Atlantic International Corporation
08/14/2025 | Press release | Distributed by Public on 08/14/2025 04:00
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
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 100 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 fulfillment. 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.
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, 2025 and 2024:
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 | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | ||||||||||||||||||||
| Service revenue, net | $ | 102,896,993 | $ | 104,636,273 | $ | (1,739,280) | (1.7 | %) | |||||||||||||||
| Cost of revenue | 91,478,299 | 93,146,627 | (1,668,328) | (1.8 | %) | ||||||||||||||||||
| Gross profit | 11,418,694 | 11,489,646 | (70,952) | (0.6) | % | ||||||||||||||||||
| Selling, general and administrative | 18,870,535 | 18,553,150 | 317,385 | 1.7 | % | ||||||||||||||||||
| Depreciation and amortization | 1,232,750 | 1,249,054 | (16,304) | (1.3) | % | ||||||||||||||||||
| Loss from operations | (8,684,591) | (8,312,558) | (372,033) | 4.5 | % | ||||||||||||||||||
| Loss on debt extinguishment | - | 1,213,379 | (1,213,379) | (100.0) | % | ||||||||||||||||||
| Advisory fees paid in the merger | - | 43,000,000 | (43,000,000) | (100.0) | % | ||||||||||||||||||
| Interest expense | 2,023,960 | 4,000,024 | (1,976,064) | (49.4) | % | ||||||||||||||||||
| Other expense | - | 15,607,737 | (15,607,737) | (100.0) | % | ||||||||||||||||||
| Net loss before provision for income taxes | (10,708,551) | (72,133,698) | 61,425,147 | (85.2) | % | ||||||||||||||||||
| Income tax (expense)/benefit | (9,618) | 17,221,979 | (17,231,597) | + | |||||||||||||||||||
| Net loss | $ | (10,718,169) | $ | (54,911,719) | $ | 44,193,550 | (80.5) | % | |||||||||||||||
| Net loss per share, basic and diluted | $ | (0.20) | $ | (1.96) | $ | 1.76 | (89.8) | % | |||||||||||||||
| Weighted average shares outstanding, basic and diluted | 54,553,905 | 28,081,013 | 28,551,846 | 94.3 | % | ||||||||||||||||||
|
Six Months Ended June 30, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | Percent | ||||||||||||||||||||
| Service revenue, net | $ | 205,705,800 | $ | 205,259,485 | $ | 446,315 | 0.2 | % | |||||||||||||||
| Cost of revenue | 183,100,984 | 183,304,457 | (203,473) | (0.1 | %) | ||||||||||||||||||
| Gross profit | 22,604,816 | 21,955,028 | 649,788 | 3.0 | % | ||||||||||||||||||
| Selling, general and administrative | 38,270,014 | 28,894,187 | 9,375,827 | 32.4 | % | ||||||||||||||||||
| Depreciation and amortization | 2,469,139 | 2,508,608 | (39,469) | (1.6) | % | ||||||||||||||||||
| Loss from operations | (18,134,337) | (9,447,767) | (8,686,570) | 91.9 | % | ||||||||||||||||||
| Loss on debt extinguishment | - | 1,213,379 | (1,213,379) | (100.0) | % | ||||||||||||||||||
| Advisory fees paid in the merger | - | 43,000,000 | (43,000,000) | (100.0) | % | ||||||||||||||||||
| Interest expense | 3,308,782 | 9,022,254 | (5,713,472) | (63.3) | % | ||||||||||||||||||
| Other expense | - | 15,607,737 | (15,607,737) | (100.0) | % | ||||||||||||||||||
| Net loss before provision for income taxes | (21,443,119) | (78,291,137) | 56,848,018 | (72.6) | % | ||||||||||||||||||
| Income tax (expense)/benefit | (19,235) | 18,512,574 | (18,531,809) | + | |||||||||||||||||||
| Net loss | $ | (21,462,354) | $ | (59,778,563) | $ | 38,316,209 | (64.1) | % | |||||||||||||||
