Recruiter.com Group, Inc. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2023

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________:

Commission file number: 001-40563

RECRUITER.COM GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		90-1505893
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 Seventh Avenue New York, New York		10018
(Address of principal executive offices)		(Zip Code)

Issuer’s telephone number (855) 931-1500

___________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

Common Stock Purchase Warrants

RCRT

RCRTW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 13, 2023, the number of shares of the registrant’s common stock outstanding was 17,792,151.

		Page
		number

Part I - Financial Information
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022	4
	Consolidated Statements of Changes in Stockholders’ Equity for the three and Six months ended June 30, 2023 and 2022	5
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46

Part II - Other Information
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Recruiter.com Group, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30,			December 31,
	2023			2022
	(Unaudited)
ASSETS

Current assets:
Cash	$	442,456		$	946,804
Accounts receivable, net of allowance for doubtful accounts of $1,558,728 and $1,446,613, respectively		1,398,670			3,189,816
Prepaid expenses and other current assets		265,810			255,548

Total current assets		2,106,936			4,392,168

Property and equipment, net of accumulated depreciation of $29,724 and $17,210, respectively		48,825			61,340
Intangible assets, net		1,945,264			2,578,692
Goodwill		7,101,084			7,101,084

Total assets	$	11,202,109		$	14,133,284

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	1,392,436		$	1,569,814
Accrued expenses		879,241			911,386
Accrued compensation		214,286			410,957
Accrued interest		175,515			81,576
Deferred payroll taxes		2,484			2,484
Other liabilities		386,805			17,333
Loans payable - current portion, net of discount		4,230,479			3,700,855
Refundable deposit on preferred stock purchase		285,000			285,000
Warrant liability for puttable warrants		600,000			600,000
Deferred revenue		174,591			215,219

Total current liabilities		8,340,837			7,794,624

Loans payable - long term portion		1,001,310			1,260,343

Total liabilities		9,342,147			9,054,967

Commitments and contingencies (Note 9)

Stockholders' Equity:
Preferred stock, Series D, $0.0001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		-			-
Preferred stock, Series E, $0.0001 par value; 775,000 shares authorized; 86,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		9			9
Preferred stock, Series F, $0.0001 par value; 200,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		-			-
Common stock, $0.0001 par value; 100,000,000 shares authorized; 17,792,151 and 16,277,764 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		1,780			1,629
Shares to be issued, 0 and 587,945 shares as of June 30, 2023 and December 31, 2022, respectively		-			59
Additional paid-in capital		75,913,399			74,332,161
Accumulated deficit		(74,055,226	)		(69,255,541	)
Total stockholders' equity		1,859,962			5,078,317

Total liabilities and stockholders' equity	$	11,202,109		$	14,133,284

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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Recruiter.com Group, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Six Months ended June 30, 2022 and 2023

(Unaudited)

	Three			Three			Six			Six
	Months Ended			Months Ended			Months Ended			Months Ended
	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Revenue	$	2,041,129		$	7,112,450		$	5,333,868		$	13,981,103
Cost of revenue		1,604,161			4,183,478			4,159,586			8,361,549

Gross Profit		436,968			2,928,972			1,174,282			5,619,554
Operating expenses:
Sales and marketing		79,453			158,040			236,036			276,796
Product development (including related party expense of $17,855, $0,$ 27,041, $16,771, and respectively)		84,282			89,473			326,562			682,859
Amortization of intangibles		325,702			917,239			633,428			1,925,712
General and administrative (including share-based compensation expense of $219,560, $669,047, $762,509 and $2,404,064, respectively, and related party expenses of $0, $0, $0 and $19,825, respectively)		886,579			4,097,397			3,720,704			9,193,101
Total operating expenses		1,376,016			5,262,149			4,916,730			12,078,468

Loss from Operations		(939,048	)		(2,333,177	)		(3,742,448	)		(6,458,914	)

Other income (expenses):
Interest expense		(647,213	)		(64,491	)		(1,161,369	)		(131,906	)
Other income (expense)		754,312			3,713			756,099			14,527
Finance cost		(327,073	)		-			(327,073	)		-
Gain on settlement of payables		178,749			-			178,749			-
Gain on debt extinguishment		-			1,205,195			-			1,205,195
Total other income (expenses)		(41,255	)		1,144,417			(533,594	)		1,087,816

Loss before income taxes		(980,273	)		(1,188,760	)		(4,296,042	)		(5,371,098	)
Provision for income taxes		-			-			-			-
Net Loss	$	(980,273	)	$	(1,188,760	)	$	(4,296,042	)	$	(5,371,098	)

Deemed dividends		-			-			(503,643	)		-
Net loss attributable to common shareholders	$	(980,273	)	$	(1,188,760	)	$	(4,799,685	)	$	(5,371,098	)

Net loss per common share - basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.28	)	$	(0.36	)
Weighted average common shares - basic and diluted		17,389,182			14,830,738			17,056,900			14,795,691

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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Recruiter.com Group, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

For the Three and Six Months ended June 30, 2023 and 2022

(Unaudited)

	Preferred stock Series D				Preferred stock Series E				Preferred stock Series F				Common stock				Common stock to be issued						Additional Paid in			Accumulated			Total Stockholders’ (Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares			Amount			Capital			Deficit			Equity
Balance as of December 31, 2022		-	$	-		86,000	$	9		-	$	-		16,277,764	$	1,629		587,945		$	59		$	74,332,161		$	(69,255,541	)	$	5,078,317
Stock based compensation - option		-		-		-		-		-		-		-		-		-			-			390,806			-			390,806
Stock based compensation - RSUs		-		-		-		-		-		-		-		-		-			-			152,143			-			152,143
Anti-dilution adjustment to warrants		-		-		-		-		-		-		-		-		-			-			503,643			(503,643	)		-
Common stock issued for restricted stock units		-		-		-		-		-		-		110,800		11		-			-			(11	)		-			-
Common stock issued upon exercise of warrants		-		-		-		-		-		-		821,521		82		-			-			315,096			-			315,178
Net loss		-		-		-		-		-		-		-		-		-			-			-			(3,315,769	)		(3,315,769	)
Balance as of March 31, 2023		-	$	-		86,000	$	9		-	$	-		17,210,085	$	1,722		587,945		$	59		$	75,693,838		$	(73,074,953	)	$	2,620,675
Stock based compensation - option		-		-		-		-		-		-		-		-		-			-			219,560			-			219,560
Common stock issued for the exchange of warrants		-		-		-		-		-		-		582,066		58		(587,945	)		(59	)		1			-			-
Net loss		-		-		-		-		-		-		-		-		-			-			-			(980,273	)		(980,273	)
Balance as of June 30, 2023		-	$	-		86,000	$	9		-	$	-		17,792,151	$	1,780		-		$	-		$	75,913,399		$	(74,055,226	)	$	1,859,962

