Nixxy, Inc 10-Q for FY2023 Q3
Nixxy, Inc. (NIXX)
About this 10-Q
Nixxy, Inc filed this 10-Q on November 20, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $183.72K
- down 96.8% from $5.78M a year earlier
- Net loss
- $1.03M
- compared with a net loss of $5.63M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________:
Commission file number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
Issuer’s telephone number (
___________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock Purchase Warrants |
| RCRTW |
| The The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of November 14, 2023, the number of shares of the registrant’s common stock outstanding was
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| Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 | 3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 41 | |
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| 2 |
| Table of Contents |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Recruiter.com Group, Inc. and Subsidiaries
Consolidated Balance Sheets
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| September 30, |
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| December 31, |
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| 2022 |
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses and other current assets |
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Current assets from discontinued operations |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Intangible assets, net |
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Goodwill |
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Total assets |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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Accrued expenses |
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Accrued compensation |
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Accrued interest |
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Deferred payroll taxes |
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Other liabilities |
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Loans payable - current portion, net of discount |
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Refundable deposit on preferred stock purchase |
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Warrant liability for puttable warrants |
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Deferred revenue |
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Current liabilities associated with discontinued operations |
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Total current liabilities |
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Loans payable - long term portion |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Stockholders’ Equity: |
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Preferred stock, Series D, $ |
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Preferred stock, Series E, $ |
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Preferred stock, Series F, $ |
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Common stock, $ |
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Shares to be issued, |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
| $ |
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| $ |
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The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
| 3 |
| Table of Contents |
Recruiter.com Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months ended September 30, 2023 and 2022
(Unaudited)
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| Three |
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| Nine |
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| Nine |
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| Months Ended |
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| Months Ended |
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| Months Ended |
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| Months Ended |
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| September 30, 2023 |
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| September 30, 2022 |
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| September 30, 2023 |
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| September 30, 2022 |
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Revenue |
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Cost of revenue |
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Gross profit (loss) |
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Operating expenses: |
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Sales and marketing |
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Product development (including related party expense of $0, $8,636, $27,041, and $25,407 respectively) |
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Amortization of intangibles |
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Impairment Expense |
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General and administrative (including share-based compensation expense of $343,951, $765,743, $1,106,460, and $3,415,670 respectively, and related party expense of $0, $0, $0, and $19,825 respectively) |
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Total operating expenses |
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Loss from continuing operations |
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Other income (expenses): |
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Interest expense |
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Income from ERC Credit |
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Other (expense) income |
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Finance cost |
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Gain on settlement of payables |
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Gain on debt extinguishment |
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Total other income (expenses) |
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Loss from continuing operations before income taxes |
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Provision for income taxes |
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Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Net income from discontinued operations |
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Net loss |
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Deemed dividends |
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Net loss attributable to common shareholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Net loss from continuing operations per common share – basic and diluted |
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Net income from discontinued operations per common share - basic and diluted |
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Net loss per common share – basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted average common shares - basic and diluted |
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The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
| 4 |
| Table of Contents |
Recruiter.com Group, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders’ Equity
For the Three and Nine Months ended September 30, 2023 and 2022
(Unaudited)
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| Preferred stock |
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| Preferred stock |
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| Common stock to |
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| Additional |
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| Total |
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| Series D |
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| Series E |
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| Series F |
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| Common stock |
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| be issued |
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| Paid in |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Equity |
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Balance as of December 31, 2022 |
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| $ |
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| - |
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| $ |
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| $ |
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Stock based compensation - Options |
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| - |
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| - |
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| - |
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| - |
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| - |
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Stock based compensation - RSUs |
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| - |
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| - |
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| - |
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| - |
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Anti-dilution adjustment to warrants |
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| - |
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| - |
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| - |
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| - |
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Common stock issued for restricted stock units |
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| - |
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| - |
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| - |
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Common stock issued upon exercise of warrants |
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| - |
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| - |
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| - |
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Net loss |
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Balance as of March 31, 2023 |
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| $ |
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| - |
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| $ |
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Stock based compensation - Options |
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| - |
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| - |
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| - |
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| - |
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Common stock issued for the exchange of warrants |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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| - |
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Balance as of June 30, 2023 |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Stock based compensation - Options |
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| - |
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| - |
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| - |
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| - |
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| - |
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Issuance of common stock, net of equity issuance costs of $250,490 |
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| - |
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| - |
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| - |
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Recapitalization |
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| - |
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| - |
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| - |
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| - |
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Effect of the August 2023 reverse stock split on common stock |
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| - |
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| - |
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| - |
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| - |
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Common stock issued upon exercise of pre-funded warrants |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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Balance as of September 30, 2023 |
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| - |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| 5 |
| Table of Contents |
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| Preferred stock |
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| Preferred stock |
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| Preferred stock |
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| Common stock to |
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| Additional |
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| Total |
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| Series D |
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| Series E |
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| Series F |
|
| Common stock |
|
| be issued |
|
| Paid in |
|
| Accumulated |
|
| Stockholders’ |
| ||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||||||||
Balance as of December 31, 2021 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||||
Stock based compensation - Options and Warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock based compensation - RSUs |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for the exchange of warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Common stock issued for restricted stock units |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance as of March 31, 2022 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation - Options and Warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock based compensation - RSUs |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock issued for restricted stock units |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance as of June 30, 2022 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation - Options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock based compensation - RSUs |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Anti-dilution adjustment to warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||||||
Relative fair value of warrants issued with debt |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2022 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||||
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
| 6 |
| Table of Contents |
Recruiter.com Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 2023 and 2022
(Unaudited)
|
| Nine months |
|
| Nine months |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
| ||
Bad debt expense |
|
|
|
|
|
| ||
Gain on debt extinguishment |
|
|
|
|
| ( | ) | |
Gain on settlement of debt |
|
| ( | ) |
|
|
| |
Equity based compensation expense |
|
|
|
|
|
| ||
Warrant modification expense |
|
|
|
|
|
| ||
Amortization of debt discount and debt costs |
|
|
|
|
|
| ||
Impairment expense |
|
|
|
|
|
| ||
Change in fair value of earn-out liability |
|
|
|
|
|
| ||
Factoring discount fee and interest |
|
|
|
|
|
| ||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
| ( | ) |
|
| ( | ) |
Decrease in accounts receivable - related parties |
|
|
|
|
|
| ||
Increase in prepaid expenses and other current assets |
|
| ( | ) |
|
| ( | ) |
Increase (decrease) in accounts payable and accrued liabilities |
|
|
|
| ( | ) | ||
Decrease in accounts payable and accrued liabilities - related parties |
|
|
|
|
| ( | ) | |
Decrease in deferred revenue |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Capitalized software development costs |
|
|
|
|
| ( | ) | |
Purchase of property and equipment |
|
|
|
|
| ( | ) | |
Net cash used in investing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from notes |
|
|
|
|
|
| ||
Proceeds from ERC advances |
|
|
|
|
|
| ||
Repayment of ERC advances |
|
| ( | ) |
|
|
| |
Issuance of common stock, net of equity issuance costs of $300,490 |
|
|
|
|
|
| ||
Payments of loans |
|
| ( | ) |
|
| ( | ) |
Proceeds from factoring agreement |
|
|
|
|
|
| ||
Repayments of factoring agreement |
|
| ( | ) |
|
| ( | ) |
Purchase of preferred shares pursuant to recapitalization |
|
| ( | ) |
|
|
|
|
Gross proceeds from exercise of warrants |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| ( | ) |
|
| ( | ) |
Cash, beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ |
|
| $ |
| ||
Cash paid during the period for income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accounts receivable owed under factoring agreement collected directly by factor |
| $ |
|
| $ |
| ||
Purchase price measurement period adjustment to goodwill and accounts receivable |
| $ |
|
| $ |
| ||
Debt discount on warrants granted with notes |
| $ |
|
| $ |
| ||
Debt issuance costs accrued |
| $ |
|
| $ |
| ||
Deemed dividends |
| $ |
|
| $ |
| ||
Offering costs as a result of modification of warrants to induce exercise |
| $ |
|
| $ |
| ||
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.
| 7 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Recruiter.com Group, Inc., a Nevada corporation (“RGI” or the “Company”), is a holding company based in New York, New York. The Company has eight subsidiaries, Recruiter.com, Inc., Recruiter.com Recruiting Solutions LLC (“Recruiting Solutions”), VocaWorks, Inc. (“VocaWorks”), Recruiter.com Scouted Inc. (“Scouted”), Recruiter.com Upsider Inc. (“Upsider”), Recruiter.com OneWire Inc. (“OneWire”), Recruiter.com Consulting, LLC (“Recruiter.com Consulting”) and CognoGroup, Inc. RGI and its subsidiaries as a consolidated group is hereinafter referred to as the “Company,” “we”, “us” or “our”.
On July 25, 2023, the Company acquired a shell company, Atlantic Energy Solutions, Inc., which is a dormant entity quoted on OTC Market under the symbol AESO, in which the Company acquired a controlling and majority equity interest through purchasing
The Company’s website, www.Recruiter.com, provides access to its network of recruiters to employers seeking to hire talent and utilizes an innovative web platform, software with integrated AI-driven candidate to job matching, and video screening software to source qualified talent more easily and quickly.
The Company helps businesses accelerate and streamline their recruiting and hiring processes by providing on-demand recruiting software and services. The Company leverages its expert network of recruiters to place recruiters on a project basis, aided by cutting-edge AI-based candidate sourcing and matching and video screening technologies.
Through the Company’s Recruiting Solutions division, the Company also provides consulting, staffing, (see note 6), and full-time placement services to employers, leveraging our platform and rounding out our services. The Company’s mission is to help recruit the right talent faster and become the preferred solution for hiring specialized talent.
On June 5, 2023, the Company ("Buyer") entered into a stock purchase agreement (“GoLogiq Stock Purchase Agreement”) with GoLogiq Inc. ("Seller"), a Delaware corporation (“GoLogiq”). GoLogiq owns all of the issued and outstanding membership interests (the “Membership Interests”) of GOLQ LLC, a Nevada limited liability company, that was further amended on August 18 and 29, 2023. Upon the terms and subject to the conditions of the stock purchase agreement, GoLogiq is selling to the Company, and
On August 16, 2023, the Company entered into an Asset Purchase Agreement (the “Job Mobz Purchase Agreement”) with Job Mobz Inc., a California corporation (“Job Mobz”). Upon the terms and subject to the conditions of the Job Mobz Purchase Agreement, the Company has agreed to sell and assign its right, title, and interest in the domain name and the assets generally used to operate the business associated therewith to Job Mobz for an aggregate purchase price of $
Principles of Consolidation and Basis of Presentation
The unaudited consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the years ended December 31, 2022 and 2021 in our Annual Report on Form 10-K, as filed with the SEC on March 31, 2023. The December 31, 2022 balance sheet is derived from those statements.
In the opinion of management, these unaudited interim financial statements as of and for the three and nine months ended September 30, 2023 include all adjustments (consisting of normal recurring adjustments and non-recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period. All references to September 30, 2023 in these footnotes are unaudited.
