NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Recruiter.com
Group, Inc. (formerly Truli Technologies, Inc.), a Delaware corporation (“RGI”), is a holding company based in Houston,
Texas. The Company has three subsidiaries, Recruiter.com, Inc., Recruiter.com Recruiting Solutions LLC (“Recruiting Solutions”)
and VocaWorks, Inc. (“VocaWorks”). RGI and its subsidiaries
as a consolidated group is hereinafter referred to as the “Company”.
The Company operates in Connecticut, Texas, and New York.
Merger
with Recruiter.com, Inc.
Effective
March 31, 2019, RGI completed a merger (the “Merger”) with Recruiter.com, Inc., a New York based recruiting
career services and marketing business and a Delaware corporation (“Pre-Merger Recruiter.com”) pursuant to a
Merger Agreement and Plan of Merger, dated March 31, 2019. At the effective time of the Merger, RGI’s newly formed
wholly-owned subsidiary merged with and into Pre-Merger Recruiter.com, with Pre-Merger Recruiter.com continuing as the
surviving corporation and a wholly-owned subsidiary of RGI. As consideration in the Merger, the equity holders of Pre-Merger
Recruiter.com received a total of 775,000 shares of Series E Preferred Stock of RGI convertible into 775,000,000 shares of
the Company’s common stock. As a result, the former shareholders of Pre-Merger Recruiter.com controlled approximately
90% of RGI’s outstanding common stock and in excess of 50% of the total voting power.
Prior
to the Merger, from October 30, 2017 RGI was controlled by the principal shareholders of Pre-Merger Recruiter.com. The Merger
simply increased their control. RGI’s Chief Executive Officer prior to the Merger remains as Chief Executive Officer and
the majority of RGI’s Board of Directors remains with persons who were directors (or designees) prior to the Merger. Further,
RGI’s Executive Chairman was retained as a consultant prior to the Merger with the understanding that if the Merger occurred,
he would be appointed Executive Chairman. Operating under the License Agreement, as defined below, was the primary business of
RGI before the consummation of the Merger.
Prior
to the Merger, RGI, Pre-Merger Recruiter.com and VocaWorks had been parties to a license agreement, dated October 30, 2017 (the
“License Agreement”), under which Pre-Merger Recruiter.com granted VocaWorks a license to use certain of its proprietary
software and related intellectual property. In consideration for the license, Pre-Merger Recruiter.com received 125,000,000 shares
of RGI’s common stock. Pre-Merger Recruiter.com also received the right to receive shares of Series B Convertible Preferred
Stock (the “Series B Preferred Stock”) of RGI upon achievement of certain milestones specified in the License Agreement.
As a result, immediately prior to the completion of the Merger, Pre-Merger Recruiter.com owned approximately 98% of RGI’s
outstanding common stock. Pre-Merger Recruiter.com distributed the 125,000,000 shares of RGI’s common stock to its stockholders
on March 25, 2019, in conjunction with the Merger. The distribution is considered in substance to have occurred just prior to
the completion of the Merger.
For
accounting purposes, the Merger is being accounted for as a reverse recapitalization of Pre-Merger Recruiter.com and combination
of entities under common control (“recapitalization”) with Pre-Merger Recruiter.com considered the accounting acquirer
and historical issuer. The accompanying consolidated financial statements presented include Pre-Merger Recruiter.com for all periods
presented. Since Pre-Merger Recruiter.com previously owned a majority interest in RGI, the consolidated financial statements include
the historical operations of RGI and VocaWorks since October 30, 2017. All share and per share data in the accompanying consolidated
financial statements and notes have been retroactively restated to reflect the effect of the Merger.
Asset
Purchase
Effective
March 31, 2019, RGI also completed the acquisition of certain assets and assumed certain liabilities under an asset purchase agreement,
dated March 31, 2019, among RGI, Genesys Talent LLC, a Texas limited liability company (“Genesys”), and Recruiting
Solutions, a wholly owned subsidiary of the Company (the “Asset Purchase”). As consideration in the Asset Purchase
the Company issued a total of 200,000 shares of its Series F Preferred Stock convertible into 200,000,000 shares of the Company’s
common stock. The acquired assets and liabilities include certain accounts receivable, accounts payable, deferred revenue, sales
and client relationships, contracts, intellectual property, partnership and vendor agreements and certain other assets. The Company
will utilize these assets in its employment staffing business to be operated through Recruiting Solutions. This transaction was
treated as a business combination (see Note 12).
As
of the effective time of the Merger, the Company changed its fiscal year end from March 31 to December 31. On May 9, 2019,
pursuant to the approval of its Board of Directors, the Company changed its name to Recruiter.com Group,
Inc.
Revenues
are predominantly derived from the following activities:
|
|
●
|
Consulting
and Staffing.
Represents consulting and staffing personnel provided to customers to satisfy demand for long term consulting
and temporary employee needs.
|
|
|
●
|
Recruiting
Solutions.
Facilitated by our Job Market software platform and artificial intelligence matching technologies,
placement of specialized personnel at employers, generating success-based fees for candidate referrals for direct-hire.
|
|
|
●
|
Career
Solutions.
Consisting of (i) Resume Distribution, whereby Recruiter sends out candidate resumes to its network of independent
recruiters and (ii) Recruiter Certification Program, whereby users access Recruiter’s recruitment training content through
its online learning management system.
|
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
|
|
●
|
Marketing
Solutions.
Web portal monetization, lead generation, and digital publication advertising structured for specialized B2B
software companies to access niche industry audience, primarily of recruitment and HR audience.
|
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of RGI and its majority-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
As
discussed above, all share and per share data has been retroactively restated in the accompanying consolidated financial
statements and footnotes to reflect the effects of the March 31, 2019 recapitalization. Among other effects, this causes the
common stock of Pre-Merger Recruiter.com which existed during 2018 and 2017 to be retroactively reflected as though it
was Series E Preferred Stock since that is what it was exchanged for at March 31, 2019.
The accompanying condensed 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 condensed consolidated financial statements should be read in conjunction with the financial statements and
notes thereto of Pre-Merger Recruiter.com and Genesys for the years ended December 31, 2018 and 2017, filed with the SEC on July
29, 2019. The December 31, 2018 balance sheet is derived from those statements.
These
interim financial statements as of and for the three and six months ended June 30, 2019 and 2018 are unaudited; however, in the
opinion of management, such statements include all adjustments (consisting of normal recurring adjustments and adjustments relating
to the recapitalization, business combination and other equity transactions) necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented. The results for the three and six months ended
June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future
period. All references to June 30, 2019 and 2018 in these footnotes are unaudited.
Use
of Estimates
The
preparation of financial statements in conformity with 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 available for sale securities, fair value of derivative liabilities, fair value of securities
issued for acquisitions, fair value of assets acquired in the business combination, fair value of intangible assets, valuation
of intangible assets, valuation of initial right of use assets and corresponding lease liabilities, 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. The Company has not experienced any losses related to these balances. Uninsured balances were approximately
$524,000 at June 30, 2019. There were no uninsured balances as of December 31, 2018. The Company had no cash equivalents during
or at the end of either period.
Revenue
Recognition
Adoption
of ASU 2014-09, Revenue from Contracts with Customers
On
January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606,
Revenue from Contracts with Customers (ASC 606) using the modified retrospective (cumulative effect) transition method. Under
this transition method, results for reporting periods beginning January 1, 2018 or later are presented under ASC 606, while prior
period results continue to be reported in accordance with previous guidance. There was no cumulative effect of the initial application
of ASC 606 and therefore no cumulative adjustment was recorded to the opening balance of retained earnings. The timing of revenue
recognition for our various revenue streams was not materially impacted by the adoption of this standard. The Company believes
its business processes, systems, and controls are appropriate to support recognition and disclosure under ASC 606. In addition,
the adoption has led to increased footnote disclosures. Overall, the adoption of ASC 606 did not have a material impact on the
Company’s balance sheet, statement of operations and statement of cash flows. ASC 606 also requires additional disclosures
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. As described below, the analysis
of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that
is materially consistent with the Company’s historical practice of recognizing service revenue over the service period.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Policy
The
Company recognizes 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 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.
