Atlantic International : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Atlanticus Holdings Corporation

Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion relates to Atlantic International Corp (Atlantic or the Company) and its consolidated subsidiaries and should be read together with the Company's Unaudited Condensed Consolidated Financial Statements and accompanying notes included in Part I, Item 1.-Financial Statements of this Quarterly Report on Form 10-Q. Overview Atlantic, through its subsidiaries, is a worldwide strategic staffing firm. The Company was formed under the principles of honesty and integrity, and with the view of becoming the preferred outside employer of choice. Since its formation, the Company has grown from a regional operation to a worldwide staffing firm with offices and geographic reach across the United States and Europe. The Company's domestic operations 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. With the addition of Circle8 Group ("Circle8") on January 23, 2026, Atlantic extended its capabilities into specialized high-growth IT and technology staffing capabilities across Europe, complementing Atlantic's domestic industrial staffing operations. Circle8 is a European IT-technology talent and consulting enablement platform that provides specialized workforce solutions to enterprises, technology companies, financial institutions, and public-sector organizations. Circle8 focuses on sourcing, deploying, and managing highly skilled professionals in information technology and related digital disciplines. Circle8 is one of the fastest-growing IT and technology staffing companies, operating across Europe through a portfolio of specialized brands. Circle8 manages over 8,500 technology professionals and specializes in software development, data analytics, cybersecurity, project management, and emerging technologies. Circle8 is founder-led and will continue to be led by Mr. Guus Franke who joined Atlantic's Board of Directors as Executive Chairman. Atlantic is headquartered in Englewood Cliffs, New Jersey and has more than 100 locations in the USA. Circle8 is headquartered in Amsterdam, Netherlands. Atlantic is a high-growth outsourced services and workforce solutions company with management who have more than a 28-year operating record. Based on their knowledge of the industry, and through its mergers and acquisitions strategy, Atlantic is building a global staffing organization that redefines the way companies grow professional teams. Our mission is to leverage new technologies and business partnerships to create streamlined hiring processes that resolve the challenges of modern-day employment economics. Atlantic's corporate acquisition strategy is designed to assist its client companies in the transformation of stagnation into growth to achieve sustainable results through their most important asset: people. Atlantic's goal is to create a business designed to deliver to its clients targeted industry talent at speed and scale while also growing the pool of in-demand talent for this same constituency. Atlantic's recruiters will provide specific and data-driven guidance, development, training, and access to jobs. It believes this approach is particularly applicable in several growth sectors, including legal and financial services, technology, and healthcare. The current climate of industry fragmentation and overall economic uncertainty create a moment that Atlantic believes is ripe for strategic consolidation. Atlantic plans to integrate companies and maximize synergies and economics to improve sales and lower operating costs, while, at the same time, continuing to focus and expand on its acquisition strategy of high-margin profitable outsourced services and workforce solution providers. Atlantic's acquisition of Circle8 demonstrated its strategic rationale, as follows: • Diversification of revenue and end markets, balancing industrial staffing with higher-margin, higher-growth IT and technology talent solutions; • Expanded multinational customer coverage, enabling cross-regional workforce support for global enterprises; • Enhanced scale and operating leverage, supporting long-term margin expansion and cash flow generation; • Increased revenue visibility, driven by long-term government contracts and blue-chip enterprise customers; and • Platform for disciplined future growth, leveraging Circle8's completed acquisition phase and transition to operational excellence. At Atlantic, management understands that finding the perfect candidate starts before the job requisition even comes in. Domestically, the Company employs the strategy of proactive recruitment to build a pipeline of pre-vetted candidates for order fulfillment. Atlantic's client mix consists of both small- and medium-size businesses, and large national and multinational client relationships. Client relationships with small- and medium-size businesses are based on a local or regional relationship, and tend to rely less on longer-term contracts, and the competitors for this business are primarily locally owned businesses. 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. Internationally, the Company's specialized workplace solutions support organizations that require specialized technology capabilities to design, build, operate, and secure digital systems and digital infrastructure. Circle8 operates through a portfolio of operating companies and brands that provide staffing, recruitment, and consulting-related services focused primarily on technology professionals. Circle8 delivers services through a range of workforce solutions, including temporary staffing, contract staffing, and payrolling services. Circle8's clients include both private-sector enterprises and public-sector institutions that rely on specialized technology talent to support digital transformation initiatives and the ongoing operation of mission-critical IT systems. Circle8 generates the substantial majority of its revenue from the placement of technology professionals on temporary and contract assignments, where it bills clients based on hourly or daily rates for services performed. Results of Operations The following discussion summarizes the key factors Atlantic's management team believes are necessary for an understanding of Atlantic's financial statements. Comparison of the Three Months Ended March 31, 2026 and 2025: Certain related party and non-related party financial statement line-item amounts have been aggregated for purposes of analysis below, which is consistent with management's evaluation of its business results. The following table summarizes our results of operations for the periods presented: Three Months Ended March 31, Change 2026 2025 Amount Percent Service revenue, net $ 249,886,893 $ 102,808,807 $ 147,078,086 + Cost of revenue 228,460,840 91,622,685 136,838,155 + Gross profit 21,426,053 11,186,122 10,239,931 91.5 % Selling, general and administrative 31,997,753 19,399,479 12,598,274 64.9 % Depreciation and amortization 4,332,094 1,236,389 3,095,705 + Loss from operations (14,903,794) (9,449,746) (5,454,048) 57.7 % Gain on debt extinguishment (233,022) - (233,022) 100.0 % Interest expense 3,554,670 1,284,822 2,269,848 + Other expenses, gains and losses 12,536,863 - 12,536,863 100.0 % Net loss before provision for income taxes (30,762,305) (10,734,568) (20,027,737) + Income tax benefit/(expense) 73,181 (9,617) 82,798 + Net loss $ (30,689,124) $ (10,744,185) $ (19,944,939) + Net loss per share, basic and diluted $ (0.44) $ (0.20) $ (0.24) + Weighted-average shares outstanding, basic and diluted 74,007,596 53,975,575 20,032,021 37.1 % + - change greater than ± 100% Service Revenue, Net Service revenue, net of discounts, for the three months ended March 31, 2026 and 2025 consisted of the following: Three Months Ended March 31, 2026 2025 Temporary placement services $ 245,570,294 $ 101,826,339 Brokerage services 1,972,827 - Payrolling services 938,988 - Permanent placement and other services 1,404,784 982,468 Total service revenues, net $ 249,886,893 $ 102,808,807 Service revenue, net was $249,886,893 and $102,808,807 for the three months ended March 31, 2026 and 2025, respectively, an increase of $147,078,086, or 143.1%. The Circle8 Acquisition accounted for $145,248,041 of the increase. The remaining $1,830,045 increase is primarily a result of the historical Company's temporary placement services business, increasing $1,755,516 in the three months ended March 31, 2026 as compared to the same period in 2025 due to a strong sales initiative which resulted in new customers. Cost of Revenue and Gross Profit Gross profit reflects the difference between realized service revenue, net and cost of revenues. 