Notes are due in quarterly installments through their amended maturity date of January 31, 2025, and each note bears an amended stated interest rate of 11.25% per annum. On January 16, 2024, the Company and IDC as co-borrowers issued six notes payable with an aggregate value of $6,941,521. Payments on each of the Earnout Notes are due in quarterly installments through their maturity date of January 16, 2026, and each note bears interest at a rate of 6.25% per annum. The Company did not make principal and interest payments due to the notice received from the Revolver’s administrative agent of the lender restricting payments to other lenders and the interest rate was increased to the default rate of 11.25% for the January Earnout Notes.

 

The Earnout Notes are subordinated to the Revolver and Term Note and represent unsecured borrowings.

 

The Earnout Note liability was $0 and $13,494,133 at the periods ended June 30, 2024 and December 31, 2023, respectively.

 

2023 and 2024Amendments to Seller and Earnout Notes

 

The Company did not make the Seller Note and Earnout Note principal and interest payments due during 2023 or the six months ended June 30, 2024. On May 14, 2023, the Company signed an amendment (the “Omnibus Amendment”) to defer the missed Seller Note and Earnout Note payments through the amendment date until their amended maturity dates of April 30, 2024, and January 31, 2025, respectively. The amendment increased the interest rate of the Seller Note and the Earnout Notes to 11.25% per annum from 6.25% for all remaining payments.

 

The Omnibus Amendment was treated as a modification after the Company’s analysis according to ASC 470 and as such, the Company is deferring the $40,000 amendment fee and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Lyneer paid the $40,000 amendment fee and will be reimbursed from IDC. These fees were included in “capital contribution” on the accompanying consolidated statements of mezzanine capital, members’ capital (deficit) and shareholders’ earnings (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

17

 

 

On January 16, 2024, the Company signed the Second Omnibus agreement to defer the missed July 31, 2023 and October 31, 2023, principal and interest payments until February 28, 2024, in addition to the payment of $1,575,000, along with accrued interest, scheduled for payment on January 31, 2024, which shall now be due and payable on February 28, 2024. The Company missed the payment due on February 28, 2024.

 

The Second Omnibus Amendment was treated as a modification after the Company’s analysis according to ASC 470 and as such, the Company is deferring the $19,500 amendment fee and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Lyneer paid the $19,500 amendment fee and will be reimbursed from IDC. These fees were included in “capital contribution” on the accompanying consolidated statements of mezzanine capital, members’ capital (deficit) and shareholders’ earnings (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

Credit Agreement

 

On June 18, 2024, the Company entered into a secured bridge loan (“Credit Agreement”) in the principal amount of $1,950,000 at an interest rate of 5% per annum. The maturity date of the Credit Agreement is September 30, 2024. However, mandatory prepayments shall be made from the Initial Capital Raise, on the issuance of new debt or new equity interests, or upon a change of control.

 

Promissory Note

 

From April 29, 2019 to April 29, 2020, the Company entered into a series of non-convertible promissory notes (the “Promissory Notes”) with St. Laurent Investments LLC amounting to $1,375,000. The Promissory Notes had a one-year term, most recently extended through July 31, 2025 or a later date to be mutually agreed upon. The Promissory Notes bear interest accruing at the rate of 5% per annum, and increases to 10% for the period from August 1, 2024, through July 31, 2025.

 

Merger Note

 

In connection with the closing of the Merger, we issued to IDC the Merger Note in the principal amount of $35,000,000 that will mature on September 30, 2024. The Merger Note does not bear interest and is not convertible prior to an event of default under the Merger Note. If an event of default should occur under the Merger Note, the Merger Note will bear interest at the rate of 7% per annum commencing upon the date of such event of default and will be convertible into shares of our common stock at a price per share that equals the lowest daily volume weighted average price per share (VWAP) during the five trading days immediately preceding the date on which the applicable conversion notice is delivered to us, but not less than 80% of the price per share in our Initial Capital Raise, provided, however, that the number of shares of our common stock issuable upon conversion of the Merger Note will not exceed 19.99% of the number of our outstanding shares of common stock without shareholder approval if our common stock is then listed on a National Stock Exchange. As we do not believe we will have sufficient liquidity and capital resources to pay the Merger Note in full when due, as well as to restructure our joint and several debt obligations, we believe we will have to sell additional equity or debt securities prior to the maturity date of the Merger Note to pay or refinance the Merger Note when due. However, as Prateek Gattani, our Chairman of the Board following the Merger, is also the Chief Executive Officer and controlling stockholder of IDC, we also believe we will be able to negotiate an extension of the Merger Note if we are unable to pay it in full at maturity. An event of default under the Merger Note may result in an additional event of default under the Revolver and our other indebtedness for borrowed funds.

 

18

 

 

Debt Allocation Agreement

 

Lyneer and IDC entered into a debt allocation agreement (the “Allocation Agreement”) dated as of December 31, 2023, which specifies and allocates responsibility for repaying (or refinancing) the joint-and-several debts between Lyneer and IDC. The Company reassessed its accounting for joint-and-several liabilities under ASC 405-40 as of the Merger date and concluded it is reasonably probably that IDC can repay their portion of the debt allocated per the Allocation Agreement. As a result, the Company deconsolidated it’s joint and several debt obligations.

 

Subsequent to the executed amendments of the Company’s debt obligations described herein, the future minimum principal payments on the Company’s outstanding debt are as follows:

 

   As of
June 30,
2024
 
Remainder of 2024  $36,950,000 
2025   41,538,261 
2026   
 
2027   
 
2028   
 
Thereafter   
 
Total  $78,488,261 

 

Interest Expense

 

The Company recognized total interest expense of $4,000,024 and $4,032,944 during the three months ended June 30, 2024 and 2023, respectively and $9,022,254 and $7,723,033 during the six months ended June 30, 2024, and 2023. $233,591 and $101,319 of deferred financing costs were recognized as a component of “interest expense” on the accompanying condensed consolidated statements of operations for the three months ended June 30, 2024, and 2023, respectively and $538,842 and $202,638 for the six months ended June 30, 2024 and 2023, respectively.

 

Note 9: Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

   June 30,
2024
   December 31,
2023
 
Potential settlement offer for legacy stockholders  $11,101,671   $
 
Accrued wages and salaries   7,984,421    5,372,929 
Accrued commissions and bonuses   3,008,797    549,313 
Accrued interest   459,208    3,001,362 
Income tax payable   13,913    
 
Earnout due to sellers – current portion   
    3,474,954 
Accrued other expenses and current liabilities   4,159,390    3,645,537 
Total accrued expenses and other current liabilities  $26,727,400   $16,044,095 

  

19

 

 

Note 10: Commitments and Contingencies

 

Litigation

 

The Company is subject to lawsuits and other claims arising in the ordinary course of business. The Company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of accrual required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may change in the future due to new developments in a particular matter or changes in approach, such as a change in settlement strategy in dealing with these matters. With respect to material matters for which the Company believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and an estimate of potential exposure. The Company believes that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse effect on the Company’s results of operations, financial position or cash flows, although such litigation is subject to certain inherent uncertainties.

 

On June 16, 2021, a complaint was filed in the Superior Court of New Jersey Law Division, Middlesex County. The complaint alleges a former minor employee (who obtained employment by providing false information) was injured on October 15, 2020, at the Co-Defendant’s worksite. Mediation was unsuccessful, and the matter was listed for trial but was rescheduled to sometime in September 2024. The Company’s employer’s liability insurance carrier and workers compensation carrier have now issued a reservation of rights and entered an appearance and appointed counsel to defend the Company’s interests in the case. A settlement conference was scheduled for July 23, 2024, but has been postponed. A new date has not yet been set. The Company believes it has issues for appeal, but believes it is probable to receive an unfavorable outcome and has accrued $875,000 with respect to this complaint, which is recognized in “accrued expenses and other current liabilities” on the accompanying consolidated balance sheets.

 

Executive Employment and Consulting Agreements

 

Consulting Agreement with Robert Machinist

 

Upon the closing of the Merger, Robert Machinist entered into a one-year consulting agreement with our company as Executive Vice Chairman of the Board. Mr. Machinist’s consulting fee is $180,000 per annum. Mr. Machinist will receive a $100,000 transaction bonus upon the completion of the Merger. Mr. Machinist is eligible for discretionary annual bonuses as determined by the compensation committee of our board of directors.

 

If the consulting agreement is terminated for any reason other than for Cause (as defined) or if Mr. Machinist voluntarily terminates his consulting engagement for any reason, he will be entitled to full benefits and all previously granted restricted stock, restricted stock units and warrants will immediately vest. He will be entitled to six months of severance payments of his base salary upon termination, in equal monthly installments, other than for Cause. For Cause, he will be entitled to three months of severance paid in three equal monthly installments, and all unvested restricted stock, restricted stock units and warrants then held by Mr. Machinist will be forfeited.

 

Employment Agreement with Jeffrey Jagid

 

Upon the closing of the Merger, Jeffrey Jagid entered into an employment agreement with our Company as Chief Executive Officer. The agreement is for a term of five years with an additional one-year extension unless terminated by either party upon 90 days written notice prior to the end of the initial term. Mr. Jagid’s base salary is $500,000 per annum. Mr. Jagid is entitled to a true-up payment in an amount equal to the pro-rated difference between his salary of $120,000 per year under his employment contract dated February 1, 2023 with Atlantic and $500,000 per annum. Mr. Jagid is eligible to receive an annual bonus in an amount equal to his base salary for every year commencing in 2023. The bonus will be predicated upon our recording a minimum of $250,000,000 in revenues. Mr. Jagid will also be paid a $200,000 transaction bonus as a result of the closing of the Merger, and he will be paid additional transaction bonuses in the amount of $100,000 for the closing of any subsequent acquisition that is valued in excess of $8,000,000. He is also eligible for an annual discretionary bonus to be set by the compensation committee of our board of directors.

 

If we terminate the employment agreement for any reason other than Cause (as defined), all of Mr. Jagid’s then-outstanding restricted stock, restricted stock units and warrants will immediately vest, and Mr. Jagid will be entitled to (i) 12 months of severance payments of his base salary, (ii) a prorated annual bonus if we are on pace to meet the above-stated performance milestones, (iii) the right to 12 months of COBRA insurance, and (iv) reasonable outplacement services for a period of up to 90 days from termination.

 

20

 

 

Upon death or disability, Mr. Jagid, or his estate, will receive all accrued compensation and any prorated bonus, and any equity that would have vested during the 24-month period beginning on the date of death or disability will immediately vest. If Mr. Jagid is terminated for Cause, or resigns without Good Reason (as defined), he will receive accrued compensation and any vested equity.

 

Upon a Change of Control (as defined), all of Mr. Jagid’s non-vested equity will immediately vest in full, and he will be entitled to his full severance payments stated above if he chooses to terminate his employment with our company. Mr. Jagid will be subject to a one-year non-compete covenant from termination of his employment anywhere in the United States if termination is for Cause, and six months if termination is for any other reason. He will be subject to a two-year non-solicitation covenant from termination if he is terminated for Cause and 12 months if he is terminated for any other reason. He will also be covered under our directors and officers’ liability insurance for up to one year from termination of his employment.

 

Employment Agreement with Christopher Broderick

 

Upon the closing of the Merger, Christopher Broderick entered into an employment agreement with our company as Chief Operating Officer and Chief Financial Officer. The employment agreement is for three years with an additional one-year extension unless terminated by either party upon 90 days’ written notice prior to the end of the initial term. Mr. Broderick’s base salary is $300,000 per annum. He is also entitled to a true-up payment equal to the pro-rated difference between his salary of $120,000 per year under his employment agreement dated February 1, 2023 with Atlantic and $300,000 per annum. Mr. Broderick will be eligible to receive a yearly bonus equal to his annual base salary for every year commencing in 2023. The bonus will be predicated upon our recording a minimum of $250,000,000 in revenues and adjusted EBITDA of $5,000,000. Mr. Broderick will also be paid a $150,000 transaction bonus as a result of the closing of the Merger and he will be paid additional transaction bonuses in the amount of $75,000 for the closing of any subsequent acquisition that is valued in excess of $8,000,000. He also will be eligible for an annual discretionary bonus to be set by the compensation committee of the board of directors.

 

If we terminate the employment agreement for any reason other than Cause (as defined), all of Mr. Broderick’s then-outstanding restricted stock, restricted stock units and warrants will immediately vest, and Mr. Broderick will be entitled to (i) 12 months of severance payments of his base salary, (ii) a prorated annual bonus if we are on pace to meet the above-stated performance milestones, (iii) the right to 12 months of COBRA insurance, and (iv) reasonable outplacement services for a period of up to 90 days from termination.

 

Upon death or disability, Mr. Broderick, or his estate, will receive all accrued compensation and any prorated bonus, and any equity that would have vested during the 24-month period beginning on the date of death or disability will immediately vest. If Mr. Broderick is terminated for Cause, or resigns without Good Reason (as defined), he will receive accrued compensation and any vested equity.

 

Upon a Change of Control (as defined), all of Mr. Broderick’s non-vested equity will immediately vest in full, and he will be entitled to his full severance payments stated above if he chooses to terminate his employment with our company. Mr. Broderick will be subject to a one-year non-compete covenant from termination of his employment anywhere in the United States if termination is for Cause, and six months if his termination is for any other reason. He will be subject to a two-year non-solicitation covenant from termination if he is terminated for Cause and 12 months if he is terminated for any other reason. He will also be covered under our directors and officers’ liability insurance for up to one year from termination of employment.

 

21

 

 

Employment Agreement with Michael Tenore

 

Upon the closing of the Merger, Michael Tenore entered into an employment agreement with our company as General Counsel and Secretary. The employment agreement is for three years with an additional one-year extension unless terminated by either party upon 90 days written notice prior to the end of the initial term. Mr. Tenore’s base salary is $300,000 per annum. He is also entitled to a true-up payment equal to the pro-rated difference between his salary of $120,000 per year under his employment agreement dated April 1, 2023, with Atlantic and $300,000 per annum. Mr. Tenore is entitled to receive an annual bonus of $100,000 for every year commencing in 2023. The bonus is predicated upon our receiving a minimum of $250,000,000 in revenues and adjusted EBITDA of $5,000,000. Mr. Tenore will also be paid a $75,000 transaction bonus as a result of the closing of the Merger, and he will be paid additional transaction bonuses in the amount of $75,000 for the closing of any subsequent acquisition that is valued in excess of $8,000,000. He also will be eligible for an annual discretionary bonus to be set by the compensation committee of our board of directors.

 

If we terminate the employment agreement for any reason other than Cause (as defined), all of Mr. Tenore’s then-outstanding restricted stock, restricted stock units and warrants will immediately vest, and Mr. Tenore will be entitled to (i) 12 months of severance payments of his base salary, (ii) a prorated annual bonus if we are on pace to meet the above-stated performance milestones, (iii) the right to 12 months of COBRA insurance, and (iv) reasonable outplacement services for a period of up to 90 days from termination.

 

Upon death or disability, Mr. Tenore, or his estate, will receive all accrued compensation and any prorated bonus, and any equity that would have vested during the 24-month period beginning on the date of death or disability will immediately vest. If Mr. Tenore is terminated for Cause, or resigns without Good Reason (as defined), he will receive accrued compensation and any vested equity.

 

Upon a Change of Control (as defined), all of Mr. Tenore’s non-vested equity will immediately vest in full and he will be entitled to his full severance payments stated above if he chooses to terminate his employment with our company. Mr. Tenore will be subject to a one-year non-compete covenant from termination of his employment anywhere in the United States if his termination is for Cause, and six months if termination is for any other reason. He will be subject to a two-year non-solicitation covenant from termination if he is terminated for Cause and 12 months if terminated for any other reason. He also will be covered under our directors and officers’ liability insurance for up to one year from termination of employment.

 

Employment Agreement with Todd McNulty

 

On June 18, 2024, Lyneer entered into a new employment agreement, with Todd McNulty to be its Chief Executive Officer. The employment agreement is for three years with successive one-year extensions unless terminated by either party upon 90 days’ prior written notice. Mr. McNulty’s current base salary is $750,000 per annum. Mr. McNulty is entitled to receive: (a) a transaction bonus of $100,000; (b) accrued compensation of $300,000 on or before June 28, 2024; (c) a 2024 Special Bonus of $1,375,000 on or before September 18, 2024; (d) an additional cash bonus of $1,375,000 on or before December 18, 2024; (e) beginning in 2024 and each fiscal year thereafter an annual bonus increasing from $100,000 to $300,000 on total revenues increasing from $350 million to $390 million, and (f) restricted stock units equal to 1% of the Company’s issued and outstanding shares of common stock. He is also eligible for an annual discretionary bonus to be set by the compensation committee of our board of directors.

 

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In case of termination without Cause (as defined), or termination by Mr. McNulty with Good Reason (as defined), or termination upon expiration date with notice of termination/non-renewal by Lyneer, unless Lyneer provides notice of termination prior to the expiration of the Agreement in which case Mr. McNulty shall receive the severance amount. Mr. McNulty will be entitled to severance defined as: (i) in the event of a termination date on or prior to the second anniversary date of the Merger, an amount equal to 1.5 times his annual base salary as in effect immediately prior to the termination date, and continuation of medical insurance benefits, as provided on the termination date until the end of the applicable severance term (as defined, or, at the sole discretion of Lyneer, reimburse Mr. McNulty for COBRA insurance; (ii) in the event of a termination date after the second anniversary of the Merger, an amount equal to one time his annual base salary as in effect immediately prior to the termination date, and continuation of medical insurance benefits or COBRA insurance until the end of the applicable severance term; or (iii) in the case of non-renewal of the employment agreement by Lyneer after the initial term or any renewal term and the subsequent termination of employment within three months following such non-renewal of the employment agreement by Lyneer, an amount equal to six months of his annual base salary as in effect immediately prior to the termination date, and continuation of medical insurance benefits or COBRA insurance. In case of termination by Lyneer with Cause or by Mr. McNulty without Good Reason, Mr. McNulty will only be entitled to accrued obligations consisting of accrued but unpaid base salary; unreimbursed expenses; accrued but unpaid benefits; and any unpaid bonus for any then completed fiscal year. Mr. McNulty is subject to one-year non-compete and non-solicitation covenants from termination of his employment.