Revenues
are predominantly derived from the following activities:
|
|
●
|
Consulting
and Staffing.
Represents consulting and staffing personnel provided to customers to satisfy demand for long term consulting
and temporary employee needs.
|
|
|
●
|
Recruiting
Solutions.
Facilitated by our Job Market software platform and artificial intelligence matching technologies,
placement of specialized personnel at employers, generating success-based fees for candidate referrals for direct-hire.
|
|
|
●
|
Career
Solutions.
Consisting of (i) Resume Distribution, whereby Recruiter sends out candidate resumes to its network of independent
recruiters and (ii) Recruiter Certification Program, whereby users access Recruiter’s recruitment training content through
its online learning management system.
|
|
|
●
|
Marketing
Solutions.
Web portal monetization, lead generation, and digital publication advertising structured for specialized B2B
software companies to access niche industry audience, primarily of recruitment and HR audience.
|
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 Enterprise 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 fulfill any or all of the revenue segments.
Net
revenues as presented on the statement of operations represent services rendered to customers less sales adjustments and allowances.
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 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 risk of identifying and hiring qualified employees and has the discretion to select the employees and establish
their price and duties and bears 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. Payroll and related taxes of employees that
are placed on temporary assignment are outsourced to third party payors or related party payors. The payors pay all related
costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security and
certain fringe benefits. We assume the risk of acceptability of the employees to its customers. Typical payment terms for
consulting and staffing services are net 90.
Direct
hire recruitment placement revenues are recognized when the guarantee period specified in the customer contract expires.
No fees for direct hire placement services are charged to employment candidates. Any payments received prior to the expiration
of the guarantee period are recorded as a deferred revenue liability. Typical payment terms for recruitment services are net 90.
Career
services revenues are recognized upon distribution of resumes or completion of training courses, which is the point that the performance
obligations are satisfied. Typical payment terms for career services are upon distribution or completion.
Marketing
and publishing services revenues are recognized when the advertising is placed and displayed or when lead generation activities
and online publications are completed, which is the point that the performance obligations are satisfied. Typical payment terms
for marketing and publishing are net 30.
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.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
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 short term in nature. As a practical expedient, 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 June 30,
2019 or December 31, 2018.
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.
For
each of the identified periods, revenues can be categorized into the following:
Three
months ended June 30, 2019 and 2018:
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Consulting and staffing services
|
|
$
|
1,121,804
|
|
|
$
|
-
|
|
|
Permanent placement fees
|
|
|
118,103
|
|
|
|
82,310
|
|
|
License and other
|
|
|
130,365
|
|
|
|
-
|
|
|
Career services
|
|
|
33,483
|
|
|
|
35,723
|
|
|
Marketing and publishing
|
|
|
84,636
|
|
|
|
165,852
|
|
|
Total revenue
|
|
$
|
1,488,391
|
|
|
$
|
283,885
|
|
Six
months ended June 30, 2019 and 2018:
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Consulting and staffing services
|
|
$
|
1,121,804
|
|
|
$
|
-
|
|
|
Permanent placement fees
|
|
|
158,381
|
|
|
|
132,710
|
|
|
License and other
|
|
|
130,365
|
|
|
|
-
|
|
|
Career services
|
|
|
72,765
|
|
|
|
70,518
|
|
|
Marketing and publishing
|
|
|
168,378
|
|
|
|
325,604
|
|
|
Total revenue
|
|
$
|
1,651,693
|
|
|
$
|
528,832
|
|
At
June 30, 2019 and December 31, 2018, deferred revenue amounted to $132,527 and $59,468 respectively. As of June 30, 2019, deferred
revenue associated with placement services are $97,527 and the recognition of such services is expected within the following three
months, while deferred marketing and publishing services amounted to $35,000 and pertain to services to be provided through the
third quarter of 2019.
Costs
of Revenue
Costs
of revenues consist of third party staffing costs and other fees, outsourced recruiter fees and net margin revenue share.
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. There was no allowance for doubtful accounts at June 30, 2019 or December 31, 2018 and no bad debt expense in the
2019 and 2018 periods.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Concentration
of Credit Risk and Significant Customers
At
June 30, 2019, four customers accounted for more than 10% of the accounts receivable balance, at 24%, 14%, 13%, and 11%, for a
total of 62%. At December 31, 2018, four customers accounted for more than 10% of the accounts receivable balance, at 24%, 22%,
21% and 12%, for a total of 79%.
For
the six months ended June 30, 2019 two customers accounted for 36% of total revenue at 23% and 13%. For the six months ended June
30, 2018 one customer accounted for 10% or more of total revenue, at 17%.
We
use a related party firm for software development and maintenance related to our website and the platform underlying our operations.
One of our officers and principal stockholders is an employee of this firm but exerts control over this firm.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Advertising costs were $2,969 and $5,343 for the three months ended June 30,
2019 and 2018, respectively. Advertising costs were $2,969 and $9,414 for the six months ended June 30, 2019 and 2018, respectively.
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 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 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.
A
financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is
significant to the fair value measurement. The table below summarizes the fair values of our financial assets and liabilities
as of June 30, 2019:
|
|
|
Fair Value at
June 30,
|
|
|
Fair Value Measurement Using
|
|
|
|
|
2019
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale marketable securities (Note 3)
|
|
$
|
172,500
|
|
|
$
|
172,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Derivative liability (Note 9)
|
|
$
|
1,733,019
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,733,019
|
|
The
reconciliation of the derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is
as follows for the six months ended June 30, 2019:
|
Balance at beginning of period
|
|
$
|
-
|
|
|
Additions to derivative instruments
|
|
|
1,750,646
|
|
|
Gain on change in fair value of derivative liability
|
|
|
(17,627
|
)
|
|
Balance at end of period
|
|
$
|
1,733,019
|
|
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Marketable
Securities
On
January 1, 2018, the Company adopted ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity investments (except those accounted for under the
equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes
in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair
value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities
by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured at amortized cost. The fair value allowance of the securities of $489,591 at December 31, 2017 has been reclassified
to accumulated deficit from accumulated other comprehensive income at January 1, 2018 as a cumulative effect adjustment using
the modified prospective method of adoption. The unrealized loss on the marketable securities during the three and six month periods
ended June 30, 2019 and 2018 has been disclosed as a separate line item on the statement of operations.
Noncontrolling
Interest in Majority Owned Subsidiary
The
Company follows ASC 810-10-65, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a noncontrolling (minority) interest in
a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements.
It also requires consolidated net income to include the amounts attributable to both the parent and noncontrolling interest, with
disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the noncontrolling
interest. In accordance with ASC 810-10- 45-21, those losses attributable to the parent and the noncontrolling interest in subsidiaries
may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and
the noncontrolling interest shall be attributed to those interests even if that attribution results in a deficit noncontrolling
interest balance.
The
average noncontrolling interest percentage in RGI was 0% and 4.98% for the three months ended June 30, 2019 and 2018, respectively,
10.04% for the three month period ended March 31, 2019 and 4.47% for the six months ended June 30, 2018. The change in percentage
in 2019 and 2018 results from the issuance of RGI common stock upon the conversion of RGI preferred stock. There was no noncontrolling
interest after the March 31, 2019 recapitalization.
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.
Intangible
Assets
Intangible
assets consist primarily of the assets acquired from Genesys, including sales and client relationships, contracts, intellectual
property, partnership and vendor agreements and certain other assets, acquired March 31, 2019 (see Note 12).
Intangible
assets also include internal use software development costs for the Company’s website and iPhone App. These costs will be
amortized over their estimated economic lives once placed in service. The assets have not been placed in service as of June 30,
2019 or December 31, 2018.
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 in measuring whether or not the asset values are recoverable. The Company did not recognize impairment
on its long-lived assets during the periods ended June 30, 2019 or 2018.
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 service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions
in which an entity exchanges it 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.