Discontinued Operations
See Note 6, Discontinued Operations, for a discussion of the Company’s significant accounting policy surrounding the sale of substantially all of the Company’s staffing and consulting services revenue line in connection with the sale of its right, title, and exclusive interest in certain client contracts and associated staff, contractors, business information, and relationships to Insigma and Akvarr.
| 8 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ from management’s estimates and assumptions. Included in these estimates are assumptions used to estimate collection of accounts receivable, fair value of marketable securities, fair value of assets acquired and liabilities assumed in asset acquisitions and the estimated useful life of assets acquired, fair value of contingent consideration in asset acquisitions and business combinations, fair value of derivative liabilities, fair value of securities issued for acquisitions and business combinations, fair value of assets acquired and liabilities assumed in business combinations, fair value of intangible assets and goodwill, fair value of capitalized software, fair value of non-monetary transactions, deferred income tax asset valuation allowances, and valuation of stock based compensation expense.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions, and, at times, balances may exceed federally insured limits. At September 30, 2023 and December 31, 2022, the Company had $
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
We generate revenue from the following activities:
·
| Software Subscriptions: We offer a subscription to our web-based platforms that help employers recruit talent. Our platforms allow customers to source, contact, screen, and sort candidates using data science, advanced email campaigning tools, and predictive analytics. As part of our software subscriptions, we offer enhanced support packages and On Demand recruiting support services for an additional fee. Additional fees may be charged when we place a candidate with our customer, depending on the subscription type. In such cases, if the candidate ceases to be employed by the customer during the initial 90 days (the 90-day guarantee), we refund the customer in full for all fees paid by the customer. In December of 2022, we sold one of our software platforms to Talent, Inc. that was used in the delivery of the subscription service. Subsequently, we continued providing the service, but leveraged third-party tools in the delivery of services. |
| 9 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 (UNAUDITED)
· |
Recruiters On Demand: Consists of a consulting and staffing service specifically for the placement of professional recruiters, which we market as Recruiters On Demand. Recruiters On Demand is a flexible, time-based solution that provides businesses of all sizes access to recruiters on an outsourced, virtual basis for help with their hiring needs. As with other consulting and staffing solutions, we procure for our employer clients qualified professional recruiters, and then place them on assignment with our employer clients. We derive revenue from Recruiters On Demand by billing the employer clients for the placed recruiters’ ongoing work at an agreed-upon, time-based rate. We directly source recruiter candidates from our network of recruiters. In addition, we also offer talent planning, talent assessment, strategic guidance, and organizational development services, which we market as our “Talent Effectiveness” practice. Companies prepay for a certain number of consulting hours at an agreed-upon, time-based rate. We source and provide the independent consultants that provide the service. In March 2023, we announced a strategic partnership with Job Mobz to transition certain Recruiters on Demand clients and staff to Job Mobz in exchange for an ongoing revenue stream. (See below Revenue Share). |
|
|
· | Full-time Placement: Consists of providing referrals of qualified candidates to employers to hire staff for full-time positions. We generate full-time placement revenue by earning one-time fees for each time that employers hire one of the candidates that we refer. Employers alert us of their hiring needs through our Platform, or other communications. We source qualified candidate referrals for the employers’ available jobs through independent recruiter users that access the Platform and other tools. We support and supplement the independent recruiters’ efforts with dedicated internal employees we call our internal talent delivery team. Our talent delivery team selects and delivers candidate profiles and resumes to our employer clients for their review and ultimate selection. Upon the employer hiring one or more of our candidate referrals, we earn a “full-time placement fee”, an amount separately negotiated with each employer client. The full-time placement fee is typically either a percentage of the referred candidates’ first year base salary or an agreed-upon flat fee. |
|
|
· | Marketplace: Our Marketplace category comprises services for businesses and individuals that leverage our online presence and career communities. For businesses, this includes job postings, sponsorship of digital newsletters, online content promotion, social media distribution, banner advertising, and other branded electronic communications, such as in our quarterly digital publication on recruiting trends and issues. We earn revenue by completing agreed upon marketing related deliverables and milestones using pricing and terms set by mutual agreement with the customer. In some cases, we earn a percentage of revenue a business receives from attracting new clients by advertising on the Platform. Companies can also pay us to post job openings on our proprietary job boards to promote open job positions they are trying to fill. In addition to our work with direct clients, we categorize all online advertising and affiliate marketing revenue as Marketplace revenue.
For individuals, Marketplace includes services to assist with career development and advancement, including a resume distribution service that promotes these job seekers’ profiles and resumes to help with their procuring employment, upskilling, and training. Our resume distribution service allows a job seeker to upload their resume to our database, which we then distribute to our network of recruiters on the Platform. We earn revenue from a one-time flat fee for this service. We also offer a recruiter training program through our online learning management system, located at RecruitingClasses.com and other training and upskilling programs. |
| 10 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
· |
Consulting and Staffing: Consists of providing consulting and staffing personnel services to employers to satisfy their demand for long- and short-term consulting and temporary employee needs. We generate revenue by first referring qualified personnel for the employer’s specific talent needs, then placing such personnel with the employer, but with our providers acting as the employer of record for us, and finally, billing the employer for the time and work of our placed personnel on an ongoing basis. Our process for finding candidates for consulting and staffing engagements largely mirrors our process for full-time placement hiring. This process includes employers informing us of open consulting and temporary staffing opportunities and projects, sourcing qualified candidates through the Platform and other similar means, and, finally, the employer selecting our candidates for placement after a process of review and selection. We bill these employer clients for our placed candidates’ ongoing work at an agreed-upon, time-based rate, typically on a weekly schedule of invoicing (see note 6). |
|
|
· | Revenue Share: We refer certain clients to a third party in exchange for a referral fee. The amount of the referral fee is dependent upon whether the referral is an existing client of ours and what services we currently provide that client, or a client of a third party who is not historically serviced by us. Referral fees under the revenue share arrangement are subject to certain minimum and maximum payout amounts. We record referral fees earned under our revenue share arrangement on a net basis. |
We have a sales team and sales partnerships with direct employers as well as vendor management system companies and managed service companies that help create sales channels for clients that buy staffing, direct hire, and sourcing services. Once we have secured the relationship and contract with the interested Enterprise customer, the delivery and product teams will provide the service to fulfil any or all of the revenue segments.
Revenues as presented on the consolidated statements of operations represent services rendered to customers less sales adjustments and allowances.
Software subscription revenues are recognized over the term of the subscription for access to services and/or our web-based platform. Revenue is recognized monthly over the subscription term. Talent effectiveness subscription revenues are recognized over the term of the subscription when services are provided. Any payments received prior to the time passing to provide the subscription services are recorded as a deferred revenue liability. Revenue generated from the enhanced support package and On Demand support are recognized at the point-in-time when the service is provided. Revenue generated from placement fees that are related to the software subscription are recognized at the point-in-time when the 60 or 90-day guarantee expires.
Recruiters On Demand services are billed to clients as either monthly subscriptions or time-based billings. Revenues for Recruiters On Demand are recognized on a gross basis when each monthly subscription service is completed. Talent Effectiveness consulting services are billed to clients upfront for a period of 12 months. Revenue is recognized on a gross basis monthly over the period the consulting services are provided.
Full time placement revenues are recognized on a gross basis when the guarantee period specified in each customer’s contract expires. No fees for direct hire placement services are charged to the employment candidates. Any payments received prior to the expiration of the guarantee period are recorded as a deferred revenue liability. Payments for recruitment services are typically due within 90 days of completion of services.
Marketplace Solutions revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Marketplace advertising revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services. Job posting revenue is recognized at the end of the period the job is posted. Marketplace career services revenues are recognized on a gross basis upon distribution of resumes or completion of training courses, which is the point at which the performance obligations are satisfied. Payments for career services are typically due upon distribution or completion of services.
Consulting and Staffing Services revenues represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in the net service revenues and equivalent amounts of reimbursable expenses are included in costs of revenue. We record substantially all revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of this line of revenues and expenses. We have concluded that gross reporting is appropriate because we have the task of identifying and hiring qualified employees, and our discretion to select the employees and establish their compensation and duties causes us to bear the risk for services that are not fully paid for by customers. Consulting and staffing revenues are recognized when the services are rendered by the temporary employees. We assume the risk of acceptability of the employees to customers. Payments for consulting and staffing services are typically due within 90 days of completion of services.
Revenue share revenues represent a percentage of revenue we have earned in relation to client referrals we made to a third party. We record revenue in relation to revenue share on a net basis as an agent under this arrangement. We have concluded that net reporting is appropriate because we do not provide the underlying services and arrangements to meet the demands of the client that we referred to the third party. Revenue is recorded based on a net percentage of revenue that is shared between us and the third party and earned upon delivery of the services by the third party. The third party provides the underlying services in this arrangement.
Deferred revenue results from transactions in which we have been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.
Sales tax collected is recorded on a net basis and is excluded from revenue.
Contract Assets
The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s balance sheet are from contracts with customers.
Contract Costs
Costs incurred to obtain a contract are capitalized unless they are short term in nature. As a practical matter, costs to obtain a contract that are short term in nature are expensed as incurred. The Company does not have any contract costs capitalized as of September 30, 2023 or December 31, 2022.
Contract Liabilities - Deferred Revenue
The Company’s contract liabilities consist of advance customer payments and deferred revenue. Deferred revenue results from transactions in which the Company has been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.
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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Revenue Disaggregation
For each of the identified periods, revenues can be categorized into the following:
|
| Three Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Recruiters on Demand |
| $ |
|
| $ |
| ||
Consulting and staffing services |
|
|
|
|
|
| ||
Software Subscriptions |
|
|
|
|
|
| ||
Marketplace Solutions |
|
|
|
|
|
| ||
Full time placement fees |
|
|
|
|
|
| ||
Revenue Share |
|
|
|
|
|
| ||
Total revenue |
| $ |
|
| $ |
| ||
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Recruiters on Demand |
| $ |
|
| $ |
| ||
Consulting and staffing services |
|
|
|
|
|
| ||
Software Subscriptions |
|
|
|
|
|
| ||
Marketplace Solutions |
|
|
|
|
|
| ||
Full time placement fees |
|
|
|
|
|
| ||
Revenue Share |
|
|
|
|
|
| ||
Total revenue |
| $ |
|
| $ |
| ||
As of September 30, 2023 and December 31, 2022, deferred revenue amounted to $
Expected Deferred Revenue Recognition Schedule
|
| Total Deferred September 30, 2023 |
|
| Recognize Q4 2023 |
|
| Recognize 2024 |
| |||
Recruiters on Demand |
| $ |
|
| $ |
|
| $ |
| |||
Marketplace Solutions |
| $ |
|
| $ |
|
| $ |
| |||
TOTAL |
| $ |
|
| $ |
|
| $ |
| |||
Revenue from international sources was approximately
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Costs of Revenue
Costs of revenues consist of employee costs, third party staffing costs and other fees, outsourced recruiter fees and commissions based on a percentage of Recruiting Solutions gross margin.
Accounts Receivable
Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral. We have recorded an allowance for doubtful accounts of $
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred.
Property and equipment depreciation expense for the three months ended September 30, 2023 and 2022 was $
Concentration of Credit Risk and Significant Customers and Vendors (Continuing Operations)
As of September 30, 2023, three customers accounted for more than
As of December 31, 2022, there were no customers accounted for more than
For the three months ended September 30, 2023 two customer accounted for more than
For the three months ended September 30, 2022 one customer accounted for more than
For the nine months ended September 30, 2023, there were no customers accounted for more than
For the nine months ended September 30, 2022, one customer accounted for more than
We used a related party firm located overseas for software development and maintenance related to our website and the platform underlying our operations. One of our former employees and principal shareholders is an employee of this firm and exerts control over this firm (see Note 11).
We were a party to a license agreement with a related party firm (see Note 11).
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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
We had used a related party firm to provide certain employer of record services (see Note 11).
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred. Advertising and marketing costs were $
Fair Value of Financial Instruments and Fair Value Measurements
The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a hierarchical framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s investment in available for sale securities and warrant derivative liabilities are measured at fair value. The securities are measured based on current trading prices using Level 1 fair value inputs. The Company’s derivative instruments are valued using Level 3 fair value inputs. The Company’s contingent accrued earn-out business acquisition consideration liability was considered Level 3 fair value liability instruments requiring period fair value assessments. Contingent consideration liabilities are recorded at fair value on the acquisition date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3. In April 2022, the earn-out liability was forgiven in full and recorded as a gain on debt extinguishment on the consolidated statement of operations. In fair valuing these instruments, the income valuation approach is applied, and the valuation inputs include the contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The Company does not have any other financial instruments which require re-measurement to fair value. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and loans payable represent fair value based upon their short-term nature.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
For the Company’s earn-out liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balance for each category therein, and gains or losses recognized during the periods ended September 30, 2023 and December 31, 2022:
Beginning balance, December 31, 2021 |
| $ |
| |
Re-measurement adjustments: |
|
|
|
|
Change in fair value of earn-out liability |
|
|
| |
Gain on debt extinguishment |
|
| ( | ) |
|
|
|
|
|
Ending balance, December 31, 2022 |
|
|
| |
Re-measurement adjustments: |
|
|
|
|
Change in fair value of earn-out liability |
|
|
| |
Ending balance, September 30, 2023 |
| $ |
|
Business Combinations
For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets and liabilities of the acquired business, generally at their fair values with any excess of purchase price over the net assets recorded as goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates.
Intangible Assets
Intangible assets consist primarily of the assets acquired from Genesys in the third quarter of 2019, including customer contracts and intellectual property, the assets acquired from Scouted and Upsider during the first quarter of 2021, the assets acquired from OneWire during the second quarter of 2021, and the assets acquired from Parrut and Novo Group during the third quarter of 2021. Amortization expense is recorded on the straight-line basis over the estimated economic lives.
Goodwill
Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company performs its annual goodwill impairment assessment on December 31st of each year or as impairment indicators dictate (see Note 5).