  

Employment Agreement with James Radvany

 

On June 18, 2024, Lyneer entered into a new employment agreement with James Radvany to continue as its Chief Financial Officer. The employment agreement has a term of three years with successive one-year extensions unless terminated by either party upon 90 days’ prior written notice. Mr. Radvany’s base salary is $500,000 per annum. Mr. Radvany is entitled to the same transactions bonus, accrued compensation, 2024 Special Bonuses, annual bonuses starting in 2024, discretionary bonuses and 1% restricted stock units as Mr. McNulty is entitled to. Mr. Radvany’s employment agreement provides for the same severance provisions, non-competition and non-solicitation covenants as those in Mr. Radvany’s employment agreement discussed above. In case of termination by Lyneer with Cause or by Mr. Radvany without Good Reason, Mr. Radvany will only be entitled to accrued obligations consisting of accrued but unpaid base salary; unreimbursed expenses; accrued but unpaid benefits; and any unpaid bonus for any then completed fiscal year.

 

Board of Directors Agreement (Chairman) with Prateek Gattani

 

Upon the closing of the Merger, the Company adopted the Board of Director’s Agreement dated as of April 15, 2024 with Prateek Gattani to serve as Chairman of the Board for a two-year period from the closing of the Merger. The agreement provides for Mr. Gattani to have all responsibilities of a director of the Company. He is to be paid an annual fee equal to the higher of $200,000 or the highest amount any other director is being paid. Mr. Gattani was granted RSUs to purchase 1,300,000 shares of common stock vested upon the date of grant and exercisable for five (5) years from the date of issuance. The agreement provides that he cannot be removed except by the Company’s shareholders.

 

Note 11: Fair Value Measurements

 

Earnout Liability

 

The Company may be required to make certain earnout payments in connection with the Transaction, which would be payable upon the future achievement of revenues less certain identified expenses and other performance targets. The fair value of these contingent consideration payments is determined using a Monte Carlo simulation, with key inputs being standard deviation applied to the Company’s revenues, revenue multiple, and gross profit discount rate. The fair value measurement of the contingent consideration is considered a Level 3 measurement within the fair value hierarchy.

 

The measurement period for the Company’s contingent consideration arrangements expired on August 31, 2023, at which time amounts owed by the Company to its former owners were computed and represent fixed amounts.

 

23

 

 

A summary of the activities of Level 3 fair value measurements is as follows:

 

   December 31,
2023
 
Beginning balance  $7,100,000 
Issuance of Earnout Notes   
 
Change in fair value   (150,093)
Transfer to purchase consideration   (6,949,907)
Ending balance  $
 

 

See Note 14: Related Party Transactions for a discussion of the Company’s contingent consideration liabilities attributed to LMH.

 

Note 12: Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

 

Cash in Excess of FDIC Insured Limits

 

The Company places its cash and cash equivalents with financial institutions which it believes are of high creditworthiness and where deposits are insured by the United States Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company’s cash balances in excess of FDIC insured limits amounted to $139,694 and $1,659,914 as of June 30, 2024 and December 31, 2023, respectively.

 

The Company has not experienced any losses with regard to its bank accounts and believes it does not pose a significant credit risk to the Company.

 

Other Concentrations

 

As of June 30, 2024 and December 31, 2023, the Company has a deposit in the amount of $8,000,000 with a professional employer organization (“PEO”). The PEO is the employer of record for substantially all of the Company’s engagement professionals, and as such certain costs of revenue are paid to the PEO and subsequently distributed to Company engagement professionals.

 

Note 13: Members’ Capital and Mezzanine Capital

 

As of December 31, 2023, 90%, of the outstanding membership units were held by IDC, and 10% were held by LMH.

 

Under the Operating Agreement, LMH has the right, but not the obligation to require IDC to purchase LMH’s interest in the Company (the “LMH Put”) upon the occurrence of any Triggering Event, or during the Put-Call Period. Upon the occurrence of certain triggering events as defined in the Company’s operating agreement, LMH had the right to require IDC to purchase its membership units in the Company. The Company has determined the LMH Units to be redeemable upon an event that is outside the control of the Company, and accordingly has classified the LMH Units as a component of mezzanine capital and outside of permanent equity as of December 31, 2023. These units were exercised on February 28, 2024 and as of June 30, 2024 were reclassed to permanent equity. See below for further detail.

 

Accordingly, these ownership interests were recorded in mezzanine capital, and subject to subsequent measurement under the guidance provided under ASC Topic 480 – Distinguishing Liabilities from Equity (“ASC 480”). Pursuant to ASC 480, contingently redeemable equity instruments that are not redeemable as of the balance sheet date but probable of becoming redeemable in the future should be accreted to their redemption value either immediately or ratably; the Company has elected to recognize changes in redemption value immediately upon the determination that an outstanding instrument is probable of becoming redeemable in the future.

 

24

 

 

Net income and losses are allocated to Members’ capital accounts in accordance with the terms of the Operating Agreement which generally provides that these items are allocated in proportion to each Member’s percentage ownership interest in the Company. Distributions to the Members are made at the discretion of the Board of Managers and in accordance with the terms of the Operating Agreement.

 

The LMH Put is payable by IDC and will be paid by the issuance of the Put-Call Notes. The Put-Call period was extended until February 29, 2024. On February 28, 2024, LMH exercised its right to put the LMH Units to IDC and entered into a Put-Call Option Note on April 17, 2024, in the amount of $10,796,912. While not formalized until April 17, 2024, the terms of the Put-Call Option Note were agreed to by all parties prior to March 31, 2024 and as such, the Company gave effect to the transaction as of March 31, 2024. The Put-Call Option Note provides that IDC owned one hundred percent (100%) of all the membership interests in Lyneer Investments and requires IDC to pay 50% of outstanding principal six months after issuance with the remaining 50% payable in six equal quarterly payments beginning on December 31, 2024 and continuing until the maturity date of June 30, 2026. The Put-Call Option Note provides for the acceleration of payment principal under certain conditions, including upon a change of control, as defined. The Put-Call Option Note bears interest at a stated annual interest rate of 5.25% which is payable quarterly in arrears commencing December 31, 2024. IDC may prepay the Put-Call Option Note at any time without premium or penalty. The Put-Call Option Note contains customary covenants.

 

As part of the consummation of the Merger on June 18, 2024, IDC paid $2,000,000 to LMH as a partial payment on the Put-Call Option Note.

 

Note 14: Related Party Transactions

 

Transactions with Lyneer Management Holdings

 

LMH was a non-controlling member of the Company with a 10% ownership interest at December 31, 2023. Two of the Company’s officers, specifically its CEO and CFO, each owned 44.5% of LMH, respectively.

 

On November 15, 2022, Lyneer and IDC as co-borrowers issued Year 1 Earnout Notes to LMH with total balances of $5,127,218. The balance of the Year 1 Earnout Notes payable to LMH was $0 and $5,127,218 as of June 30, 2024 and December 31, 2023, respectively. On January 16, 2024, Lyneer and IDC as co-borrowers issued Year 2 Earnout Notes to LMH with total balances of $2,013,041. The balance of the Year 2 Earnout Notes payable to LMH was $0 as of both June 30, 2024 and December 31, 2023, respectively.

 

As of June 30, 2024 and December 31, 2023, the combined Earnout Note balances payable to LMH of $0 and $5,127,218 are included in “notes payable, current portion”, respectively on the accompanying condensed consolidated balance sheets. Interest expense incurred on the Earnout Notes to LMH totaled $174,058 and $173,737 for the three months ended June 30, 2024 and 2023, respectively and $347,766 and $236,457 for the six months ended June 30, 2024 and 2023, respectively.

 

Total amounts due from LMH under the indemnification provisions of the Transaction Agreement amounted to $0 and $750,000 as of June 30, 2024 and December 31, 2023, respectively and are included in “other assets” in the accompanying condensed consolidated balance sheets. Refer to Note 1: Organization and Nature of Operations for additional information.

 

The balance of the earnout liability payable to LMH as of June 30, 2024 and December 31, 2023, was $0 and $2,015,473, respectively, which is included in “other liabilities” on the accompanying consolidated balance sheets.

 

On June 18, 2024 as part of the Merger, LMH entered into a $6,000,000 guarantee agreement with the PEO, replacing and cancelling the $6,000,000 letter of credit previously held by the lenders of the Revolver.

 

25

 

 

Transactions with IDC

 

The Company and IDC are co-borrowers and jointly and severally liable for principal and interest payments under the Revolver, the Term Note, the Seller Notes and the Earnout Notes. In the case of certain of those obligations IDC generally makes certain interest and principal payments to the lenders and collects reimbursement from the Company. For interest payments of that nature, the Company recognizes interest expense when interest is incurred under the relevant loan agreement and a corresponding payable to IDC, which is subsequently removed from the Company’s consolidated balance sheet upon Company’s remittance of the reimbursement funds to IDC. Additionally, when principal payments are made by IDC the Company recognizes a reduction of the associated loan balance, with a corresponding increase in the payable to IDC which is then reduced upon the Company’s payment of funds to IDC.

 

The Company and IDC file consolidated income tax returns in certain state and local jurisdictions. In connection with this arrangement the Company has recorded a liability payable to IDC for taxes payable by IDC which represent taxes attributable to the Company’s operations included on consolidated state and local income tax returns filed by IDC. These amounts are determined by determining the Company’s taxable income multiplied by the applicable tax rate. Amounts payable to IDC of this nature amounted to $545,547 and $522,472 as of June 30, 2024 and December 31, 2023, respectively, and are included in “due to related parties” on the accompanying condensed consolidated balance sheets.

 

Total amounts payable to IDC, including the above taxes payable to IDC, amounted to $2,771,502 and $4,384,178 as of June 30, 2024, and December 31, 2023, respectively and are included in “due to related parties” on the accompanying condensed consolidated balance sheets. There are no formalized repayment terms.

 

During the six months ended June 30, 2024, Lyneer included $402,500 as an expense paid for by IDC and recorded as a deemed capital contribution to Lyneer, of which all related to transaction bonuses. Additionally, IDC agreed to reimburse certain expenses paid by Lyneer totaling $631,469 also recorded as deemed capital contributions, by reducing the payable balance owed to IDC. Of this amount, $611,969 related to professional fees and $19,500 related to a debt amendment fee.

 

On June 18, 2024, the Company entered into a $35,000,000 Merger Note with IDC. See Note 8: Debt for further discussion. Additionally, IDC was issued 25,423,729 shares of the Company’s common stock at a market value of $2.36 per share, or $60,000,000 in the aggregate.

 

Advance to Officer

 

Lyneer advanced $400,000 to the CEO of the Company in 2022. The advance did not bear interest. This advance is recorded in “other assets” on the accompanying condensed consolidated balance sheets as of December 31, 2023. The officer loan settled from a portion of the recapitalization proceeds at the closing of the Merger.

 

Note 15: Stock-Based Compensation

 

Upon the consummation of the Merger, the 2023 Equity Incentive Plan (the “Incentive Plan”) became effective. The Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, dividend equivalents, and other stock or cash-based awards, or collectively, awards to officers, employees, non-employee directors, and consultants and those of our subsidiaries as selected from time to time by the plan administrator in its discretion. Unless otherwise set forth in an individual award agreement, each award shall vest over a four-year period, with one-quarter of the award vesting on the first annual anniversary of the date of grant, with the remainder of the award vesting monthly thereafter.

 

26

 

 

Share Reserve

 

A number of shares of our common stock equal to 15% (initially 7,309,322 shares) of the number of shares of common stock to be outstanding immediately following consummation of the Initial Capital Raise following the Merger was initially reserved for issuance under the Incentive Plan. Following the Merger, we assumed Atlantic’s obligations with respect to restricted stock units granted to and held by those members of Atlantic management and certain persons who are key consultants to our company post-Merger and it is expected that all of the shares of common stock initially reserved for issuance under the Incentive Plan will be reserved for issuance upon the vesting of such restricted stock units.

 

Shares underlying any awards under the Incentive Plan that are forfeited, cancelled, held back to cover the exercise price or tax withholding, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added back to the shares available for issuance under the Incentive Plan. The payment of dividend equivalents in cash shall not count against the share reserve.

 

Restricted Stock Units

 

The Company has granted 2,377,091 restricted stock units to non-employees under its Incentive Plan. As of June 30, 2024, the Company had 433,547 outstanding RSUs with a grant date fair value of $2.36.

 

The following table summarizes the Company’s restricted stock activity consisting of RSUs:

 

   Shares
Outstanding
   Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2023   
   $
 
Granted   2,377,091   $2.36 
Vested   (1,933,544)  $2.36 
Unvested at June 30, 2024   443,547   $2.36 

 

Of the shares granted, 593,221 shares are for compensation for transaction costs related to the Merger incurred by a third party on behalf of the Company. An assumption agreement was entered into on June 18, 2024, whereby the Company agreed to assume those obligations and issue equity of Atlantic to satisfy these obligations in full.

 

Stock-based compensation expense included in the accompanying consolidated statements of operations was:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Stock-based compensation expense  $4,506,066   $
   $4,506,066   $
 

 

As of June 30, 2024, there was $1,103,869 of unrecognized stock-based compensation related to RSUs outstanding, which is expected to be recognized over a weighted-average remaining service period of less than one year.

 

Note 16: Income Taxes

 

For the three months ended June 30, 2024 and 2023, the Company recorded an income tax benefit of $17,221,979 and $1,523,345, respectively and $18,512,574 and $2,444,418 for the six months ended June 30, 2024 and 2023, respectively. The Company’s effective tax rate for the six months ended June 30, 2024 and 2023 was 23.6% and 29.1%, respectively. The decrease in effective tax rates between the periods was primarily due to the disallowance of transaction costs in the amount of $20,893,556 for tax purposes.

 

27

 

 

Note 17: Earnings per Share

 

The following table summarizes the computation of basic and diluted net loss per share:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Numerator:                
Net loss  $(54,911,719)  $(3,616,092)  $(59,778,563)  $(5,944,375)
Denominator:                    
Weighted average common shares outstanding, basic and diluted
   28,081,013    25,423,729    26,752,371    25,423,729 
Net loss per share, basic and diluted
  $(1.96)  $(0.14)  $(2.23)  $(0.23)
Excluded anti-dilutive shares   2,377,091    8,283    2,377,091    13,825 

 

Note 18: Subsequent Events

 

The Company has evaluated subsequent events through August 14, 2024, as detailed below.

 

Registration Statement

 

On July 22, 2024 the Company filed a registration statement on Form S-8 to register up to 15% (initially 7,309,322 shares) of the number of shares of common stock, par value $0.00001, to be outstanding immediately following consummation of the Initial Capital Raise following the Merger issuable pursuant to outstanding unvested or unexercised stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, and other stock or cash based awards (collectively, “Awards”) granted under the Company’s 2023 Equity Incentive Plan which became effective upon the consummation and completion of the Merger. 

 

Shareholder Dividend Settlements

 

The Company is in the process of extending offers for settlement to shareholders as a result of the Company’s failing to declare and pay a declared dividend as described in the Company’s filings. As of July 24, 2024, the Company has paid $25,000 in cash and issued 987,860 shares of common stock of the Company in partial satisfaction of obligations related to the dividend.

 

Revolver and Term Note Amendments

 

On August 12, 2024 the Company entered into extended forbearance agreements with its lenders of the Revolver and Term Note, under which the lenders, waived all existing events of default as of the date of the agreements and agreed to forbear from exercising their rights and remedies with respect to such events of default under the Revolver and Term Note through September 30, 2024. The maximum aggregate principal amount of $60,000,000 will be reduced by $500,000 on each Thursday starting August 15, 2024 and continuing through and including September 26, 2024. The Initial Capital Raise milestone and the uplisting milestone dates were extended to September 15, 2024.

 

28

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion relates to Atlantic International Corp. (Atlantic or the Company) and its consolidated subsidiaries and should be read together with the Company’s Consolidated Financial Statements and accompanying notes included in Part I, Item 1.—Financial Statements of this Quarterly Report on Form 10-Q.

 

Overview

 

Atlantic, through its subsidiaries, is a national strategic staffing firm servicing the commercial, professional, finance, direct placement, and managed service provider verticals. Lyneer was formed under the principles of honesty and integrity, and with the view of becoming the preferred outside employer of choice. Since its formation, the Company has grown from a regional operation to a national staffing firm with offices and geographic reach across the United States. The Company primarily places individuals in accounting and finance, administrative and clerical, information technology, legal, light industrial, and medical roles. The Company is also a leading provider of productivity consulting and workforce management solutions. Atlantic is headquartered in Englewood Cliffs, New Jersey and has more than one hundred locations in the USA.

