Filing identity and reporting period
The supplied filing is Recruiter.com Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021, filed August 16, 2021. It is not identified in the filing as a Nixxy, Inc. report; verify the issuer before relying on this summary.
Recruiter.com operates an on-demand recruiting and staffing platform, with recruiter services, placements, software subscriptions and marketplace offerings. The company reported one operating segment.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $4.38 million | $1.85 million | $7.55 million | $4.17 million |
| Gross profit / margin | $1.43 million / 32.8% | $435,172 / 23.5% | $2.34 million / 31.1% | $997,099 / 23.9% |
| Operating loss | $(2.45) million | $(1.42) million | $(4.38) million | $(3.28) million |
| Net income (loss) | $3.53 million | $(7.94) million | $(2.75) million | $(10.42) million |
| Adjusted EBITDA (loss), non-GAAP | $(776,168) | $(546,083) | $(1.86) million | $(1.31) million |
Six-month operating cash flow was $(1.89) million, versus $(1.04) million used in the prior-year period. Investing activities used $29,830; financing activities provided $1.91 million. Cash at June 30 was $86,898. Current assets of $3.40 million were substantially below current liabilities of $21.00 million; total liabilities were $21.07 million and stockholders’ deficit was $6.51 million.
At June 30, net convertible notes payable were $4.15 million and the warrant derivative liability was $8.92 million. The latter is a fair-value liability, not conventional funded debt. Total assets were $14.56 million, including $5.65 million of net intangible assets and $4.93 million of goodwill.
Material changes versus prior comparable periods
- Revenue rose 136% in Q2 and 81% for the six-month period. Recruiters on Demand was the largest growth contributor; consulting and staffing also grew, and software subscriptions added $175,790 in Q2.
- Gross margins improved year over year, which management attributed to a greater mix of higher-margin Recruiters on Demand and software subscription revenue.
- Six-month customer concentration eased: the top two customers accounted for 32% of revenue, compared with 50% in the prior-year period. However, two customers still represented 24% of receivables at June 30.
- Operating expenses increased, including higher general and administrative costs and amortization following acquisitions. Six-month stock-based compensation was $1.62 million; amortization was $834,268.
- Cash used in operations increased, with receivables rising by approximately $2.03 million during the six months.
Outlook, risks, contingencies and unusual items
- Reported Q2 profit was driven by a non-cash valuation change. The company recorded $7.57 million of non-cash income from the change in fair value of warrant derivatives. Excluding this item does not convert the operating loss into operating profitability. Q2 basic EPS was $0.99, while diluted EPS was $(0.69), reflecting the accounting treatment of derivative-related dilution.
- Management expected continuing losses, but stated that it believed available cash would fund liabilities and operations for at least 12 months. Cash was $8.94 million as of August 11, following a July public offering that generated $13.80 million in gross proceeds before discounts and expenses. The filing also says the debentures were converted in July; confirm final net proceeds, conversion terms and resulting capitalization.
- Management expected recruiting demand to improve as clients resumed hiring but cautioned that COVID-19 effects, client attrition, economic conditions and access to financing remained uncertain. No quantified revenue or earnings guidance was provided.
- Three acquisitions—Scouted, Upsider and OneWire—added assets, goodwill and intangible assets. Upsider earn-out consideration was valued at approximately $1.33 million; acquisition valuations were provisional in certain respects. A further Uncubed technology-division acquisition closed in July, with cash, a note, shares and potential earn-out consideration.
- Convertible debentures carried 8% stated interest, security interests and restrictive covenants before their July conversion. The July offering and conversions materially changed debt and share counts and may dilute existing holders; warrants could provide additional capital, but exercise is not assured.
- The company disclosed material weaknesses in internal control over financial reporting, including insufficient staffing to segregate duties and monitor financial reporting. Management anticipated remediation before year-end 2021; no material change in controls during Q2 was reported.
- Related-party arrangements were significant, including amounts owed to Icon and Opptly at quarter-end. The filing says certain payables were settled and some service relationships ended after quarter-end. No material litigation was reported.
Most important facts to verify
- Confirm that this Recruiter.com Group, Inc. filing—not a Nixxy, Inc. filing—is the intended document.
- Reconcile Q2 net income and EPS to the large non-cash derivative gain, and assess operating results using recurring cash and operating measures.
- Verify post-offering cash, net proceeds, July debenture conversions, warrants, and fully diluted shares; reported common shares outstanding were 13,551,878 as of August 12, 2021.
- Assess liquidity and working-capital needs, receivables collection and customer concentration, particularly given low quarter-end cash and negative working capital.
- Track acquisition integration, earn-out obligations, provisional purchase accounting, and whether acquired businesses contribute sustainably to revenue and margins.
- Monitor remediation of the disclosed material weaknesses and the company’s continuing reliance on financing and related-party service providers.