When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the quantitative impairment testing methodology.
Under the quantitative method we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined using an appropriate valuation method. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.
When required, we may arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.
Long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment would be based on generally accepted valuation methodologies, as deemed appropriate. If the carrying amount is greater than the undiscounted cash flows, the carrying amount of the asset is reduced to the asset’s fair value. An impairment loss is recognized immediately as an operating expense in the consolidated statements of operations. Reversal of previously recorded impairment losses are prohibited (see Note 5).
Software Costs
We capitalize certain software development costs incurred in connection with developing or obtaining software for internal use when both the preliminary project stage is completed, and it is probable that the software will be used as intended. Capitalization ceases after the software is operational; however, certain upgrades and enhancements may be capitalized if they add functionality. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining software, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest costs incurred while developing internal-use software.
Income Taxes
We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties, if any, related to income tax matters in income tax expense.
Stock-Based Compensation
We account for our stock-based compensation under ASC 718 “Compensation - Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with various accounting standards.
ASC 480 “Distinguishing Liabilities From Equity” provides that instruments convertible predominantly at a fixed rate resulting in a fixed monetary amount due upon conversion with a variable quantity of shares (“stock settled debt”) be recorded as a liability at the fixed monetary amount.
ASC 815 “Derivatives and Hedging” generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
ASC 815-40 provides that generally if an event is not within the entity’s control and could require net cash settlement, then the contract shall be classified as an asset or a liability.
Product Development
Product development costs are included in selling, general and administrative expenses and consist of support, maintenance and upgrades of our website and our Platform and are charged to operations as incurred.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Earnings (Loss) Per Share
The Company follows ASC 260 “Earnings Per Share” for calculating the basic and diluted earnings (or loss) per share. Basic earnings (or loss) per share are computed by dividing earnings (or loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings (or loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares were dilutive. Common stock equivalents are excluded from the diluted earnings (or loss) per share computation if their effect is anti-dilutive. Common stock equivalents in amounts of
|
| September 30, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Options |
|
|
|
|
|
| ||
Stock awards |
|
| - |
|
|
|
| |
Warrants |
|
|
|
|
|
| ||
Convertible preferred stock |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Business Segments
The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has one operating segment.
Recently Issued Accounting Pronouncements
There have not been any recent changes in accounting pronouncements and ASU issued by the FASB that are of significance or potential significance to the Company except as disclosed below.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires contract assets and contract liabilities (e.g. deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in purchase accounting. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. On January 1, 2023 the adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. On November 15, 2019, the FASB delayed the effective date of Topic 326 for certain small public companies and other private companies until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance was issued as improvements to ASU No. 2016-13 described above. The vintage disclosure changes require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
NOTE 2 - GOING CONCERN
Management believes it may not have sufficient cash to fund its liabilities and operations for at least the next twelve months from the issuance of these consolidated financial statements.
These unaudited consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this report. This determination was based on the following factors: (i) the Company used cash of approximately $
| 20 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets at September 30, 2023 and December 31, 2022, consisted of the following:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Prepaid expenses |
| $ |
|
| $ |
| ||
Prepaid advertisement |
|
|
|
|
|
| ||
Employee advance |
|
|
|
|
|
| ||
Prepaid insurance |
|
|
|
|
|
| ||
Other receivables |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
| $ |
|
| $ |
| ||
NOTE 4 - INVESTMENT IN AVAILABLE FOR SALE MARKETABLE SECURITIES
The Company’s investment in marketable equity securities is being held for an indefinite period. Cost basis of marketable securities held as of September 30, 2023 and December 31, 2022 were $
During the three months ended September 30, 2023, the Company received
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is derived from our 2019 business combination as well as our five business combinations in the first three quarters of 2021. The aggregate goodwill recognized from our five 2021 acquisitions was $
| 21 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The changes in the carrying amount of goodwill for the periods ended September 30, 2023 and December 31, 2022 are as follows:
|
| 2023 |
|
| 2022 |
| ||
Carrying value - January 1 |
| $ |
|
| $ |
| ||
Purchase price measurement period adjustments |
|
|
|
|
| ( | ) | |
Impairment losses |
|
|
|
|
| ( | ) | |
Carrying value - end of period |
| $ |
|
| $ |
| ||
Intangible Assets
On March 31, 2019, the Company acquired Intangible assets totaling $
During 2021, we acquired certain intangible assets pursuant to our Scouted, Upsider, OneWire, Parrut, and Novo Group acquisitions. These intangible assets aggregate approximately $
Intangible assets for the periods ended September 30, 2023 and December 31, 2022 are summarized as follows:
|
| 2023 |
|
| 2022 |
| ||
Customer contracts |
| $ |
|
| $ |
| ||
Software acquired |
|
|
|
|
|
| ||
License |
|
|
|
|
|
| ||
Internal use software developed |
|
|
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| ||
Domains |
|
|
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|
|
| ||
|
|
|
|
|
|
| ||
Less accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Total |
|
|
|
|
|
| ||
Less accumulated impairment |
|
| ( | ) |
|
| ( | ) |
Carrying value |
| $ |
|
| $ |
| ||
Amortization expense of intangible assets was $
The Company performed its impairment test during 2022 using the market and income approach, and determined that the Company’s customer contracts, software acquired, internal use software developed, and domains were impaired by $
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
On November 21, 2022, the Company entered into a Domain Name sale and Ownership Transfer Agreement with Chief Executive Group (“CEG”). Per the agreement, the Company agreed to sell and transfer to CEG all ownership rights in and to the domain name CFO-Job.com and its associated social media property (“Domain Assets’). In exchange for the Domain Assets, the Company received cash consideration of $
On December 5, 2022, the Company entered into an asset purchase agreement in which the Company sold to a third party Upsider’s candidate sourcing and engagement platform and all related intellectual property for $
NOTE 6 – DISCONTINUED OPERATIONS
On August 4, 2023, (i) Recruiter.com Consulting and Insigma, Inc.(“Insigma”), a wholly owned subsidiary of Futuris Company (“FTRS”), entered into an asset purchase agreement (“Insigma Agreement”) and (ii) Recruiter.com Consulting and Akvarr, Inc., (“Akvarr”) and a wholly owned subsidiary of FTRS, entered into an asset purchase agreement (“Insigma Agreement”). Upon the terms and subject to the conditions of the agreements, the Company agreed to sell its right, title, and exclusive interest in certain client contracts and associated staff, contractors, business information, and relationships related staffing and consulting services revenue stream (“Assets Sold”) to Insigma and Akvarr.
The Company’s carrying net book value of the related assets and liabilities in connection with assets sale under the Insigma Agreement as of September 30, 2023 and December 31, 2022 was $
As consideration for the assets sold, and upon completion of the assignment of certain acquired assets to Insigma, Insigma would issue to the Company a number of shares of common stock of FTRS equal to $
The Company determined all of the required criteria for held-for-sale in accordance with ASC 205-20-45-1E and discontinued operations classification were met as of September 30, 2023.
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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In accordance with ASC 205-20, Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity (disposal group) is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the disposal group meets the criteria to be classified as held-for-sale. The consolidated statements of operations reported for current and prior periods report the results of operations of the discontinued operations recognized as a component of net income separate from the net loss from continuing operations.
The following table presents the components in assets and liabilities associated with discontinued operations:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Accounts receivable, net of allowance for doubtful accounts of $270,291 and $62,427, respectively |
| $ |
|
| $ |
| ||
Total current assets from discontinued operations |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Accrued expenses and compensation |
| $ |
|
| $ |
| ||
Total current liabilities associated with discontinued operations |
| $ |
|
| $ |
| ||
The following table presents the major income and expense line items relate to the staffing and consulting services revenue as reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022:
|
| Three months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of revenue |
|
|
|
|
|
| ||
Gross Profit |
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
General and Administrative |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
Net income from discontinued operations |
| $ |
|
| $ |
| ||
|
| Nine months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of revenue |
|
|
|
|
|
| ||
Gross Profit |
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
General and Administrative |
|
|
|
|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
Net income from discontinued operations |
| $ |
|
| $ |
| ||
| 24 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 7 - LOANS PAYABLE
Promissory Notes Payable
We received $
We issued a promissory note for $
We issued a promissory note for $
In October 2022, Novo Group entered into a Subordination Agreement (“Subordination Agreement”), pursuant to which Novo agreed to subordinate all its indebtedness and obligations we owe to Novo to all the indebtedness and obligations we owe to Montage Capital.
In February 2023, we entered into an additional Amendment to the Promissory Note with Novo Group, Inc. (the “Novo Amendment”). The Novo Amendment further modifies the Promissory Note issued to Novo on August 27, 2021 (the “Novo Note”) and amended on April 1, 2022, by amending the payment schedule pursuant to which we would make payments of principal and interest to Novo. Novo agreed we would pay interest only for the period starting November 1, 2022 though and including March 31, 2023, with payments of principal and interest to resume starting April 1, 2023. We also replaced the existing payment schedule with a new payment schedule terminating on October 31, 2023. On November 1, 2023, we did not make payments due on the promissory note with Novo Group and are currently in process of amending the maturity date of the note. At September 30, 2023 and December 31, 2022, the outstanding balance of he Novo Promissory Notes was $
| 25 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
On August 17, 2022, we issued promissory notes for $
At September 30, 2023 and December 31, 2022, the outstanding balance on the 8/17/22 Notes, net of the unamortized debt issuance costs and debt discounts of $
On August 30, 2022, we issued promissory notes for $
On October 19, 2022, the Company closed a Loan and Security Agreement (the “Loan Agreement”), by and among the Company and Montage Capital II, L.P. (the “Lender”). Pursuant to the Loan Agreement, the Lender will make advances (“Advances”) in the aggregate principal amount of $2,250,000, with the first Advance of $2,000,000 being provided on or around the Closing Date and the second Advance of $250,000 being available to the Company upon request prior to April 30, 2023. Interest will accrue on all Advances under the Loan Agreement at a per annum rate of 12.75%. In the event of a default under the terms of the Loan Agreement, the interest rate increases by 5 percentage points above the interest rate in effect immediately prior to a default. The entire outstanding principal balance of the Advances, all accrued and unpaid interest thereon, and all fees and other amounts outstanding thereunder will be immediately due and payable on the 42nd month anniversary of the Closing Date (the “Maturity Date”). In connection with the Loan Agreement, the Company granted and pledged to the Lender a continuing security interest in all presently existing and hereafter acquired or arising Collateral (as more specifically defined in the Loan Agreement) which includes all personal property of the Company and its subsidiaries. The Loan Agreement contains certain affirmative and negative covenants to which the Company is also subject. The Company agreed to pay the Lender a fee of $45,600, with $40,000 due upon the execution of the Loan Agreement and the balance due upon the funding of the second Advance. The Company is permitted to prepay any amounts due to the Lender; provided, however, that a Prepayment Fee (as more specifically defined in the Loan Agreement) shall be owed to the Lender depending on when the amounts are prepaid.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In addition, in connection with the Loan Agreement, the Company issued
The Company accrues anniversary fees each year on the one-year anniversary of the issuance date of 1.25% of the outstanding advance balance depending on the stock price. The accrued anniversary fees are payable on the date the buyout fee becomes due and payable. The Company records an expense for the 1.25% cash fee ratably over the 12 months.
On February 2, 2023, the Company entered into a First Amendment to Loan and Security Agreement (the “Montage Amendment”), by and between the Company, its subsidiaries (Recruiter.com, Inc., Recruiter.com Recruiting Solutions, LLC, Recruiter.com Consulting, LLC, VocaWorks, Inc., Recruiter.com Scouted, Inc., Recruiter.com Upsider, Inc., and Recruiter.com - OneWire, Inc.), and Montage, effective as December 18, 2022. The Montage Amendment modifies that certain Loan and Security Agreement by and among the Company, its subsidiaries, and Montage to provide the Company with additional time to meet certain post-closing covenants.
On August 16, 2023, we entered into a Second Amendment to Loan and Security Agreement (the “Second Montage Amendment”), by and among the Company, its subsidiaries and Montage. The Second Montage Amendment modifies that certain Loan and Security Agreement by and among the Company, its subsidiaries, and Montage, as amended (the “Loan and Security Agreement”) to join CognoGroup, Inc. as an additional borrower to the Loan and Security Agreement and amend and restate the definition of “Maturity Date” to the earlier of (i) the four month anniversary of the initial closing of the Purchase Agreement or (ii) February 28, 2024. Additionally, the Montage Amendment provides for Montage’s consent to certain transactions that would have otherwise been prohibited under the Loan and Security Agreement, including the transaction contemplated by the Purchase Agreement with Job Mobz.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
In addition, in connection with the Second Montage Amendment, the Company issued warrants to purchase common stock of CognoGroup, Inc. (the “CognoGroup, Inc Warrants”) to the Lender. The number of shares shall be equal to 1.4% of the CognoGroup, Inc outstanding capital stock on a fully diluted basis at the exercise price of $
On November 8, 2023, we notified Montage and other lenders of the occurrence of the receipt of a default notice from Cavalry (see Note 12), which would have the effect of triggering a cross default.
