NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Recruiter.com
Group, Inc., a Nevada corporation (“RGI”), is a holding
company based in Houston, Texas. The Company has five subsidiaries,
Recruiter.com, Inc., Recruiter.com Recruiting Solutions LLC
(“Recruiting Solutions”), Recruiter.com Consulting,
LLC, VocaWorks, Inc. (“VocaWorks”) and Recruiter.com
Scouted Inc. (“Scouted”). RGI and its subsidiaries as a
consolidated group is hereinafter referred to as the
“Company.” The Company operates in Connecticut, Texas,
and New York.
Recruiter.com operates an
on-demand recruiting platform we have developed to help disrupt the
$120 billion recruiting and staffing industry. Recruiter.com
combines an online hiring platform with the world’s largest
network of over 28,000 small and independent recruiters. Businesses
of all sizes recruit talent faster using
the Recruiter.com platform, which is powered by
virtual teams of Recruiters On Demand and Video and AI job-matching
technology.
Our website,
www.Recruiter.com, provides access to over 28,000 recruiters and
utilizes an innovative web platform, with integrated AI-driven
candidate to job matching and video screening software to more
easily and quickly source qualified talent.
We help businesses
accelerate and streamline their recruiting and hiring processes by
providing on-demand recruiting services and technology.
Recruiter.com leverages our expert network of recruiters to place
recruiters on a project basis, aided by cutting edge artificial
intelligence-based candidate sourcing, matching and video screening
technologies. We operate a cloud-based scalable SaaS-enabled
marketplace platform for professional hiring, which provides
prospective employers access to a network of thousands of
independent recruiters from across the country and worldwide, with
a diverse talent sourcing skillset that includes information
technology, accounting, finance, sales, marketing, operations and
healthcare specializations.
Through our
Recruiting.com Solutions division, we also provide consulting and
staffing, and fulltime placement services to employers which
leverages our platform and rounds out our services.
Our mission is to
grow our most collaborative and connective global platform to
connect recruiters and employers and become the preferred solution
for hiring specialized talent.
Reincorporation
On May 13, 2020,
the Company effected a reincorporation from the State of Delaware
to the State of Nevada. Following the approval by the
Company’s stockholders at a special meeting held on May 8,
2020, Recruiter.com Group, Inc., a Delaware corporation
(“Recruiter.com Delaware”), entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with
Recruiter.com Group, Inc., a Nevada corporation and a wholly owned
subsidiary of Recruiter.com Delaware (“Recruiter.com
Nevada”), pursuant to which Recruiter.com Delaware merged
with and into Recruiter.com Nevada, with Recruiter.com Nevada
continuing as the surviving entity. Simultaneously with the
reincorporation, the number of shares of common stock the Company
is authorized to issue was increased from 31,250,000 shares to
250,000,000 shares (which we subsequently decreased to 100,000,000
shares – see Note 16).
The reincorporation
did not result in any change in the corporate name, business,
management, fiscal year, accounting, location of the principal
executive office, or assets or liabilities of the
Company.
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 3,875,000 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 was
the Chief Executive Officer and the majority of RGI’s Board
of Directors 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.
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. Prior to
the Merger, RGI’s primary business was operating under the
License Agreement. In consideration for the license obtained in the
License Agreement, Pre-Merger Recruiter.com received 625,000 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. In conjunction with the
Merger, Pre-Merger Recruiter.com distributed the 625,000 shares of
RGI’s common stock to its shareholders on March 25, 2019. The
distribution is considered 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 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. 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 acquired 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
1,000,000 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 is utilizing these assets in
its employment staffing business to be operated through Recruiting
Solutions. This transaction was treated as a business combination
(see Note 14).
As of the effective
date 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 “Board”), the Company
changed its name to Recruiter.com Group, Inc.
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 to be retroactively
reflected as though it were Series E Preferred Stock since it was
exchanged for Series E Preferred Stock pursuant to the Merger and
recapitalization.
Effective August
21, 2019, the Company amended its Certificate of Incorporation to
effect a one-for-80 reverse stock split of the Company’s
common stock. Additionally, the number of authorized shares of
common stock was reduced to 31,250,000 shares which we subsequently
increased to 250,000,000 shares (which we subsequently decreased to
100,000,000 – see Note 16). All share and per share data have
been retroactively restated in the accompanying consolidated
financial statements and footnotes for all periods presented to
reflect the effects of the reverse stock split.
Use
of Estimates
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”)
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results and outcomes may differ from
management’s estimates and assumptions. Included in these
estimates are assumptions used to estimate collection of accounts
receivable, fair value of available for sale securities, fair value
of assets acquired in an asset acquisition and the estimated useful
life of assets acquired, fair value of derivative liabilities, fair
value of securities issued for acquisitions, fair value of assets
acquired and liabilities assumed in the business combination, fair
value of intangible assets and goodwill, valuation of lease
liabilities and related right of use assets, 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 as of December 31, 2020. There were no uninsured
balances as of December 31, 2020 and 2019. The Company had no cash
equivalents during or at the end of either year.
Revenue
Recognition
The Company
recognizes revenue in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 606, “Revenue from
Contracts with Customers” (“ASC 606”). Revenues
are recognized when control is transferred to customers in amounts
that reflect the consideration the Company expects to be entitled
to receive in exchange for those goods. Revenue recognition is
evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of
the performance obligations in the contract; (iii) determination of
the transaction price; (iv) allocation of the transaction price to
the performance obligations in the contract; and (v) recognition of
revenue when or as a performance obligation is
satisfied.
We generate revenue
from the following activities:
●
Consulting and
Staffing: Consists of providing consulting and staffing personnel
services to employers to satisfy their demand for long- and
short-term consulting and temporary employee needs. We generate
revenue by first referring qualified personnel for the
employer’s specific talent needs, then placing that personnel
with the employer, but with us or our providers acting as the
employer of record, and finally, billing the employer for the time
and work of our placed personnel on an ongoing basis. Our process
for finding candidates for consulting and staffing engagements
largely mirrors our process for fulltime placement hiring. This
process includes employers informing us of open consulting and
temporary staffing opportunities and projects, sourcing qualified
candidates through our Platform and other similar means, and,
finally, the employer selecting our candidates for placement after
a process of review and selection. We bill these employer clients
for our placed candidates’ ongoing work at an agreed-upon,
time-based rate, typically on a weekly schedule of
invoicing.
●
Fulltime Placement:
Consists of providing referrals of qualified candidates to
employers to hire staff for full-time positions. We generate
fulltime placement revenue by earning one-time fees for each time
that employers hire one of the candidates that we refer. Employers
alert us of their hiring needs through our Platform or other
communications. We source qualified candidate referrals for the
employers’ available jobs through independent recruiter users
that access our Platform and other tools. We support and supplement
the independent recruiters’ efforts with dedicated internal
employees we call our internal talent delivery team. Our talent
delivery team selects and delivers candidate profiles and resumes
to our employer clients for their review and ultimate selection.
Upon the employer hiring one or more of our candidate referrals, we
earn a “fulltime placement fee”, an amount separately
negotiated with each employer client. The full-time placement fee
is typically either a percentage of the referred candidates’
first year’s base salary or an agreed-upon flat
fee.
●
Recruiters on
Demand: Consists of a consulting and staffing service specifically
for the placement of professional recruiters, which we market as
Recruiters on Demand. Recruiters on Demand is a flexible,
time-based solution that provides businesses of all sizes access to
recruiters on an outsourced, virtual basis for help with their
hiring needs. As with other consulting and staffing solutions, we
procure for our employer clients qualified professional recruiters,
and then place them on assignment with our employer clients.
Revenue earned through Recruiters on Demand is derived by billing
the employer clients for the placed recruiters’ ongoing work
at an agreed-upon, time-based rate. We directly source recruiter
candidates from our network of recruiters on the Platform, as the
recruiter user base of our Platform has the proper skill-set for
recruiting and hiring projects. We had previously referred to this
service in our revenue disaggregation disclosure in our
consolidated financial statements as license and other, but on July
1, 2020, we rebranded as Recruiters on Demand.
●
Career
Solutions: We provide services to assist job seekers with their
career advancement. These services include a resume distribution
service which involves promoting these job seekers’ profiles
and resumes to assist with their procuring employment and
upskilling and training. Our resume distribution service allows a
job seeker to upload his/her resume to our database, which we then
distribute to our network of recruiters on the Platform. We earn
revenue from a one-time flat fee for this service. We also offer a
recruiter certification program which encompasses our recruitment
related training content, which we make accessible through our
online learning management system. Customers of the recruiter
certification program use a self-managed system to navigate through
a digital course of study. Upon completion of the program, we issue
a certificate of completion and make available a digital badge to
certify their achievement for display on their online recruiter
profile on the Platform. For approximately the four months
following March 31, 2020, the Company provided the recruiter
certification program free in response to COVID-19. We partner with
Careerdash, a high-quality training company, to provide
Recruiter.com Academy, an immersive training experience for career
changers.
●
Marketplace
Solutions: Our “Marketplace Solutions”, previously
referred to as Marketing Solutions, allow companies to promote
their unique brands on our website, the Platform, and our other
business-related content and communication. This is accomplished
through various forms of online advertising, including sponsorship
of digital newsletters, online content promotion, social media
distribution, banner advertising, and other branded electronic
communications, such as in our quarterly digital publication on
recruiting trends and issues. Customers who purchase our
Marketplace Solutions typically specialize in B2B software and
other platform companies that focus on recruitment and human
resources processing. We earn revenue as we complete agreed upon
marketing related deliverables and milestones using pricing and
terms set by mutual agreement with the customer. In addition to its
work with direct clients, the Company categorizes all online
advertising and affiliate marketing revenue as Marketing
Solutions.
We have a sales
team and sales partnerships with direct employers as well as Vendor
Management System companies and Managed Service companies that help
create sales channels for clients that buy staffing, direct hire,
and sourcing services. Once we have secured the relationship
and contract with the interested Enterprise customer the delivery
and product teams will provide the service to fulfil any or all of
the revenue segments.
Revenues as
presented on the 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
substantially all revenue on a gross basis as a principal versus on
a net basis as an agent in the presentation of this line of
revenues and expenses. We have concluded that gross reporting
is appropriate because we have the task of identifying and hiring
qualified employees, and our discretion to select the employees and
establish their compensation and duties causes us to bear the risk
for services that are not fully paid for by
customers. Consulting and staffing revenues are recognized
when the services are rendered by the temporary employees. Payroll
and related taxes of certain 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 for
these employees, 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 customers. Payments for consulting and staffing
services are typically due within 90 days of completion of
services.
Full time placement
revenues are recognized on a gross basis when the guarantee period
specified in each customer’s contract expires. No fees for
direct hire placement services are charged to the employment
candidates. Any payments received prior to the expiration of the
guarantee period are recorded as a deferred revenue liability.
Payments for recruitment services are typically due within 90 days
of completion of services.
Recruiters on
Demand services are billed to clients as either monthly
subscriptions or time-based billings. Revenues for Recruiters on
Demand are recognized on a gross basis when each monthly
subscription service is completed.
Career services
revenues are recognized on a gross basis upon distribution of
resumes or completion of training courses, which is the point at
which the performance obligations are satisfied. Payments for
career services are typically due upon distribution or completion
of services.
Marketplace
Solutions services revenues are recognized on a gross basis when
the advertising is placed and displayed or when lead generation
activities and online publications are completed, which is the
point at which the performance obligations are satisfied. Payments
for marketing and publishing are typically due within 30 days
of completion of services.
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.
Sales
tax collected is recorded on a net basis and is excluded from
revenue.
Contract Assets
The
Company does not have any contract assets such as work-in-process.
All trade receivables on the Company’s consolidated balance
sheet are from contracts with customers.
Contract Costs
Costs
incurred to obtain a contract are capitalized unless they are short
term in nature. As a practical matter, costs to obtain a contract
that are short term in nature are expensed as incurred. The Company
does not have any contract costs capitalized as of
December 31, 2020 or December 31, 2019.
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
years, revenues can be categorized into the following:
Years ended
December 31, 2020 and 2019:
|
|
|
|
|
Consulting and
staffing services
|
$ 6,684,053
|
$ 4,792,607
|
Permanent placement
fees
|
517,704
|
274,030
|
Recruiters on
Demand
|
966,104
|
486,388
|
Career
services
|
190,225
|
138,384
|
Marketing and
publishing
|
144,806
|
306,578
|
Total
revenue
|
$ 8,502,892
|
$ 5,997,987
|
As of December 31,
2020, and 2019, deferred revenue amounted to $59,037 and $145,474
respectively. As of December 31, 2020, deferred revenues
associated with placement services are $52,466 and we expect the
recognition of such services to be within the three months ended
March 31, 2021. As of December 31, 2020, deferred revenues
associated with Recruiters on Demand services are $6,571 and we
expect the recognition of such services to be within the first
three months of 2021.
Revenue from
international sources was approximately 3% and 4% for the years
ended December 31, 2020 and 2019, respectively.
Costs
of Revenue
Costs of revenues
consist of employee costs, third party staffing costs and other
fees, outsourced recruiter fees and commissions based on a
percentage of Recruiting Solutions gross margin.
Accounts
Receivable
Credit is extended
to customers based on an evaluation of their financial condition
and other factors. Management periodically assesses the
Company’s accounts receivable and, if necessary, establishes
an allowance for estimated uncollectible amounts. Accounts
determined to be uncollectible are charged to operations when that
determination is made. The Company usually does not require
collateral. We have recorded an allowance for doubtful accounts of
$33,000 and $21,000 as of December 31, 2020 and 2019,
respectively. Bad debt expense was $12,000 and $23,500 for the
years ended December 31, 2020 and 2019, respectively.
Concentration
of Credit Risk and Significant Customers and Vendors
As of
December 31, 2020, two customers accounted for more than 10%
of the accounts receivable balance, at 32% and 19% for a total of
51%. As of December 31, 2019, three customers accounted for
more than 10% of the accounts receivable balance, at 19%, 15% and
13%, for a total of 47%.
For the year ended
December 31, 2020 three customers accounted for 10% of more of
total revenue, at 30%, 20% and 11%, for a total of 61%. For the
year ended December 31, 2019 two customers accounted for 10%
or more of total revenue, at 32% and 17%, for a total of
49%.
We use a related
party firm located overseas for software development and
maintenance related to our website and the platform underlying our
operations. One of our officers and principal shareholders is an
employee of this firm but exerts control over this firm (see Note
13).
We are a party to
that certain license agreement with a related party firm (see Note
13). Pursuant to the license agreement the firm has granted us an
exclusive license to use certain candidate matching software and
render certain related services to us. If this relationship was
terminated or if the firm was to cease doing business or cease to
support the applications we currently utilize, we may be forced to
expend significant time and resources to replace the licensed
software. Further, the necessary replacements may not be available
on a timely basis on favorable terms, or at all. If we were to lose
the ability to use this software our business and operating results
could be materially and adversely affected.
We use a related
party firm to provide certain employer of record services (see Note
13).
Advertising
and Marketing Costs
The Company
expenses all advertising and marketing costs as incurred.
Advertising and marketing costs were $82,904 and $119,597 for the
years ended December 31, 2020 and 2019,
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 hierarchical framework for measuring fair
value, and enhances fair value measurement disclosure.
ASC 825 defines
fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants
would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825
establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 825 establishes
three levels of inputs that may be used to measure fair
value:
Level 1 - Quoted
prices for identical assets or liabilities in active markets to
which we have access at the measurement date.
Level 2 - Inputs
other than quoted prices within Level 1 that are observable for the
asset or liability, either directly or indirectly.
Level 3 -
Unobservable inputs for the asset or liability.
The determination
of where assets and liabilities fall within this hierarchy is based
upon the lowest level of input that is significant to the fair
value measurement.
The Company’s
investment in available for sale securities and warrant derivative
liabilities are measured at fair value. The securities are measured
based on current trading prices using Level 1 fair value inputs.
The Company’s derivative instruments are valued using Level 3
fair value inputs. The Company 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 December 31,
2020 and 2019 respectively:
|
Fair Value at
December 31,
|
Fair Value
Measurement Using
|
|
|
|
|
|
|
|
|
|
|
Available for sale
marketable securities (Note 3)
|
$ 1,424
|
$ 1,424
|
$ -
|
$ -
|
Warrant derivative
liability (Note 11)
|
$ 11,537,997
|
$ -
|
$ -
|
$ 11,537,997
|
|
Fair Value at
December 31,
|
Fair Value
Measurement Using
|
|
|
|
|
|
|
|
|
|
|
Available for sale
marketable securities (Note 3)
|
$ 44,766
|
$ 44,766
|
$ -
|
$ -
|
Derivative
liability (Note 11)
|
$ 612,042
|
$ -
|
$ -
|
$ 612,042
|
The reconciliation
of the derivative liability measured at fair value on a recurring
basis using unobservable inputs (Level 3) is as follows for the
years ended December 31, 2020 and 2019:
|
|
|
|
|
Balance at January
1
|
$ 612,042
|
$ -
|
Additions to
derivative instruments
|
5,625,519
|
1,750,646
|
Anti-dilution
adjustments to derivative instruments
|
2,642,175
|
-
|
(Gain) loss on
change in fair value of derivative liability
|
2,658,261
|
(1,138,604)
|
Balance, December
31
|
$ 11,537,997
|
$ 612,042
|
Marketable
Securities
The Company has
adopted Accounting Standards Update (“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 unrealized loss on the marketable securities
during the years ended December 31, 2020 and 2019 has been included
in a separate line item on the statement of operations, Net
Recognized Loss on Marketable Securities.
Business
Combinations
For all business
combinations (whether partial, full or step acquisitions), the
Company records 100% of all assets and liabilities of the acquired
business, including goodwill, generally at their fair values;
contingent consideration, if any, is recognized at its fair value
on the acquisition date and, for certain arrangements, changes in
fair value are recognized in earnings until settlement and
acquisition-related transaction and restructuring costs are
expensed rather than treated as part of the cost of the
acquisition.
Intangible
Assets
Intangible assets
consist primarily of the assets acquired from Genesys, including
customer contracts and intellectual property, acquired on March 31,
2019 (see Note 14). Amortization expense will be recorded on the
straight line basis over the estimated economic lives of three
years.
Intangible assets
also included internal use software development costs for the
Company’s website and iPhone App. These costs were not placed
in service and the Company has no plans to place these assets in
service in the foreseeable future. We had fully impaired these
assets at December 31, 2019 (see Note 4).
Goodwill
In January 2017,
the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment: The
objective of this guidance is to simplify an entity’s
required test for impairment of goodwill by eliminating Step 2 from
the goodwill impairment test by permitting the entity to complete a
qualitative assessment to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount. Under this Update, an entity should perform its annual or
quarterly goodwill impairment test by comparing the fair value of
the reporting unit with its carrying amount and record an
impairment charge for the excess of the carrying amount over the
reporting unit’s fair value. The loss recognized should not
exceed the total amount of goodwill allocated to the reporting unit
and the entity must consider the income tax effects from any tax
deductible goodwill on the carrying amount of the reporting unit
when measuring the goodwill impairment loss, if applicable. This
guidance is effective for a public business entity that is an SEC
filer for its annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019 and early adoption
is permitted. The Company early adopted ASU 2017-04 as of January
1, 2019.
Goodwill is
comprised of the purchase price of business combinations in excess
of the fair value assigned at acquisition to the net tangible and
identifiable intangible assets acquired. Goodwill is not amortized.
The Company tests goodwill for impairment for its reporting units
on an annual basis, or when events occur, or circumstances indicate
the fair value of a reporting unit is below its carrying
value.
The Company
performs its annual goodwill and impairment assessment on December
31st of each year (see Note 4).
When evaluating the
potential impairment of goodwill, management first assess a range
of qualitative factors, including but not limited to, macroeconomic
conditions, industry conditions, the competitive environment,
changes in the market for the Company’s products and
services, regulatory and political developments, entity specific
factors such as strategy and changes in key personnel, and the
overall financial performance for each of the Company’s
reporting units. If, after completing this assessment, it is
determined that it is more likely than not that the fair value of a
reporting unit is less than its carrying value, we then proceed to
the impairment testing methodology primarily using the income
approach (discounted cash flow method).
We compare the
carrying value of the reporting unit, including goodwill, with its
fair value, as determined by its estimated discounted cash flows.
If the carrying value of a reporting unit exceeds its fair value,
then the amount of impairment to be recognized is recognized as the
amount by which the carrying amount exceeds the fair
value.
When required, we
arrive at our estimates of fair value using a discounted cash flow
methodology which includes estimates of future cash flows to be
generated by specifically identified assets, as well as selecting a
discount rate to measure the present value of those anticipated
cash flows. Estimating future cash flows requires significant
judgment and includes making assumptions about projected growth
rates, industry-specific factors, working capital requirements,
weighted average cost of capital, and current and anticipated
operating conditions. The use of different assumptions or estimates
for future cash flows could produce different results.
Long-lived
assets
Long-lived assets
are reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. The Company periodically evaluates whether events and
circumstances have occurred that indicate possible impairment. When
impairment indicators exist, the Company estimates the future
undiscounted net cash flows of the related asset or asset group
over the remaining life of the asset in measuring whether or not
the asset values are recoverable (see Note 4).