| Net loss per share, basic and diluted | $ | (0.40) | $ | (2.23) | $ | 1.83 | (82.1) | % | |||||||||||||||
| Weighted average shares outstanding, basic and diluted | 54,266,337 | 26,752,371 | 27,513,966 | + | |||||||||||||||||||
+ - change greater than ± 100%
Service Revenue, Net
Service revenue, net of discounts, for the three and six months ended June 30, 2025 and 2024 consisted of the following:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Temporary placement services | $ | 102,033,461 | $ | 103,897,666 | $ | 203,859,800 | $ | 203,570,568 | |||||||||||||||
| Permanent placement and other services | 863,532 | 738,607 | 1,846,000 | 1,688,917 | |||||||||||||||||||
| Total service revenues, net | $ | 102,896,993 | $ | 104,636,273 | $ | 205,705,800 | $ | 205,259,485 | |||||||||||||||
Service revenue, net was $102,896,993 and $104,636,273 for the three months ended June 30, 2025 and 2024, respectively, a decrease of $1,739,280, or 1.7%. This decrease was predominately due to lower revenues from the Company's temporary placement services business, which decreased $1,864,205 or 1.8% in the three months ended June 30, 2025 as compared to the same period in 2024 due primarily to customers were slower based on economic conditions. Permanent placement and other services increased $124,925 or 16.9% due to strong demand from our current clients.
Service revenue, net was $205,705,800 and $205,259,485 for the six months ended June 30, 2025 and 2024, respectively, an increase of $446,315, or 0.2%. The Company's temporary placement services business, slightly increased $289,232 or 0.1% in the six months ended June 30, 2025 as compared to the same period in 2024. Permanent placement and other services increased $157,083 or 9.3% due to strong demand from our current clients.
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, 2025 and 2024 consisted of the following:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Service revenue, net | $ | 102,896,993 | $ | 104,636,273 | $ | 205,705,800 | $ | 205,259,485 | |||||||||||||||
| Cost of revenue | 91,478,299 | 93,146,627 | 183,100,984 | 183,304,457 | |||||||||||||||||||
| Gross profit | $ | 11,418,694 | $ | 11,489,646 | $ | 22,604,816 | $ | 21,955,028 | |||||||||||||||
Cost of revenue for the three months ended June 30, 2025 and 2024 was $91,478,299 and $93,146,627, respectively, a decrease of $1,668,328 or 1.8%. The decrease in cost of revenue was due primarily to lower service revenue, net driven primarily by lower temporary placement services revenue, which decreased $1,864,205 or 1.8%. Gross profit for the three months ended June 30, 2025 and 2024 was $11,418,694 and $11,489,646, respectively, a decrease of $70,952 or 0.6%. As a percentage of service revenue, net, gross profit was 11.1% and 11.0% for the three months ended June 30, 2025 and 2024, respectively, essentially flat quarter over quarter.
Cost of revenue for the six months ended June 30, 2025 and 2024 was $183,100,984 and $183,304,457, respectively, a decrease of $203,473 or 0.1%, essentially flat on year-to-date over year-to-date basis. Gross profit for the six months ended June 30, 2025 and 2024 was $22,604,816 and $21,955,028, respectively, an increase of $649,788 or 3.0%. As a percentage of service revenue, net, gross profit was 11.0% and 10.7% for the six months ended June 30, 2025 and 2024, respectively, which increased due to the Company's initiative to sell higher margin accounts.