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 months ended March 31, 2026 and 2025 consisted of the following: Three Months Ended March 31, 2026 2025 Service revenue, net $ 249,886,893 $ 102,808,807 Cost of revenue 228,460,840 91,622,685 Gross profit $ 21,426,053 $ 11,186,122 Cost of revenue for the three months ended March 31, 2026 and 2025 was $228,460,840 and $91,622,685, respectively, an increase of $136,838,155 or 149.3%. The Circle8 Acquisition accounted for 134,938,646 of the increase. The remaining $1,830,045 increase due to the historical Company's higher service revenues. Gross profit for the three months ended March 31, 2026 and 2025 was $21,426,053 and $11,186,122, respectively, an increase of $10,239,931 or 91.5%. The Circle8 Acquisition accounted for $10,309,395 of the increase. The historical Company was essentially flat. As a percentage of service revenue, net, gross profit was 8.6% and 10.9% for the three months ended March 31, 2026 and 2025, respectively. The reduction in margin primarily attributed to international operations including certain European jurisdictions which have lower margins compared to the Company's domestic business. As a percentage of service revenue, net, the gross profit was 10.6% and 10.9% for the three months ended March 31, 2026 and 2025, respectively, for the historical Company, which was a slight decrease. Total Operating Expenses Total operating expenses for the three months ended March 31, 2026 and 2025 consisted of the following: Three Months Ended March 31, 2026 2025 Selling, general and administrative $ 31,997,753 $ 19,399,479 Depreciation and amortization 4,332,094 1,236,389 Total operating expenses $ 36,329,847 $ 20,635,868 The changes in each financial statement line item for the respective periods are described below. Selling, General and Administrative Costs Selling, general and administrative expenses for the three months ended March 31, 2026 and 2025 were $31,997,753 and $19,399,479, respectively, an increase of $12,598,274, or 64.9%. The Circle8 Acquisition accounted for $8,969,658 of the increase. The remaining $3,628,616 increase primarily relates to transaction costs related to the Circle8 Acquisition and bad debt expense of $1,233,099 in the three months ended March 31, 2026. As a percentage of service revenue, net, selling, general and administrative costs were 12.8% in the three months ended March 31, 2026 as compared to 18.9% in the three months ended March 31, 2025. As a percentage of service revenue, net, selling, general and administrative costs were 22.0% and 18.9% for the three months ended March 31, 2026 and 2025, respectively, for the historical Company, due primarily to increased costs related to the Circle8 Acquisition and bad debt expense of $1,233,099. Depreciation and Amortization Depreciation and amortization expense for the three months ended March 31, 2026 and 2025 was $4,332,094 and $1,236,389, respectively, an increase of $3,095,705 or 250.4%. The Circle8 Acquisition accounted for $3,103,592 of the increase. The historical Company was essentially flat with expense of $1,228,502 and $1,236,389 for the three months ended March 31, 2026 and 2025, respectively. Gain on Debt Extinguishment Gain on debt extinguishment, for the three months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Gain on debt extinguishment $ (233,022) $ - Gain on debt extinguishment during the three months ended March 31, 2026, relates to the Company and St. Laurent entering into a Confidential Settlement Agreement pursuant to which the entire $1,375,000 principal amount of the Notes were paid in full on January 29, 2026. All interest and penalties were waived by St. Laurent. Interest Expense Interest expense for the three months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Interest expense $ 3,554,670 $ 1,284,822 Interest expense for the three months ended March 31, 2026 and 2025 was $3,554,670 and $1,284,822, respectively. The Circle8 Acquisition accounted for $1,027,272 of the increase. The historical Company's interest expense was $2,527,398 and $1,284,822 for the three months ended March 31, 2026 and 2025. The increase of $1,242,576, primarily attributed to the Company incurring interest expense on unpaid balance related to an agreement with a professional employer organization ("PEO") who processes the payroll for the Company, and interest expense related to the new factoring agreements, partially offset by lower interest rates for the Revolver as compared to the Revolver with BMO Bank, N.A. ("BMO" and "BMO Revolver"). Other Expenses, gains and losses Other expenses, gains and losses for the three months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Other expenses, gains and losses $ 12,536,863 $ - Other expenses, gains and losses for the three months ended March 31, 2026, primarily relates to the loss on the preferred stock and warrant offerings, and the change in fair value of the Circle8 Benelux warrants. Income Tax Expense Income tax expense for the three months ended March 31, 2026 and 2025 were as follows: Three Months Ended March 31, 2026 2025 Income tax benefit/(expense) $ 73,181 $ (9,617) Income tax (expense)/benefit for the three months ended March 31, 2026 and 2025 was $73,181 and $(9,617), respectively. The change between the periods was primarily due to the tax benefit recorded in jurisdictions where we do not maintain a valuation allowance. On July 4, 2025, the "One Big Beautiful Bill Act" ("OBBBA"), was signed into law, which is considered the enactment date under U.S. GAAP. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Internal Revenue Service ("IRS") Section 163(j) interest limitations, updates to "Global Intangible Low-Taxed Income" ("GILTI"), and "Foreign-Derived Intangible Income" ("FDII") rules, amendments to energy credits, and expanded IRS Section 162(m) aggregation requirements. In accordance with ASC Topic 740 - Income Taxes ("ASC 740"), the effects of the new tax law were recognized in the period of enactment, our quarter ended September 30, 2025. We are currently evaluating the impact of the OBBBA, and do not expect the legislation to have a material financial statement effect. In accordance with ASC 740, the effects of new tax legislation are recognized in the period of enactment. Management has evaluated the provisions of OBBBA, recalculated temporary differences, reassessed valuation allowances, and considered any necessary adjustments. Based on this evaluation, management concluded that the effects of the OBBBA are not material to the Company's unaudited condensed consolidated financial statements for the current period. Management will continue to monitor forthcoming guidance, interpretations, and technical clarifications to assess whether any future adjustments or additional disclosures may be required. Liquidity & Capital Resources Atlantic's working capital requirements are primarily driven by personnel payments and client accounts receivable receipts. As receipts from client partners lag behind payments to personnel, working capital requirements increase substantially in periods of growth. Prior to its acquisition of Circle8, Atlantic's primary sources of liquidity have been cash generated from operations supported through borrowings under its Revolver. Atlantic's primary uses of cash are payments to engagement personnel, corporate personnel, related payroll costs and liabilities, operating expenses, capital expenditures, cash interest, cash taxes, and debt payments. In accordance with ASC Topic 205-40 - Going Concern , Atlantic evaluates whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern for one year from the date the financial statements are issued. This evaluation includes considerations related to covenants contained in Atlantic's credit facilities, forecasted liquidity, net losses and negative net working capital. Atlantic has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of its unaudited consolidated financial statements. The Company expects that the acquisition of Circle8 will enhance its scale, liquidity, and access to capital, positioning the combined entity for potential premium valuation multiples and expanded international reach with established global clients. Management further anticipates that the transaction will drive operating efficiencies, improve profitability, and strengthen revenue stability through a diversified customer base and balanced geographic exposure across the United States and Europe. The unaudited condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. The Company is also actively pursuing additional equity and debt financing alternatives and strategic partnerships. These plans are subject to successful execution and prevailing market conditions, and there can be no assurance that they will generate sufficient liquidity to alleviate the substantial doubt. On December 31, 2023, IDC, Lyneer and Prateek Gattani, IDC's Chief Executive Officer and our then Chairman of the Board until April 2025, entered into an Allocation Agreement ("Allocation Agreement"). Pursuant to the terms of the Allocation Agreement, IDC agreed that, subject to subordination to the taxes as between IDC and Lyneer, in connection with the Merger, the Term Note and the Seller Notes, will either be paid in full or assumed by IDC, and Lyneer will have no further liability or responsibility for such indebtedness. However, as IDC and Lyneer were unable to obtain the release of Lyneer from the holders of such indebtedness, Lyneer will remain jointly and severally liable with IDC to such lenders until such time as such joint and several indebtedness is restructured. At that time IDC will be obligated to repay in full all remaining amounts payable under the Term Note ($36,062,862 as of March 31, 2026), the Seller Notes ($7,875,000 as of March 31, 2026), the Earnout Notes ($20,435,654 as of March 31, 2026), along with the term note for the shortfall from the restructuring of the previous revolving credit