Software
Costs
We capitalize
certain software development costs incurred in connection with
developing or obtaining software for internal use when both the
preliminary project stage is completed, and it is probable that the
software will be used as intended. Capitalization ceases after the
software is operational; however, certain upgrades and enhancements
may be capitalized if they add functionality. Capitalized software
costs include only (i) external direct costs of materials and
services utilized in developing or obtaining software, (ii)
compensation and related benefits for employees who are directly
associated with the software project and (iii) interest costs
incurred while developing internal-use software.
Income
Taxes
We utilize ASC 740
“Income Taxes” which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted
tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income.
The Company
recognizes the impact of a tax position in the financial statements
only if that position is more likely than not to be sustained upon
examination by taxing authorities, based on the technical merits of
the position. Our practice is to recognize interest and/or
penalties, if any, related to income tax matters in income tax
expense.
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.
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 10.04% for the three
months ended March 31, 2019. There was no noncontrolling interest
after the March 31, 2019 recapitalization.
Stock-Based
Compensation
We account for our
stock-based compensation under ASC 718 “Compensation –
Stock Compensation” using the fair value based method. Under
this method, compensation cost is measured at the grant date based
on the value of the award and is recognized over the shorter of the
service period or the vesting period of the stock-based
compensation. This guidance establishes standards for the
accounting for transactions in which an entity exchanges 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. Determining the fair value of stock-based
compensation at the grant date under this model requires judgment,
including estimating volatility, employee stock option exercise
behaviors and forfeiture rates. The assumptions used in calculating
the fair value of stock-based compensation represent the
Company’s best estimates, but these estimates involve
inherent uncertainties and the application of management
judgment.
On January 1, 2019,
the Company adopted ASU 2018-07, which substantially aligns
stock-based compensation for employees and non-employees 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 the adoption of ASC 718.
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 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 ended 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.
Derivative
Instruments
The Company’s
derivative financial instruments consist of derivatives related to
the warrants issued with the sale of our convertible notes in 2020
(see Notes 9 and 11) and the warrants issued with the sale of our
Series D Preferred Stock in 2020 and 2019 (see Notes 10 and 11).
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 not to
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
ASC 260 “Earnings Per Share” for calculating the basic
and diluted earnings (or loss) per share. Basic earnings (or loss)
per share are computed by dividing earnings (or loss) available to
common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings (or loss) per share is computed
similar to basic loss per share except that the denominator is
increased to include the number of additional shares of common
stock that would have been outstanding if the potential shares of
common stock had been issued and if the additional shares were
dilutive. Common stock equivalents are excluded from the diluted
earnings (or loss) per share computation if their effect is
anti-dilutive. Common stock equivalents in amounts of 9,709,468 and
7,527,081 were excluded from the computation of diluted earnings
per share for the years ended December 31, 2020 and 2019,
respectively, because their effects would have been
anti-dilutive.
|
|
|
|
|
|
Options
|
676,304
|
349,368
|
Stock
awards
|
221,600
|
342,837
|
Warrants
|
1,461,377
|
188,376
|
Convertible
notes
|
730,077
|
-
|
Convertible
preferred stock
|
6,620,110
|
6,646,500
|
|
9,709,468
|
7,527,081
|
Business
Segments
The Company uses
the “management approach” to identify its reportable
segments. The management approach designates the internal
organization used by management for making operating decisions and
assessing performance as the basis for identifying the
Company’s reportable segments. Using the management approach,
the Company determined that it has one operating
segment.
Recently
Issued Accounting Pronouncements
There have not been
any recent changes in accounting pronouncements and ASU issued by
the FASB that are of significance or potential significance to the
Company except as disclosed below.
In December 2019,
the FASB issued ASU 2019-12, “Simplifying the Accounting for Income
Taxes.” This guidance, among other provisions,
eliminates certain exceptions to existing guidance related to the
approach for intraperiod tax allocation, the methodology for
calculating income taxes in an interim period and the recognition
of deferred tax liabilities for outside basis differences. This
guidance also requires an entity to reflect the effect of an
enacted change in tax laws or rates in its effective income tax
rate in the first interim period that includes the enactment date
of the new legislation, aligning the timing of recognition of the
effects from enacted tax law changes on the effective income tax
rate with the effects on deferred income tax assets and
liabilities. Under existing guidance, an entity recognizes the
effects of the enacted tax law change on the effective income tax
rate in the period that includes the effective date of the tax law.
ASU 2019-12 is effective for interim and annual periods beginning
after December 15, 2020, with early adoption permitted. We are
currently evaluating the impact of this guidance.
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 report.
This determination was based on the following factors: (i) the
Company has a working capital deficit as of December 31, 2020 and
used cash of approximately $2.5 million in operations in 2020; (ii)
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; (iii) the Company will require additional
financing for the fiscal year ending December 31, 2021 to continue
at its expected level of operations; and (iv) 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 report and for one year from the
issuance of these consolidated financial statements.
The Company
completed rounds of funding during 2019. Additionally, during 2020
the Company raised approximately $3 million in gross proceeds
through the issuance of convertible debentures and warrants as more
fully disclosed in Note 9. 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
shareholders’ ownership. The Company cannot guarantee when or
if it will generate positive cash flow.
In March 2020, the
outbreak of COVID-19 (coronavirus) caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health
Organization, and the outbreak has become increasingly widespread
in the United States, including in each of the areas in which the
Company operates. While to date the Company has not been required
to stop operating, management is evaluating its use of its office
space, virtual meetings and the like. We have reduced certain
billing rates to respond to the current economic climate.
Additionally, while we have experienced, and could continue to
experience, a loss of clients as the result of the pandemic, we
expect that the impact of such attrition would be mitigated by the
addition of new clients resulting from our continued efforts to
adjust the Company’s operations to address changes in the
recruitment industry. The extent to which the COVID-19 pandemic
will impact our operations, ability to obtain financing or future
financial results is uncertain at this time. Due to the effects of
COVID-19, the Company took steps to streamline certain expenses,
such as temporarily cutting certain executive compensation packages
by approximately 20%. Management also worked to reduce unnecessary
marketing expenditures and worked to improve staff and human
capital expenditures, while maintaining overall workforce levels.
The Company expects but cannot guarantee that demand for its
recruiting solutions will improve later in 2021, as certain clients
re-open or accelerate their hiring initiatives, and new clients
utilize our services. The Company does not expect reductions made
in the second quarter of 2020 due to COVID-19 will inhibit its
ability to meet client demand. Overall, management is focused on
effectively positioning the Company for a rebound in hiring which
we expect later in 2021. Ultimately, the recovery may be delayed
and the economic conditions may worsen. The Company continues to
closely monitor the confidence of its recruiter users and
customers, and their respective job requirement load through
offline discussions and the Company’s Recruiter Index
survey.
The accompanying
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
investments in marketable equity securities are being held for an
indefinite period and thus have been classified as available for
sale. Cost basis of securities held as of December 31, 2020
and 2019 was $42,720 and $708,541, respectively, and accumulated
unrealized losses were $41,296 and $663,775 as of December 31,
2020 and 2019, respectively. The fair market value of available for
sale marketable securities was $1,424 as of December 31, 2020,
based on 178,000 shares of common stock held in one entity with a
per share market price of approximately $0.008.
Net recognized
gains (losses) on equity investments were as follows:
|
|
|
|
|
|
|
Net realized gains
(losses) on investment sold or assigned
|
$ (2,543)
|
$ (49,757)
|
Net unrealized
gains (losses) on investments still held
|
(19,873)
|
(110,692)
|
|
|
|
Total
|
$ (22,416)
|
$ (160,449)
|
The reconciliation
of the investment in marketable securities is as follows for the
years ended December 31, 2020 and 2019:
|
|
|
|
|
|
Balance –
January1
|
$ 44,766
|
$ 33,917
|
Additions
|
-
|
240,000
|
Proceeds on sales
of securities
|
(17,009)
|
(68,702)
|
Assignment of
securities as compensation
|
(3,917)
|
-
|
Recognized
losses
|
(22,416)
|
(160,449)
|
Balance –
December 31
|
$ 1,424
|
$ 44,766
|
NOTE
4 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is derived
from the Genesys acquisition (see Note 14). The Company performed
its most recent annual goodwill impairment test as of December 31,
2020 using market data and discounted cash flow analysis. Based on
that test, we have determined that the carrying value of goodwill
was not impaired at December 31, 2020. We had previously recorded
an impairment of $3,000,000 at December 31, 2019, primarily due to
the market capitalization of the Company’s common
stock.
The changes in the
carrying amount of goodwill for the years ended December 31, 2020
and 2019 are as follows:
|
|
|
Carrying value
– January 1
|
$ 3,517,315
|
$ -
|
Goodwill acquired
during the year
|
-
|
6,517,315
|
|
3,517,315
|
6,517,315
|
Impairment
losses
|
-
|
(3,000,000)
|
Carrying value
– December 31
|
$ 3,517,315
|
$ 3,517,315
|
Intangible
Assets
Intangible assets
totaling $1,910,072 as disclosed in the table below consist of the
assets acquired from Genesys, including customer contracts and
intellectual property, acquired on March 31, 2019 (see Note 14)
which are being amortized over the three year useful
life.
We also had
capitalized software costs of $113,020 relating to our website and
iPhone App developed for internal use. These costs were not placed
in service and were not amortized, and the Company has no plans to
place these assets in service in the foreseeable future. The
Company capitalized $11,500 of costs in 2019. We had fully impaired
these assets at December 31, 2019.
We entered into an
executive employment agreement on July 1, 2020 (the
“Employment Agreement”) with Chad MacRae as the Senior
Vice President Recruiters on Demand. The Employment Agreement
specifies that certain customer contracts, databases, and computer
equipment were to be transferred to the Company in connection with
the hiring of Mr. MacRae. Mr. MacRae’s compensation package
includes a $50,000 signing bonus and an annual base salary of
$125,000. We have attributed the $50,000 signing bonus to the cost
of the contracts acquired and are amortizing that cost over the
estimated six-month economic life of the contracts.
Intangible assets
are summarized as follows:
|
|
|
Customer
contracts
|
$ 233,107
|
$ 183,107
|
License
|
1,726,965
|
1,726,965
|
|
1,960,072
|
1,910,072
|
Less accumulated
amortization
|
(1,164,208)
|
(477,518)
|
Carrying
value
|
$ 795,864
|
$ 1,432,554
|
Amortization
expense of intangible assets was $686,691 and $477,518 for the
years ended December 31, 2020 and 2019, respectively, related
to the intangible assets acquired from Genesys (now the
Company’s Recruiting Solutions division), and the cost of
acquiring customer contracts on July 1, 2020 for our Recruiters on
Demand business. Future amortization of intangible assets is
expected to be approximately $637,000 for 2021 and $159,000 for
2022.
NOTE
5 — LIABILITY FOR SALE OF FUTURE REVENUES
During 2020 and
2019 we were party to two agreements related to the sale of future
revenues. Both agreements are with the same party, have
substantially the same terms, and were entered into in December
2019. We received a total of $424,510 under the agreements. Total
repayments will aggregate $567,001. As a result, we recorded an
initial discount of $142,491. Discounts related to the agreements
will be amortized to expense over the term of the agreements. One
of the agreements was paid in full as of December 31, 2020. During
the years ended December 31, 2020 and 2019, we amortized $132,922
and $6,851 of discount, respectively, to interest expense.
Unamortized discount is $2,718 and $135,641 at December 31, 2020
and 2019, respectively. The outstanding gross balance due before
discounts pursuant to the agreements was $10,904 and $539,742 at
December 31, 2020 and 2019, respectively.
The Company has
granted a continuing security interest in the following, to the
extent and in the amount of the purchased receivables: all assets
including the following property that the Company now owns or shall
acquire or create immediately upon the acquisition or creation
thereof: (i) any and all amounts owing to the Company now or in the
future from any customers; and (ii) all other tangible and
intangible personal property of every kind and nature.
NOTE
6 — RECEIVABLES FINANCING AGREEMENT
In January 2020 we
entered into an agreement with a lender that provides advances
against the collection of accounts receivable. Advances made under
the agreement are generally repayable in 45 days from the date of
the advance and bear interest at 1.5% per month. Advances received
under the agreement aggregated $180,778. In April 2020, the lender
informed the Company that it would not be able to advance
additional funds pursuant to this arrangement due to the impact of
the COVID-19 pandemic. We have repaid the agreement in full during
2020.
NOTE
7 — LOANS PAYABLE
Lines of Credit
At
December 31, 2020 and 2019 we are party to two lines of credit
with outstanding balances of $0. Advances under each of these lines
of credit mature within 12 months of the advances. Availability
under the two lines was $91,300 at December 31, 2020; however,
due to COVID -19 uncertainty (see Note 2), the availability under
both lines has been suspended in 2020.
Term Loans
We have outstanding
balances of $77,040 and $103,800 pursuant to two term loans as of
December 31, 2020 and December 31, 2019, respectively,
which mature in 2023. The loans have variable interest rates, with
current rates at 6.0% and 7.76%, respectively. Current monthly
payments under the loans are $1,691 and $1,008,
respectively.
One of the term
loans is a Small Business Administration (“SBA”) loan.
As a result of the COVID-19 uncertainty, the SBA has paid the loan
for a period of six months. The SBA made payments on our behalf of
$10,768 during the year ended December 31, 2020, which have
been recorded as grant income in the financial statements. These
payments were applied $8,854 to principal and $1,914 to interest
expense for the year ended December 31, 2020.
The status of these
loans as of December 31, 2020 and 2019 are summarized as
follows:
|
|
|
Term
loans
|
$ 77,040
|
$ 103,800
|
Less current
portion
|
(28,249)
|
(25,934)
|
Non-current portion
(excluding PPP loan discussed below)
|
$ 48,791
|
$ 77,866
|
Future principal
payments under the term notes are as follows:
Year Ending December 31,
|
|
2021
|
$ 28,249
|
2022
|
30,133
|
2023
|
18,658
|
Total minimum
principal payments
|
$ 77,040
|
Our Chief Operating
Officer, who is also a shareholder, has personally guaranteed the
loans described above.
Paycheck Protection Program Loan
During April and
May 2020 the Company, through its four subsidiaries, received an
aggregate of $398,545 in loans borrowed from a bank pursuant to the
Paycheck Protection Program under the CARES Act guaranteed by the
SBA, which we expect to be forgiven in part or in full, subject to
our compliance with the conditions of the Paycheck Protection
Program. If not forgiven, the terms on the note provide for
interest at 1% per year and the note mature in 24 months, with 18
monthly payments beginning after the initial 6 month deferral
period for payments. We have applied for forgiveness for all loans.
As of December 31, 2020, $373,795 of loans have been forgiven and
the balance of $24,750 was forgiven subsequently. We have
classified the remaining balance of $24,750 as long term at
December 31, 2020. We recorded forgiveness of debt income of
$376,177 for the $373,795 of principal and $2,382 of related
accrued interest forgiven in 2020.
NOTE
8 — NOTES PAYABLE
On November 27,
2018, RGI borrowed $50,000 and issued a $55,000 10% Original Issue
Discount Promissory Note. 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. The 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 30,000 shares of RGI’s common stock, exercisable
for a period of five years from the date of issuance at an exercise
price of $4.00 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 original issue discount 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 11 “Stock
Options and Warrants” and Note 9) 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 issued three notes totaling $250,000. Of these,
two notes totaling $150,000 were held by shareholders. 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 totaling $383,947 were cancelled in
connection with the issuance of the Series E preferred stock to the
Recruiter.com shareholders and the note holders were allocated
shares of the Series E Preferred Stock. This amount has been
credited to paid-in capital (see Note 10).
NOTE
9 — CONVERTIBLE NOTES PAYABLE
In May and June
2020, the Company entered into a Securities Purchase Agreement,
effective May 28, 2020 (the “Purchase Agreement”) with
several accredited investors (the “Purchasers”). Four
of the investors had previously invested in the Company’s
preferred stock. Pursuant to the Purchase Agreement, the Company
sold to the Purchasers a total of (i) $2,953,125 in the aggregate
principal amount of 12.5% Original Issue Discount Senior
Subordinated Secured Convertible Debentures (the
“Debentures”), and (ii) 738,282 common stock purchase
warrants (the “Warrants”), which represents 100%
warrant coverage. The Company received a total of $2,226,000 in net
proceeds from the offering, after deducting the 12.5% original
issue discount of $328,125, offering expenses and commissions,
including the placement agent’s commission and fees of
$295,000, reimbursement of the placement agent’s and lead
investor’s legal fees and the Company’s legal fees in
the aggregate amount of $100,000 and escrow agent fees of $4,000.
The Company also agreed to issue to the placement agent, as
additional compensation, 147,657 common stock purchase warrants
exercisable at $5.00 per share.
The Debentures
mature on May 28, 2021, subject to a six-month extension at the
Company’s option. The Debentures bear interest at 8% per
annum payable quarterly, subject to an increase in case of an event
of default as provided for therein. The Debentures are convertible
into shares of Common Stock at any time following the date of
issuance at the Purchasers’ option at a conversion price of
$4.00 per share, subject to certain adjustments. The Debentures are
subject to mandatory conversion in the event the Company closes an
equity offering of at least $5,000,000 resulting in the listing of
the Company’s common stock on a national securities exchange.
The Debentures rank senior to all existing and future indebtedness
of the Company and its subsidiaries, except for approximately
$508,000 of outstanding senior indebtedness. The Company may prepay
the Debentures at any time at a premium as provided for
therein.
The Warrants are
exercisable for three years from May 28, 2020 at an exercise price
of $5.00 per share, subject to certain adjustments.
The Company’s
obligations under the Purchase Agreement and the Debentures are
secured by a first priority lien on all of the assets of the
Company and its subsidiaries pursuant to a Security Agreement,
effective May 28, 2020 (the “Security Agreement”) by
and among the Company, its wholly-owned subsidiaries, and the
Purchasers, subject to certain existing senior liens. The
Company’s obligations under the Debentures are guaranteed by
the Company’s subsidiaries.
The Purchase
Agreement contains customary representations, warranties and
covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the
Company and its subsidiaries, without the prior written consent of
the Debenture holders, to incur additional indebtedness, including
further advances under a certain pre-existing secured loan, and
repay outstanding indebtedness, create or permit liens on assets,
repurchase stock, pay dividends or enter into transactions with
affiliates. The Debentures contain customary events of default,
including, but not limited to, failure to observe covenants under
the Debentures, defaults on other specified indebtedness, loss of
admission to trading on OTCQB or another applicable trading market,
and occurrence of certain change of control events. Upon the
occurrence of an event of default, an amount equal to 130% of the
principal, accrued but unpaid interest, and other amounts owing
under each Debenture will immediately come due and payable at the
election of each Purchaser, and all amounts due under the
Debentures will bear interest at an increased rate.
Pursuant to the
Purchase Agreement, the Purchasers have certain participation
rights in future equity offerings by the Company or any of its
subsidiaries for a period of 24 months after the closing, subject
to customary exceptions. The Debentures and the Warrants also
contain certain price protection provisions providing for
adjustment of the number of shares of Common Stock issuable upon
conversion of the Debentures and/or exercise of the Warrants and
the conversion or exercise price in case of future dilutive
offerings.
During 2020, notes
aggregating $91,600, plus related accrued interest of $4,400, were
converted into 24,000 shares of common stock. Unamortized debt
costs and debt discount of $13,647 and $25,956, respectively, were
charged against the value of the common stock issued upon
conversion.
We have incurred a
total of $1,299,677 of debt costs related to the sale of the
Debentures, including commissions, costs and fees of $366,500. We
have also recorded a cost related to the fair value of the
placement agent warrants of $933,177 (see Note 11). The costs are
being amortized over the life of the notes. Amortization expense
was $754,306 for the year ended December 31, 2020. Unamortized
debt costs were $531,724 at December 31, 2020.
We have recorded a
total of $1,653,448 of debt discount related to the sale of the
Debentures, including original issue discount of $328,125. We have
also recorded a discount related to the fair value of the warrants
issued with the debt of $1,325,323 (see Note 11). The discount is
being amortized over the life of the notes. Amortization expense
was $953,517 for the year ended December 31, 2020. Unamortized
debt discount was $673,975 at December 31, 2020.
On November 23,
2020, we issued a convertible promissory note in the amount of
$250,000 to a current stockholder and noteholder, and received
proceeds of $250,000. The note bears interest at 5% per year and
matures on March 24, 2021. If we consummate a Qualified Offering
on or before March 24, 2021 then the remaining outstanding and
unpaid amount of this note will automatically be converted into
shares of our common stock (or units of common stock and warrants
to purchase common stock, if units are offered to the public in the
Qualified Offering) at the Qualified Offering Price.
“Qualified Offering” shall mean an offering of common
stock (and other securities potentially) for an aggregate price of
at least $5,000,000 resulting in the listing for trading of the
common stock on the NYSE American, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or the New
York Stock Exchange (or any successors to any of the foregoing).
“Qualified Offering Price” shall mean the price per
share (or unit, if units are offered in the Qualified Offering) at
which the Qualified Offering is made.
An Event of Default
would occur if: (i) a default for five (5) days in payment of
principal or interest on this Note; (ii) failure by the Borrower to
comply with any material provision of this Note; (iii) the
Borrower, pursuant to or within the meaning of any Bankruptcy Law
(as defined herein): (A) commences a voluntary case; (B) consents
to the entry of an order for relief against it in an involuntary
case; (C) consents to the appointment of a Custodian (as defined
herein) of it or for all or substantially all of its property; (D)
makes a general assignment for the benefit of its creditors; or (E)
admits in writing that it is generally unable to pay its debts as
the same become due; or (iv) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that: (A) is for
relief against the Borrower in an involuntary case; (B) appoints a
Custodian of the Borrower for all or substantially all of its
property; or (C) orders the liquidation of the Borrower, and the
order or decree remains unstayed and in effect for sixty (60) days.