Through
December 31, 2018 we used the fair value method for equity instruments granted to non-employees and used the Black-Scholes model
for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or
the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
The
Company adopted ASU 2018-07 on January 1, 2019 and accounts for non-employee share-based awards in accordance with the measurement
and recognition criteria of ASC 718. The Company used the modified prospective method of adoption. There was no cumulative effect
of adoption on January 1, 2019.
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.
The
Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not of being
sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize
interest and/or penalties related to income tax matters in income tax expense.
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.”
The
Company accounts for convertible instruments (when it has determined that the instrument is not a stock settled debt and the embedded
conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting
for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain
Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Discounts under
these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records
when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences
between the fair value of the underlying common stock at the commitment date of the share transaction and the effective conversion
price embedded in the preferred shares.
ASC
815-40 provides that, among other things, 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.
In
July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480)
and Derivatives and Hedging (Topic 815): Part 1 – Accounting for Certain Financial Instruments with Down Round Features
and Part 2 – Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests with Scope Exception (“ASU No. 2017-11”). Part
1 of ASU No. 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round
features are provisions in certain equity-linked instruments (or embedded features) that result in the strike price being reduced
on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that
issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement
of the entire instrument or conversion option. The Company has early adopted the guidance under ASU 2017-11 for the year end December
31, 2017.
The
Company has determined that the conversion features of the RGI convertible preferred stock and stock purchase warrants outstanding
immediately prior to the Merger do not require bifurcation as free standing derivative instruments, based on the adoption of ASU
2017-11 and the guidance related to down round features.
The
Company has determined that the conversion features of its convertible preferred stock issued in 2019 do not require bifurcation
as free standing derivative instruments.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Derivative
Instruments
The
Company’s derivative financial instruments consist of the warrants issued with the sale of our Series D Preferred Stock
in 2019. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values
as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair
value is recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives
was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge. If the fair value of the derivatives
was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.
Leases
In
February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)”
whereby lessees need to recognize almost all leases on their balance sheet as a right of use asset and a corresponding lease liability.
The Company adopted this standard as of January 1, 2019 using the effective date method and applying the package of practical
expedients to leases that commenced before the effective date whereby the Company elected not to reassess the following: (i) whether
any expired or existing contracts contain leases, and (ii) initial direct costs for any existing leases. For contracts entered
into after the effective date, at the inception of a contract the Company will assess whether the contract is, or contains, a
lease. The Company’s assessment will be based on: (1) whether the contract involves the use of a distinct identified asset,
(2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and
(3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each
lease component based on its relative stand-alone price to determine the lease payments. The Company has elected to not recognize
right of use assets and lease liabilities for short term leases that have a term of 12 months or less.
Product
Development
Product
development costs are included in selling, general and administrative expenses and consist of support, maintenance and upgrades
of our website and IT platform and are charged to operations as incurred.
Earnings
(Loss) Per Share
The
Company follows Accounting Standards Codification subtopic ASC 260, Earnings Per Share for calculating the basic and diluted earnings
(loss) per share. Basic earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders by
the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic loss
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive. Common share equivalents are
excluded from the diluted earnings (loss) per share computation if their effect is anti-dilutive. Common share equivalents of
1,554,900,840 and 21,134 were excluded from the computation of diluted earnings per share for the three and six months ended June
30, 2019 and 2018, respectively, because their effect is anti-dilutive.
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Options
|
|
|
43,272,420
|
|
|
|
5,960
|
|
|
Stock awards
|
|
|
39,567,420
|
|
|
|
-
|
|
|
Warrants
|
|
|
37,675,000
|
|
|
|
15,174
|
|
|
Convertible preferred stock
|
|
|
1,434,386,000
|
|
|
|
-
|
|
|
|
|
|
1,554,900,840
|
|
|
|
21,134
|
|
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 Accounting Standards Update (“ASU”) issued by the
Financial Accounting Standards Board (“FASB”) that are of significance or potential significance to the Company.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE
2 — GOING CONCERN
These
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 Quarterly Report on Form 10-Q (the “Form 10-Q”).
This determination was based on the following factors: (i) the Company has a working capital deficit as of June 30, 2019 and the
Company’s available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations
for the next 12 months; (ii) the Company will require additional financing for the remainder of the fiscal year ending December
31, 2019 to continue at its expected level of operations; and (iii) if the Company fails to obtain the needed capital, it will
be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion
of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern
as of the date of the end of the period covered by this Form 10-Q and for one year from the issuance of the unaudited condensed
consolidated financial statements.
The
Company recently completed rounds of funding in the first and second quarters of 2019. However, there is no assurance that the
Company will be successful in any other capital-raising efforts that it may undertake to fund operations during the next 12 months.
The Company anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate
positive cash flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders’
ownership. The Company cannot guarantee when or if it will generate positive cash flow.
The
accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should
the Company be unable to continue as a going concern.
NOTE
3 — INVESTMENT IN AVAILABLE FOR SALE MARKETABLE SECURITIES
The
Company’s investment in marketable equity securities is being held for an indefinite period and thus have been classified
as available for sale. Cost basis of securities held at June 30, 2019 and December 31, 2018 is $827,000 and $587,000, respectively,
and accumulated unrealized losses are $654,500 and $553,083 at June 30, 2019 and December 31, 2018, respectively. Unrealized holding
losses on such securities for the three months ended June 30, 2019 and 2018 were $92,500 and $21,500, respectively. Unrealized
holding losses on such securities for the six months ended June 30, 2019 and 2018 were $101,417 and $68,333, respectively. The
value of available for sale marketable securities was $172,500 at June 30, 2019, based on 1,083,333 shares of common stock held
with an average per share market price of approximately $0.16.
The
reconciliation of the investment in marketable securities is as follows for the six months ended June 30, 2019:
|
Balance at beginning of period
|
|
$
|
33,917
|
|
|
Additions
|
|
|
240,000
|
|
|
Unrealized losses
|
|
|
(101,417
|
)
|
|
Balance at end of period
|
|
$
|
172,500
|
|
NOTE
4 — INTANGIBLE ASSETS
Intangible
assets of $8,441,215 consist of the assets acquired from Genesys, including sales and client relationships, contracts, intellectual
property, partnership and vendor agreements and certain other assets, acquired on March 31, 2019 (see Note 12). The Company is
in the process of completing its accounting and valuations of the intangible assets acquired. Amortization of assets will commence
upon completion of the valuations.
We
also have capitalized software costs of $113,020 relating to our website and iPhone App developed for internal use. These assets
have not been placed in service as of June 30, 2019.
NOTE
5 — LOANS PAYABLE
At
June 30, 2019 and December 31, 2018, we are party to two lines of credit agreements aggregating $25,326 and $81,067, respectively.
The lines mature within the next twelve months. Availability under the two lines was $65,974 at June 30, 2019.
We
have entered into two term loans, aggregating $117,292 and $127,767 at June 30, 2019 and December 31, 2018, respectively, which
mature in 2023. Interest rates are variable, with current rates at 8.25% and 7.76%. Current monthly payments are $1,776 and $1,008.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
These
notes are summarized as follows at June 30, 2019 and December 31, 2018:
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Lines of credit and loan agreements
|
|
$
|
25,326
|
|
|
$
|
81,067
|
|
|
Term loans
|
|
|
117,292
|
|
|
|
127,767
|
|
|
|
|
|
142,618
|
|
|
|
208,834
|
|
|
Less current portion
|
|
|
(51,542
|
)
|
|
|
(105,028
|
)
|
|
Non-current portion
|
|
$
|
91,076
|
|
|
$
|
103,806
|
|
Future
principal payments under the lines of credit and term notes are as follows:
|
Year Ending December 31,
|
|
|
|
|
2019
|
|
$
|
38,750
|
|
|
2020
|
|
|
25,942
|
|
|
2021
|
|
|
28,136
|
|
|
2022
|
|
|
30,492
|
|
|
2023
|
|
|
19,298
|
|
|
Total minimum principal payments
|
|
$
|
142,618
|
|
Our
chief executive officer, who is also a stockholder, has personally guaranteed the loans described above.