 

The Company’s management believes, based on their knowledge of the industry, that it is one of the prominent and leading staffing firms in the ever-evolving staffing industry. Its management also believes that it is an industry leader in permanent, temporary and temp-to-perm placement services in a wide variety of areas, including, but not limited to, accounting & finance, administrative & clerical, hospitality, IT, legal, light industrial and medical fields. Its deep expertise and extensive experience have helped world class companies revolutionize their operations, resulting in greater efficiency and streamlined processes. Its comprehensive suite of solutions covers all aspects of workforce management, from recruitment and hiring to time and attendance tracking, scheduling, performance management, and predictive analytics. Atlantic takes a personalized approach to each client, working closely with them to understand their unique needs and develop a tailored roadmap for success. In addition, Atlantic offers a comprehensive range of recruiting services, including temporary and permanent staffing, within the light industrial, administrative, and financial sectors. Its services are designed to meet each client’s needs, including payroll services and vendor management services/managed service provider solutions. Its extensive network of offices and onsite operations provide local support for its clients, while its national presence gives Atlantic the resources to tackle even the most complex staffing needs. With a focus on integrity, transparency and customer service and a commitment to results over a 25-year period, management believes it has earned a reputation as one of the premier workforce solutions partners in the United States.

 

At Atlantic, management understands that finding the perfect candidate starts before the job requisition even comes in. The Company employs the strategy of proactive recruitment to build a pipeline of pre-vetted candidates for order fulfilment. Atlantic’s client mix consists of both small- and medium-size businesses, and large national and multinational client relationships. Client relationships with small- and medium-size businesses are based on a local or regional relationship, and tend to rely less on longer-term contracts, and the competitors for this business are primarily locally owned businesses. Comprising over 60% of the Company’s revenue base, the large national and multinational clients, on the other hand, will frequently enter into non-exclusive arrangements with several firms, with the ultimate choice among them being left to local managers. As a result, employment services firms with a large network of offices compete most effectively for this business, which generally has agreed-upon pricing or mark-up on services performed.

 

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Results of Operations

 

The following discussion summarizes the key factors Atlantic’s management team believes are necessary for an understanding of Atlantic’s financial statements.

 

Comparison of the Three and Six Months Ended June 30, 2024 and 2023:

 

Certain related party and non-related party financial statement line-item amounts have been aggregated for purposes of analysis below, which is consistent with management’s evaluation of its business results.

 

The following table summarizes our results of operations for the periods presented:

 

   Three Months Ended
June 30,
   Change 
   2024   2023   Amount   Percent 
Service revenue, net  $104,636,273   $89,364,602   $15,271,671    17.1%
Cost of revenue   93,146,627    78,426,842    14,719,785    18.8%
Gross profit   11,489,646    10,937,760    551,886    5.0%
Selling, general and administrative   18,553,150    11,187,268    7,365,882    65.8%
Change in fair value of contingent consideration liabilities       (400,000)   400,000    (100.0)%
Depreciation and amortization   1,249,054    1,256,985    (7,931)   (0.6)%
Loss from operations   (8,312,558)   (1,106,493)   (7,206,065)   651.3%
Loss on debt extinguishment   1,213,379        1,213,379    + 
Advisory fees paid in the merger   43,000,000        43,000,000    + 
Interest expense   4,000,024    4,032,944    (32,920)   (0.8)%
Other expense   15,607,737        15,607,737    + 
Net loss before provision for income taxes   (72,133,698)   (5,139,437)   (66,994,261)   + 
Income tax benefit   17,221,979    1,523,345    15,698,634    + 
Net loss  $(54,911,719)  $(3,616,092)  $(51,295,627)   + 
Net loss per share, basic and diluted  $(1.96)  $(0.14)  $1.82    + 
Weighted average shares outstanding, basic and diluted   28,081,013    25,423,729    2,657,284    10.5%

 

   Six Months Ended June 30,   Change 
   2024   2023   Amount   Percent 
Service revenue, net  $205,259,485   $187,392,724   $17,866,761    9.5%
Cost of revenue   183,304,457    164,708,406    18,596,051    11.3%
Gross profit   21,955,028    22,684,318    (729,290)   (3.2)%
Selling, general and administrative   28,894,187    21,329,274    7,564,913    35.5%
Change in fair value of contingent consideration liabilities       (500,000)   500,000    (100.0)%
Depreciation and amortization   2,508,608    2,520,804    (12,196)   (0.5)%
Loss from operations   (9,447,767)   (665,760)   (8,782,007)   + 
Loss on debt extinguishment   1,213,379        1,213,379    + 
Advisory fees paid in the merger   43,000,000        43,000,000    + 
Interest expense   9,022,254    7,723,033    1,299,221    16.8%
Other expense   15,607,737        15,607,737    + 
Net loss before provision for income taxes   (78,291,137)   (8,388,793)   (69,902,344)   + 
Income tax benefit   18,512,574    2,444,418    16,068,156    + 
Net loss  $(59,778,563)  $(5,944,375)  $(53,834,188)   + 
Net loss per share, basic and diluted  $(2.23)  $(0.23)  $2.00    + 
Weighted average shares outstanding, basic and diluted   26,752,371    25,423,729    1,328,642    5.2%

 

 

+ - change greater than ± 100%

  

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Service Revenue, Net

 

Service revenue, net of discounts, for the three and six months ended June 30, 2024 and 2023 consisted of the following:

 

  

Three Months Ended
June 30,

   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Temporary placement services  $103,897,666   $88,298,049   $203,570,568   $185,361,351 
Permanent placement and other services   738,607    1,066,553    1,688,917    2,031,373 
Total service revenues, net  $104,636,273   $89,364,602   $205,259,485   $187,392,724 

 

Service revenue, net was $104,636,273 and $89,364,602 for the quarters ended June 30, 2024 and 2023, respectively, an increase of $15,271,671, or 17.1%. This increase was predominately due to the higher revenues from the Company’s temporary placement services business, which increased $15,599,617 or 17.7% in the three months ended June 30, 2024 as compared to the same period in 2023 due primarily to a strong sales initiative by the Company. Permanent placement and other services decreased $327,946 or 30.7% due to lower permanent job demand as companies cut back on hiring permanent positions.

 

Service revenue, net was $205,259,485 and $187,392,724 for the six months ended June 30, 2024 and 2023, respectively, an increase of $17,866,761, or 9.5%. This increase was predominately due to the higher revenues from the Company’s temporary placement services business, which increased $18,209,217 or 9.8% in the six months ended June 30, 2024 as compared to the same period in 2023 due primarily to a strong sales initiative by the Company. Permanent placement and other services decreased $342,456 or 16.9% due to lower permanent job demand as companies cut back on hiring permanent positions.

 

Cost of Revenue and Gross Profit

 

Gross profit reflects the difference between realized service revenue, net and cost of revenues for providing temporary and permanent placement solutions. Cost of revenue consists primarily of fixed and variable directs costs, including payroll, payroll taxes and employee benefit costs. Cost of revenue and gross profit for the three and six months ended June 30, 2024 and 2023 consisted of the following:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Service revenue, net  $104,636,273   $89,364,602   $205,259,485   $187,392,724 
Cost of revenue   93,146,627    78,426,842    183,304,457    164,708,406 
Gross profit  $11,489,646   $10,937,760   $21,955,028   $22,684,318 

 

Cost of revenue for the quarters ended June 30, 2024 and 2023 was $93,146,627 and $78,426,842, respectively, an increase of $14,719,785 or 18.8%. The increase in cost of revenue was due primarily to higher service revenue, net driven primarily by higher temporary placement services revenue, which increased $15,271,671 or 17.1%. Gross profit for the quarter ended June 30, 2024 and 2023 was $11,489,646 and $10,937,760, respectively, an increase of $551,886 or 5.0%. As a percentage of service revenue, net, gross profit was 11.0% and 12.2% for the quarter ended June 30, 2024 and 2023, respectively, which decreased due to increasing labor related costs.

 

Cost of revenue for the six months ended June 30, 2024 and 2023 was $183,304,457 and $164,708,406, respectively, an increase of $18,596,051 or 11.3%. The increase in cost of revenue was due primarily to higher service revenue, net driven primarily by higher temporary placement services revenue, which increased $17,866,761 or 9.5%. Gross profit for the six months ended June 30, 2024 and 2023 was $21,955,028 and $22,684,318, respectively, a decrease of $729,290 or 3.2%. As a percentage of service revenue, net, gross profit was 10.7% and 12.1% for the six months ended June 30, 2024 and 2023, respectively, which decreased due to increasing labor related costs.

 

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Total Operating Expenses

 

Total operating expenses for the three and six months ended June 30, 2024 and 2023 consisted of the following:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Selling, general and administrative  $18,553,150   $11,187,268   $28,894,187   $21,329,274 
Change in fair value of contingent consideration liabilities       (400,000)       (500,000)
Depreciation and amortization   1,249,054    1,256,985    2,508,608    2,520,804 
Total operating expenses  $19,802,204   $12,044,253   $31,402,795   $23,350,078 

  

The changes in each financial statement line item for the respective periods are described below.

 

Selling, General and Administrative Costs

 

Selling, general and administrative expenses for the quarters ended June 30, 2024 and 20232 were $18,553,150 and $11,187,268, respectively, an increase of $7,365,882, or 65.8%, due primarily to higher transaction costs related to the Merger, offset partially by cost cutting measures, including personnel layoffs. As a percentage of service revenue, net, selling, general and administrative costs were 17.7% in the quarter ended June 30, 2024 as compared to 12.5% in the quarter ended June 30, 2023. The increase in selling, general and administrative costs as a percentage of service revenue, net was due primarily to higher transactions costs in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023.

 

Selling, general and administrative expenses for the six months ended June 30, 2024 and 2023 were $28,894,187 and $21,329,274, respectively, an increase of $7,564,913, or 35.5%, due primarily to higher transaction costs related to the Merger, offset partially by cost cutting measures, including personnel layoffs. As a percentage of service revenue, net, selling, general and administrative costs were 14.1% in the six months ended June 30, 2024 as compared to 11.4% in the six months ended June 30, 2023. The increase in selling, general and administrative costs as a percentage of service revenue, net was due primarily to higher transactions costs and RSU stock compensation expense in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

 

Changes in Fair Value of Contingent Consideration Liabilities

 

Changes in the fair value of contingent consideration liabilities for the quarters ended June 30, 2024 and 2023 were $0 and $(400,000), respectively. The change of $400,000 reflects the change in fair value of the liability balance. The measurement period for the contingent consideration arrangements expired on August 31, 2023, at which time amounts owed Lyneer to its former owners were computed and represent fixed amounts.

 

Changes in the fair value of contingent consideration liabilities for the six months ended June 30, 2024 and 2023 were $0 and $(500,000), respectively. The change of $500,000 reflects the change in fair value of the liability balance. The measurement period for the contingent consideration arrangements expired on August 31, 2023, at which time amounts owed Lyneer to its former owners were computed and represent fixed amounts.

 

Depreciation and Amortization

 

Depreciation and amortization expense for the quarters ended June 30, 2024 and 2023 was $1,249,054 and $1,256,985, respectively, a decrease of $7,931 or 0.6%, which was essentially flat on a year-over year basis.

 

Depreciation and amortization expense for the six months ended June 30, 2024 and 2023 was $2,508,608 and $2,520,804, respectively, a decrease of $12,196 or 0.5%, which was essentially flat on a year-over year basis.

 

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Loss on Debt Extinguishment

 

Loss on debt extinguishment, for the three and six months ended June 30, 2024 and 2023 were as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Loss on debt extinguishment  $1,213,379   $   $1,213,379   $ 

 

Loss on debt extinguishment during the three and six months ended June 30, 2024 relate to the Seventh Amendment and Forbearance Agreement to the Revolver being treated as a debt extinguishment after the Company’s analysis of Accounting Standards Codification (“ASC”) Topic 470 – Debt.

 

Advisory Fees Paid in the Merger

 

Advisory fees paid in merger for the three and six months ended June 30, 2024 and 2023 were as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Advisory fees paid in the merger  $43,000,000   $   $43,000,000   $ 

 

The shareholders of Atlantic Acquisition Corp. were issued an aggregate of 18,220,338 shares of Company’s common stock at a market value of $2.36 per share or $43,000,000 in the aggregate on the date of the Merger.

 

Interest Expense

 

Interest expense for the three and six months ended June 30, 2024 and 2023 were as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Interest expense  $4,000,024   $4,032,944   $9,022,254   $7,723,033 

 

Interest expense for the quarters ended June 30, 2024 and 2023 was $4,000,024 $4,032,944, respectively. The decrease of $32,920, or 0.8%, in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was essentially flat due to the Company deconsolidating the joint and several debt obligations as of the Merger date.

 

Interest expense for the six months ended June 30, 2024 and 20232 was $9,022,254 and $7,723,033, respectively. The increase of $1,299,221, or 16.8%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was attributed primarily to significantly higher interest rates on the revolving credit facility on a year-over-year basis, an increase in the rates on the term, seller and earnout notes due to amendments in May 2023 and August 2023, and, new earnout notes issued in January 2024, partially offset by the Company deconsolidating the joint and several debt obligations as of the Merger date.

 

Other Expense

 

Other expense for the three and six months ended June 30, 2024 and 2023 were as follows:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Other expense  $15,607,737   $   $15,607,737   $ 

 

Other expense for the quarter and six months ended June 30, 2024 related to accrued amounts pertaining to a potential settlement for legacy shareholders and stock compensation expense related to third parties as advisors to the Company.

 

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Income Tax Benefit

 

Provision for income taxes for the three and six months ended June 30, 2023 and 2022 were as follows:

 

  

Three Months Ended

June 30,

   Six Months Ended
June 30,
 
   2024   2023   2024   2023 
Income tax benefit  $17,221,979   $1,523,345   $18,512,574   $2,444,418 

  

Income tax benefit for the quarters ended June 30, 2024 and 2023 was $17,221,979 and $1,523,345, respectively, an increase of $15,698,634, which was driven primarily by the increase in net loss before taxes of $72,133,698 for the quarter ended June 30, 2023 compared to $5,139,437 for the quarter ended June 30, 2023, or an increase in the net loss before taxes of $66,994,261.

 

Income tax benefit for the six months ended June 30, 2024 and 2023 was $18,512,574 and $2,444,418, respectively, an increase of $16,068,156, which was driven primarily by the increase in net loss before taxes of $78,291,137 for the six months ended June 30, 2024 compared to $8,388,793 for the six months ended June 30, 2023, or an increase in the net loss before taxes of $69,902,344.

 

Liquidity & Capital Resources

 

Atlantic’s working capital requirements are primarily driven by personnel payments and client accounts receivable receipts. As receipts from client partners lag behind payments to personnel, working capital requirements increase substantially in periods of growth.

 

Atlantic’s primary sources of liquidity have historically been cash generated from operations and borrowings under its revolving credit agreement (the “Revolver”). Atlantic’s primary uses of cash are payments to engagement personnel, corporate personnel, related payroll costs and liabilities, operating expenses, capital expenditures, cash interest, cash taxes, and contingent consideration and debt payments. If Atlantic and IDC are able to refinance their existing indebtedness as described below, Atlantic believes that the cash generated from operations, together with the borrowing availability under its portion of the Revolver or under any revolving credit facility that Lyneer may enter into to replace the Revolver, would be sufficient to meet its normal working capital needs for at least the 12-month period following the date of its June 30, 2024 financial statements, including investments made, and expenses incurred, in connection with opening new markets throughout the next year. Atlantic’s ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of Atlantic’s control. If Atlantic’s future cash flow from operations and other capital resources are insufficient to fund its liquidity needs, Atlantic may be forced to obtain additional debt or equity capital or refinance all or a portion of its debt.

 

In connection with the closing of the Merger, Atlantic issued to IDC the Merger Note in the principal amount of $35,000,000 that will mature on September 30, 2024. The Merger Note does not bear interest and is not convertible prior to an event of default under the Merger Note. If an event of default should occur under the Merger Note, the Merger Note will bear interest at the rate of 7% per annum commencing upon the date of such event of default and will be convertible into shares of our common stock at a price per share that equals the lowest daily volume weighted average price per share (VWAP) during the five trading days immediately preceding the date on which the applicable conversion notice is delivered to us, but not less than 80% of the price per share in our Initial Capital Raise, provided, however, that the number of shares of our common stock issuable upon conversion of the Merger Note will not exceed 19.99% of the number of our outstanding shares of common stock without shareholder approval if our common stock is then listed on a National Stock Exchange (“NSE”). As we do not believe we will have sufficient liquidity and capital resources to pay the Merger Note in full when due, as well as to restructure our joint and several debt obligations, we believe we will have to sell additional equity or debt securities prior to the maturity date of the Merger Note to pay or refinance the Merger Note when due. However, as Prateek Gattani, our Chairman of the Board following the Merger, is also the Chief Executive Officer and controlling stockholder of IDC, we also believe we will be able to negotiate an extension of the Merger Note if we are unable to pay it in full at maturity. An event of default under the Merger Note may result in an additional event of default under the Revolver and our other indebtedness for borrowed funds.

 

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On June 6, 2023, Lyneer and IDC were informed by a letter from the administrative agent of the lender under the Revolver that the borrowing base calculation under the Revolver was required to be changed from how it was historically calculated. This change caused Lyneer and IDC as co-borrowers to be over-advanced, and the agent required the co-borrowers to cure the over-advance. On December 31, 2023, the total over-advance was $22,518,585.