“Bankruptcy Law” means Title 11, U.S. Code, or any
similar Federal or state law for the relief of debtors. The term
“Custodian” means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy
Law.
Remedies. If an Event of
Default occurs and is continuing, the Lender, may declare all of
this Note to be due and payable immediately. The Lender, shall have
all rights available to it at law or in equity. The Lender, may
assess reasonable attorneys’ fees, paralegals’ fees and
costs and expenses incurred or anticipated by the Lender in
collecting or enforcing payment hereof (whether such fees, costs or
expenses are incurred in negotiations, all trial and appellate
levels, administrative proceedings, bankruptcy proceedings or
otherwise), and together with all other sums due by the Borrower
hereunder, all without any relief whatsoever from any valuation or
appraisement laws, and payment thereof may be enforced and
recovered in whole or in part at any time by one or more of the
remedies provided to the Lender at law, in equity, or under this
Note. In connection with the Lender’s rights hereunder upon
an Event of Default, the Lender need not provide, and the Borrower
hereby waives, any presentment, demand, protest or other notice of
any kind, and the Lender, may immediately enforce any and all of
its rights and remedies hereunder and all other remedies available
to it in equity or under applicable law.
Pre-Merger
Recruiter.com had issued four convertible notes totaling $255,000
as of March 31, 2019. Of these notes, two notes totaling $200,000
were held by shareholders. 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. On March 31, 2019,
the notes and related accrued interest totaling $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 shareholders of Pre-Merger Recruiter.com as
consideration in the Merger. This amount has been credited to
paid-in capital (see Note 10).
NOTE
10 — 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 3,875,000 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 (see below) and in excess of
50% of the total voting power.
Prior to the
Merger, RGI, Pre-Merger Recruiter.com and VocaWorks were parties to
the License Agreement. In consideration for the license, Pre-Merger
Recruiter.com received 625,000 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 625,000
shares of RGI’s common stock to its shareholders on March 25,
2019, in conjunction with the Merger. The distribution is
considered 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 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 on the Merger and recapitalization, 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 December 31, 2020 and 2019, the
Company had 1,324,022 and 1,329,300 shares of preferred stock
issued and outstanding, respectively.
Series D Convertible Preferred Stock
On March 25, 2019,
RGI filed a Certificate of Designation (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
$4.00 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 contained in the COD
for such series 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 2.50 shares of the Company’s common
stock, subject to adjustment as provided for therein. The shares of
Series D Preferred Stock sold in the financing convert into a
minimum of 158,126 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.
The aggregate
79,063 warrants are exercisable for five years from the issuance
date at an exercise price of $12.00 per share, subject to
adjustment as provided for therein.
In May and June
2019, we sold an additional 29,975 Units, each Unit consisting of
one share of our Series D Preferred Stock and 2.50 warrants,
(aggregate 74,938 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
shareholder of the Company purchased 13,750 units for $250,000
through delivering common stock of another company which had a
market value of $240,000 and $10,000 in a settlement. There
were 34,376 warrants issued with the 13,750
units.
In April 2019, the
Company issued 25,000 shares of its common stock upon conversion of
5,000 shares of its Series D Preferred Stock.
In August 2019, the
Company issued 24,200 shares of its common stock upon conversion of
4,840 shares of Series D Preferred Stock.
During 2020 we have
issued to the holders of Series D Preferred Stock an aggregate of
106,134 additional shares of Series D Preferred Stock as
consideration for waivers of penalties discussed
below.
In February 2020,
the Company issued 64,500 shares of its common stock upon
conversion of 12,900 shares of its Series D Preferred
Stock.
On June 9, 2020,
the Company sold 1,375 Series D preferred stock units (the
“Units”) at a purchase price of $18.1818 per Unit,
taking into account a 10% discount, each Unit consisting of one
share of Series D Preferred Stock and a warrant to purchase 2.5
shares of common stock, subject to adjustment as provided for
therein. The Series D Preferred Stock sold in the financing
converts into a minimum of 6,876 shares of common stock. The
Company received gross proceeds of $25,000 from the sale of the
Units. The 3,438 warrants are exercisable for five years from the
issuance date at an exercise price of $12.00 per share, subject to
adjustment as provided for therein.
In June 2020, the
Company issued 62,800 shares of its common stock upon conversion of
12,560 shares of its Series D Preferred Stock.
In July 2020, the
Company issued 44,000 shares of its common stock upon conversion of
8,800 shares of its Series D Preferred Stock.
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
$4.00 per share, or 3,875,000 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 contained in the
COD for such series 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.
On 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 on the Merger and
recapitalization.
In December 2019,
the Company issued 200,072 shares of its common stock upon
conversion of 40,014 shares of Series E Preferred
Stock.
In January 2020,
the Company issued 15,704 shares of its common stock upon
conversion of 3,141 shares of Series E Preferred
Stock.
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
$4.00 per share, or 1,000,000 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 contained in the COD for such
series 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 14).
In December 2019
the Company issued 301,160 shares of its common stock upon
conversion of 60,232 shares of Series F Preferred
Stock.
In January and
February 2020, the Company issued 321,366 shares of its common
stock upon conversion of 64,272 shares of Series F Preferred
Stock.
In April 2020, the
Company issued 55,571 shares of its common stock upon conversion of
11,114 shares of Series F Preferred Stock.
Preferred Stock Penalties
On March 31, 2019,
we entered into certain agreements with investors pursuant to which
we issued convertible preferred stock and warrants, as described
above. Each of the series of preferred stock and warrants required
us to reserve shares of common stock in the amount equal to two
times the common stock issuable upon conversion of the preferred
stock and exercise of the warrants. We did not comply in part due
to our attempts to manage the Delaware tax which increases to a
maximum of $200,000 as the authorized capital increases without the
simultaneous increase in the number of shares outstanding. In May
2020 following stockholder approval at a special meeting the
Company effected a reincorporation from Delaware to Nevada and a
simultaneous increase in our authorized common stock from
31,250,000 shares to 250,000,000 shares, which we expect will be
sufficient to meet the reserve requirements. As of
December 31, 2019, we estimated that we owed approximately $6
million in penalties (prior to any waivers of penalties) to holders
of preferred stock. Subsequent to December 31, 2019, we have
received waivers from a substantial number of the preferred
shareholders with respect to these penalties. We have agreed to
issue to the holders of Series D Preferred Stock an aggregate of
106,134 additional shares of Series D Preferred Stock (valued at
$1,929,516) as consideration for the waivers. We have accrued this
cost at December 31, 2019. Additionally, certain holders of
Series E and Series F Preferred Stock have not waived the
penalties. We have accrued $308,893 at December 31, 2019
related to these Series E and Series F Preferred holders. Because
of our ongoing liquidity problems, we will be required to cease
operations if faced with material payment requests from investors
who did not agree to waive the penalties. The total accrued penalty
amount of $2,238,314 was included in accrued expenses on the
balance sheet at December 31, 2019. The $1,929,516 accrual was
reclassified to equity during the three months ended March 31, 2020
as a result of our issuance of the 106,134 shares of Series D
Preferred Stock. At December 31, 2020, the remaining balance
of $308,798 is included in accrued expense on the consolidated
balance sheet.
Common Stock
The Company is
authorized to issue 100,000,000 shares of common stock, par value
$0.0001 per share. The number of shares of common stock the Company
is authorized to issue was increased from 31,250,000 shares to
250,000,000 shares in connection with the reincorporation from
Delaware to Nevada in May 2020 and then decreased to 100,000,000 in
June 2021 – see Note 16. As of December 31, 2020, and
2019 the Company had 2,201,604 and 1,447,864 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. On August 21,
2019, the Company amended its Certificate of Incorporation to
effect a one-for-80 reverse stock split of the Company’s
common stock. Additionally, the number of authorized shares of the
Company’s common stock was reduced to 12,500,000 shares at
that time and prior to the subsequent increase to 250,000,000
shares 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 reverse
stock split.
Shares issued upon recapitalization
On March 31, 2019
the Company was deemed to issue 699,152 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 $3,889,219 and noncontrolling interest was
charged $1,591,221 to remove it pursuant to the reverse
recapitalization.
Shares granted for services
On February 1,
2019, the Company granted and issued to Evan Sohn, our Executive
Chairman and CEO, 17,370 shares of restricted common stock, which
vested on February 1, 2020. The award has been valued at $151,981
and compensation expense will be recorded over the vesting period
(see Note 11). We recognized compensation expense of $12,665 and
$139,316 during the years ended December 31, 2020 and 2019,
respectively.
On May 14, 2019,
the Company granted and issued to Mr. Sohn 180,468 shares of
restricted common stock, which vested on February 1, 2020. The
award has been valued at $2,707,019 and compensation expense has
been recorded over the vesting period (see Note 11). We recognized
compensation expense of $12,665 and $139,316 during the years ended
December 31, 2020 and 2019, respectively. We recognized
compensation expense of $318,474 and $2,388,545 during the years
ended December 31, 2020 and 2019, respectively.
On December 23,
2019, the Company granted to a consultant 125,000 restricted stock
units (the “RSUs”) pursuant to a consultant agreement.
The RSUs vest 25,400 upon grant with the balance vesting monthly in
equal installments beginning January 1, 2020 and ending November 1,
2020, subject to the consultants continued service to the Company
on each vesting date. The RSU award has been valued at $343,750 and
compensation expense will be recorded over the respective vesting
periods. We recognized compensation expense of $250,000 and $93,750
during the years ended December 31, 2020 and 2019,
respectively. The shares were issued in November 2020.
Effective January
15, 2020 the Company entered into a consulting agreement with a
term of six months. Pursuant to the agreement the Company agreed to
issue 24,000 shares of restricted common stock, plus a payment of
$15,000. The shares are fully vested upon issuance and have been
valued at $75,000, based on the quoted market price of our common
stock on the grant date. The shares were issued on April 3, 2020.
We have recorded compensation expense of $75,000 for the share
portion of the agreement and expense of $15,000 for the cash
portion during the year ended December 31, 2020.
Effective January
15, 2020 the Company entered into a consulting agreement with a
term of three months. Pursuant to the agreement the Company agreed
to issue 12,000 shares of restricted common stock, earned monthly
over the three-month term of the agreement. The shares are fully
vested upon issuance and have been valued at $45,500, based on the
quoted market price of our common stock on the vesting dates. The
shares were issued on April 3, 2020. We have recorded compensation
expense of $45,500 during year ended December 31,
2020.
On June 18, 2020
the Company awarded to Mr. Sohn 221,600 restricted stock units (the
“RSUs”) subject to and issuable upon the listing of the
Company’s common stock on the Nasdaq Capital Market or NYSE
American, or any successor of the foregoing (the
“Uplisting”). The RSUs will vest over a two-year period
from the date of the Uplisting in equal quarterly installments on
the last day of each calendar quarter, with the first portion
vesting on the last day of the calendar quarter during which the
Uplisting takes place, subject to Mr. Sohn serving as an executive
officer of the Company on each applicable vesting date, provided
that the RSUs shall vest in full immediately upon the termination
of Mr. Sohn’s employment by the Company without Cause (as
defined in the Employment Agreement). The RSU award has been valued
at $1,662,000 and compensation expense will be recorded over the
estimated vesting period. We recognized compensation expense of
$322,478 during the year ended December 31, 2020,
respectively. The shares have not been issued at December 31,
2020.
In July 2020, the
Company issued 4,800 shares of its common stock pursuant to a
consulting agreement entered into in June 2020. The shares are
fully vested upon issuance. The shares have been valued at $34,200
based on the quoted market price of our common stock. This expense
was accrued at June 30, 2020.
Shares issued upon conversion of preferred stock
In April 2019 the
Company issued 25,000 shares of its common stock upon conversion of
5,000 shares of its Series D Preferred Stock.
In August 2019, the
Company issued 24,200 shares of its common stock upon conversion of
4,840 shares of Series D Preferred Stock.
In December 2019,
the Company issued 200,072 shares of its common stock upon
conversion of 40,014 shares of Series E Preferred
Stock.
In December 2019,
the Company issued 301,160 shares of its common stock upon
conversion of 60,232 shares of Series F Preferred
Stock.
In January 2020,
the Company issued 15,704 shares of its common stock upon
conversion of 3,141 shares of Series E Preferred
Stock.
In January and
February 2020, the Company issued 321,366 shares of its common
stock upon conversion of 64,272 shares of Series F Preferred
Stock.
In February 2020,
the Company issued 64,500 shares of its common stock upon
conversion of 12,900 shares of its Series D Preferred
Stock.
In April 2020, the
Company issued 55,571 shares of its common stock upon conversion of
11,114 shares of Series F Preferred Stock.
In June 2020, the
Company issued 62,800 shares of its common stock upon conversion of
12,560 shares of its Series D Preferred Stock.
In July 2020, the
Company issued 44,000 shares of its common stock upon conversion of
8,800 shares of its Series D Preferred Stock.
Shares issued upon conversion of convertible
notes
In December 2020,
the Company issued 24,000 shares of its common stock upon
conversion of $91,600 of convertible notes payable and related
accrued interest of $4,400.
Restricted stock grant activity
Restricted stock
grant activity for the two years ended December 31, 2020 is as
follows:
|
|
Outstanding at
December 31, 2018
|
-
|
Assumed in
recapitalization
|
17,370
|
Granted
post-recapitalization
|
305,468
|
Forfeited or
cancelled
|
-
|
Outstanding at
December 31, 2019
|
322,838
|
Granted
|
221,600
|
Vested
|
(322,838)
|
Forfeited or
cancelled
|
-
|
Outstanding at
December 31, 2020
|
221,600
|
Contributed Capital
Pre-Merger
Recruiter.com had issued three notes aggregating $250,000. Of these
notes, two notes totaling $150,000 were held by its shareholders.
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. On March 31, 2019, the notes and related
accrued interest totaling $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 issued four convertible notes totaling $255,000
on March 31, 2019. Of these notes, two notes totaling $200,000 were
held by its shareholders. 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. On March 31, 2019, the notes and related accrued
interest totaling $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
shareholders of Pre-Merger Recruiter.com transferred a portion of
their distributive 625,000 shares of the Company’s common
stock (see Note 1) to employees and consultants. These shares
aggregated 87,500 shares of the Company’s common stock,
valued at $752,500, based on the $8.60 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 shareholder 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 shareholders,
totaling $65,000 during the year ended December 31, 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 as of 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 1.0 share 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 600,000 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 $2.00 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 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 1.0 share 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 300,000 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 $2.00 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 1.0 share 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 5 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 5 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
years ended December 31, 2019 and 2018 we recorded a credit to
noncontrolling interest of $23,852 and $1,146,265, respectively, as
a result of the reduction in the redemption amount.
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 shareholders (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 years
December 31, 2019 and 2018, the Company had accrued dividends in
the amount of $70,205 and $278,236, respectively. The accrued
dividends were charged to noncontrolling interest and the net
unpaid accrued dividends were added to the carrying value of the
preferred stock. Further, we attributed a beneficial conversion
feature of $70,205 and $278,236 for the years ended December 31,
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
stock. 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 8). 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
11 — STOCK OPTIONS AND WARRANTS
Stock
Options
2014
Equity Incentive Plan
The 2014 Equity
Compensation Plan (“2014 Plan”) is administered by the
Board and provides for the issuance of up to 2,554 shares of common
stock. Under our 2014 Plan, we may grant stock options, restricted
stock, stock appreciation rights, restricted stock units,
performance units, performance shares and other stock based awards.
As of December 31, 2020 no awards are outstanding under the 2014
Plan. The Company does not anticipate granting any awards under the
2014 plan in the future.
2017
Equity Incentive Plan
In October 2017,
our Board and shareholders authorized the 2017 Equity Incentive
Plan (the “2017 Plan”), covering 190,000 shares of
common stock. In December 2019, the number of shares authorized
under the 2017 Plan was increased to 439,584 shares. The purpose of
the 2017 Plan is to advance the interests of the Company and our
related corporations by enhancing the ability of the Company to
attract and retain qualified employees, consultants, officers, and
directors, by creating incentives and rewards for their
contributions to the success of the Company and its related
corporations. The 2017 Plan is administered by our Board or by the
Compensation Committee. The following awards may be granted under
the 2017 Plan:
●
incentive stock
options (“ISOs”)
non-qualified
options (“NSOs”)
awards
of our restricted common stock
stock
appreciation rights (“SARs”)
●
restricted stock
units (“RSUs”)
Any option granted
under the 2017 Plan must provide for an exercise price of not less
than 100% of the fair market value of the underlying shares on the
date of grant and not less than $4.00 per share, but the exercise
price of any ISO granted to an eligible employee owning more than
10% of our outstanding common stock must not be less than 110% of
fair market value on the date of the grant. The plans further
provide that with respect to ISOs the aggregate fair market value
of the common stock underlying the options which are exercisable by
any option holder during any calendar year cannot exceed $100,000.
The exercise price of any NSO granted under the 2017 Plan is
determined by the Board at the time of grant, but must be at least
equal to fair market value on the date of grant. The term of each
plan option and the manner in which it may be exercised is
determined by the Board or the Compensation Committee, provided
that no option may be exercisable more than 10 years after the date
of its grant and, in the case of an incentive option granted to an
eligible employee owning more than 10% of the common stock, no more
than five years after the date of the grant. The terms of any other
type of award under the 2017 Plan is determined by the Board at the
time of grant. Subject to the limitation on the aggregate number of
shares issuable under the plans, there is no maximum or minimum
number of shares as to which a stock grant or plan option may be
granted to any person.
In May 2020, the
number of shares authorized for issuance under the Company’s
2017 Equity Incentive Plan was increased to 685,600 shares. In June
2020, the number of shares authorized for issuance under the
Company’s 2017 Equity Incentive Plan was further increased to
1,108,000 shares. In December 2020, the number of shares authorized
for issuance under the Company’s 2017 Equity Incentive Plan
was further increased to 1,308,000 shares.
Stock Options
In February 2019,
the Company granted to its Executive Chairman an aggregate of
17,370 options to purchase common stock, exercisable at $8.80 per
share, under the terms of the 2017 Equity Incentive Plan. The
options have a term of five years. The options vested on August 4,
2020. The award has been valued at $149,730 using the Black Sholes
model and compensation expense will be recorded over the vesting
period. We have recorded compensation expense of $58,228 and
$91,502 related to the options during the years ended December 31,
2020 and 2019, respectively. The assumptions used in the Black
Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 397%, (3) risk-free interest rate of 2.54%,
(4) expected term of 1.5 years.
In May 2019, the
Company granted to its Executive Chairman five-year options to
purchase 180,468 common shares at $16.00 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 using the Black
Sholes model and compensation expense will be recorded over the
vesting period. We have recorded compensation expense of $1,293,805
and $924,147 related to the award during the years ended December
31, 2020 and 2019, respectively. The assumptions used in the Black
Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 220%, (3) risk-free interest rate of 2.26%,
(4) expected term of 1.5 years.
In August 2019, the
Company granted to five nonemployee advisors an aggregate of 12,500
options to purchase common stock, exercisable at $7.88 per share,
under the terms of the 2017 Plan. The options have a term of five
years. The options vest in full on May 23, 2020, subject to
continued service as an advisor to the Company as of the vesting
date. The awards have been valued at $98,500 using the Black Sholes
model and compensation expense will be recorded over the vesting
period. We have recorded compensation expense of $47,987 and
$50,513 related to the options during the years ended December 31,
2020 and 2019, respectively. The assumptions used in the Black
Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 427%, (3) risk-free interest rate of 1.68%,
(4) expected term of five years.
In December 2019, the Company granted to eight
officers and directors an aggregate of 120,531 options to purchase
common stock, exercisable at $3.63 per share, under the terms of
the 2017 Plan. The options have a term of three years. The options
vest one third upon grants, one third on the first grant date
anniversary and one third on the second grant date anniversary,
subject to continued service by the directors and officers of the
Company in their respective capacities as of each applicable
vesting date. The awards have been valued at $435,969 using the
Black Sholes model and compensation expense will be recorded over
the vesting period. We have recorded compensation expense of
$145,323 and $148,118 related to the options during the year ended
December 31, 2020 and 2019, respectively. The assumptions used in
the Black Scholes model are as follows: (1) dividend yield of 0%;
(2) expected volatility of 354%, (3) risk-free interest rate of
1.67%, (4) expected term of three years.
On May 14, 2020 the
Company granted to its current Chief Financial Officer 10,435
options to purchase common stock, exercisable at $6.25 per share,
under the terms of the 2017 Equity Incentive Plan. The options have
a term of five years. The options will vest in six equal monthly
installments on the last calendar day of each calendar month, with
the first portion vesting on May 31, 2020, subject to serving as
the Chief Financial Officer of the Company on each applicable
vesting date, provided that the options shall vest in full upon the
listing of the Company’s securities on NYSE American or the
Nasdaq Capital Market. The award has been valued at $65,210 using
the Black Sholes model and compensation expense will be recorded
over the vesting period. We have recorded compensation expense of
$65,210 related to the options during the year ended
December 31, 2020. The assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%; (2) expected
volatility of 344%, (3) risk-free interest rate of 0.31%, (4)
expected term of 5 years.