	Preferred stock Series D				Preferred stock Series E				Preferred stock Series F				Common stock				Common stock to be issued				Additional Paid in			Accumulated			Total Stockholders’ (Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance as of December 31, 2021		-	$	-		86,000	$	9		-	$	-		14,566,420	$	1,457		587,945	$	59	$	66,948,340		$	(50,859,640	)	$	16,090,225
Stock based compensation - Options and Warrants		-		-		-		-		-		-		-		-		-		-		1,397,804			-			1,397,804
Stock based compensation - RSUs		-		-		-		-		-		-		-		-		-		-		268,956			-			268,956
Common stock issued for the exchange of warrants		-		-		-		-		-		-		112,726		11		-		-		152,233			-			152,244
Common stock issued for restricted stock units		-		-		-		-		-		-		105,675		11		-		-		(11	)		-			-
Net loss		-		-		-		-		-		-		-		-		-		-		-			(4,182,338	)		(4,182,338	)
Balance as of March 31, 2022		-	$	-		86,000	$	9		-	$	-		14,784,821	$	1,479		587,945	$	59	$	68,767,322		$	(55,041,978	)		13,726,891

Stock based compensation - Options and Warrants		-		-		-		-		-		-		-		-		-		-		381,351			-			381,351
Stock based compensation - RSUs		-		-		-		-		-		-		-		-		-		-		237,906			-			237,906
Common stock issued for restricted stock units		-		-		-		-		-		-		66,325		7		-		-		(7	)		-			-
Net loss		-		-		-		-		-		-		-		-		-		-		-			(1,188,760	)		(1,188,760	)

Balance as of June 30, 2022		-	$	-		86,000	$	9		-	$	-		14,851,146	$	1,486		587,945	$	59	$	69,386,572		$	(56,230,738	)	$	13,157,388

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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Recruiter.com Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2023 and 2022

(Unaudited)

	Six months			Six months
	June 30,			June 30,
	2023			2022
Cash Flows From Operating Activities
Net loss	$	(4,296,042	)	$	(5,371,098	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		645,943			1,926,194
Bad debt expense		200,000			363,702
Gain on debt extinguishment		-			(1,205,195	)
Equity based compensation expense		762,509			2,404,064
Warrant modification expense		-			152,244
Gain on settlement of debt		(178,749	)		-
Amortization of debt discount and debt costs		726,708			-
Change in fair value of earn-out liability		-			26,604
Factoring discount fee and interest		20,236			45,413
Changes in assets and liabilities:
Increase in accounts receivable		591,126			134,002
Decrease in accounts receivable - related parties		-			49,033
Increase (decrease) in prepaid expenses and other current assets		(10,262	)		34,821
Increase in accounts payable and accrued liabilities		(133,506	)		(357,932	)
Decrease in accounts payable and accrued liabilities - related parties		-			(137,741	)
Customer advances		-			426,136
(Decrease) increase in deferred revenue		(40,628	)		(222,818	)
Net cash used in operating activities		(1,712,665	)		(1,732,571	)

Cash Flows From Investing Activities:
Capitalized software development costs		-			(763,785	)
Net cash used in investing activities		-			(763,785	)

Cash Flows From Financing Activities:
Proceeds from ERC advances		450,000			-
Repayment of ERC advances		(80,528	)		-
Repayments of loans		(173,027	)		(1,101,400	)
Proceeds from factoring agreement		871,821			3,380,362
Repayments of factoring agreement		(175,127	)		(653,008	)
Gross proceeds from exercise of warrants		315,178			-
Net cash provided by financing activities		1,208,317			1,625,954

Net increase (decrease) in cash		(504,348	)		(870,402	)
Cash, beginning of period		946,804			2,584,062

Cash, end of period	$	442,456		$	1,713,660

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	176,769		$	59,622
Cash paid during the period for income taxes	$	-		$	-

Supplemental schedule of non-cash investing and financing activities:
Accounts receivable owed under factoring agreement collected directly by factor	$	1,000,020		$	927,376
Purchase price measurement period adjustment to goodwill and accounts receivable	$	-		$	35,644
Deemed dividends	$	503,643		$	-
Offering costs as a result of modification of warrants to induce exercise	$	10,400		$	-

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Recruiter.com Group, Inc., a Nevada corporation (“RGI” or the “Company”), is a holding company based in New York, New York. The Company has seven material 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”). RGI and its subsidiaries as a consolidated group is hereinafter referred to as the “Company,” “we”, “us” or “our”.

The Company operates an On Demand recruiting platform digitally transforming the $28.5 billion employment and recruiting agencies industry. The Company offers recruiting software and services through an online, AI-powered sourcing platform (the ″Platform”) and network of on-demand recruiters. Businesses from startups to the Fortune 100 use the Company to help address their critical talent needs and solve recruiting and hiring challenges.

The Company’s website, www.Recruiter.com, provides access to its network of recruiters to employers seeking to hire talent and utilizes an innovative web platform, software with integrated AI-driven candidate to job matching, and video screening software to source qualified talent more easily and quickly.

The Company helps businesses accelerate and streamline their recruiting and hiring processes by providing on-demand recruiting software and services. The Company leverages its expert network of recruiters to place recruiters on a project basis, aided by cutting-edge AI-based candidate sourcing and matching and video screening technologies.

Through the Company’s Recruiting Solutions division, the Company also provides consulting, staffing, and full-time placement services to employers, leveraging our platform and rounding out our services. The Company’s mission is to help recruit the right talent faster and become the preferred solution for hiring specialized talent.

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

The accompanying consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the years ended December 31, 2022 and 2021 in our Annual Report on Form 10-K, as filed with the SEC on March 31, 2023. The December 31, 2022 balance sheet is derived from those statements.

In the opinion of management, these unaudited interim financial statements as of and for the three and six months ended June 30, 2023 include all adjustments (consisting of normal recurring adjustments and non-recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period. All references to June 30, 2023 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 asset acquisitions and the estimated useful life of assets acquired, fair value of contingent consideration in asset acquisitions and business combinations, fair value of derivative liabilities, fair value of securities issued for acquisitions and business combinations, fair value of assets acquired and liabilities assumed in business combinations, fair value of intangible assets and goodwill, fair value of capitalized software, fair value of non-monetary transactions, deferred income tax asset valuation allowances, and valuation of stock based compensation expense.

Cash and Cash Equivalents

The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are maintained at financial institutions, and, at times, balances may exceed federally insured limits. At June 30, 2023 and December 31, 2022, the Company had $173,739 and $612,691 in excess of the FDIC limit, respectively. The Company has not experienced any losses related to these balances as of June 30, 2023 and December 31, 2022. 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.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

We generate revenue from the following activities:

·	Software Subscriptions: We offer a subscription to our web-based platforms that help employers recruit talent. Our platforms allow customers to source, contact, screen, and sort candidates using data science, advanced email campaigning tools, and predictive analytics. As part of our software subscriptions, we offer enhanced support packages and On Demand recruiting support services for an additional fee. Additional fees may be charged when we place a candidate with our customer, depending on the subscription type. In such cases, if the candidate ceases to be employed by the customer during the initial 90 days (the 90-day guarantee), we refund the customer in full for all fees paid by the customer. In December of 2022, we sold one of our software platforms to Talent, Inc. that was used in the delivery of the subscription service. Subsequently, we continued providing the service, but leveraged third-party tools in the delivery of services.

