CIRCLE8 GROUP INC 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Atlantic International Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Atlantic International Corp. and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RBSM LLP We have served as the Company’s auditor since 2022. Las Vegas, Nevada March 28, 2025 PCAOB ID Number 587 37 Table of Contents ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 678,676 $ 1,352,927 Accounts receivable, net of allowance of $ 2,726,107 and $ 1,902,140 64,074,337 58,818,832 Unbilled accounts receivable 9,368,565 5,660,753 Prepaid income taxes 1,202,405 1,281,925 Prepaid expenses and other current assets 4,696,010 3,684,011 Deposits, current 8,000,000 8,000,000 Total current assets 88,019,993 78,798,448 Non-current assets Property and equipment, net 307,620 432,695 Right-of-use assets 2,067,906 2,368,677 Intangible assets, net 31,395,556 36,188,889 Due from related parties — 1,150,000 Deferred tax assets, net — 5,242,610 Deposits, long-term 271,318 276,367 Other assets 689,283 2,208,923 Total non-current assets 34,731,683 47,868,161 Total assets $ 122,751,676 $ 126,666,609 Liabilities and stockholders' equity (deficit) Current liabilities Accounts payable $ 2,028,100 $ 799,568 Accrued expenses and other current liabilities 50,024,550 16,044,095 Due to related parties — 4,384,178 Current operating lease liabilities 1,313,128 1,436,813 Line of credit, current portion 42,508,379 85,092,695 Notes payable, current portion 1,375,000 48,680,290 Notes payable, current portion – related parties — 5,127,218 Total current liabilities 97,249,157 161,564,857 Non-current liabilities Line of credit, net of current portion 1,950,000 — Notes payable, net of current 34,755,435 — Non-current operating lease liabilities 813,740 980,851 Other liabilities — 3,474,954 Total non-current liabilities 37,519,175 4,455,805 Total liabilities 134,768,332 166,020,662 Commitments and contingencies Stockholders’ equity (deficit) Common stock, $ 0.00001 par value; 300,000,000 shares authorized; 53,130,946 and 25,423,729 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively 531 254 Preferred stock, $ 0.00001 par value; 20,000,000 shares authorized and none issued at December 31, 2024 and December 31, 2023, respectively — — Additional paid-in capital 123,462,703 22,449,809 Accumulated deficit ( 135,479,890 ) ( 61,804,116 ) Total stockholders’ equity (deficit) ( 12,016,656 ) ( 39,354,053 ) Total liabilities and stockholders’ equity (deficit) $ 122,751,676 $ 126,666,609 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2024 2023 Service revenue, net $ 442,609,814 $ 401,374,701 Cost of revenue 395,431,491 354,496,441 Gross profit 47,178,323 46,878,260 Selling, general and administrative 64,021,052 45,441,659 Change in fair value of contingent consideration liabilities — ( 150,093 ) Depreciation and amortization 4,991,863 5,038,218 (Loss) income from operations ( 21,834,592 ) ( 3,451,524 ) Loss on debt extinguishment 1,213,379 189,951 Advisory fees paid in merger 43,000,000 — Interest expense 12,004,860 17,538,816 Other expense 52,047,957 — Net loss before (provision for)/benefit from income taxes ( 130,100,788 ) ( 21,180,291 ) Income tax (expense)/benefit ( 5,379,102 ) 5,928,271 Net loss $ ( 135,479,890 ) $ ( 15,252,020 ) Net loss per share, basic and diluted $ ( 3.68 ) $ ( 0.60 ) Weighted-average shares outstanding, basic and diluted 36,783,626 25,423,729 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) 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 ) - $ - $ 19,249,599 $ ( 46,552,096 ) $ ( 27,302,497 ) Effect of recapitalization - - - - - 25,423,729 254 ( 254 ) - - Accretion to redemption value 498,750 498,750 ( 498,750 ) - ( 498,750 ) - - - - - Net loss - - - ( 15,252,020 ) ( 15,252,020 ) - - - ( 15,252,020 ) ( 15,252,020 ) Capital contribution - - 3,200,464 - 3,200,464 - - 3,200,464 - 3,200,464 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 ) Net loss - - - - - - - - ( 135,479,890 ) ( 135,479,890 ) Capital contribution - - 1,033,969 - 1,033,969 - - 1,033,969 - 1,033,969 Effect of recapitalization - - - - - - - - - - Accretion to redemption value 133,162 133,162 ( 133,162 ) - ( 133,162 ) - - - - - Redemption of redeemable interests ( 10,796,912 ) ( 10,796,912 ) 10,796,912 - 10,796,912 - - - - - Effect from merger - - ( 23,484,032 ) 61,804,116 38,320,084 - - ( 1,804,116 ) 61,804,116 60,000,000 Stock based compensation - - - - - - - 45,202,329 - 45,202,329 Stock issued - - - - - 9,106,231 91 ( 91 ) - - 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 - December 31, 2024 $ - $ - $ - $ - $ - 53,130,946 $ 531 $ 123,462,703 $ ( 135,479,890 ) $ ( 12,016,656 ) The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2024 2023 Net loss $ ( 135,479,890 ) $ ( 15,252,020 ) Adjustments to reconcile net loss to net cash used in/provided by operating activities: Bad debt expense 957,031 1,526,985 Amortization, deferred financing cost 594,275 673,322 Loss on debt extinguishment 1,213,379 189,951 Interest paid in kind 1,239,373 1,990,692 Change in estimated fair value of contingent consideration — ( 150,093 ) Deferred income taxes 5,242,610 ( 5,144,846 ) Settlement claim to be paid in shares 11,101,671 — Shares issued for services 43,000,000 — Depreciation and amortization expense 4,991,864 5,038,218 Share based compensation 45,202,329 — Expenses paid by IDC — 1,840,855 Changes in operating assets and liabilities: Accounts receivable ( 6,212,536 ) 659,233 Unbilled accounts receivable ( 3,707,812 ) 646,253 Prepaid expenses and other current assets ( 1,011,999 ) ( 3,020,213 ) Prepaid income taxes 79,520 ( 1,014,262 ) Due from related parties — ( 1,689,764 ) Deposits 5,049 7,637 Other assets ( 230,360 ) ( 572,881 ) Right of use assets 300,771 1,472,096 Accounts payable 1,228,532 631,857 Due to related parties 1,033,969 ( 549,777 ) Income taxes payable 13,913 ( 66,317 ) Accrued expenses and other current liabilities 31,685,592 5,162,350 Contingent consideration liability ( 6,941,521 ) — Operating lease liability ( 290,796 ) ( 1,461,873 ) Net cash used in operating activities ( 5,985,036 ) ( 9,082,597 ) Cash flows from investing activities Purchase of property and equipment, net ( 73,456 ) ( 73,711 ) Net cash used in investing activities ( 73,456 ) ( 73,711 ) Cash flows from financing activities Borrowings on revolving line of credit 440,079,628 406,301,822 Payments on revolving line of credit ( 442,992,103 ) ( 397,468,748 ) Borrowings on credit agreement 1,950,000 — Deemed capital contribution from recapitalization 6,666,216 — Debt issuance costs payment ( 319,500 ) ( 40,000 ) Transaction consideration paid on behalf of Parent — — Net cash provided by financing activities 5,384,241 8,793,074 Net decrease in cash and cash equivalents ( 674,251 ) ( 363,234 ) Cash and Cash Equivalents – Beginning of period 1,352,927 1,716,161 Cash and Cash Equivalents – End of period $ 678,676 $ 1,352,927 Supplemental Disclosures of Cash Flow Information Cash paid during the year for: Interest $ 6,926,853 $ 9,150,636 State 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 $ 498,750 Unpaid interest added to Term Note $ — $ 357,500 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 $ 3,200,464 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 consolidated financial statements. 41 Table of Contents ATLANTIC INTERNATIONAL CORP AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1: Organization, Nature of Operations and Basis of Presentation 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 and Acquisition 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. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) pursuant to the accounting and disclosure rules and regulations of the United States Securities and Exchange Commission ("SEC"). The accompanying consolidated financial statements include the consolidated accounts of Atlantic International Corp, Lyneer Investments, Lyneer Holdings and LSS. All significant intercompany transactions and balances have been eliminated in consolidation. 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. 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 December 31, 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. 42 Table of Contents On October 29, 2024, the Company formed a subsidiary in Delaware. The subsidiary is named A36 Merger Sub, Inc. and all 100 shares of its common stock are owned by the Company. 