On May 14, 2020 the
Company granted to its current Chief Financial Officer 172,501
options to purchase common stock, exercisable at $6.25 per share,
under the terms of the 2017 Equity Incentive Plan. The options have
a term of five years. The options will vest over a two-year period
in equal quarterly installments on the last day of each calendar
quarter, with the first portion vesting on the last day of the
calendar quarter during which the Company’s securities begin
trading on NYSE American or the Nasdaq Capital Market, subject to
serving as the Chief Financial Officer of the Company on each
applicable vesting date. The award has been valued at $1,077,999
using the Black Sholes model and compensation expense will be
recorded over the estimated vesting period. We have recorded
compensation expense of $234,348 related to the options during year
ended December 31, 2020. The assumptions used in the Black
Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 344%, (3) risk-free interest rate of 0.31%,
(4) expected term of 5 years.
On May 14, 2020 the
Company granted to a consultant 10,000 options to purchase common
stock, exercisable at $6.25 per share, under the terms of the 2017
Equity Incentive Plan. The options have a term of one year. The
options vested in full upon completion of a certain project, which
occurred in the third quarter of 2020. The award has been valued at
$49,304 using the Black Sholes model and compensation expense will
be recorded over the estimated vesting period. We have recorded
compensation expense of $49,304 related to the options during the
year ended December 31, 2020. The assumptions used in the
Black Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 250%, (3) risk-free interest rate of 0.15%,
(4) expected term of 1 year.
On July 7, 2020 the
Company granted to Chad MacRae, Senior Vice President Recruiters on
Demand, 100,000 options to purchase common stock, exercisable at
$4.63 per share, under the terms of the 2017 Equity Incentive Plan.
The options have a term of five years. The options will vest in
twelve equal monthly installments on the last calendar day of each
calendar month, with the first portion vesting on July 31, 2020,
subject to continued employment with the Company. The award has
been valued at $462,447 using the Black Sholes model and
compensation expense will be recorded over the vesting period. We
have recorded compensation expense of $231,224 to the options
during the year ended December 31, 2020. The assumptions used
in the Black Scholes model are as follows: (1) dividend yield of
0%; (2) expected volatility of 345%, (3) risk-free interest rate of
0.31%, (4) expected term of 5 years. Pursuant to his employment
agreement, upon attaining a performance condition, and subject to
Board approval, Mr. MacRae will be issued an additional 100,000
options with an exercise price determined at the date of
satisfaction of the performance condition. These additional
options, if issued, will vest quarterly over two
years.
On October 1, 2020
the Company granted to a director 20,000 options to purchase common
stock, exercisable at $5.00 per share, under the terms of the 2017
Equity Incentive Plan. The options have a term of five years. The
options will vest quarterly over three years with the first vesting
on date of grant. The award has been valued at $79,990 using the
Black Sholes model and compensation expense will be recorded over
the vesting period. We have recorded compensation expense of
$13,332 related to the options during the year ended
December 31, 2020. The assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%; (2) expected
volatility of 345%, (3) risk-free interest rate of 0.27%, (4)
expected term of 5 years.
On November 9, 2020
the Company granted to an employee 14,000 options to purchase
common stock, exercisable at $4.63 per share, under the terms of
the 2017 Equity Incentive Plan. The options have a term of five
years. The options will vest quarterly over three years. The award
has been valued at $64,743 using the Black Sholes model and
compensation expense will be recorded over the vesting period. We
have recorded compensation expense of $4,586 related to the options
during the year ended December 31, 2020. The assumptions used
in the Black Scholes model are as follows: (1) dividend yield of
0%; (2) expected volatility of 345%, (3) risk-free interest rate of
0.44%, (4) expected term of 5 years.
During the years
ended December 31, 2020 and 2019, we recorded $11,110 and
$54,738 of compensation expense, respectively, related to stock
options granted in 2018.
Stock option
activity for the two years ended December 31, 2020 is as
follows:
|
|
Weighted Average
Exercise Price
|
Outstanding at
December 31, 2018
|
30
|
$ 10,924.00
|
Assumed in
recapitalization
|
35,894
|
11.88
|
Cancelled in
recapitalization
|
(30)
|
10,924.00
|
Granted
post-recapitalization
|
313,499
|
10.93
|
Granted
|
-
|
-
|
Exercised
|
-
|
-
|
Expired or
cancelled
|
(25)
|
70.00
|
Outstanding at
December 31, 2019
|
349,368
|
11.03
|
Granted
|
326,936
|
5.60
|
Exercised
|
-
|
-
|
Expired or
cancelled
|
-
|
-
|
Outstanding at
December 31, 2020
|
676,304
|
$ 8.40
|
Exercisable at
December 31, 2020
|
381,293
|
$ 10.68
|
As of December 31,
2020, there was approximately $1,344,000 of total unrecognized
compensation cost related to non-vested stock options which vest
over time and is expected to be recognized over a period of three
years, as follows: 2021, $808,000; 2022, $429,000 and 2023,
$107,000. The intrinsic value of options outstanding is $1,426,230
at December 31, 2020 and the intrinsic value of options exercisable
is $603,819 at December 31, 2020.
The following table
summarizes the options outstanding and exercisable for the shares
of the Company’s common stock as at December 31,
2020.
|
|
|
|
Weighted Average
Remaining Contractual Life(Years)
|
Weighted Average
Exercise Price
|
|
Weighted Average
Exercise Price
|
$ 2.50-$500.00
|
254,530
|
3.35
|
$ 4.175
|
132,020
|
$ 4.03
|
$ 6.25
|
192,936
|
4.16
|
$ 6.25
|
20,435
|
$ 6.25
|
$ 7.50-$10.00
|
29,870
|
3.30
|
$ 8.425
|
29,870
|
$ 8.43
|
$ 12.00
|
6,000
|
2.49
|
$ 12.00
|
6,000
|
$ 12.00
|
$ 16.00
|
192,968
|
3.29
|
$ 16.00
|
192,968
|
$ 16.00
|
|
676,304
|
|
|
381,293
|
|
Warrants
and Warrant 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
900,000 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 $2.00 and
expire 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 8 and 10).
In 2019 in
conjunction with the sale of Series D Preferred Stock, the Company
issued 188,376 five-year warrants with an exercise price of $12.00
subject to adjustment (see note 10).
Series D Preferred Stock Warrants
As discussed below,
the Company issued an aggregate 889,376 warrants in 2020 in
connection with the sale of Series D preferred shares and
convertible debentures, including placement agent
fees.
The Company
identified embedded features in the warrants issued with Series D
Preferred Stock in 2019 and 2020 which caused the warrants to be
classified as a derivative 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 issued in 2020 in connection with the
sale of Series D Preferred Stock (See Note 10), the Company
determined a fair value for the derivative liability of $26,465 for
the 3,438 warrants, which has been charged to paid in capital. The
fair value of the warrants was determined using the Black-Scholes
Model based on a risk-free interest rate of 0.34%, an expected term
of 5 years, an expected volatility of 344% and a 0% dividend
yield.
As a result of the
sale of convertible notes and warrants as described in Note 9, the
number and exercise price of the Series D Preferred Stock warrants
outstanding was adjusted due to anti-dilution provisions in the
warrants. The exercise price was reduced to $4.00 from $12.00 and
the number of warrants was increased from 191,814 to 575,440. We
have recorded an expense for the change in derivative value due to
the anti-dilution adjustments of $2,642,175 as a result of the
trigger of the anti-dilution provision.
During the years
ended December 31, 2020, and 2019 the Company recorded other
expense of $1,382,782 and other income of $1,138,604, respectively,
related to the change in the fair value of the derivative. The fair
value of the derivative was $4,663,464 as of December 31,
2020, determined using the Black Scholes model based on a risk-free
interest rate of 0.17% - 0.36%, an expected term of 3.2 – 4.4
years, an expected volatility of 230 - 340% and a 0% dividend
yield. The fair value of the derivative was $612,042 as of December
31, 2019, determined using a binomial model based on a risk-free
interest rate of 1.655%, an expected term of 4.25 – 4.42
years, an expected volatility of 359 - 366% and a 0% dividend
yield.
Convertible Debenture Warrants and Placement Agent
Warrants
The Company
identified embedded features in the warrants issued with the
convertible debt and the placement agent warrants in 2020 (see Note
9) which caused the warrants to be classified as a derivative
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 Debenture warrants, the Company determined a fair value
of $4,665,877 for the 738,282 warrants. The fair value of the
warrants was determined using the Black-Scholes Model based on a
risk-free interest rate of 0.22%, an expected term of 2.93 –
3 years, an expected volatility of 252% - 341% and a 0% dividend
yield. Of this amount, $1,325,323 was recorded as debt discount
(see Note 8) and $3,340,554 was charged to expense as initial
derivative expense.
As of the issuance
date of the placement agent warrants, the Company determined a fair
value of $933,177 for the 147,657 warrants. The fair value of the
warrants was determined using the Black-Scholes Model based on a
risk-free interest rate of 0.22%, an expected term of 2.93 –
3 years, an expected volatility of 252% - 341% and a 0% dividend
yield. The value of $933,177 has been recorded as debt cost (see
Note 8).
During the year
ended December 31, 2020, the Company recorded other expense of
$1,275,479 related to the change in the fair value of the
derivative. The fair value of the derivative was $6,874,533 as of
December 31, 2020, determined using the Black Scholes model
based on a risk-free interest rate of 0.15%, an expected term of
2.4 years, an expected volatility of 228% and a 0% dividend
yield.
Warrant activity
for the two years ended December 31, 2020 is as
follows:
|
|
Weighted Average
Exercise
Price Per
Share
|
Outstanding at
December 31, 2018
|
76
|
$ 2,636.00
|
Assumed in
recapitalization
|
900,000
|
2.00
|
Cancelled in
recapitalization
|
(76)
|
2,636.00
|
Exchanged pursuant
to recapitalization
|
(900,000)
|
2.00
|
Issued
post-recapitalization
|
188,376
|
12.00
|
Exercised
|
-
|
-
|
Expired or
cancelled
|
-
|
-
|
Outstanding at
December 31, 2019
|
188,376
|
12.00
|
Issued
|
889,376
|
5.025
|
Cancelled pursuant
to modification
|
(191,814)
|
12.00
|
Reissued pursuant
to modification
|
575,440
|
4.00
|
Exercised
|
-
|
-
|
Expired or
cancelled
|
-
|
-
|
Outstanding at
December 31, 2020
|
1,461,377
|
$ 4.60
|
All warrants are
exercisable at December 31, 2020. The weighted average remaining
life of the warrants is 2.78 years at December 31,
2020.
NOTE
12 — COMMITMENTS AND CONTINGENCIES
Although not a
party to any proceedings or claims at December 31, 2020, the
Company may be subject to legal proceedings and claims from
time-to-time arising out of our operations in the ordinary course
of business.
Leases:
On March 31, 2019,
the Company entered into a sublease with a related party (see note
13) for its current corporate headquarters. The sublease expires in
November 2022. Monthly lease payments are currently $7,078 per
month and increase to $7,535 per month for the final 20 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 year ended
December 31, 2020, lease costs amounted to $150,851 which
includes base lease costs of $86,997 and common area and other
expenses of $63,854. For the year ended December 31, 2019, lease
costs amounted to $111,689 which includes base lease costs of
$63,705 and common area and other expenses of $47,984. All costs
were expensed during the periods and included in general and
administrative expenses on the accompanying consolidated statements
of operations.
Right-of-use asset
(“ROU”) is summarized below:
|
|
|
|
|
Operating office
lease
|
$ 269,054
|
$ 269,054
|
Less accumulated
reduction
|
(128,412)
|
(55,034)
|
Balance of ROU
asset at December 31, 2020
|
$ 140,642
|
$ 214,020
|
Operating lease
liability related to the ROU asset is summarized
below:
|
|
|
|
|
Total lease
liability
|
$ 269,054
|
$ 269,054
|
Reduction of lease
liability
|
(128,412)
|
(55,034)
|
Total
|
140,642
|
214,020
|
Less short term
portion as of December 31, 2020
|
(73,378)
|
(73,378)
|
Long term portion
as of December 31, 2020
|
$ 67,264
|
$ 140,642
|
Future base lease
payments under the non-cancellable operating lease at December 31,
2020 are as follows:
2021
|
$ 89,736
|
2022
|
82,885
|
Total minimum
non-cancellable operating lease payments
|
172,621
|
Less discount to
fair value
|
(31,979)
|
Total fair value of
lease payments
|
$ 140,642
|
OneWire
On December 22,
2020, we announced that we entered into a binding letter of intent (the
“OneWire LOI”) to acquire Onewire, Inc.
(“Onewire”), a leading SaaS-based recruiting and
software platform focused on the financial services sector. The
acquisition will include the OneWire SaaS hiring platform and job
site (www.onewire.com), Matchbook
software (www.matchbook.io), a tool for curating and
presenting screened and vetted talent which OneWire developed,
and Onewire’s executive search business. While
the definitive agreement is currently in the process of being
negotiated, the OneWire LOI provides for up to a $1.255 million
purchase price. The Company will pay the entire purchase price in
shares of common stock with a portion of the purchase price to be
paid on the basis of a earn-out following the completion of an
audit of OneWire’s financial statements.
COVID-19 Uncertainty:
In March 2020, the
outbreak of COVID-19 (coronavirus) caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health
Organization, and the outbreak has become increasingly widespread
in the United States, including in each of the areas in which the
Company operates. While to date the Company has not been required
to stop operating, management is evaluating its use of its office
space, virtual meetings and the like. We have reduced certain
billing rates to respond to the current economic climate.
Additionally, while we have experienced, and could continue to
experience, a loss of clients as the result of the pandemic, we
expect that the impact of such attrition would be mitigated by the
addition of new clients resulting from our continued efforts to
adjust the Company’s operations to address changes in the
recruitment industry. The extent to which the COVID-19 pandemic
will impact our operations, ability to obtain financing or future
financial results is uncertain at this time. Due to the effects of
COVID-19, the Company took steps to streamline certain expenses,
such as temporarily cutting certain executive compensation packages
by approximately 20%. Management also worked to reduce unnecessary
marketing expenditures and worked to improve staff and human
capital expenditures, while maintaining overall workforce levels.
The Company expects but cannot guarantee that demand for its
recruiting solutions will improve in 2021, as certain clients
re-open or accelerate their hiring initiatives, and new clients
utilize our services. The Company does not expect reductions made
in the second quarter of 2020 due to COVID-19 will inhibit its
ability to meet client demand. Overall, management is focused on
effectively positioning the Company for a rebound in hiring which
we expect in 2021. Ultimately, the recovery may be delayed, and the
economic conditions may worsen. The Company continues to closely
monitor the confidence of its recruiter users and customers, and
their respective job requirement load through offline discussions
and the Company’s Recruiter Index survey.
NOTE
13 — RELATED PARTY TRANSACTIONS
During 2018 we
entered into a marketing agreement with an entity controlled by a
consultant (who is also a principal shareholder and former
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 December 31, 2020 no fees
were due or payable under this arrangement.
In April 2019 a
consultant (who is also a principal shareholder and former
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 2019, a
consultant who is a principal shareholder of the Company purchased
13,750 of our Series D preferred stock units for $250,000 through
delivering common stock of another company which had a market value
of $240,000 and $10,000 in a settlement. There were 34,376
warrants issued with the 13,750 units.
During 2019 we
entered into a two-year non-exclusive consulting agreement with a
principal shareholder to act as Company’s consultant with
respect to introducing the Company to potential acquisition and
partnership targets. The Company has agreed to pay the consultant a
retainer of $10,000 per month as a non-recoverable draw against any
finder fees earned. The Company has also agreed to 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 $54,000 and
$238,500 during the years ended December 31, 2020 and 2019,
respectively. At December 31, 2020, $104,500 of the Genesys
finder’s fee and $18,000 of monthly fee expense is included
in accrued compensation. At December 31, 2019, $148,500 of the
Genesys finder’s fee is included in accrued
compensation.
Under a technology
services agreement entered into on January 17, 2020, we use a
related party firm of the Company, Recruiter.com Mauritius, for
software development and maintenance related to our website and the
platform underlying our operations. This arrangement was oral prior
to January 17, 2020. The initial term of the Services Agreement is
five years, whereupon it shall automatically renew for additional
successive 12-month terms until terminated by either party by
submitting a 90-day prior written notice of non-renewal. The firm
was formed outside of the United States solely for the purpose of
performing services for the Company and has no other clients. Our
Chief Technology Officer is an employee of this firm and exerts
control over the firm. Pursuant to the Services Agreement, the
Company has agreed to pay Recruiter.com Mauritius fees in the
amount equal to the actualized documented costs incurred by
Recruiter.com Mauritius in rendering the services pursuant to the
Services Agreement. Payments to this firm were $235,444 and
$181,400 for the years ended December 31, 2020 and 2019,
respectively, and are included in product development expense in
our consolidated statement of operations.
We are a party to
that certain license agreement with Genesys. An executive officer
of the Company is a significant equity holder and a member of our
Board of directors of Genesys. Pursuant to the License Agreement
Genesys has granted us an exclusive license to use certain
candidate matching software and render certain related services to
us. The Company has agreed to pay to Genesys (now called Opptly) a
monthly license fee of $5,000 beginning June 29, 2019 and an annual
fee of $1,995 for each recruiter being licensed under the License
Agreement along with other fees that may be incurred. The Company
has also agreed to pay Genesys monthly sales subscription fees
beginning September 5, 2019 when Genesys assists with closing a
recruiting program. During the years ended December 31, 2020
and 2019 we charged to operating expenses $167,157 and $93,671,
respectively, for services provided by Genesys. As of
December 31, 2020, the Company owes Genesys $73,352 in
payables.
Icon Information
Consultants performs all of the back office and accounting roles
for Recruiting Solutions. Icon Information Consultants then charges
a fee for the services along with charging for office space (see
Note 11). Icon Information Consultants and Icon Industrial
Solutions (collectively “Icon”) also provide
“Employer of Record” (“EOR”) services to
Recruiting Solutions which means that they process all payroll and
payroll tax related duties of temporary and contract employees
placed at customer sites and is then paid a reimbursement and fee
from Recruiting Solutions. A representative of Icon is a member of
our board of directors. Icon Canada also acts as an EOR and
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 $140,642 and $208,158 for the years ended
December 31, 2020 and 2019, respectively. EOR costs related to
customers processed by Icon Canada was $131,546 and $194,641 for
the years ended December 31, 2020 and 2019, respectively.
Currently, there is no intercompany agreement for those charges,
and they are calculated on a best estimate basis. As of
December 31, 2020, the Company owes Icon $706,515 in payables
and Icon Canada owes $19,143 to the Company. During the years ended
December 31, 2020, we charged to cost of revenue $1,232,359
and $1,887,726, respectively, related to services provided by Icon
as our employer of record. During the years ended December 31,
2020 and 2019, we charged to operating expenses $271,163 and
$191,729, respectively, related to management fees, rent and other
administrative expense. During the year ended December 31,
2020, we charged to interest expense $12,276, related to finance
charges on accounts payable owed to Icon.
We also recorded
placement revenue from Icon of $31,041 during the year ended
December 31, 2020, of which $21,981 is included in accounts
receivable at December 31, 2020.
NOTE
14 — 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 1,000,000 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 $8.60 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 new employment staffing business to be
operated through Recruiting Solutions, and to augment the
Company’s existing and future revenues. Goodwill associated
with the Genesys acquisition is expected to be tax
deductible.
The following is a
summary of the fair value of the assets acquired and liabilities
assumed at the date of acquisition:
Accounts
receivable
|
$ 768,005
|
Customer
contracts
|
183,107
|
License
|
1,726,965
|
Goodwill
|
6,517,315
|
Accounts
payable
|
(532,292)
|
Deferred
revenue
|
(63,100)
|
|
$ 8,600,000
|
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 financial information assumes that the
acquisition had occurred at the beginning of the years ended
December 31, 2019:
|
|
|
|
Revenue
|
$ 7,799,626
|
Net
Loss
|
$ (12,672,671)
|
Loss per common
share, basic and diluted
|
$ (22.15)
|
The pro forma
financial information is not necessarily indicative of the results
that would have occurred if the acquisition had occurred on the
dates indicated or that result in the future.
NOTE
15 — INCOME TAXES
The Company has,
subject to limitation, approximately $18.9 million of net operating
loss carryforwards (“NOL”) at December 31, 2020, of
which approximately $7.1 million will expire at various dates
through 2037 and approximately $11.8 million can be carried forward
indefinitely. We have provided a 100% valuation allowance for the
deferred tax benefits resulting from the net operating loss
carryover due to our lack of earnings history. In addressing the
realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences are deductible. The valuation allowance increased by
approximately $2,029,000 and $1,829,000 for the years ended
December 31, 2020 and 2019, respectively. Significant components of
deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
Deferred tax assets
(liabilities):
|
|
|
Net operating loss
carryover
|
$ 3,972
|
$ 1,776
|
Intangibles
amortization
|
728
|
701
|
Accrued
compensation
|
-
|
17
|
Stock
compensation
|
-
|
21
|
Capital
losses
|
4
|
196
|
Bad debt
allowance
|
11
|
5
|
Other
|
16
|
-
|
Deferred
revenue
|
(20)
|
(35)
|
Total deferred tax
assets, net
|
4,711
|
2,681
|
Less: valuation
allowance
|
(4,711)
|
(2,681)
|
Net deferred tax
assets
|
$ -
|
$ -
|
The above NOL
carryforward may be subject to an annual limitation under Section
382 and 383 of the Internal Revenue Code of 1986, and similar state
provisions if the Company experienced one or more ownership changes
which would limit the amount of NOL carryforward that can be
utilized to offset future taxable income. In general, an ownership
change, as defined by Section 382 and 383, results from
transactions increasing ownership of certain stockholders or public
groups in the stock of the corporation by more than 50 percentage
points over a three-year period. The Company has not completed an
IRC Section 382/383 analysis. If a change in ownership were to have
occurred, NOL carryforwards could be eliminated or restricted. If
eliminated, the related asset would be removed from the deferred
tax asset schedule with a corresponding reduction in the valuation
allowance. Due to the existence of the valuation allowance,
limitations created by future ownership changes, if any, will not
impact the Company’s effective tax rate.