 

On August 31, 2023 and January 16, 2024, later replaced on January 30, 2024, Lyneer and IDC entered into consent and forbearance agreements with its lender under the Revolver pursuant to which the lender waived all existing events of default as of the date of the agreements and agreed to forbear from exercising its rights and remedies with respect to such events of default under the credit facilities through November 17, 2023 and March 15, 2024, respectively. On April 17, 2024, Lyneer and IDC entered into a limited consent and amendment to the forbearance agreement with the lender under the Revolver under which the lender agreed to extend its forbearance with respect to all then-existing events of default until July 31, 2024. As a result of the Company being unable to complete its Initial Capital Raise by May 15, 2024, the Company was required to obtain additional forbearance agreements.

  

On June 18, 2024, Lyneer and IDC entered into consent and forbearance agreements with its lender under the Revolver under which the Lender agreed to extend its forbearance with respect to all then-existing events of default until July 15, 2024, subject to the satisfaction of various conditions, all of which have been satisfied, and agreed to a revised schedule for the repayment of the over-advance. The events of default of the borrowers under the Revolver included:

 

  (i) the failure to repay an over-advance in the amount of $4,662,495 as of May 31, 2024;

 

  (ii) failure to complete an initial capital raise (“Initial Capital Raise”) on or before May 15, 2024 and apply the proceeds thereof as specified;

 

  (iii) failure to have completed presentations to potential buyers under a sale and potential lenders in respect of a refinancing transaction resulting in payment in full of all Obligations (as defined);

 

  (iv) the failure to deliver to the administrative agent, on or before May 29, 2024, an executed letter of intent with respect to a Sale/Refinancing;

 

  (v) the failure to satisfy various financial covenants of the Revolver and failure to timely cure all of the foregoing defaults.

 

Under the Revolver, a “Sale/Refinancing” is defined as the sale of one of the borrowers under the Revolver, including possibly IDC or Lyneer, that will generate proceeds in an amount sufficient to pay in full all obligations of the borrowers under the Revolver.

 

The lenders’ consent to IDC’s transfer of ownership of the equity of Lyneer was conditioned upon: (i) our limited guaranty and pledge of our ownership of the equity of Lyneer upon the effective date of the Merger, (ii) IDC’s pledge to the lender of a security interest in the Merger Note and the shares of our common stock that IDC received in the Merger, as well as the proceeds thereof, and (iii) a replacement guaranty by Lyneer Management Holdings LLC to replace a $6 million letter of credit for the benefit of Employers Personnel, LLC; (iv) an executed amendment to the Term Note; (v) a consent and amendment to the Intercreditor Agreement with the lender under the Term Note; (vi) an executed Master Turnover Agreement pursuant to which the Company agreed, until payment in full of all Obligations, upon any disposition of Equity Interests (as defined including the Initial Capital Raise) or any Secondary Capital Raise proceeds to turn the proceeds to the lender under mandatory prepayment provisions; (vii) consent to a prepayment on the Lyneer Put Option note in the aggregate of $2 million (viii) an updated budget; and (ix) customary closing conditions.

 

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The failure of Lyneer and IDC to comply with any of such additional covenants would create additional events of default under the Revolver and the Term Note that have not been waived by the lenders under the Revolver or the Term Note in the existing forbearance agreements.

 

On August 12, 2024 the Company entered into the Ninth Amendment and with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through September 30, 2024. The maximum aggregate principal amount of $60,000,000 will be reduced by $500,000 on each Thursday starting August 15, 2024 and continuing through and including September 26, 2024. The Initial Capital Raise milestone was extended to September 15, 2024 with additional milestones including an uplisting milestone date of September 15, 2024.

 

On June 18, 2024, IDC and Lyneer also entered into an amendment to the forbearance agreement with the lender under the Term Note pursuant to which, the lender (i) extended its forbearance with respect to all events of default until the earlier of July 15, 2024, or an Event of Default; (ii) requires a limited guaranty and continued pledge by us of our equity interest in Lyneer; (iii) requires the execution of new three-year employment agreements with Todd McNulty and James Radvany, CEO and CFO, respectively of Lyneer. The events of default under the Term Note included:

 

  (i) the failure to pay interest due on October 1, 2023 and January 2, 2024;

 

  (ii) failure to complete an Initial Capital Raise by May 15, 2024 and to apply the proceeds as specified therein;

 

  (iii) failure to complete management presentations to potential buyers and potential lenders;

 

  (iv) the failure to deliver on or before May 29, 2024, an executed letter of intent with respect to a Sale/Refinancing; and

 

  (v) the failure to satisfy various financial covenants of the Term Loan and failure to cure.

 

On August 12, 2024 the Company entered into the Tenth Amendment and with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Term Note through September 30, 2024. The Initial Capital Raise milestone was extended to September 30, 2024 with additional milestones including an uplisting milestone date of September 15, 2024.

 

The Lenders’ consent to IDC’s transfer of ownership of the equity of Lyneer was conditioned upon substantially the same terms stated above under the Revolver, as well as issuance of a secured bridge loan (“Credit Agreement”) to the Company in the principal amount of $1,950,000 at an interest rate of 5% per annum. The Maturity date of the Credit Agreement is September 30, 2024. However, mandatory prepayments shall be made from the Initial Capital Raise, on the issuance of new debt or new Equity Interests, or upon a change of control.

 

In addition, on January 16, 2024, IDC and Lyneer entered into an amendment agreement with the holders of the Seller Notes and Earnout Notes to defer the missed July 31, 2023 and October 31, 2023 principal and interest payments on the Seller Notes and the Earnout Notes, each in the amount of $1,575,000 plus accrued interest, until February 28, 2024, and to defer to February 28, 2024 the payment of $1,575,000 with accrued interest scheduled for January 31, 2024. Lyneer has not refinanced or restructured the credit facility and missed all payments of the Seller Notes and the Earnout Notes during 2024.

 

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In accordance with ASC Topic 205-40, Going Concern, Atlantic evaluates whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern. This evaluation includes considerations related to financial and other covenants contained in Atlantic’s credit facilities, as well as Atlantic’s forecasted liquidity. Atlantic has concluded that there is no substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of its consolidated financial statements. Atlantic is currently negotiating to refinance its debt obligations with its lenders to provide greater flexibility.

 

IDC, Lyneer and Prateek Gattani, IDC’s Chief Executive Officer and our Chairman of the Board following the Merger, have entered into an Allocation Agreement dated as of December 31, 2023, pursuant to which IDC agreed that, subject to subordination to the taxes as between IDC and Lyneer, in connection with the Merger, the Term Note and the Seller Notes, will either be paid in full or assumed by IDC, and all but $35 million of the Revolver will be paid in full or assumed by IDC, and Lyneer will have no further liability or responsibility for such indebtedness. However, as IDC and Lyneer were unable to obtain the release of Lyneer from the holders of such indebtedness for accounting purposes, with respect to any of such indebtedness that was not repaid by IDC with the Allocation Agreement not being given effect for accounting purposes and Lyneer will remain jointly and severally liable with IDC to such lenders until such time as such joint and several indebtedness is restructured, at which time IDC will be obligated to repay in full all remaining amounts payable under the Term Note and the Seller Notes and will repay or assume all but approximately $35 million under Revolver. In the event IDC does not repay any of this debt and the Company is required to make payments, IDC will be obligated to repay the Company for the amounts paid on IDC’s behalf. Upon the consummation of the Merger, the Company determined that it was no longer probable that IDC would default on its portion of the joint and several obligations and deconsolidated the joint and several debt obligations in the accompanying condensed financial statements.

 

In the Allocation Agreement, IDC and Mr. Gattani have agreed to implement a plan to refinance or otherwise satisfy the joint and several indebtedness. IDC and Mr. Gattani are currently exploring refinancing opportunities with several lenders to address the assumed debt, as well as the IDC portion of the Revolver. However, it is expected that the Company will not be legally released from its joint and several obligations with respect to the indebtedness to be assumed by IDC until payment in full of the Merger Note, which matures on September 30, 2024. It is also expected that, in connection with such payments by IDC, the Company will enter into a new revolving credit facility with its current lender to replace the existing credit facility. It is expected that the new credit facility will be supportable by the Company’s stand-alone borrowing base, will be on terms similar to those of the existing credit agreement and will provide credit availability to the Company of up to $40,000,000.

 

Cash flows for the six months ended June 30, 2024 and 2023 consisted of the following:

 

   Six Months Ended
June 30,
 
   2024   2023 
Net cash provided by (used in) operating activities  $(4,217,266)  $9,170,110 
Net cash used in investing activities   (35,306)   (55,540)
Net cash provided by (used in) financing activities   3,339,123    (10,238,677)
Net decrease in cash and cash equivalents  $(913,449)  $(1,124,107)

  

Cash flows provided by operating activities for the six months ended June 30, 2024 compared to the six months June 30, 2023 was lower due to deferred income taxes, an increase in accounts receivable and accrued expenses and other current liabilities and due to related parties.

 

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Investing Activities

 

Cash used in investing activities for the six months ended June 30, 2024 increased compared to June 30, 2023 and consisted entirely of purchases of property and equipment.

 

Financing Activities

 

Cash used in financing activities decreased for the six months ended June 30, 2024 compared to June 30, 2023 consisted borrowings and payments under the Company’s debt arrangements of the Revolver and Seller Notes (as described below). Additionally, during the six months ended June 30, 2024, the Company issued shares, entered into additional debt obligations, and had a deemed contribution as a result of the Merger.

 

Revolver

 

The Company currently maintains the Revolver as a co-borrower with IDC with an available borrowing capacity of up to $60,000,000. The facility was partially used to finance the acquisition of Lyneer by IDC in August 2021, with additional borrowing capacity available under the Revolver to finance Lyneer’s working capital. All of Lyneer’s cash collections and disbursements are currently linked with bank accounts associated with the lender and funded using the Revolver. These borrowings are determined by Lyneer’s availability based on a formula of billed and unbilled accounts receivable as defined in the loan agreement.

 

As of June 30, 2024 and December 31, 2023, the total balance on the Revolver was $49,347,477 and $90,906,217, respectively. As of June 30, 2024 and December 31, 2023, the Company recorded a liability of $40,163,261 and $85,092,695, respectively, and IDC owed the remaining $9,184,216 and $5,813,522, respectively. Total available borrowing capacity on the Revolver as of June 30, 2024 was ($10,613,516), net of a $1,552,329 reserve required on the Revolver. The borrowing base calculation is based on Lyneer’s eligible assets.

  

Borrowings under the Revolver are classified as SOFR Revolving Credit Loans, SOFR FILO Loans, Base Rate Revolving Credit Loans, Base Rate FILO Loans or Swing-Line Loans (each as defined in the Revolver). Applicable margins for each loan type under the original facility are as follows:

 

Average Availability  SOFR
Revolving
Credit Loans
   Base Rate
Revolving
Credit Loans
   SOFR
FILO
Loans
   Base Rate
FILO
Loans
 
Greater than $83,333,333.33   1.75%   0.75%   2.75%   1.75%
Greater than $41,666,666.66 but less than or equal to $83,333,333.33   2.00%   1.00%   3.00%   2.00%
Less than $41,666,666.66   2.25%   1.25%   3.25%   2.25%

 

Swing Line Loans on the Revolver bear interest at a rate equal to the Base Rate (as defined) plus the applicable margin.

 

On May 5, 2023, Lyneer entered into the Third Amendment to the Revolver. The Third Amendment to the Revolver was treated as a modification based upon Lyneer’s analysis according to ASC 470 — Debt. As such, Lyneer is deferring the recognition of the amendment fee and will amortize such fee as an adjustment to interest expense over the remaining term of the Revolver, along with any existing unamortized costs, using the effective interest method. The amendment fee was $750,000 (paid by IDC), split evenly between IDC and Lyneer. Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

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The Third Amendment increased the applicable margin thresholds for various products as follows:

 

Average Availability  SOFR
Revolving
Credit Loans
   Base Rate
Revolving
Credit Loans
   SOFR
FILO
Loans
   Base Rate
FILO
Loans
 
Greater than $83,333,333.33   2.25%   1.25%   3.25%   2.25%
Greater than $41,666,666.66 but less than or equal to $83,333,333.33   2.50%   1.50%   3.50%   2.50%
Less than $41,666,666.66   2.75%   1.75%   3.75%   2.75%

 

On July 14, 2023, Lyneer received notice from the administrative agent of the lender that Lyneer was in default under the Revolver due to its failure to repay the over-advance on the Revolver. Further, on July 21, 2023, Lyneer received notice from the lender advising Lyneer that it may not make payments on its Term Loan until the over-advance payment default has been cured or waived.

 

On August 31, 2023, Lyneer and IDC entered into the Fourth Amendment and Forbearance Agreement with the lender under the Revolver under which the lender waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through November 17, 2023. The Fourth Amendment and Forbearance Agreement was treated as a debt extinguishment after Lyneer’s analysis of ASC 470, and a loss of $189,951 was recorded. The total amendment fee was $1,550,000 and the structuring fee was $100,000, allocated evenly between IDC and Lyneer. This fee will be amortized as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Fees paid other than to the lenders are expensed as incurred.

 

Lyneer and its lenders did not execute a fifth amendment and forbearance agreement. Instead on January 30, 2024, Lyneer and IDC entered into a consent and amendment to the forbearance agreement with the lender under the Revolver under which the lender extended its forbearance with respect to all events of default until March 15, 2024, revised certain financial ratio covenants, with March 31, 2024 as the first calculation date for such ratios, and agreed to a revised schedule for the repayment of the over-advance.

 

The January 2024 amendment to the forbearance agreement was treated as a modification after Lyneer’s analysis according to ASC 470 and as such, Lyneer is deferring the $750,000 amendment, forbearance and structuring fees, split evenly between IDC and Lyneer, and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

  

As described above, on April 17, 2024, Lyneer and IDC entered into an additional amendment to the forbearance agreement with the lender under the Revolver under which the lender waived all then-existing events of default as of the effective date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through July 31, 2024 and eliminated certain financial ratios. The maturity date of the Revolver was accelerated to July 31, 2024 and the available borrowing capacity decreased to $70,000,000 and further decreasing to $40,000,000 upon the consummation of the Merger. Additionally, the sublimit for letters of credit was decreased to $6,000,000, further decreasing to $0 upon the consummation of the Merger.

 

39

 

 

As described above, on June 18, 2924, Lyneer and IDC entered into an additional amendment to the forbearance agreement with the lender under the Revolver under which the lender waived all then-existing events of default as of the effective date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through July 15, 2024. The maturity date of the Revolver was extended to August 31, 2025 and the available borrowing capacity was decreased to $60,000,000, decreasing to $40,000,000 with the Initial Capital Raise (as defined) and further decreasing upon the Secondary Capital Raise (as defined). The maximum consolidated cash balance at the end of any business day was reduced to $1,000,000. 

 

As described above, on August 12, 2024 the Company entered into the Ninth Amendment and with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Revolver through September 30, 2024. The maximum aggregate principal amount of $60,000,000 will be reduced by $500,000 on each Thursday starting August 15, 2024 and continuing through and including September 26, 2024. The Initial Capital Raise milestone was extended to September 15, 2024 with additional milestones including an uplisting milestone date of September 15, 2024.

 

As discussed above, IDC is expected to use a portion of the cash proceeds it receives in the Merger to pay down the Revolver following the closing of the Merger and this offering, and Lyneer is expected to enter into a new revolving credit facility with the lender on similar terms as the Revolver that will assume the approximately $35,000,000 of outstanding debt under the Revolver for which Lyneer is expected to be responsible. Following such restructuring of the Revolver, it is expected that Lyneer will be required to refinance its new revolving credit facility with either the current lender or a new lender.

 

Term Note

 

On August 31, 2021, Lyneer and IDC as co-borrowers entered into a Term Note in the amount of $30,300,000. The proceeds of this loan were primarily used to finance the acquisition of Lyneer by IDC in August 2021. The Term Note matures on February 28, 2026, at which time all outstanding balances are due and payable. There are no scheduled principal payments on the Term Note prior to its maturity date. The Term Note is subordinated to the Revolver and initially bore interest at the stated interest rate of 14% per annum.

 

As of June 30, 2024 and December 31, 2023, Lyneer had recognized liability balances on the Term Note of $36,062,862, and $34,223,489, respectively.

 

On May 5, 2023, the Term Note was amended to amend the stated interest rate, which may vary between 14% and 16% per annum, with the cash portion of the stated rate varying from 10% to 11% per annum and the PIK portion varying from 4% to 5% per annum, based on specified financial ratios and similar metrics.

 

The May 2023 amendment to the Term Note was treated as a modification pursuant to ASC 470 — Debt. As such, Lyneer is deferring recognition of the $100,000 amendment fee and will amortize such fee as an adjustment to interest expense over the remaining term of the Term Note, along with any existing unamortized costs, using the effective interest method. IDC paid the $100,000 amendment fee, which is included in “capital contribution” on the accompanying consolidated statements of mezzanine capital and members’ capital (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

The Term Note was further amended on June 30, 2023 to defer the July 1, 2023 cash interest payment until August 1, 2023. However, Lyneer did not make this payment when due based upon the notice received from the administrative agent of the lender under the Revolver, which restricted payment on the Term Note as discussed above.

 

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On August 4, 2023, Lyneer received a notice from the administrative agent of the Term Note advising Lyneer that it was in default under the loan agreement relating to the Term Note due to non-payment of the August 1, 2023 interest payment and that interest under the Term Note would accrue at the default rate of the stated rate plus 2% per annum. The Term Note contains certain customary financial and non-financial covenants with which Lyneer is required to comply.