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. Reclassification of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the consolidated balance sheets and consolidated statements of changes of stockholders’ equity (deficit) giving effect to December 31, 2022 for the audit at December 31, 2024 for the recapitalization related to the Merger. 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 was 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 was 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 was originally due on or before September 30, 2024, which has been extended to March 31, 2026 (see Note 8: Debt for further discussion); 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 stockholders 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 of default, IDC shall be issued $ 10 million of additional shares of Atlantic common stock, valued at the then current price of ATLN common stock. The Company is currently not in default of the convertible promissory note. 43 Table of Contents In addition, upon the closing of the Merger: • Atlantic Acquisition Corp (“AAC”) entered into an Assignment and Assumption Agreement pursuant to which AAC irrevocably assigned and transferred to the Company all of AAC’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 AAC personnel and paid/or expects to pay approximately $ 4.4 million of accrued wages and bonuses. The Company assumed obligations of AAC to issue 593,221 shares to certain advisors upon completion of the Merger, and an additional 1.3 million shares under a directors agreement. See Note 9: Accrued Expenses and Other Current Liabilities for further discussion. • 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, 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. Determination of Accounting Acquirer The Merger 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; b) Subsequent to SeqLL’s sale of assets to SeqLL Omics, SeqLL had no or nominal assets and no or nominal operations, and did 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 Chief Financial Officer of our company following the Merger. 44 Table of Contents Note 3: Summary of Significant Accounting Policies Cash and Cash Equivalents Cash includes funds deposited in banks. The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less to be cash equivalents. Accounts Receivable Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment upon receipt of invoice. The Company extends credit to customers with normal payment terms of 30 days; however the Company may extend to 150 days from the invoice date. Customer account balances which have not been timely paid according to the customer-specific payment terms are considered delinquent. Accounts receivable are stated at the amount billed to the customer. Upon determination by management, accounts receivable balances are placed into legal, collect and bankruptcy classification, usually on balances over ninety days past the due date. Payments of accounts receivable are allocated to the invoices specified on the customer’s remittance advice or, if unspecified, are applied as payments on account until the specific invoices paid are determined. Contracts with certain customers allow the Company to charge interest at a rate of 1.5 % per month once invoices are considered delinquent, which varies based on the terms of the contracts. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management assesses the valuation allowance in accordance with ASU 2016-13, Financial Instruments – Credit Losses , estimating for all credit losses inherent in the receivable portfolio, not just on receivables that are showing signs of impairment. Management individually reviews all past due accounts receivable balances and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Management performs a comprehensive analysis of its entire accounts receivable portfolio and identifies potentially impaired receivables in each aging bucket. Additionally, management calculates and applies a loss rate to each aging bucket in its receivable portfolio to reserve for all expected credit losses on accounts receivable. Unbilled Accounts Receivable Unbilled receivables represent revenue recognized for temporary placement services related to claims for which clients have received economic value that were not invoiced at the balance sheet date. Management believes that unbilled receivables are similar in risk profile to the “current” receivable aging bucket and applied the same loss rate as accounts receivable on all outstanding unbilled receivables. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation of property and equipment is computed principally using the straight-line method over the lesser of the estimated useful lives or, in the case of leasehold improvements over the shorter of the useful life of the asset or the remaining term of the lease. Major improvements are capitalized, while replacements, maintenance and repairs that do not extend the lives of the assets are charged directly to expense as incurred. Upon the disposition of property and equipment, the cost of the asset and the associated accumulated depreciation are eliminated from the related accounts and any resulting gain or loss is recognized as a component of income or loss. Joint and Several Liability Arrangements In connection with the Transaction, the Company has entered into several debt facilities under which it is jointly and severally liable for repayment with its parent 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 obligation. The offsetting journal entry upon the Company’s recognition of amounts under joint and several liability arrangements will differ based on the substance of the transactions or events that gave rise to recognition. In cases where a 45 Table of Contents joint and several liability arises because the Company has received cash proceeds for use in its own operations the offsetting entry is generally a debit to cash. In cases where the Company has recognized a liability and funds were borrowed for the benefit of IDC, the Company generally recognizes a deemed distribution within its consolidated statements of changes in stockholders’ equity (deficit). The Company records associated interest expense and associated debt issuance costs for all amounts that it has recognized in its financial statements under joint and several liability obligations. 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 December 31, 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. 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, included in “accrued expenses and other current liabilities” and “other liabilities” on the accompanying consolidated balance sheets. On January 16, 2024, six notes payable with equivalent terms, except to the amount of principal and interest were issued to the Sellers. Segments Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer (“CEO”) is the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has one operating segment, which is the business of providing commercial staffing solutions. Redeemable Units Certain outstanding ownership interests of the Company were redeemable upon certain defined events that were determined to be outside of the Company’s control during the period ended December 31, 2021. Accordingly, these ownership interests were initially 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 performs an assessment as to whether an outstanding contingently redeemable instrument is probable of becoming redeemable in the future at each reporting date. 