·	Recruiters On Demand: Consists of a consulting and staffing service specifically for the placement of professional recruiters, which we market as Recruiters On Demand. Recruiters On Demand is a flexible, time-based solution that provides businesses of all sizes access to recruiters on an outsourced, virtual basis for help with their hiring needs. As with other consulting and staffing solutions, we procure for our employer clients qualified professional recruiters, and then place them on assignment with our employer clients. We derive revenue from Recruiters On Demand by billing the employer clients for the placed recruiters' ongoing work at an agreed-upon, time-based rate. We directly source recruiter candidates from our network of recruiters. In addition, we also offer talent planning, talent assessment, strategic guidance, and organizational development services, which we market as our “Talent Effectiveness” practice. Companies prepay for a certain number of consulting hours at an agreed-upon, time-based rate. We source and provide the independent consultants that provide the service. In March 2023, we announced a strategic partnership with Job Mobz to transition certain Recruiters on Demand clients and staff to Job Mobz in exchange for an ongoing revenue stream. (See below Revenue Share).

·	Full-time Placement: Consists of providing referrals of qualified candidates to employers to hire staff for full-time positions. We generate full-time placement revenue by earning one-time fees for each time that employers hire one of the candidates that we refer. Employers alert us of their hiring needs through our Platform, or other communications. We source qualified candidate referrals for the employers’ available jobs through independent recruiter users that access the Platform and other tools. We support and supplement the independent recruiters’ efforts with dedicated internal employees we call our internal talent delivery team. Our talent delivery team selects and delivers candidate profiles and resumes to our employer clients for their review and ultimate selection. Upon the employer hiring one or more of our candidate referrals, we earn a “full-time placement fee”, an amount separately negotiated with each employer client. The full-time placement fee is typically either a percentage of the referred candidates’ first year base salary or an agreed-upon flat fee.

·	Marketplace: Our Marketplace category comprises services for businesses and individuals that leverage our online presence and career communities. For businesses, this includes job postings, sponsorship of digital newsletters, online content promotion, social media distribution, banner advertising, and other branded electronic communications, such as in our quarterly digital publication on recruiting trends and issues. We earn revenue by completing agreed upon marketing related deliverables and milestones using pricing and terms set by mutual agreement with the customer. In some cases, we earn a percentage of revenue a business receives from attracting new clients by advertising on the Platform. Companies can also pay us to post job openings on our proprietary job boards to promote open job positions they are trying to fill. In addition to our work with direct clients, we categorize all online advertising and affiliate marketing revenue as Marketplace revenue. For individuals, Marketplace includes services to assist with career development and advancement, including a resume distribution service that promotes these job seekers’ profiles and resumes to help with their procuring employment, upskilling, and training. Our resume distribution service allows a job seeker to upload their resume to our database, which we then distribute to our network of recruiters on the Platform. We earn revenue from a one-time flat fee for this service. We also offer a recruiter training program through our online learning management system, located at RecruitingClasses.com and other training and upskilling programs.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

·	Consulting and Staffing: Consists of providing consulting and staffing personnel services to employers to satisfy their demand for long- and short-term consulting and temporary employee needs. We generate revenue by first referring qualified personnel for the employer’s specific talent needs, then placing such personnel with the employer, but with our providers acting as the employer of record for us, and finally, billing the employer for the time and work of our placed personnel on an ongoing basis. Our process for finding candidates for consulting and staffing engagements largely mirrors our process for full-time placement hiring. This process includes employers informing us of open consulting and temporary staffing opportunities and projects, sourcing qualified candidates through the Platform and other similar means, and, finally, the employer selecting our candidates for placement after a process of review and selection. We bill these employer clients for our placed candidates’ ongoing work at an agreed-upon, time-based rate, typically on a weekly schedule of invoicing.

·	Revenue Share: We refer certain clients to a third party in exchange for a referral fee. The amount of the referral fee is dependent upon whether the referral is an existing client of ours and what services we currently provide that client, or a client of a third party who is not historically serviced by us. Referral fees under the revenue share arrangement are subject to certain minimum and maximum payout amounts. We record referral fees earned under our revenue share arrangement on a net basis.

We have a sales team and sales partnerships with direct employers as well as vendor management system companies and managed service companies that help create sales channels for clients that buy staffing, direct hire, and sourcing services. Once we have secured the relationship and contract with the interested Enterprise customer, the delivery and product teams will provide the service to fulfil any or all of the revenue segments.

Revenues as presented on the consolidated statements of operations represent services rendered to customers less sales adjustments and allowances.

Software subscription revenues are recognized over the term of the subscription for access to services and/or our web-based platform. Revenue is recognized monthly over the subscription term. Talent effectiveness subscription revenues are recognized over the term of the subscription when services are provided. Any payments received prior to the time passing to provide the subscription services are recorded as a deferred revenue liability. Revenue generated from the enhanced support package and On Demand support are recognized at the point-in-time when the service is provided. Revenue generated from placement fees that are related to the software subscription are recognized at the point-in-time when the 60 or 90-day guarantee expires.

Recruiters On Demand services are billed to clients as either monthly subscriptions or time-based billings. Revenues for Recruiters On Demand are recognized on a gross basis when each monthly subscription service is completed. Talent Effectiveness consulting services are billed to clients upfront for a period of months. Revenue is recognized on a gross basis monthly over the period the consulting services are provided.

Full time placement revenues are recognized on a gross basis when the guarantee period specified in each customer’s contract expires. No fees for direct hire placement services are charged to the employment candidates. Any payments received prior to the expiration of the guarantee period are recorded as a deferred revenue liability. Payments for recruitment services are typically due within 90 days of completion of services.

Marketplace Solutions revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services.

Marketplace advertising revenues are recognized on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services. Job posting revenue is recognized at the end of the period the job is posted. Marketplace career services revenues are recognized on a gross basis upon distribution of resumes or completion of training courses, which is the point at which the performance obligations are satisfied. Payments for career services are typically due upon distribution or completion of services.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Consulting and Staffing Services revenues represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in the net service revenues and equivalent amounts of reimbursable expenses are included in costs of revenue. We record substantially all revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of this line of revenues and expenses. We have concluded that gross reporting is appropriate because we have the task of identifying and hiring qualified employees, and our discretion to select the employees and establish their compensation and duties causes us to bear the risk for services that are not fully paid for by customers. Consulting and staffing revenues are recognized when the services are rendered by the temporary employees. We assume the risk of acceptability of the employees to customers. Payments for consulting and staffing services are typically due within 90 days of completion of services.

Revenue share revenues represent a percentage of revenue we have earned in relation to client referrals we made to a third party. We record revenue in relation to revenue share on a net basis as an agent under this arrangement. We have concluded that net reporting is appropriate because we do not provide the underlying services and arrangements to meet the demands of the client that we referred to the third party. Revenue is recorded based on a net percentage of revenue that is shared between us and the third party and earned upon delivery of the services by the third party. The third party provides the underlying services in this arrangement.

Deferred revenue results from transactions in which we have been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.