 

The Term Note was further amended on August 31, 2023. Pursuant to such agreement, the lender waived all existing events of default as of the date of such amendment and agreed to forbear from exercising its rights and remedies through November 17, 2023. This amendment also increased the stated interest rate on the Term Note to 19% per annum and the cash portion of the stated rate increased to 14% per annum, with a default rate equal to the stated rate plus 2%. This amendment was treated as a modification after Lyneer’s analysis according to ASC 470 and as such, Lyneer will amortize any existing unamortized costs using the effective interest method, as an adjustment to interest expense over the remaining term. The structuring fee of $32,500 and the total forbearance fee of $325,000 is the responsibility of IDC. These fees were not paid and as such, were added to the principal amount of the Term Note. This amendment had the same contingencies as the forbearance agreement for the Revolver.

  

Lyneer and IDC did not execute a sixth amendment and forbearance agreement. Instead on January 30, 2024, Lyneer and IDC entered into an amendment to the forbearance agreement with its lender under the Term Note under which the lender agreed, subject to satisfaction of various conditions precedent, to waive all existing events of default under the Term Note as of the date of the amendment and to forbear from exercising its rights and remedies with respect to such events of default through March 15, 2024.

 

The January 2024 amendment to the forbearance agreement was treated as a modification after Lyneer’s analysis according to ASC 470 and as such, Lyneer will amortize any existing unamortized costs using the effective interest method, as an adjustment to interest expense over the remaining term. The structuring fee of $32,500 and the total forbearance fee of $325,000, are the responsibility of IDC, which is included in “capital contribution” on the accompanying consolidated statements of mezzanine capital and members’ deficit. These fees were not paid and as such, was added to the principal of the Term Note. Fees paid other than to the lenders are expensed as incurred, and no gain or loss was recorded on the modification.

 

As described above, on April 17, 2024, Lyneer and IDC entered into an additional amendment to the forbearance agreement with its lender under the Term Note under which the lender waived all then-existing events of default under the Term Note and agreed to forbear from exercising its rights and remedies with respect to such events of default through July 31, 2024. IDC has agreed with Lyneer under an Allocation Agreement that IDC will assume all payment obligations under the Term Note. However, it is not expected that Lyneer will be legally released as an obligor under the Term Note until the Merger Note is paid in full and the indebtedness evidenced by the Term Note is restructured.

 

As described above, on June 18, 2024, Lyneer and IDC entered into an additional amendment to the forbearance agreement with its lender under the Term Note under which the lender waived all then-existing events of default under the Term Note and agreed to forbear from exercising its rights and remedies with respect to such events of default through July 15, 2024. IDC has agreed with Lyneer under an Allocation Agreement that IDC will assume all payment obligations under the Term Note. However, it is not expected that Lyneer will be legally released as an obligor under the Term Note until the Merger Note is paid in full and the indebtedness evidenced by the Term Note is restructured.

 

As described above, on August 12, 2024 the Company entered into the Tenth Amendment and with its lender, under which the lender, waived all existing events of default as of the date of the agreement and agreed to forbear from exercising its rights and remedies with respect to such events of default under the Term Note through September 30, 2024. The Initial Capital Raise milestone was extended to September 15, 2024 with additional milestones including an uplisting milestone date of September 15, 2024.

 

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Seller Notes

 

As part of the purchase price consideration for the Transaction, Lyneer and IDC as co-borrowers issued various Seller Notes to former owners in the aggregate principal amount of $15,750,000. Principal payments on the Seller Notes are due in quarterly instalments of $1,575,000, and $3,150,000 is due at their amended maturity dates of April 30, 2024. The Seller Notes bear interest at an amended fixed rate of 11.25% per annum. The Seller Notes represent unsecured borrowings and are subordinated to the Revolver and to the Term Note.

 

Lyneer had recognized Seller Note liability balances of $7,875,000 as of both June 30, 2024 and December 31, 2023.

 

Lyneer and IDC did not make the principal and interest payments due July 31, 2023 and October 31, 2023 on the Seller Notes as payments to any other debt holders was prohibited by the administrative agent of the lender under the Revolver.

 

Pursuant to the terms of the August 31, 2023 forbearance agreements, IDC agreed to use a portion of the Merger Consideration to pay down the Seller Notes upon the consummation of the Merger, following which Lyneer will have no further liability or responsibility for the payment of the Seller Notes. However, under the allocation agreement between IDC and Lyneer, IDC agreed with Lyneer that IDC will assume all payment obligation under the Seller Notes. It is not expected that Lyneer will be released as an obligor under the Seller Notes until the Merger Note is paid in full and the indebtedness evidenced by the Seller Notes is restructured.

 

Earnout Notes

 

As contingent consideration milestones are met in connection with the Transaction Agreement, Lyneer and IDC can elect to pay the milestone payments in cash or to issue notes payable. During 2022, Lyneer and IDC as co-borrowers have issued nine promissory notes in the aggregate principal amount of $13,494,133. Payments on each of the Earnout Notes are due in quarterly installments through their amended maturity date of January 31, 2025 and each note bears an amended stated interest rate of 11.25% per annum. On January 16, 2024, Lyneer and IDC as co-borrowers issued six notes payable with an aggregate value of $6,941,521. Payments on each of the Earnout Notes are due in quarterly installments through their maturity date of January 16, 2026 and each note bears interest at a ratee of 6.25% per annum. The Company missed the March 31, 2024 principal and interest payment and the interest rate increased to the default rate of 11.25%.

  

The Earnout Notes are subordinated to the Revolver and the Term Note and represent unsecured borrowings.

 

The Earnout Note liability was $20,435,654 and $13,494,133 at the periods ended June 30, 2024 and December 31, 2023.

 

Lyneer and IDC did not make the principal and interest payments due July 31, 2023, October 31, 2023, February 28, 2024 and March 31, 2024 on the Earnout Notes as payments to any other debt holders was prohibited by the administrative agent of the lender under the Revolver.

 

Pursuant to the terms of the August 31, 2023 forbearance agreements, IDC agreed to use a portion of the Merger Consideration to pay down the Earnout Notes upon the consummation of the Merger, following which Lyneer will have no further liability or responsibility for the payment of the Earnout Notes. However, under the Allocation Agreement, IDC agreed with Lyneer that IDC will assume all payment obligation under the Earnout Notes. It is not expected that Lyneer will be released as an obligor under the Earnout Notes until the Merger Note is paid in full and the indebtedness is restructured.

 

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2023 Amendment to Seller and Earnout Notes

 

Lyneer and IDC did not make the principal and interest payments due on the Seller Notes and the Earnout Notes during 2023 or the first six months of 2024. On May 14, 2023, Lyneer signed an amendment, dated as of May 11, 2023 (the “Omnibus Amendment”), to defer the missed payments under the Seller Notes and Earnout Notes until the amended maturity dates of such notes of April 30, 2024 and January 31, 2025, respectively. The Omnibus Amendment changed the interest rate of the Seller Notes and the Earnout Notes to 11.25% per annum from 6.25% per annum for all remaining payments.

 

The Omnibus Amendment was treated as a modification based upon Lyneer’s analysis according to ASC 470 — Debt. As such, Lyneer is deferring its recognition of the $40,000 amendment fee and will amortize such fee as an adjustment to interest expense over the remaining terms of such notes, along with any existing unamortized costs, using the effective interest method. Lyneer paid the $40,000 amendment fee and will be reimbursed from IDC. These fees were included in “capital contribution” on the accompanying consolidated statements of mezzanine capital and members’ capital (deficit) for the year ended June 30, 2023. Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

As described above, on January 16, 2024, Lyneer and IDC signed an amendment to the Omnibus Agreement with the holders of the Seller Notes and the Earnout Notes to defer the missed July 31, 2023 and October 31, 2023 principal and interest payments, each in the amount of $1,575,000 plus accrued interest, together with the principal payment in the amount of $1,575,000 plus accrued interest that is payable on January 31, 2024, all of which will now be payable on February 28, 2024. Lyneer missed the February 28, 2024 payment and is in default of the Seller Notes and Earnout Notes.

 

The January 2024 Omnibus Amendment was treated as a modification after Lyneer’s analysis according to ASC 470 and as such, Lyneer is deferring the $19,500 amendment fee and will amortize as an adjustment to interest expense over the remaining term, along with any existing unamortized costs using the effective interest method. Lyneer paid the $19,500 amendment fee and will be reimbursed from IDC. These fees were included in “capital contribution” on the accompanying consolidated statements of mezzanine capital and members’ capital (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification.

 

Credit Agreement

 

On June 18, 2024, the Company entered into a secured bridge loan (“Credit Agreement”) in the principal amount of $1,950,000 at an interest rate of 5% per annum. The maturity date of the Credit Agreement is September 30, 2024. However, mandatory prepayments shall be made from the Initial Capital Raise, on the issuance of new debt or new equity interests, or upon a change of control.

 

Promissory Note

 

From April 29, 2019 to April 29, 2020, the Company entered into a series of non-convertible promissory notes (the “Promissory Notes”) with St. Laurent Investments LLC amounting to $1,375,000. The Promissory Notes had a one-year term, most recently extended through July 31, 2025 or a later date to be mutually agreed upon. The Promissory Notes bear interest accruing at the rate of 5% per annum, and increases to 10% for the period from August 1, 2024 through July 31, 2025.

 

Merger Note

 

In connection with the closing of the Merger, we issued to IDC the Merger Note in the principal amount of $35,000,000 that will mature on September 30, 2024. The Merger Note does not bear interest and is not convertible prior to an event of default under the Merger Note. If an event of default should occur under the Merger Note, the Merger Note will bear interest at the rate of 7% per annum commencing upon the date of such event of default and will be convertible into shares of our common stock at a price per share that equals the lowest daily volume weighted average price per share (VWAP) during the five trading days immediately preceding the date on which the applicable conversion notice is delivered to us, but not less than 80% of the price per share in our Initial Capital Raise, provided, however, that the number of shares of our common stock issuable upon conversion of the Merger Note will not exceed 19.99% of the number of our outstanding shares of common stock without shareholder approval if our common stock is then listed on a National Stock Exchange. As we do not believe we will have sufficient liquidity and capital resources to pay the Merger Note in full when due, as well as to restructure our joint and several debt obligations, we believe we will have to sell additional equity or debt securities prior to the maturity date of the Merger Note to pay or refinance the Merger Note when due. However, as Prateek Gattani, our Chairman of the Board following the Merger, is also the Chief Executive Officer and controlling stockholder of IDC, we also believe we will be able to negotiate an extension of the Merger Note if we are unable to pay it in full at maturity. An event of default under the Merger Note may result in an additional event of default under the Revolver and our other indebtedness for borrowed funds.

 

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Interest Expense

 

Total interest expense is comprised of a cash and non-cash component as described in the debt arrangements described above.

 

For the three and six months ended June 30, 2024 total interest expense totaled $4,000,024 and $9,022,254, respectively. For the three and six months ended June 30, 2023 total interest expense totaled $4,032,944 and $7,723,033, respectively. Total cash paid for interest for the three and six months ended June 30, 2024 totaled $1,744,605 and $4,051,095, respectively, and $2,263,336 and $5,139,944 for the three and six months ended June 30, 2023, respectively, with the remaining portion of the interest expense as non-cash due to the PIK interest and change in values of the accrued interest liability and amortization of deferred financing costs.

 

Assessment of Liquidity Position

 

Lyneer has assessed its liquidity position as of June 30, 2024 and December 31, 2023. As of June 30, 2024 and December 31, 2023, the total committed resources available were as follows:

 

   June 30,
2024
   December 31,
2023
 
Cash and Cash Equivalents  $439,478   $1,352,927 
Committed Liquidity Resources Available:          
Short-term Revolving Credit Facility   (357,604)   (22,518,585)
Total Committed Resources Available  $81,874  $(21,165,658)

 

As noted above under the caption Liquidity and Capital Resources, pursuant to the Forbearance Agreement, following the payment of the Merger Note, Lyneer intends to replace its obligations under the Revolver with a new revolving credit facility with a borrowing capacity of up to $40,000,000. Lyneer believes the borrowing capacity under such new credit facility, its cash flow from operations and the available net proceeds from the Merger will provide sufficient liquidity and capital resources to conduct its planned operations for at least one year.

 

Related Party Transactions

 

Transactions with Lyneer Management Holdings LLC (“LMH”)

 

LMH is owned by Lyneer’s Chief Financial Officer, James Radvany, and its Chief Executive Officer, Todd McNulty, each of whom owns 44.5% of LMH. On November 15, 2022, Lyneer and IDC as co-borrowers issued Year 1 Earnout Notes to LMH with total balances of $5,127,218. The balance of the Year 1 Earnout Notes payable to LMH was $0 and $5,127,218 as of June 30, 2024 and December 31, 2023, repsectively. On January 16, 2024, Lyneer and IDC as co-borrowers issued Year 2 Earnout Notes to LMH with total balances of $2,013,041. The balance of the Year 2 Earnout Notes payable to LMH was $0 and $0 as of June 301, 2024 and December 31, 2023, respectively.

 

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The principal balance of the combined Earnout Notes payable to LMH was $0 and $5,127,218 as of June 30, 2024 and December 31, 2023, respectively, and was included in “notes payable, current” on the accompanying consolidated balance sheets. Interest expense incurred on the Earnout Notes to LMH totaled $347,766 and $236,457 for the six months ended June 30, 2024 and 2023, respectively.

 

Transactions with IDC

 

Lyneer and IDC are co-borrowers and are jointly and severally liable for principal and interest payments under the Revolver, the Term Note, the Seller Notes and the Earnout Notes. In the case of certain of those obligations, IDC generally makes certain interest and principal payments to the lenders and collects reimbursement from Lyneer. When interest or principal payments of that nature are made by IDC, Lyneer recognizes interest expense and a payable to IDC, which is removed from Lyneer’s balance sheet upon remittance of the funds to IDC.

 

Lyneer and IDC file consolidated income tax returns in certain states. In connection with this arrangement, Lyneer has recorded a liability payable to IDC for taxes payable by IDC, which represent taxes attributable to Lyneer’s operations included on consolidated state and local income tax returns filed by IDC. These amounts are calculated by determining Lyneer’s taxable income multiplied by the applicable tax rate. These amounts totaled $543,547 and $522,472 as of June 30, 2024 and December 31, 2023, respectively, and are included in “due to related parties” on the accompanying consolidated balance sheets.

 

Total amounts payable to IDC, including the above IDC taxes payable, amounted to $2,771,502 and $4,384,178 on June 30, 2024 and December 31, 2023, respectively, and are included in “due to related parties” on the accompanying consolidated balance sheets. There are no formalized repayment terms.

 

On June 18, 2024, the Company entered into a $35,000,000 Merger Note with IDC. Additionally, IDC was issued 25,423,729 shares of the Company’s common stock at a market value of $2.36 per share, or $60,000,000 in the aggregate.

 

Advance to Officer

 

The Company advanced $400,000 to Lyneer’s Chief Executive Officer in 2022. The advance was settled from a portion of the recapitalization proceeds at the closing of the Merger. This advance is recorded in “other assets” on the accompanying consolidated balance sheets as of December 31, 2023.

 

Off Balance Sheet Arrangements

 

The Company has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.

 

Critical Accounting Policies and Estimates

 

The preparation of Atlantic’s consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts and property and equipment valuation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

 

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

 

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Revenue Recognition

 

The Company derives its revenues from two service lines: temporary placement services and permanent placement and other services. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration with which Lyneer expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606 — “Revenue From Contracts with Customers” (“ASC 606”), the Company performs the following five steps: (i) it identifies the contracts with a customer; (ii) it identifies the performance obligations in the contract; (iii) it determines the transaction price; (iv) it allocates the transaction price to the performance obligations in the contract; and (v) it recognizes revenue when (or as) the Company satisfies a performance obligation.

 

Temporary Placement Services Revenue

 

Temporary placement services revenue from contracts with customers are recognized in the amount which the Company has a right to invoice when the services are rendered by its engagement professionals. The Company invoices its customers for temporary placement services concurrently with each periodic payroll which coincides with the services provided. While all customers are invoiced weekly and payment terms vary, the majority of our customers have payments terms of 30 days or less. Customers are assessed for credit worthiness upfront through a credit review, which is considered in establishing credit terms for individual customers. Revenues that have been recognized but not invoiced for temporary staffing customers are included in “unbilled accounts receivable” on the accompanying consolidated balance sheets and represent a contract asset under ASC 606. Terms of collection vary based on the customer; however, payment generally is due within 30 days.

 

Most engagement professionals placed on assignment by the Company are legally our employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers.

 

The Company records temporary placement services revenue on a gross basis as a principal, rather than on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because it (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers.

 

Permanent Placement and Other Services Revenue

 

Permanent placement and other services revenue from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment and begin work for the Company’s customers. Certain of the Company’s permanent placement contracts contain a 30-day guarantee period. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 30-day guarantee period. In the event that a candidate voluntarily leaves or is terminated for cause prior to the completion of 30 days of employment, we will provide a replacement candidate at no additional cost, as long as the placement fee is paid within 30 days of the candidate’s start date. When required, the Company defers the recognition of revenue until a replacement candidate is found and hired, and any associated collected amount is recorded as a contract liability. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates, regardless of whether the candidate is placed.

 

Contract liabilities are recorded when cash payments are received or due in advance of performance and are reflected in accounts payable and accrued expenses on the accompanying consolidated balance sheets.