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. Increases in the redemption value of contingently redeemable units are recorded as an increase in mezzanine capital and a reduction of members’ capital. These units were exercised on February 28, 2024 and were reclassed to permanent equity. Intangible Assets The Company’s identifiable intangible assets as of December 31, 2024 and 2023 consist of the Company’s customer relationships and tradenames and were initially recognized as a result of the Transaction. The Company’s intangible assets are amortized using the straight-line method over their estimated useful lives. Impairment of Long-Lived Assets In accordance with ASC Topic 360 – Property, Plant, and Equipment , the Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if the asset’s carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference 46 Table of Contents between the carrying amount and fair value. For the years ended December 31, 2024 and 2023, there was no impairment of the Company’s long-lived assets. Leases The Company is a lessee under various noncancellable operating leases. The Company accounts for leases in accordance with ASC Topic 842 – Leases (“ASC 842”). The Company determines if an arrangement is or contains a lease at contract inception. If a contract is or contains a lease, the Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term, and (3) lease payments. • ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. • The lease term for all the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. • Lease payments included in the measurement of the lease liability are fixed payments, including in-substance fixed payments, owed over the lease term. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the ROU asset is reduced to zero and the remainder of the adjustment is recorded in profit or loss. Deferred Financing Costs Costs that are incremental and direct to obtaining debt financing are capitalized and amortized as a component of “interest expense” on the accompanying consolidated statements of operation, over the term of the related debt based on the effective interest method. Unamortized deferred financing fees are presented as a contra-liability with respect to the associated outstanding debt on the Company’s consolidated balance sheets. Revenue Recognition Service Revenues 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 the Company expects to be entitled to 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 contract with a customer; (ii) it identifies the performance obligations in the contract; (iii) it determines 47 Table of Contents 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 the Company’s engagement professionals. The Company invoices its customers for temporary placement services concurrently with each periodic payroll which coincides with the services provided. Revenues that have been recognized but not invoiced for temporary staffing customers are included in “unbilled accounts receivable” on the Company’s consolidated balance sheets and represent a contract asset under ASC 606. Most engagement professionals placed on assignment by the Company are employed by a third-party professional employer organization (“PEO”) while they are working on assignments. The PEO pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits which is invoiced back to the Company on a weekly basis. 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 the Company (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 clients. Certain of the Company’s permanent placement contracts contain a thirty-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 thirty-day guarantee period. If a candidate voluntarily leaves or is terminated for cause prior to the completion of thirty days of employment, the Company will provide a replacement candidate at no additional cost to the customer, as long as the placement fee is paid within thirty days of the candidate’s start date. When required to provide a replacement candidate, the Company defers the recognition of revenue until a replacement candidate is found and hired, and any associated fees collected from the customer 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 “accrued expenses and other current liabilities” on the accompanying consolidated balance sheets. Cost of Revenue Direct costs of temporary placement services consist of payroll, payroll taxes, and benefit costs for the Company’s engagement professionals. There are no material direct costs of permanent placement and other services. Advertising Expense The Company expenses advertising costs as incurred. For the years ended December 31, 2024 and December 31, 2023, the Company recorded advertising expense of $ 968,077 and $ 962,606 , respectively. Advertising expense is included in “selling, general and administrative” on the accompanying consolidated statements of operations. Stock-based Compensation The Company has a stock-based compensation plan, which is described more fully in Note 18: Stock-Based Compensation . In accordance with ASC Topic 718 — “Compensation-Stock Compensation” , compensation expense associated with restricted stock units is equal to the closing price of the Company’s stock on the date of grant and is recorded pro rata over the required service period. 48 Table of Contents 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 bases. 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. The Company recognizes uncertain tax positions that it has taken or expects to take on a tax return. Management makes a determination as to whether it is more likely than not that an income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the Company were to incur an income tax liability from an uncertain tax position in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has applied the framework for measuring fair value which requires a fair value hierarchy to be applied to all fair value measurements. All financial instruments recognized at fair value are classified into one of three levels in the fair value hierarchy as follows: Level 1 - Valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Level 2 - Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not in active markets; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means. Level 3 - Valuation techniques with significant unobservable market inputs. The Company measures certain non-financial assets and liabilities, including long-lived assets and intangible assets, at fair value on a nonrecurring basis. The fair value of contingent consideration is classified within Level 3 of the fair value hierarchy. Loss Contingencies From time to time, the Company may become involved in various claims, disputes and legal or regulatory proceedings that arise in the ordinary course of business. The Company assesses its potential contingent and other liabilities by analyzing its claims, disputes and legal and regulatory matters using all available information and developing its views on estimated losses in consultation with its legal and other advisors. The Company determines whether a loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. If the contingency is not probable or cannot be reasonably estimated, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss may be incurred. Legal fees incurred by the Company related to contingent liabilities are expensed as incurred. 49 Table of Contents 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. 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. The Company’s milestone for its capital raise of not less than $20,000,000 was been due on January 15, 2025 and Management believes it is likely that the milestone will either be eliminated upon the debt paid off or amended by the lenders. The Company has entered into and has been approved by a new ABL lender and expects to close funding on the new credit facility by the end of April 2025. Our current ABL lender has agree to continue extending the credit facility under normal course. The bridge lender has also agreed to extend the maturity date of the $ 1,950,000 Credit Agreement to June 18, 2026. The Company will continue to borrow under the existing facility in its normal course of business until closing. Recent Accounting Pronouncements Standards Recently Adopted In November 2023, the FASB issued ASU 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to expand annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The Company adopted the new standards in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. 