NOTE
6 — NOTES PAYABLE
On
November 27, 2018, RGI entered into a $55,000 10% Original Issue Discount Promissory Note, and received proceeds of $50,000. The
note matures on or before the earlier of (i) the 90th day subsequent to the issuance date of the note, and (ii) the Company’s
receipt of a minimum of $1,000,000 as a result of the Company closing the sale (the “financing”) of any equity or
debt securities of the Company (either a “Maturity Date”). At the Company’s option, upon the Maturity Date the
Company may convert all principal and interest owed to the Payee pursuant to this note into securities of the Company identical
to those offered and on the same terms as those offered to the investors in the financing. Interest shall accrue on the outstanding
principal balance of this note at the rate of 5% per year. Discount of $5,000 is being amortized over 90 days. During the three
months ended March 31, 2019 we amortized $3,056 as interest expense.
In
February 8, 2019, RGI borrowed $45,005, net of original issue discount of $10,000 and other deductions of $4,995, from an institutional
investor and issued the investor a $60,000 Original Issue Discount Promissory Note (the “February Note”). The February
Note bears interest at 5% per annum and matures on the earlier of (i) 90 days after issuance, or (ii) RGI’s receipt of a
minimum of $1,000,000 as a result of RGI closing the sale (the “financing”) of any equity or debt securities. RGI
may cause the holder to convert all principal and interest owed under the February Note into securities of RGI identical to those
offered to investors in the $1,000,000 financing. Further, the holder of the February Note has the option to use all principal
and interest owed under the Note as consideration to purchase securities in any future RGI financing at any time.
As
additional consideration for the February Note, RGI issued the holder Warrants to purchase 6,000,000 shares of RGI’s common
stock, exercisable for a period of five years from the date of issuance at an initial exercise price of $0.02 per share subject
to adjustment upon the occurrence of certain events including RGI’s issuance of future securities. We valued the warrants
at $42,000 based on its relative fair value and recorded that amount as debt discount. We also recorded the $10,000 OID amount
of debt discount. During the three months ended March 31, 2019 we amortized $29,467 as interest expense.
Effective
March 31, 2019, the $115,000 total principal amount of the Notes, $1,379 of accrued interest and the related warrants (see Note
9 “Warrants” and Note 6) were exchanged for shares of the newly authorized Series D Preferred Stock of the Company.
The effects of the exchange are included in the 389,036 deemed issuance of preferred shares as part of the recapitalization line
item in the consolidated statement of stockholders’ equity.
Pre-Merger
Recruiter.com had entered into three notes aggregating $250,000. Of these, two notes aggregating $150,000 were held by stockholders.
The notes bore interest at 25% per year and were due on January 28, 2018. These notes were not extended and were due on demand.
The notes were collateralized by certain marketable securities held by Pre-Merger Recruiter.com. Effective March 31, 2019, the
notes and related accrued interest, aggregating $383,947, were cancelled in connection with the issuance of the Series E preferred
stock to the Recruiter.com stockholders and the note holders were allocated shares of the Series E Preferred Stock. This
amount has been credited to paid-in capital (see Note 8).
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE
7 — CONVERTIBLE NOTES PAYABLE
Pre-Merger
Recruiter.com had entered into four convertible notes, aggregating $255,000 at March 31, 2019. Of these, two notes aggregating
$200,000 were held by stockholders. The notes were due on demand and bore interest at 10% per year. The notes could have been
converted into preferred stock of Pre-Merger Recruiter.com at any time after such preferred stock was offered for sale. The conversion
price was 75% of the price paid by investors. No preferred stock was authorized or offered for sale by Pre-Merger Recruiter.com.
Effective March 31, 2019, the notes and related accrued interest, aggregating $322,554, were cancelled in connection with the
Merger and the note holders were allocated shares of the Series E Preferred Stock of the Company issued to the stockholders of
Pre-Merger Recruiter.com as consideration in the Merger. This amount has been credited to paid-in capital (see Note 8).
NOTE
8 — STOCKHOLDERS’ EQUITY (DEFICIT), TEMPORARY EQUITY AND NONCONTROLLING INTERESTS
Effective March 31, 2019, RGI
completed the Merger with Pre-Merger Recruiter.com. At the effective time of the Merger, RGI’s newly formed
wholly-owned subsidiary merged with and into Pre-Merger Recruiter.com, with Pre-Merger Recruiter.com continuing as the
surviving corporation and a wholly-owned subsidiary of RGI. As consideration in the Merger, the equity holders of Pre-Merger
Recruiter.com received a total of 775,000 shares of Series E Preferred Stock of RGI convertible into 775,000,000 shares of
RGI’s common stock. As a result, the former shareholders of Pre-Merger Recruiter.com controlled approximately 90% of
RGI’s outstanding common stock and in excess of 50% of the total voting power.
Prior to the Merger, RGI, Pre-Merger Recruiter.com
and VocaWorks had been parties to the License Agreement. In consideration for the license, Pre-Merger Recruiter.com received 125,000,000
shares of RGI’s common stock. Pre-Merger Recruiter.com also received the right to receive shares of the Series B Preferred
Stock upon achievement of certain milestones specified in the License Agreement. As a result, immediately prior to the completion
of the Merger, Pre-Merger Recruiter.com owned approximately 90% of RGI’s outstanding common stock. Pre-Merger Recruiter.com
distributed the 125,000,000 shares of RGI’s common stock to its stockholders on March 25, 2019, in conjunction with the Merger.
The distribution is considered in substance to have occurred just prior to the completion of the Merger.
For
accounting purposes, the Merger is being accounted for as a reverse recapitalization of Pre-Merger Recruiter.com and combination
of entities under common control (“recapitalization”) with Pre-Merger Recruiter.com considered the accounting acquirer
and historical issuer. The accompanying consolidated financial statements presented include Pre-Merger Recruiter.com for all periods
presented. Since Pre-Merger Recruiter.com previously owned a majority interest in RGI, the consolidated financial statements include
the historical operations of RGI and VocaWorks since October 30, 2017. All share and per share data in the accompanying consolidated
financial statements and notes have been retroactively restated to reflect the effect of the Merger.
For
further information see Note 1.
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share. As of June 30, 2019 and December
31, 2018, the Company has 1,434,386 and 775,000 shares of preferred stock issued and outstanding, respectively.
Series
D Convertible Preferred Stock
On
March 25, 2019, RGI filed a Certificate of Designations (a “COD”) with the Delaware Secretary of State (the “Secretary
of State”), as amended on March 29, 2019, April 22, 2019 and May 29, 2019, designating 2,000,000 shares of its authorized
preferred stock as Series D Convertible Preferred Stock (the “Series D Preferred Stock”), with 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 4.99%, into common stock based on the stated value per share divided by $0.02 per share, subject to adjustment in the event
of stock splits, stock dividends or reverse splits and issuances of securities at prices below the prevailing conversion price
of the Series D Preferred Stock. Holders of Series D Preferred Stock are entitled to vote together with holders of the common
stock on an as-converted basis, subject to a beneficial ownership limitation of 4.99%. If at any time while any shares of Series
D Preferred Stock remain outstanding and any triggering event (as defined) occurs, the Company shall pay within three days to
each holder $210 per each $1,000 of the stated value of each such holder’s shares of Series D Preferred Stock.
RGI
had issued shares of Series A, Series A-1, Series C, and Series C-1 convertible preferred stock. Since the convertible preferred
stock may ultimately be redeemable at the option of the holder, the carrying value of the preferred stock was classified as temporary
equity on the balance sheet at December 31, 2018. Just prior to the completion of the Merger all of the then outstanding shares
of Series A, A-1, C and C-1 redeemable preferred stock, certain notes and warrants were exchanged for a total of 389,036 shares
of Series D Preferred Stock.
On
March 31, 2019, the Company entered into a Securities Purchase Agreement, dated March 31, 2019 (the “Securities Purchase
Agreement”) by and among the Company and the investors listed therein (the “Investors”). Pursuant to the Securities
Purchase Agreement the Company sold in a private placement a total of 31,625 units (the “Units”) at a purchase price
of $18.1818 per unit, or $575,000, taking into account a 10% discount. Each Unit consists of (i) one share of Series D Preferred
Stock, and (ii) a Warrant to purchase 500 shares of the Company’s common stock, subject to adjustment as provided for therein.
