Business context and reporting period
This is Recruiter.com Group, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 9, 2021. The supplied company metadata says Nixxy, Inc.; that does not match the registrant named in the filing. The filing is an annual report, not a quarterly report.
Recruiter.com operates an on-demand recruiting and staffing business combining an online hiring platform, AI and video tools, and a network of independent recruiters. Revenue comes mainly from consulting and staffing, with additional full-time placement, Recruiters on Demand, career services, and marketplace solutions. The company reported more than 28,000 recruiters on its platform.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $8.50 million | $6.00 million |
| Gross profit and margin | $2.36 million; 27.8% | $1.55 million; 25.8% |
| Operating expenses | $9.10 million | $12.05 million |
| Operating loss | $(6.74) million | $(10.50) million |
| Net loss | $(17.04) million | $(11.84) million |
| Adjusted EBITDA loss, non-GAAP | $(2.84) million | $(2.38) million |
| Cash used in operating activities | $(2.53) million | $(1.39) million |
At December 31, 2020, cash was $99,906, current assets were $1.25 million, and current liabilities were $16.69 million, implying a working-capital deficit of approximately $15.44 million. Total liabilities were $16.83 million and stockholders’ equity was a deficit of $11.12 million. The balance sheet reported $1.91 million of convertible notes payable, net of discounts and costs, and $101,790 of term loans. The $11.54 million warrant derivative liability is a separate fair-value liability, not conventional funded debt.
Management said cash on hand at March 4, 2021 was approximately $1.06 million and insufficient for the next 12 months’ expected operating needs. The auditor issued an unmodified opinion on the financial statements but included a going-concern explanatory paragraph.
Material changes versus the prior comparable period
- Revenue rose 41.8%, primarily reflecting the Genesys business acquired in March 2019, sequential staffing growth, new Recruiters on Demand clients, and Career Solutions growth. Marketing revenue declined as resources shifted toward core recruiting services.
- Gross margin improved from 25.8% to 27.8%, which management attributed to a more favorable mix and improved staffing margins.
- Operating expenses fell, mainly because 2019 included approximately $3.11 million of impairment charges. General and administrative expense remained substantial at $8.03 million in 2020.
- Net loss widened despite the lower operating loss, largely because of noncash derivative charges and financing-related interest expense. Other expense included $3.34 million of initial derivative expense, $2.64 million from anti-dilution adjustments, $2.66 million from changes in warrant fair value, and $2.02 million of interest expense.
- Customer concentration increased: three customers generated 61% of 2020 revenue, versus two customers generating 49% in 2019. Two customers represented 51% of year-end 2020 receivables, versus 47% for three customers a year earlier.
Outlook, risks, contingencies, and unusual items
- Going concern and financing: Management concluded substantial doubt exists about the company’s ability to continue as a going concern without additional financing and improved cash generation. It expects to seek debt or equity financing; failure to obtain capital could require scaling back or ceasing operations.
- Management outlook: Management expected hiring and demand for recruiting solutions to rebound in 2021, but emphasized that recovery could be delayed or economic conditions could worsen. This is not quantified financial guidance.
- Debt and dilution: May 2020 secured convertible debentures had $2.953 million face principal, 8% interest, a $1.60 conversion price, and a May 2021 maturity, with a possible six-month extension. The company also disclosed January 2021 debenture financings totaling $2.799 million face principal and February conversion of a $250,000 note into debentures. These financings include warrants, price protections, security interests, and restrictive covenants. The filing estimates approximately 25 million common shares issuable from outstanding convertible securities and warrants as of the report date.
- COVID-19: The company reduced certain billing rates, reported client attrition, temporarily cut certain executive compensation packages by approximately 20%, and reduced marketing spending. It said it maintained workforce levels and expected the 2020 cost reductions not to impair client delivery.
- Acquisitions: The OneWire acquisition was subject to a binding letter of intent and definitive documentation, with a potential purchase price up to $1.255 million payable in shares, including an earn-out. After year-end, the company acquired Scouted assets for approximately $1.6 million in stated consideration, primarily stock plus $180,000 cash.
- Controls and related parties: Management found internal control over financial reporting ineffective at December 31, 2020 because staffing was insufficient to segregate duties and provide adequate monitoring. The company also relies on related parties for staffing employer-of-record and back-office services, software development, and office space.
- Other risks: The filing highlights dependence on a small number of customers, competition, recruiter classification, privacy and cybersecurity, third-party software and hosting, and execution and integration risks. No material pending legal proceedings were reported.
Most important facts an investor should verify
- Confirm the intended issuer: the filing is for Recruiter.com Group, Inc. (OTCQB: RCRT), not Nixxy, Inc.
- Review the going-concern disclosure, the approximately $15.44 million working-capital deficit, and the company’s subsequent financing and cash position.
- Reconcile the debenture principal, maturities, security and covenant terms, derivative accounting, and potential dilution; compare the reported approximately 25 million potentially issuable shares with current capitalization.
- Assess whether the revenue growth and improved gross margin are sustainable given customer concentration and the staffing-heavy revenue mix.
- Track remediation of the material weakness in financial controls and the company’s dependence on related-party providers.
- Verify the final terms and accounting for OneWire and Scouted; the filing describes OneWire as an LOI and Scouted as a subsequent acquisition.