Business context and reporting period
The supplied filing is Recruiter.com Group, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022, filed November 14, 2022. This does not match the request metadata naming Nixxy, Inc.; the summary below reflects the filing provided. Recruiter.com operates an on-demand recruiting platform and related recruiting, staffing, placement, and software services.
Financial results and liquidity
| Metric | Three months ended Sept. 30, 2022 | Nine months ended Sept. 30, 2022 |
|---|---|---|
| Revenue | $7.0 million, up 11% | $20.9 million, up 52% |
| Gross profit / margin | $2.2 million / 31.5% | $7.8 million / 37.3% |
| Operating loss | $5.4 million | $11.9 million |
| Net loss | $5.6 million; $6.3 million attributable to common shareholders after deemed dividend | $11.0 million; $11.7 million attributable to common shareholders after deemed dividend |
| Operating cash flow | $4.7 million used |
Cash was $8,542 at September 30, 2022, compared with $2.6 million at December 31, 2021. Current assets were $4.9 million and current liabilities $9.0 million, producing a reported working-capital deficit of approximately $4.1 million. Total liabilities were $9.3 million. Loans payable were $5.7 million before unamortized discounts and issuance costs; $4.3 million was classified as current and $227,000 as long term. The filing states cash was approximately $362,000 on November 11, 2022.
Investing activities used $1.4 million, principally for capitalized software development and equipment. Financing activities provided $3.5 million, including borrowing and factoring proceeds, partly offset by repayments. The company reported $3.4 million of equity-based compensation for the nine-month period.
Changes versus prior comparable periods
- Third-quarter revenue increased $710,000, led by Recruiters on Demand growth; gross margin declined to 31.5% from 36.8%, which management attributed to the mix and staffing costs of supporting new business.
- Nine-month revenue rose $7.1 million, principally from Recruiters on Demand and software subscriptions. Consulting and staffing revenue fell $2.3 million as the company shifted its focus. Nine-month gross margin improved to 37.3% from 33.7%.
- Third-quarter operating expenses decreased 15%, but nine-month operating expenses increased 26%, including higher amortization and spending on sales, product development, and administration.
- Nine-month net loss worsened to $11.0 million from $10.4 million. Prior-year results included substantial derivative fair-value movements and debt-related charges, limiting direct comparison.
- Cash fell sharply from year-end, while accounts receivable declined on the balance sheet but the cash-flow statement reflects a $1.3 million operating cash use from receivables.
Outlook, risks, contingencies, and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for the next 12 months. It says additional financing is required and that failure to obtain capital could force it to delay or reduce development, scale back operations, or cease operations.
- Outlook: Management reported signs of weakening recruiting demand, particularly in technology, and expected a hiring slowdown to persist into 2023. No quantified financial guidance is provided. The company cited cost reductions and a continued strategic shift toward on-demand recruiting.
- Subsequent financing: On October 19, 2022, the company borrowed $2.0 million under a loan agreement providing up to $2.25 million, and issued 706,551 warrants. The remaining $250,000 tranche was subject to conditions. Parrut also subordinated its note and revised its maturity to March 31, 2023.
- Debt and dilution: August 2022 notes carried 6% interest and were due in August 2023, with warrants issued alongside them. In October, Parrut earned a $1.35 million acquisition earn-out settled with 1,374,678 shares at $0.98; related warrant anti-dilution adjustments lowered certain exercise prices to $0.98.
- Impairment: The company recorded $2.1 million of impairment expense, including $582,114 of goodwill impairment and $1.55 million against intangible assets.
- Legal matter: The company obtained a June 2022 judgment against BKR Strategy Group for $500,000 plus 12% interest; a separate lawsuit remains ongoing. BKR counterclaimed for $500,000, which the company disputes. No loss accrual was recorded because the outcome could not be estimated.
- Controls: Management reported disclosure controls and internal control over financial reporting were ineffective due to a material weakness, including insufficient staffing to segregate duties and provide adequate monitoring. The weakness remained unremediated at September 30, 2022.
- Customer credit and collection risk is notable: the allowance for doubtful accounts rose to $1.30 million, and nine-month bad-debt expense increased to $479,000 from $79,000.
Important facts for investors to verify
- Confirm the filing’s issuer identity: the document is for Recruiter.com Group, Inc., not Nixxy, Inc.
- Assess whether the October Montage financing and any further funding are sufficient to address the disclosed going-concern shortfall and near-term maturities.
- Review factoring availability, costs, recourse obligations, collateral terms, and the company’s ability to collect receivables.
- Track customer demand, gross margins, receivable quality, bad-debt expense, and progress toward operating cash-flow improvement.
- Review the effect of warrant anti-dilution provisions, acquisition earn-out shares, and other potential equity issuance on dilution.
- Monitor impairment assumptions, the BKR litigation and counterclaim, and remediation of the material weakness in financial controls.