Sales tax collected is recorded on a net basis and is excluded from revenue.

Contract Assets

The Company does not have any contract assets such as work-in-process. All trade receivables on the Company’s balance sheet are from contracts with customers.

Contract Costs

Costs incurred to obtain a contract are capitalized unless they are short term in nature. As a practical matter, costs to obtain a contract that are short term in nature are expensed as incurred. The Company does not have any contract costs capitalized as of June 30, 2023 or December 31, 2022.

Contract Liabilities - Deferred Revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. Deferred revenue results from transactions in which the Company has been paid for services by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the deferred revenues are recognized.

Revenue Disaggregation

For each of the identified periods, revenues can be categorized into the following:

	Three Months Ended June 30,
	2023		2022
Recruiters on Demand	$	209,902	$	4,684,062
Consulting and staffing services		1,511,538		940,474
Software Subscriptions		35,046		808,052
Marketplace Solutions		182,203		366,537
Full time placement fees		-		313,325
Revenue Share		102,440		-
Total revenue	$	2,041,129	$	7,112,450

	Six Months Ended June 30,
	2023		2022
Recruiters on Demand	$	1,786,755	$	8,890,047
Consulting and staffing services		2,630,900		2,272,754
Software Subscriptions		412,941		1,504,737
Marketplace Solutions		380,832		695,990
Full time placement fees		20,000		617,575
Revenue Share		102,440		-
Total revenue	$	5,333,868	$	13,981,103

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

As of June 30, 2023 and December 31, 2022, deferred revenue amounted to $174,591 and $215,219, respectively. During the six months ended June 30, 2023, the Company recognized $209,350 of revenue that was deferred as of December 31, 2022. Deferred revenue as of June 30, 2023 is categorized and expected to be recognized as follows:

Expected Deferred Revenue Recognition Schedule

	Total Deferred June 30, 2023		Recognize Q3 2023		Recognize Q4 2023		Recognize 2024
Recruiters on Demand	$	49,371	$	49,371	$	-	$	-
Software Subscriptions	$	2,663	$	2,663	$	-	$	-
Marketplace Solutions	$	122,557	$	77,041	$	28,807	$	16,709
TOTAL	$	174,591	$	129,075	$	28,807	$	16,709

Revenue from international sources was approximately 0.2% and 3.0% for the three months ended June 30, 2023 and 2022, 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 $1,558,728 and $1,446,613 as of June 30, 2023 and December 31, 2022, respectively. Bad debt expense was $0 and $345,202 for the three-month periods ended June 30, 2023 and 2022, respectively, and $200,000 and $363,702 for the six month periods ending June 30, 2023 and 2022, respectively.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred.

Property and equipment depreciation expense for the three months ended June 30, 2023 and 2022 was $6,258 and $192 respectively and was $12,516 and $481 for the six months ended June 30, 2023 and 2022, respectively.

Concentration of Credit Risk and Significant Customers and Vendors

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

As of June 30, 2023, one customer accounted for more than 10% of the accounts receivable balance, for a total of 95%.

As of December 31, 2022, one customer accounted for more than 10% of the accounts receivable balance, at 28%.

For the three months ended June 30, 2023 one customer accounted for more than 10% of total revenue at 79%.

For the three months ended June 30, 2022 one customer accounted for more than 10% of total revenue, at 11%.

For the six months ended June 30, 2023, one customer accounted for more than 10% of total revenue, at 48%.

For the six months ended June 30, 2022, one customer accounted for more than 10% of total revenue, at 11%.

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 employees and principal shareholders is an employee of this firm and exerts control over this firm (see Note 10).

We were a party to a license agreement with a related party firm (see Note 10). 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 had used a related party firm to provide certain employer of record services (see Note 10).

Advertising and Marketing Costs

The Company expenses all advertising and marketing costs as incurred. Advertising and marketing costs were $79,453 and $158,040 for the three months ended June 30, 2023 and 2022, respectively. Advertising and marketing costs were $236,036 and $276,796 for the six months ended June 30, 2023 and 2022, respectively and included in sales and marketing in the accompanying consolidated statements of operations.

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.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s investment in available for sale securities and warrant derivative liabilities are measured at fair value. The securities are measured based on current trading prices using Level 1 fair value inputs. The Company’s derivative instruments are valued using Level 3 fair value inputs. The Company’s contingent accrued earn-out business acquisition consideration liability was considered Level 3 fair value liability instruments requiring period fair value assessments. Contingent consideration liabilities are recorded at fair value on the acquisition date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3. In April 2022, the earn-out liability was forgiven in full and recorded as a gain on debt extinguishment on the consolidated statement of operations. In fair valuing these instruments, the income valuation approach is applied, and the valuation inputs include the contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The Company does not have any other financial instruments which require re-measurement to fair value. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and loans payable represent fair value based upon their short-term nature.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

For the Company's earn-out liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balance for each category therein, and gains or losses recognized during the periods ended June 30, 2023 and December 31, 2022:

Beginning balance, December 31, 2021	$	578,591
Re-measurement adjustments:
Change in fair value of earn-out liability		26,604
Gain on debt extinguishment		(605,195	)

Ending balance, December 31, 2022		-
Re-measurement adjustments:
Change in fair value of earn-out liability		-
Ending balance, June 30, 2023	$	-

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Business Combinations

For all business combinations (whether partial, full or step acquisitions), the Company records 100% of all assets and liabilities of the acquired business, generally at their fair values with any excess of purchase price over the net assets recorded as goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value and accretion costs are recognized in earnings. The increases or decreases in the fair value of contingent consideration can result from changes in anticipated revenue levels and changes in assumed discount periods and rates.

Intangible Assets

Intangible assets consist primarily of the assets acquired from Genesys in the third quarter of 2019, including customer contracts and intellectual property, the assets acquired from Scouted and Upsider during the first quarter of 2021, the assets acquired from OneWire during the second quarter of 2021, and the assets acquired from Parrut and Novo Group during the third quarter of 2021. Amortization expense is recorded on the straight-line basis over the estimated economic lives.

Goodwill

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.

The Company performs its annual goodwill impairment assessment on December 31st of each year or as impairment indicators dictate (see Note 5).

When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of the Company’s reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the quantitative impairment testing methodology.

Under the quantitative method we compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined using an appropriate valuation method. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.

When required, we may arrive at our estimates of fair value using a discounted cash flow methodology which includes estimates of future cash flows to be generated by specifically identified assets, as well as selecting a discount rate to measure the present value of those anticipated cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. The use of different assumptions or estimates for future cash flows could produce different results.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment would be based on generally accepted valuation methodologies, as deemed appropriate. If the carrying amount is greater than the undiscounted cash flows, the carrying amount of the asset is reduced to the asset’s fair value. An impairment loss is recognized immediately as an operating expense in the consolidated statements of operations. Reversal of previously recorded impairment losses are prohibited (see Note 5).

Software Costs

We capitalize certain software development costs incurred in connection with developing or obtaining software for internal use when both the preliminary project stage is completed, and it is probable that the software will be used as intended. Capitalization ceases after the software is operational; however, certain upgrades and enhancements may be capitalized if they add functionality. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining software, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest costs incurred while developing internal-use software.