Total Operating Expenses
Total operating expenses for the three and six months ended June 30, 2025 and 2024 consisted of the following:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Selling, general and administrative | $ | 18,870,535 | $ | 18,553,150 | $ | 38,270,014 | $ | 28,894,187 | |||||||||||||||
| Depreciation and amortization | 1,232,750 | 1,249,054 | 2,469,139 | 2,508,608 | |||||||||||||||||||
| Total operating expenses | $ | 20,103,285 | $ | 19,802,204 | $ | 40,739,153 | $ | 31,402,795 | |||||||||||||||
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 three months ended June 30, 2025 and 2024 were $18,870,535 and $18,553,150, respectively, an increase of $317,385, or 1.7%, due primarily to stock compensation expense, a full quarter of expenses incurred as a result of the Merger compared to a partial month, partially offset by lower transaction costs related to the Merger. As a percentage of service revenue, net, selling, general and administrative costs were 18.3% in the three months ended June 30, 2025 as compared to 17.7% in the three months ended June 30, 2024. The increase in selling, general and administrative costs as a percentage of service revenue, net was due primarily to stock compensation expense, a full quarter of expenses incurred as a result of the Merger compared to a partial month, partially offset by lower transaction costs related to the Merger.
Selling, general and administrative expenses for the six months ended June 30, 2025 and 2024 were $38,270,014 and $28,894,187, respectively, an increase of $9,375,827, or 32.4%, due primarily to higher stock compensation expense, a full six months of expenses incurred as a result of the Merger compared to a partial month, partially offset by lower transaction costs related to the Merger. As a percentage of service revenue, net, selling, general and administrative costs were 18.6% in the six months ended June 30, 2025 as compared to 14.1% in the six months ended June 30, 2024. The increase in selling, general and administrative costs as a percentage of service revenue, net was due primarily to stock compensation expense, a full six months of expenses incurred as a result of the Merger compared to a partial month, partially offset by lower transaction costs related to the Merger in the six months ended June 30, 2025 compared to the six months ended June 30, 2024.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended June 30, 2025 and 2024 was $1,232,750 and $1,249,054, respectively, a decrease of $16,304 or 1.3%, which was slightly lower on a year-over year basis primarily due to more of the Company's computer software being fully depreciated at the end of 2024.
Depreciation and amortization expense for the six months ended June 30, 2025 and 2024 was $2,469,139 and $2,508,608, respectively, a decrease of $39,469 or 1.6%, which was slightly lower on a year-over year basis primarily due to more of the Company's computer software being fully depreciated at the end of 2024.
Loss on Debt Extinguishment
Loss on debt extinguishment, for the three and six months ended June 30, 2025 and 2024 were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| 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, 2025 and 2024 were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Advisory fees paid in the merger | $ | - | $ | 43,000,000 | $ | - | $ | 43,000,000 | |||||||||||||||
Certain 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, 2025 and 2024 were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Interest expense | $ | 2,023,960 | $ | 4,000,024 | $ | 3,308,782 | $ | 9,022,254 | |||||||||||||||
Interest expense for the three months ended June 30, 2025 and 2024 was $2,023,960 and $4,000,024, respectively. The decrease of $1,976,064, or 49.4%, in the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was primarily attributed to the Company deconsolidating the joint and several debt obligations as of the Merger date and a lower interest rate of the previous Revolver as compared to the new Revolver entered into on April 29,2025.
Interest expense for the six months ended June 30, 2025 and 2024 was $3,308,782 and $9,022,254, respectively. The decrease of $5,713,472, or 63.3%, in the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was attributed to the Company deconsolidating the joint and several debt obligations as of the Merger date and a lower interest rate of the previous Revolver as compared to the new Revolver entered into on April 29,2025.
Other Expense
Other expense for the three and six months ended June 30, 2025 and 2024 were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Other expense | $ | - | $ | 15,607,737 | $ | - | $ | 15,607,737 | |||||||||||||||
Other expense for the three 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.
Income Tax (Expense)/Benefit
Provision for income taxes for the three and six months ended June 30, 2025 and 2024 were as follows:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Income tax (expense)/benefit | $ | (9,618) | $ | 17,221,979 | $ | (19,235) | $ | 18,512,574 | |||||||||||||||
Income tax (expense)/benefit for the three months ended June 30, 2025 and 2024 was $(9,618) and $17,221,979, respectively. The change between the periods was primarily due to the establishment of a valuation allowance on the Company's deferred tax assets, initially recorded during the fourth quarter of 2024.