facility ($5,661,881 as of March 31, 2026). In the event IDC does not repay any of this debt and the Company is required to make payments, IDC will be obligated to repay the Company for the amounts paid on IDC's behalf. Upon the consummation of the Merger on June 18, 2024, the Company determined that it was no longer probable that IDC would default on its portion of the joint and several obligations and derecognized the joint and several debt obligations in the accompanying financial statements. The Term Note, Seller Notes and Earnout Notes are currently in default, but the Seller and Earnout note holders can take no action pursuant to the inter-creditor agreement with SLR. See Note 8: Debt for further information related to the SPP Term Note purported default. In the Allocation Agreement, IDC and Mr. Gattani agreed to implement a plan to refinance or otherwise satisfy the joint and several indebtedness. It is expected that the Company will not be legally released from its joint and several obligations with respect to the indebtedness to be assumed by IDC until payment in full of the Merger Note, which originally matured on September 30, 2024. On April 29, 2025, the Company and IDC entered into an Amended and Restated Convertible Promissory Note for the Merger Note which extended the maturity date to March 31, 2027. On April 29, 2025, the Company closed on a new revolving credit facility, replacing the BMO Revolver, with a maturity date of April 29, 2028. On April 29, 2025, the previous BMO Revolver lender funded the shortfall of $6,000,000, the IDC portion owed, and IDC entered into a term note for this amount, plus a $1,000,000 exit fee. The certain junior lenders assumed portions of IDC's publicly owned stock of Atlantic International Corp as collateral and intends to sell these shares to settle their respective joint and several debt. See Note 8: Debt for further information. Cash flows for the three months ended March 31, 2026 and 2025 consisted of the following: Three Months Ended March 31, 2026 2025 Net cash provided by (used in) operating activities $ (9,886,791) $ 14,568,690 Net cash (used in) investing activities (40,578) (12,079) Net cash (used in) provided by financing activities 35,096,274 (13,769,275) Effect of exchange rates on cash and cash equivalents (1,150,510) - Net increase in cash and cash equivalents $ 24,018,395 $ 787,336 Operating Activities Cash flows provided by (used in) operating activities for the three months ended March 31, 2026 compared to the three months March 31, 2025 was lower primarily due to a the Circle8 Acquisition. Investing Activities Cash used in investing activities for the three months ended March 31, 2026 increased compared to March 31, 2025 and consisted entirely of purchases of property and equipment. Financing Activities Cash (used in) provided by financing activities increased for the three months ended March 31, 2026 compared to March 31, 2025 primarily due to the Circle8 Acquisition and also primarily consisted of borrowings and payments under the Company's debt arrangements of the Revolver. 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 Allocation Agreement, which continues to be a valid and enforceable contract between Lyneer and IDC, states that repayment (or refinancing) of the Term Note, Seller Notes and Earnout Notes was assumed by and the responsibility of IDC. In the event IDC cannot repay any of the assumed debt and Lyneer is require to make payments, IDC is obligated to repay Lyneer for amounts paid on IDC's behalf. The Company reassessed its accounting for joint-and-several liabilities under ASC 405-40 as of March 31, 2026 and concluded it is reasonably probable that IDC can repay their portion of the debt allocated per the Allocation Agreement and the Company does not expect to repay additional amounts on behalf of IDC. As a result, the Company has not recorded any liability related to these joint and several debt obligations in accordance with ASC 405-40. See Revolver (discussing the BMO Revolver), Term Note, Seller Notes and Earnout Notes below for those joint-and-several debts that are applicable to the Allocation Agreement. Revolver Until April 29, 2025, as described below, the Company maintained the BMO Revolver as a co-borrower with IDC with an available initial borrowing capacity of up to $125,000,000. The facility was partially used to finance the acquisition of Lyneer by IDC in August 2021, with additional borrowing capacity available under the BMO Revolver to finance Lyneer's working capital. All of Lyneer's cash collections and disbursements were linked with bank accounts associated with the lender and funded using the Revolver. These borrowings were determined by Lyneer's availability based on a formula of billed and unbilled accounts receivable as defined in the loan agreement. On April 29, 2025, the Company's subsidiary, Lyneer Staffing Solutions, LLC ("Lyneer") entered into a Loan and Security Agreement (the "Loan Agreement") with North Mill Capital, LLC (d/b/a SLR Business Credit ("SLR")), providing for a $70 million ("Advanced Limit") senior secured revolving credit facility (the "Revolver"). The Loan Agreement replaced Lyneer's prior senior secured revolving credit facility provided by BMO. Lyneer's previous lender entered into a term loan of $6,000,000 with IDC and Lyneer for IDC's shortfall owed to BMO, plus a $1,000,000 exit fee. The $6,000,000 term loan and $1,000,000 exit fee are joint-and-several with IDC and are subject to IDC's obligation under the Allocation Agreement with IDC discussed above. BMO also assumed 3,439,803 shares of Atlantic International Corp previously owned by IDC as collateral for the new term loan. The Company incurred $130,453 in issuance costs and, according to ASC 470 - Debt ("ASC 470") , is deferring these costs and will amortize as an adjustment to interest expense over the remaining term using the effective interest method. As of March 31, 2026, and December 31, 2025, the Company has recognized liability balances on the Revolver of $45,141,541, including $130,453 of unamortized deferred issuance costs and $49,308,253, including $146,148 of unamortized deferred issuances costs, respectively. Term Note On August 31, 2021, Lyneer and IDC as co-borrowers entered into a Term Note in the amount of $30,300,000. The proceeds of this loan were primarily used to finance the acquisition of Lyneer by IDC in August 2021. The Term Note matured on February 28, 2026, at which time all outstanding balances were due and payable. There are no scheduled principal payments on the Term Note prior to its maturity date. The Term Note is subordinated to the Revolver and initially bore interest at the stated interest rate of 14% per annum, and currently has a default interest rate of 16%. 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. Additionally, the Tenth Amendment revised the Initial Capital Raise milestone and the uplisting milestone dates were subsequently extended to September 15, 2025, or as agreed between the parties. Due to the remaining amount outstanding from IDC on the BMO Revolver being converted to a term loan and the new Revolver taking first position, the terms of the Tenth Amendment were superseded by the terms of the Revolver. On April 28, 2025, the Term Note lender foreclosed on certain amounts of IDC's stock of Atlantic International Corp See Note 8: Debt for further information. The Term Note obligation is joint-and-several with IDC and is subject to IDC's obligation under the Allocation Agreement discussed above and as such the Company derecognized its joint and several debt obligations as of the Merger date. See Note 8: Debt for further information. Lyneer had recognized liability balances on the Term Note of $0 as of both March 31, 2026 and December 31, 2025. The Term Note is allegedly in default and the Company has sued the Term Note Lender. See Note 11: Commitments and Contingencies for discussion on lawsuits related to the Term Note. Seller Notes As part of the purchase price consideration for the Transaction, Lyneer and IDC as co-borrowers issued various Seller Notes to former owners in the aggregate principal amount of $15,750,000. Principal payments on the Seller Notes are due in quarterly installments of $1,575,000, and $3,150,000 is due at their amended maturity dates of April 30, 2024. The Seller Notes bear interest at an amended fixed rate of 11.25% per annum. The Seller Notes represent unsecured borrowings and are subordinated to the Revolver and to the Term Note. Lyneer and IDC did not make the principal and interest payments due July 31, 2023 and any subsequent dates on the Seller Notes as payments to any other debt holders were prohibited by the administrative agent of the lender under the BMO Revolver and also the current Revolver. As provided in the inter-creditor agreement between SLR and the Seller Note holders, Lyneer is prevented from making payments and the Seller Note holders are prevented from accepting payments from Lyneer. The Seller Note obligation is joint-and-several with IDC and is subject to IDC's obligation under the Allocation Agreement discussed above; and as such, the Company derecognized its joint and several debt obligations as of the Merger date. See Note 8: Debt for further information. Lyneer had recognized Seller Note liability balances of $0 for