Income Taxes

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

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.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Stock-Based Compensation

We account for our stock-based compensation under ASC 718 “Compensation - Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Determining the fair value of stock-based compensation at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based compensation represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with various accounting standards.

ASC 480 “Distinguishing Liabilities From Equity” provides that instruments convertible predominantly at a fixed rate resulting in a fixed monetary amount due upon conversion with a variable quantity of shares (“stock settled debt”) be recorded as a liability at the fixed monetary amount.

ASC 815 “Derivatives and Hedging” generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”

ASC 815-40 provides that generally if an event is not within the entity’s control and could require net cash settlement, then the contract shall be classified as an asset or a liability.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Product Development

Product development costs are included in selling, general and administrative expenses and consist of support, maintenance and upgrades of our website and our Platform and are charged to operations as incurred.

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 12,262,335 and 9,724,709 were excluded from the computation of diluted earnings per share for the six months ended June 30, 2023 and 2022, respectively, because their effects would have been anti-dilutive.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

	June 30,		June 30,
	2023		2022
Options		3,239,303		2,923,076
Stock awards		42,125		146,000
Warrants		8,550,907		6,569,633
Convertible preferred stock		430,000		86,000
		12,262,335		9,724,709

Business Segments

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has one operating segment.

Recently Issued Accounting Pronouncements

There have not been any recent changes in accounting pronouncements and ASU issued by the FASB that are of significance or potential significance to the Company except as disclosed below.

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires contract assets and contract liabilities (e.g. deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers”. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in purchase accounting. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. On January 1, 2023 the adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. On November 15, 2019, the FASB delayed the effective date of Topic 326 for certain small public companies and other private companies until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance was issued as improvements to ASU No. 2016-13 described above. The vintage disclosure changes require an entity to disclose current-period gross write-offs by year of origination for financing receivables. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The amendments should be applied prospectively. Early adoption of the amendments is permitted, including adoption in an interim period. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 2 - GOING CONCERN

Management believes it may not have sufficient cash to fund its liabilities and operations for at least the next twelve months from the issuance of these consolidated financial statements.

These unaudited consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this report. This determination was based on the following factors: (i) the Company used cash of approximately $1.7 million in operations during the six months ended June 30, 2023 and has a working capital deficit of approximately $6.2 million at June 30, 2023; (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, 2023 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.

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 became 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. The Company previously reduced certain billing rates to respond to the economic climate, however, those billing rates have returned to normal. Demand for recruiting solutions and our Platform improved in 2022 versus 2021. The COVID-19 pandemic has been characterized by rises and falls of case numbers due to unforeseen factors and variants of concern and consequently has had varying amounts of impact on the Company’s operations and financial prospects. The extent to which the COVID-19 pandemic will impact operations, ability to obtain financing or future financial results is uncertain at this time.

The Company also may depend on raising additional debt or equity capital to stay operational. The economic impact of COVID-19, should the COVID-19 pandemic worsen, may make it more difficult for the Company to raise additional capital when needed. The terms of any financing, if the Company is able to complete one, will likely not be favorable to the Company.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

The components of prepaid expenses and other current assets at June 30, 2023 and December 31, 2022, consisted of the following:

	June 30, 2023		December 31, 2022
Prepaid expenses	$	51,445	$	40,860
Prepaid advertisement		169,500		200,000
Employee advance		500		8,500
Prepaid insurance		-		3,302
Other receivables		44,365		2,886
Prepaid expenses and other current assets	$	265,810	$	255,548

NOTE 4 - INVESTMENT IN AVAILABLE FOR SALE MARKETABLE SECURITIES

The Company’s investment in marketable equity securities is being held for an indefinite period. Cost basis of marketable securities held as of June 30, 2023 and December 31, 2022 were $42,720 for both periods and accumulated unrealized losses were $42,720 as of June 30, 2023 and December 31, 2022, respectively. The fair market value of available for sale marketable securities was $0 as of June 30, 2023 and December 31, 2022, based on 178,000 shares of common stock held in one entity with an average per share market price of approximately $0.00.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill is derived from our 2019 business combination as well as our five business combinations in the first three quarters of 2021. The aggregate goodwill recognized from our five 2021 acquisitions was $6,731,852 while the remaining goodwill from the 2019 acquisition was $3,517,315 at December 31, 2020. The Company performed a goodwill impairment test during 2021 using market data and discounted cash flow analysis. Based on that test, we have determined that the carrying value of goodwill related to the 2019 acquisition of Genesys was further impaired in the amount of $2,530,325 during 2021. The Company performed its annual goodwill impairment test during 2022 using market data and discounted cash flow analysis and determined that goodwill was further impaired by $582,114.

The changes in the carrying amount of goodwill for the periods ended June 30, 2023 and December 31, 2022 are as follows:

	2023		2022
Carrying value - January 1	$	7,101,084	$	7,718,842
Purchase price measurement period adjustments		-		(35,644	)
Impairment losses		-		(582,114	)
Carrying value - end of period	$	7,101,084	$	7,101,084

Intangible Assets

On March 31, 2019, the Company acquired Intangible assets totaling $1,910,072 from Genesys, including customer contracts and intellectual property which are being amortized over the three year useful life.

During 2021, we acquired certain intangible assets pursuant to our Scouted, Upsider, OneWire, Parrut, and Novo Group acquisitions. These intangible assets aggregate approximately $11.6 million and consist primarily of sales and client relationships, contracts, intellectual property, partnership and vendor agreements and certain other assets. We completed the accounting and valuations of the assets acquired.

Intangible assets for the periods ended June 30, 2023 and December 31, 2022 are summarized as follows:

	2023			2022
Customer contracts	$	8,093,787		$	8,093,787
Software acquired		3,785,434			3,785,434
License		1,726,965			1,726,965
Internal use software developed		325,491			325,491
Domains		40,862			40,862
		13,972,539			13,972,539
Less accumulated amortization		(8,188,850	)		(7,555,422	)
Total		5,783,689			6,417,117
Less accumulated impairment		(3,838,425	)		(3,838,425	)
Carrying value	$	1,945,264		$	2,578,692

Amortization expense of intangible assets was $325,702 and $917,239 for the three months ended June 30, 2023 and 2022, respectively, and was $633,428 and $1,925,712 for the six months ended June 30, 2023 and 2022, respectively related to the intangible assets acquired in business combinations. Future amortization of intangible assets is expected to be approximately as follows: 2023 (remainder of year), $602,390; 2024 $739,547; 2025, $455,683; 2026, $122,507; 2027, $2,738; and thereafter, $22,399. The Company began amortizing intangible assets from the Scouted, Upsider and OneWire acquisitions in the second quarter of 2021 and the Parrut and Novo Group acquisitions in the third quarter of 2021.

The Company performed its impairment test during 2022 using the market and income approach, and determined that the Company’s customer contracts, software acquired, internal use software developed, and domains were impaired by $3,838,425.

