Business context and reporting period
The filing is Recruiter.com Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022, filed August 15, 2022. The request identifies Nixxy, Inc., but the filing names Recruiter.com Group, Inc. as the registrant; verify the issuer before relying on this summary.
The company operates a recruiting platform and provides on-demand recruiting, software subscriptions, permanent placement, marketplace, consulting and staffing services. Management says it is shifting toward software and on-demand recruiting, which it views as higher-margin and more scalable.
Financial results and liquidity
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Revenue | $7.11 million, up 61% year over year | $13.98 million, up 87% |
| Gross profit and margin | $2.93 million; 41.2% | $5.62 million; 40.2% |
| Operating loss | $2.33 million | $6.46 million |
| Net income (loss) | $(1.19) million | $(5.37) million |
| Adjusted EBITDA (loss), non-GAAP | $(398,000) | $(1.75) million |
| Operating cash flow | Not stated separately for the quarter | $(1.73) million |
Revenue growth was led by Recruiters on Demand: $4.68 million for Q2 and $8.89 million for the half-year. For the six months, software subscriptions contributed $1.50 million, while consulting and staffing revenue declined to $2.27 million from $4.23 million in the comparable period. Gross margin improved from 32.8% to 41.2% in Q2 and from 31.1% to 40.2% for the half, which management attributed to the changing revenue mix.
At June 30, cash was $1.71 million, current assets were $6.37 million and current liabilities were $8.84 million, implying a working-capital deficit of approximately $2.47 million. Total loans payable were $4.49 million, including $1.85 million of recourse factoring advances; $3.86 million was classified as current. The company reported $22.63 million in total assets and $13.16 million in stockholders’ equity. Management reported cash of approximately $500,000 as of August 9, 2022.
Material changes and unusual items
- Q2 revenue increased $2.73 million year over year; six-month revenue increased $6.44 million. Growth in Recruiters on Demand, software subscriptions, permanent placement and Marketplace Solutions was partly offset by lower consulting and staffing revenue.
- Net income in Q2 2021 included a $7.57 million non-cash gain from the change in fair value of derivative liabilities. Those liabilities had been eliminated in 2021; therefore, the prior-period net income is not directly comparable to Q2 2022’s loss.
- In April 2022, Novo Group reduced the acquisition note principal by $600,000, the earn-out was cancelled, and the company recorded a $1.21 million gain on debt extinguishment. The note’s balance was $1.67 million at June 30; its stated maturity was amended to November 30, 2023.
- General and administrative expense included $2.40 million of share-based compensation for the six-month period. Intangible amortization was $1.93 million, also for the six-month period.
- Shares outstanding increased to 14,851,146 at June 30 from 14,566,420 at year-end. The filing also reports 9.72 million potentially dilutive securities excluded from diluted loss per share as anti-dilutive.
Outlook, risks and contingencies
Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for the twelve months following issuance. It says available cash is insufficient for anticipated operations, additional financing is needed, and failure to obtain capital could force the company to delay or curtail development, scale back operations or cease operations. The financial statements include no adjustments for a possible failure to continue as a going concern.
Management expected recruiting demand to continue improving in 2022 but gave no quantified financial guidance and cautioned that recovery could be delayed or economic conditions worsen. It also cited uncertainty from COVID-19 and broader economic conditions and the possibility that financing may be unavailable or on unfavorable terms.
The April 2022 factoring agreement provides advances of up to 85% of eligible receivables, capped at the lesser of $3 million or the borrowing-base limit. It is secured by substantially all company assets, is with recourse, and carries a floating finance rate of prime plus 3.25%, in addition to factoring fees.
In litigation against BKR Strategy Group, the company obtained a June 2022 judgment for $500,000 plus 12% interest on a promissory note; a separate collection case remains ongoing. BKR asserted a $500,000 counterclaim, which management disputes. Counsel could not assess the counterclaim’s outcome, and no loss accrual was recorded.
Management reported that disclosure controls and internal control over financial reporting were ineffective at June 30 due to an unremediated material weakness: insufficient staffing to segregate duties and provide adequate monitoring. Management anticipated hiring to address the weakness before year-end 2022.
Important facts for investors to verify
- Confirm whether this Recruiter.com Group filing is the intended filing; it does not identify Nixxy, Inc. as the registrant.
- Assess the company’s near-term funding needs, cash position after August 9, and ability to obtain financing given the going-concern warning and working-capital deficit.
- Review the factoring facility’s borrowing base, recourse exposure, fees and collateral terms, along with scheduled note payments and maturities.
- Track collections of receivables, the rising doubtful-account allowance ($1.18 million at June 30), and customer concentration; one customer represented 11% of six-month revenue and 13% of receivables.
- Monitor the BKR judgment, remaining collection proceedings and counterclaim, as well as remediation of the reported internal-control material weakness.
- Distinguish recurring operating performance from non-cash share-based compensation, amortization and the debt-extinguishment gain when evaluating losses and non-GAAP Adjusted EBITDA.