The Series D Preferred Stock sold in the financing convert into a minimum of 31,625,000 shares of the Company’s common stock.
The Company received net proceeds from the sale of the Units of $434,997 after offering costs of $35,003 and direct payment of
other Company obligations of $105,000. Two of the Investors have previously invested in the Company’s preferred stock.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
The
Warrants are exercisable for five years from the issuance date at an exercise price of $0.06 per share, subject to adjustment
as provided for therein.
During the three months ended June 30,
2019 we sold an additional 29,975 Units, each unit consisting of one share of our Series D Preferred Stock and 500 Warrants, for
gross proceeds of $545,000. Out of these proceeds the Company, among other things, prepaid one-year of consulting fees equal to
$150,000 to an entity controlled by one of the investors in the offering under a May 2019 consulting agreement with the Company.
In addition, a consultant who is a principal stockholder of the Company purchased 13,750 units for $250,000 through delivering
common stock of another company with a $240,000 value and $10,000 in a settlement.
Series
E Convertible Preferred Stock
On
March 25, 2019, RGI filed a COD with the Secretary of State, as amended on March 29, 2019, designating 775,000 shares of its authorized
preferred stock as Series E Convertible Preferred Stock (the “Series E Preferred Stock”), with 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 4.99%, into common stock based on the stated value per share divided by $0.02 per share, or 775,000,000 shares of the Company’s
common stock, subject to adjustment in the event of stock splits, stock dividends or reverse splits. Holders of Series E Preferred
Stock are entitled to vote together with holders of the common stock on an as-converted basis, subject to a beneficial ownership
limitation of 4.99%. If at any time while any shares of Series E Preferred Stock remain outstanding and any triggering event (as
defined) occurs, the Company shall pay within three days to each holder $210 per each $1,000 of the stated value of each such
holder’s shares of Series E Preferred Stock.
Effective
March 31, 2019, RGI issued to the equity holders of Pre-Merger Recruiter.com 775,000 shares of Series E Preferred Stock as consideration
in connection with the Merger. These shares are reflected retroactively as part of the recapitalization accounting. See Note 1
for more information.
Series
F Convertible Preferred Stock
On
March 25, 2019, RGI filed a COD with the Secretary of State, as amended on March 29, 2019, designating 200,000 shares of its authorized
preferred stock as Series F Convertible Preferred Stock (the “Series F Preferred Stock”), with 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 4.99%, into common stock based on the stated value per share divided by $0.02 per share, or 200,000,000 shares of common stock
of the Company, subject to adjustment in the event of stock splits, stock dividends or reverse splits. Holders of Series F Preferred
Stock are entitled to vote together with holders of the common stock on an as-converted basis, subject to a beneficial ownership
limitation of 4.99%. If at any time while any Series F Preferred Stock remains outstanding and any triggering event (as defined)
occurs, the Company shall pay within three days to each holder $210 per each $1,000 of the stated value of each such holder’s
shares of Series F Preferred Stock.
Effective
March 31, 2019, the Company issued 200,000 shares of Series F Preferred Stock as consideration for the Asset Purchase (see Note
12).
Common
stock
The
Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2019 and December
31, 2018 the Company had 184,397,726 and no shares of common stock outstanding, respectively.
In
March 2018, the shareholders of the Company approved a reverse stock split of the issued and outstanding shares of the Company’s
common stock at the ratio ranging from one-for-50 to one-for-100. The reverse stock split has not yet been implemented.
On
March 31, 2019 the Company was deemed to issue 139,830,306 shares of common stock and 389,036 shares of Series D preferred stock
that were held by the RGI shareholders just prior to the merger. Additional paid in capital was credited by $3,875,411 and noncontrolling
interest was charged $1,591,221 to remove it pursuant to the reverse recapitalization (see Note 6).
In
April 2019 the Company issued 5,000,000 shares of its common stock upon conversion of 5,000 shares of Series D Preferred Stock.
On February 1, 2019, the Company granted
to Evan Sohn, its Executive Chairman, 3,473,855 shares of restricted common stock, which shall vest subject to his serving as
Executive Chairman on February 1, 2020. Also on that date, the Company granted Mr. Sohn five-year options to purchase 3,473,855
shares of the Company’s common stock at $0.044 per share, which options shall vest subject to serving as Executive Chairman
on August 4, 2020. The stock portion of the awards has been valued at $151,981 and compensation expense will be recorded
over the respective vesting periods (see Note 9). We recognized compensation expense of $37,995 and $63,325 during the three and
six months ended June 30, 2019.
On May 14, 2019, the Company granted to
Mr. Sohn 36,093,565 shares of restricted common stock, which shall vest subject to his serving as Executive Chairman on February
1, 2020. Also on that date, the Company granted Mr. Sohn five-year options to purchase 36,093,565 shares at $0.08 per share, which
options shall vest subject to serving as Executive Chairman on November 14, 2020. The stock portion of the awards has been
valued at $2,707,019 and compensation expense will be recorded over the respective vesting periods (see Note 9). We recognized
compensation expense of $477,709 during the three and six months ended June 30, 2019.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Contributed
capital
Pre-Merger
Recruiter.com had entered into three notes aggregating $250,000. Of these, two notes aggregating $150,000 were held by its stockholders.
The notes bore interest at 25% per year and were due on January 28, 2018. These notes were not extended and were due on demand.
The notes were collateralized by certain marketable securities held by Pre-Merger Recruiter.com. Effective March 31, 2019, the
notes and related accrued interest, aggregating $383,947, were cancelled in connection with the Merger. This amount has been credited
to paid-in capital of the Company as part of the credit of $706,501.
Pre-Merger
Recruiter.com had entered into four convertible notes, aggregating $255,000 at March 31, 2019. Of these, two notes aggregating
$200,000 were held by its stockholders. The notes were due on demand and bore interest at 10% per year. The notes could have been
converted into Pre-Merger Recruiter.com preferred stock at any time after Pre-Merger Recruiter.com offered its preferred stock
for sale. The conversion price was 75% of the price paid by investors. No preferred stock was authorized or offered for sale by
Pre-Merger Recruiter.com. Effective March 31, 2019, the notes and related accrued interest, aggregating $322,554, were cancelled
in connection with the Merger. This amount has been credited to paid-in capital of the Company as part of the credit of $706,501.
Certain stockholders of Pre-Merger Recruiter.com
transferred a portion of their distributive 125,000,000 RGI shares (see Note 1) to employees and consultants. These shares aggregated
17,500,000 RGI shares, valued at $752,500, based on the $0.043 quoted trading price on the effective date of the transfer. We
have charged this amount to stock compensation expense, with a corresponding credit to paid-in capital of the Company.
In
April 2019 a consultant (who is also a principal stockholder and noteholder of the Company) forgave accrued fees due to him in
the amount of $187,500. This amount has been credited to paid-in capital of the Company.
The
Company has received contributions to capital from existing stockholders, aggregating $30,000 during the six months ended June
30, 2018. These capital contributions were made for working capital purposes.
RGI equity transactions and noncontrolling
interest prior to the March 31, 2019 Merger and Recapitalization
All
shares of RGI’s Series A, A-1, C and C-1 convertible preferred stock discussed below and outstanding at March 31, 2019 were
exchanged for Series D Preferred Stock, with the relevant certificates of designation subsequently withdrawn.
Series
A Convertible Redeemable Preferred Stock
On
October 24, 2017, RGI filed a COD with the Secretary of State designating 700,000 shares of its authorized preferred stock as
Series A Convertible Preferred Stock (the “Series A Preferred Stock”), with a stated value of $1.00 per share, which
converts into 200 shares of the Company’s common stock per share of Series A Preferred Stock, subject to adjustment in the
event of stock splits, stock dividends or reverse splits and issuances of securities at prices below the prevailing conversion
price of the Series A Preferred Stock. On October 30, 2017, RGI entered into Securities Purchase Agreements (each a “SPA”)
with the two Investors who converted their Notes into Series C Convertible Preferred Stock (the “Series C Preferred Stock”)
and Series C-1 Convertible Preferred Stock (the “Series C-1 Preferred Stock”), as discussed below. Pursuant to the
SPAs, the Investors paid a total of $600,000 and purchased in the aggregate 600,000 of shares of Series A Preferred Stock and
Warrants to purchase 120,000,000 shares of The Company’s common stock. RGI received proceeds of $471,373. The balance of
$128,627 was used to pay existing payables and professional fees.