On November 21, 2022, the Company entered into a Domain Name sale and Ownership Transfer Agreement with Chief Executive Group (“CEG”). Per the agreement, the Company agreed to sell and transfer to CEG all ownership rights in and to the domain name CFO-Job.com and its associated social media property (“Domain Assets’). In exchange for the Domain Assets, the Company received cash consideration of $50,000, and $200,000 worth of advertising from CEG. Half of the advertising consideration is to be used within one year of this agreement, and the remaining balance is to be used within two years of the agreement. During the year ended December 31, 2022, the Company recorded a gain on sale of intangible asset of $250,000 which was included in general and administrative expenses on the consolidated statements of operations during the year ended December 31, 2022. The Company additionally recorded a prepaid advertising expense within prepaid expenses and other current assets on the consolidated balance sheet. As of June 30, 2023, the Company utilized approximately $31,000 of advertising from CEG.

On December 5, 2022, the Company entered into an asset purchase agreement in which the Company sold to a third party Upsider’s candidate sourcing and engagement platform and all related intellectual property for $1,000,000 in cash consideration. The recorded value of the internal use software developed at the date of the sale was $1,000,000 resulting in no gain or loss on the sale. For a period of eighteen months from the date of the sale, the Company will have continued access to this platform.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 6 - LOANS PAYABLE

Promissory Notes Payable

We received $250,000 in proceeds from an institutional investor pursuant to a promissory note dated May 6, 2021. The note bears interest at 12% per year and matures on May 6, 2023. In April 2022, we paid off the total principal balance of the note and the accrued interest.

We issued a promissory note for $1,750,000 pursuant to the Parrut acquisition agreement dated July 7, 2021. The note had a term of 24 months, accrued interest at 6%, and originally matured on July 1, 2023. The note required monthly payments of $77,561. On October 19, 2022, Parrut agreed to subordinate their note to a promissory note issued to Montage Capital II, L.P. In return, we restructured the payment schedule for the Parrut note which now matures on August 31, 2023, and bears interest at 12%. At June 30, 2023 and December 31, 2022, the outstanding balance on the promissory note with Parrut was $305,169 and $444,245, respectively.

We issued a promissory note for $3,000,000 pursuant to the Novo Group acquisition agreement dated August 27, 2021. The note originally had a term of 30 months, bears interest at 6%, and was scheduled to mature on February 1, 2024. The note requires monthly payments of $85,000 for the first 12 months, $110,000 for months 13 through 24, $155,000 for months 25 through 29, and $152,357 for month 30. In April 2022, we negotiated a reduction in this promissory note with Novo Group due to employee turnover that occurred following the acquisition. We entered into an agreement with Novo Group to reduce the outstanding principal balance by $600,000 and changed the maturity date to November 1, 2023. The reduction in the promissory note was accounted for as gain on debt extinguishment on the consolidated statement of operations.

In October 2022, Novo Group entered into a Subordination Agreement (“Subordination Agreement”), pursuant to which Novo agreed to subordinate all its indebtedness and obligations we owe to Novo to all the indebtedness and obligations we owe to Montage Capital. At June 30, 2023 and December 31, 2022, the outstanding balance on the promissory note with Novo Group was $1,256,596 and $1,292,360, respectively.

In February 2023, we entered into an additional Amendment to the Promissory Note with Novo Group, Inc. (the “Novo Amendment”). The Novo Amendment further modifies the Promissory Note issued to Novo on August 27, 2021 (the “Novo Note”) and amended on April 1, 2022, by amending the payment schedule pursuant to which we would make payments of principal and interest to Novo. Novo agreed we would pay interest only for the period starting November 1, 2022 though and including March 31, 2023, with payments of principal and interest to resume starting April 1, 2023. We also replaced the existing payment schedule with a new payment schedule terminating on October 31, 2023.

On August 17, 2022, we issued promissory notes for $1,111,111, in the aggregate (the “8/17/22 Notes”) We received proceeds of $960,000, net of debt issuance costs of $40,000 and an original issue discount of $111,111. The 8/17/22 Notes have a term of 12 months, bear interest at 6%, and mature on August 17, 2023. The 8/17/22 Notes are to be paid off in full on August 17, 2023. As a part of these financings, we granted the noteholders 694,445 warrants to purchase our common stock (See Note 8) (the “8/17/22 Warrants”). The 8/17/22 Warrants were valued at $463,737 and treated as a debt discount to be amortized over the life of the note. At June 30, 2023 and December 31, 2022, the outstanding balance on the 8/17/22 Notes, net of the unamortized debt issuance costs and debt discounts of $76,856 and $384,280, respectively, was $1,034,255 and $726,831, respectively. On August 7, 2023 the Company signed an amendment to two promissory notes for $800,000 and $200,000 for one investor. The amendment extends each of the maturity dates of August 17, 2023 and August 30, 2023 respectively, by 180 days. In return, the company has agreed to give $50,000 in either stock or cash at its discretion within ninety days of signing the amendment.

On August 30, 2022, we issued promissory notes for $1,305,556, in the aggregate (the “8/30/22 Notes,” and together with the 8/17/22 Notes, the “August 2022 Notes”). We received proceeds of $1,175,000, net of an original issue discount of $130,556. The 8/30/22 Notes have a term of 12 months, bear interest at 6%, and mature on August 30, 2023. The 8/30/22 Notes are to be paid off in full on August 30, 2023. As a part of these financings, we granted the noteholders 815,972 warrants to purchase our common stock (See Note 8) (the “8/30/22 Warrants, and together with the 8/17/22 Warrants, the “August 2022 Warrants”). These 8/30/22 Warrants were valued at $569,106 and treated as a debt discount to be amortized over the life of the note. At June 30, 2023 and December 31, 2022, the outstanding balance on the 8/30/22 Notes, net of the unamortized debt issuance costs and debt discounts of $116,610 and $466,441, respectively, was $1,188,946 and $839,115, respectively.

On October 19, 2022, the “Company closed a Loan and Security Agreement (the “Loan Agreement”), by and among the Company and Montage Capital II, L.P. (the “Lender”). Pursuant to the Loan Agreement, the Lender will make advances (“Advances”) in the aggregate principal amount of $2,250,000, with the first Advance of $2,000,000 being provided on or around the Closing Date and the second Advance of $250,000 being available to the Company upon request prior to April 30, 2023. Interest will accrue on all Advances under the Loan Agreement at a per annum rate of 12.75%. In the event of a default under the terms of the Loan Agreement, the interest rate increases by 5 percentage points above the interest rate in effect immediately prior to a default. The entire outstanding principal balance of the Advances, all accrued and unpaid interest thereon, and all fees and other amounts outstanding thereunder will be immediately due and payable on the 42nd month anniversary of the Closing Date (the “Maturity Date”). In connection with the Loan Agreement, the Company granted and pledged to the Lender a continuing security interest in all presently existing and hereafter acquired or arising Collateral (as more specifically defined in the Loan Agreement) which includes all personal property of the Company and its subsidiaries. The Loan Agreement contains certain affirmative and negative covenants to which the Company is also subject.