At September 30, 2023 and December 31, 2022, the outstanding balance on the Loan Agreement, net of the unamortized debt issuance costs and debt discounts of $
At September 30, 2023 and December 31, 2022, the outstanding principal balance on the promissory notes payable totaled $
Factoring Arrangement
We entered into a factoring agreement with CSNK Working Capital Finance Corp. d/b/a Bay View Funding, a subsidiary of Heritage Bank of Commerce (the “Buyer”), effective April 27, 2022 (the “Factoring Agreement”), for the purpose of factoring our trade accounts receivable with recourse. The proceeds of the factoring are used to fund our general working capital needs. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. The agreement is for a term of twelve months with an auto renewal clause for an additional twelve months unless terminated by the parties. The agreement is secured by substantially all assets of the Company.
Pursuant to the Factoring Agreement, we sell certain trade accounts receivable to the Buyer. We are charged a finance fee, defined as a floating rate per annum on outstanding advances under the Factoring Agreement, equal to the
We receive
| 28 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
All collections of purchased receivables go directly to the Buyer controlled lockbox and Buyer shall apply these collections to the Company’s obligations. The Company will immediately turn over to Buyer any payment on a purchased receivable, or receivable assigned to Buyer under the Factoring Agreement, that comes into the Company’s possession. In the event the Company comes into possession of a remittance comprising payments of both a purchased receivable and receivable which has not been purchased by Buyer, the Company is required to hold the same in accordance with the provisions set forth above and immediately turn same over to Buyer.
As stated previously, the Company factors the accounts receivable on a recourse basis. Therefore, if the Buyer cannot collect the factored accounts receivable from the customer, the Company must refund the advance amount remitted to us for any uncollected accounts receivable from the customer. Accordingly, the Company records the liability of potentially having to refund the advance amount as short-term debt when the factoring arrangement is utilized. As of September 30, 2023 and December 31, 2022, $
As consideration for Buyer forgoing other factoring transactions in the marketplace and for establishing the maximum credit of $3,000,000,
The cost of factoring for the three months ended September 30, 2023 and 2022 was $
The status of the loans payable as of September 30, 2023 and December 31, 2022 are summarized as follows:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Promissory notes |
| $ |
|
| $ |
| ||
Factoring arrangement |
|
|
|
|
|
| ||
Total loans payable |
|
|
|
|
|
| ||
Less: Unamortized debt discount or debt issuance costs |
|
| ( | ) |
|
| ( | ) |
Less current portion |
|
| ( | ) |
|
| ( | ) |
Non-current portion |
| $ |
|
| $ |
| ||
The future principal payments of the loans payable are as follows:
Year Ending December 31, |
|
|
| |
2023 (remainder of year) |
| $ |
| |
2024 |
|
|
| |
Total principal payments |
| $ |
| |
| 29 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 8 - STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue
Our Series E preferred stock is the only class of our preferred stock that is currently outstanding. Series E preferred stock has a stated value of $20 per share, which is convertible at any time after issuance at the option of the holder, subject to a beneficial ownership limitation of
Preferred Stock Penalties
On March 31, 2019, we entered into certain agreements with investors pursuant to which we issued convertible preferred stock and warrants, as described above. Each of the series of preferred stock and warrants required us to reserve shares of common stock in the amount equal to two times the common stock issuable upon conversion of the preferred stock and exercise of the warrants. We did not comply in part due to our attempts to manage the Delaware tax which increases to a maximum of $
Common Stock
The Company is authorized to issue
| 30 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Shares issued for cash
On August 17, 2023, we entered into a securities purchase agreement with the investor, pursuant to which the Company agreed to sell and issue, in a registered direct offering, an aggregate of (i)
Shares issued upon exchange of common stock warrants
On January 6, 2022, upon agreement with a warrant holder, the Company issued
Reverse Stock Split
On August 4, 2023, the Company approved a one-for-fifteen (1:15) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). On August 22, 2023, the Company filed a Certificate of Change pursuant to Nevada Revised Statutes with the Nevada Secretary of State to effect a reverse stock split of the Common Stock, and the proportional decrease of the Company’s authorized shares of Common Stock at a ratio of one-for-fifteen (15). All share and per share data have been retrospectively adjusted for the effects of the reserve split.
Restricted Stock Units
On September 18, 2020 the Company awarded to Evan Sohn, our Executive Chairman and CEO at that time,
On February 2, 2022,
| 31 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
During the three months ended March 31, 2022,
During the three months ended June 30, 2022,
During the three months ended September 30, 2022, no RSUs were granted to vendors for services.
Total expenses for RSUs for the three and nine months ended September 30, 2023 was $
Restricted stock grant activity for the periods identified below is as follows:
|
| Stock Awards |
| |
Outstanding at December 31, 2021 |
|
|
| |
Granted |
|
|
| |
Vested |
|
| ( | ) |
Vested and issuable |
|
| ( | ) |
Forfeited or cancelled |
|
| - |
|
Outstanding at December 31, 2022 |
|
|
| |
Granted |
|
| - |
|
Vested and issued |
|
| ( | ) |
Vested and issuable |
|
| ( | ) |
Outstanding at September 30, 2023 |
|
| - |
|
NOTE 9 - STOCK OPTIONS AND WARRANTS
Stock Options
On January 6, 2022, the Company granted to a consultant a total of
On January 10, 2022, the Company granted to a director a total of
On January 19, 2022, the Company granted to a director a total of
| 32 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
On January 20, 2022, the Company granted to directors a total of
On March 11, 2022, the Company granted to employees a total of
On April 1, 2022, the Company granted an employee a total of
On April 5, 2022, the Company granted to employees a total of
On April 7, 2022, the Company granted to employees a total of
On April 28, 2022, the Company granted a consultant a total of
On May 17, 2022, the Company granted a consultant a total of
On May 17, 2022, the Company granted to employees a total of
On June 2, 2022, the Company granted a consultant a total of
On June 27, 2022, the Company granted to employees a total of
On August 30, 2022, the Company granted to directors a total of
On August 30, 2022, the Company granted to employees a total of
On September 22, 2022, the Company granted to employees a total of
On April 4, 2022, the Company granted to employees a total of
On January 9, 2023, the Company granted to an employee a total of
On March 22, 2023, the Company granted three employees a total of
On June 2, 2023, the Company granted five employees a total of
On June 8, 2023, the Company granted one employee a total of
On August 10, 2023, the Company granted an employee
The fair values of stock options granted during the three months ended September 30, 2023 were estimated using Black-Sholes option-pricing model with the following assumptions:
|
| September 30, 2023 |
| |
Risk-free interest rates |
| % | ||
Expected life (in years) |
|
| ||
Expected volatility |
| % | ||
Dividend yield |
|
|
| |
During the three months ended September 30, 2023 and 2022, we recorded $
| 33 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
A summary of the status of the Company’s stock options as of September 30, 2023, and changes during the period are presented below:
|
| Options Outstanding |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (In Years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired or cancelled |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Outstanding at September 30, 2023 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
Exercisable at September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
As of September 30, 2023, there was approximately $
Warrants
2023 Warrant Grants
Warrant repricing
On February 3, 2023, the Company entered into amendments to Common Stock Purchase Warrants issued on August 17, 2022 to each of Cavalry Fund I LP, Firstfire Global Opportunities Fund LLC, and Porter Partners, L.P. The warrant amendments modify the time period until the holders of these warrants are permitted to exercise the Warrants by means of a “cashless exercise.” In addition, the warrant amendments lower the exercise price of the Warrants to $
Warrants exercised into Common Stock
In February 2023, we issued
In June 2023, we issued
| 34 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Warrants issued with 2023 Equity Financing
On August 17, 2023, in connections with the securities purchase agreement (the “2023 Purchase Agreement”) with the investor (See Note 8) the Company issued
In August 2023, we issued
Warrants issued with Debt Financing
In connection with the Second Montage Amendment, as discussed in Note 7, the Company will issue warrants to purchase common stock of CognoGroup, Inc. (the “CognoGroup, Inc Warrants”) to the Lender. The number of shares shall be equal to 1.4% of the CognoGroup, Inc outstanding capital stock on a fully diluted basis at the exercise price of $0.01 per share and with expiration date of October 19, 2032. On and after the earlier to occur of (i) October 19, 2026, (ii) any sale, license, or other disposition of all or substantially all of the assets of the CognoGroup, Inc., or any reorganization, consolidation, or merger of the CognoGroup, Inc. where the holders of the CognoGroup, Inc.’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, (iii) a transaction in which any “person” or “group” becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of the CognoGroup, Inc. ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of the CognoGroup, Inc., who did not have such power before such transaction (“Change in Control”), or (iv) the dissolution or liquidation of the CognoGroup, Inc (“Wind-Up”), CognoGroup, Inc shall, at the request of Holder, purchase all rights that Holder has under this CognoGroup, Inc Warrants for a cash payment in the amount equal to $
2022 Warrant Grants
Warrant exchange for Common Stock
On January 6, 2022, the Company issued
| 35 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Warrants issued with Debt Financing
During August 2022, the Company granted
In connection with the October 19, 2022 Loan Agreement, as discussed in Note 7, the Company will issue 47,103 warrants to purchase common stock of the Company (the “Warrants”) to the Lender, with 41,520 Warrants issued and exercisable upon the Closing Date and the additional 5,581 Warrants becoming exercisable upon funding of the second Advance. The Warrants are exercisable for ten years from the Closing Date at an exercise price of $30.00 per share, subject to certain adjustments. Upon the earlier of the Maturity Date or a sale of the Company or other change in control, the Lender has the right to cause the Company to repurchase the Warrants (“Puttable Warrant”) for up to $703,125 ($600,000 if only the first Advance has been made and $703,125 if both Advances have been made). The Company is also obligated to pay the Lender a cash fee equal to 1.25% of the aggregate principal amount of the Advances that is outstanding on each anniversary of the Closing Date if (i) the average closing price of the Company’s common stock for the thirty (30) day period prior to such anniversary date is less than $30.00 or (ii) the closing price of the Company’s common stock for the date immediately prior to such anniversary date is less than $30.00.
The Company recorded the puttable warrant at its fair value, which is the cash surrender value the holder can put the warrant at. As such, on the issuance date, the Company recorded a $600,000 warrant liability for puttable warrants, offset by a debt discount to be amortized over the life of the loan. Upon the advance of the second advance tranche to the Company, it will record an additional debt discount and warrant liability in the amount of $103,125, the cash surrender value of the second tranche of warrants.
Warrant repricing
As a result of the sale in August 2022 of notes and warrants as described above and in Note 7, the number and exercise price of the 2020 Warrants and the 2021 Warrants in connection with the 2020 and 2021 debentures were adjusted due to anti-dilution provisions in such warrants. The exercise price was reduced to $30.00 from $75.00 and the number of warrants was increased from 100,806 to 163,136. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $658,266 as a result of the trigger of the anti-dilution provisions.
On October 19, 2022, as a result of the Parrut earnout shares issued we reduced the exercise price of the 2020 and 2021 Debenture Note holder warrants from $30.00 to $14.70 due to anti-dilution provisions in these warrants. We also increased the number of warrants issued with the August 17, 2022 and August 30, 2022 notes (See Note 7) from 100,694 to 201,389 and reduced the exercise price from $30.00 to $14.70 due to anti-dilution provisions in these warrants. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $
| 36 |
| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Warrants for services
On December 8, 2022, the Company issued
Warrant activity for the nine months ended September 30, 2023 is as follows:
|
|
|
|
| Weighted |
| ||
|
|
|
|
| Average |
| ||
|
|
|
|
| Exercise |
| ||
|
| Warrants |
|
| Price per |
| ||
|
| Outstanding |
|
| Share |
| ||
Outstanding at December 31, 2022 |
|
|
|
| $ |
| ||
Issued |
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
|
|
| |
Expired or cancelled |
|
| ( | ) |
|
|
| |
Outstanding at September 30, 2023 |
|
|
|
| $ |
| ||
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
With the exception of the below, the Company is not a party to any legal proceedings or claims at September 30, 2023. From time-to-time, we may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business. The nature of our business ordinarily results in a certain amount of pending as well as threatened claims, litigation, investigations, regulatory and legal and administrative cases, matters and proceedings, all of which are considered incidental to the normal conduct of business. When we determine that we have meritorious defenses to the claims asserted, we vigorously defend ourselves. We consider settlement of cases when, in management’s judgment, it is in the best interests of both the Company and its shareholders to do so.