Cumulative
dividends accrue on the Series A Preferred Stock at a rate of 10% per annum. Holders of Series A Preferred Stock are entitled
to vote together with holders of the common stock on an as-converted basis, subject to a beneficial ownership limitation of 4.99%.
The Series A Preferred Stock is redeemable in the same manner as the Series C Preferred Stock and Series C-1 Preferred Stock,
defined below. The Series A Preferred Stock is senior to all other preferred stock, except Series A-1 Convertible Preferred Stock
(the “Series A-1 Preferred Stock”) and the common stock upon liquidation of the Company. The Warrants have a five
year term and an exercise price of $0.01 per share, subject to adjustment in the event of stock splits, stock dividends or reverse
splits and issuances of securities at prices below the prevailing exercise price of the Warrants.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Series
A-1 Convertible Redeemable Preferred Stock
On
May 25, 2018, RGI filed a COD with the Secretary of State authorizing 600,000 shares of RGI’s preferred stock as Series
A-1 Preferred Stock, with a stated value of $1.00 per share. The Series A-1 Preferred Stock converts into 200 shares of the Company’s
common stock per share of Series A-1 Preferred Stock, subject to adjustment in the event of stock splits, stock dividends or reverse
splits, and issuances of securities at prices below the prevailing conversion price of the Series A-1 Preferred Stock. Cumulative
dividends accrue on the Series A-1 Preferred Stock at a rate of 10% per annum. Holders of Series A-1 Preferred Stock are
entitled to vote together with holders of the Company’s common stock on an as-converted basis, subject to a beneficial ownership
limitation of 4.99%. The Series A-1 Preferred Stock is redeemable upon the occurrence of certain triggering events.
On
June 1, 2018, RGI entered into SPAs with the Investors. Pursuant to the SPAs, the Investors purchased a total of 300,000 of shares
of Series A-1 Preferred Stock and Warrants to purchase 60,000,000 shares of the Company’s common stock in exchange for a
total of $300,000.
The
Investors agreed to waive the Series A, Series C and Series C-1 conversion price adjustments as they relate to the sale of the
Series A-1 Preferred Stock.
The
Warrants have a five year term and an exercise price of $0.01 per share, subject to adjustment in the event of stock splits, stock
dividends or reverse splits and issuances of securities at prices below the prevailing exercise price of the Warrants.
Series
B Convertible Preferred Stock
On
October 24, 2017, RGI filed a COD with the Secretary of State designating 1,875,000 shares of RGI’s authorized preferred
stock as Series B which converts into 200 shares of the Company’s common stock per share of Series B, subject to adjustments
in the event of stock splits, stock dividends and reverse splits. In connection with the closing of the Merger, the Company and
Pre-Merger Recruiter.com amended the License Agreement and on April 2, 2019, the Company filed with the Secretary of State a Certificate
of Elimination effecting the elimination of the Series B Preferred Stock. As of that date, no shares of Series B Preferred Stock
had been issued.
Series
C and Series C-1 Convertible Redeemable Preferred Stock
On
October 24, 2017, RGI filed a COD with the Secretary of State designating 102,100 shares of RGI’s authorized preferred stock
as Series C Convertible Preferred Stock, with a stated value of $20.00 per share, which converts into 1,000 shares of the Company’s
common stock per share of Series C Preferred Stock, subject to adjustments in the event of stock splits, stock dividends and reverse
splits and issuances of securities at prices below the prevailing conversion price of the Series C Preferred Stock. Cumulative
dividends accrue on the Series C Preferred Stock at a rate of 10% per annum. On October 30, 2017 holders of RGI’s outstanding
4% Convertible Notes converted their 4% Convertible Notes and accrued interest into 102,100 shares of Series C Preferred Stock.
Also
on October 24, 2017, RGI filed a COD with the Secretary of State designating 18,839 shares of RGI’s authorized preferred
stock as Series C-1 Convertible Preferred Stock, with a stated value of $5.00 per share which converts into 1,000 shares of the
Company’s common stock per share of Series C-1 Preferred Stock, subject to adjustments in the event of stock splits, stock
dividends and reverse splits and issuances of securities at prices below the prevailing conversion price of the Series C-1 Preferred
Stock. Cumulative dividends accrue on the Series C-1 Preferred Stock at a rate of 10% per annum. On October 30, 2017 holders
of RGI’s 10% Convertible Notes converted their 10% Convertible Notes and accrued interest into 18,839 shares of Series C-1
Preferred Stock.
In
October 2017 we recorded a credit to noncontrolling interest of $701,732 for the excess of the carrying value of the debt converted
and related derivative liability over the stated value of the Series C and Series C-1 Preferred Stock issued upon conversion.
The stated value is considered to be fair value due to the redemption feature of the preferred stock. The $701,732 primarily relates
to the charge off of the derivative liability.
Holders
of shares of Series C and Series C-1 may cause the Company to redeem in cash the outstanding shares of Series C and C-1 Preferred
Stock beginning on October 30, 2019 (see amendment below), and earlier than that date upon the occurrence of certain triggering
events contained in the COD for the Series C and Series C-1 Preferred Stock, at a redemption price based upon a formula contained
in the COD for each series. Subject to the prior conversion, the total redemption price if redeemed after two years from issuance
is equal to the amount of the principal and accrued interest on the 4% Convertible Notes and 10% Convertible Notes due as of the
closing date plus potential additional amounts.
During
February 2018, RGI filed an amendment to the COD for the Series C and Series C-1 Preferred Stock extending the redemption date
to October 2022 and reducing the redemption amount of the preferred shares then outstanding at a redemption price equal to one-half
of the Conversion Amount (as defined) of such preferred shares. During the six months ended June 30, 2019 and 2018 we recorded
a credit to noncontrolling interest of $23,852 and $1,097,004, respectively, as a result of the reduction in the redemption amount.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
Liquidation
preference of RGI Series A, Series A-1, Series C and Series C-1 Convertible Preferred Stock
In
the event of a liquidation event, the holders of Series A, Series A-1, Series C and Series C-1 preferred stock shall be
entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the “Liquidation Funds”), before any amount shall be paid to the holders of any
of shares of junior stock, but pari passu with any parity stock then outstanding and after any amount paid to the holders of
the convertible preferred stock, an amount per preferred share equal to the greater of (A) the Conversion Amount thereof on
the date of such payment and (B) the amount per share such holder would receive if such holder converted such preferred
shares into the Company’s common stock immediately prior to the date of such payment, provided that if the Liquidation
Funds are insufficient to pay the full amount due to the holders of the convertible preferred stock, the holders and holders
of shares of parity stock, then each holder and each holder of parity stock shall receive a percentage of the Liquidation
Funds equal to the full amount of Liquidation Funds payable to such holder and such holder of parity stock as a liquidation
preference, in accordance with their respective certificate of designations (or equivalent), as a percentage of the full
amount of Liquidation Funds payable to all holders of preferred shares and all holders of shares of parity stock.
RGI
Redeemable Convertible Preferred Stock
As
described above, RGI issued shares of Series A, Series A-1, Series C, and Series C-1 convertible preferred stock. Since the convertible
preferred stock may ultimately be redeemable at the option of the holder, the carrying value of the Series A, Series A-1, Series
C, and Series C-1 Preferred Stock has been classified as temporary equity on the balance sheet at December 31, 2018.