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 Company adopted ASU 2023-09 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The Company does not believe ASU 2023-07 or ASU 2024-03 have a material effect on its consolidated financial statements. Standards Not Yet Adopted In November 2024, the FASB issued ASU 2024-03 – Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”) to improve the disclosures about an entity’s expenses and provide more detailed information about the types of expenses. The guidance is effective for annual reporting periods beginning after December 15, 2026. Early adoption is permitted. The Company plan to adopt ASU 2024-03 for the reporting period December 31, 2026. In January 2025, the FASB issued ASU 2025-01 – Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2025-01”) to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company plans to adopt ASU 2025-01 for the annual reporting period December 31, 2026 and interim periods for the quarterly reporting period March 31, 2027. The Company does not believe any other recently issued but not yet effective accounting pronouncements will have a material effect on its consolidated financial statements. 50 Table of Contents Note 4: Revenue Recognition and Accounts Receivable The Company’s disaggregated revenues are as follows: Year Ended December 31, 2024 2023 Temporary placement services $ 438,820,825 $ 396,739,483 Permanent placement and other services 3,788,989 4,635,218 Total service revenues, net $ 442,609,814 $ 401,374,701 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 periods ended December 31, 2024 and December 31, 2023, revenues from the Company’s largest customer accounted for approximately 16 % and 16 % of consolidated revenues, 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. Contract assets consists of unbilled accounts receivable of $ 9,368,565 and $ 5,660,753 as of December 31, 2024 and December 31, 2023, respectively. Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment upon receipt of invoice. Accounts receivable is as follows: December 31, 2024 December 31, 2023 Accounts receivable $ 66,800,444 $ 60,720,972 Allowance for doubtful accounts ( 2,726,107 ) ( 1,902,140 ) Accounts receivable, net $ 64,074,337 $ 58,818,832 The Company’s accounts receivable serves as collateral for the Revolver and the Term Note has a second lien after the Revolver. The Company recognized $ 957,031 and $ 1,526,985 of bad debt expense during the years ended December 31, 2024 and 2023, respectively. None of the Company’s customers accounted for more than 10% of the Company’s accounts receivable as of December 31, 2024 and December 31, 2023. Note 5: Property and Equipment Property and equipment consisted of the following: December 31, 2024 December 31, 2023 Estimated Useful Life Computer equipment and software $ 803,917 $ 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 $ 1,086,471 $ 1,013,015 Less: accumulated depreciation and amortization ( 778,851 ) ( 580,320 ) Property and equipment, net $ 307,620 $ 432,695 Total depreciation expense of $ 198,531 and $ 244,885 was recorded during the years ended December 31, 2024 and 2023, respectively and is included in “depreciation and amortization” in the accompanying consolidated statements of operations. 51 Table of Contents The carrying value of the Company’s property and equipment serving as collateral for the Company’s outstanding indebtedness amounted to $ 305,922 and $ 426,920 as of December 31, 2024 and 2023, respectively. Note 6: Intangible Assets Intangible assets consisted of the following: December 31, 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 $ ( 7,784,444 ) $ 27,215,556 $ 35,000,000 $ ( 5,451,111 ) $ 29,548,889 Trade Name 12,400,000 ( 8,220,000 ) 4,180,000 12,400,000 ( 5,760,000 ) 6,640,000 Total intangible assets $ 47,400,000 $ ( 16,004,444 ) $ 31,395,556 $ 47,400,000 $ ( 11,211,111 ) $ 36,188,889 Total amortization expense of $ 4,793,333 was recorded during both the years ended December 31, 2024 and 2023. Amortization expense related to intangible assets is included in “depreciation and amortization” on the accompanying consolidated statements of operations. As of December 31, 2024 scheduled future amortization of the Company’s intangible assets is as follows for each of the next five years and thereafter: 2025 $ 4,793,333 2026 4,053,334 2027 2,333,333 2028 2,333,333 2029 2,333,334 Thereafter 15,548,889 Total $ 31,395,556 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). During the year ended December 31, 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 December 31, 2024. Note 7: Leases We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. The Company does not have any material leases, individually or in the aggregate, classified as finance 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 year ended December 31, 2024, the Company extended certain of its leases for periods ranging from one to five years . 52 Table of Contents Variable Lease Costs Certain of the Company’s leases require payments for taxes, insurance, and other costs applicable to the property, in addition to the minimum lease payments. These costs are considered variable costs which are based on actual expenses incurred by the lessor. Therefore, these amounts are not included in the calculation of the right-of-use assets and lease liabilities. The Company has lease agreements which provide for fixed and scheduled escalations, which are included in the calculation of the right-of-use assets and lease liabilities. The Company does not generally enter into lease agreements with increases in the base rent amount based on changes to the consumer price index. Further, the Company has several locations in which its lease tenancy is month-to-month. For purposes of the Company’s lease liability calculations, the Company has estimated the length of time that it is reasonably certain to occupy the space. There is inherent variability risk due to these month-to-month tenancies. Options to Extend or Terminate Leases Many of the Company’s leases contain options to extend the lease term. The leases generally contain a single option of one-year to three-year renewal terms. The exercise of lease renewal options is at the Company’s sole discretion. If it is reasonably certain that the Company will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of the Company’s right-of-use assets and lease liabilities. The Company’s leases do not generally contain options to early terminate; however, leases with month-to-month tenancy can be terminated at any time. Discount Rate and Lease Term The following table summarizes the weighted average remaining lease term and discount rate for operating leases as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Weighted average remaining lease term for operating leases 2.07 years 1.75 years Weighted average discount rate for operating leases 6.29 % 4.22 % Lease Costs and Activity The Companies lease costs and activity are as follows: Year Ended December 31, Operating Lease Cost 2024 2023 Fixed lease costs to non-related parties $ 1,723,037 $ 1,419,202 Variable lease costs to non-related parties 224,041 226,837 Total lease cost $ 1,947,078 $ 1,646,039 Year Ended December 31, Supplemental Cash Flow Disclosures 2024 2023 Cash paid to non-related parties for the amounts included in the measurement of operating lease liabilities $ 1,703,706 $ 1,409,154 Right-of-use assets obtained in exchange of new operating lease liabilities $ 429,121 $ 445,480 53 Table of Contents Maturity of Lease Liabilities The following table summarizes the future minimum payments for operating leases as of December 31, 2024, due in each year ending December 31: Year Minimum Lease Payments 2025 $ 1,398,593 2026 528,973 2027 215,140 2028 49,140 2029 39,146 Thereafter 47,068 Total lease payments $ 2,278,060 Less: imputed interest ( 151,192 ) Present value of operating lease liabilities $ 2,126,868 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: December 31, 2024 December 31, 2023 Revolver $ 42,508,379 $ 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 35,000,000 — Less: unamortized debt issuance costs ( 244,565 ) ( 1,785,114 ) Total debt $ 80,588,814 $ 138,900,203 Current portion $ 43,883,379 $ 138,900,203 Non-current portion $ 36,705,435 $ — 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 December 31, 2024 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. The Company has received conditional approval and preliminary term sheet by a new ABL lender and expects to close on a new credit facility by the end of April 2025. The Company will continue to borrow under the existing facility in its normal course of business until closing. 