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| Table of Contents |
RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Recruiter.com Group, Inc. v. BKR Strategy Group.
We are currently pursuing two related collections matters against BKR Strategy Group. Since 2013, BKR Strategy Group has provided talent acquisition strategy and services to top companies. Starting in the third quarter of 2021, BKR Strategy Group subcontracted Recruiter.com to perform on Demand recruiter services on behalf of BKR Strategy Group’s clients. Although payments for services rendered were initially received in a timely fashion, BKR Strategy Group’s balance grew throughout the third and fourth quarters of 2021. This led to BKR Strategy Group executing a Promissory Note with a payment schedule for $
On June 21, 2022, the Supreme Court of the State of New York, New York County ruled in favor of the Company that BKR Strategy Group owes the Company $
Settlement of Payables
In April 2023, we settled an outstanding balance with a vendor and recorded a gain of $
ERC Activity
During the second and third quarters in 2023, the Company received $
Service Agreement
In December of 2021 we entered into an agreement wherein a third party will assume responsibility for several of our staffing clients and in return the third party would enter into Recruiters on Demand service agreements and software subscriptions with us. As of December 31, 2022, all the conditions of the agreement have not been met. However, one of the provisions has been implemented whereby we entered into a payroll service agreement for employer of record services for one of our clients. As a result, we have recognized revenue $
| 38 |
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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 11 - RELATED PARTY TRANSACTIONS
Under a technology services agreement entered into on January 17, 2020, we use a related party firm of the Company, Recruiter.com Mauritius, for software development and maintenance related to our website and Platform underlying our operations. This was an oral arrangement prior to January 17, 2020. The initial term of the Services Agreement is five years, whereupon it shall automatically renew for additional successive 12-month terms until terminated by either party by submitting a 90-day prior written notice of non-renewal. The firm was formed outside of the United States solely for the purpose of performing services for the Company and has no other clients. The consultant to the Company, who was our Chief Technology Officer until July 15, 2021, and thereafter our Chief Web Officer until August 23, 2023, is an employee of Recruiter.com Mauritius and exerts control over Recruiter.com Mauritius. Pursuant to the Services Agreement, the Company has agreed to pay Recruiter.com Mauritius fees in the amount equal to the actualized documented costs incurred by Recruiter.com Mauritius in rendering the services pursuant to the Services Agreement, expenses to this firm were $
We were a party to that certain license agreement with Genesys. An executive officer of Genesys is a significant equity holder and a member of our Board of directors. Pursuant to the License Agreement Genesys has granted us an exclusive license to use certain candidate matching software and renders certain related services to us. The Company has agreed to pay to Genesys (now called Opptly) a monthly license fee of $
An employer of a director utilized the Company for services during the three months ended September 30, 2023 and 2022 in the amount of $
NOTE 12 - SUBSEQUENT EVENTS
On November 6, 2023, the Company received written notice (the “Default Notice”) from Cavalry Fund I LP that the Company was in default under that certain (i) the August 17 Note issued by the Company to Cavalry, and that certain (ii) the August 30 Note.
According to the Default Notice, the Company failed to (i) notify Cavalry of a “Subsequent Financing,” in which Cavalry had a right to participate pursuant to the Transaction Documents, and (ii) pay certain amounts to Cavalry, or issue shares of common stock in lieu thereof, as consideration for the extension of the maturity date of the Notes (collectively, the “Identified Defaults”).
Per the Default Notice, Cavalry has declared the full amounts due under the Notes, which is the Mandatory Default Amount, as set forth in the Notes, stated by Calvary in its Default Notice as $
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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
As a result of the Identified Defaults, the Company would be in default under the following agreements for indebtedness: (i) Original Issue Discount Promissory Note, dated as of August 17, 2022, issued pursuant to the August 17 SPA by the Company to Porter Partners, L.P., (ii) Original Issue Discount Promissory Note, dated as of August 30, 2022, issued pursuant to the August 30 SPA by the Company to L1 Capital Global Opportunities Master Fund, (iii) Original Issue Discount Promissory Note, dated as of August 30, 2022, issued pursuant to the August 30 SPA by the Company to Firstfire Global Opportunities Fund LLC, and (iv) Original Issue Discount Promissory Note, dated as of August 30, 2022, issued pursuant to the August 30 SPA by the Company to Puritan Partner, LLC (collectively, the “Other August 2022 Notes”). An event of default under the Other August 2022 Notes would cause the default interest rate of 15% to apply as set forth in the Other August 2022 Notes and the holders of the Other August 2022 Notes would be permitted to elect to accelerate payment of amounts due, at the Mandatory Default Amount, as defined in the Other August 2022 Notes, under each of the holder’s respective Other August 2022 Note.
In addition, as a result of the Identified Defaults, the Company would also be in default under that certain Loan and Security Agreement, dated as of October 19, 2022 (the “Montage Agreement”), between the Company and Montage Capital II, L.P. (“Montage”). An event of default under the Montage Agreement would cause the default interest rate of
In addition, as a result of the Identified Defaults, the Company would also be in default under that certain Promissory Note, dated as of August 27, 2021 (the “Novo Note”), issued by the Company to Novo Group, Inc. (“Novo”). An event of default under the Novo Note would cause the default interest rate of
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023.
For purposes of this Quarterly Report, “Recruiter.com,” “we,” “our,” “us,” or similar references refers to Recruiter.com Group, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
Overview
We operate an On-Demand recruiting platform to revolutionize the Employment and Recruitment Agency industry. Our mission is to help businesses expedite and streamline their recruiting and hiring processes by providing On-Demand recruiting services and technology. We leverage our network of recruiters to place them on project-based assignments and offer additional AI-enabled platforms, training, upskilling programs, staffing services, and career communities. Our goal is to become the preferred solution for hiring specialized talent.
Our third quarter focused on stewardship and strategic agility. After successfully selling our healthcare staffing business to Futuris, we concentrated on completing transformative transactions with Job Mobz and GoLogiq. These strategic moves are reshaping Recruiter.com’s foundation and trajectory. This quarter involved intentional resource allocation, prioritizing long-term value over immediate gains, and setting the stage for a more focused and financially stable future.
Operating Businesses and Revenue
We generate revenue through the following activities:
| · | Software Subscriptions: We offer web-based platform subscriptions that assist employers in talent recruitment. Our platforms enable customers to source, contact, screen, and sort candidates using data science, advanced email campaign tools, and predictive analytics. As part of our software subscriptions, we provide enhanced support packages and On-Demand recruiting support services for an additional fee. If we place a candidate with a customer, additional fees may apply, depending on the subscription type. In such cases, if the candidate leaves the customer’s employment within the initial 90 days (the 90-day guarantee), we provide a full refund to the customer for all fees paid. In December 2022, we sold one of our software platforms to Talent, Inc., which was used in delivering the subscription service. Subsequently, we continued the service but utilized third-party tools for delivery. In the third quarter ending September 30, 2023, this revenue line did not have material operations. |
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| · | Recruiters On Demand: This service offers consulting and staffing for professional recruiters, marketed as Recruiters On Demand. It provides businesses of all sizes access to recruiters on an outsourced, virtual basis for hiring needs. We derive revenue from Recruiters On Demand by billing employer clients for placed recruiters’ ongoing work at an agreed-upon, time-based rate. Recruiter candidates are sourced directly from our network of recruiters. Additionally, we offer talent planning, talent assessment, strategic guidance, and organizational development services marketed as our “Talent Effectiveness” practice. Companies prepay for consulting hours at an agreed-upon, time-based rate. We source and provide independent consultants for this service. In March 2023, we announced a strategic partnership with Job Mobz to transition certain Recruiters on Demand clients and staff to Job Mobz in exchange for an ongoing revenue stream (see Revenue Share below). |
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| · | Full-time Placement: This service provides qualified candidate referrals to employers for full-time positions. We generate revenue by earning one-time fees each time employers hire one of the candidates we refer. Employers inform us of their hiring needs through our Platform or other communications. We source qualified candidates for available jobs through independent recruiter users and support them with dedicated internal employees we call our internal talent delivery team. Upon employers hiring our candidate referrals, we earn a “full-time placement fee,” typically either a percentage of the referred candidates’ first-year base salary or an agreed-upon flat fee. The Full-time Placement service line was inactive in the third quarter of 2023. |
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| · | Marketplace: Our Marketplace category offers services for businesses and individuals leveraging our online presence and career communities. For businesses, this includes job postings, digital newsletter sponsorship, online content promotion, social media distribution, banner advertising, and other branded electronic communications. We earn revenue by delivering agreed-upon marketing-related deliverables and milestones with pricing and terms mutually agreed upon. In some cases, we earn a percentage of revenue from businesses that attract new clients by advertising on the Platform. Companies can also pay us to post job openings on our proprietary job boards to promote open positions. Additionally, we categorize all online advertising and affiliate marketing revenue as Marketplace revenue. |
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| For individuals, Marketplace includes services to aid career development and advancement, including a resume distribution service that promotes job seekers’ profiles and resumes. Our resume distribution service allows job seekers to upload their resumes to our database, which we then distribute to our network of recruiters on the Platform. We earn revenue from a one-time, flat fee for this service. We also offer a recruiter training program through our online learning management system, located at RecruitingClasses.com, and other training and upskilling programs. |
| · | Consulting and Staffing: This service involves providing consulting and staffing personnel services to employers for long- and short-term consulting and temporary employee needs. We generate revenue by referring qualified personnel for the employer’s specific talent needs, then placing such personnel with the employer, billing the employer for the time and work of our placed personnel at an agreed-upon, time-based rate. Our process for finding candidates for consulting and staffing engagements mirrors our process for full-time placement hiring. This process includes employers informing us of open consulting and temporary staffing opportunities and projects, sourcing qualified candidates through the Platform and similar means, and the employer selecting our candidates for placement. We bill employer clients for our placed candidates’ ongoing work on a weekly invoicing schedule. In Q3, we sold our healthcare staffing services business to Futuris, exiting the majority of this revenue line. |
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| · | Revenue Share: We refer certain clients to third parties in exchange for a referral fee. The referral fee amount depends on whether the referral is an existing client of ours and the services we currently provide that client, or a client of a third party who we do not historically service. Referral fees under the revenue share arrangement have minimum and maximum payout amounts. We record referral fees earned under our revenue share arrangement on a net basis. Additionally, our partnership with Job Mobz provided a revenue share; however, the subsequent sale of Recruiter.com brand and website to Job Mobz will have the effect of canceling this ongoing revenue stream in exchange for cash and equity consideration. |
In the third quarter, we operated with a limited sales team, primarily focusing on selling job board postings and ensuring the successful transition of the healthcare staffing business to the subsidiaries of Futuris.
The costs of our revenue primarily comprise employee costs, third-party staffing costs, and other fees, outsourced recruiter fees, and commissions based on a percentage of our gross margin.
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Quarter Overview
This quarter was characterized by a concentrated effort to finalize pivotal strategic transactions critical to our evolution. As a resource-conscious organization, we navigated through significant restructuring. The strategic relationships with Job Mobz and GoLogiq are not just about expanding our capabilities but also aligning our resources with our most promising opportunities for growth and stability. The reality of such transactions means we are in a period of profound change and significant reduction in our operating staff.
During the three months ending September 30, 2023, we further streamlined our operations, worked to complete the sale of our healthcare staffing business to Futuris, and executed our partnership with Job Mobz to reduce operating expenses further. We also focused on developing new high-margin offerings, such as our AI-enabled software product, “Candidate Pitch,” for transforming resumes into career summaries, and our “Recruiting Classes” online training program. Additionally, we worked on reinvigorating our Mediabistro brand, which has a leading presence in media as a well-used career community and job board.
We also worked on negotiating plans for a strategic asset acquisition with GoLogiq, which would refocus the company around the Fintech industry and spin out our existing operations to a newly formed company. To that end, we prepared for this transaction by creating CognoGroup, Inc., a Nevada corporation, to facilitate the spin-out of certain operating assets. Later, it was dissolved in favor of performing the transaction with Atlantic Energy Solutions, which the Company now controls. We executed a Securities Purchase Agreement with Synergy Asset Management Group, allowing the Company to purchase 1,000,000 shares of the Series A Preferred Stock (“Series A Stock”) of Atlantic Energy Solutions, Inc., a company quoted on the OTC Markets under the symbol “AESO.”