both March 31, 2026 and December 31, 2025. The Seller Notes are currently in default, but the note holders can take no action pursuant to the inter-creditor agreement with SLR. Earnout Notes As contingent consideration milestones are met in connection with the Transaction Agreement, Lyneer and IDC can elect to pay the milestone payments in cash or to issue notes payable. During 2022, Lyneer and IDC as co-borrowers have issued nine promissory notes in the aggregate principal amount of $13,494,133. Payments on each of the Earnout Notes are due in quarterly installments through their amended maturity date of January 31, 2025 and each note bears an amended stated interest rate of 11.25% per annum. On January 16, 2024, Lyneer and IDC as co-borrowers issued six notes payable with an aggregate value of $6,941,521. Payments on each of the Earnout Notes were due in quarterly installments through their maturity date of January 16, 2026 and each note bears interest at a rate of 6.25% per annum. The Company missed the March 31, 2024 principal and interest payment and all subsequent payments and the interest rate increased to the default rate of 11.25%. Payments to any other debt holders was prohibited by the administrative agent of the previous lender under the BMO Revolver and the current Revolver. As provided in the inter-creditor agreement between SLR and the Earnout Note holders, Lyneer is prevented from making payments and the Earnout Note holder are prevented from accepting payments from Lyneer. The Earnout Notes obligation are joint-and-several with IDC and are subject to IDC's obligation under the Allocation Agreement discussed above and as such the Company derecognized the Earnout Notes obligations as of the Merger date. See Note 8: Debt for further information. The Earnout Note liability was $0 for both March 31, 2026 and December 31, 2025. The Earnout Notes are currently in default, but the note holders can take no action pursuant to the inter-creditor agreement with SLR. Credit Agreement As part of the Merger 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 Company has accrued interest of $184,422 included in "accrued expenses and other current liabilities" on the accompanying unaudited condensed consolidated balance sheets as of March 31, 2026. The maturity date of the Credit Agreement was originally September 30, 2024. However, mandatory prepayments shall be made from the Initial Capital Raise (as defined), on the issuance of new debt or new equity interests, or upon a change of control. Conditions has not been met to make mandatory prepayments. 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 ("St. Laurent") 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. On January 23, 2026, the Company and St. Laurent entered into a Confidential Settlement Agreement pursuant to which the entire $1,375,000 principal amount of the Notes were paid in full on January 29, 2026. All interest and penalties were waived by St. Laurent. Merger Note In connection with the closing of the Merger on June 18, 2024, we issued to IDC the Merger Note in the principal amount of $35,000,000 that originally matured on September 30, 2024. The Merger Note does not bear interest and is not convertible prior to an event of default under the Merger Note. If an event of default should occur under the Merger Note, the Merger Note will bear interest at the rate of 7% per annum commencing upon the date of such event of default and will be convertible into shares of our common stock at a price per share that equals the lowest daily volume weighted-average price per share (VWAP) during the five trading days immediately preceding the date on which the applicable conversion notice is delivered to us, but not less than 80% of the price per share in our Initial Capital Raise, provided, however, that the number of shares of our common stock issuable upon conversion of the Merger Note will not exceed 19.99% of the number of our outstanding shares of common stock without shareholder approval. As we do not currently believe we will have sufficient liquidity and capital resources to pay the Merger Note in full when due, as well as to restructure our joint and several debt obligations, we believe we will have to sell additional equity or debt securities prior to the maturity date of the Merger Note to pay or refinance the Merger Note when due. An event of default under the Merger Note may result in an additional event of default under the Revolver and our other indebtedness for borrowed funds. On September 12, 2024 the Company entered into Amendment No 1 to the Convertible Promissory Note ("Amendment 1 to the Merger Note") which extended the maturity date to the earlier of March 31, 2026 or the completion of at least a $40 million capital raise. Amendment 1 to the Merger Note was treated as a modification after the Company's analysis according to ASC 470 and as such, the Company is deferring the $300,000 amendment fee and will amortize as an adjustment to interest expense over the remaining term using the effective interest method. On April 29, 2025, the Company and IDC entered into an Amended and Restated Convertible Promissory Note which further extended the maturity date to the earlier of March 31, 2027 or the completion of at least a $40 million capital raise. See Note 8: Debt for further information. Pursuant to the Amended and Restated Convertible Promissory Note, any amounts paid to BMO will be in satisfaction of this Note. The Company offset the December 31, 2025 balance related to the IDC receivable that was remaining on the BMO Revolver and rolled into the current Revolver as allowed per the Amended and Restated Convertible Promissory Note. See Note 16: Related Party Transactions for IDC's gross and net offsetting receivables amounts. Below is presented the calculation of the net liability of the Merger Note, excluding unamortized deferred issuance costs as of December 31, 2025. Gross Amount Amount Offset Net Amount on Consolidating Balance Sheet Merger Note $ 34,882,666 $ (6,056,385) $ 28,826,281 As of March 31, 2026, and December 31, 2025, the Company has recognized liability balances on the Merger Note of $28,849,748, including $93,867 of unamortized deferred issuance costs and $28,826,281, including $117,334 of unamortized deferred issuance costs, respectively. Convertible Note As discussed in Note 2: Merger and Acquisition , o n January 23, 2026, in connection with the Circle8 Acquisition, the Company issued a Convertible Note to Axiom as a component of consideration transferred for the business. The Convertible Note has a stated principal amount of $161,961,751 and is non-interest-bearing. The Convertible Note matures twelve months from the issuance date, at which time the principal amount becomes payable in cash; however, the Convertible Note may be settled prior to this date through the issuance of shares of the Company's Common Stock if a majority of the Company's stockholders vote to approve this conversion. If the aforementioned stockholder approval is obtained, the Convertible Note will convert into an aggregate of 53,291,744 shares of the Company's Common Stock. The number of shares issuable in settlement of the Convertible Note is fixed at inception and is not subject to variability, other than customary anti-dilution provisions for stock splits, stock dividends, and similar recapitalization events. The Convertible Note was measured initially at fair value of $205,706,132 (53,291,744 shares valued at the Company's closing stock price on the Circle8 Closing Date of $3.86) on the Circle8 Closing Date. The fair value of the Convertible Note exceeds the stated principal amount resulting in a substantial premium of $43,744,381. Accordingly, the Company recorded the Convertible Note as short-term debt at its stated principal amount of $161,961,751, with the substantial premium recorded as a component of additional paid-in-capital within permanent equity. Issuance costs incurred to issue the Convertible Note were de minimis and expensed when incurred. The Convertible Note contains provisions that relate to certain defined events of default, including bankruptcy, change of control or liquidation, cessation of operations, or failure to satisfy certain covenants contained in the Acquisition Agreement. Upon the occurrence of an event of default, the holder may declare the entire outstanding principal amount immediately due and payable. In addition, in the event of a default, interest accrues on the outstanding principal amount at a rate of 10% per annum from the date of the event of default until payment, together with any other amounts due under the Convertible Note. As of March 31, 2026, no events of default have occurred. The Company concluded the holder's put option upon an event of default meets the definition of a derivative requiring bifurcation, however the fair value of such derivative was of nominal value. Other than in the case of default, the Convertible Note does not provide the holder with one or more contingent redemption options. As of March 31, 2026, the outstanding principal balance of the Convertible Note is $161,961,751, which reflects its carrying amount as of that date. The Company is accounting for the liability portion of the note using the stated interest rate of zero, accordingly no interest has been recognized