54 Table of Contents 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 December 31, 2024, and December 31, 2023, the Company has recognized liability balances on the Revolver of $ 42,508,379 and $ 85,092,695 , respectively. Borrowings under the Revolver (as amended on November 15, 2022) are classified as one of the following: • SOFR Revolving Credit Loans • SOFR FILO (“first-in-last-out”) Loans • Base Rate Revolving Credit Loans • Base Rate FILO Loans • 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. 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 55 Table of Contents 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 September 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. 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 extended forbearance agreements with its lender, 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. 56 Table of Contents 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. The Company has received conditional approval to extend the current milestone for the Company’s Initial Capital Raise to a future undetermined date. The Company has received conditional approval and a preliminary term sheet by a new ABL lender and expects to close on a new credit facility by the end of April 2025. The Company will continue to borrow under the existing facility in its normal course of business until closing. The table below summarizes the interest rates, per annum, on each loan type as of December 31, 2024 and 2023, respectively. As of December 31, 2024 2023 Base Rate Revolving Credit Loans 12.25 % 12.25 % Swing-Line Loans — % — % Base Rate FILO Loans — % 11.21 % SOFR Revolving Credit Loans 9.21 % 10.21 % The Company must pay a fee for unused borrowing capacity on the Revolver in an amount calculated at a rate of 0.25 % per annum of the unused amount. The Revolver requires that the co-borrowers comply with certain financial and non-financial covenants. The Revolver requires that the Company together with IDC meet certain financial covenants which are generally calculated with reference to the financial performance, asset balances, and borrowings of IDC together with all of its consolidated subsidiaries (including the Company). Under the terms of the Revolver, the Company is prohibited from making dividends or distributions to owners who are not also co-borrowers on the Revolver. Pursuant to the credit agreement for the Revolver, co-borrowers are required to make a mandatory principal prepayment in the event cash proceeds are received from the following (unless specifically authorized by terms of the Revolver): issuance of equity securities, incurrence of additional debt and/or disposition of assets. Pursuant to the credit agreement for the Revolver, upon the receipt of certain payments outside of ordinary course of business, the co-borrowers are required to remit such proceeds to the Revolver Lenders as a prepayment. Total available borrowing capacity on the Revolver as of December 31, 2024 was over-advanced by $ 1,299,463 . 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 December 31, 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 Paid-in-Kind (“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 consolidated statements of 57 Table of Contents changes in stockholders’ equity (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 September 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 and stockholders’ 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. The Seventh Amendment to the Term Note 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 $ 100,000 , the forbearance fee of $ 500,000 and the amendment fee of $ 150,000 are the responsibility of IDC. 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. 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. On June 18, 2024, the Company entered into the Limited Consent and Ninth Amendment and Forbearance Agreement (the “Ninth 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 Ninth 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. The Initial Capital Raise milestone and the uplisting milestone dates were extended to September 15, 2024. The Company has received conditional approval to extend the current milestone for the Company’s Initial Capital Raise and the future date hasn’t been determined. Additionally, the Term Note obligation is fully covered by the Allocation agreement with IDC, as discussed below. The Term Note includes certain financial and non-financial covenants. The Term Note requires that the Company, together with IDC, meet certain financial covenants which are generally calculated with reference to the financial performance, asset balances, and borrowings of IDC together with all its consolidated subsidiaries. 58 Table of Contents 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 December 31, 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 December 31, 2024 and December 31, 2023, respectively. 2023 and 2024 Amendments 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 nine months ended September 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 stockholders’ earnings (deficit). Fees paid to third parties are expensed as incurred, and no gain or loss was recorded on the modification. 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 stockholders’ 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 was originally September 30, 59 Table of Contents 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. 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 with an original maturity date of 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. 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. 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. 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 December 31, 2024 Remainder of 2024 $ — 2025 43,883,379 2026 36,950,000 2027 — 2028 — Thereafter — Total $ 80,833,379 60 Table of Contents Interest Expense The Company recognized total interest expense of $ 12,004,860 and $ 17,538,816 during the years ended December 31, 2024 and 2023, respectively. $ 594,275 and $ 673,322 of deferred financing costs were recognized as a component of “interest expense” on the accompanying consolidated statements of operations for the years ended December 31, 2024 and 2023, respectively. Note 9: Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: December 31, 2024 December 31, 2023 Potential settlement offer for legacy stockholders $ 11,101,671 $ — Accrued wages and salaries 28,784,955 5,372,929 Accrued commissions and bonuses 3,515,821 549,313 Accrued interest 683,046 3,001,362 Income tax payable 13,913 — Earnout due to sellers – current portion — 3,474,954 Accrued other expenses and current liabilities 5,925,144 3,645,537 Total accrued expenses and other current liabilities $ 50,024,550 $ 16,044,095 Legacy Stockholder Dividend Settlements The Company has extended offers for settlement to stockholders as a result of the Company failing to declare and pay a declared dividend as described in the Company’s filings. The Company has issued 764,486 shares in partial satisfaction of this settlement as of the issuance date of the Company’s December 31, 2024 financial statements at the September 10, 2024 closing stock price of $ 6.45 . See Note 21: Subsequent Events for further discussion on these settlements. On October 24, 2024 the Company entered into an Amended and Restated Settlement Agreement and General Release of Claims with regard to the Company’s failing to declare and pay a declared dividend as described in the Company’s filings and the shareholder agreed to provide consulting services to the Company. In full and final satisfaction of any and all obligations related to the dividend and consulting services, the Company agreed to the following: • $ 25,000 cash payment as an initial payment under the Consulting Agreement • Consulting fees will be paid at the sum of $ 7,500 per month, paid quarterly • 757,833 shares will be issued as additional consideration for up to 10 hours of services a week. Any weekly hours in excess of those hours will be billed at a negotiated rate • 230,027 shares will be issued as a Dividend settlement Legal Counsel Exchange Agreement On December 5, 2024, the Company and its legal counsel entered into an exchange agreement whereby the Company shall issue to legal counsel 20,000 restricted shares of common stock in satisfaction of $ 101,400 of accounts payable to legal counsel at the closing price of $ 5.07 per share. These shares were transferred to legal counsel on February 12, 2025. Note 10: Retirement Plan The Company maintains a 401(k) plan for qualified employees. The plan covers substantially all full-time employees of the Company who meet certain age and length of service requirements. There is no requirement for the Company to match employee contributions to the plan. The Company did not contribute to the plan during the years ended December 31, 2024 and 2023. 