Nixxy, Inc. (filing registrant: Recruiter.com Group, Inc.) — Q3 2020 Form 10-Q
Filing identity: The request identifies Nixxy, Inc., but the supplied filing is for Recruiter.com Group, Inc. This summary reflects the filing provided. It covers the quarter and nine months ended September 30, 2020; the statements are unaudited. The company operated an online recruiting and staffing platform, reporting one operating segment.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.99 million | $1.95 million | $6.16 million | $4.08 million |
| Gross profit / margin | $615,000 / 30.9% | $454,000 / 23.3% | $1.61 million / 26.1% | $1.13 million / 27.6% |
| Operating loss | $(1.89) million | $(1.95) million | $(5.17) million | $(4.45) million |
| Net income (loss) | $1.44 million | $(1.03) million | $(8.99) million | $(3.69) million |
| Adjusted EBITDA (non-GAAP) | $(713,000) | $(541,000) | $(2.02) million | $(1.57) million |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $(1.93) million | $(603,000) |
- Q3 revenue increased 2.4% year over year. Higher permanent placement and Recruiters on Demand revenue was partly offset by lower staffing and marketing revenue.
- Nine-month revenue rose 50.9%, primarily reflecting the inclusion of the Genesys business acquired in 2019. Nine-month gross margin declined from 27.6% to 26.1%, which management attributed to lower staffing bill rates and a reduced focus on marketing.
- Q3 net income was driven by a $4.21 million non-cash gain from changes in derivative fair value; operating results remained loss-making. Nine-month results included a $3.34 million initial derivative expense, a $2.64 million anti-dilution adjustment expense, and higher interest expense.
- At September 30, cash was $581,000, current assets $1.39 million, current liabilities $9.20 million, and stockholders’ deficit $3.70 million. Working capital was negative $7.82 million; the current ratio was approximately 0.15.
- Reported liabilities included $5.57 million of warrant derivative liability, $928,000 of net current convertible notes, $482,000 of term loans, and $102,000 net liability on sale of future revenues. Convertible debentures had $2.95 million aggregate principal outstanding, carried 8% interest, and matured May 2021, with a company extension option.
- Cash increased from $306,000 at year-end 2019 to $581,000 at September 30, 2020, largely due to $2.23 million net cash from financing. Financing included $2.23 million net proceeds from convertible notes. The company reported approximately $447,000 cash on hand as of November 6, 2020.
Material changes, outlook, and risks
- The company disclosed substantial doubt about its ability to continue as a going concern: available cash was not expected to fund the next 12 months, additional financing was required, and failure to raise capital could force it to scale back or cease operations. Management expected to seek further debt or equity financing; future securities sales could dilute shareholders.
- COVID-19 reduced demand for staffing consultants and client bill rates. The company reduced some billing rates, temporarily cut certain executive compensation packages by about 20%, and curtailed marketing costs. Management hoped hiring demand would improve later in 2020 or 2021, but said timing and recovery were uncertain; no quantified financial guidance was provided.
- The convertible debt is secured by a first-priority lien on company assets, subject to existing senior liens, and has restrictive covenants, conversion and price-adjustment provisions, and default terms that can accelerate 130% of principal plus accrued amounts. Warrant accounting produced substantial non-cash earnings volatility.
- Three customers represented 62% of nine-month revenue; three customers represented 49% of receivables at quarter-end. Related-party arrangements include employer-of-record services and platform development; the company owed Icon $671,000 and Genesys $49,000 at September 30.
- Management reported ineffective disclosure controls and unremediated material weaknesses, including insufficient segregation of duties and inadequate independent board committee capacity. A financial consultant was hired in July to help establish procedures.
- The filing reported no material pending legal proceedings and no defaults upon senior securities. It also noted that the company’s credit-line availability was suspended during 2020 due to COVID-19 uncertainty.
Key facts for investors to verify
- Confirm the issuer and security identity: the supplied 10-Q is for Recruiter.com Group, Inc., not Nixxy, Inc.
- Assess near-term liquidity, financing availability, debt maturity and covenant terms, and the company’s stated going-concern risk.
- Separate recurring operating performance from non-cash derivative gains and expenses when evaluating reported net income and loss.
- Review potential dilution from convertible notes, warrants, preferred stock conversions, and equity compensation; common shares outstanding were 5,131,508 at September 30, 2020.
- Monitor customer concentration, COVID-related staffing demand and pricing, related-party balances and dependencies, and progress in remediating internal-control weaknesses.