A
portion of the proceeds from the sale of our Series A-1 Preferred Stock in 2018 were allocated to the warrants based on their
relative fair value, which totaled $288,000 using the Black Scholes option pricing model. Further, we attributed a beneficial
conversion feature of $12,000 to the Series A-1 Preferred Stock based upon the difference between the effective conversion price
of those shares and the closing price of our common shares on the date of issuance. The assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%; (2) expected volatility of 380%, (3) risk-free interest rate of 2.74%, (4) expected
term of 5 years. The amount attributable to the warrants and beneficial conversion feature, aggregating $300,000, has been recorded
as a deemed dividend to the preferred shareholders and as a charge to noncontrolling interest.
For
the six months ended June 30, 2019 and 2018, the Company has accrued dividends in the amount of $70,205 and $135,976, respectively.
The accrued dividends have been charged to noncontrolling interest and the net unpaid accrued dividends have been added to the
carrying value of the preferred stock. Further, we attributed a beneficial conversion feature of $70,205 and $135,976 for the
six months ended June 30, 2019 and 2018, respectively, to the preferred dividends based upon the difference between the effective
conversion price of those dividends and the quarterly average closing price of our common shares. The amount attributable to the
beneficial conversion feature has been recorded as a deemed dividend to the preferred shareholders and as a charge to noncontrolling
interest.
Pre-Merger
non-controlling interest
Prior
to the completion of the Merger RGI had shares of redeemable preferred stock outstanding as discussed above. RGI issued a
total of 389,036 shares of Series D Preferred stock in exchange for the redeemable preferred stock of $2,106,117 and other
debt net of discounts of $93,846 (see Note 6). The adjustment for this exchange has been reflected as part of the credit to
paid in capital to reflect the effect of the Merger (see “Common Stock” disclosure above regarding “deemed
issuances”).
NOTE
9 — STOCK OPTIONS AND WARRANTS
Stock
options
The
following stock options have been issued by the Company:
RGI
granted 5,000 options to purchase common stock in 2014, exercisable at $0.35 per share. The options have a term of five years.
During
February 2018, RGI granted to its chief executive officer 500,000 options to purchase common stock, exercisable at $0.08 per share,
under the terms of the 2017 Equity Incentive Plan. The options have a term of five years. The options vest 41,667 upon grant and
the remaining options shall vest quarterly in equal amounts over a 33-month period with the first vesting date being April 30,
2018. We have recorded compensation expense of $3,333 and $5,555 related to the options during the three months ended June 30,
2019 and 2018, respectively. We have recorded compensation expense of $6,666 and $8,888 related to the options during the six
months ended June 30, 2019 and 2018, respectively.
During
February 2018, RGI granted to two current directors (then designees) an aggregate of 2,000,000 options to purchase common stock,
exercisable at $0.08 per share, under the terms of the 2017 Equity Incentive Plan. The options have a term of five years. The
options vest quarterly in equal amounts over a one year period with the first vesting to occur on June 30, 2018. We have recorded
compensation expense of $0 and $34,284 related to the options during the three months ended June 30, 2019 and 2018, respectively.
We have recorded compensation expense of $34,284 and $57,140 related to the options during the six months ended June 30, 2019
and 2018, respectively.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
During
June 2018 RGI granted to six nonemployee advisors an aggregate of 1,200,000 options to purchase common stock, exercisable at $0.06
per share, under the terms of the 2017 Equity Incentive Plan. The options have a term of five years. The options vest upon the
first anniversary of their grant, and became vested during the three months ended March 31, 2019. We have recorded compensation
expense of $0 and $25,000 related to the options during the three months ended June 30, 2019 and 2018, respectively. We have recorded
compensation expense of $7,121 and $25,000 related to the options during the six months ended June 30, 2019 and 2018, respectively.
On
February 21, 2019, the Company granted to its Executive Chairman an aggregate of 3,473,855 options to purchase common stock, exercisable
at $0.044 per share, under the terms of the 2017 Equity Incentive Plan. The options have a term of five years. The options vest
on August 4, 2020. The award has been valued at $149,730 and compensation expense will be recorded over the vesting period. We
have recorded compensation expense of $24,955 and $41,592 related to the options during the three and six months ended June 30,
2019, respectively.
On
May 14, 2019, the Company granted to its Executive Chairman five-year options to purchase 36,093,565 common shares at $0.08 per
share, which options shall vest subject to serving as Executive Chairman on November 14, 2020. The award has been valued
at $2,217,952 and compensation expense will be recorded over the vesting period. We have recorded compensation expense of $184,829
related to the award during the three and six months ended June 30, 2019.
Warrants
Recorded as Derivative Liabilities
In
connection with the sale of Series A and Series A-1 Preferred Stock prior to the completion of the March 31, 2019 Merger, RGI
issued an aggregate of 180,000,000 common stock purchase warrants to the purchasers of the preferred stock. The warrants were
exercisable any time on or after 90 days after the issuance date at an exercise price of $0.01 and expired, if unexercised, on
September 1, 2023. The exercise price and number of warrants were subject to adjustment in the event of stock splits, stock dividends
or reverse splits and issuances of securities at prices below the prevailing conversion price of the warrants. Pursuant to and
just prior to the completion of the Merger these warrants were exchanged for newly issued Series D Preferred Stock (see Notes
6 and 8 and below).
In
connection with the sale of Series D Preferred Stock, we issued an aggregate of 37,675,000 warrants. The warrants are five-year
warrants and are exercisable immediately at an exercise price of $0.06, subject to adjustment.
The
Company identified embedded features in the warrants which caused the warrants to be classified as a liability. These embedded
features included the right for the holders to request for the Company to cash settle the warrants to the holder by paying to
the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date
of the consummation of a fundamental transaction, as defined in the warrant instrument. The accounting treatment of derivative
financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument
as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent
balance sheet date. As of the issuance date of the unit warrants, the Company determined a fair value of $1,750,646 for the warrants.
The fair value of the warrants was determined using the Black-Scholes Model based on a risk-free interest rate of 1.83% - 2.23%,
an expected term of 5 years, an expected volatility of 379% - 385% and a 0% dividend yield.
During
the three and six months ended June 30, 2019, the Company recorded income of $17,627 related to the change in the fair value of
the derivative. The fair value of the embedded derivative was $1,733,019 at June 30, 2019, determined using the Black Scholes
Model based on a risk-free interest rate of 1.76%, an expected term of 4.75 – 4.97 years, an expected volatility of 386%
- 396% and a 0% dividend yield.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE
10 — COMMITMENTS AND CONTINGENCIES
The
Company is subject to legal proceedings and claims from time to time which arise in the ordinary course of its business. Although
occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should
not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
Leases:
On
March 31, 2019, the Company entered into a sublease for its current corporate headquarters. The sublease expires in November 2022.
Monthly lease payments range from $7,078 per month currently increasing to $7,535 per month for the final twenty months of the
lease.
In
February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)”
whereby lessees need to recognize almost all leases on their balance sheet as a right of use asset and a corresponding lease liability.
The Company adopted this standard as of January 1, 2019 using the effective date method. We calculated the present value of the
remaining lease payment stream using our incremental effective borrowing rate of 10%. We initially recorded a right to use asset
and corresponding lease liability amounting to $269,054 on March 31, 2019. The right to use asset and the corresponding lease
liability are being equally amortized on a straight-line basis over the remaining term of the lease.
For the three and six months ended June 30, 2019, lease costs amounted to $37,196 which includes base
lease costs of $21,235 and common area and other expenses of $15,961, all of which were expensed during the period and included
in general and administrative expenses on the accompanying condensed consolidated statements of operations.