Income tax (expense)/benefit for the six months ended June 30, 2025 and 2024 was $(19,235) and $18,512,574, respectively. The change between the periods was primarily due to the establishment of a valuation allowance on the Company's deferred tax assets, initially recorded during the fourth quarter of 2024.
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 previous Revolver. The Company entered into a new revolving credit facility (the "New Revolving Credit Facility") on April 29, 2025. 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 debt payments. Atlantic believes that the cash generated from operations, together with the borrowing availability under the New Revolving Credit Facility is sufficient to meet its normal working capital needs for at least the 12-month period following the issue date of its 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 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 for one year from the date the financials are issued. This evaluation includes considerations related to 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 condensed consolidated financial statements. On April 29, 2025, the Company closed on a new ABL lender, replacing the previous Revolver and converting it into a term loan, with a maturity date of April 29, 2028. On April 29, 2025, the previous BMO Revolver lender has funded the shortfall of $6,000,000, the IDC portion owed, and IDC and Lyneer entered into a term loan for this amount, plus a $1,000,000 exit fee for the remaining joint and several previous ABL lender debt. The previous lenders have acquired IDC's publicly owned stock of Atlantic International Corp as collateral and intends to sell these shares to pay down the amounts due related to the joint and several debt. See Note 8: Debtfor further information.
IDC, Lyneer and Prateek Gattani, IDC's Chief Executive Officer and then 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 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, the Seller Notes the Earnout Notes, along with the term note for the shortfall from the restructuring of the previous revolving credit facility. 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 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. 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 originally matured on September 30, 2024. The maturity date of the Merger Note has been extended to March 31, 2027 when the Company entered into an Amended and Restated Convertible Promissory Note. On April 29, 2025, the Company closed on a new ABL lender, replacing the previous Revolver, with a maturity date of April 29, 2028. On April 29, 2025, the previous BMO Revolver lender funded the shortfall of $6,000,000, the IDC portion owed, and IDC entered into a term note for this amount, plus a $1,000,000 exit fee. The certain junior lenders assumed portions of IDC's publicly owned stock of Atlantic International Corp as collateral and intends to sell these shares their respective joint and several debt. See Note 8: Debtfor further information.
Cash flows for the six months ended June 30, 2025 and 2024 consisted of the following:
|
Six Months Ended June 30, |
|||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by (used in) operating activities | $ | 5,037,229 | $ | (4,217,266) | |||||||
| Net cash (used in) investing activities | (30,073) | (35,306) | |||||||||
| Net cash (used in) provided by financing activities | (5,311,087) | 3,339,123 | |||||||||
| Net decrease in cash and cash equivalents | $ | (303,931) | $ | (913,449) | |||||||
Operating Activities
Cash flows provided by operating activities for the six months ended June 30, 2025 compared to the six months June 30, 2024 was higher primarily due to a decrease in accounts receivable from the prior year end.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2025 decreased compared to June 30, 2024 and consisted entirely of purchases of property and equipment.
Financing Activities
Cash used in financing activities increased for the six months ended June 30, 2025 compared to June 30, 2024 and consisted of borrowings and payments under the Company's debt arrangements of the Revolver and the New Revolving Credit Facility.
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 probable 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. See Revolver (discussing the previous BMO Revolver), Term, Note, Seller Notes and Earnout Notesbelow for those joint-and-several debts that are applicable to the Allocation Agreement.
Revolver
Until April 29, 2025, as described below, the Company maintained 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 were linked with bank accounts associated with the lender and funded using the Revolver. These borrowings were determined by Lyneer's availability based on a formula of billed and unbilled accounts receivable as defined in the loan agreement.