The actual tax
benefit differs from the expected tax benefit for the years ended
December 31, 2020 and 2019 (computed by applying the U.S. Federal
Corporate tax rate of 21% to income before taxes) are as
follows:
|
|
|
Statutory federal
income tax rate
|
-21.0%
|
-21.0%
|
State income taxes,
net of federal benefits
|
0.1%
|
-1.1%
|
Non-deductible
items
|
14.0%
|
6.6%
|
True
ups
|
-5.1%
|
-
|
Change in valuation
allowance
|
12.0%
|
15.5%
|
Effective income
tax rate
|
-%
|
-%
|
The Company’s
tax returns for the previous three years remain open for audit by
the respective tax jurisdictions.
NOTE
16 — SUBSEQUENT EVENTS
Sale of Convertible Debentures
During January
2021, the Company entered into two Securities Purchase Agreements,
effective January 5, 2021 and January 20, 2021 (the “Purchase
Agreements”), with twenty accredited investors (the
“Purchasers”). Pursuant to the Purchase Agreements, the
Company agreed to sell to the Purchasers a total of (i) $2,799,000
in the aggregate principal amount of 12.5% Original Issue Discount
Senior Subordinated Secured Convertible Debentures (the
“Debentures”), and (ii) 699,750 common stock purchase
warrants (the “Warrants”), which represents 100%
warrant coverage. The Company received a total of $2,488,000 in
gross proceeds from the offerings, taking into account the 12.5%
original issue discount, before deducting offering expenses and
commissions, including the placement agent’s commission of
$241,270 (10% of the gross proceeds less $7,500 paid to its legal
counsel) and fees related to the offering of the Debentures of
approximately $90,500. The Company also agreed to issue to the
placement agent, as additional compensation, 139,951 common stock
purchase warrants exercisable at $5.00 per share (the “PA
Warrants”). Joseph Gunnar & Co. LLC acted as placement
agent for the offering of the Debentures.
The Debentures
mature in January 2022 on the one year anniversary, subject to a
six-month extension at the Company’s option. The Debentures
bear interest at 8% per annum payable quarterly, subject to an
increase in case of an event of default as provided for therein.
The Debentures are convertible into shares of the Company’s
common stock (the “Common Stock”) at any time following
the date of issuance at the Purchasers’ option at a
conversion price of $4.00 per share, subject to certain
adjustments. The Debentures are subject to mandatory conversion in
the event the Company closes an equity offering of at least
$5,000,000 resulting in the listing of the Common Stock on a
national securities exchange. The Debentures rank senior to all
existing and future indebtedness of the Company and its
subsidiaries, except for approximately $95,000 of outstanding
senior indebtedness. In addition, the Debentures rank pari-passu
with, and amounts owing thereunder shall be paid concurrently with,
payments owing pursuant to and in connection with that certain
offering by the Company of 12.5% Original Issue Discount Senior
Subordinated Secured Convertible Debentures due May 28, 2021
consummated in May and June 2020 in the aggregate principal amount
of $2,953,125. The Company may prepay the Debentures at any time at
a premium as provided for therein.
The Warrants are
exercisable for three years from the dates of the Purchase
Agreements at an exercise price of $5.00 per share, subject to
certain adjustments.
The Company’s
obligations under the Purchase Agreement and the Debentures are
secured by a first priority lien on all of the assets of the
Company and its subsidiaries pursuant to Security Agreements, dated
January 5, 2021 and January 20, 2021 (the “Security
Agreements”) by and among the Company, its wholly-owned
subsidiaries, and the Purchasers, subject to certain existing
senior liens. The Company’s obligations under the Debentures
are guaranteed by the Company’s subsidiaries.
The Purchase
Agreement contains customary representations, warranties and
covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the
Company and its subsidiaries, without the prior written consent of
the Debenture holders, to incur additional indebtedness, including
further advances under a certain preexisting secured loan, and
repay outstanding indebtedness, create or permit liens on assets,
repurchase stock, pay dividends or enter into transactions with
affiliates. The Debentures contain customary events of default,
including, but not limited to, failure to observe covenants under
the Debentures, defaults on other specified indebtedness, loss of
admission to trading on OTCQB or another applicable trading market,
and occurrence of certain change of control events. Upon the
occurrence of an event of default, an amount equal to 130% of the
principal, accrued but unpaid interest, and other amounts owing
under each Debenture will immediately come due and payable at the
election of each Purchaser, and all amounts due under the
Debentures will bear interest at an increased rate.
Pursuant to the
Purchase Agreement, the Purchasers have certain participation
rights in future equity offerings by the Company or any of its
subsidiaries after the closing, subject to customary exceptions.
The Debentures and the Warrants also contain certain price
protection provisions providing for adjustment of the number of
shares of Common Stock issuable upon conversion of the Debentures
and/or exercise of the Warrants and the conversion or exercise
price in case of future dilutive offerings.
Common Stock
We issued a total
of 42,935 shares of common stock upon the conversion of $171,137
principal amount of convertible debentures, plus related accrued
interest of $602.
We issued a total
of 265,391 shares of common stock upon the conversion of 53,078
shares of Series D preferred stock.
We issued a total
of 81,196 shares of common stock upon the conversion of 16,239
shares of Series F preferred stock.
We issued a total
of 175,422 shares of common stock pursuant to the Scouted
acquisition described below.
Series D Preferred Stock and Warrants
Pursuant to an
agreement, 8,755 shares of Series D preferred stock and 2,000
Series D warrants were cancelled.
Business Acquisition
Effective January
31, 2021, the Company, through a wholly-owned subsidiary, acquired
all assets of RLJ Talent Consulting, Inc., dba Scouted, a Delaware
corporation (“Scouted”) (the “Scouted Asset
Purchase”). As consideration in the Scouted Asset Purchase,
Scouted shareholders will receive a total of 205,867 shares of our
restricted common stock (valued at $1,441,065 based on a $7.00 per
share grant date price), of which 30,446 shares of stock will be
held in reserve, and an additional amount of $180,000 in cash
consideration for a total purchase price of approximately $1.6
million. The Scouted Asset Purchase will be accounted for as a
business acquisition. The assets acquired in the Scouted Asset
Purchase consist primarily of sales and client relationships,
contracts, intellectual property, partnership and vendor agreements
and certain other assets (the “Scouted Assets”), along
with a de minimis amount of other assets. The Company will complete
the purchase price allocation of the $1.6 million for the acquired
intangible assets during 2021. The Company is utilizing the Scouted
Assets to expand its video hiring solutions and curated talent
solutions, through its Recruiting Solutions
subsidiary.
Paycheck Protection Program Loan
In January 2021,
the remaining Paycheck Protection Loan of $24,750 was
forgiven.
Convertible Promissory Note
In February 2021,
the holder of the November 2020 promissory note described in Note 9
elected to convert the $250,000 note, plus accrued interest, into
$283,984 principal amount of convertible debentures (including
12.5% Original Issue Discount) based on the same terms as those
issued in January 2021 (described above), plus 70,996
Warrants.
Reverse Stock Split
On June 18, 2021 the Company filed an Amendment to the Articles of
Incorporation to effectuate a reverse split of the Company’s
issued and outstanding common stock at an exchange ratio of
1-for-2.5. The reverse stock split was effective as of June 18,
2021. Simultaneously with the reverse stock split, the
company reduced the authorized shares from 250,000,000 to
100,000,000. All share and per share data in the accompanying
consolidated financial statements and footnotes has been
retroactively adjusted to reflect the effects of the reverse stock
split.
Recruiter.com
Group, Inc.
Condensed Consolidated Balance Sheets
|
March
31,
|
December
31,
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
Cash
|
$ 662,356
|
$ 99,906
|
Accounts
receivable, net of allowance for doubtful accounts of $47,463 and
$33,000, respectively
|
1,780,401
|
942,842
|
Accounts
receivable - related parties
|
44,383
|
41,124
|
Prepaid
expenses and other current assets
|
138,122
|
167,045
|
Investments
- marketable securities
|
1,647
|
1,424
|
|
|
|
Total current
assets
|
2,626,909
|
1,252,341
|
|
|
|
Property and
equipment, net of accumulated depreciation of $2,116 and $1,828,
respectively
|
1,347
|
1,635
|
Right of use asset
- related party
|
122,297
|
140,642
|
Intangible assets,
net
|
6,489,722
|
795,864
|
Goodwill
|
3,517,315
|
3,517,315
|
|
|
|
Total
assets
|
$ 12,757,590
|
$ 5,707,797
|
|
|
|
|
|
|
Liabilities and
Stockholders' Deficit
|
|
|
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$ 748,764
|
$ 616,421
|
Accounts payable -
related parties
|
921,220
|
779,928
|
Accrued
expenses
|
710,855
|
423,237
|
Accrued expenses -
related party
|
9,656
|
8,000
|
Accrued
compensation
|
886,002
|
617,067
|
Accrued
compensation - related party
|
116,000
|
122,500
|
Accrued
interest
|
101,946
|
60,404
|
Contingent
consideration for acquisitions
|
1,974,377
|
-
|
Liability on sale
of future revenues, net of discount of $0 and $2,719,
respectively
|
-
|
8,185
|
Deferred payroll
taxes
|
159,032
|
159,032
|
Other
liabilities
|
14,493
|
14,493
|
Loans payable -
current portion
|
28,609
|
28,249
|
Convertible notes
payable, net of unamortized discount and costs of $2,864,099 and
$1,205,699, respectively
|
2,795,010
|
1,905,826
|
Refundable deposit
on preferred stock purchase
|
285,000
|
285,000
|
Warrant derivative
liability
|
16,496,364
|
11,537,997
|
Lease liability -
current portion - related party
|
73,378
|
73,378
|
Deferred
revenue
|
139,382
|
51,537
|
|
|
|
Total current
liabilities
|
25,460,088
|
16,691,254
|
|
|
|
Lease liability -
long term portion - related party
|
48,919
|
67,264
|
Loans payable -
long term portion
|
41,435
|
73,541
|
|
|
|
Total
liabilities
|
25,550,442
|
16,832,059
|
|
|
|
Commitments and
contingencies (Note 10)
|
-
|
-
|
|
|
|
Stockholders'
Deficit:
|
|
|
Preferred stock,
10,000,000 shares authorized, $0.0001 par value: undesignated:
7,013,600 shares authorized; no shares issued and outstanding as of
March 31, 2021 and December 31, 2020, respectively
|
-
|
-
|
Preferred stock,
Series D, $0.0001 par value; 2,000,000 shares authorized; 444,587
and 527,795 shares issued and outstanding as of March 31, 2021 and
December 31, 2020, respectively
|
46
|
54
|
Preferred stock,
Series E, $0.0001 par value; 775,000 shares authorized; 731,845
shares issued and outstanding as of March 31, 2021 and December 31,
2020, respectively
|
74
|
74
|
Preferred stock,
Series F, $0.0001 par value; 200,000 shares authorized; 46,847 and
64,382 shares issued and outstanding as of March 31, 2021 and
December 31, 2020, respectively
|
5
|
7
|
Common stock,
$0.0001 par value; 100,000,000 shares authorized; 2,910,075 and
2,201,604 shares issued and outstanding as of March 31, 2021 and
December 31, 2020, respectively
|
291
|
220
|
Shares to be issued
for acquisitions, 286,744 shares as of March 31, 2021
|
2,248,367
|
-
|
Additional paid-in
capital
|
25,763,456
|
23,400,408
|
Accumulated
deficit
|
(40,805,091)
|
(34,525,025)
|
Total stockholders'
deficit
|
(12,792,852)
|
(11,124,262)
|
|
|
|
Total liabilities
and stockholders' deficit
|
$ 12,757,590
|
$ 5,707,797
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements.
Recruiter.com
Group, Inc.
Condensed Consolidated Statements of
Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenue
(including related party revenue of $970 and $6,410,
respectively)
|
$ 3,164,545
|
$ 2,313,123
|
Cost
of revenue (including related party costs of $205,261 and $655,384,
respectively)
|
2,254,910
|
1,751,196
|
|
|
|
Gross
profit
|
909,635
|
561,927
|
|
|
|
Operating
expenses:
|
|
|
Sales
and marketing
|
57,543
|
25,243
|
Product
development (including related party expense of $57,988 and
$60,979, respectively)
|
70,660
|
83,093
|
Amortization
of intangibles
|
159,173
|
159,173
|
General
and administrative (including share based compensation expense of
$502,407 and $870,722, respectively, and related party expenses of
$126,632 and $122,918, respectively)
|
2,545,905
|
2,148,943
|
|
|
|
Total
operating expenses
|
2,833,281
|
2,416,452
|
|
|
|
Loss from operations
|
(1,923,646)
|
(1,854,525)
|
|
|
|
Other income (expenses):
|
|
|
Interest
expense (including related party interest expense of $12,273 and
$0, respectively)
|
(1,427,588)
|
(44,206)
|
Initial
derivative expense
|
(3,585,983)
|
-
|
Change
in fair value of derivative liability
|
628,621
|
(565,088)
|
Forgiveness
of debt income
|
24,925
|
-
|
Grant
income
|
3,382
|
-
|
Net
recognized gain (loss) on marketable securities
|
223
|
(18,786)
|
Total
other income (expenses)
|
(4,356,420)
|
(628,080)
|
|
|
|
Loss before income taxes
|
(6,280,066)
|
(2,482,605)
|
Provision
for income taxes
|
-
|
-
|
Net loss
|
$ (6,280,066)
|
$ (2,482,605)
|
|
|
|
Net loss per common share – basic and diluted
|
$ (2.40)
|
$ (1.48)
|
|
|
|
Weighted average common shares – basic and
diluted
|
2,614,923
|
1,672,902
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements.
Recruiter.com
Group, Inc.
Condensed
Consolidated Statement of Changes in Stockholders’ (Deficit)
Equity
For the Three
Months ended March 31, 2021 and 2020
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December
31, 2020
|
527,795
|
$ 54
|
731,845
|
$ 74
|
64,382
|
$ 7
|
2,201,604
|
$ 220
|
-
|
$ -
|
$ 23,400,408
|
$ (34,525,025)
|
$ (11,124,262)
|
Stock based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
502,407
|
-
|
502,407
|
Issuance of common
shares for Scouted acquisition
|
-
|
-
|
-
|
-
|
-
|
-
|
175,421
|
18
|
15,591
|
113,036
|
1,271,786
|
-
|
1,384,840
|
Issuance of common
shares for Upsider acquisition
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
271,153
|
2,135,331
|
-
|
-
|
2,135,331
|
Issuance of common
shares for accrued compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,625
|
-
|
-
|
-
|
16,425
|
-
|
16,425
|
issuance of common
shares upon conversion of debentures and accrued
interest
|
-
|
-
|
-
|
-
|
-
|
-
|
71,485
|
7
|
-
|
-
|
199,396
|
-
|
199,403
|
Cancellation of Series
D preferred stock
|
(8,755)
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
-
|
Reclassification of
derivative liability upon cancellation of Series D
warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
373,070
|
-
|
373,070
|
Issuance of common
shares upon conversion of Series D preferred
stock
|
(74,453)
|
(7)
|
-
|
-
|
-
|
-
|
372,266
|
37
|
-
|
-
|
(30)
|
-
|
-
|
Issuance of common
shares upon conversion of Series F preferred
stock
|
-
|
-
|
-
|
-
|
(17,535)
|
(2)
|
87,674
|
9
|
-
|
-
|
(7)
|
-
|
-
|
Net loss three months
ended March 31, 2021
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,280,066)
|
(6,280,066)
|
Balance as of March 31,
2021
|
444,587
|
$ 46
|
731,845
|
$ 74
|
46,847
|
$ 5
|
2,910,075
|
$ 291
|
286,744
|
$ 2,248,367
|
$ 25,763,456
|
$ (40,805,091)
|
$ (12,792,852)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December
31, 2019
|
454,546
|
$ 46
|
734,986
|
$ 74
|
139,768
|
$ 14
|
1,447,863
|
$ 145
|
-
|
$ -
|
$ 18,203,265
|
$ (17,488,188)
|
$ 715,356
|
Stock based
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
870,722
|
-
|
870,722
|
Series D Preferred
stock issued for accrued penalties
|
106,134
|
11
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,929,505
|
-
|
1,929,516
|
Issuance of common
shares upon conversion of Series D preferred
stock
|
(12,900)
|
(1)
|
-
|
-
|
-
|
-
|
64,500
|
6
|
-
|
-
|
(5)
|
-
|
-
|
Issuance of common
shares upon conversion of Series E preferred
stock
|
-
|
-
|
(3,141)
|
-
|
-
|
-
|
15,704
|
2
|
-
|
-
|
(2)
|
-
|
-
|
Issuance of common
shares upon conversion of Series F preferred
stock
|
-
|
-
|
-
|
-
|
(64,272)
|
(6)
|
321,366
|
32
|
-
|
-
|
(26)
|
-
|
-
|
Net loss three months
ended March 31, 2020
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,482,605)
|
(2,482,605)
|
Balance as of March 31,
2020
|
547,780
|
$ 56
|
731,845
|
$ 74
|
75,496
|
$ 8
|
1,849,433
|
$ 185
|
-
|
$ -
|
$ 21,003,459
|
$ (19,970,793)
|
$ 1,032,989
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements.
Recruiter.com
Group, Inc.
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
Three
Months
Ended
March 31,
2021
|
Three
Months
Ended
March 31,
2020
|
Cash Flows from Operating Activities
|
|
|
Net
Loss
|
$ (6,280,066)
|
$ (2,482,605)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
Depreciation
and amortization expense
|
159,461
|
159,461
|
Bad
debt expense
|
16,963
|
11,250
|
Gain
on forgiveness of debt
|
(24,925)
|
-
|
Equity
based compensation expense
|
502,407
|
870,722
|
Recognized
loss (gain) on marketable securities
|
(223)
|
18,786
|
Loan
principal paid directly through grant
|
(2,992)
|
-
|
Amortization
of debt discount and debt costs
|
1,309,212
|
31,976
|
Initial
derivative expense
|
3,585,983
|
-
|
Change
in fair value of derivative liability
|
(628,621)
|
565,088
|
Changes
in operating assets and liabilities:
|
|
|
(Increase)
decrease in accounts receivable
|
(854,522)
|
9,749
|
Increase
in accounts receivable - related parties
|
(3,259)
|
(5,942)
|
(Increase)
decrease in prepaid expenses and other current assets
|
28,923
|
(19,954)
|
Increase
in accounts payable and accrued liabilities
|
643,270
|
387,823
|
Increase
in accounts payable and accrued liabilities - related
parties
|
136,448
|
324,073
|
Increase
in other liabilities
|
-
|
51,780
|
Increase
(decrease) in deferred revenue
|
87,845
|
(15,434)
|
Net
cash used in operating activities
|
(1,324,096)
|
(93,227)
|
|
|
|
Cash Flows from Investing Activities
|
|
|
Proceeds
from sale of marketable securities
|
-
|
14,955
|
Cash
paid for acquisitions, net of cash assumed
|
(249,983)
|
-
|
Net
cash (used in) provided by investing activities
|
(249,983)
|
14,955
|
|
|
|
Cash Flows from Financing Activities
|
|
|
Proceeds
from convertible notes, net
|
2,153,200
|
-
|
Payments
of notes
|
(5,767)
|
(4,984)
|
Advances
on receivables
|
-
|
180,778
|
Repayments
of sale of future revenues
|
(10,904)
|
(127,241)
|
Deposit
on purchase of preferred stock
|
-
|
25,000
|
Net
cash provided by financing activities
|
2,136,529
|
73,553
|
|
|
|
Net
increase (decrease) in cash
|
562,450
|
(4,719)
|
Cash,
beginning of period
|
99,906
|
306,252
|
|
|
|
Cash, end of period
|
$ 662,356
|
$ 301,533
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
Cash
paid during the period for interest
|
$ 63,746
|
$ 38,721
|
Cash
paid during the period for income taxes
|
$ -
|
$ -
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities:
|
|
|
Original
issue discount deducted from convertible note proceeds
|
$ 342,554
|
$ -
|
Debt
costs deducted from convertible note proceeds
|
$ 334,800
|
$ -
|
Contingent
consideration for acquisitions
|
$ 1,974,377
|
$ -
|
Notes
and accrued interest converted to common stock
|
$ 285,939
|
$ -
|
Common
stock issued/to be issued for asset acquisition
|
$ 3,520,171
|
$ -
|
Notes
payable and accrued interest exchanged for debentures
|
$ 252,430
|
$ -
|
Accrued
compensation paid with common stock
|
$ 16,425
|
$ -
|
Warrant
derivative liability extinguished
|
$ 373,070
|
$ -
|
Liabilities
assumed in acquisition
|
$ 108,500
|
$ -
|
Warrant
derivative liability at inception
|
$ 5,960,058
|
$ -
|
Preferred
stock issued for accrued penalties
|
$ -
|
$ 1,929,516
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements.