61 Table of Contents Note 11: 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 February 2, 2018, Michael Smith on his own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against various defendants in the Superior Court of California, Los Angeles County, that was subsequently amended to add Lyneer as a defendant on April 28, 2022. The complaint alleges wage and hour claims, and inaccurate wage statement claims on behalf of the class and plaintiff. The parties have agreed to a $ 300,000 settlement which is pending court approval. On October 30, 2019, Rosanna Vargas filed a complaint in the Superior Court of New Jersey at Camden County against Lyneer and various defendants, including Lyneer’s client, alleging severe personal injury sustained at work. The case is now closed as to all parties. As a result of the matter, Lyneer’s client sought indemnification from Lyneer pursuant to an indemnification demand issued to Lyneer on June 10, 2022. Accordingly, Lyneer agreed to pay approximately $ 1,030,000 over 36 months, beginning in July 2023, to settle the claim. On January 6, 2021, a class action wage and hour complaint was filed in the Superior Court of California, Los Angeles County, by Enrique Briseno as class representative. The Complaint was filed only against the Company’s client. The matter settled for $ 425,000 , $ 300,000 of which is to be paid by the Company, and the remaining $ 125,000 is to be paid by the client. The settlement agreement was signed on December 17, 2024 and has been finalized and executed and provided to the Court for approval , and the Company is currently awaiting such approval. If approved, it is anticipated that the settlement payment will be due in the second quarter of 2025. The Company has accrued the full amount of the $ 300,000 settlement payment due, which is recognized in “accrued expenses and other current liabilities” on the accompanying consolidated balance sheets. 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. A settlement conference was held on August 28, 2024, but was unsuccessful. The Company’s liability insurance carrier and the Company's worker's compensation insurance carrier and the liability insurance carrier for the client held a settlement conference on March 11, 2025, but was unsuccessful and the matter is listed now listed for trial on April 28, 2025. The Company believes it has issues for appeal, but believes it is probable to receive an unfavorable outcome. The Company believes that the insurance carriers will contribute a significant amount, if not all, of the potential settlement. The Company has accrued $ 291,667 towards the potential settlement, which is recognized in “accrued expenses and other current liabilities” on the accompanying consolidated balance sheets. On October 8, 2021, a class action wage and hour complaint was filed in the Superior Court of California, Orange County, by Maria Reyes and Teresa Alvarez as class representatives. The Complaint was filed against the Company as well as the Company’s client. The matter settled for $ 750,000 , $ 650,000 of which is to be paid by the Company, and the remaining $ 100,000 is to be paid by the client. The settlement agreement was signed November 16, 2023 and has been finalized and executed and provided to the Court for approval, and the Company is currently awaiting such approval. If approved, it is anticipated that the settlement payment will be due in the first or second quarter of 2025. The Company has accrued the full amount of the $ 650,000 settlement payment due, 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 is entitled to 62 Table of Contents 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. 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 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- 63 Table of Contents 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. 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. 64 Table of Contents 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 which have been issued. The agreement provides that he cannot be removed except by the Company’s stockholders. Note 12: 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. 65 Table of Contents A summary of the activities of Level 3 fair value measurements is as follows: December 31, 2024 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 17: Related Party Transactions for a discussion of the Company’s contingent consideration liabilities attributed to LMH. The Company did not have any transfers between Levels 2 and 3 within the fair value hierarchy during the years ended December 31, 2024 and 2023. On January 16, 2024, the Company converted the Earnout liability to Subordinated promissory notes. See Note 8: Debt for further discussion. Financial Instruments not Carried at Fair Value The Carrying values of the Company’s cash and cash equivalents approximated their fair values due to their short-term maturities. The carrying values of other current assets and liabilities including accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their fair value due to their short-term maturities. As of December 31, 2024 and 2023 the Company’s variable rate indebtedness consists of the Revolver which bears interest at variable rates (SOFR or a Base Rate plus a margin, and LIBOR or a Base Rate plus a margin on December 31, 2024 and 2023, respectively). The carrying value of the Company’s recognized borrowings under the Revolver approximates their fair value as the debt is at variable rates currently available and resets on a monthly basis. The fair value of the Company’s fixed rate debt, which consists of the Merger Note, Credit Agreement and Promissory Note as of December 31, 2024 and the Term Note, the Seller Note and the Earnout Notes as of December 31, 2023 is estimated using Level 2 inputs by discounting future cash flows using estimated rates which the Company believes approximate current market interest rate for similar obligations. A summary of the carrying value and fair value of the Company’s debt is as follows: December 31, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value Variable Rate Debt $ 42,508,379 $ 42,508,379 $ 85,092,697 $ 85,092,697 Fixed Rate Debt $ 38,325,000 $ 38,400,000 $ 55,592,622 $ 55,100,000 Note 13: Segment Reporting The Company reports information about operating segments in accordance with ASU 2023-07, which requires financial information to be reported based on the way management organizes segments within a company for making operating decision and evaluating performance. The Company derives revenue from hourly fees charged from the placement of “light industrial” temporary staffing and placement fees earned from the placement of professional permanent employees at its customers. Revenues are accounted for and tracked by each branch location by temporary or permanent placement. The direct costs are not reported by temporary or permanent placement, but rather reported together. Direct costs, primarily payroll and payroll related costs are included in cost of revenue which is deducted from revenues to determine gross profit. Each branch’s operating expenses, which, similar to direct costs, are not separated into temporary or permanent placement costs are then deducted from gross profit. So ultimately the segment manager does not review discrete financial information summarized by temporary or permanent placement, but rather total by operating branch. Therefore, the Company has one reportable segment, which is the business of providing commercial staffing solutions. The accounting policies of the commercial staffing solutions segment are the same as those described in Note 3: Summary of Significant Accounting Policies . The Company’s CEO is the CODM and reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial 66 Table of Contents performance. The CODM assess performance for the commercial staffing solutions segment and decides how to allocate resources based on net income/(loss) that is also reported on the consolidated statement of operations as consolidated net income/(loss). The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. The CODM uses net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the current business segment or into other parts of the entity or parent, such as for acquistions or other public costs such as investor relations and marketing. The Company does not have intra-entity sales or transfers. Note 14: 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 $ 424,188 and $ 1,659,914 as of December 31, 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 December 31, 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 15: Members’ Capital and Mezzanine Capital As of December 31, 2023, 90 %, of the outstanding membership units of Lyneer 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. The LMH Put was exercised on February 28, 2024 and as of December 31, 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. 