Right-of-use asset (“ROU”) is summarized below:
|
|
|
June 30,
2019
|
|
|
Operating office lease
|
|
|
269,054
|
|
|
Less accumulated reduction
|
|
|
(18,344
|
)
|
|
Balance of ROU asset at June 30, 2019
|
|
$
|
250,710
|
|
Operating lease liability related to the ROU asset is summarized
below:
|
|
|
June 30,
2019
|
|
|
Total lease liability
|
|
$
|
269,054
|
|
|
Reduction of lease liability
|
|
|
(18,344
|
)
|
|
Total
|
|
|
250,710
|
|
|
Less short term portion as of June 30, 2019
|
|
|
(73,378
|
)
|
|
Long term portion as of June 30, 2019
|
|
$
|
177,332
|
|
Future base lease payments under the non-cancelable operating
lease at June 30, 2019 are as follows:
|
|
|
|
|
|
2019
|
|
$
|
44,688
|
|
|
2020
|
|
|
86,997
|
|
|
2021
|
|
|
89,736
|
|
|
2022
|
|
|
82,885
|
|
|
Total minimum non-cancelable operating lease payments
|
|
|
304,306
|
|
|
Less discount to fair value 2023
|
|
|
(53,596
|
)
|
|
Total minimum principal payments
|
|
$
|
250,710
|
|
NOTE
11 — RELATED PARTY TRANSACTIONS
As
described in Note 6 and Note 7, the Company has entered into four notes with related party stockholders, aggregating $350,000,
of which $100,000 is held by our Chief Executive Officer. Interest expense on these stockholder notes was $0 and $14,375 for the
three months ended June 30, 2019 and 2018 and was $14,375 and $28,750 for the six months ended June 30, 2019 and 2018, respectively.
Accrued interest on the notes was $121,199 at December 31, 2018. No payments of interest were made on the notes.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
In
April 2019 a consultant (who is also a principal stockholder and noteholder of the Company) forgave accrued fees due to him in
the amount of $187,500. This amount has been credited to paid-in capital.
During
2018 we entered into a marketing agreement with an entity controlled by a consultant (who is also a principal stockholder and
noteholder of the Company). The agreement provides for payment to this entity of 10% of applicable revenue generated through the
use of the entities database. The agreement also provides for the payment to us of 10% of the revenue generated by the entity
using our social media groups. Through June 30, 2019 no fees were due or payable under this arrangement.
During
2019 we entered into a two year consulting agreement with a shareholder to act as Company’s non-exclusive
consultant with respect to introducing the Company to potential acquisition and partnership targets. The Company shall
pay the consultant a retainer of $10,000 per month as a non-recoverable draw against any finder fees earned. The Company
shall pay the consultant the sum of $5,500 per month for three years ($198,000 total) as a Finder’s Fee for introducing
Genesys to the Company. This payment is included in the $10,000 monthly retainer payment. We have recorded consulting fees
expense of $211,500 during the three and six months ended June 30, 2019. At June 30, 2019, $181,500 of the Genesys
finder’s fee is included in accrued compensation.
We
use a related party firm for software development and maintenance related to our website and the platform underlying our operations.
The firm was formed outside of the United States solely for the purpose of performing services for the Company and has no other
clients. One of our officers who is our Chief Technology Officer and a principal stockholder is an employee of this firm and exerts
control over the firm. Payments to this firm were $44,934 and $80,501 for the three months ended June 30, 2019 and 2018, respectively.
Payments to this firm were $94,788 and $176,873 for the six months ended June 30, 2019 and 2018, respectively.
Icon Information Consultants (“Icon”) performs all of the back office and accounting roles
for Recruiting Solutions. Icon then charges a fee for the services along with charging for office space. A representative of Icon
is a member of our board of directors. Icon also provides “Employer of Record” (“EOR”) services to Recruiting
Solutions which means that Icon processes all payroll and payroll tax related duties of temporary and contract employees placed
at customer sites and then gets paid a reimbursement and fee from Recruiting Solutions. Icon Canada also acts as an EOR but also
collects the customer payments and remits the net fee back to Recruiting Solutions. Revenue related to customers processed by Icon
Canada is recognized on a gross basis the same as other revenues and was $90,081 for the three months ended June 30, 2019. Currently,
there is no intercompany agreement for those charges and they are calculated on a best estimate basis. As of June 30, 2019, the
Company owes Icon $982,355 in payables, which is included in accounts payable, and Icon Canada owes $16,714 to us, which is included in accounts receivable. During the three months ended June 30, 2019, we charged
to cost of revenue $709,175 related to services provided by Icon as our employer of record. During the three months ended June
30, 2019, we charged to operating expenses of $52,813 related to management fees, rent and other administrative expense.
NOTE
12 — BUSINESS COMBINATION
Business
Combination
On
March 31, 2019, the Company, through its wholly-owned subsidiary Recruiter.com Recruiting Solutions LLC (“Recruiting Solutions”)
acquired certain assets and assumed certain liabilities from Genesys pursuant to the Asset Purchase Agreement. Recruiting Solutions
was formed for the purpose of completing the asset purchase transaction. For purposes of purchase accounting, the Company is referred
to as the acquirer. The Company acquired the assets of Genesys for a purchase price of $8.6 million. The purchase consideration
consisted of 200,000 shares of Series F Preferred Stock, which are convertible at any time after issuance at the option of the
holder, subject to a beneficial ownership limitation of 4.99%, into 200,000,000 million shares of the Company’s common
stock. The shares of Series F Preferred Stock were valued at $8.6 million based on the conversion rate of the Series F Preferred
Stock and the quoted closing price of $0.043 per share of the Company’s common stock as of March 29, 2019, the last trading
day preceding the completion of the Asset Purchase.
The
acquisition is accounted for by the Company in accordance with the acquisition method of accounting pursuant to ASC 805 “Business
Combinations” and pushdown accounting is applied to record the fair value of the assets acquired on Recruiting Solutions.
Under this method, the purchase price is allocated to the identifiable assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. Any excess of the amount paid over the estimated fair values of the identifiable
net assets acquired will be allocated to goodwill. The Company will utilize these assets in its employment staffing business to
be operated through Recruiting Solutions.
RECRUITER.COM GROUP, INC.
(FORMERLY TRULI TECHNOLOGIES, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
The
following is a summary of the estimated fair value of the assets acquired at the date of acquisition:
|
Accounts receivable
|
|
$
|
828,359
|
|
|
Intangible assets, including sales and client relationships, contracts, intellectual property, partnership and vendor agreements and certain other assets
|
|
|
8,441,215
|
|
|
Accounts payable
|
|
|
(606,474
|
)
|
|
Deferred revenue
|
|
|
(63,100
|
)
|
|
|
|
$
|
8,600,000
|
|
The
Company is in the process of completing its accounting and valuations of the assets acquired and the liabilities assumed and,
accordingly, the estimated fair values of assets acquired, the allocation of purchase price noted above, and the valuation of
the Series F Preferred Stock issued as the purchase price is provisional pending the final valuations which will not exceed one
year in accordance with ASC 805.
The
results of operations of Recruiting Solutions are included in the Company’s consolidated financial statements from the date
of acquisition of March 31, 2019. The following supplemental unaudited pro forma combined information assumes that the acquisition
had occurred at the beginning of each six month period presented:
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revenue
|
|
$
|
2,934,981
|
|
|
$
|
4,575,952
|
|
|
Net Loss
|
|
$
|
(3,417,256
|
)
|
|
$
|
(2,334,636
|
)
|
|
Loss per common share, basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
-
|
|
The
pro forma financial information is not necessarily indicative of the results that would have occurred is the acquisition had occurred
on the dates indicated or that result in the future.
NOTE
13 — SUBSEQUENT EVENTS
No
subsequent events have occurred that would require adjustments or disclosure into the financial statements, except as disclosed
below.
On
August 1, 2019, our Board of Directors approved grants of an aggregate of 2,500,000 stock options to advisors of the Company.
The options vest in full on May 23, 2020, subject to continuing to provide services through the vesting date, and have an exercise
price of $0.0394 per share. The options expire on August 1, 2024.
On
August 1, 2019, the Board of Directors approved one-for-80 as the final ratio for the previously approved reverse
stock split of the issued and outstanding shares of the Company’s common stock.
The reverse stock split has not been effected as of the date of this filing.
We
have received a conversion notice dated August 14, 2019 to convert 3,000 shares of Series D Preferred Stock into 3,000,000 shares
of common stock. The common shares have not yet been issued.
As
of June 30, 2019 we had received a deposit on the sale of Series D Preferred Stock in the amount of $500,000, which has been recorded
as a liability at June 30, 2019. The potential investor has requested that we return the deposit.