The Company agreed to pay the Lender a fee of $45,600, with $40,000 due upon the execution of the Loan Agreement and the balance due upon the funding of the second Advance. The Company is permitted to prepay any amounts due to the Lender; provided, however, that a Prepayment Fee (as more specifically defined in the Loan Agreement) shall be owed to the Lender depending on when the amounts are prepaid.

In addition, in connection with the Loan Agreement, the Company issued 706,551 warrants to purchase common stock of the Company (the “Warrants”) to the Lender, with 622,803 Warrants issued and exercisable upon the Closing Date and the additional 83,708 Warrants becoming exercisable upon funding of the second Advance. The Warrants are exercisable for ten years from the Closing Date at an exercise price of $2.00 per share, subject to certain adjustments. Upon the earlier of the Maturity Date or a sale of the Company or other change in control, the Lender has the right to cause the Company to repurchase the Warrants for up to $703,125 ($600,000 if only the first Advance has been made and $703,125 if both Advances have been made). The Company is also obligated to pay the Lender a cash fee equal to 1.25% of the aggregate principal amount of the Advances that is outstanding on each anniversary of the Closing Date if (i) the average closing price of the Company’s common stock for the thirty (30) day period prior to such anniversary date is less than $2.00 or (ii) the closing price of the Company’s common stock for the date immediately prior to such anniversary date is less than $2.00.

The Company accrues anniversary fees each year on the one-year anniversary of the issuance date of 1.25% of the outstanding advance balance depending on the stock price. The accrued anniversary fees are payable on the date the buyout fee becomes due and payable. The Company records an expense for the 1.25% cash fee ratably over the 12 months.

On February 2, 2023, the Company entered into a First Amendment to Loan and Security Agreement (the “Montage Amendment”), by and between the Company, its subsidiaries (Recruiter.com, Inc., Recruiter.com Recruiting Solutions, LLC, Recruiter.com Consulting, LLC, VocaWorks, Inc., Recruiter.com Scouted, Inc., Recruiter.com Upsider, Inc., and Recruiter.com - OneWire, Inc.), and Montage, effective as December 18, 2022. The Montage Amendment modifies that certain Loan and Security Agreement by and among the Company, its subsidiaries, and Montage to provide the Company with additional time to meet certain post-closing covenants.

At June 30, 2023 and December 31, 2022, the outstanding balance on the Loan Agreement, net of the unamortized debt issuance costs and debt discounts of $553,177 and $622,630, respectively, was $1,446,823 and $1,377,370, respectively.

At June 30, 2023 and December 31, 2022, the outstanding principal balance on the promissory notes payable totaled $5,978,432 and $6,153,272, respectively.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Factoring Arrangement

We entered into a factoring agreement with CSNK Working Capital Finance Corp. d/b/a Bay View Funding, a subsidiary of Heritage Bank of Commerce (the “Buyer”), effective April 27, 2022 (the “Factoring Agreement”), for the purpose of factoring our trade accounts receivable with recourse. The proceeds of the factoring are used to fund our general working capital needs. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. The agreement is for a term of twelve months with an auto renewal clause for an additional twelve months unless terminated by the parties. The agreement is secured by substantially all assets of the Company.

Pursuant to the Factoring Agreement, we sell certain trade accounts receivable to the Buyer. We are charged a finance fee, defined as a floating rate per annum on outstanding advances under the Factoring Agreement, equal to the prime rate plus 3.25% due on the first day of each month. We are also charged a factoring fee of 0.575% of the gross face value of any trade accounts receivables for the first 30 days from when the trade accounts receivable is purchased and 0.30% for each fifteen days afterward until the purchased receivable is paid in full or repurchased.

We receive advances of up to 85% of the amount of eligible trade accounts receivable. Advances outstanding shall not exceed the lesser of $3,000,000 or an amount equal to the sum of all undisputed purchased trade accounts receivable multiplied by 85%, less any reserved funds.

All collections of purchased receivables go directly to the Buyer controlled lockbox and Buyer shall apply these collections to the Company’s obligations. The Company will immediately turn over to Buyer any payment on a purchased receivable, or receivable assigned to Buyer under the Factoring Agreement, that comes into the Company’s possession. In the event the Company comes into possession of a remittance comprising payments of both a purchased receivable and receivable which has not been purchased by Buyer, the Company is required to hold the same in accordance with the provisions set forth above and immediately turn same over to Buyer.

As stated previously, the Company factors the accounts receivable on a recourse basis. Therefore, if the Buyer cannot collect the factored accounts receivable from the customer, the Company must refund the advance amount remitted to us for any uncollected accounts receivable from the customer. Accordingly, the Company records the liability of potentially having to refund the advance amount as short-term debt when the factoring arrangement is utilized. As of June 30, 2023 and December 31, 2022, $0 and $545,216 of advances were outstanding under the factoring arrangement, respectively, and $37,051 and $263,939, was due from the factor, respectively, resulting in a net $0 and $281,277 loan payable to the factor, respectively. The June 30, 2023, amount due from factor is included in prepaid expenses and other current assets.

As consideration for Buyer forgoing other factoring transactions in the marketplace and for establishing the maximum credit of $3,000,000, the Company paid the Buyer a facility fee upon entering into the Factoring Agreement (the “Facility Fee”) in the amount of one half of one percent (0.50%) of the maximum credit, $15,000. An additional Facility Fee is charged for increases to the maximum credit, but only for the incremental increase. The Facility Fee was accounted for as a factoring fee expense, which is included as part of the interest expense along with all other factor fees.

The cost of factoring for the three months ended June 30, 2023 and 2022 was $1,486 and $26,302, respectively, and the for the six months ended June 30, 2023 and 2022 was $20,237 and $26,302, respectively, and is included in interest expense on the consolidated statements of operations.

The status of the loans payable as of June 30, 2023 and December 31, 2022 are summarized as follows:

	June 30, 2023			December 31, 2022
Promissory notes	$	5,978,432		$	6,153,272
Factoring arrangement		-			281,277
Total loans payable		5,978,432			6,434,549
Less: Unamortized debt discount or debt issuance costs		(746,643	)		(1,473,351	)
Less current portion		(4,230,479	)		(3,700,855	)
Non-current portion	$	1,001,310		$	1,260,343

The future principal payments of the loans payable are as follows:

Year Ending December 31,
2023 (remainder of year)	$	4,193,432
2024		516,000
2025		516,000
2026		516,000
2027		237,000
Total principal payments	$	5,978,432

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 7 - STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share. As of June 30, 2023 and December 31, 2022, the Company had 86,000 shares of preferred stock issued and outstanding. No shares of preferred stock were issued during the six months ended June 30, 2023.

Our Series E preferred stock is the only class of our preferred stock that is currently outstanding. Series E preferred stock has a stated value of $20 per share, which is convertible at any time after issuance at the option of the holder, subject to a beneficial ownership limitation of 4.99% or if waived, 9.99%, 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. 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% or if waived, 9.99%. If at any time while any shares of Series E Preferred Stock remain outstanding and any triggering event contained in the Certificate of Designation for such series occurs, we 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.