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 67 Table of Contents 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 16: Redeemable Units Under the August 31, 2021 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. The Company has determined that the presence of the LMH Put has caused the LMH Units to be redeemable upon an event that is not entirely within the control of the Company and accordingly the Company has classified the LMH Units as a component of mezzanine capital in the accompanying consolidated financial statements as of December 31, 2023 and 2022. Upon the exercise of the LMH Put or the IDC Call the amount payable to LMH is equal to the greater of the Fair Market Value of the LMH Units (as defined in the August 31, 2021 Operating Agreement) or $ 9,500,000 plus an additional accrued amount equal to 5.25 % per annum accruing ratably over a calendar year and commencing on August 31, 2021 and through the date of a timely put/call exercise notice (the “Put-Call Purchase Price”). Fair Market Value generally with respect to the Put-Call Purchase Price is the amount determined between LMH and IDC in good faith to be the market value of the LMH Units, unless IDC and LMH are unable to agree on this value, in which case pursuant to the August 31, 2021 Operating Agreement, the amount will be determined by an independent appraiser. Upon exercise of the IDC Call or the LMH Put, IDC is required to issue to LMH an unsecured subordinated promissory note in the amount of the Put-Call Purchase Price pursuant to the terms prescribed by August 31, 2021 Operating Agreement (the “Put-Call Note”). The Put-Call Note entitles the holder to payment of 50 % of outstanding principal six months after issuance with the remaining 50 % payable in six equal quarterly payments beginning on the last date of each successive calendar quarter following the initial 50 % payment, with the last payment of principal due and payable on the Put-Call Note’s maturity date unless the payment of the Put-Call Note is otherwise accelerated pursuant to its terms. The Put-Call Note provides for the acceleration of payment principal under certain conditions, including upon a change of control, as defined. The August 31, 2021 Operating Agreement provides that the Put-Call Note, if issued, will bear interest at a stated annual interest rate of 5.25 % which is payable quarterly in arrears. Redemption Requirements LMH may put the LMH Units to IDC upon the occurrence of a Triggering Event or during the Put-Call Period. If redeemed, the redemption amount is the greater of the Fair Market Value of the LMH Units or $ 9,500,000 plus an additional amount calculated at a rate of 5.25 % per annum from August 31, 2021 through the date of the redemption request. The Put-Call Purchase Price 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. Note 17: 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. 68 Table of Contents 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 December 31, 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 December 31, 2024 and December 31, 2023, respectively. As of December 31, 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 – related parties”, respectively on the accompanying consolidated balance sheets. Interest expense incurred on the Earnout Notes to LMH totaled $ 292,996 and $ 526,156 for the years ended December 31, 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 December 30, 2024 and December 31, 2023, respectively and are included in “other assets” in the accompanying consolidated balance sheets. Refer to Note 1: Organization, Nature of Operations and Basis of Presentation for additional information. The balance of the earnout liability payable to LMH as of December 31, 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. 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. 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, 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. Amounts payable to IDC of this nature amounted to $ 548,432 and $ 522,472 as of December 31, 2024 and December 31, 2023, respectively, and are included in “accrued expenses and other current liabilities” and “due to related parties” on the accompanying consolidated balance sheets as of December 31, 2024, and December 31, 2023, respectively. For the second short-period ended December 31, 2024, Lyneer will file consolidated income tax returns with Atlantic International Corp. Total amounts payable to IDC, including the above taxes payable to IDC, amounted to $ 2,091,035 and $ 4,384,178 as of December 31, 2024, and December 31, 2023, respectively and are included in “accrued expenses and other current liabilities” and “due to related parties” on the accompanying consolidated balance sheets as of December 31, 2024, and December 31, 2023, respectively. There are no formalized repayment terms. During the year ended December 31, 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. 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 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. 69 Table of Contents Note 18: 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. 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 Incentive Plan which became effective upon the consummation and completion of the Merger. 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 10,065,397 restricted stock units to non-employees under its Incentive Plan. As of December 31, 2024, the Company had 241,932 unvested RSUs with a grant date fair value of $ 2.36 . The following table summarizes the Company’s restricted stock activity consisting of RSUs: Non-vested Shares Outstanding Weighted Average Grant Date Fair Value per Share Outstanding at December 31, 2023 — $ — Granted 10,065,397 $ 4.49 Vested ( 9,823,465 ) $ 4.54 Unvested at December 31, 2024 241,932 $ 2.36 Of the shares granted, 4,771,255 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. The vesting date fair value of RSUs that vested in 2024 and 2023 was $ 4.54 and $ 0 , respectively. The weighted average grant date fair value per share of awards granted in 2024 and 2023 was $ 4.49 and $ 0 , respectively. Stock-based compensation expense included in the accompanying consolidated statements of operations was: Year Ended December 31, 2024 2023 Stock-based compensation expense $ 45,202,329 $ — As of December 31, 2024, there was $ 532,902 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 . Stock Issuance On October 25, 2024, the Company issued 117,925 shares of the Company’s common stock to its employees at a per share price of $ 4.91 outside of the Incentive Plan as a special incentive for employees. 