Our key highlights for the three months ending September 30, 2023, include the following:
Key Highlights:
| · | Recruiter.com divested its healthcare staffing business to Futuris Company for an initial transaction value of $500,000 in Futuris stock and conditional future gross profit shares up to $2 million. |
| · | The Company agreed, subject to shareholder approval, to sell its Recruiter.com brand and domain to Job Mobz in a $1.5 million cash and stock deal, coupled with a 3-year services contract and potential profit sharing from Q1 2024. |
| · | Entered into a Securities Purchase Agreement with Synergy Asset Management to purchase 1,000,000 shares of Series A Preferred Stock (“Series A Stock”) of Atlantic Energy Solutions, Inc., a company quoted on the OTC Markets under the symbol “AESO.” |
| · | Recruiter.com priced a registered direct and private placement offering at approximately $1.036 million, aimed at raising working capital and supporting general corporate activities. |
| · | Recruiter.com Group, Inc. effected a 1-for-15 reverse stock split of its issued and outstanding common stock to meet Nasdaq Capital Market’s listing requirements. |
| · | The Company issued a shareholder update letter detailing plans for the envisioned strategic transactions. |
Since September 30, 2023, our key highlights include the following:
| · | Received a notice from Nasdaq granting an extension until February 13, 2024, to meet the minimum stockholders’ equity requirement for continued listing. |
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Results of Operations
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022:
Revenue
We had revenue of $0.2 million for the three-month period ended September 30, 2023, as compared to $5.8 million for the three-month period ended September 30, 2022, representing a decrease of $5.6 million or 97%. This decrease resulted primarily from a decrease in our Recruiters on Demand business of $4.5 million or 99% as we transitioned this business to JobMobz, a Recruitment Process Outsourcing company. There was no significant Software Subscriptions revenue in 2023 compared to $694 thousand recognized in 2022 as we had sold our AI sourcing software technology last year to Talent, Inc. We also had a decrease in Permanent Placement fees of $141 thousand or 100% due to reduced focus on this line of business. We also had a decrease in our Marketplace Solutions revenue of $172 thousand or 56% due to customer churn and general market conditions.
Cost of Revenue
Cost of revenue was $0.3 million for the three-month period ended September 30, 2023, compared to $3.9 million for the corresponding three-month period in 2022, representing a decrease of $3.6 million or 94%. This decrease resulted primarily from a decrease in compensation expense in line with the decrease in revenue. Cost of revenue was primarily attributable to third party staffing costs and other fees related to the recruitment and staffing business acquired from Genesys, which after its purchase, serves as our Recruiting Solutions division, as well as costs for contract recruiters supporting the Recruiters on Demand business.
Our gross profit for the three-month period ended September 30, 2023, was ($0.1) million, producing a negative gross profit margin of 37%. Our gross profit for the corresponding 2022 three-month period was $1.9 million, producing a gross profit margin of 32.6%. The decrease in the gross profit margin from the 2023 period to the 2022 period reflects the shift in the mix in sales for the period as our Consulting and Staffing Services has the lowest gross margin of all areas of business.
Operating Expenses
We had total operating expenses of $2.0 million for the three-month period ended September 30, 2023, compared to $7.6 million for the corresponding three-month period in 2022, a decrease of $5.6 million or 73%. This decrease was primarily due to lower product development, general and administrative expenses, and sales and marketing expenses during the period. Additionally, a decrease in amortization of intangibles expense from $952 thousand in the three-month period in 2022 to $322 thousand in the current period contributed to the overall decrease in operating expenses. This decline is in line with the decline in sales.
Sales and Marketing
Our sales and marketing expense for the three-month period ended September 30, 2023, was $85 thousand compared to $343 thousand for the corresponding three-month period in 2022, which reflects a decrease in personnel and advertising and marketing expense in line with the decline in sales.
Product Development
Our product development expense for the three-months ended September 30, 2023, decreased to $85 thousand from $468 thousand for the corresponding period in 2022. This decrease was attributable to a decrease in technology and research and development expenses. The product development expense was primarily made up of $84 thousand of hosting and data expense during the three-months ended September 30, 2023. The corresponding period in 2022 included $773 thousand technology and design expense, $91 thousand hosting expense, $39 thousand research and development expense, and was offset by $435 thousand relating to the capitalization of internal use software.
Amortization of Intangibles
For the three-month period ended September 30, 2023, we incurred a non-cash amortization charge of $322 thousand as compared to $952 thousand for the corresponding period in 2022. The amortization expense in 2023 and 2022 relates to the intangible assets acquired from Genesys (now our Recruiting Solutions division), Scouted, Upsider, OneWire, Parrut and Novo Group. The decrease for the three-month period ended September 30, 2023 was due to impairments charges booked in Q3 and Q4 of 2022 which reduced the overall net book value of the intangible assets. This reduction decreased the quarterly amortization expense charged throughout 2023.
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General and Administrative
General and administrative expense for the three-month period ended September 30, 2023, includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. For the three-month period ended September 30, 2023, our general and administrative expenses were $1.5 million, including $344 thousand of non-cash stock-based compensation. In 2022, for the corresponding period, our general and administrative expense was $3.7 million, including $766 thousand of non-cash stock-based compensation. This 59% decrease was in line with the decline in sales.
Other Income (Expense)
Other income (expense) for the three-month period ended September 30, 2023, was income of $787 thousand compared to expense of ($209) thousand in the corresponding 2022 period. The primary reason for the increase in income was due to ERC income recognized in the period equal to $1.4 million.
Net Income (Loss)
For the three-months ended September 30, 2023, we had a net loss from continuing operations of $1.3 million compared to a net loss of $5.9 million during the corresponding three-month period in 2022. For the three-months ended September 30, 2023, we had a net income from discontinued operations of $277 thousand compared to a net income of $303 thousand during the corresponding three-month period in 2022.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022:
Revenue
We had revenue of $3.0 million for the nine-month period ended September 30, 2023, as compared to $18.3 million for the nine-month period ended September 30, 2022, representing a decrease of $15.3 million or 84%. This decrease resulted primarily from a decrease in our Recruiters on Demand business of $11.6 million during the period, or 86%, as we transitioned this business to JobMobz. Software Subscriptions contributed $413 thousand of revenue in 2023 compared to $2.2 million in 2022 as we had sold our software technology last year. We also had a decrease in Permanent Placement fees of $739 thousand during the first nine months of 2023, or 97%, due to reduced focus on this line of business, and a decrease in our Marketplace Solutions revenue of $488 thousand, or 49%, due to customer churn. Additionally, we recognized approximately $100 thousand in revenue share from the JobMobz agreement.
Cost of Revenue
Cost of revenue was $2.2 million for the nine-month period ended September 30, 2023, compared to $11.3 million for the corresponding nine-month period in 2022, representing a decrease of $9.1 million or 81%. This decrease resulted primarily from a decrease in compensation expense in line with the decrease in revenue. Cost of revenue for the nine-month period was primarily attributable to third party staffing costs and other fees related to the recruitment and staffing business acquired from Genesys, which after its purchase, serves as our Recruiting Solutions division, as well as costs for contract recruiters supporting the Recruiters on Demand business.
Our gross profit for the nine-month period ended September 30, 2023 was $0.8 million, producing a gross profit margin of 28%. Our gross profit for the corresponding 2022 nine-month period was $7.0 million, producing a gross profit margin of 38%. The decrease in the gross profit margin from 2022 to 2023 reflects the shift in the mix in sales for the period as our Consulting and Staffing Services has the lowest gross margin of all areas of business.
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Operating Expenses
We had total operating expense of $7.0 million for the nine-month period ended September 30, 2023 compared to $19.7 million for the corresponding nine-month period in 2022, a decrease of $12.7 million or 65%. This decrease was primarily due to lower product development, sales and marketing, and general and administrative expenses totaling $8.6 million. Additionally, a decrease of $1.9 million for amortization of intangible assets and impairment expense contributed to the overall decrease in operating expenses for the nine-month period ended September 30, 2023.
Sales and Marketing
Our sales and marketing expense for the nine-month period ended September 30, 2023 was $321 thousand compared to $619 thousand for the corresponding nine-month period in 2022, which reflects a decrease in personnel and advertising and marketing expense reflecting the decline in sales.
Product Development
Our product development expense for the nine-months ended September 30, 2023 decreased to $0.4 million from $1.1 million for the corresponding period in 2022. This decrease was due to a decline in personnel reflecting the decline in sales.
Amortization of Intangibles
For the nine-month period ended September 30, 2023, we incurred a non-cash amortization charge of $1.0 million as compared to $2.9 million for the corresponding period in 2022. The amortization expense in 2023 and 2022 relates to the intangible assets acquired from Genesys (now our Recruiting Solutions division), Scouted, Upsider, OneWire, Parrut and Novo Group.
General and Administrative
General and administrative expense for the nine-month period ended September 30, 2023 includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. For the nine-month period ended September 30, 2023, our general and administrative expense was $5.3 million, including $1.1 million of non-cash stock-based compensation. In 2022, for the corresponding period, our general and administrative expense was $12.8 million, including $3.4 million of non-cash stock-based compensation. This decrease was in line with the decline in sales.
Other Income (Expense)
Other income expense for the nine-month period ended September 30, 2023 was an income of $234 thousand compared to income of $879 thousand in the corresponding 2022 period. The primary reason for the decrease in other expenses was due to ERC income recognized in the period equal to $2.2 million partially offset by an increase in interest expense of $1.5 million.
Net Income (Loss)
For the nine-months ended September 30, 2023, we had a net loss from continuing operations of $5.9 million compared to a net loss of $11.8 million during the corresponding nine-month period in 2022. For the nine-months ended September 30, 2023, we had a net income from discontinued operations of $0.5 million compared to a net income of $0.8 million during the corresponding nine-month period in 2022.
Net Income (Loss) attributable to common shareholders
For the nine-months ended September 30, 2023, we had a net loss attributable to common shareholders of $5.8 million compared to a net loss of $11.7 million during the corresponding nine-month period in 2022. The increase in net loss attributable to common shareholders versus the net loss reflects a deemed dividend recorded for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $504 thousand as a result of the trigger of the anti-dilution provisions.
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Non-GAAP Financial Measures
The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives, to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of our historical operating results nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.
Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.
We define Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.
We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.
The following table presents a reconciliation of net loss to Adjusted EBITDA:
|
| Three months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net Income (loss) |
| $ | (1,030,682 | ) |
| $ | (5,626,365 | ) |
Interest (income) expense and finance cost, net |
|
| 622,883 |
|
|
| 208,351 |
|
Depreciation & amortization |
|
| 328,221 |
|
|
| 955,773 |
|
EBITDA (loss) |
|
| (79,578 | ) |
|
| (4,462,241 | ) |
Bad debt expense |
|
| (24,537 | ) |
|
| 115,363 |
|
Stock-based compensation |
|
| 343,951 |
|
|
| 765,743 |
|
Gain on debt extinguishment |
|
| - |
|
|
| - |
|
Adjusted EBITDA (Loss) |
| $ | 239,836 |
|
| $ | (3,581,135 | ) |
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|
| Nine months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net Income (loss) |
| $ | (5,326,724 | ) |
| $ | (10,997,463 | ) |
Interest expense and finance cost, net |
|
| 1,784,252 |
|
|
| 340,257 |
|
Depreciation & amortization |
|
| 974,164 |
|
|
| 2,881,967 |
|
EBITDA (loss) |
|
| (2,568,308 | ) |
|
| (7,775,239 | ) |
Bad debt expense |
|
| 175,463 |
|
|
| 479,065 |
|
Gain on Settlement of Debt |
|
| (178,749 | ) |
|
| - |
|
Stock-based compensation |
|
| 1,106,460 |
|
|
| 3,415,670 |
|
Gain on debt extinguishment |
|
| - |
|
|
| (1,205,195 | ) |
Adjusted EBITDA (Loss) |
| $ | (1,465,134 | ) |
| $ | (5,085,699 | ) |
Liquidity and Capital Resources
For the nine months ended September 30, 2023, net cash used in operating activities was $1.9 million, compared to net cash used in operating activities of $4.7 million for the corresponding nine-month period in 2022. For the nine months ended September 30, 2023, net loss was $5.3 million. Net loss includes non-cash items of depreciation and amortization expense of $974 thousand, bad debt expense of $175 thousand, equity-based compensation expense of $1.1 million, amortization of debt discount and debt costs of $1.2 million, and a factoring discount fee and interest of $20 thousand. Changes in operating assets and liabilities include primarily the following: accounts receivable decreased by $99 thousand and prepaid expenses and other current assets decreased by $684. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, and deferred revenue increased in total by $245 thousand.