for the quarter ended March 31, 2026. Due to the amount of the Company's outstanding stock owned by the holder of the Convertible Note, the holder is a related party with respect to the Company and accordingly the Convertible Note is considered a note payable to a related party. The Convertible Note is included in "convertible note payable - related parties" in the accompanying unaudited condensed consolidated balance sheet. Factoring Agreements In connection with the Circle8 Acquisition, the Company assumed a receivables purchase agreement between Circle8 and Argentum Securities Ireland Plc ("Argentum"), which permits Circle8 to sell eligible billed and unbilled receivables to Argentum for cash proceeds in certain circumstances. This arrangement is akin to a revolving line of credit with a borrowing base of approximately 90% of Circle8's eligible receivables and a borrowing capacity limit of €174.9 million approximately $201.1 million as of March 31, 2026). As of the acquisition date of January 23, 2026, Circle8 had previously borrowed up to the facility limit of €174.9 million (approximately $201.1 million as of March 31, 2026). The facility includes multiple financial and non-financial covenants, including an over-collateralization provision requiring Circle8 to maintain an eligible receivables balance greater than 1.1111 times the amount borrowed under the facility. The facility matures on the earlier of May 18, 2029, or (i) upon an event of default or (ii) if Argentum exercises a subjective acceleration clause, which would require the facility to be repaid within 85 days. The Company pays a facility fee to Argentum monthly which is recognized in "other expenses, gains and losses" on the unaudited condensed consolidated statements of operations and comprehensive loss. The Company can repay the facility at any time. The Company concluded that the facility, while legally described as a factoring agreement, does not qualify as a sale of a financial instrument under ASC Topic 860 - Transfers and Servicing, and continues to recognize receivables on the balance sheet and a liability recorded to reflect the consideration received. Circle8 was in compliance with all provisions of the facility as of March 31, 2026. During 2025 and the first quarter of 2026, the Company entered into four agreements to sell future receivables which allows for the factoring of receivables. • On October 1, 2025, the Company sold $3,150,000 of receivables and received cash proceeds of $2,500,000 less $50,000 in origination fees. The weekly payments are $62,500 and the imputed interest rate is 48.58%. • On October 21, 2025, the Company sold $1,905,000 of receivables and received cash proceeds of $1,500,000 less $30,000 in origination fees. The weekly payments are $37,798 and the imputed interest rate is 50.61%. • On January 23, 2026, the Company sold $1,250,000 of receivables and received cash proceeds of $1,000,000 less $10,000 in origination fees. The weekly payments are $24,802 and the imputed interest rate is 47.10%. • On January 23, 2026, the Company also sold $2,500,000 of receivables and received cash proceeds of $2,000,000 less $20,000 in origination fees. The weekly payments are $48,077 and the imputed interest rate is 45.67%. These four agreements also allow for a discounted repurchase price if the Company pays the cash proceeds back early. On April 29, 2026, the Company refinanced the October agreements described above. See Note 20: Subsequent Events for further information. As of March 31, 2026, and December 31, 2025, the Company has recognized liability balances on the factoring agreements of $205,933,405, including $47,771 of unamortized deferred issuance costs and $3,205,506, including $60,939 of unamortized deferred issuance costs, respectively. Acquisition Loans Swisslinx Acquisition Loan In February 2023, Circle8 entered into a loan agreement with Luzerner Kantonalbank AG as Lender, for a credit facility of up to Fr.29,000,000 (approximately $36,285,000 as of March 31, 2026) to partially finance the acquisition of 100% of the shares in Swisslinx AG and Swisslinx International Ltd. The facility has a maturity date of June 30, 2028. The facility provides for fixed advances with 3 or 6 month terms, or fixed loans with 2 to 5 year terms. The minimum amount per fixed advance or loan is Fr.2,000,000 (approximately $2,502,000 as of March 31, 2026), with a maximum of 5 credit tranches. The facility was fully drawn down at inception, with no additional advances as of March 31, 2026. The interest rate consists of the Swiss Average Overnight Rate ("SARON") plus an applicable margin based on the net debt ratio as of March 31 each reporting period. If the SARON rate is negative, a rate of 0.00% is used as the base rate. As of March 31, 2026, the margin was 3.70% and the interest rate was 3.70%. As of March 31, 2026, the Company has a recognized liability balance on the Swisslinx acquisition loan of $28,890,147. Seven Stars Acquisition Loan On October 26, 2022, Circle8 entered into a credit agreement with Beechbrook Capital, LLP, to partially fund the acquisition of all outstanding shares in the capital of Seven Stars Holding B.V. and each of its subsidiaries. The agreement provides a credit facility ("Facility B") in the aggregate amount of €15,000,000 (approximately $17,330,000 as of March 31, 2026), and an available Accordion Facility for up to €15,000,000 (approximately $17,330,000 as of March 31, 2026) of additional borrowing capacity as an increase to Facility B or, alternatively, an additional term facility on a pari passu basis with Facility B. The maturity date is October 26, 2027. The interest rate on Facility B consists of the three-month EURIBOR ("EURIBOR 3M") plus a margin of 8.50%, per annum. The variable leg of the loan attached to the EURIBOR 3M rate resets each interest period, which is defined as three months. Interest payments became due on December 31, 2022, and each March 31, June 30, September 30, and December 31, thereafter. As of March 31, 2026, the interest rate was 10.53%. As of March 31, 2026, the Company has a recognized liability balance on the Seven Stars acquisition loan of $16,932,099. Königstein Acquisition Loans On April 26, 2023, Circle8 entered into a loan agreement with Sparkasse KölnBonn to finance a portion of the purchase price payable under a share purchase agreement for the acquisition of 80% of the shares outstanding in Konigstein Beratungsgesellschaft für EDV-Dienstleistungen GmbH. This loan agreement provided Circle8 with loans totalling up to €7,000,000 (approximately $8,087,000 as of March 31, 2026) in the following tranches: Investment Loan A: Up to €4,500,000 (approximately $5,199,000 as of March 31, 2026) as an amortizing loan with payments of €250,000 (approximately $289,000 as of March 31, 2026) due at the end of each quarter, starting on December 30, 2023. The maturity date is March 31, 2028, with quarterly payments of €250,000 (approximately $289,000 as of March 31, 2026) The interest rate on the utilized amounts consists of the EURIBOR 3M, which resets quarterly, plus a margin of 3.20% per annum. As of March 31, 2026, the interest rate was 5.23%. As of March 31, 2026, the Company has a recognized liability balance on the Königstein Investment Loan A of $2,463,294. The Investment A loan is currently in default in the amount of €250,000 (approximately $289,000 as of March 31, 2026). Investment Loan B: Up to €2,500,000 (approximately $2,888,000 as of March 31, 2026) as a bullet loan, with payment in full due on the maturity date of September 30, 2028. The interest rate on the utilized amounts consists of the EURIBOR 3M, which resets quarterly, plus a margin of 3.60% per annum. As of March 31, 2026, the interest rate was 5.63%. As of March 31, 2026, the Company has a recognized liability balance on the Königstein Investment Loan B of $2,498,072. The loan agreement stipulates that certain financial indicators in the form of annual financial statements are due no later than 180 days after the end of each financial year and no later than 45 days after the end of each quarter. Failure to submit these required reports timely constitutes a breach of financial indicators under the loan agreement, and will increase the corresponding margin of each loan by 1.50% per annum until such financial reports are submitted to the lender. Seller Loans Entered into by Circle8 Swisslinx Seller Loan In March 2023, Circle8 entered into a seller loan agreement with Swisslinx AG and Swisslinx International Limited to partially fund the acquisition of 100% of the shares in Swisslinx AG and Swisslinx International Limited. The agreement provided Circle8 with a loan of Fr.13,500,000 (approximately $16,891,000 as of March 31, 2026) with a maturity date of July 1, 2028. The interest rate is 5.00% per annum. Principal payments of Fr.3,623,569 (approximately $4,534,000 as of March 31, 2026) and interest payments are due annually. As of March 31, 2026, the Company has a recognized liability balance on the Swisslinx seller loan of $16,252,462. The Swisslinx seller loan is currently in default in the amount of Fr.3,375,000 (approximately $4,223,000 as of March 31, 2026). Fixed Today Seller Loan In April 2022, Circle8 entered into a seller loan agreement with Payment Secured B.V. to partially fund the acquisition of 