RECRUITER.COM
GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31,
2021
(UNAUDITED)
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Recruiter.com
Group, Inc., a Nevada corporation (“RGI”), is a holding
company based in Houston, Texas. The Company has seven
subsidiaries, Recruiter.com, Inc., Recruiter.com Recruiting
Solutions LLC (“Recruiting Solutions”), Recruiter.com
Consulting, LLC, VocaWorks, Inc. (“VocaWorks”),
Recruiter.com Scouted Inc. (“Scouted”), Recruiter.com
Upsider Inc. (“Upsider”) and Recruiter.com OneWire Inc.
(“OneWire”) (see Note 13 Subsequent Events) . RGI and
its subsidiaries as a consolidated group is hereinafter referred to
as the “Company.” The Company operates in Connecticut,
Texas, New York, California and Vancouver, Canada.
Recruiter.com operates an
on-demand recruiting platform (the “Platform”) we have
developed to help disrupt the $120 billion recruiting and staffing
industry. Recruiter.com combines an online hiring platform with the
world’s largest network of over 28,000 small and independent
recruiters. Businesses of all sizes recruit talent faster using
the Recruiter.com platform, which is powered by
virtual teams of Recruiters On Demand and Video and AI job-matching
technology.
Our website,
www.Recruiter.com, provides access to over 28,000 recruiters and
utilizes an innovative web platform, with integrated AI-driven
candidate to job matching and video screening software to more
easily and quickly source qualified talent.
We help businesses
accelerate and streamline their recruiting and hiring processes by
providing on-demand recruiting services and technology.
Recruiter.com leverages our expert network of recruiters to place
recruiters on a project basis, aided by cutting edge artificial
intelligence-based candidate sourcing, matching and video screening
technologies. We operate a cloud-based scalable SaaS-enabled
marketplace platform for professional hiring, which provides
prospective employers access to a network of thousands of
independent recruiters from across the country and worldwide, with
a diverse talent sourcing skillset that includes information
technology, accounting, finance, sales, marketing, operations, and
healthcare specializations.
Through our
Recruiting.com Solutions division, we also provide consulting and
staffing, and full-time placement services to employers which
leverages our platform and rounds out our services.
Our mission is to
grow our most collaborative and connective global platform to
connect recruiters and employers and become the preferred solution
for hiring specialized talent.
Reincorporation
On May 13, 2020,
the Company effected a reincorporation from the State of Delaware
to the State of Nevada. Following the approval by the
Company’s stockholders at a special meeting held on May 8,
2020, Recruiter.com Group, Inc., a Delaware corporation
(“Recruiter.com Delaware”), entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with
Recruiter.com Group, Inc., a Nevada corporation and a wholly owned
subsidiary of Recruiter.com Delaware (“Recruiter.com
Nevada”), pursuant to which Recruiter.com Delaware merged
with and into Recruiter.com Nevada, with Recruiter.com Nevada
continuing as the surviving entity. Simultaneously with the
reincorporation, the number of shares of common stock the Company
is authorized to issue was increased from 31,250,000 shares to
250,000,000 shares (which were subsequently decreased to
100,000,000 shares – see Note 13).
The reincorporation
did not result in any change in the corporate name, business,
management, fiscal year, accounting, location of the principal
executive office, or assets or liabilities of the
Company.
Principles
of Consolidation and Basis of Presentation
The unaudited
condensed consolidated financial statements include the accounts of
RGI and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in
consolidation.
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 RGI
for the years ended December 31, 2020 and 2019, filed with the
SEC on March 9, 2021. The December 31, 2020 balance sheet is
derived from those statements.
In the opinion of
management, these unaudited interim financial statements as of and
for the three months ended March 31, 2021 and 2020 include all
adjustments (consisting of normal recurring adjustments and
non-recurring adjustments necessary to present fairly the financial
position, results of operations and cash flows of the Company for
the periods presented). The results for the three months ended
March 31, 2021 are not necessarily indicative of the results
to be expected for the year ending December 31, 2021 or for
any future period. All references to March 31, 2021 and 2020 in
these footnotes are unaudited.
Use
of Estimates
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”)
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results and outcomes may differ from
management’s estimates and assumptions. Included in these
estimates are assumptions used to estimate collection of accounts
receivable, fair value of marketable securities, fair value of
assets acquired and liabilities assumed in an asset acquisition and
the estimated useful life of assets acquired, fair value of
contingent consideration in asset acquisitions, fair value of
derivative liabilities, fair value of securities issued for
acquisitions, fair value of assets acquired and liabilities assumed
in a business combination, fair value of intangible assets and
goodwill, valuation of lease liabilities and related right of use
assets, 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 as of March 31, 2020. There were no uninsured
balances as of March 31, 2021 and December 31, 2020. The
Company had no cash equivalents during or at the end of either
period.
Revenue
Recognition
The Company
recognizes revenue in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 606, “Revenue from
Contracts with Customers” (“ASC 606”). Revenues
are recognized when control is transferred to customers in amounts
that reflect the consideration the Company expects to be entitled
to receive in exchange for those goods. Revenue recognition is
evaluated through the following five steps: (i) identification of
the contract, or contracts, with a customer; (ii) identification of
the performance obligations in the contract; (iii) determination of
the transaction price; (iv) allocation of the transaction price to
the performance obligations in the contract; and (v) recognition of
revenue when or as a performance obligation is
satisfied.
We generate revenue
from the following activities:
●
|
Recruiters on
Demand: Consists of a consulting and staffing service specifically
for the placement of professional recruiters, which we market as
Recruiters on Demand. Recruiters on Demand is a flexible,
time-based solution that provides businesses of all sizes access to
recruiters on an outsourced, virtual basis for help with their
hiring needs. As with other consulting and staffing solutions, we
procure for our employer clients qualified professional recruiters,
and then place them on assignment with our employer clients.
Revenue earned through Recruiters on Demand is derived by billing
the employer clients for the placed recruiters’ ongoing work
at an agreed-upon, time-based rate. We directly source recruiter
candidates from our network of recruiters on the Platform, as the
recruiter user base of our Platform has the proper skill-set for
recruiting and hiring projects. We had previously referred to this
service in our revenue disaggregation disclosure in our
consolidated financial statements as license and other, but on July
1, 2020, we rebranded as Recruiters on Demand.
|
●
|
Consulting and
Staffing: Consists of providing consulting and staffing personnel
services to employers to satisfy their demand for long- and
short-term consulting and temporary employee needs. We generate
revenue by first referring qualified personnel for the
employer’s specific talent needs, then placing that personnel
with the employer, but with us or our providers acting as the
employer of record, and finally, billing the employer for the time
and work of our placed personnel on an ongoing basis. Our process
for finding candidates for consulting and staffing engagements
largely mirrors our process for full-time placement hiring. This
process includes employers informing us of open consulting and
temporary staffing opportunities and projects, sourcing qualified
candidates through the Platform and other similar means, and,
finally, the employer selecting our candidates for placement after
a process of review and selection. We bill these employer clients
for our placed candidates’ ongoing work at an agreed-upon,
time-based rate, typically on a weekly schedule of
invoicing.
|
●
|
Full-time
Placement: Consists of providing referrals of qualified candidates
to employers to hire staff for full-time positions. We generate
full-time placement revenue by earning one-time fees for each time
that employers hire one of the candidates that we refer. Employers
alert us of their hiring needs through our Platform or other
communications. We source qualified candidate referrals for the
employers’ available jobs through independent recruiter users
that access our Platform and other tools. We support and supplement
the independent recruiters’ efforts with dedicated internal
employees we call our internal talent delivery team. Our talent
delivery team selects and delivers candidate profiles and resumes
to our employer clients for their review and ultimate selection.
Upon the employer hiring one or more of our candidate referrals, we
earn a “full-time placement fee”, an amount separately
negotiated with each employer client. The full-time placement fee
is typically either a percentage of the referred candidates’
first year’s base salary or an agreed-upon flat
fee.
|
●
|
Marketing
Solutions: Our “Marketing Solutions” allow companies to
promote their unique brands on our website, the Platform, and our
other business-related content and communication. This is
accomplished through various forms of online advertising, including
sponsorship of digital newsletters, online content promotion,
social media distribution, banner advertising, and other branded
electronic communications, such as in our quarterly digital
publication on recruiting trends and issues. Customers who purchase
our Marketing Solutions typically specialize in B2B software and
other platform companies that focus on recruitment and human
Resources processing. We earn revenue as we complete agreed upon
marketing related deliverables and milestones using pricing and
terms set by mutual agreement with the customer. In addition to its
work with direct clients, the Company categorizes all online
advertising and affiliate marketing revenue as Marketing
Solutions.
|
●
|
Career Solutions:
We provide services to assist job seekers with their career
advancement. These services include a resume distribution service
which involves promoting these job seekers’ profiles and
resumes to assist with their procuring employment, and upskilling
and training. Our resume distribution service allows a job seeker
to upload his/her resume to our database, which we then distribute
to our network of recruiters on the Platform. We earn revenue from
a one-time flat fee for this service. We also offer a recruiter
certification program which encompasses our recruitment related
training content, which we make accessible through our online
learning management system. Customers of the recruiter
certification program use a self-managed system to navigate through
a digital course of study. Upon completion of the program, we issue
a certificate of completion and make available a digital badge to
certify their achievement for display on their online recruiter
profile on the Platform. For approximately the four months
following March 31, 2020, the Company provided the recruiter
certification program free in response to COVID-19. We partner with
Careerdash, a high-quality training company, to provide
Recruiter.com Academy, an immersive training experience for career
changers.
|
We have a sales
team and sales partnerships with direct employers as well as Vendor
Management System companies and Managed Service companies that help
create sales channels for clients that buy staffing, direct hire,
and sourcing services. Once we have secured the relationship and
contract with the interested Enterprise customer the delivery and
product teams will provide the service to fulfill any or all of the
revenue segments.
Revenues as
presented on the statement of operations represent services
rendered to customers less sales adjustments and
allowances.
Recruiters on
Demand services are billed to clients as either monthly
subscriptions or time-based billings. Revenues for Recruiters on
Demand are recognized on a gross basis when each monthly
subscription service is completed.
Consulting and
Staffing Services revenues represent services rendered to customers
less sales adjustments and allowances. Reimbursements, including
those related to travel and out-of-pocket expenses, are also
included in the net service revenues and equivalent amounts of
reimbursable expenses are included in costs of revenue. We record
substantially all revenue on a gross basis as a principal versus on
a net basis as an agent in the presentation of this line of
revenues and expenses. We have concluded that gross reporting
is appropriate because we have the task of identifying and hiring
qualified employees, and our discretion to select the employees and
establish their compensation and duties causes us to bear the risk
for services that are not fully paid for by
customers. Consulting and staffing revenues are recognized
when the services are rendered by the temporary employees. Payroll
and related taxes of certain 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 for
these employees, 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 customers. Payments for consulting and staffing
services are typically due within 90 days of completion of
services.
Full time placement
revenues are recognized on a gross basis when the guarantee period
specified in each customer’s contract expires. No fees for
direct hire placement services are charged to the employment
candidates. Any payments received prior to the expiration of the
guarantee period are recorded as a deferred revenue liability.
Payments for recruitment services are typically due within 90 days
of completion of services.
Marketplace
Solutions services revenues are recognized on a gross basis when
the advertising is placed and displayed or when lead generation
activities and online publications are completed, which is the
point at which the performance obligations are satisfied. Payments
for marketing and publishing are typically due within 30 days
of completion of services.
Career services
revenues are recognized on a gross basis upon distribution of
resumes or completion of training courses, which is the point at
which the performance obligations are satisfied. Payments for
career services are typically due upon distribution or completion
of services.
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.
Sales tax collected
is recorded on a net basis and is excluded from
revenue.
Contract Assets
The Company does
not have any contract assets such as work-in-process. All trade
receivables on the Company’s balance sheet are from contracts
with customers.
Contract Costs
Costs incurred to
obtain a contract are capitalized unless they are short term in
nature. As a practical matter, costs to obtain a contract that are
short term in nature are expensed as incurred. The Company does not
have any contract costs capitalized as of March 31, 2021 or
December 31, 2020.
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
March 31,
|
|
|
|
Recruiters on
Demand
|
$ 957,479
|
$ 184,975
|
Consulting and
staffing services
|
2,072,446
|
1,913,394
|
Permanent placement
fees
|
39,966
|
137,627
|
Marketplace
Solutions
|
40,981
|
40,193
|
Career
services
|
53,673
|
36,934
|
Total
revenue
|
$ 3,164,545
|
$ 2,313,123
|
As of
March 31, 2021 and December 31, 2020, deferred revenue
amounted to $139,382 and $51,537 respectively. As of March 31,
2021, deferred revenues associated with placement services are
$139,382 and we expect the recognition of such services to be
within the three months ended June 30, 2021.
Revenue from
international sources was approximately 2% and 2% for the three
months ended March 31, 2021 and 2020,
respectively.
Costs
of Revenue
Costs of revenues
consist of employee costs, third party staffing costs and other
fees, outsourced recruiter fees and commissions based on a
percentage of Recruiting Solutions gross margin.
Accounts
Receivable
Credit is extended
to customers based on an evaluation of their financial condition
and other factors. Management periodically assesses the
Company’s accounts receivable and, if necessary, establishes
an allowance for estimated uncollectible amounts. Accounts
determined to be uncollectible are charged to operations when that
determination is made. The Company usually does not require
collateral. We have recorded an allowance for doubtful accounts of
$47,463 and $33,000 as of March 31, 2021 and December 31,
2020, respectively. Bad debt expense was $16,963 and $11,250
for the three-month periods ended March 31, 2021 and 2020,
respectively.
Concentration
of Credit Risk and Significant Customers and Vendors
As of
March 31, 2021, two customers accounted for more than 10% of
the accounts receivable balance, at 26% and 11%, for a total of
37%.
As of March 31,
2020, three customers accounted for more than 10% of the accounts
receivable balance, at 32%, 16% and 12% for a total of
60%.
For the three
months ended March 31, 2021 two customers accounted for 10% of
more of total revenue, at 27% and 15%, for a total of
42%.
For the three
months ended March 31, 2020 two customers accounted for 10% or
more of total revenue, at 33% and 18%, for a total of
51%.
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 shareholders is an employee of this firm and
exerts control over this firm (see Note 11).
We are a party to
that certain license agreement with a related party firm (see Note
11). Pursuant to the license agreement the firm has granted us an
exclusive license to use certain candidate matching software and
render certain related services to us. If this relationship was
terminated or if the firm was to cease doing business or cease to
support the applications we currently utilize, we may be forced to
expend significant time and resources to replace the licensed
software. Further, the necessary replacements may not be available
on a timely basis on favorable terms, or at all. If we were to lose
the ability to use this software our business and operating results
could be materially and adversely affected.
We use a related
party firm to provide certain employer of record services (see Note
11).
We use a related
party firm to provide certain recruiting services (see Note
11).
Advertising
and Marketing Costs
The Company
expenses all advertising and marketing costs as incurred.
Advertising and marketing costs were $57,543 and $25,243 for the
three months ended March 31, 2021 and 2020,
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 hierarchical framework for measuring fair
value, and enhances fair value measurement disclosure.
ASC 825 defines
fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants
would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825
establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. ASC 825 establishes
three levels of inputs that may be used to measure fair
value:
Level 1 - Quoted
prices for identical assets or liabilities in active markets to
which we have access at the measurement date.
Level 2 - Inputs
other than quoted prices within Level 1 that are observable for the
asset or liability, either directly or indirectly.
Level 3 -
Unobservable inputs for the asset or liability.
The determination
of where assets and liabilities fall within this hierarchy is based
upon the lowest level of input that is significant to the fair
value measurement.
The Company’s
investment in available for sale securities and warrant derivative
liabilities are measured at fair value. The securities are measured
based on current trading prices using Level 1 fair value inputs.
The Company’s derivative instruments are valued using Level 3
fair value inputs. The Company 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 March 31,
2021:
|
|
Fair Value
Measurement Using
|
|
|
|
|
|
|
|
|
|
|
Available for sale
marketable securities (Note 3)
|
$ 1,647
|
$ 1,647
|
$ -
|
$ -
|
Warrant derivative
liability (Note 9)
|
$ 16,496,364
|
$ -
|
$ -
|
$ 16,496,364
|
The reconciliation
of the derivative liability measured at fair value on a recurring
basis using unobservable inputs (Level 3) is as follows for the
three months ended March 31, 2021 and 2020:
|
Three Months
Ended
March 31,
|
|
|
|
Balance at January
1
|
$ 11,537,997
|
$ 612,042
|
Additions
to derivative instruments
|
5,960,058
|
-
|
Reclassifications
to equity upon extinguishment
|
(373,070)
|
-
|
(Gain)
loss on change in fair value of derivative liability
|
(628,621)
|
565,088
|
Balance at March
31
|
$ 16,496,364
|
$ 1,177,130
|
Business
Combinations
For all business
combinations (whether partial, full or step acquisitions), the
Company records 100% of all assets and liabilities of the acquired
business, including goodwill, generally at their fair values;
contingent consideration, if any, is recognized at its fair value
on the acquisition date and, for certain arrangements, changes in
fair value are recognized in earnings until settlement and
acquisition-related transaction and restructuring costs are
expensed rather than treated as part of the cost of the
acquisition.
Intangible
Assets
Intangible assets
consist primarily of the assets acquired from Genesys in 2019,
including customer contracts and intellectual property, acquired on
March 31, 2019 and the assets acquired from Scouted and Upsider
during the first quarter of 2021 (see Note 12). Amortization
expense will be recorded on the straight line basis over the
estimated economic lives.
Goodwill
Goodwill is
comprised of the purchase price of business combinations in excess
of the fair value assigned at acquisition to the net tangible and
identifiable intangible assets acquired. Goodwill is not amortized.
The Company tests goodwill for impairment for its reporting units
on an annual basis, or when events occur, or circumstances indicate
the fair value of a reporting unit is below its carrying
value.
The Company
performs its annual goodwill and impairment assessment on December
31st of each year (see Note 4).
When evaluating the
potential impairment of goodwill, management first assess a range
of qualitative factors, including but not limited to, macroeconomic
conditions, industry conditions, the competitive environment,
changes in the market for the Company’s products and
services, regulatory and political developments, entity specific
factors such as strategy and changes in key personnel, and the
overall financial performance for each of the Company’s
reporting units. If, after completing this assessment, it is
determined that it is more likely than not that the fair value of a
reporting unit is less than its carrying value, we then proceed to
the impairment testing methodology primarily using the income
approach (discounted cash flow method).
We compare the
carrying value of the reporting unit, including goodwill, with its
fair value, as determined by its estimated discounted cash flows.
If the carrying value of a reporting unit exceeds its fair value,
then the amount of impairment to be recognized is recognized as the
amount by which the carrying amount exceeds the fair
value.
When required, we
arrive at our estimates of fair value using a discounted cash flow
methodology which includes estimates of future cash flows to be
generated by specifically identified assets, as well as selecting a
discount rate to measure the present value of those anticipated
cash flows. Estimating future cash flows requires significant
judgment and includes making assumptions about projected growth
rates, industry-specific factors, working capital requirements,
weighted average cost of capital, and current and anticipated
operating conditions. The use of different assumptions or estimates
for future cash flows could produce different results.
Long-lived
assets
Long-lived assets
are reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be
recoverable. The Company periodically evaluates whether events and
circumstances have occurred that indicate possible impairment. When
impairment indicators exist, the Company estimates the future
undiscounted net cash flows of the related asset or asset group
over the remaining life of the asset in measuring whether or not
the asset values are recoverable.
Stock-Based
Compensation
We account for our
stock-based compensation under ASC 718 “Compensation –
Stock Compensation” using the fair value based method. Under
this method, compensation cost is measured at the grant date based
on the value of the award and is recognized over the shorter of the
service period or the vesting period of the stock-based
compensation. This guidance establishes standards for the
accounting for transactions in which an entity exchanges 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. Determining the fair value of stock-based
compensation at the grant date under this model requires judgment,
including estimating volatility, employee stock option exercise
behaviors and forfeiture rates. The assumptions used in calculating
the fair value of stock-based compensation represent the
Company’s best estimates, but these estimates involve
inherent uncertainties and the application of management
judgment.
Convertible
Instruments
The Company
evaluates and accounts for conversion options embedded in its
convertible instruments in accordance with various accounting
standards.
ASC 480
“Distinguishing Liabilities From Equity” provides that
instruments convertible predominantly at a fixed rate resulting in
a fixed monetary amount due upon conversion with a variable
quantity of shares (“stock settled debt”) be recorded
as a liability at the fixed monetary amount.
ASC 815
“Derivatives and Hedging” generally provides three
criteria that, if met, require companies to bifurcate conversion
options from their host instruments and account for them as free
standing derivative financial instruments. These three criteria
include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the
embedded derivative instrument and the host contract is not
re-measured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported
in earnings as they occur, and (c) a separate instrument with the
same terms as the embedded derivative instrument would be
considered a derivative instrument. Professional standards also
provide an exception to this rule when the host instrument is
deemed to be conventional as defined under professional standards
as “The Meaning of Conventional Convertible Debt
Instrument.”