For the nine months ended September 30, 2022, net cash used in operating activities was $4.7 million. For the nine months ended September 30, 2022, net loss was $11.0 million. Net loss included non-cash items of depreciation and amortization expense of $2.9 million, bad debt expense of $479 thousand, equity-based compensation expense of $3.4 million, factoring discount fees and interest expense of $150 thousand, and amortization of debt discount and debt issuance costs of $135 thousand. Changes in operating assets and liabilities included primarily the following: accounts receivable decreased by $1.2 million. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, customer advances, and deferred revenue increased in total by $536 thousand.
For the nine months ended September 30, 2023 and 2022, net cash used in investing activities was $0 and $1.4 million, respectively.
For the nine months ended September 30, 2023, net cash provided by financing activities was $1.2 million. The principal factor was $450 thousand of proceeds from ERC advances, $871 thousand of proceeds from factoring agreement, $315 thousand of proceeds from the exercise of warrants, and $786 thousand of net proceeds from the issuance of common stock. These proceeds are offset by repayment of ERC advances notes and the factoring agreement of $1.1 million.
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For the nine months ended September 30, 2022, net cash provided by financing activities was $3.5 million including $7.7 million in net proceeds from factoring agreement and promissory notes, offset by $4.3 million from the payments of notes and repayments to the factor.
Based on cash on hand as of November 13, 2023 of approximately $440 thousand, we do not have the capital resources to meet our working capital needs for the next 12 months.
Our consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We incurred net losses and negative operating cash flows since inception. For the nine months ended September 30, 2023, we recorded a net loss of $5.3 million. We have not yet established an ongoing source of revenue that is sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable.
Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern. We can give no assurances that any additional capital that we are able to obtain, if any, will be sufficient to meet our needs, or that any such financing will be obtainable on acceptable terms. If we are unable to obtain adequate capital, we could be forced to cease operations or substantially curtail our commercial activities. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern.
To date, equity offerings have been our primary source of liquidity and we expect to fund future operations through additional securities offerings.
Financing Arrangements
Promissory Notes Payable
We received $250,000 in proceeds from an institutional investor pursuant to a promissory note dated May 6, 2021. The note bears interest at 12% per year and matures on May 6, 2023. In April 2022, we paid off the total principal balance of the note and the accrued interest.
We issued a promissory note for $1,750,000 pursuant to the Parrut acquisition agreement dated July 7, 2021. The note had a term of 24 months, accrued interest at 6%, and originally matured on July 1, 2023. The note required monthly payments of $77,561. On October 19, 2022, Parrut agreed to subordinate their note to a promissory note issued to Montage Capital II, L.P. In return, we restructured the payment schedule for the Parrut note which was set to mature on August 31, 2023, and bears interest at 12%. On August 31, 2023, we did not make payments on amounts due under the note with Parrut and are currently in process of amending the maturity date of the note. At September 30, 2023 and December 31, 2022, the outstanding balance on the promissory note with Parrut was $261,112 and $444,245, respectively.
We issued a promissory note for $3,000,000 pursuant to the Novo Group acquisition agreement dated August 27, 2021. The note originally had a term of 30 months, bears interest at 6%, and was scheduled to mature on February 1, 2024. The note requires monthly payments of $85,000 for the first 12 months, $110,000 for months 13 through 24, $155,000 for months 25 through 29, and $152,357 for month 30. In April 2022, we negotiated a reduction in this promissory note with Novo Group due to employee turnover that occurred following the acquisition. We entered into an agreement with Novo Group to reduce the outstanding principal balance by $600,000 and changed the maturity date to November 1, 2023. The reduction in the promissory note was accounted for as gain on debt extinguishment on the consolidated statement of operations.
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In October 2022, Novo Group entered into a Subordination Agreement (“Subordination Agreement”), pursuant to which Novo agreed to subordinate all its indebtedness and obligations we owe to Novo to all the indebtedness and obligations we owe to Montage Capital.
In February 2023, we entered into an additional Amendment to the Promissory Note with Novo Group, Inc. (the “Novo Amendment”). The Novo Amendment further modifies the Promissory Note issued to Novo on August 27, 2021 (the “Novo Note”) and amended on April 1, 2022, by amending the payment schedule pursuant to which we would make payments of principal and interest to Novo. Novo agreed we would pay interest only for the period starting November 1, 2022, though and including March 31, 2023, with payments of principal and interest to resume starting April 1, 2023. We also replaced the existing payment schedule with a new payment schedule terminating on October 31, 2023. On November 1, 2023, we did not make payments due on the promissory note with Novo Group and are currently in process of amending the maturity date of the note. On September 30, 2023, and December 31, 2022, the outstanding balance on the promissory note with Novo Group was $1,217,529 and $1,292,360, respectively.
On August 17, 2022, we issued promissory notes for $1,111,111, in the aggregate (the “8/17/22 Notes”) We received proceeds of $960,000, net of debt issuance costs of $40,000 and an original issue discount of $111,111. The 8/17/22 Notes have a term of 12 months, bear interest at 6%, and was set to mature on August 17, 2023. The 8/17/22 Notes was set to be paid off in full on August 17, 2023. As a part of these financings, we granted the noteholders 694,445 warrants to purchase our common stock (See Note 8) (the “8/17/22 Warrants”). The 8/17/22 Warrants were valued at $463,737 and treated as a debt discount to be amortized over the life of the note. On August 7, 2023 the Company signed an amendment 8/17/22 Notes. The amendment extends each of the maturity dates of August 17, 2023 and August 30, 2023 notes by 180 days. In return, the company has agreed to give $50,000 in either stock or cash at its discretion within ninety days of signing the amendment. As of September 30, 2023, the related $50,000 of debt issuance costs was recorded within accrued expenses as no discretion has been elected.
At September 30, 2023 and December 31, 2022, the outstanding balance on the 8/17/22 Notes, net of the unamortized debt issuance costs and debt discounts of $38,056 and $384,280, respectively, was $1,073,055 and $726,831, respectively.
On August 30, 2022, we issued promissory notes for $1,305,556, in the aggregate (the “8/30/22 Notes,” and together with the 8/17/22 Notes, the “August 2022 Notes”). We received proceeds of $1,175,000, net of an original issue discount of $130,556. The 8/30/22 Notes have a term of 12 months, bear interest at 6%, and was set to mature on August 30, 2023. The 8/30/22 Notes were set to be paid off in full on August 30, 2023. As a part of these financings, we granted the noteholders 54,398 warrants to purchase our common stock (See Note 9) (the “8/30/22 Warrants, and together with the 8/17/22 Warrants, the “August 2022 Warrants”). These 8/30/22 Warrants were valued at $569,106 and treated as a debt discount to be amortized over the life of the note. At September 30, 2023 and December 31, 2022, the outstanding balance on the 8/30/22 Notes, net of the unamortized debt issuance costs and debt discounts of $0 and $466,441, respectively, was $1,194,445 and $839,115, respectively.
On October 19, 2022, the “Company closed a Loan and Security Agreement (the “Loan Agreement”), by and among the Company and Montage Capital II, L.P. (the “Lender”). Pursuant to the Loan Agreement, the Lender will make advances (“Advances”) in the aggregate principal amount of $2,250,000, with the first Advance of $2,000,000 being provided on or around the Closing Date and the second Advance of $250,000 being available to the Company upon request prior to April 30, 2023. Interest will accrue on all Advances under the Loan Agreement at a per annum rate of 12.75%. In the event of a default under the terms of the Loan Agreement, the interest rate increases by 5 percentage points above the interest rate in effect immediately prior to a default. The entire outstanding principal balance of the Advances, all accrued and unpaid interest thereon, and all fees and other amounts outstanding thereunder will be immediately due and payable on the 42nd month anniversary of the Closing Date (the “Maturity Date”). In connection with the Loan Agreement, the Company granted and pledged to the Lender a continuing security interest in all presently existing and hereafter acquired or arising Collateral (as more specifically defined in the Loan Agreement) which includes all personal property of the Company and its subsidiaries. The Loan Agreement contains certain affirmative and negative covenants to which the Company is also subject. The Company agreed to pay the Lender a fee of $45,600, with $40,000 due upon the execution of the Loan Agreement and the balance due upon the funding of the second Advance.
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The Company is permitted to prepay any amounts due to the Lender; provided, however, that a Prepayment Fee (as more specifically defined in the Loan Agreement) shall be owed to the Lender depending on when the amounts are prepaid.
In addition, in connection with the Loan Agreement, the Company issued 47,103 warrants to purchase common stock of the Company (the “Warrants”) to the Lender, with 41,520 Warrants issued and exercisable upon the Closing Date and the additional 5,580 Warrants becoming exercisable upon funding of the second Advance. The Warrants are exercisable for ten years from the Closing Date at an exercise price of $30.00 per share, subject to certain adjustments. Upon the earlier of the Maturity Date or a sale of the Company or other change in control, the Lender has the right to cause the Company to repurchase the Warrants for up to $703,125 ($600,000 if only the first Advance has been made and $703,125 if both Advances have been made). The Company is also obligated to pay the Lender a cash fee equal to 1.25% of the aggregate principal amount of the Advances that is outstanding on each anniversary of the Closing Date if (i) the average closing price of the Company’s common stock for the thirty (30) day period prior to such anniversary date is less than $30.00 or (ii) the closing price of the Company’s common stock for the date immediately prior to such anniversary date is less than $30.00.
The Company accrues anniversary fees each year on the one-year anniversary of the issuance date of 1.25% of the outstanding advance balance depending on the stock price. The accrued anniversary fees are payable on the date the buyout fee becomes due and payable. The Company records an expense for the 1.25% cash fee ratably over the 12 months.
On February 2, 2023, the Company entered into a First Amendment to Loan and Security Agreement (the “Montage Amendment”), by and between the Company, its subsidiaries (Recruiter.com, Inc., Recruiter.com Recruiting Solutions, LLC, Recruiter.com Consulting, LLC, VocaWorks, Inc., Recruiter.com Scouted, Inc., Recruiter.com Upsider, Inc., and Recruiter.com - OneWire, Inc.), and Montage, effective as December 18, 2022. The Montage Amendment modifies that certain Loan and Security Agreement by and among the Company, its subsidiaries, and Montage to provide the Company with additional time to meet certain post-closing covenants.
On August 16, 2023, we entered into a Second Amendment to Loan and Security Agreement (the “the Second Montage Amendment”), by and among the Company, its subsidiaries Montage. The Second Montage Amendment modifies that certain Loan and Security Agreement by and among the Company, its subsidiaries, and Montage, as amended (the “Loan and Security Agreement”) to join CognoGroup, Inc. as an additional borrower to the Loan and Security Agreement and amend and restate the definition of “Maturity Date” to the earlier of (i) the four month anniversary of the initial closing of the Purchase Agreement or (ii) February 28, 2024. Additionally, the Montage Amendment provides for Montage’s consent to certain transactions that would have otherwise been prohibited under the Loan and Security Agreement, including the transaction contemplated by the Purchase Agreement with Job Mobz.
In addition, in connection with the Second Montage Amendment, the Company will issue warrants to purchase common stock of CognoGroup, Inc. (the “CognoGroup, Inc Warrants”) to the Lender. The number of shares shall be equal to 1.4% of the CognoGroup, Inc outstanding capital stock on a fully diluted basis at the exercise price of $0.01 per share and with expiration date of October 19, 2032. On and after the earlier to occur of (i) October 19, 2026, (ii) any sale, license, or other disposition of all or substantially all of the assets of the CognoGroup, Inc., or any reorganization, consolidation, or merger of the CognoGroup, Inc. where the holders of the CognoGroup, Inc.’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, (iii) a transaction in which any “person” or “group” becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of the CognoGroup, Inc. ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of the CognoGroup, Inc., who did not have such power before such transaction (“Change in Control”), or (iv) the dissolution or liquidation of the CognoGroup, Inc (“Wind-Up”), CognoGroup, Inc shall, at the request of Holder, purchase all rights that Holder has under this CognoGroup, Inc Warrants for a cash payment in the amount equal to $600,000 (the “Buyout Fee”). In addition to the foregoing, at any time on or after October 19, 2026, and in the absence of an Acquisition, Change in Control, or Wind-Up, Holder may elect to receive a portion of the Buyout Fee. These CognoGroup, Inc Warrants were valued at $600,000 and treated as a debt discount to be amortized over the life of the note.
