ATLANTIC INTERNATIONAL CORP

Current report

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

Current report

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

Current report

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

Current report

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

Current report

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

Current report

Service Revenue, Net

Current report

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

Current report

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

Current report

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

Current report

Cost of Revenue and Gross Profit

Current report

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

Current report

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

Current report

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

Current report

Total Operating Expenses

Current report

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

Current report

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

Current report

Selling, General and Administrative Costs

Current report

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

Current report

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

Current report

Changes in Fair Value of Contingent Consideration Liabilities

Current report

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

Current report

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

Current report

Depreciation and Amortization

Current report

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

Current report

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

Current report

Loss on Debt Extinguishment

Current report

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

Current report

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

Current report

Advisory Fees Paid in the Merger

Current report

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

Current report

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

Current report

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

Current report

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

Current report

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

Current report

Other Expense

Current report

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

Current report

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

Current report

Income Tax Benefit

Current report

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

Current report

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

Previous report

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2024 and related notes included elsewhere in this filing. This discussion and analysis and other parts of this filing contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this filing. You should carefully read the “Risk Factors” section of this filing to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this filing.

Previous report

This overview and outlook provide a high-level discussion of our operating results and significant known trends that affect our business. We believe that the understanding of these trends is important to understanding our financial results for the periods being reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this report.

Previous report

About SeqLL

Previous report

We are an early commercial-stage life sciences instrumentation and research services company engaged in the development of scientific assets and novel intellectual property across multiple “omics” fields. We leverage our expertise with True Single Molecule Sequencing (tSMS) technology enabling researchers and clinicians to contribute major advancements to scientific research and development.

Previous report

Our customers are primarily the early adopters of genomics technology and tSMS in academic research, biomarker discovery, and molecular diagnostic product development.

Previous report

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto within the Condensed Consolidated Financial Statements section of this report, and trends discussed in “Risk Factors” in Item 1A of Part II of this report.

Previous report

Proposed Merger Agreement

Previous report

Terms used and not defined in the following discussion have the respective meanings set forth in Note 1 to our unaudited condensed consolidated financial statements included in Part I to this report.

Previous report

On May 29, 2023, we entered into the Merger Agreement with Atlantic, Atlantic Merger Sub, SeqLL Merger Sub, Lyneer, and the Sellers subject to the approval of our stockholders at a special meeting, which approval has been obtained. Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Atlantic Merger Sub will initially be merged into Lyneer, and SeqLL Merger Sub will then be merged into Lyneer, with Lyneer continuing as the surviving entity and as our wholly-owned subsidiary. In connection with the consummation of the Merger, we will be renamed “Atlantic International Corp.”

Previous report

For further description of the terms of the Merger Agreement, please refer to Note 1 to the condensed consolidated financial statements.

Previous report

We incurred net losses of $1,095,580 and $1,718,366 for the three months ended March 31, 2024 and 2023, respectively. We had negative cash flow from operating activities of $991,039 and $1,122,036 for the three months ended March 31, 2024 and 2023, respectively, and had an accumulated deficit of $25,231,855 as of March 31, 2024.

Previous report

Results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, and geopolitical instability, such as the military conflict in Ukraine and the Israel-Hamas war. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business.

Previous report

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our consolidated financial statements and the notes thereto within the Consolidated Financial Statements section of this report, and trends discussed in “Risk Factors” in Item 1A of Part II of this report.

Previous report

Research and Development Expenses

Previous report

Research and development expenses decreased by $460,457, or 59%, from $776,720 for the three-month period ended March 31, 2023 compared to $316,263 for the three-month period ended March 31, 2024. The decrease in expenses was a result of the Company’s reduction in research and development activities.

Previous report

General and Administrative Expenses

Previous report

General and administrative expenses decreased by $231,549 or 24%, from $981,107 for the three-month period ended March 31, 2023 compared to $749,558 for the three-month period ended March 31, 2024. The decrease in expenses was primarily due to the inventory write-off of $165,852 and the write off of bad debts of $78,491 in the three-month period ended March 31, 2023.