70 Table of Contents Note 19: Income Taxes For the years ended December 31, 2024 and 2023, the Company recorded an income tax expense/(benefit) of $ 5,379,102 and $( 5,928,271 ), respectively. The Company’s effective tax rate for the years ended December 31, 2024 and 2023 was 4.1 % and ( 28.0 )%, respectively. The increase in effective tax rates between the periods was primarily due to the establishment of a valuation allowance on the Company’s deferred tax assets. Lyneer Investments files as a partnership for US federal income tax purposes and is considered a “pass-through” entity. As such, the taxable activities of Lyneer Investments for the first short-period, leading up to the merger, are allocated to its two Members, IDC and LMH, both of which report those results on separate income tax returns. For the second short-period, post-merger, Lyneer Investments’ taxable activities will be included on Atlantic International Corp’s income tax returns. For the period of June 18, 2024 to December 31, 2024, the Company plans to file consolidated income tax returns for federal and state income tax purposes. As a single member LLC (owned 100% by Lyneer Holdings, a corporation), LSS is a disregarded entity for US federal tax income tax purposes and its activities will be included on the corporate returns filed by Atlantic International Corp. Prior to the Merger, IDC included the activities and balances of the Company on designated IDC consolidated state and local income tax returns. In these returns, the Company’s income tax will be paid on returns filed by IDC. During the years ended December 31, 2024 and 2023, the Company recognized income tax expense of approximately $ 25,960 and $ 119,658 , respectively, representing the tax arising from the inclusion of the Company’s activities on IDC’s consolidated state and local returns, and a corresponding cumulative related party payable to IDC of $ 548,432 and $ 522,472 as of December 31, 2024 and 2023, respectively. The domestic and foreign components of total loss before provision for (benefit from) income taxes are as follows: Year Ended December 31, 2024 2023 United States $ ( 130,100,788 ) $ ( 21,180,291 ) Foreign — — $ ( 130,100,788 ) $ ( 21,180,291 ) The provision for)/(benefit from) income taxes consists of the following expenses (benefits): Year Ended December 31, 2024 2023 Federal Current $ 34,523 $ ( 736,797 ) Deferred 3,649,803 ( 3,923,706 ) State and Local Current 104,573 ( 46,627 ) Deferred 1,590,203 ( 1,221,141 ) Income tax (expense)/benefit $ 5,379,102 $ ( 5,928,271 ) 71 Table of Contents The provision for/(benefit from) income taxes differs from the United States Federal statutory rate as follows: Year Ended December 31, 2024 2023 Amount Percent Amount Percent Tax benefit at federal statutory rate $ ( 27,321,165 ) 21.0 % $ ( 4,447,861.00 ) 21.0 % Change in valuation allowance 39,869,545 ( 30.6 ) % — — % State income taxes, net of federal benefit ( 9,791,363 ) 7.5 % ( 1,193,651 ) 5.6 % Permanent differences 3,006,784 ( 2.3 ) % 670,483 ( 3.1 ) % Federal and state refunds — — % ( 708,073 ) 3.3 % Other ( 384,699 ) 0.3 % ( 249,169 ) 1.2 % Effective tax rate $ 5,379,102 ( 4.1 ) % $ ( 5,928,271 ) 28.0 % Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows: December 31, 2024 December 31, 2023 Deferred tax assets: Federal net operating loss carryforwards $ 20,983,881 $ — State net operating loss carryforwards 8,434,775 — Compensation 1,035,288 — Allowance for doubtful accounts 802,744 525,675 Interest expense limitation 9,499,927 5,993,430 Other 61,539 77,042 Accrued expenses 539,784 241,815 Lease liability 626,289 — Property and equipment 164,064 112,294 Total deferred tax assets 42,148,291 6,950,256 Valuation allowance ( 40,178,754 ) — Net total deferred tax assets $ 1,969,537 $ 6,950,256 Deferred tax liabilities: Right of use asset $ ( 608,927 ) $ — Intangible assets ( 1,360,610 ) ( 1,707,646 ) Total deferred tax liabilities $ ( 1,969,537 ) $ ( 1,707,646 ) Net deferred tax assets $ — $ 5,242,610 As of December 31, 2024, the Company had federal net operating loss carryforwards of approximately $ 99,923,243 and state net operating loss carryforwards of approximately $ 130,767,950 , which are available to reduce future taxable income. The net operating loss (“NOL”) and tax credits will expire at various dates through 2038. The NOL is subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. 72 Table of Contents ASC Topic 740 – Income Taxes (“ASC 740”) requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2024 because the Company's management has determined that it is more likely than not that these assets will not be fully realized. The increase in the valuation allowance recorded during the year primarily relates to the establishment of a valuation allowance on the net deferred tax assets as of the beginning of the year, in addition to a valuation allowance against the current year net operating loss generation. The Company accounts for Uncertainty in Income Taxes under the provisions of ASC 740 which defines the thresholds for recognizing the benefits of tax return positions in the financial statements as "more likely than not" to be sustained by the taxing authority. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2024, the Company has recorded no unrecognized tax benefits. The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2024, there were no interest or penalties associated with unrecognized tax benefits. Note 20: Earnings per Share The following table summarizes the computation of basic and diluted net loss per share: Year Ended December 31, 2024 2023 Numerator: Net loss $ ( 135,479,890 ) $ ( 15,252,020 ) Denominator: Weighted average common shares outstanding, basic and diluted 36,783,626 25,423,729 Net loss per share, basic and diluted $ ( 3.68 ) $ ( 0.60 ) Excluded anti-dilutive shares 1,077,091 13,825 In 2024 and 2023, the dilutive impact of outstanding RSUs were excluded from the computation of weighted-average diluted shares as a result of the Company’s net loss as its inclusion would have been anti-dilutive. Note 21: Subsequent Events The Company has evaluated subsequent events through March 21, 2025, as detailed below. Shareholder Dividend Settlements The Company has extended 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. The Company has issued 764,486 shares in partial satisfaction of this settlement as of the issuance date of the Company’s December 31, 2024 financial statements at the September 10, 2024 closing stock price of $ 6.45 . Staffing 360 Acquisition On November 1, 2024, as amended on January 7, 2025, Atlantic, Staffing 360 Solutions, Inc. a Delaware corporation (“STAF”), and A36 Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Company entered into an Agreement and Plan of Merger (the “Staffing 360 Merger Agreement”), pursuant to which Merger Sub would merge with and into STAF, with STAF surviving as a wholly-owned subsidiary of the Company (the “Staffing 360 Merger”). Subject to the terms and conditions of the Staffing 360 Merger Agreement, upon completion of the Staffing 360 Merger, Atlantic would acquire all outstanding shares of STAF’s common stock. On February 26, 2025, Atlantic International Corp. (“Atlantic,” or the “Company”) sent a notice of termination to STAF pursuant to the terms and conditions of the Staffing 360 Merger Agreement by and among the Company, A36 Merger Sub, Inc. and STAF, dated as of November 1, 2024, as amended as of January 7, 2025. There was no material relationship between the Company and its affiliates and STAF other than in respect of the Staffing 360 Merger Agreement. 73 Table of Contents The Staffing 360 Merger Agreement required STAF to execute and/or deliver: “a signed agreement between the Internal Revenue Service and Company [i.e., STAF] concerning the terms of settlement mutually agreeable to Atlantic ” (Emphasis Added). Without the Company’s knowledge, STAF entered into agreements with the Internal Revenue Service that were not agreeable to Atlantic. STAF materially failed to satisfy the terms of the Staffing 360 Merger Agreement and has done so in a manner that cannot be cured. Accordingly, this was a material breach of the covenant and agreement set forth in the Staffing 360 Merger Agreement to deliver: “a signed agreement between the Internal Revenue Service and Company (i.e., STAF) concerning the terms of settlement mutually agreeable to Atlantic.” Finally, STAF has failed to demonstrate compliance under the Staffing 360 Merger Agreement, namely to (i) operate the Business in the ordinary course in all material respects and (ii) use commercially reasonable efforts to preserve intact the business organization, assets, properties and material business relations of STAF, both as reflected by STAF’s failure to satisfy its obligations and maintain its material business relations, among other reasons. Share Issuance to Legal Counsel On February 12, 2025, 20,000 shares were transferred to legal counsel in satisfaction of the exchange agreement entered into on December 5, 2024. 74 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. None.