Filing summary
Entity and period: The supplied filing is a Form 10-Q for the quarter ended June 30, 2019, filed August 19, 2019. It identifies the registrant as Recruiter.com Group, Inc. (formerly Truli Technologies, Inc.), not Nixxy, Inc.; verify that this is the intended filing. The statements are unaudited. The company changed its fiscal year-end to December 31 and its name to Recruiter.com Group, Inc. in May 2019.
Business context and significant transactions
The company provides staffing and recruiting, direct-hire placement, career services, and recruitment-focused marketing and publishing. On March 31, 2019, it completed a merger with Recruiter.com, Inc., accounted for as a reverse recapitalization, and acquired certain Genesys Talent assets in a separate business combination. The Genesys acquisition was paid for with Series F preferred stock valued at $8.6 million. The acquired operations were included from March 31, so period comparisons are materially affected by the transaction and are not like-for-like.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1.488 million | $284,000 | $1.652 million | $529,000 |
| Gross profit | $511,000 | $284,000 | $674,000 | $529,000 |
| Gross margin | 34.3% | 100.0% | 40.8% | 100.0% |
| Operating expenses | $2.701 million | $580,000 | $3.171 million | $1.052 million |
| Net loss | $2.280 million | $356,000 | $2.662 million | $665,000 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $564,000 | $413,000 |
- Management attributed the revenue increase primarily to Genesys, which contributed approximately $1.357 million in the six-month period. It also cited lower legacy Recruiter.com revenue during integration and transaction activity. Q2 2019 included $978,000 of cost of revenue, versus none in Q2 2018.
- Q2 operating expenses included approximately $1.482 million of stock-based compensation. The six-month amount was $1.568 million, including $752,500 for shares transferred to employees and consultants by certain stockholders. Management also cited a $198,000 Genesys finder’s fee and approximately $485,000 in operating expenses attributable to the acquired business.
- At June 30, cash was $894,000; current assets were $2.569 million and current liabilities were $4.288 million, implying a working-capital deficit of approximately $1.718 million. Total assets were $11.378 million and total liabilities were $4.556 million.
- Loans payable totaled $143,000, including $52,000 current. The balance sheet also included a $1.733 million warrant derivative liability, a $500,000 refundable preferred-stock deposit, and $251,000 of lease liabilities. The filing’s MD&A separately says available cash was approximately $425,000 as of the filing date; this differs from quarter-end cash and merits verification.
- Financing activities provided $1.459 million in the first half, primarily from preferred-stock sales and a preferred-stock deposit. Cash increased by $880,000 from year-end 2018. Marketable securities were valued at $173,000, with $101,000 of six-month unrealized losses.
Changes, outlook, and risks
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management says available cash is insufficient for the next 12 months and additional financing is required for the remainder of 2019. Failure to raise capital could force the company to delay or scale back activities or cease operations. Management expects to rely on equity and/or debt financing; further securities sales could dilute existing holders. No quantified operating guidance is provided.
- Potential dilution is substantial: 184.4 million common shares were outstanding at June 30, while the filing lists 1.555 billion potentially issuable common equivalents excluded from diluted loss per share as anti-dilutive. These include preferred stock, options, stock awards, and warrants; conversion terms and actual issuance depend on applicable conditions.
- Two customers generated 36% of six-month revenue. Four customers represented 62% of accounts receivable at June 30. The company reported no allowance for doubtful accounts.
- Related-party matters include $982,000 payable to Icon, which provides back-office, payroll, and employer-of-record services; a related party’s role in the software-development firm; and a consulting/finder’s-fee arrangement associated with the Genesys acquisition. The company prepaid $150,000 of consulting fees to an entity controlled by an offering investor.
- Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting. Management excluded the acquired Recruiter.com and Genesys businesses from its evaluation because integration and testing were not complete; those businesses were significant to reported assets and revenue.
- Post-quarter disclosures: the board approved a 1-for-80 reverse split, not yet effected as of the filing; the company received notice to convert 3,000 Series D preferred shares into 3 million common shares, not yet issued; and the investor who deposited $500,000 requested its return. The filing also reports 2.5 million advisor options approved August 1.
- The filing reports no material pending legal proceedings and no off-balance-sheet arrangements. It identifies no applicable risk factors in this 10-Q, while referring readers to its earlier annual report for risk factors.
Investor verification priorities
- Confirm the issuer identity: the provided metadata says Nixxy, Inc., while the filing names Recruiter.com Group, Inc.
- Reconcile June 30 cash of $894,000 with management’s approximately $425,000 available-cash figure at filing and assess near-term funding needs, including the requested return of the $500,000 deposit.
- Review preferred-stock conversion, warrant, and option terms, the potential dilution, and the status and effect of the proposed 1-for-80 reverse split.
- Assess the Genesys purchase-price allocation, which was provisional, the acquired business’s revenue and cash contribution, and the company’s integration progress.
- Examine the material weaknesses, remediation plans, customer concentration, and related-party balances and agreements, particularly the Icon payable and acquisition-related fees.