On April 29, 2025, the Company closed on a new ABL credit facility, replacing the current Revolver, with a maturity date of April 29, 2028. The previous lender funded the shortfall of $6,000,000, the IDC portion owed, and IDC entered into a term loan for this amount, plus a $1,000,000 exit fee. The $6,000,000 term loan and $1,000,000 exit fee are joint-and-several with IDC and is fully covered by the Allocation Agreement with IDC discussed above. The current Revolver's lender has assumed IDC's publicly owned stock of Atlantic International Corp as collateral. The interest rate on the New Revolving Credit Facility is calculated as 1.00% per annum above the Prime Rate, but not less
than 5.75% per annum. The interest rate as of June 30, 2025 was 8.50% per annum. See Note 8: Debtfor further information.
As of June 30, 2025 and December 31, 2024, the Company recorded a liability of $37,385,643 and $42,508,379, respectively. Total available borrowing capacity on the Revolver as of June 30, 2025 was $7,832,330. The borrowing base calculation is based on Lyneer's eligible assets.
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.
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 and the uplisting milestone dates were subsequently extended to September 30, 2025, or as agreed between the parties.
On April 28, 2025, the Term Note lender foreclosed on certain amounts of IDC's stock of Atlantic International Corp. See Note 8: Debtfor further information.
The Term Note obligation is joint-and-several with IDC and is fully covered by the Allocation Agreement discussed above and as such the Company deconsolidated it's joint and several debt obligations as of the Merger date. See Note 8: Debtfor further information.
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 installments 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 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 previous lender under the Revolver and the current Revolver. As provided in the inter-creditor agreement between SLR and the Seller Note holders, Lyneer is prevented from making payments and the Seller Note holder are prevented from accepting payments from Lyneer.
The Seller Notes obligation are joint-and-several with IDC and are fully covered by the Allocation Agreement discussed above and as such the Company deconsolidated the Seller Notes obligations as of the Merger date. See Note 8: Debtfor further information.
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 rate 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%.
Payments to any other debt holders was prohibited by the administrative agent of the previous lender under the Revolver and the current Revolver. As provided in the inter-creditor agreement between SLR and the Earnout Note holders, Lyneer is prevented from making payments and the Earnout Note holder are prevented from accepting payments from Lyneer.
The Earnout Notes obligation are joint-and-several with IDC and are fully covered by the Allocation Agreement discussed above and as such the Company deconsolidated the Earnout Notes obligations as of the Merger date. See Note 8: Debtfor further information.
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.
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 were payable on February 28, 2024. Lyneer has not refinanced or restructured the credit facility and missed all payments of the Seller Notes and the Earnout Notes during 2024 and is in default of the Seller Notes and Earnout Notes. The Seller Noes and the Earnout Notes are covered by the Allocation Agreement discussed above.
Credit Agreement
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"), which was entered into 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 was originally 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.
On July 22, 2024, the Company entered into an amendment to extend the maturity date of the Credit Agreement to June 18, 2026.
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 increased to 10% for the period from August 1, 2024 through July 31, 2025. The Company is in negotiations with the lender to extend the agreement two years and the lender has waived default.
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 originally matured 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. As we do not currently 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. 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.
On September 12, 2024 the Company entered into Amendment No 1 to the Convertible Promissory Note ("Amendment 1 to the Merger Note") which extended the maturity date to the earlier of March 31, 2026 or the completion of at least a $40 million capital raise. Amendment 1 to the Merger Note was treated as a modification after
the Company's analysis according to ASC 470 and as such, the Company is deferring the $300,000 amendment fee and will amortize as an adjustment to interest expense over the remaining term using the effective interest method.
On April 29, 2025, the Company entered into an Amended and Restated Convertible Promissory Note which further extended the maturity date to the earlier of March 31, 2027 or the completion of at least a $40 million capital raise. See Note 8: Debtfor further information.
Interest Expense
Total interest expense is comprised of a cash and non-cash component as described in the debt arrangements described above. Additionally, the Company has incurred interest expense related to an agreement with a professional employer organization ("PEO") who processes the payroll for the Company, related to the unpaid balance at 1.5% per calendar month.