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 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.
Derivative
Instruments
The Company’s
derivative financial instruments consist of derivatives related to
the warrants issued with the sale of our convertible notes in 2020
and 2021 (see Notes 7 and 9) and the warrants issued with the sale
of our Series D Preferred Stock in 2020 and 2019 (see Note 9). 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. Upon the determination that an instrument is no
longer subject to derivative accounting, the fair value of the
derivative instrument at the date of such determination will be
reclassified to paid in capital.
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
ASC 260 “Earnings Per Share” for calculating the basic
and diluted earnings (or loss) per share. Basic earnings (or loss)
per share are computed by dividing earnings (or loss) available to
common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings (or loss) per share is computed
similar to basic loss per share except that the denominator is
increased to include the number of additional shares of common
stock that would have been outstanding if the potential shares of
common stock had been issued and if the additional shares were
dilutive. Common stock equivalents are excluded from the diluted
earnings (or loss) per share computation if their effect is
anti-dilutive. Common stock equivalents in amounts of 10,972,238
and 7,474,349 were excluded from the computation of diluted
earnings per share for the 3 months ended March 31, 2021 and
2020, respectively, because their effects would have been
anti-dilutive.
|
|
|
|
|
|
Options
|
875,303
|
349,368
|
Stock
awards
|
221,600
|
161,000
|
Warrants
|
2,318,737
|
188,376
|
Convertible
notes
|
1,440,202
|
-
|
Convertible
preferred stock
|
6,116,395
|
6,775,605
|
|
10,972,237
|
7,474,349
|
Business
Segments
The Company uses
the “management approach” to identify its reportable
segments. The management approach designates the internal
organization used by management for making operating decisions and
assessing performance as the basis for identifying the
Company’s reportable segments. Using the management approach,
the Company determined that it has one operating
segment.
Recently
Issued Accounting Pronouncements
There have not been
any recent changes in accounting pronouncements and ASU issued by
the FASB that are of significance or potential significance to the
Company except as disclosed below.
In December 2019,
the FASB issued ASU 2019-12, “Simplifying the Accounting for Income
Taxes.” This guidance, among other provisions,
eliminates certain exceptions to existing guidance related to the
approach for intraperiod tax allocation, the methodology for
calculating income taxes in an interim period and the recognition
of deferred tax liabilities for outside basis differences. This
guidance also requires an entity to reflect the effect of an
enacted change in tax laws or rates in its effective income tax
rate in the first interim period that includes the enactment date
of the new legislation, aligning the timing of recognition of the
effects from enacted tax law changes on the effective income tax
rate with the effects on deferred income tax assets and
liabilities. Under existing guidance, an entity recognizes the
effects of the enacted tax law change on the effective income tax
rate in the period that includes the effective date of the tax law.
ASU 2019-12 is effective for interim and annual periods beginning
after December 15, 2020, with early adoption permitted. The
adoption of ASU 2019-12 did not have a material impact on our
consolidated financial statements.
NOTE
2 — GOING CONCERN
These unaudited
condensed consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal
course of business. The Company’s management has evaluated
whether there is substantial doubt about the Company’s
ability to continue as a going concern and has determined that
substantial doubt existed as of the date of the end of the period
covered by this report. This determination was based on the
following factors: (i) the Company has a working capital deficit as
of March 31, 2021 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 fiscal year
ending December 31, 2021 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 report and for one year from the issuance of these unaudited
condensed consolidated financial statements.
In January 2021 the
Company raised approximately $3 million in gross proceeds through
the issuance of convertible debentures and warrants as more fully
disclosed in Note 7. The Company also received $250,000 in proceeds
from a promissory note in May 2021 as more fully disclosed in Note
13. 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 shareholders’
ownership. The Company cannot guarantee when or if it will generate
positive cash flow.
In March 2020, the
outbreak of COVID-19 (coronavirus) caused by a novel strain of the
coronavirus was recognized as a pandemic by the World Health
Organization, and the outbreak has become increasingly widespread
in the United States, including in each of the areas in which the
Company operates. While to date the Company has not been required
to stop operating, management is evaluating its use of its office
space, virtual meetings and the like. We have reduced certain
billing rates to respond to the current economic climate.
Additionally, while we have experienced, and could continue to
experience, a loss of clients as the result of the pandemic, we
expect that the impact of such attrition would be mitigated by the
addition of new clients resulting from our continued efforts to
adjust the Company’s operations to address changes in the
recruitment industry. The extent to which the COVID-19 pandemic
will impact our operations, ability to obtain financing or future
financial results is uncertain at this time. Due to the effects of
COVID-19, the Company took steps to streamline certain expenses,
such as temporarily cutting certain executive compensation packages
by approximately 20%. Management also worked to reduce unnecessary
marketing expenditures and worked to improve staff and human
capital expenditures, while maintaining overall workforce levels.
The Company expects but cannot guarantee that demand for its
recruiting solutions will improve later in 2021, as certain clients
re-open or accelerate their hiring initiatives, and new clients
utilize our services. The Company does not expect reductions made
in the second quarter of 2020 due to COVID-19 will inhibit its
ability to meet client demand. Overall, management is focused on
effectively positioning the Company for a rebound in hiring which
we expect later in 2021. Ultimately, the recovery may be delayed
and the economic conditions may worsen. The Company continues to
closely monitor the confidence of its recruiter users and
customers, and their respective job requirement load through
offline discussions and the Company’s Recruiter Index
survey.
We also depend on
raising additional debt or equity capital to stay operational. The
economic impact of COVID-19 may make it more difficult for us to
raise additional capital when needed. The terms of any financing,
if we are able to complete one, will likely not be favorable to us.
If we are unable to raise additional capital, we may not be able to
meet our obligations as they come due, raising substantial doubt as
to our ability to continue as a going concern.
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. Cost basis of marketable securities held as of
March 31, 2021 and December 31, 2020 was $42,720 and
accumulated unrealized losses were $41,073 and $41,296 as of March
31, 2021 and December 31, 2020, respectively. The fair market
value of available for sale marketable securities was $1,647 as of
March 31, 2021, based on 178,000 shares of common stock held
in one entity with an average per share market price of
approximately $0.01.
Net recognized
gains (losses) on equity investments were as follows:
|
|
|
|
|
|
|
Net realized gains
(losses) on investment sold
|
$ -
|
$ (2,142)
|
Net unrealized
gains (losses) on investments still held
|
223
|
(16,644)
|
|
|
|
Total
|
$ 223
|
$ (18,786)
|
The reconciliation
of the investment in marketable securities is as follows for the
three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
Balance –
December 31
|
$ 1,424
|
$ 44,766
|
Additions
|
-
|
-
|
Proceeds on sales
of securities
|
-
|
(14,955)
|
Recognized gain
(loss)
|
223
|
(18,786)
|
Balance –
March 31
|
$ 1,647
|
$ 11,025
|
NOTE
4 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is derived
from our 2019 business acquisition. The Company performed its most
recent annual goodwill impairment test as of December 31, 2020
using market data and discounted cash flow analysis. Based on that
test, we have determined that the carrying value of goodwill was
not impaired at December 31, 2020. There were also no indicators of
impairment at March 31, 2021.
Intangible
Assets
During the three
months ended March 31, 2021, we acquired certain intangible assets
pursuant to our Scouted and Upsider acquisitions described in Note
12. These intangible assets aggregate approximately $5.9 million
and consist primarily of sales and client relationships, contracts,
intellectual property, partnership and vendor agreements and
certain other assets. We are in the process of completing the
accounting and valuations of the assets acquired and, accordingly,
the estimated fair values of these intangible assets are
provisional pending the final valuations which will not exceed one
year in accordance with ASC 805.
Intangible assets
are summarized as follows:
|
|
|
Customer
contracts
|
$ 233,107
|
$ 233,107
|
License
|
1,726,965
|
1,726,965
|
Intangible assets,
including sales and client relationships, contracts, intellectual
property, partnership and vendor agreements and certain other
assets acquired pursuant to 2021 business acquisitions (see Note
12)
|
5,853,031
|
-
|
|
7,813,103
|
1,960,072
|
Less accumulated
amortization
|
(1,323,381)
|
(1,164,208)
|
Carrying
value
|
$ 6,489,722
|
$ 795,864
|
Amortization
expense of intangible assets was $159,173 and $159,173 for the
three months ended March 31, 2021 and 2020 respectively, related to
the intangible assets acquired in business combinations. Future
amortization of intangible assets excluding the recently acquired
intangibles from the Scouted, Upsider and OneWire acquisitions is
expected to be approximately $637,000 for 2021 and $159,000 for
2022. The Company will begin amortizing intangible assets from the
three recently acquired acquisitions in the second quarter of 2021
upon completion of the purchase price allocations.
NOTE
5 — LIABILITY FOR SALE OF FUTURE REVENUES
During the three
months ended March 31, 2021 our remaining agreement related to the
sale of future revenues was paid in full. During the three months
ended March 31, 2021, we amortized the remaining $2,719 of discount
to interest expense.
NOTE
6 — LOANS PAYABLE
Lines of Credit
At March 31,
2021 and December 31, 2020 we are party to two lines of credit
with outstanding balances of $0. Advances under each of these lines
of credit mature within 12 months of the advances. Availability
under the two lines was $91,300 at March 31, 2021; however,
due to COVID -19 uncertainty (see Note 2), the availability under
both lines has been suspended since 2020.
Term Loans
We have outstanding
balances of $70,044 and $77,040 pursuant to two term loans as of
March 31, 2021 and December 31, 2020, respectively, which
mature in 2023. The loans have variable interest rates, with
current rates at 6.0% and 7.76%, respectively. Current monthly
payments under the loans are $1,691 and $1,008,
respectively.
One of the term
loans is a Small Business Administration (“SBA”) loan.
As a result of the COVID-19 uncertainty, the SBA has paid the loan
for February and March 2021. The SBA made payments on our behalf of
$3,382 during the three months ended March 31, 2021, which
have been recorded as grant income in the financial statements.
These payments were applied $2,992 to principal and $390 to
interest expense for the three months ended March 31,
2021.
The status of these
loans as of March 31, 2021 and December 31, 2020 are
summarized as follows:
|
|
|
Term
loans
|
$ 70,044
|
$ 77,040
|
Less current
portion
|
(28,609)
|
(28,249)
|
Non-current portion
(excluding PPP loan discussed below)
|
$ 41,435
|
$ 48,791
|
Future principal
payments under the term notes are as follows:
Year
Ending December 31,
|
|
|
|
2021
|
$ 21,196
|
2022
|
30,133
|
2023
|
18,715
|
Total minimum
principal payments
|
$ 70,044
|
Our Chief Operating
Officer, who is also a shareholder, has personally guaranteed the
loans described above.
Paycheck Protection Program Loan
During 2021 our
remaining loan pursuant to the Paycheck Protection Program under
the CARES Act in the amount of $24,750 was forgiven. We
recorded forgiveness of debt income of $24,925 for the $24,750 of
principal and $175 of related accrued interest
forgiven.
NOTE
7 — CONVERTIBLE NOTES PAYABLE
2020 Debentures:
In May and June
2020, the Company entered into a Securities Purchase Agreement,
effective May 28, 2020 (the “Purchase Agreement”) with
several accredited investors (the “Purchasers”). Four
of the investors had previously invested in the Company’s
preferred stock. Pursuant to the Purchase Agreement, the Company
sold to the Purchasers a total of (i) $2,953,125 in the aggregate
principal amount of 12.5% Original Issue Discount Senior
Subordinated Secured Convertible Debentures (the
“Debentures”), and (ii) 738,282 common stock purchase
warrants (the “Warrants”), which represents 100%
warrant coverage. The Company received a total of $2,226,000 in net
proceeds from the offering, after deducting the 12.5% original
issue discount of $328,125, offering expenses and commissions,
including the placement agent’s commission and fees of
$295,000, reimbursement of the placement agent’s and lead
investor’s legal fees and the Company’s legal fees in
the aggregate amount of $100,000 and escrow agent fees of $4,000.
The Company also agreed to issue to the placement agent, as
additional compensation, 147,657 common stock purchase warrants
exercisable at $5.00 per share.
The Debentures
mature on May 28, 2021, subject to a six-month extension at the
Company’s option. The Debentures bear interest at 8% per
annum payable quarterly, subject to an increase in case of an event
of default as provided for therein. The Debentures are convertible
into shares of Common Stock at any time following the date of
issuance at the Purchasers’ option at a conversion price of
$4.00 per share, subject to certain adjustments. The Debentures are
subject to mandatory conversion in the event the Company closes an
equity offering of at least $5,000,000 resulting in the listing of
the Company’s common stock on a national securities exchange.
The Debentures rank senior to all existing and future indebtedness
of the Company and its subsidiaries, except for approximately
$508,000 of outstanding senior indebtedness. The Company may prepay
the Debentures at any time at a premium as provided for
therein.
The Warrants are
exercisable for three years from May 28, 2020 at an exercise price
of $5.00 per share, subject to certain adjustments.
As of March 31,
2021, there was $2,576,125 outstanding on the Debentures (see Note
8 for conversions) with unamortized discount and debt costs of
$419,670.
2021 Debentures:
During January
2021, the Company entered into two Securities Purchase Agreements,
effective January 5, 2021 and January 20, 2021 (the “Purchase
Agreements”), with twenty accredited investors (the
“Purchasers”). Pursuant to the Purchase Agreements, the
Company agreed to sell to the Purchasers a total of (i) $2,799,000
in the aggregate principal amount of 12.5% Original Issue Discount
Senior Subordinated Secured Convertible Debentures (the
“Debentures”), and (ii) 699,750 common stock purchase
warrants (the “Warrants”), which represents 100%
warrant coverage. The Company received a total of $2,488,000 in
gross proceeds from the offerings, after deducting the 12.5%
original issue discount, before deducting offering expenses and
commissions, including the placement agent’s commission of
$241,270 (10% of the gross proceeds less $7,500 paid to its legal
counsel) and fees related to the offering of the Debentures of
$93,530. The Company also agreed to issue to the placement agent,
as additional compensation, 139,950 common stock purchase warrants
exercisable at $5.00 per share (the “PA
Warrants”).
The Debentures
mature in January 2022 on the one year anniversary, subject to a
six-month extension at the Company’s option. The Debentures
bear interest at 8% per annum payable quarterly, subject to an
increase in case of an event of default as provided for therein.
The Debentures are convertible into shares of the Company’s
common stock (the “Common Stock”) at any time following
the date of issuance at the Purchasers’ option at a
conversion price of $4.00 per share, subject to certain
adjustments. The Debentures are subject to mandatory conversion in
the event the Company closes an equity offering of at least
$5,000,000 resulting in the listing of the Common Stock on a
national securities exchange. The Debentures rank senior to all
existing and future indebtedness of the Company and its
subsidiaries, except for approximately $95,000 of outstanding
senior indebtedness. In addition, the Debentures rank pari-passu
with, and amounts owing thereunder shall be paid concurrently with,
payments owing pursuant to and in connection with that certain
offering by the Company of 12.5% Original Issue Discount Senior
Subordinated Secured Convertible Debentures due May 28, 2021
consummated in May and June 2020 in the aggregate principal amount
of $2,953,125. The Company may prepay the Debentures at any time at
a premium as provided for therein.
The Warrants are
exercisable for three years from the dates of the Purchase
Agreements at an exercise price of $5.00 per share, subject to
certain adjustments.
The Company’s
obligations under the Purchase Agreement and the Debentures are
secured by a first priority lien on all of the assets of the
Company and its subsidiaries pursuant to Security Agreements, dated
January 5, 2021 and January 20, 2021 (the “Security
Agreements”) by and among the Company, its wholly-owned
subsidiaries, and the Purchasers, subject to certain existing
senior liens. The Company’s obligations under the Debentures
are guaranteed by the Company’s subsidiaries.
The Purchase
Agreement contains customary representations, warranties and
covenants of the Company, including, among other things and subject
to certain exceptions, covenants that restrict the ability of the
Company and its subsidiaries, without the prior written consent of
the Debenture holders, to incur additional indebtedness, including
further advances under a certain preexisting secured loan, and
repay outstanding indebtedness, create or permit liens on assets,
repurchase stock, pay dividends or enter into transactions with
affiliates. The Debentures contain customary events of default,
including, but not limited to, failure to observe covenants under
the Debentures, defaults on other specified indebtedness, loss of
admission to trading on OTCQB or another applicable trading market,
and occurrence of certain change of control events. Upon the
occurrence of an event of default, an amount equal to 130% of the
principal, accrued but unpaid interest, and other amounts owing
under each Debenture will immediately come due and payable at the
election of each Purchaser, and all amounts due under the
Debentures will bear interest at an increased rate.
Pursuant to the
Purchase Agreement, the Purchasers have certain participation
rights in future equity offerings by the Company or any of its
subsidiaries after the closing, subject to customary exceptions.
The Debentures and the Warrants also contain certain price
protection provisions providing for adjustment of the number of
shares of Common Stock issuable upon conversion of the Debentures
and/or exercise of the Warrants and the conversion or exercise
price in case of future dilutive offerings.
In February 2021,
the holder of a $250,000 November 2020 promissory note elected to
convert the $250,000 note, plus accrued interest of $2,430, into
$283,984 principal amount of Debentures (including 12.5% Original
Issue Discount of $31,554) based on the same terms as those issued
in January 2021 (described above), plus 70,996
Warrants.
We have incurred a
total of $1,254,779 of debt costs related to the issuance of the
2021 Debentures, including commissions, costs and fees of $334,800.
We have also recorded a cost related to the fair value of the
placement agent warrants of $919,979 (see Note 9). The costs which
have been recorded as debt discounts are being amortized over the
life of the notes. Amortization expense was $255,793 for the three
months ended March 31, 2021. Unamortized debt costs were
$998,986 at March 31, 2021.
We have recorded a
total of $1,796,651 of debt discount related to the sale of the
2021 Debentures and February 2021 note exchange, including original
issue discount of $342,554 and a warrant discount of $1,454,097 at
fair value for the warrants issued with the debt (see Note 9). The
discount is being amortized over the life of the notes.
Amortization expense was $351,207 for the three months ended March
31, 2021. Unamortized debt discount was $1,445,444 at March 31,
2021.
NOTE
8 — STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company is
authorized to issue 10,000,000 shares of preferred stock, par value
$0.0001 per share. As of March 31, 2021 and December 31, 2020, the
Company had 1,223,279 and 1,324,022 shares of preferred stock
issued and outstanding, respectively. No shares of preferred
stock were issued during the three months ended March 31,
2021.
Series D Convertible Preferred Stock
In January 2021,
the Company issued 45,390 shares of its common stock upon
conversion of 9,078 shares of its Series D Preferred
Stock.
In February 2021,
the Company issued 220,000 shares of its common stock upon
conversion of 44,000 shares of its Series D Preferred
Stock.
In March 2021, the
Company issued 106,875 shares of its common stock upon conversion
of 21,375 shares of its Series D Preferred Stock.
Pursuant to an
agreement with the holder, 8,755 shares of Series D preferred stock
and 53,336 Series D warrants were cancelled in January
2021.
Series F Convertible Preferred Stock
In February 2021,
the Company issued 81,195 shares of its common stock upon
conversion of 16,239 shares of Series F Preferred
Stock.
In March 2021, the
Company issued 6,479 shares of its common stock upon conversion of
1,296 shares of Series F Preferred Stock.
Common Stock
The Company is
authorized to issue 100,000,000 shares of common stock, par value
$0.0001 per share. As of March 31, 2021 and December 31,
2020 the Company had 2,910,075 and 2,201,604 shares of common stock
outstanding, respectively.
Shares issued upon conversion of preferred stock
In January 2021,
the Company issued 45,390 shares of its common stock upon
conversion of 9,078 shares of its Series D Preferred
Stock.
In February 2021,
the Company issued 220,000 shares of its common stock upon
conversion of 44,000 shares of its Series D Preferred
Stock.
In February 2021,
the Company issued 81,195 shares of its common stock upon
conversion of 16,239 shares of Series F Preferred
Stock.
In March 2021, the
Company issued 106,875 shares of its common stock upon conversion
of 21,375 shares of its Series D Preferred Stock.
In March 2021, the
Company issued 6,479 shares of its common stock upon conversion of
1,296 shares of Series F Preferred Stock.
Shares issued for Business Acquisition
In January 2021, we
issued a total of 175,421 shares of common stock pursuant to the
Scouted acquisition described in Note 12.
Shares to be issued for Business Acquisitions
Shares to be issued
for acquisitions at March 31, 2021 include 15,591 common shares to
be issued for Scouted and 271,153 common shares to be issued for
Upsider which is more fully described in Note 12.
Shares granted for services
On June 18, 2020
the Company awarded to Evan Sohn, our Executive Chairman and CEO,
221,600 restricted stock units (the “RSUs”) subject to
and issuable upon the listing of the Company’s common stock
on the Nasdaq Capital Market or NYSE American, or any successor of
the foregoing (the “Uplisting”). The RSUs will vest
over a two-year period from the date of the Uplisting in equal
quarterly installments on the last day of each calendar quarter,
with the first portion vesting on the last day of the calendar
quarter during which the Uplisting takes place, subject to Mr. Sohn
serving as an executive officer of the Company on each applicable
vesting date, provided that the RSUs shall vest in full immediately
upon the termination of Mr. Sohn’s employment by the Company
without Cause (as defined in the Employment Agreement). The RSU
award has been valued at $1,662,000 and compensation expense will
be recorded over the estimated vesting period. We recognized
compensation expense of $148,836 during the three months ended
March 31, 2021. The shares have not been issued at
March 31, 2021.
