Nixxy, Inc. annual report, FY2019

Nixxy, Inc. — filing identity and period

Important identity mismatch: The supplied filing is Recruiter.com Group, Inc.’s Form 10-K, not a filing identified as Nixxy, Inc. It reports the fiscal year ended December 31, 2019, and was signed May 8, 2020. The company changed its name from Truli Technologies, Inc. to Recruiter.com Group, Inc. in May 2019. The 2019 results include the acquired Genesys staffing business from March 31 onward; the merger was accounted for as a reverse recapitalization.

Financial performance and position

Revenue included $4.793 million in consulting and staffing, $274,030 in permanent-placement fees, $486,388 in license and other revenue, $138,384 in career services, and $306,578 in marketing and publishing. Two customers generated 49% of 2019 revenue. Three customers represented 47% of year-end accounts receivable.

At December 31, 2019, cash was $306,252, current assets $1.314 million, current liabilities $5.547 million, total liabilities $5.765 million, and stockholders’ equity $715,356. The resulting working-capital deficit was approximately $4.233 million. Term-loan balances totaled $103,800; the balance sheet also reported $404,101 net liability for sale of future revenues and a $612,042 warrant derivative liability. At May 5, 2020, the company reported approximately $345,000 cash, including $367,450 in PPP loans; it said available resources were insufficient for the next 12 months.

Material changes versus the prior period

• Revenue rose substantially, but the comparison reflects the March 2019 acquisition and nine months of Genesys operations; it is not a like-for-like measure of organic growth.
• Gross profit was $1.550 million, while operating expenses increased to $12.054 million. These included $4.643 million of stock-based compensation, $3.000 million goodwill impairment, $477,518 amortization, and $113,020 impairment of website and app assets.
• Net loss widened to $11.844 million. Interest and finance costs included $2.238 million of preferred-stock covenant penalties; a $1.139 million non-cash derivative fair-value gain partially offset expenses.
• Operating cash use increased to $1.391 million. Financing activities provided $1.602 million, including preferred-stock proceeds and advances against future receivables.

Outlook, risks, and unusual items

Management expected COVID-19 to reduce revenue and increase losses, while positioning for a possible hiring recovery in the second half of 2020. It provided no specific numerical financial guidance. The filing says COVID-19 had already reduced business, a receivables-factoring provider stopped advancing funds, and availability under two credit lines was suspended. The company received $367,450 in PPP loans; forgiveness was conditional and repayment could be required.

The auditor issued an unqualified opinion on the financial statements but included a going-concern explanatory paragraph. Management and the auditor identified substantial doubt about the company’s ability to continue without additional financing and sufficient sales. The filing warns that failure to obtain capital could force curtailment or cessation of operations. Most company assets were pledged under receivables-financing arrangements; approximately $542,361 was outstanding under such arrangements as of May 7, 2020.

The company disclosed an estimated $6 million of preferred-stock penalties at year-end arising from unmet share-reserve requirements. It subsequently obtained substantial waivers, but some Series E and F holders had not waived penalties. The filing reports $2.238 million accrued for penalties and $308,893 accrued for Series E and F holders, and says $1.929 million of Series D preferred stock was agreed as consideration for waivers. Reconcile the amounts and waiver status against the underlying agreements and subsequent filings.

Other material risks include customer concentration; significant potential dilution from preferred stock, warrants, and other awards; OTCQB public-float compliance and thin trading; recruiter worker-classification and privacy risks; reliance on third-party and related-party technology, payroll, and accounting providers; and competition. Disclosure controls and internal control over financial reporting were ineffective at December 31, 2019 due to material weaknesses in segregation of duties and board independence. The company also disclosed a restatement of certain second-quarter 2019 results.

Important facts for investors to verify

• Confirm the issuer identity: this source is Recruiter.com Group, Inc. (ticker RCRT), not Nixxy, Inc.; verify the intended company and filing.
• Review subsequent filings for liquidity, cash, financing availability, factoring balances, PPP forgiveness, and evidence the company can fund operations.
• Reconcile preferred-stock penalties, waivers, accrued amounts, and any required share issuance or cash settlement.
• Assess customer concentration and the extent to which 2019 revenue growth came from Genesys rather than existing operations.
• Check dilution from outstanding preferred securities, warrants, options, and shares issued after year-end.
• Track remediation of material weaknesses, the reported prior-period restatement, and any subsequent auditor or SEC developments.