For the three and six months ended June 30, 2025 total interest expense was $2,023,960 and $3,308,782, respectively. For the three and six months ended June 30, 2024 total interest expense was $4,000,024 and $9,022,254 respectively. Interest expense related to the PEO was $838,327 for each of the three and six month periods ended June 30, 2025, and $0 for each of the three and six month periods ended June 30, 2024. Total cash paid for interest for the three and six months ended June 30, 2025 totaled $847,891 and $2,306,780, respectively, and $1,744,605 and $4,051,095 for the three and six months ended June 30, 2024, respectively, with the remaining portion of the interest expense as non-cash due to the paid-in-kind interest and change in values of the accrued interest liability and amortization of deferred financing costs.
Assessment of Liquidity Position
The Company has assessed its liquidity position as of June 30, 2025 and December 31, 2024. As of June 30, 2025 and December 31, 2024, the total committed resources available were as follows:
|
June 30, 2025 |
December 31, 2024 |
||||||||||
| Cash and Cash Equivalents | $ | 374,745 | $ | 678,676 | |||||||
| Committed Liquidity Resources Available: | |||||||||||
| Short-term Revolving Credit Facility | 7,832,330 | (1,299,463) | |||||||||
| Total Committed Resources Available | $ | 8,207,075 | $ | (620,787) | |||||||
The Company closed on a new ABL lender credit facility on April 29, 2025, replacing its obligations under the previous Revolver, with an increased borrowing capacity of up to $70 million. The Company believes the borrowing capacity under this new credit facility and its cash flow from operations will provide sufficient liquidity and capital resources to conduct its planned operations for at least one year.
Refer To Note 3:Summary of Significant Accounting Policies, Liquidity.
Related Party Transactions
Transactions with Lyneer Management Holdings LLC ("LMH")
LMH was 90% 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 February 28, 2024, LMH exercised its right to put its 10% ownership interest in the Company to IDC. On November 15, 2022, Lyneer and IDC as co-borrowers issued Year 1 Earnout Notes to LMH with total balances of $5,127,218. On January 16, 2024, Lyneer and IDC as co-borrowers issued Year 2 Earnout Notes to LMH with total balances of $2,013,041. On the date of the Merger, the Company deconsolidated this debt. Refer to Note 8: Debtfor additional information.
Interest expense incurred on the Earnout Notes to LMH totaled $0 and $173,737 for the three months ended June 30, 2025 and 2024, respectively and $0 and $347,766 for the six months ended June 30, 2025 and 2024, respectively.
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.
Transactions with IDC
Lyneer and IDC are co-borrowers and are jointly and severally liable for principal and interest payments under the previous 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.
As a result of the Merger, the Company is required to file short-term income tax returns for the periods of January 1, 2024 to June 18, 2024 and June 19, 2024 to December 31, 2024. For the first short-period, Lyneer and IDC will file consolidated income tax returns in certain states. 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 $548,432 as of both June 30, 2025 and December 31, 2024, respectively, and are included in "due from related parties" and "due to related parties", respectively, on the accompanying condensed consolidated balance sheets. For the second short-period ended December 31, 2024, Lyneer will file consolidated income tax returns with Atlantic International Corp.
Total amounts receivable from IDC, including the above taxes payable to IDC, amounted to $6,067,963 as of June 30, 2025 and total amounts payable to IDC of $2,091,035 as of December 31, 2024, and are included in "due from related parties" and "due to related parties", respectively, 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 interest. 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.
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, accounts receivable, allowance for doubtful accounts, unbilled accounts receivable and intangible assets 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.
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 the Company 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; however, the Company may extend to 150 days from the invoice date. 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.
Intangible Assets
The Company's identifiable intangible assets as of June 30, 2025 and December 31, 2024 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, 2025 and the year ended December 31, 2024 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.
Atlantic International Corporation published this content on August 14, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 14, 2025 at 10:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]