Previous report

Interest and other Income/Loss

Previous report

We recognized $10,061 of investment income related to cash invested in money market accounts during the three-month period ended March 31, 2024 as compared to $56,267 of income from money market accounts and marketable debt securities during the three months ended March 31, 2023. The decrease in investment income is due to the decrease in the cash equivalents and the sale of the Company’s holdings in marketable securities.

Previous report

For the three months ended March 31, 2024 and 2023, the interest expense on the Promissory Notes was $35,754 and $16,806, respectively. The increase in the interest expense is due to the annual compounding of the interest on the outstanding accrued interest balance.

Previous report

Net Loss

Previous report

Overall, the net loss decreased by $622,786, or 36%, to $1,095,580 as compared to $1,718,366 for the three-month period ended March 31, 2023, primarily due to a reduction of general and administrative and research and development expenses in the three-month period ended March 31, 2024 due to the decrease in research and development activities and due to the inventory write-off of $165,852 and the write off of bad debts of $78,491 in the three month period ended March 31, 2023.

Previous report

Liquidity and Going Concern Uncertainty

Previous report

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We experienced negative cash flows from operations of $991,039 for the three months ended March 31, 2024, which included our costs and expenses related to the transactions contemplated by the Merger Agreement. We had cash and cash equivalents of $1,688,926 at March 31, 2024 and an accumulated deficit of $25,231,855.

Previous report

We will need additional capital to fund its planned operations for the next 12 months if the Merger is not completed. These conditions raise substantial doubt about our ability to continue as a going concern.

Previous report

The condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 were prepared under the assumption that we will continue as a going concern, which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business.

Previous report

Cash Flows

Previous report

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented.

Previous report

Net cash used in operating activities

Previous report

Net cash used in operating activities was approximately $1.0 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in operating spending was due to a reduction in research and development activities in the three month period ended March 31, 2024.

Previous report

Net cash provided by investing activities

Previous report

Net cash provided by investing activities was approximately $0 and $2.5 million for the three months ended March 31, 2024 and 2023, respectively. The decrease was primarily attributable to the maturities of marketable securities of approximately $2.5 million during the three months ended March 31, 2023, while there were no such investments for the three months ended March 31, 2024.

Previous report

Net cash (used in) provided by financing activities

Previous report

Net cash (used in) provided by financing activities was less than ($.1) million, and $1.5 million, for the three-month periods ended March 31, 2024 and 2023, respectively. The decrease in cash provided by financing activities is attributable to the issuance of 50,000 shares of common stock to investors at a price of $36.00 per share during the three-month period ended March 31, 2023 (after the effect of the Reverse Stock Split). The gross proceeds of the issuance were $1.8 million. Additionally, we incurred offering costs of approximately $0.3 million, which were paid with proceeds from the common stock issuance. No such transaction occurred during the three-month period ended March 31, 2024.

Previous report

Recent Accounting Pronouncements

Previous report

There were no recently issued but not yet effective accounting pronouncements will have a material effect on the accompanying consolidated financial statements.

Previous report

We prepare our financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect reported amounts. Estimations are considered critical accounting estimates based on, among other things, its impact on the portrayal of our financial condition, results of operations, or liquidity, as well as the degree of difficulty, subjectivity, and complexity in its deployment. Critical accounting estimates address accounting matters that are inherently uncertain due to unknown future resolution of such matters. Management routinely discusses the development, selection, and disclosure of each critical accounting estimates.

Previous report

There have been no significant changes to our critical accounting policies and estimates during the three month period ended March 31, 2024 as compared to the information contained in our 2023 Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC. Reference should be made to the consolidated financial statements and related notes included in the 2023 Form 10-K for a full description of other significant accounting policies.

Previous report

JOBS Act

Previous report

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.