 

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Intangible Assets

 

The Company’s identifiable intangible assets as of June 30, 2024 and December 31, 2023 consisted of customer relationships and tradenames and were initially recognized as a result of the Transaction and represent definite lived intangible assets. The Company does not currently have any indefinite lived intangible assets. Intangible assets are amortized using the straight-line method over their estimated useful lives.

 

In accordance with the accounting standard for the impairment or disposal of long-lived assets under ASC 360, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable (i.e., information indicates that an impairment might exist).

 

For long-lived assets to be held and used, the Company recognizes an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. For the six months ended June 30, 2024 and the year ended December 31, 2023 no impairments were recognized on our intangible assets.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company assesses, on a quarterly basis, the likelihood that deferred tax assets will be realized in accordance with the provisions of ASC Topic 740 — “Income Taxes” (“ASC 740”). ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. The assessment considers all available positive or negative evidence, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on that assessment, our management has identified certain material weaknesses in our internal control over financial reporting.

 

Prior to the Merger, we were a private company and had limited accounting and financial reporting personnel with which to address our internal controls and related procedures. Our management concluded that as of June 30, 2024, our internal control over financial reporting was not effective, and that material weaknesses existed in the areas of accounting for complex financial transaction or non-routine transactions. We currently consult with third-party experts to overcome this weakness. Additionally, we had a material weakness related to segregation of duties in finance and accounting. Due to our limited accounting and financial reporting personnel, we have ineffective controls over the period end financial disclosure and reporting process.

 

We have plans to implement measures designed to improve our internal control over the financial reporting process and plan to implement them starting in the second half of 2024.

 

Notwithstanding the material weaknesses in internal control over financial reporting described above, our management has concluded that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects .

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company may be involved in various disputes and litigation matters that arise in the ordinary course of business. Atlantic is currently not a party to any material legal proceedings, except as follows.

 

Aguilar, et al v Lyneer Staffing Solutions, et al Docket No. MID-L-3595-21 (Middlesex County Superior Court NJ)

 

On June 16, 2021, a complaint was filed in the Superior Court of New Jersey Law Division, Middlesex County. The complaint alleges a former minor employee (who obtained employment by providing false information) was injured on October 15, 2020 at the co-defendant’s worksite. Mediation was unsuccessful. A settlement conference was scheduled for July 23, 2024 but has been postponed. A new date has not yet been set. Lyneer believes it has issues for appeal, but believes it is probable to receive an unfavorable outcome and has accrued $875,000 with respect to this complaint, which is recognized in “accrued expenses and other current liabilities” on the accompanying consolidated balance sheets.

 

Item 1a. Risk Factors

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995.In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from results expressed or implied in this Quarterly Report on Form 10-Q. These forward-looking statements include, but are not limited to, statements about:

 

our expectations regarding the market size and growth potential for our business;

 

our ability to refinance our outstanding indebtedness in a timely manner to avoid a future default;

 

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our ability to generate sustained revenue or achieve profitability;

 

the pricing and expected gross margin for our services;

 

the expected benefits and synergies of the Merger;

 

the expected financial condition, results of operations, earnings outlook and prospects of our Company, Lyneer and the combined company, including any projections of sales, earnings, revenue, margins or other financial items;

 

the ability of the new management team to execute our business plan;

 

our’s and Lyneer’s business strategies and goals;

 

any statements regarding the plans, strategies and objectives of management for future operations;

 

any statements regarding future economic conditions or performance;

 

all assumptions, expectations, predictions, intentions or beliefs about future events;

 

changes in applicable laws, regulations or permits affecting our, Atlantic’s or Lyneer’s operations or the industries in which each appears;

 

general economic and geopolitical conditions;

 

our competitive position; and

 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing as necessary.

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions 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 factors described under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and under similar headings in the documents that are incorporated by reference herein. Moreover, we operate in a very competitive and rapidly changing environment.

 

New risks and uncertainties emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the effect of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

 

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The forward-looking statements made by us in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference speak only as of the date of such statement. Except to the extent required under the federal securities laws and rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.

 

Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, you are advised to consult any additional disclosures we make in the documents that we file with the SEC.

 

You should carefully consider the following risks in evaluating us and our business as well as the risks set forth in our Form 8-K for the Merger filed with the SEC on June 25, 2024. You should also refer to the other information set forth in this report, including the information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as in our consolidated financial statements the related notes. Our business prospects, financial condition or results of operations could be adversely affected by any of the following risks.

 

Risks Related to Lyneer’s Business

 

While Lyneer’s historical financial statements report net losses primarily as a result of its accounting for its acquisition by IDC in August 2021 and in 2024 for transaction costs in connection with the Merger, there can be no assurance of profitability post-Merger.

 

Atlantic has reported a net loss of $59,778,563 for the six-month period ended June 30, 2024 and net losses of $15,252,020 and $3,221,058 for the years ended December 31, 2023 and 2022, respectively. The consolidated financial statements of Lyneer since August 31, 2021 reflect the post-acquisition activity of Lyneer since its acquisition by IDC. The loss for the six-months ended June 30, 2024, resulted primarily from: (i) selling, general and administrative costs of $28,894,187 due primarily to higher transaction costs related to the Merger, (ii) $43,000,000 of stock based compensation paid to the shareholders of Atlantic Acquisition Corp. for advisory services in connection with the Merger and (iii) $15,607,737 related to a potential settlement for legacy shareholders and stock compensation expense related to third parties as advisors to the Company. There can be no assurance that Lyneer will operate profitably in the future.

 

Lyneer has a significant amount of debt obligations and its failure to restructure or pay such obligations when due could have a material adverse impact on Lyneer’s financial condition and long-term viability.

 

In addition to the Merger Note to IDC, in the principal amount of $35 million, at the closing of the Merger, Lyneer’s existing debt obligations currently include all of the debt obligations of IDC as a co-borrower as all of the loan arrangements entered into by Lyneer and IDC provide that such parties are jointly and severally liable for the full amount of the indebtedness. While Lyneer is legally jointly and severally liable for IDC’s debt obligations, as of the date of the Merger, the Company deconsolidated its joint and several debt obligations as it is reasonably probable that IDC has the ability to repay their portion. At June 30, 2024, such indebtedness totaled approximately $104,045,357. The joint indebtedness of Lyneer and IDC is made up of a revolving credit facility and a term loan from their senior lenders and promissory notes that are payable to the two prior owners of Lyneer. Currently, and until such obligations are either repaid in full or restructured by the lenders to release Lyneer as an obligor on such indebtedness, if IDC cannot, or does not, repay any portion of the debt owed by IDC, Lyneer could be responsible for repaying all of the outstanding obligations and Lyneer’s current operations are not expected to be sufficient to make all of the necessary payments. Pursuant to an Allocation Agreement dated as of December 31, 2023, IDC agreed with Lyneer to assume responsibility for all payments under the term loan and the promissory notes payable to the two prior owners of Lyneer (the “Assumed Debt”), and all but $40,163,261 that was outstanding under the revolving credit facility as of June 30, 2024. However, until such time as Lyneer’s joint and several debt obligations are restructured, the agreement of IDC to assume all but Lyneer’s $40,163,261 of the joint indebtedness is being given effect solely for accounting purposes, although Lyneer will remain a joint and several obligor on such indebtedness and will be obligated to pay such indebtedness if IDC does not do so.

 

50

 

 

In addition, under the Allocation Agreement, IDC and Prateek Gattani, IDC’s Chief Executive Officer and our Chairman of the Board, have agreed for IDC to work with Lyneer to implement a plan to refinance or otherwise satisfy the Assumed Debt and to restructure their revolving credit facility with current credit availability of up to $60,000,000 for which Lyneer is currently jointly and severally liable with IDC so that Lyneer will be obligated for only its portion under the facility. Lyneer intends to enter into a new revolving credit facility with its current lender or a new lender that will be supportable by Lyneer’s stand-alone borrowing base and is expected to be on terms similar to those of the existing agreement. It is contemplated that the new credit facility will provide credit availability to Lyneer of up to $40,000,000 and will replace Lyneer’s remaining obligations under the existing revolving credit facility. However, there can be no assurance that Lyneer will be able to support its continuing indebtedness, to generate revenues sufficient in amount to enable us to pay our indebtedness under the Merger Note, or to repay or refinance any such indebtedness when due. Lyneer’s failure to comply with its obligations under its existing indebtedness following the Merger, or to repay or refinance such indebtedness when due, including our indebtedness under the Merger Note, would likely have a material adverse impact on our financial condition and long-term viability.

 

Lyneer will remain jointly and severally liable for the Assumed Debt until such indebtedness is restructured to remove Lyneer as an obligor or such indebtedness is paid in full.

 

As described in the previous risk factor, notwithstanding the deconsolidation of debt for accounting purposes, Lyneer will remain legally jointly and severally liable as a co-borrower with IDC on all loan arrangements for which they are now jointly liable until such time as such loan arrangements are restructured or paid in full. The assets of Lyneer have been pledged to the senior lender under the revolving credit facility and, in connection with the closing of the Merger, were pledged to the lender under the term loan our equity interests in Lyneer, our sole operating subsidiary, as collateral for the repayment of such loan. In the event Lyneer or IDC is unable to restructure or repay their joint and several indebtedness by September 30, 2024, or there occurs any other event of default under the revolving credit facility or the term loan, including, but not limited to completion of an Initial Capital Raise (as defined) by September 15, 2024, the lenders under the revolving credit facility and the term loan will be able to foreclose upon the equity and assets of Lyneer, which could result in a loss of your investment. Notwithstanding the fact that IDC and Prateek Gattani have agreed to repay the joint and several indebtedness under the Allocation Agreement, in the event that IDC cannot or will not repay any of such indebtedness, Lyneer may be required to make such payments. In such event, IDC would then be required to repay Lyneer for the amounts paid on IDC’s behalf. The failure of IDC to either restructure the existing joint and several obligations to remove Lyneer as a co-borrower and/or to repay the joint and several indebtedness could have a material adverse impact on Lyneer’s financial condition and its long-term viability and the market price of our common stock.

 

Lyneer has been in default under its principal credit facilities and outstanding promissory notes and any additional or future defaults by Lyneer under its credit facilities could have a material adverse impact on Lyneer’s financial condition and long-term viability.

 

Lyneer has entered into several debt facilities under which it is jointly and severally liable for repayment with IDC. Lyneer was not in compliance with all of its covenants under its revolving credit facility as of June 30, 2023. Since July 2023, Lyneer has entered into forbearance agreements with its lenders pursuant to which it received waivers of its exiting events of default.

 

On August 12, 2024, IDC and Lyneer entered into new limited consent and forbearance agreements with the lenders under which the lenders agreed, to waive all existing events of default and to forbear from exercising their rights and remedies and any Initial Capital Raise with respect to such events of default through September 30, 2024. However, if we are unable to complete an Initial Capital Raise of at least $20 million prior to September 15, 2024, or there occurs any other event of default under the revolving credit facility or the term loan, IDC and Lyneer will again be in default under their revolving credit facility and the note obligations, which would likely have a material adverse effect on Lyneer’s financial condition and long-term viability. Even if IDC pays in full the term loan and the promissory notes payable to the prior sellers of Lyneer and Lyneer is successful in restructuring its obligations under the revolving credit facilities, there can be no assurance that all conditions subsequent will be satisfied and that Lyneer will be able to comply with all of its obligations under such credit facilities. Any failure on the part of Lyneer to comply with its obligations under the credit facilities could result in a default which would be expected to have a material adverse impact on Lyneer’s financial condition and its long-term viability. See Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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General Risks Affecting Our Business

 

We will be required to raise additional funds prior to the maturity date of the Merger Note to repay such note and our other outstanding indebtedness and to support our future capital needs.

 

We believe our cash on hand and cash generated from operations, will not be sufficient to pay the Merger Note and our other outstanding indebtedness in full when due and to fund our ongoing operations. As stated above, Lyneer has been in default under its principal credit facilities and outstanding promissory notes and any future defaults by Lyneer under its credit facilities could have a material adverse impact on Lyneer’s financial condition and long-term viability. Under the forbearance agreements dated August 12, 2024, we are required to seek at least $20 million future financing prior to September 15, 2024, and on or before September 30, 2024, to restructure the outstanding indebtedness that is the subject of such forbearance agreements. In addition, we are required to seek additional financing prior to September 30, 2024, the maturity date of the Merger Note, to repay the Merger Note when due. Thereafter, we will be required to seek financing to pay or refinance our other outstanding indebtedness.

 

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. Our ability to obtain additional financing will be subject to market conditions, our operating performance and investor sentiment, among other factors. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing may contain terms that are not favorable to us or our stockholders.

 

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders. The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then-outstanding. We may issue additional shares of our common stock or securities convertible into or exchangeable or exercisable for our common stock in connection with hiring or retaining personnel, option or warrant exercises, future acquisitions or future placements of our securities for capital-raising or other business purposes. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.

 

In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.

 

Furthermore, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and we ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

 

52

 

 

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

 

An aggregate of 48,728,813 shares of common stock were issued on June 18, 2024 in connection with the Merger and reported on Form 8-K filed with the SEC on July 25, 2024.

 

Item 3. Defaults Upon Senior Securities.

 

Any material default in the payment of principal and interest with respect to indebtedness of the Company’s significant subsidiaries has been cured within 30 days of such default.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit
Number
  Description
2.1   Amended and Restated Agreement and Plan of Reorganization dated as of June 4, 2024 (1)
2.2   Amendment No. 1 to Amended and Restated Agreement and Plan of Reorganization dated as of June 12, 2024 (2)
2.3   Certificate of Merger of Atlantic Merger LLC with and into Lyneer Investments LLC (3)
2.4   Certificate of Merger of SeqLL Merger LLC with and into Lyneer Investments LLC (3)
3.1   Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation of SeqLL Inc. (2)
*10.1   Ninth Amendment to ABL Credit Agreement and Forbearance Agreement**
*10.2   Tenth Amendment to Loan Agreement and Forbearance Agreement**
*31.1   Rule 13a-14(1) Certification of the Chief Executive Officer
*31.2   Rule 13a-14(1) Certification of the Chief Financial Officer
*32.1   Certification Pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted pursuant to Section 9006 of the Sarbanes-Oxley Act of 2002.
*32.2   Certification Pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted pursuant to Section 9006 of the Sarbanes-Oxley Act of 2002.
*101   Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.

 

*Filed with this Report.

**Schedules, exhibits and similar supporting attachments to this exhibit are omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

 

(1)Incorporated by reference to the Issuer’s Current Report on Form 8-K filed with the SEC on June 6, 2024.
(2)Incorporated by reference to the Issuer’s Current Report on Form 8-K filed with the SEC on June 18, 2024.
(3)Incorporated by reference to the Issuer’s Current Report on Form 8-K filed with the SEC on June 25, 2024.

 

53

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Atlantic International Corp.
       
Date: August 14, 2024 By: /s/ Chris Broderick
      Chris Broderick
      Chief Operating Officer and Chief Financial Officer

 

 

54

 

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Exhibit 10.1

 

Execution Version

 

NINTH AMENDMENT TO ABL CREDIT AGREEMENT AND FORBEARANCE AGREEMENT

 

THIS NINTH AMENDMENT TO ABL CREDIT AGREEMENT AND FORBEARANCE AGREEMENT (this “Ninth Amendment”), dated as of August 12, 2024, among IDC TECHNOLOGIES, INC., a California corporation (IDC”), LYNEER INVESTMENTS, LLC, a Delaware limited liability company (“Lyneer Investments”), LYNEER HOLDINGS, INC., a Delaware corporation (“Lyneer Holdings”), LYNEER STAFFING SOLUTIONS, LLC, a Delaware limited liability company (Lyneer Staffing”, and together with IDC, Lyneer Investments and Lyneer Holdings, each a “Borrower” and collectively, the “Borrowers”), the other Guarantors party hereto, the Lenders party hereto and BMO BANK N.A. (f/k/a BMO HARRIS BANK N.A.), as Administrative Agent (the “Administrative Agent”). Unless otherwise indicated, all capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement or the Amended Credit Agreement referred to below, as applicable.

 

PRELIMINARY STATEMENTS

 

WHEREAS, the Borrowers, the Administrative Agent, the Lender and the other parties thereto have entered into that certain ABL Credit Agreement, dated as of August 31, 2021 (and as amended, restated, amended and restated, supplemented and/or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”; and the Credit Agreement as amended by this Ninth Amendment, the “Amended Credit Agreement”);

 

WHEREAS, certain Events of Default have occurred and are continuing pursuant to (i) Section 9.01(a) of the Credit Agreement due to the Borrowers’ breach of Section 2.06(b)(vi) of the Credit Agreement by failing to repay an Overadvance in the amount of $4,662,495 (as set forth in the Borrowing Base Certificate delivered by the Borrowers for the period ending May 31, 2024), (ii) Section 9.01(b) of the Credit Agreement due to the Borrowers’ breach of Section 7.23(c) of the Credit Agreement by failing to consummate the “Initial Capital Raise” (as defined in the Credit Agreement) on or before May 15, 2024 and apply the proceeds thereof as specified therein, (iii) Section 9.01(b) of the Credit Agreement due to the Borrowers’ breach of Section 7.23(d) of the Credit Agreement by failing to have completed presentations by their respective management teams on or before May 22, 2024 to potential buyers under a sale and potential lenders in respect of a refinancing transaction resulting in Payment in Full of all Obligations, (iv) Section 9.01(b) of the Credit Agreement due to the Borrowers’ breach of Section 7.23(e) of the Credit Agreement by failing to deliver to the Administrative Agent an executed letter of intent related to the “Sale/Refinancing” (as defined in the Credit Agreement), (v) Section 9.01(b) of the Credit Agreement due to the Borrowers’ breach of Section 8.12(d) for each of the calendar weeks beginning with the calendar week ended May 10, 2024, (vi) Section 9.01(b) of the Credit Agreement due to the Borrowers’ breach of Section 8.12(e) as of May 10, 2024 and (vii) Section 9.01(b) of the Credit Agreement as a result of Borrowers’ failure to comply with Section 7.03(a) of the Credit Agreement with respect to the defaults described in the foregoing clauses (i) - (vi) (collectively, and together with the “Specified Events of Default” identified in the Seventh Amendment, the “Specified Events of Default”); and

 

WHEREAS, the parties hereto have agreed, subject to the satisfaction of the conditions precedent to effectiveness set forth in Section 5 hereof and the terms and conditions set forth in the Amended Credit Agreement, to (i) forbear with respect to the Specified Events of Default, (ii) amend certain terms of the Credit Agreement as hereinafter provided and (iii) consent to the Initial Capital Raise.