At September 30, 2023 and December 31, 2022, the outstanding balance on the Loan Agreement, and a puttable liability was established, net of the unamortized debt issuance costs and debt discounts of $872,258 and $622,630, respectively, was $998,743 and $1,377,370, respectively.
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Factoring Arrangement
We entered into a factoring agreement with CSNK Working Capital Finance Corp. d/b/a Bay View Funding, a subsidiary of Heritage Bank of Commerce (the “Buyer”), effective April 27, 2022 (the “Factoring Agreement”), for the purpose of factoring our trade accounts receivable with recourse. The proceeds of the factoring are used to fund our general working capital needs. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. The agreement is for a term of twelve months with an auto renewal clause for an additional twelve months unless terminated by the parties. The agreement is secured by substantially all assets of the Company.
Pursuant to the Factoring Agreement, we sell certain trade accounts receivable to the Buyer. We are charged a finance fee, defined as a floating rate per annum on outstanding advances under the Factoring Agreement, equal to the prime rate plus 3.25% due on the first day of each month. We are also charged a factoring fee of 0.575% of the gross face value of any trade accounts receivables for the first 30 days from when the trade accounts receivable is purchased and 0.30% for each fifteen days afterward until the purchased receivable is paid in full or repurchased.
We receive advances of up to 85% of the amount of eligible trade accounts receivable. Advances outstanding shall not exceed the lesser of $3,000,000 or an amount equal to the sum of all undisputed purchased trade accounts receivable multiplied by 85%, less any reserved funds.
All collections of purchased receivables go directly to the Buyer controlled lockbox and Buyer shall apply these collections to the Company’s obligations. The Company will immediately turn over to Buyer any payment on a purchased receivable, or receivable assigned to Buyer under the Factoring Agreement, that comes into the Company’s possession. In the event the Company comes into possession of a remittance comprising payments of both a purchased receivable and receivable which has not been purchased by Buyer, the Company is required to hold the same in accordance with the provisions set forth above and immediately turn same over to Buyer.
As stated previously, the Company factors the accounts receivable on a recourse basis. Therefore, if the Buyer cannot collect the factored accounts receivable from the customer, the Company must refund the advance amount remitted to us for any uncollected accounts receivable from the customer. Accordingly, the Company records the liability of potentially having to refund the advance amount as short-term debt when the factoring arrangement is utilized. As of September 30, 2023 and December 31, 2022, $0 and $545,216 of advances were outstanding under the factoring arrangement, respectively, and $38,488 and $263,939, was due from the factor, respectively, resulting in a net $0 and $281,277 loan payable to the factor, respectively. The September 30, 2023, amount due from factor is included in prepaid expenses and other current assets.
As consideration for Buyer forgoing other factoring transactions in the marketplace and for establishing the maximum credit of $3,000,000, the Company paid the Buyer a facility fee upon entering into the Factoring Agreement (the “Facility Fee”) in the amount of one half of one percent (0.50%) of the maximum credit, $15,000. An additional Facility Fee is charged for increases to the maximum credit, but only for the incremental increase. The Facility Fee was accounted for as a factoring fee expense, which is included as part of the interest expense along with all other factor fees.
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Off-Balance Sheet Arrangements
None.
Critical Accounting Estimates and Policies
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ from management’s estimates and assumptions. Included in these estimates are assumptions used to estimate collection of accounts receivable, fair value of marketable securities, fair value of assets acquired and liabilities assumed in asset acquisitions and the estimated useful life of assets acquired, fair value of contingent consideration, asset acquisitions and business combinations, fair value of derivative liabilities, fair value of securities issued for acquisitions and business combinations, fair value of assets acquired and liabilities assumed in business combinations, fair value of intangible assets and goodwill, fair value of capitalized software, fair value of non-monetary transactions, deferred income tax asset valuation allowances, and valuation of stock based compensation expense.
Revenue Recognition
Policy
We recognize revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
Revenues as presented on the statement of operations represent services rendered to customers less sales adjustments and allowances.
Software subscription revenues are recognized over the term of the subscription for access to services and/or our web-based platform. Revenue is recognized monthly over the subscription term. Talent effectiveness subscription revenues are recognized over the term of the subscription when services are provided. Any payments received prior to the time passing to provide the subscription services are recorded as a deferred revenue liability. Revenue generated from the enhanced support package and On Demand support are recognized at the point-in-time when the service is provided. Revenue generated from placement fees that are related to the software subscription are recognized at the point-in-time when the 60 or 90-day guarantee expires.
Recruiters On Demand services are billed to clients as either monthly subscriptions or time-based billings. Revenues for Recruiters On Demand are recognized on a gross basis when each monthly subscription service is completed. Talent Effectiveness consulting services are billed to clients upfront for a period of 12 months. Revenue is recognized on a gross basis monthly over the period the consulting services are provided.
Full time placement revenues are recognized on a gross basis when the guarantee period specified in each customer’s contract expires. No fees for direct hire placement services are charged to the employment candidates. Any payments received prior to the expiration of the guarantee period are recorded as a deferred revenue liability. Payments for recruitment services are typically due within 90 days of completion of services.
Marketplace Solutions revenues are recognized either on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services.
Marketplace advertising revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services. Job posting revenue is recognized at the end of the period the job is posted. Marketplace career services revenues are recognized on a gross basis upon distribution of resumes or completion of training courses, which is the point at which the performance obligations are satisfied. Payments for career services are typically due upon distribution or completion of services.
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Consulting and Staffing Services revenues represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out- of-pocket expenses, are also included in the net service revenues and equivalent amounts of reimbursable expenses are included in costs of revenue. We record substantially all revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of this line of revenues and expenses. We have concluded that gross reporting is appropriate because we have the task of identifying and hiring qualified employees, and our discretion to select the employees and establish their compensation and duties causes us to bear the risk for services that are not fully paid for by customers. Consulting and staffing revenues are recognized when the services are rendered by the temporary employees. We assume the risk of acceptability of the employees to customers. Payments for consulting and staffing services are typically due within 90 days of completion of services.
Revenue share revenues represent a percentage of revenue we have earned in relation to client referrals we made to a third party. We record revenue in relation to revenue share on a net basis as an agent under this arrangement. We have concluded that net reporting is appropriate because we do not provide the underlying services and arrangements to meet the demands of the client that we referred to the third party. Revenue is recorded based on a net percentage of revenue that is shared between us and the third party and earned upon delivery of the services by the third party. The third party provides the underlying services in this arrangement.
Deferred revenue results from transactions in which we have been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.
Sales tax collected is recorded on a net basis and is excluded from revenue.
Goodwill
Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. We test goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.
We perform our annual goodwill impairment assessment on December 31st of each year or as impairment indicators dictate.
When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology using an appropriate valuation method.
We compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.
When required, we may arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.
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Long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. We periodically evaluate whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, we estimate the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether or not the asset values are recoverable.
Stock-Based Compensation
We account for our stock-based compensation under ASC 718 “Compensation - Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
(a) | Disclosure Controls and Procedures |
Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer had concluded that our disclosure controls and procedures were not effective due to material weaknesses in internal controls over financial reporting as identified below.
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(b) | Management’s Report on Internal Control over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this Quarterly Report. In making this assessment, our management used the criteria set forth by the Committee of Sponsor Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on that evaluation, as a result of the material weaknesses described below, management has concluded that our internal control over financial reporting was not effective as of September 30, 2023.
Although a material weakness identified as of December 31, 2019 (the lack of sufficient independent directors on our Board to maintain audit and other committees consistent with proper corporate governance standards) had been remediated as of December 31, 2022, management has determined that, as of that date, there were still material weaknesses in both the design and effectiveness of our internal control over financial reporting. A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified material weaknesses in our internal control over financial reporting. Specifically, (1) we lack a sufficient number of employees to properly segregate duties and provide adequate monitoring during the process leading to and including the preparation of the consolidated financial statements, and (2) do not have the in-house technical expertise to identify and analyze complex or unusual transactions for proper accounting treatment. Accordingly, management’s assessment is that our internal controls over financial reporting were not effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
We have worked to establish all the checks and balances needed for all financial areas of our business. We hired a consultant in mid-2020 to establish best practices and help us document and implement these. This consultant is a CPA and has a significant background in running the accounting and budgeting process for public companies. We began adopting these best practices during the fourth quarter of 2020. We retained an outsourced firm with a panel of CPA consultants in 2021 to assist in building internal controls and preparing financial reports.
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PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Except for the BKR lawsuit and related counterclaim described under Note 10 to our unaudited consolidated financial statements, as of the date of this filing, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers, or affiliates are a party adverse to us or which have a material interest adverse to us.
ITEM 1A. - RISK FACTORS
Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed March 31, 2023. These risks are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
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ITEM 6 - EXHIBITS
The following exhibits are filed as part of this Quarterly Report:
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| Incorporated by Reference |
| Filed or Furnished | ||||
Exhibit No. |
| Exhibit Description |
| Form |
| Filing Date |
| Number |
| Herewith |
|
| 10-K |
| 3/9/21 |
| 2.1 |
|
| ||
|
| 8-K |
| 6/9/23 |
| 2.1 |
|
| ||
|
| 8-K |
| 8/11/23 |
| 2.1 |
|
| ||
|
| 8-K |
| 8/11/23 |
| 2.2 |
|
| ||
|
| 8-K |
| 8/22/23 |
| 2.1 |
|
| ||
|
| 8-K |
| 8/24/23 |
| 2.1 |
|
| ||
|
| 8-K |
| 6/9/23 |
| 2.1 |
|
| ||
|
| 10-Q |
| 6/25/20 |
| 3.1(a) |
|
| ||
| Certificate of Designation of Series E Convertible Preferred Stock |
| 10-Q |
| 6/25/20 |
| 3.1(c) |
|
| |
| Certificate of Change pursuant to NRS 78.209, filed with Nevada Secretary of State on June 17, 2021 |
| 8-K |
| 6/24/21 |
| 3.1 |
|
| |
|
| 8-K |
| 8/28/23 |
| 3.1 |
|
| ||
|
| 10-Q |
| 6/25/20 |
| 3.2 |
|
| ||
|
| 8-K |
| 7/6/21 |
| 4.3 |
|
| ||
|
| 8-K |
| 7/12/21 |
| 4.1 |
|
| ||
| Promissory Note issued to the Novo Group, Inc. on August 27, 2021. |
| 8-K |
| 9/2/21 |
| 4.1 |
|
| |
|
| 8-k |
| 7/6/21 |
| 4.1 |
|
| ||
|
| 8-k |
| 7/6/21 |
| 4.2 |
|
| ||
|
| S-1 |
| 12/17/21 |
| 4.5 |
|
| ||
|
| 8-K |
| 4/7/22 |
| 4.1 |
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| 8-K |
| 2/8/23 |
| 4.1 |
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| 8-K |
| 8/21/23 |
| 4.1 |
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| 8-K |
| 8/21/23 |
| 4.2 |
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| 8-K |
| 7/31/23 |
| 10.1 |
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| 8-K |
| 8/11/23 |
| 10.1 |
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10.3 |
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| 8-K |
| 8/21/23 |
| 10.1 |
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| 8-K |
| 8/22/23 |
| 10.1 |
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| 8-K |
| 9/5/23 |
| 10.1 |
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| Filed | ||
31.2 |
| Certification of Principal Financial Officer (302) |
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| Filed |
| Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer and Chief Financial Officer |
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| Furnished* | |
101.INS |
| Inline XBRL Instance Document |
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| Filed |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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| Filed |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| Filed |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| Filed |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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| Filed |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| Filed |
104 |
| The cover page for Recruiter.com Group, Inc.’s quarterly report on Form 10-Q for the period ended September 30, 2023, formatted in Inline XBRL (included with Exhibit 101 attachments). |
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| Filed |
______________
# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
| 58 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 20, 2023 | RECRUITER.COM GROUP, INC. |
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| By: | /s/ Miles Jennings |
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| Miles Jennings |
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| Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer) |
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59 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Miles Jennings, certify that:
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| 1. | I have reviewed this quarterly report on Form 10-Q of Recruiter.com Group, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 20, 2023
| /s/ Miles Jennings |
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| Miles Jennings |
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| Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Recruiter.com Group, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof, I, Miles Jennings, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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| 1. | The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
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| 2. | The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Miles Jennings |
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| Miles Jennings |
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| Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer |
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Dated: November 20, 2023