In March 2021, we
issued to Mr. Sohn 1,625 shares of common stock as payment for
$16,425 of compensation which had been accrued at December 31,
2020.
Shares issued upon conversion of convertible
notes
During the three
months ended March 31, 2021, the Company issued 71,485 shares of
its common stock upon conversion of $283,637 of convertible notes
payable and related accrued interest of $2,302 (see note
7).
NOTE
9 — STOCK OPTIONS AND WARRANTS
Stock
Options
On March 9, 2021
the Company granted to employees an aggregate of 159,000 options to
purchase common stock, exercisable at $8.625 per share, under the
terms of the 2017 Equity Incentive Plan. The options have a term of
five years. The options will vest quarterly over one year, with the
first portion vesting on June 9, 2021. The options have been valued
at $1,371,231 using the Black Sholes model and compensation expense
will be recorded over the vesting period. We have recorded
compensation expense of $85,702 related to the options during the
three months ended March 31, 2021. The assumptions used in the
Black Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 346%, (3) risk-free interest rate of 0.8%,
(4) expected term of 5 years.
On February 10,
2021 the Company granted to a director 20,000 options to purchase
common stock, exercisable at $6.75 per share, under the terms of
the 2017 Equity Incentive Plan. The options have a term of five
years. The options will vest quarterly over three years with the
first portion vesting on May 10, 2021. The options have been valued
at $134,986 using the Black Sholes model and compensation expense
will be recorded over the vesting period. We have recorded
compensation expense of $6,300 related to the options during the
three months ended March 31, 2021. The assumptions used in the
Black Scholes model are as follows: (1) dividend yield of 0%; (2)
expected volatility of 354%, (3) risk-free interest rate of 0.8%,
(4) expected term of 5 years.
On March 24, 2021
the Company granted to a director 20,000 options to purchase common
stock, exercisable at $8.125 per share, under the terms of the 2017
Equity Incentive Plan. The options have a term of five years. The
options will vest quarterly over three years, with the first
portion vesting on June 24, 2021. The options have been valued at
$162,491 using the Black Sholes model and compensation expense will
be recorded over the vesting period. We have recorded compensation
expense of $1,128 related to the options during the three months
ended March 31, 2021. The assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%; (2) expected
volatility of 359%, (3) risk-free interest rate of 0.83%, (4)
expected term of 5 years.
During the three
months ended March 31, 2021, we recorded $260,440 of
compensation expense related to stock options granted in prior
years.
Warrants
Recorded as Derivative Liabilities
Series D Preferred Stock Warrants
The Company
identified embedded features in the warrants issued with Series D
Preferred Stock in 2019 and 2020 which caused the warrants to be
classified as a derivative 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.
During the three
months ended March 31, 2021, the Company recorded other income of
$478,295, respectively, related to the change in the fair value of
the derivative. The fair value of the embedded derivative was
$3,812,098 as of March 31, 2021, determined using the Black Scholes
model based on a risk-free interest rate of 0.35% - 0.635%, an
expected term of 3 – 4.1 years, an expected volatility of 209
– 308% and a 0% dividend yield.
On January 5, 2021,
pursuant to an agreement with the holder, 53,336 Series D warrants
were cancelled. We have reclassified the $373,070 derivative value
of the warrants to paid in capital upon
extinguishment.
Convertible Debenture Warrants and Placement Agent
Warrants
The Company
identified embedded features in the warrants issued with the
convertible debt and the placement agent warrants in 2020 and 2021
(see Note 7) and which caused the warrants to be classified as a
derivative 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 2021 Debenture warrants, the Company determined a fair
value of $5,040,080 for the 770,746 warrants. The fair value of the
warrants was determined using the Black-Scholes Model based on a
risk-free interest rate of 0.17% - 0.19%, an expected term of 3
years, an expected volatility of 215% - 216% and a 0% dividend
yield. Of this amount, $1,454,097 was recorded as debt discount
(see Note 7) and $3,585,983 was charged to expense as initial
derivative expense.
As of the issuance
date of the 2021 placement agent warrants, the Company determined a
fair value of $919,979 for the 139,950 warrants. The fair value of
the warrants was determined using the Black-Scholes Model based on
a risk-free interest rate of 0.17% - 0.19%, an expected term of 3
years, an expected volatility of 215% and a 0% dividend yield. The
value of $919,979 has been recorded as a debt discount for debt
cost (see Note 7).
During the three
months ended March 31, 2021, the Company recorded other income of
$150,326 related to the change in the fair value of the derivative.
The fair value of the embedded derivative was $12,684,266 as of
March 31, 2021, determined using the Black Scholes model based on a
risk-free interest rate of 0.16% - 0.35%, an expected term of 2.16
– 2.85 years, an expected volatility of 212% - 220% and a 0%
dividend yield.
NOTE
10 — COMMITMENTS AND CONTINGENCIES
Although not a
party to any proceedings or claims at March 31, 2021, the Company
may be subject to legal proceedings and claims from time-to-time
arising out of our operations in the ordinary course of
business.
Leases:
On March 31, 2019,
the Company entered into a sublease with a related party (see Note
11) for its current corporate headquarters. The sublease expires in
November 2022. Monthly lease payments increased from $7,307 to
$7,535 in April 2021 and continue at that rate for the remainder 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
months ended March 31, 2021, lease costs amounted to $37,582 which
includes base lease costs of $21,921 and common area and other
expenses of $15,661. For the three months ended March 31, 2020,
lease costs amounted to $37,910 which includes base lease costs of
$21,234 and common area and other expenses of $16,676. All costs
were expensed during the periods and included in general and
administrative expenses on the accompanying consolidated statements
of operations.
Right-of-use asset
(“ROU”) is summarized below:
|
|
Operating office
lease
|
$ 269,054
|
Less accumulated
reduction
|
(146,757)
|
Balance of ROU
asset at March 31, 2021
|
$ 122,297
|
Operating lease
liability related to the ROU asset is summarized
below:
|
|
Total lease
liability
|
$ 269,054
|
Reduction of lease
liability
|
(146,757)
|
Total
|
122,297
|
Less short term
portion as of March 31, 2021
|
(73,378)
|
Long term portion
as of March 31, 2021
|
$ 48,919
|
Future base lease
payments under the non-cancellable operating lease at March 31,
2021 are as follows:
2021
|
$ 67,815
|
2022
|
82,885
|
Total minimum
non-cancellable operating lease payments
|
150,700
|
Less discount to
fair value
|
(28,403)
|
Total fair value of
lease payments
|
$ 122,297
|
COVID-19 Uncertainty:
In late 2019, an
outbreak of COVID-19 was first reported in Wuhan, China. In March
2020, the World Health Organization declared the COVID-19 outbreak
a global pandemic. The COVID-19 pandemic has resulted in the
implementation of significant governmental measures, including
lockdowns, closures, quarantines and travel bans around the world
aimed at controlling the spread of the virus. Businesses are also
taking precautions, including requiring employees to work remotely
or take leave, imposing travel restrictions and temporarily closing
their facilities. Initial unemployment numbers have spiked.
Uncertainties regarding the impact of COVID-19 on economic
conditions are likely to result in sustained market turmoil and
reduced demand for employees, which in its turn has had a negative
impact on the recruitment and staffing industry. According to a
June 2020 report from CEO. Today, the U.S. staffing industry, which
previously boasted a market size of $152 billion fell to roughly
$119 billion since the COVID-19 outbreak; bringing it down to its
lowest level since 2013. This represents a 21% decrease from
2019.
To date the
economic impact of COVID-19 has resulted in certain reductions in
the Company’s business and the Company has devoted efforts to
shifting its focus in areas of hiring. As of the date of this
filing, to the Company’s knowledge, no customer of the
Company has gone out of business nor have any counterparties
attempted to assert the existence of a force majeure clause, which
excuses contractual performance. Because we depend on continued
demand for recruitment services, a downturn in the recruitment and
staffing industry would have a material adverse impact on our
business and results of operations.
While to date the
Company has not been required to stop operating, management is
evaluating its use of its office space, virtual meetings and the
like. We have reduced certain billing rates to respond to the
current economic climate. Additionally, while we have experienced,
and could continue to experience, a loss of clients as the result
of the pandemic, we expect that the impact of such attrition would
be mitigated by the addition of new clients resulting from our
continued efforts to adjust the Company’s operations to
address changes in the recruitment industry. The extent to which
the COVID-19 pandemic will impact our operations, ability to obtain
financing or future financial results is uncertain at this time.
Due to the effects of COVID-19, the Company took steps to
streamline certain expenses, such as temporarily cutting certain
executive compensation packages by approximately 20%. Management
also worked to reduce unnecessary marketing expenditures and worked
to improve staff and human capital expenditures, while maintaining
overall workforce levels. The Company expects but cannot guarantee
that demand for its recruiting solutions will improve later in
2021, as certain clients re-open or accelerate their hiring
initiatives, and new clients utilize our services. The Company does
not expect reductions made in the second quarter of 2020 due to
COVID-19 will inhibit its ability to meet client demand. Overall,
management is focused on effectively positioning the Company for a
rebound in hiring which we expect later in 2021. Ultimately, the
recovery may be delayed and the economic conditions may worsen. The
Company continues to closely monitor the confidence of its
recruiter users and customers, and their respective job requirement
load through offline discussions and the Company’s Recruiter
Index survey.
We also depend on
raising additional debt or equity capital to stay operational. The
economic impact of COVID-19 may make it more difficult for us to
raise additional capital when needed. The terms of any financing,
if we are able to complete one, will likely not be favorable to us.
If we are unable to raise additional capital, we may not be able to
meet our obligations as they come due, raising substantial doubt as
to our ability to continue as a going concern.
NOTE
11 — RELATED PARTY TRANSACTIONS
During 2018 we
entered into a marketing agreement with an entity controlled by a
consultant (who is also a principal shareholder and former
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 March 31, 2021 no fees were due or
payable under this arrangement.
During 2019 we
entered into a two year non-exclusive consulting agreement with a
principal shareholder to act as Company’s consultant with
respect to introducing the Company to potential acquisition and
partnership targets. The Company has agreed to pay the consultant a
retainer of $10,000 per month as a non-recoverable draw against any
finder fees earned. The Company has also agreed to 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 $13,500 during
each of the three month periods ended March 31, 2021 and 2020. At
March 31, 2021, $93,500 of the Genesys finder’s fee and
$22,500 of monthly fee expense is included in accrued
compensation.
Under a technology
services agreement entered into on January 17, 2020, we use a
related party firm of the Company, Recruiter.com Mauritius, for
software development and maintenance related to our website and the
platform underlying our operations. This arrangement was oral prior
to January 17, 2020. The initial term of the Services Agreement is
five years, whereupon it shall automatically renew for additional
successive 12-month terms until terminated by either party by
submitting a 90-day prior written notice of non-renewal. The firm
was formed outside of the United States solely for the purpose of
performing services for the Company and has no other clients. Our
Chief Technology Officer is an employee of this firm and exerts
control over the firm. Pursuant to the Services Agreement, the
Company has agreed to pay Recruiter.com Mauritius fees in the
amount equal to the actualized documented costs incurred by
Recruiter.com Mauritius in rendering the services pursuant to the
Services Agreement. Payments to this firm were $57,988 and $60,979
for the three months ended March 31, 2021 and 2020,
respectively, and are included in product development expense in
our consolidated statement of operations.
We are a party to
that certain license agreement with Genesys. An executive officer
of the Company is a significant equity holder and a member of the
Board of directors of Genesys. Pursuant to the License Agreement
Genesys has granted us an exclusive license to use certain
candidate matching software and renders certain related services to
us. The Company has agreed to pay to Genesys (now called Opptly) a
monthly license fee of $5,000 beginning June 29, 2019 and an annual
fee of $1,995 for each recruiter being licensed under the License
Agreement along with other fees that might be incurred. The Company
has also agreed to pay Opptly monthly sales subscription fees
beginning September 5, 2019 when Opptly assists with closing a
recruiting program. During the three months ended March 31, 2021
and 2020, we charged to operating expenses $40,114 and $38,477 for
services provided by Opptly. As of March 31, 2021, the Company owes
Opptly $73,466 in payables.
Icon Information
Consultants performs all of the back office and accounting roles
for Recruiting Solutions. Icon Information Consultants then charges
a fee for the services along with charging for office space. Icon
Information Consultants and Icon Industrial Solutions (collectively
“Icon”) also provide “Employer of Record”
(“EOR”) services to Recruiting Solutions which means
that they process all payroll and payroll tax related duties of
temporary and contract employees placed at customer sites and is
then paid a reimbursement and fee from Recruiting Solutions. A
representative of Icon is a member of our board of directors. Icon
Canada also acts as an EOR and 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 $35,232 and $33,227 for the
three months ended March 31, 2021 and 2020, respectively. EOR costs
related to customers processed by Icon Canada was $32,944 and
$31,070 for the three months ended March 31, 2021 and 2020,
respectively. Currently, there is no intercompany agreement for
those charges and they are calculated on a best estimate basis. As
of March 31, 2021, the Company owes Icon $835,810 in payables and
Icon Canada owes $21,431 (included in accounts receivable) to the
Company. During the three months ended March 31, 2021 and 2020, we
charged to cost of revenue $154,572 and $624,314, respectively,
related to services provided by Icon as our employer of record.
During the three months ended March 31, 2021 and 2020, we charged
to operating expenses $73,018 and $70,941, respectively, related to
management fees, rent and other administrative expense. During the
three months ended March 31, 2021, we charged to interest expense
$12,273, related to finance charges on accounts payable owed to
Icon.
We also recorded
placement revenue from Icon of $970 and $6,410 during the three
months ended March 31, 2021 and 2020, respectively. We have a
receivable from Icon of $22,951 which is included in accounts
receivable at March 31, 2021.
We use a related
party firm of the Company to pay certain recruiting services
provided by employees of the firm. During the three months ended
March 31, 2021, we charged to cost of revenue $17,745 related to
services provided, with no expense in the 2020 three month period.
We owed $11,944 to this firm at March 31, 2021.
NOTE
12 — BUSINESS COMBINATIONS
Scouted Asset Purchase
Effective January
31, 2021, the Company, through a wholly-owned subsidiary, acquired
all assets of RLJ Talent Consulting, Inc., d/b/a Scouted,
(“Scouted”) (the “Scouted Asset Purchase”).
As consideration for the Scouted Asset Purchase, Scouted
shareholders are entitled to a total of 224,163 shares of our
restricted Common Stock (valued at $1,625,183 based on a $7.25 per
share acquisition date price), of which 33,151 shares of stock will
be held in reserve and are recorded as contingent consideration, a
current liability in the accompanying financial statements, and an
additional amount of $180,000 in cash consideration for a total
purchase price of approximately $1.8 million. The Scouted Asset
Purchase will be accounted for as a business acquisition. The
assets acquired in the Scouted Asset Purchase consist primarily of
sales and client relationships, contracts, intellectual property,
partnership and vendor agreements and certain other assets (the
“Scouted Assets”), along with a de minimis amount of
other assets. The Company will complete the purchase price
allocation of the $1.8 million for the acquired intangible assets
during 2021. The Company is utilizing the Scouted Assets to expand
its video hiring solutions and curated talent solutions, through
its Recruiting Solutions subsidiary.
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 following is a
summary of the estimated fair value of the assets acquired at the
date of acquisition:
Intangible assets,
including sales and client relationships, contracts, intellectual
property, partnership and vendor agreements and certain other
assets
|
$ 1,805,183
|
|
$ 1,805,183
|
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 and the allocation of
purchase price noted above is provisional pending the final
valuations which will not exceed one year in accordance with ASC
805.
Upsider Asset Purchase
Effective March 25,
2021, the Company, through a wholly-owned subsidiary, entered into
an Asset Purchase Agreement and Plan of Reorganization (the
“APA”) with Upsider, Inc., (“Upsider”), to
acquire all the assets and certain liabilities of Upsider (the
“Upsider Purchase”). As consideration for the Upsider
Purchase, Upsider’s shareholders will receive net cash of
$69,983 and a total of 323,094 shares of our common stock (the
“Consideration Shares”) (valued at $2,544,362, based on
a $7.875 per share acquisition date price), of which 51,940 of the
Consideration Shares will be held in reserve and are recorded as a
current liability, contingent consideration in the accompanying
financial statements. The shareholders of Upsider may also receive
earn-out consideration of up to $1,394,760, based on the attainment
of specific targets during the six months following closing. We
have recorded the fair value of the contingent earn-out
consideration of $1,325,003 at March 31, 2021. The total purchase
price is approximately $3.9 million. The assets acquired in the APA
consist primarily of sales and client relationships, contracts,
intellectual property, partnership and vendor agreements and a de
minimis amount of other assets. The Company is utilizing
Upsider’s machine learning artificial intelligence to provide
a more predictive and efficient recruiting tool that enhances our
current technology.
The Company also
entered into a Registration Rights Agreement with Upsider (the
“Registration Rights Agreement”). The Registration
Rights Agreement provides that following the Six-Month Anniversary
(as defined in the Registration Rights Agreement), and for a period
of five years thereafter, Upsider shall have the ability, on three
occasions, to demand that Company shall file with the Securities
and Exchange Commission a registration statement on Form S-1 or
Form S-3, pursuant to the terms of the Registration Rights
Agreement, to register the Consideration Shares. Additionally,
pursuant to the Registration Rights Agreement, for a period of
three years following the Six-Month Anniversary, whenever the
Company proposes to register the issuance or sale of any of its
Common Stock or its own account or otherwise, and the registration
form to be used may be used for the registration of the
Consideration Shares.
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 following is a
summary of the estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition:
Intangible assets,
including sales and client relationships, contracts, intellectual
property, partnership and vendor agreements and certain other
assets
|
$ 4,047,848
|
|
(108,500)
|
|
$ 3,939,348
|
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 and the allocation of
purchase price noted above is provisional pending the final
valuations which will not exceed one year in accordance with ASC
805.
Pro Forma Information
The results of
operations of Scouted and Upsider are included in the
Company’s consolidated financial statements from the dates of
acquisition. The following supplemental unaudited pro forma
combined financial information assumes that the acquisition had
occurred at the beginning of the three months ended March 31, 2021
and 2020:
|
|
|
|
|
|
Revenue
|
$ 3,315,311
|
$ 2,580,491
|
Net
Loss
|
$ (6,250,817)
|
$ (2,545,822)
|
Loss per common
share, basic and diluted
|
$ (2.15)
|
$ (1.20)
|
The pro forma
financial information is not necessarily indicative of the results
that would have occurred if the acquisition had occurred on the
dates indicated or that result in the future.
NOTE
13 — SUBSEQUENT EVENTS
Common Stock
We issued a total
of 341,200 shares of common stock upon the conversion of 68,312
shares of Series D preferred stock.
We issued 271,153
shares of issuable common stock pursuant to the Upsider acquisition
described in Note 12.
We issued 20,000
shares of common stock for services valued at $152,500. This amount
is included in accrued expenses at March 31, 2021.
Common Stock Options
We granted an
aggregate of 50,400 common stock options. The options have an
exercise price of $8.125, vest over various periods through May
2023 and expire in five years.
Convertible
Debentures
We issued 17,688
shares of common stock upon the conversion of $70,750 principal of
convertible debentures.
Promissory Note Payable
We received
$250,000 in proceeds from a promissory note dated May 6, 2021. The
note bears interest at 12% per year and matures on May 6,
2023.
Business Acquisition
Effective
May 10, 2021, we, through a wholly-owned subsidiary, entered into
an Asset Purchase Agreement and Plan of Reorganization (the
“APA”) with OneWire Holdings, LLC, a Delaware limited
liability company (“OneWire”), to acquire all the
assets and several liabilities of OneWire (the “OneWire
Purchase”). As consideration for the OneWire Purchase,
OneWire’s shareholders will receive a total of 155,327 shares
(the “Consideration Shares”) of common stock, valued at
$1,255,000, based on a price per share of $8.079735, the
volume-weighted average price of the common stock for the 30-day
period immediately prior to the Closing Date (as defined in the
APA). 31,066 of the Consideration Shares are subject to forfeiture
pursuant to APA provisions regarding a post-closing working capital
adjustment and a revenue true-up and pursuant to OneWire’s
indemnity obligations. The assets acquired in the APA consist
primarily of sales and client relationships, contracts,
intellectual property, partnership and vendor agreements and
certain other assets, along with a de minimis amount of other
assets. OneWire’s expansive candidate database in financial
services and candidate matching service amplify our reach to give
employers and recruiters access to an even broader pool of
specialized talent.
Reverse Stock Split
On June 18, 2021 the Company filed an Amendment to the Articles of
Incorporation to effectuate a reverse split of the Company’s
issued and outstanding common stock at an exchange ratio of
1-for-2.5. The reverse stock split was effective as of June 18,
2021. Simultaneously with the reverse stock split, the
company reduced the authorized shares from 250,000,000 to
100,000,000. All share and per share data in the accompanying
consolidated financial statements and footnotes has been
retroactively adjusted to reflect the effects of the reverse stock
split.
2,400,000 Units
Each Unit Consisting of One Share of Common Stock and
One Warrant to Purchase Common Stock
PROSPECTUS
Sole Book-Running Manager
Joseph Gunnar & Co. LLC
June 29, 2021