 

 

 

 

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged by each party hereto, it is agreed that:

 

SECTION 1. Forbearance in Respect of SPECIFIED EVENTS OF Default.

 

(a) Acknowledgment of Defaults. The Loan Parties hereby acknowledge and agree that the Specified Events of Default have occurred and are continuing, constitute Events of Default, and entitle Administrative Agent and each Lender to exercise its rights and remedies under the Loan Documents, applicable law or otherwise, including, without limitation, by exercising the right to declare the Obligations to be immediately due and payable under the terms of the Loan Documents. The Loan Parties represent and warrant that as of the date hereof, no other Events of Default exist other than the Specified Events of Default.

 

(b) Forbearance. In reliance upon the representations, warranties and covenants of the Loan Parties contained in this Ninth Amendment, and subject to the terms and conditions of this Ninth Amendment and any documents or instruments executed in connection herewith, Administrative Agent and Lenders agree to forbear from exercising their rights and remedies under the Loan Documents, applicable law or otherwise in respect of or arising out of the Specified Events of Default, for the period (the “Ninth Amendment Forbearance Period”) commencing on the date hereof and ending on the date which is the earlier of: (i) September 30, 2024 or (ii) the occurrence or existence of any Event of Default, other than the Specified Events of Default; provided that, for the avoidance of doubt, the Administrative Agent and Lenders have absolutely no obligation to make any additional Overadvance Loans as of the date hereof. Upon the termination of the Ninth Amendment Forbearance Period, the agreement of Administrative Agent and Lenders to forbear shall automatically and without further action terminate and be of no force and effect, it being expressly agreed that the effect of such termination will be to permit Administrative Agent and Lenders to exercise immediately all rights and remedies under the Loan Documents and applicable law, including, but not limited to, (i) ceasing to make any further Loans and (ii) accelerating all of the Obligations; in each case without any further notice to any Loan Party, passage of time or forbearance of any kind.

 

(c) No Other Waivers; Reservation of Rights. Neither the Administrative Agent nor any Lender has waived, is by this Ninth Amendment waiving, or has any intention of waiving, any Events of Default which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Specified Events of Default or otherwise), and neither the Administrative Agent nor any Lender has agreed to forbear with respect to any of its rights or remedies concerning any other Events of Default (other than, during the Ninth Amendment Forbearance Period, the Specified Events of Default to the extent expressly set forth herein), occurring at any time. Subject to Section 1(b) above (solely with respect to the Specified Events of Default), Administrative Agent and each Lender reserves the right, in its discretion, to exercise any or all of its rights and remedies under the Amended Credit Agreement and the other Loan Documents as a result of any other Events of Default occurring at any time. Neither the Administrative Agent nor any Lender has waived any of such rights or remedies, and nothing in this Ninth Amendment, and no delay on its part in exercising any such rights or remedies, should be construed as a waiver of any such rights or remedies. Other than as expressly set forth in Section 6 below, neither the Administrative Agent nor any Lender has consented to, or is by this Ninth Amendment consenting to, any Change of Control with respect to any Loan Party.

 

(d) Additional Events of Default. The parties hereto acknowledge, confirm and agree that any misrepresentation by any Loan Party, any failure of any Loan Party to comply with the covenants, conditions and agreements contained in this Ninth Amendment, or the occurrence of any Event of Default under the Amended Credit Agreement, any other Loan Documents or any other agreement, document or instrument at any time executed and/or delivered by Loan Party with, to or in favor of Administrative Agent or any Lender shall constitute an Event of Default under this Ninth Amendment, the Amended Credit Agreement and the other Loan Documents.

 

2

 

 

SECTION 2. Amendments to Credit Agreement. Subject to the satisfaction of the conditions set forth in Section 5 hereof, as of the Ninth Amendment Effective Date the Credit Agreement (excluding all Schedules and Exhibits, which shall remain in the form most recently delivered) is hereby amended by (i) deleting the stricken text (indicated textually in the same manner as the following example: stricken text), and (ii) adding the double underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the amended Credit Agreement attached hereto as Exhibit A.

 

SECTION 3. Reference to and Effect on the Credit Agreement. On and after the Ninth Amendment Effective Date, (i) each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or text of like import referring to the Credit Agreement shall mean and be a reference to the Amended Credit Agreement and (ii) all references in the Credit Agreement and each of the other Loan Documents shall be deemed to be references to the Amended Credit Agreement. On and after the effectiveness of this Ninth Amendment, this Ninth Amendment shall for all purposes constitute a “Loan Document” under and as defined in the Credit Agreement and the other Loan Documents.

 

SECTION 4. Representations & Warranties. The Loan Parties hereby represent and warrant to the Lenders party hereto and the Administrative Agent that:

 

(a) after giving effect to this Ninth Amendment, the representations and warranties contained in the Amended Credit Agreement and in the other Loan Documents are true and correct on and as of the Ninth Amendment Effective Date, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and except that for purposes of this Section 4(a), the representations and warranties contained in subsections (a) and (b) of Section 6.05 of the Amended Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 7.01 of the Amended Credit Agreement; and

 

(b) after giving effect to this Ninth Amendment, no Event of Default shall have occurred and be continuing as of the Ninth Amendment Effective Date.

 

SECTION 5. Conditions Precedent. This Ninth Amendment shall become effective as of the first date (the “Ninth Amendment Effective Date”) when each of the conditions set forth in this Section 5 shall have been satisfied:

 

(a) the Administrative Agent’s shall have received counterparts of this Ninth Amendment executed by the Borrowers, each other Loan Party, the Administrative Agent and the Lenders;

 

(b) the Administrative Agent shall have received an executed consent and amendment to the Term Loan Credit Agreement, dated as of the Ninth Amendment Effective Date, in form and substance satisfactory to the Administrative Agent, and consenting to this Ninth Amendment;

 

(c) the Administrative Agent shall have received an officer’s certificate for each Loan Party certifying as to (i) resolutions of the Board of Directors or other organizational action authorizing execution and delivery of this Ninth Amendment and performance of this Ninth Amendment and all Loan Documents to which such Loan Party is a party and (ii) incumbency of officers (including specimen signatures) evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Ninth Amendment and the other Loan Documents to which such Loan Party is a party;

 

3

 

 

(d) the Administrative Agent shall have received an updated Budget (as defined in the Credit Agreement), in form and substance satisfactory to the Administrative Agent, which Budget is attached hereto as Exhibit B (the “Ninth Amendment Budget”); and

 

(e) the Administrative Agent shall have received an executed letter of direction from the Borrower Agent, directing it to make certain Revolving Credit Loans to pay certain fees and expenses (including all out-of-pocket costs) of counsel to the Administrative Agent.

 

SECTION 6. Reaffirmation AND ACKNOWLEDGMENT.

 

By executing and delivering a copy hereof:

 

(i) each Loan Party and Prateek Gattani, as an individual, hereby agrees that all Obligations (including any Loans made on the Ninth Amendment Effective Date and all fees and other amounts due and payable under the Fee Letters (as defined in the Amended Credit Agreement)) shall be guaranteed pursuant to the Guarantee in accordance with the terms and provisions thereof and shall be secured pursuant to the Security Instruments in accordance with the terms and provisions thereof;

 

(ii) each Loan Party and Prateek Gattani, as an individual, hereby (A) agrees that, after giving effect to this Ninth Amendment, the Guarantee and the Liens granted pursuant to the Security Instruments for the benefit of the Secured Parties continue to be in full force and effect and (B) affirms, acknowledges and confirms all of its obligations and liabilities under the Amended Credit Agreement and each other Loan Document to which it is a party, in each case after giving effect to this Ninth Amendment;

 

(iii) each Loan Party acknowledges, confirms and agrees that, as of the Ninth Amendment Effective Date, the amount of the Obligations consisting of fees and other amounts due and payable by the Loan Parties under the Fee Letters, and guaranteed by Prateek Gattani, constitutes $2,950,000;

 

(iv) each Loan Party acknowledges, confirms and agrees that it is jointly and severally liable for, and each Loan Party and Prateek Gattani absolutely and unconditionally guarantees to the Administrative Agent and Lenders, all Obligations (including, without limitation, all Obligations of all of the Borrowers and other Loan Parties, including, without limitation, all Obligations under the Fee Letters), except Excluded Swap Obligations, and all agreements under the Loan Documents as contemplated pursuant to Section 2.15 of the Amended Credit Agreement;

 

(v) each Loan Party and the Term Loan Administrative Agent hereby agrees that the execution and delivery of this Ninth Amendment shall not affect the existence of the ABL Payment Default (as defined in the Intercreditor Agreement) referenced in that certain letter from the Administrative Agent to the Term Loan Administrative Agent dated as of July 21, 2023, and that accordingly no Loan Party may make and no Term Loan Secured Party (as defined in the Intercreditor Agreement) may accept any payment described in clause (a) of the definition of “Permitted Term Loan Debt Payment” appearing in the Intercreditor Agreement while such ABL Payment Default is continuing; and

 

(vi) each Loan Party and the Term Loan Administrative Agent (A) hereby agrees on behalf of itself and the lenders party to the Term Loan Credit Agreement, that notwithstanding any provision of the Term Loan Debt Documents or the Intercreditor Agreement to the contrary, from and after the consummation date of the Lyneer Merger Transactions until Payment in Full neither the Term Loan Administrative Agent nor any lender party to the Term Loan Credit Agreement shall be entitled to any cash payments from the Loan Parties or Prateek Gattani in respect of the Term Loan Obligations and the Term Loan Administrative Agent agrees that it will turn over any cash payments received by the Term Loan Administrative Agent from the Loan Parties or Prateek Gattani to the Administrative Agent to be applied to any then-outstanding Revolving Credit Loans and (B) hereby consents to the amendments to the Credit Agreement contemplated by this Amendment on behalf of itself and the lenders party to the Term Loan Credit Agreement, notwithstanding any provision of the Term Loan Debt Documents or the Intercreditor Agreement to the contrary.

 

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SECTION 7. Miscellaneous Provisions.

 

(a) Ratification. This Ninth Amendment is limited to the matters expressly specified herein and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Credit Agreement or any other Loan Document or instruments securing the same, which shall remain in full force and effect as modified hereby or by instruments executed concurrently herewith.

 

(b) Governing Law; Submission to Jurisdiction, Etc. THIS NINTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). SECTION 11.14 OF THE CREDIT AGREEMENT IS INCORPORATED BY REFERENCE HEREIN AS IF SUCH SECTION APPEARED HEREIN, MUTATIS MUTANDIS.

 

(c) Counterparts; Headings. This Ninth Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. This Ninth Amendment may be executed by means of (i) an electronic signature that complies with the federal Electronic Signatures in Global and National Commerce Act, state enactments of the Uniform Electronic Transactions Act, or any other relevant and applicable electronic signatures law; (ii) an original manual signature; or (iii) a faxed, scanned, or photocopied manual signature. Each electronic signature or faxed, scanned, or photocopied manual signature shall for all purposes have the same validity, legal effect, and admissibility in evidence as an original manual signature.

 

(d)   General Release. In consideration of the Administrative Agent’s and Lenders’ willingness to enter into this Ninth Amendment, each Loan Party and Prateek Gattani (“Gattani”) hereby releases and forever discharges the Administrative Agent, the Lenders and the Administrative Agent’s, and the Lender’s respective predecessors, successors, assigns, officers, managers, directors, employees, agents, attorneys, representatives, and affiliates (hereinafter all of the above collectively referred to as the “Lender Group”), from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, which any Loan Party or which Gattani may have or claim to have against any of the Lender Group in any way related to or connected with the Loan Documents and the transactions contemplated thereby, but solely with respect to events or matters occurring on or prior to the Ninth Amendment Effective Date. Each of the Loan Parties and Gattani expressly acknowledges that although ordinarily a general release may not extend to claims or causes of action that any Loan Party and Gattani does not know or suspect to exist in its favor, which if known by it may have materially affected its agreement hereunder, they have carefully considered, and taken into account in determining to enter into the above releases, the possible existence of such unknown losses or claims or causes of Action. Without limiting the generality of the foregoing, each Loan Party and Gattani expressly waives and relinquishes any and all rights and benefits such party may have or conferred upon it under any federal, state, or local statute, rule, regulation, or principle of common law or equity that provides that a release does not extend to claims or causes of action that the claimant does not know or suspect to exist in its favor at the time of providing the release or that may in any way limit the effect or scope of the releases with respect to released claims or causes of action that such party did not know or suspect to exist in such party’s favor at the time of providing the release, which in each case if known by it may have materially affected its agreement hereunder, including, without limitation, California Civil Code § 1542, which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.

 

Each of the Loan Parties and Gattani expressly acknowledges that the releases contained herein are effective regardless of whether those released matters or released claims or causes of action are presently known or unknown, suspected or unsuspected, or foreseen or unforeseen.

 

[Remainder of page intentionally blank; signatures begin next page]

 

5

 

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Ninth Amendment as of the date first above written.

 

BORROWERS: IDC TECHNOLOGIES, INC., a California corporation
   
  By: /s/ Prateek Gattani
  Name: Prateek Gattani
  Title: President and Chief Executive Officer
   
  LYNEER INVESTMENTS, LLC, a Delaware limited liability company
   
  By: /s/ Christopher Broderick
  Name: Christopher Broderick
  Title: Chief Financial Officer
   
  LYNEER HOLDINGS, INC., a Delaware corporation
   
  By: /s/ Christopher Broderick
  Name:  Christopher Broderick
  Title: Chief Financial Officer
   
  LYNEER STAFFING SOLUTIONS, LLC, a Delaware limited liability company
   
  By: /s/ Christopher Broderick
  Name: Christopher Broderick
  Title: Chief Financial Officer

 

Signature Page to
Ninth Amendment to ABL Credit Agreement

 

 

 

 

AGREED AND ACKNOWLEDGED SOLELY WITH RESPECT TO SECTIONS 6 AND 7(d) HEREOF:

 

PRATEEK GATTANI, as an individual  
   
By: /s/ Prateek Gattani  

 

Signature Page to
Ninth Amendment to ABL Credit Agreement

 

 

 

 

AGREED AND ACKNOWLEDGED SOLELY WITH RESPECT TO SECTION 6 HEREOF:

 

SPP CREDIT ADVISORS LLC, a Delaware limited liability company

 

By: /s/ C. Todd Kumble  
Name:   C. Todd Kumble  
Title: Treasurer  

 

Signature Page to
Ninth Amendment to ABL Credit Agreement

 

 

 

 

  BMO BANK N.A., as Administrative Agent and a Lender
   
  By: /s/ Joseph Basa
  Name:  Joseph Basa
  Title: Vice President

 

Signature Page to
Ninth Amendment to ABL Credit Agreement

 

 

 

 

  THE HUNTINGTON NATIONAL BANK, as a Lender
   
  By:

/s/ Glenn P. Bartley

  Name:  Glenn P. Bartley
  Title: Senior Vice President

 

Signature Page to
Ninth Amendment to ABL Credit Agreement and Forbearance Agreement

  

 

 

Exhibit 10.2

 

Executed version

 

TENTH AMENDMENT TO LOAN AGREEMENT AND
FORBEARANCE AGREEMENT

 

THIS TENTH AMENDMENT TO LOAN AGREEMENT AND FORBEARANCE AGREEMENT (this “Tenth Amendment”), dated as of August 12, 2024, among IDC TECHNOLOGIES, INC., a California corporation (IDC”), LYNEER INVESTMENTS, LLC, a Delaware limited liability company (“Lyneer Investments”), LYNEER HOLDINGS, INC., a Delaware corporation (“Lyneer Holdings”), LYNEER STAFFING SOLUTIONS, LLC, a Delaware limited liability company (Lyneer Staffing”, and together with IDC, Lyneer Investments and Lyneer Holdings, each a “Borrower” and collectively, the “Borrowers”), the other Guarantors party hereto, the Lenders party hereto and SPP CREDIT ADVISORS LLC, as Agent (the “Agent”). Unless otherwise indicated, all capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Loan Agreement or the Amended Loan Agreement referred to below, as applicable.