100% of the shares in Fixed Today Holding B.V. The agreement provided Circle8 with €2,000,000 (approximately $2,311,000 as of March 31, 2026). The Fixed Today seller loan had a maturity date of April 14, 2024. As of March 31, 2026, the Company has a recognized liability balance on the Fixed Today seller loan liability of $2,299,600. The Fixed Today seller loan is currently in default in the amount of €2,000,000 (approximately $2,311,000 as of March 31, 2026). Preferred Stock Financing The Company entered into the Preferred Stock financing after evaluating a range of potential capital raising alternatives in light of prevailing market conditions, the Company's growth initiatives, acquisition integration activities, and the capital requirements associated with scaling its operations. Management and the Board considered various factors, including the Company's market capitalization, trading liquidity, cost of capital, timing considerations, and the availability and certainty of alternative financing sources. The Company believes the transaction provided an efficient and executable source of capital that enhanced financial flexibility and supported the Company's strategic objectives. While the financing includes terms that may be viewed as more expensive or potentially dilutive than traditional financing arrangements, management and the Board determined that the structure reflected prevailing market conditions and the structure of comparable financing transactions available to similarly situated public companies, while also providing committed capital with execution certainty and without restrictive operational covenants. Management and the Board also considered the Company's ongoing strategic initiatives, including acquisition integration efforts, operational expansion opportunities, and broader corporate development objectives, and concluded that the financing was appropriate and in the best interests of the Company and its stockholders at the time the transaction was entered into. Professional Employer Organization Lyneer entered into an agreement with Employer's HR, LLC, on February 19, 2018, to process the Company's payroll. The initial term of the agreement was 3 years. The Fifth Amendment with the PEO, effective March 21, 2025, extended the term of the agreement through December 10, 2027. The Sixth Amendment with the PEO ("PEO Sixth Amendment"), effective September 29, 2025, prevented the Company from terminating the agreement until October 1, 2026, excepting any provisions related to default or breach. The PEO Sixth Amendment reduced the claims administration fee to $5,000 from $10,000 per workers' compensation claim. The PEO charges a late payment charge of 1.5% per statement. Any unpaid balance is subject to a 1.5% per calendar month charge until paid in full. The Company is required to prepay collateral in the amount of one or up to two weeks estimated weekly payroll at the discretion of the PEO, which is fully refundable to the Company within 1 year of the date of the final statement. Total amount due to the PEO of 39,908,098 is included in "PEO liability and accrued interest" on the accompanying consolidated balance sheets as of March 31, 2026. On May 4, 2026, the PEO notified the Company it was in default and subsequently withdrew the notice of default on May 11, 2026. See Note 20: Subsequent Events for further discussion. Interest Expense Total interest expense is comprised of a cash and non-cash component as described in the debt arrangements described above. The Company also incurred interest expense related to an agreement with a professional employer organization ("PEO") which processes the payroll for the Company, related to the unpaid balance, at 1.5% per calendar month. Additionally, the Company entered into an agreement with Citibank, N.A. ("Citibank") on March 5, 2019, whereby Citibank purchases specific receivables and pays the invoices at the discounted amount and the Company incurs a discount charge equal to the Secured Overnight Financing Rate plus 0.75% to process the payments. The discount charged ranged from 4.71% to 4.83% for the three months ended March 31, 2026. For the three months ended March 31, 2026 and 2025 total interest expense was $3,554,670 and $1,284,822, respectively. Interest expense related to the PEO was $1,018,013 and $0 for the three month periods ended March 31, 2026 and 2025, respectively. Total cash paid for interest for the three months ended March 31, 2026 and 2025 totaled $3,509,168 and $2,306,490, respectively. Interest expense related to the discount charge was $67,869 and $331,763 for the three months ended March 31, 2026 and 2025, respectively. The remaining portion of the interest expense was non-cash due to the change in values of the accrued interest liability and amortization of deferred financing costs. Assessment of Liquidity Position The Company has assessed its liquidity position as of March 31, 2026 and December 31, 2025. As of March 31, 2026 and December 31, 2025, the total committed resources available were as follows: March 31, 2026 December 31, 2025 Cash and Cash Equivalents $ 24,099,529 $ 81,134 Committed Liquidity Resources Available: Committed Liquidity Resources Available/(Over-advanced) 4,760,718 (422,756) Total Committed Resources Available/(Over-advanced) $ 28,860,247 $ (341,622) The Company closed on a new ABL lender credit facility on April 29, 2025, replacing its obligations under the BMO Revolver, with an increased borrowing capacity of up to $70 million. Refer to Note 3: Summary of Significant Accounting Policies. Related Party Transactions Transactions with Lyneer Management Holdings LLC ("LMH") LMH was a non-controlling member of the Company with a 10% ownership interest at December 31, 2023. LMH was 90% owned by Lyneer's Chief Financial Officer, James Radvany, and its Chief Executive Officer, Todd McNulty, each of whom owned 44.5% of LMH. Earnout Notes 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 for both March 31, 2026 and December 31, 2025. 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 for both March 31, 2026 and December 31, 2025. On the date of the Merger, the Company derecognized this debt. Refer to Note 8: Debt for additional information. The principal balance of the combined Earnout Notes payable to LMH was $0 or both March 31, 2026 and December 31, 2025. Interest expense incurred on the Earnout Notes to LMH totaled $0 for both the three months ended March 31, 2026 and 2025. Transactions with IDC Lyneer and IDC are co-borrowers and are jointly and severally liable for principal and interest payments under the BMO Revolver, the Term Note, the Seller Notes and the Earnout Notes. In the case of certain of those obligations, IDC generally makes certain interest and principal payments to the lenders and collects reimbursement from Lyneer. When interest or principal payments of that nature are made by IDC, Lyneer recognizes interest expense and a payable to IDC, which is removed from Lyneer's balance sheet upon remittance of the funds to IDC. As a result of the Merger, the Company was 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 filed consolidated income tax returns in certain states. In connection with this arrangement the Company has recorded a liability payable to IDC for taxes payable by IDC which represented taxes attributable to the Company's operations included on consolidated state and local income tax returns filed by IDC. These amounts were determined by calculating the Company's taxable income multiplied by the applicable tax rate. Amounts payable to IDC of this nature amounted to $548,432 as of both March 31, 2026 and December 31, 2025, and are included in "other assets" on the accompanying condensed consolidated balance sheets. For the second short-period ended December 31, 2024, Lyneer filed consolidated income tax returns with Atlantic International Corp. Total amounts receivable from IDC, amounted to $2,692,867 as of March 31, 2026 and is included in "other assets", on the accompanying condensed consolidated balance sheets. This consists of $500,000 related to the expenses paid by Lyneer for the balance remaining on the BMO Revolver rolled into the current Revolver, $2,741,299 related to expenses incurred by IDC and paid by the Company and $548,432 payable to IDC for taxes payable. Total amounts receivable from IDC, amounted to $1,369,833 as of December 31, 2025, and is included in "other assets", on the accompanying condensed consolidated balance sheets. This consists of $500,000 related to the expenses paid by Lyneer for the balance remaining on the BMO Revolver rolled into the current Revolver, $1,418,265 related to expenses incurred by IDC and paid by the Company and $548,432 payable to IDC for taxes payable. There are no formalized repayment terms. Pursuant to the Amended and Restated Convertible Promissory Note, any amounts paid to BMO will be in satisfaction of this Note. The Company offset the December 31, 2025 balance related to the IDC receivable that was remaining on the BMO Revolver and rolled into the current Revolver as allowed per the Amended and Restated Convertible Promissory Note. See Note 8: Debt for the Company's gross and net offsetting liability amounts. Below is presented the calculation of the net amount of the receivable from IDC as of December 31, 2025 included in "other assets" on the accompanying consolidated balance sheets. Gross Amount Amount Offset Net Receivable from IDC included in "Other assets" on Consolidating Balance Sheet Receivable from IDC included in "Other assets" $ 7,426,218 $ (6,056,385) $ 1,369,833 On June 18, 2024, the Company entered into a $35,000,000 Merger Note with IDC. See Note 8: Debt for further information. Additionally, IDC was issued 25,423,729 shares of the Company's common stock at a market value of $2.36 per share, or $60,000,000 in the aggregate. On April 28, 2025, IDC was no longer considered a related party according to ASC Topic 850 - Related-party Disclosures . Transactions with SPP Credit Advisors, LLC ("SPP") On June 18, 2024, the Company entered into a Credit Agreement with SPP in the principal amount of $1,950,000 at an interest rate of 5% per annum. See Note 8: Debt for further information. Transactions with Axiom and Related Entities The Axiom Consulting Agreement and Axiom Netherlands Consulting Agreement stipulate that Axiom and Axiom Netherlands, respectively, will provide ongoing services consisting of advisory, management, strategic, operational and transaction support services to Circle8. The Axiom Consulting Agreements have an initial term of one year, and thereafter automatically renew for successive periods of one year, unless terminated by either party giving at least 3 months prior written notice. Pursuant to the Axiom Netherlands Consulting Agreement, the Company is required to pay Axiom Netherlands €2,400,000 (approximately $2,759,000 as of March 31, 2026) annually, with four equal payments invoiced in advance on a quarterly basis and payable within 30 days of the invoice date. Pursuant to the Axiom Consulting Agreement, the Company is required to pay Axiom €1,200,000 (approximately $1,379,000 as of March 31, 2026) annually, with four equal payments invoiced in advance on a quarterly basis and payable within 30 days of the invoice date. The Company recognized $693,879 as expense under the Axiom Consulting Agreements during the quarter ended March 31, 2026 and this amount is included in "selling, general and administrative" in the accompanying unaudited condensed consolidated statement of operations. The Company additionally incurred $33,962 related to independent contractors placed by Axiom during the quarter ended March 31, 2026 and are included in "selling, general and administrative" in the accompanying unaudited condensed consolidated statement of operations. Off Balance Sheet Arrangements The Company has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities. Critical Accounting Policies and Estimates The preparation of Atlantic's consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, intangible assets valuation, income taxes and business combinations. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue Recognition The Company derives its revenues from four service lines: temporary placement services, brokerage services, payrolling services, permanent placement, and other services. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration with which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606 - Revenue From Contracts with Customers ("ASC 606"), the Company performs the following five steps: (i) it identifies the contracts with a customer; (ii) it identifies the performance obligations in the contract; (iii) it determines the transaction price; (iv) it allocates the transaction price to the performance obligations in the contract; and (v) it recognizes revenue when (or as) the Company satisfies a performance obligation. Temporary Placement Services Revenue Temporary placement services revenue from contracts with customers are recognized in the amount which the Company has a right to invoice when the services are rendered by its engagement professionals. The Company invoices its customers for temporary placement services concurrently with each periodic payroll which coincides with the services provided. While all customers are invoiced weekly and payment terms vary, the majority of our customers have payments terms of 30 days; however, the Company may extend to 150 days from the invoice date. Customers are assessed for credit worthiness upfront through a credit review, which is considered in establishing credit terms for individual customers. Revenues that have been recognized but not invoiced for temporary staffing customers are included in "unbilled accounts receivable" on the accompanying condensed consolidated balance sheets and represent a contract asset under ASC 606. Terms of collection vary based on the customer; however, payment generally is due within 30 days. Most engagement professionals placed on assignment by the Company are legally our employees while they are working on assignments. The Company pays all related costs of employment, including workers' compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers. The Company records temporary placement services revenue on a gross basis as a principal, rather than on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because it (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Permanent Placement and Other Services Revenue Permanent placement and other services revenue from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment and begin work for the Company's customers. Certain of the Company's permanent placement contracts contain a 30-day guarantee period. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 30-day guarantee period. In the event that a candidate voluntarily leaves or is terminated for cause prior to the completion of 30 days of employment, we will provide a replacement candidate at no additional cost, as long as the placement fee is paid within 30 days of the candidate's start date. When required, the Company defers the recognition of revenue until a replacement candidate is found and hired, and any associated collected amount is recorded as a contract liability. Fees to clients are generally calculated as a percentage of the new employee's annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates, regardless of whether the candidate is placed. Brokerage Services Revenue Brokerage services include both Contract Management and Managed Service Provider ("MSP") services, both of which consist of administrative-related functions in which the Company does not control the professionals' services to customers. Contract Management Revenue For Contract Management revenue, the Company provides administrative, contractual, payroll, and compliance management for a professional already selected by the end-customer. The Company does not perform sourcing or recruiting activities. The Company's role is to act as an arranger, managing and coordinating the administrative activities described in the agreement rather than providing the underlying professional services. The services performed by the Company include drafting and executing assignment documentation, onboarding the contractor into the Company's systems, administering time capture and invoicing workflows, processing payroll, ensuring tax and regulatory compliance, and monitoring ongoing assignment requirements. As these administrative services are interrelated, they are not considered to be individually distinct and therefore are accounted for as a single performance obligation. Contract Management revenues are recognized in the amount the Company has the right to invoice for administrative, contractual, payroll, and compliance support provided for professionals who have been selected directly by the customer. The Company invoices customers based on approved hours worked by the customer-designated professional, applying a fixed administrative fee or marginal rate for these activities provided by the Company. In most cases, the customer sets the hourly rate for both the professional as well as the administrative fee for the Company. Most customers are invoiced monthly and payment terms can vary, but customers primarily have payment terms of approximately 14 to 30 days. As such, revenue is recognized over time with the delivery of services. As the business is driven primarily by large customers with high credit scores, credit checks are not usually performed. Revenues that have been recognized but not invoiced for Contract Management customers are included in "contract assets" on the accompanying condensed consolidated balance sheet and represent a contract asset under ASC 606. Terms of collection vary based on the customer; however, payment generally is due within 30 days. The Company enters into a contractor agreement directly with each professional assigned to an engagement. However, this is solely for the purpose of the contract management services and does not render the professional a legal employee of the Company. The Company is not responsible for performance issues related to the work of the professional, and they are only allowed to replace the professional upon request and approval by the customer. The Company records Contract Management revenue on a net basis as an agent. The Company has concluded that net reporting is appropriate because the services provided under Contract Management constitute administrative and brokerage-related activities rather than control over the underlying services. Specifically, (i) the Company does not have discretion