 

PRELIMINARY STATEMENTS

 

WHEREAS, the Borrowers, the Agent, the Lender and the other parties thereto have entered into that certain Loan Agreement, dated as of August 31, 2021 (and as amended, restated, amended and restated, supplemented and/or otherwise modified from time to time prior to the date hereof, the “Loan Agreement”; and the Loan Agreement as amended by this Tenth Amendment, the “Amended Loan Agreement”);

 

WHEREAS, certain Events of Default have occurred and are continuing or are anticipated to occur pursuant to (i) Section 9.01(a) of the Loan Agreement as a result of Borrowers’ failure to pay interest due on October 1, 2023 and January 2, 2024 under Section 2.08(c) of the Loan Agreement, (ii) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 7.23(a) of the Loan Agreement by failing to deliver to consummate the “Initial Capital Raise” (as defined in the Loan Agreement) on or before May 15, 2024 and apply the proceeds thereof as specified therein, (iii) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 7.23(d) of the Loan Agreement by failing to have completed presentations by their respective management teams on or before May 22, 2024 to potential buyers under a sale and potential lenders in respect of a refinancing transaction resulting in Payment in Full of all Obligations, (iv) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 7.23(e) of the Loan Agreement by failing to deliver to the Agent an executed letter of intent related to the “Sale/Refinancing” (as defined in the Loan Agreement) on or before May 29, 2024, (v) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 8.12(a) of the Loan Agreement for each of the Measurement Periods beginning with the Measurement Period ending May 31, 2024, (vi) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 8.12(b) of the Loan Agreement for each of the Measurement Periods beginning with the Measurement Period ending May 31, 2024, (vii) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 8.12(c) of the Loan Agreement for each of the Measurement Periods beginning with the Measurement Period ending May 31, 2024, (viii) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 8.12(g) of the Loan Agreement for each of the calendar weeks beginning with the calendar week ended May 10, 2024, (ix) Section 9.01(b) of the Loan Agreement due to the Borrowers’ breach of Section 8.12(h) as of May 10, 2024, (x) Section 9.01(b) of the Loan Agreement as a result of Borrowers’ failure to comply with Section 7.03(a) of the Loan Agreement with respect to the defaults described in the foregoing clauses (i) – (ix) and (xi) any prospective Event of Default resulting from any future default to comply with the financial covenants set forth in Section 8.12 of the Loan Agreement from the Tenth Amendment Effective Date through the date of the Initial Capital Raise (collectively, and together with the “Specified Events of Default” idenfitied in the Ninth Amendment, the “Specified Events of Default”); and

 

 

 

 

WHEREAS, the parties hereto have agreed, subject to the satisfaction of the conditions precedent to effectiveness set forth in Section 5 hereof and the terms and conditions set forth in the Amended Loan Agreement, to (i) forbear with respect to the Specified Events of Default, (ii) amend certain terms of the Loan Agreement as hereinafter provided and (iii) consent to the Initial Capital Raise;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged by each party hereto, it is agreed that:

 

SECTION 1. FORBEARANCE IN RESPECT OF SPECIFIED EVENTS OF DEFAULT.

 

(a) Acknowledgment of Defaults. The Loan Parties hereby acknowledge and agree that the Specified Events of Default have occurred and are continuing, constitute Events of Default, and entitle the Agent and each Lender to exercise its rights and remedies under the Loan Documents, applicable law or otherwise, including, without limitation, by exercising the right to declare the Obligations to be immediately due and payable under the terms of the Loan Documents. The Loan Parties represent and warrant that as of the date hereof, no other Events of Default exist other than the Specified Events of Default.

 

(b) Forbearance. In reliance upon the representations, warranties and covenants of the Loan Parties contained in this Tenth Amendment, and subject to the terms and conditions of this Tenth Amendment and any documents or instruments executed in connection herewith, the Agent and Lenders agree to forbear from exercising their rights and remedies under the Loan Documents, applicable law or otherwise in respect of or arising out of the Specified Events of Default, for the period (the “Tenth Amendment Forbearance Period”) commencing on the date hereof and ending on the date which is the earlier of: (i) September 30, 2024 or (ii) the occurrence or existence of any Event of Default, other than the Specified Events of Default. Upon the termination of the Tenth Amendment Forbearance Period, the agreement of the Agent and Lenders to forbear shall automatically and without further action terminate and be of no force and effect, it being expressly agreed that the effect of such termination will be to permit the Agent and Lenders to exercise immediately all rights and remedies under the Loan Documents and applicable law, including, but not limited to, (i) ceasing to make any further Loans and (ii) accelerating all of the Obligations; in each case without any further notice to any Loan Party, passage of time or forbearance of any kind.

 

(c) No Other Waivers; Reservation of Rights. Neither the Agent nor any Lender has waived, is by this Tenth Amendment waiving, or has any intention of waiving, any Events of Default which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Specified Events of Default or otherwise), and neither the Agent nor any Lender has agreed to forbear with respect to any of its rights or remedies concerning any other Events of Default (other than, during the Tenth Amendment Forbearance Period, the Specified Events of Default to the extent expressly set forth herein), occurring at any time. Subject to Section 1(b) above (solely with respect to the Specified Events of Default), the Agent and each Lender reserves the right, in its discretion, to exercise any or all of its rights and remedies under the Amended Loan Agreement and the other Loan Documents as a result of any other Events of Default occurring at any time. Neither the Agent nor any Lender has waived any of such rights or remedies, and nothing in this Tenth Amendment, and no delay on its part in exercising any such rights or remedies, should be construed as a waiver of any such rights or remedies. Other than as expressly set forth in Section 6 below, neither the Agent nor any Lender has consented to, or is by this Tenth Amendment consenting to, any Change of Control with respect to any Loan Party.

 

(d) Additional Events of Default. The parties hereto acknowledge, confirm and agree that any misrepresentation by any Loan Party, any failure of any Loan Party to comply with the covenants, conditions and agreements contained in this Tenth Amendment, or the occurrence of any Event of Default under the Amended Loan Agreement, any other Loan Documents or any other agreement, document or instrument at any time executed and/or delivered by Loan Party with, to or in favor of the Agent or any Lender shall constitute an Event of Default under this Tenth Amendment, the Amended Loan Agreement and the other Loan Documents.

 

2

 

 

SECTION 2. Amendments to Loan Agreement. Subject to the satisfaction of the conditions set forth in Section 5 hereof, as of the Tenth Amendment Effective Date, the Loan Agreement (excluding all Schedules and Exhibits, which shall remain in the form most recently delivered) is hereby amended by (i) deleting the stricken text (indicated textually in the same manner as the following example: stricken text), and (ii) adding the double underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the amended Loan Agreement attached hereto as Exhibit A.

 

SECTION 3. Reference to and Effect on the Loan Agreement. On and after the Tenth Amendment Effective Date, (i) each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or text of like import referring to the Loan Agreement shall mean and be a reference to the Amended Loan Agreement and (ii) all references in the Loan Agreement and each of the other Loan Documents shall be deemed to be references to the Amended Loan Agreement. On and after the effectiveness of this Tenth Amendment, this Tenth Amendment shall for all purposes constitute a “Loan Document” under and as defined in the Loan Agreement and the other Loan Documents.

 

SECTION 4. Representations & Warranties. The Loan Parties hereby represent and warrant to the Lenders party hereto and the Agent that:

 

(a) after giving effect to this Tenth Amendment, the representations and warranties contained in the Amended Loan Agreement and in the other Loan Documents are true and correct on and as of the Tenth Amendment Effective Date, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and except that for purposes of this Section 4(a), the representations and warranties contained in subsections (a) and (b) of Section 6.05 of the Amended Loan Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 7.01 of the Amended Loan Agreement; and

 

(b) after giving effect to this Tenth Amendment, no Event of Default shall have occurred and be continuing as of the Tenth Amendment Effective Date.

 

SECTION 5. Conditions Precedent. This Tenth Amendment shall become effective as of the first date (the “Tenth Amendment Effective Date”) when each of the conditions set forth in this Section 5 shall have been satisfied:

 

(a) the Agent shall have received counterparts of this Tenth Amendment executed by the Borrowers, each other Loan Party, the Agent and the Lenders;

 

(b) the Agent shall have received an executed copy of a consent and amendment to the ABL Credit Agreement, dated as of the Tenth Amendment Effective Date, in form and substance satisfactory to the Agent; and

 

(c) the Agent shall have received an updated Budget, in form and substance satisfactory to the Agent, which Budget is attached hereto as Exhibit B hereto (the “Tenth Amendment Budget”).

 

3

 

 

SECTION 6. Reaffirmation AND ACKNOWLEDGEMENT.

 

By executing and delivering a copy hereof:

 

(i) each Loan Party and Prateek Gattani, as an individual, hereby (A) agrees that all Obligations (including any Loans made on the Tenth Amendment Effective Date and all fees and other amounts due and payable under the Fee Letters (as defined in the Amended Loan Agreement)) shall be guaranteed pursuant to the Guarantee in accordance with the terms and provisions thereof and shall be secured pursuant to the Security Instruments in accordance with the terms and provisions thereof;

 

(ii) each Loan Party and Prateek Gattani, as an individual, hereby (A) agrees that, after giving effect to this Tenth Amendment, the Guarantee and the Liens granted pursuant to the Security Instruments for the benefit of the Secured Parties continue to be in full force and effect and (B) affirms, acknowledges and confirms all of its obligations and liabilities under the Amended Loan Agreement and each other Loan Document to which it is a party, in each case after giving effect to this Tenth Amendment;

 

(iii) each Loan Party acknowledges, confirms and agrees that, as of the Tenth Amendment Effective Date, the amount of the Obligations consisting of fees and other amounts due and payable by the Loan Parties under the Fee Letters, and guaranteed by Prateek Gattani, constitutes approximately $957,500; and

 

(iv) each Loan Party acknowledges, confirms and agrees that it is jointly and severally liable for, and each Loan Party and Prateek Gattani absolutely and unconditionally guarantees to the Agent and Lenders, all Obligations (including, without limitation, all Obligations of all of the Borrowers and the other Loan Parties, including without limitation, all Obligations under the Fee Letter) and all agreements under the Loan Documents as contemplated pursuant to Section 2.15 of the Amended Loan Agreement.

 

SECTION 7. Miscellaneous Provisions.

 

(a) Ratification. This Tenth Amendment is limited to the matters expressly specified herein and shall not constitute a modification, acceptance or waiver of any other provision of the Loan Agreement or any other Loan Document. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Loan Agreement or any other Loan Document or instruments securing the same, which shall remain in full force and effect as modified hereby or by instruments executed concurrently herewith.

 

(b) Governing Law; Submission to Jurisdiction, Etc. THIS TENTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES). SECTION 11.14 OF THE LOAN AGREEMENT IS INCORPORATED BY REFERENCE HEREIN AS IF SUCH SECTION APPEARED HEREIN, MUTATIS MUTANDIS.

 

(c) Counterparts; Headings. This Tenth Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Agent. This Tenth Amendment may be executed by means of (i) an electronic signature that complies with the federal Electronic Signatures in Global and National Commerce Act, state enactments of the Uniform Electronic Transactions Act, or any other relevant and applicable electronic signatures law; (ii) an original manual signature; or (iii) a faxed, scanned, or photocopied manual signature. Each electronic signature or faxed, scanned, or photocopied manual signature shall for all purposes have the same validity, legal effect, and admissibility in evidence as an original manual signature.

 

4

 

 

(d) General Release. In consideration of the Agent’s and Lenders’ willingness to enter into this Tenth Amendment, each Loan Party and Prateek Gattani (“Gattani”) hereby releases and forever discharges the Agent, the Lenders and the Agent’s, and the Lender’s respective predecessors, successors, assigns, officers, managers, directors, employees, agents, attorneys, representatives, and affiliates (hereinafter all of the above collectively referred to as the “Lender Group”), from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, which any Loan Party or which Gattani may have or claim to have against any of the Lender Group in any way related to or connected with the Loan Documents and the transactions contemplated thereby, but solely with respect to events or matters occurring on or prior to the Tenth Amendment Effective Date. Each of the Loan Parties and Gattani expressly acknowledges that although ordinarily a general release may not extend to claims or causes of action that any Loan Party and Gattani does not know or suspect to exist in its favor, which if known by it may have materially affected its agreement hereunder, they have carefully considered, and taken into account in determining to enter into the above releases, the possible existence of such unknown losses or claims or causes of Action. Without limiting the generality of the foregoing, each Loan Party and Gattani expressly waives and relinquishes any and all rights and benefits such party may have or conferred upon it under any federal, state, or local statute, rule, regulation, or principle of common law or equity that provides that a release does not extend to claims or causes of action that the claimant does not know or suspect to exist in its favor at the time of providing the release or that may in any way limit the effect or scope of the releases with respect to released claims or causes of action that such party did not know or suspect to exist in such party’s favor at the time of providing the release, which in each case if known by it may have materially affected its agreement hereunder, including, without limitation, California Civil Code § 1542, which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.

 

(e) Each of the Loan Parties and Gattani expressly acknowledges that the releases contained herein are effective regardless of whether those released matters or released claims or causes of action are presently known or unknown, suspected or unsuspected, or foreseen or unforeseen.

 

[Remainder of page intentionally blank; signatures begin next page]

 

5

 

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Tenth Amendment as of the date first above written.

 

BORROWERS: IDC TECHNOLOGIES, INC., a California corporation
   
  By: /s/ Prateek Gattani
  Name: Prateek Gattani
  Title: President and Chief Executive Office
   
  LYNEER INVESTMENTS, LLC, a Delaware limited liability company
   
  By: /s/ Christopher Broderick
  Name:  Christopher Broderick
  Title: Chief Financial Officer
   
  LYNEER HOLDINGS, INC., a Delaware corporation
   
  By: /s/ Christopher Broderick
  Name: Christopher Broderick
  Title: Chief Financial Officer
   
  LYNEER STAFFING SOLUTIONS, LLC, a Delaware limited liability company
   
  By: /s/ Christopher Broderick
  Name: Christopher Broderick
  Title: Chief Financial Officer

 

Signature Page to
Tenth Amendment to Loan Agreement and Forbearance Agreement

 

 

 

 

AGREED AND ACKNOWLEDGED SOLELY WITH RESPECT TO SECTIONS 6 AND 7(d) HEREOF:

 

PRATEEK GATTANI, as an individual  
   
By: /s/ Prateek Gattani  

 

Signature Page to
Tenth Amendment to Loan Agreement and Forbearance Agreement

 

 

 

 

  SPP CREDIT ADVISORS LLC, as Agent
   
  By: SPP Principal Investors II LLC, its Manager
   
  By: /s/ C. Todd Kumble
  Name:  C. Todd Kumble
  Title: Treasurer

 

Signature Page to
Tenth Amendment to Loan Agreement and Forbearance Agreement

 

 

 

 

  SPP CREDIT FUND II LP, as a Lender
   
  By: SPP Credit Fund II GP LLC, its General Partner
   
    SPP Principal Investors III LLC, as SPP Manager
   
    By: /s/ C. Todd Kumble
    Name: C. Todd Kumble
    Title: Treasurer
   
    By: /s/ Edward J. Zhu
    Name: Edward J. Zhu
    Title: ACAP/Confluence Manager
   
  SPP CREDIT FUND II QP LP, as a Lender
   
  By: SPP Credit Fund II GP LLC, its General Partner
   
    SPP Principal Investors III LLC, as SPP Manager
   
    By: /s/ C. Todd Kumble
    Name:  C. Todd Kumble
    Title: Treasurer
   
    By: /s/ Edward J. Zhu
    Name: Edward J. Zhu
    Title: ACAP/Confluence Manager

 

Signature Page to
Tenth Amendment to Loan Agreement and Forbearance Agreement

 

 

 

 

  HAYMARKET INSURANCE COMPANY, as a Lender
   
  By: /s/ Yuan Zhou
  Name: Yuan Zhou
  Title: Authorized signor
   
  JAZZ REINSURANCE COMPANY, as a Lender
   
  By: /s/ Yuan Zhou
  Name: Yuan Zhou
  Title: Authorized signor
   
  SENTINEL SECURITY LIFE INSURANCE COMPANY, as a Lender
   
  By: /s/ Yuan Zhou
  Name: Yuan Zhou
  Title: Authorized signor
   
  SOUTHERN ATLANTIC REINSURANCE, INC., as a Lender
   
  By: /s/ Yuan Zhou
  Name: Yuan Zhou
  Title: Authorized signor

 

Signature Page to
Tenth Amendment to Loan Agreement and Forbearance Agreement

 

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Jeffrey Jagid, certify that:

 

1. I have reviewed this report on Form 10-Q of Atlantic International Corp, for the quarter ended June 30, 2024.
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

 

  Atlantic International Corp
     
Date: August 14, 2024 By: /s/ Jeffrey Jagid
    Jeffrey Jagid
    Chief Executive Officer 
    (Principal Executive Officer)

 

Exhibit 31.2

 

CERTIFICATION

 

I, Christopher Broderick, certify that:

 

1. I have reviewed this report on Form 10-Q of Atlantic International Corp, for the quarter ended June 30, 2024.
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
   
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

 

  Atlantic International Corp
     
Date: August 14, 2024 By: /s/ Christopher Broderick
    Christopher Broderick
    Chief Financial Officer 
    (Principal Financial Officer)

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2024 of Atlantic International Corp (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  Atlantic International Corp
     
Date: August 14, 2024 By: /s/ Jeffrey Jagid
    Jeffrey Jagid
    Principal Executive Officer 
   

(Principal Financial Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Atlantic International Corp and will be retained by Atlantic International Corp and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2024 of Atlantic International Corp (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  Atlantic International Corp
     
Date: August 14, 2024 By: /s/ Christopher Broderick
    Christopher Broderick
    Principal Financial Officer and Principal Accounting Officer 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Atlantic International Corp and will be retained by Atlantic International Corp and furnished to the Securities and Exchange Commission or its staff upon request.