over choosing the professional who is performing the services, as the individuals have been chosen directly by the customer, (ii) the Company's role is limited to administrative and compliance-related functions rather than activities which relate to the services performed by the professional, and (iii) the Company has limited discretion over pricing, as the administrative fee is usually set by the customer. Managed Service Provider ("MSP") Service s For MSP revenue, the Company provides end-to-end hiring management services for customers seeking to hire temporary labor, seconded staff, and self-employed professionals. The services performed by the Company include coordination with pre-approved workforce suppliers during the hiring process, posting and managing job vacancies, onboarding and offboarding contractors, and performing hiring administration. As these services are interrelated, they are not considered to be individually distinct and therefore are accounted for as a single performance obligation. Managed Service Provider revenues are recognized in the amount the Company has the right to invoice for supplier coordination and hiring administration. The Company invoices customers based on approved hours worked by the customer-designated professional, applying a fixed administrative fee as agreed upon in the contract. Most customers are invoiced monthly and payment terms can vary, but customers primarily have payment terms of approximately 14 to 30 days. As such, revenue is recognized over time with the delivery of services. As the business is driven primarily by large customers with high credit scores, credit checks are not usually performed. Revenues that have been recognized but not invoiced for Managed Service Provider customers are included in "contract assets" on the accompanying condensed consolidated balance sheet and represent a contract asset under ASC 606. Terms of collection vary based on the customer; however, payment generally is due within 30 days. The Company enters into a separate agreement directly with each professional who is contracted for temporary employment at the end customer. However, this is solely for the purpose of the administrative services and does not render the professional a legal employee of the Company. The Company is not responsible for performance issues related to the work of the professional. The Company records MSP revenue on a net basis as an agent. The Company has concluded that net reporting is appropriate because the services represent arranger and administrative activities rather than control over the underlying professional services. Specifically, (i) the Company does not have full discretion over choosing the professional who is performing the services, as they merely facilitate hiring process among the pre-approved suppliers, (ii) the Company's role is limited to administrative, coordination, and hiring management functions rather than activities which relate to the providing or directing the performance of the professional, and (iii) the Company does not assume responsibility for, nor does it control, the performance or quality of services provided by the professional. Payrolling Services Revenue For Payrolling revenue, the Company provides professionals, who they employ, to customers for assignments. The Company assumes employer obligations; social contributions, compliance, and other legal responsibilities, while the client maintains operational supervision over the specific assignment. As these services are interrelated, they are not considered to be individually distinct and therefore are accounted for as a single performance obligation. Payrolling revenue is recognized in the amount which the Company has a right to invoice when the services are rendered by its engagement professionals. The Company invoices its customers for temporary placement services concurrently with each periodic payroll which coincides with the services provided. While all customers are invoiced weekly and payment terms vary, the majority of our customers have payments terms of 14 to 30 days. As such, revenue is recognized over time with the delivery of services. As the business is driven primarily by large customers with high credit scores, credit checks are not usually performed. Revenues that have been recognized but not invoiced for temporary staffing customers are included in "contract assets" on the accompanying condensed consolidated balance sheets and represent a contract asset under ASC 606. Terms of collection vary based on the customer; however, payment generally is due within 30 days. The engagement professionals placed on assignment by the Company are legally our employees while they are working on assignments. The Company pays all related costs of employment, including workers' compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers. The Company records Payrolling revenue on a gross basis as a principal. 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 acceptability of its employees to its customers. 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 condensed consolidated balance sheets. Allowance for Doubtful Accounts The Company performs credit evaluations of our customers and adjusts credit limits based upon customer payment history and current creditworthiness, as determined by our review of our customers' current credit information. We monitor billing events, collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience and any specific customer collection issues that we have identified. In light of ongoing tight credit market conditions and high interest rates, we continue to see requests from our customers for higher credit limits and longer payment terms. We have, on a limited basis, approved certain customer requests. Also, we can from time to time experience significant increases in the overall level of contract assets (i.e., unbilled receivables) related to large, long-term contracts with certain government, domestic and international customers. We continuously monitor our accounts receivable credit portfolio. We may not be able to accurately predict our future credit loss experience. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition. Intangible Assets The Company's identifiable intangible assets as of March 31, 2026 and December 31, 2025 consisted of customer relationships, trade name, trademarks, software and website which were initially recognized as a result of the Transaction and the Circle8 Acquisition and represent definite lived intangible assets. The Company does not currently have any indefinite lived intangible assets, excluding goodwill. Intangible assets are amortized using the straight-line method over their estimated useful lives. In accordance with the accounting standard for the impairment or disposal of long-lived assets under ASC 360, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable (i.e., information indicates that an impairment might exist). For long-lived assets to be held and used, the Company recognizes an impairment loss only if the carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. For the three months ended March 31, 2026 and the year ended December 31, 2025 no impairments were recognized on our intangible assets. Goodwill We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. GAAP requires that goodwill be tested for impairment at a reporting unit level. For segments with a goodwill balance, we determine if our reporting units are the same as our operating and reportable segments based on our organizational structure or one level below our operating segments (the component level). Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assesses, on a quarterly basis, the likelihood that deferred tax assets will be realized in accordance with the provisions of ASC 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. Business Combinations We account for business combinations using the acquisition method of accounting, in which the purchase price is allocated for assets acquired and liabilities assumed and recorded at the estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Management is required to make significant assumptions and estimates in determining the fair value of the assets acquired, particularly intangible assets. Purchased intangible assets are primarily comprised of an acquired trade name and customer relationships that are recorded at fair value at the date of acquisition. We utilize third-party valuation specialists to assist us in the determination of the fair value of the intangibles. The fair value of trade name intangibles is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about expected future revenue growth rates, royalty rates and discount rates. The fair value of customer relationship intangibles is determined using the multi-period excess earnings method, which relies on the use of estimates and assumptions about expected future revenue growth rates, customer attrition rates, profit margins and discount rates. Determining the useful lives of intangible assets also requires judgment and are inherently uncertain. There is a measurement period of up to one year in which to finalize the fair value determinations and preliminary fair value estimates may be revised if new information is obtained during this period.

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