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 both June 30, 2023 and December 31, 2022, the remaining balance of $308,798 is included in accrued expense on the consolidated balance sheets.

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2023 and December 31, 2022 the Company had 17,792,151 and 16,277,764 shares of common stock outstanding, respectively.

Shares issued upon exchange of common stock warrants

On January 6, 2022, upon agreement with a warrant holder, the Company issued 112,726 shares of common stock upon the exchange of 112,726 warrants. The shares were valued at approximately $473,000 based on the stock price, while the exchanged warrants had a Black-Scholes value of approximately $321,000, resulting in a loss on exchange and credit to equity of $152,244.

Reverse Stock Split

On August 4, 2023, the Company approved a one-for-fifteen (1:15) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). Proportional adjustments for the Reverse Stock Split will be made to the Company’s outstanding stock options, warrants and equity incentive plans upon effectiveness. The Company is awaiting the approval of the Financial Industry Regulatory Authority (“FINRA”) for the market effectiveness of the Reverse Stock Split.

The following is the unaudited pro-forma effect of the 1:15 Reverse Stock Split on the basic and diluted net loss per share:

	Three			Three			Six			Six
	Months Ended			Months Ended			Months Ended			Months Ended
Historical per share data – (Pre- Split basis)	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Net loss attributable to common shareholders	$	(980,273	)	$	(1,188,760	)	$	(4,799,685	)	$	(5,371,098	)

Net loss per common share - basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.28	)	$	(0.36	)

	Three			Three			Six			Six
	Months Ended			Months Ended			Months Ended			Months Ended
Historical per share data – (Post- Split basis) (UNAUDITED)	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022

Net loss attributable to common shareholders	$	(980,273	)	$	(1,188,760	)	$	(4,799,685	)	$	(5,371,098	)

Net loss per common share - basic and diluted	$	(0.94	)	$	(1.20	)	$	(4.20	)	$	(5.45	)

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

The following is the unaudited pro-forma effect of the 1:15 Reverse Stock Split on the consolidated balance sheet:

							Pro-Forma Effect
	June 30,						June 30,
	2023			1:15 Adjustment			2023

ASSETS

Total assets	$	11,202,109		$	-		$	11,202,109

Total liabilities		9,342,147			-			9,342,147

Commitments and contingencies

Stockholders' Equity (Deficit):
Preferred stock, Series D, $0.0001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		-						-
Preferred stock, Series E, $0.0001 par value; 775,000 shares authorized; 86,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		9						9
Preferred stock, Series F, $0.0001 par value; 200,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		-						-
Common stock, $0.0001 par value; 100,000,000 shares authorized; 17,792,151 and 16,277,764 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		1,780			(1,662	)		118
Shares to be issued, 587,945 shares as of March 31, 2023 and December 31, 2022		-			-			-
Additional paid-in capital		75,913,399			1,662			75,915,061
Accumulated deficit		(74,055,226	)					(74,055,226	)
Total stockholders' equity		1,859,962			-			1,859,962
								-
Total liabilities and stockholders' equity	$	11,202,109			-		$	11,202,109

							Pro-Forma Effect
	December 31,						December 31,
	2022			1:15 Adjustment			2022

ASSETS

Total assets	$	14,133,284		$	-		$	14,133,284

Total liabilities		9,054,967			-			9,054,967

Commitments and contingencies

Stockholders' Equity (Deficit):
Preferred stock, Series D, $0.0001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively		-						-
Preferred stock, Series E, $0.0001 par value; 775,000 shares authorized; 86,000 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively		9						9
Preferred stock, Series F, $0.0001 par value; 200,000 shares authorized; 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively		-						-
Common stock, $0.0001 par value; 100,000,000 shares authorized; 16,277,764 and 14,566,420 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively		1,629			(1,520	)		109
Shares to be issued, 587,945 shares as of December 31, 2022 and December 31, 2021		59			(55	)		4
Additional paid-in capital		74,332,161			1,575			74,333,736
Accumulated deficit		(69,255,541	)					(69,255,541	)
Total stockholders' equity		5,078,317			-			5,078,317
								-
Total liabilities and stockholders' equity	$	14,133,284			-		$	14,133,284

Restricted Stock Units

On September 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 $0 and $237,906 during the three months ended June 30, 2023 and 2022 respectively. During the six months ended June 30, 2023 and 2022, we recognized compensation expense of $152,143 and $506,862 respectively. The shares began vesting on June 30, 2021, the quarter the Uplisting occurred. No shares from those RSUs were issued during the three months ended June 30, 2023 and June 30, 2022, respectively.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

On February 2, 2022, 7,500 RSUs vested and 7,500 were issued to a vendor for services related to a 2021 agreement. The Company expensed the remaining $27,000 in 2022 as the service period expired.

During the three months ended March 31, 2022, 32,000 RSUs were granted to vendors for services. 22,000 RSUs vested immediately and were issued as common stock to the vendor, and the remaining 10,000 were issued in May 2022. The total 32,000 RSUs were valued at $93,120 and were expensed as of March 31, 2022 based on the service period in the contract.

Restricted stock grant activity for the periods identified below is as follows:

	Stock Awards
Outstanding at December 31, 2021		146,000
Granted		95,825
Vested		(88,325	)
Vested and issuable		(7,500	)
Forfeited or cancelled		-
Outstanding at December 31, 2022		146,000
Granted		-
Vested and issued		(110,800	)
Vested and issuable		(35,200	)
Outstanding at June 30, 2023		-

NOTE 8 - STOCK OPTIONS AND WARRANTS

Stock Options

On January 6, 2022, the Company granted to a consultant a total of 20,000 options to purchase common stock, exercisable at $2.64 per share, under the terms of the 2021 Equity Incentive Plan (the "2021 Plan"). The options have a term of five years. The options vested 50% at March 3, 2022 and 50% on April 3, 2022.

On January 10, 2022, the Company granted to a director a total of 15,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vest quarterly over a four-year period.

On January 19, 2022, the Company granted to a director a total of 15,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vest quarterly over a four-year period.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

On January 20, 2022, the Company granted to directors a total of 60,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vest quarterly over a four-year period.

On March 11, 2022, the Company granted to employees a total of 52,500 options to purchase common stock, exercisable between $2.87 and $2.95 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on June 11, 2022.

On January 9, 2023, the Company granted to an employee a total of 25,000 options to purchase common stock, exercisable at $0.45 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on April 9, 2023.

On March 22, 2023, the Company granted three employees a total of 60,000 options to purchase common stock, exercisable at $0.22 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vested immediately.

On June 2, 2023, the Company granted five employees a total of 57,500 options to purchase common stock, exercisable at $0.19 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on September 2, 2023.

On June 8, 2023, the Company granted one employee a total of 50,000 options to purchase common stock, exercisable at $0.27 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on September 8, 2023.

The fair values of stock options granted during the three months ended June 30, 2023 were estimated using Black-Sholes option-pricing model with the following assumptions:

	June 30, 2023
Risk-free interest rates	4.13–4.17		%
Expected life (in years)		5
Expected volatility	169-173		%
Dividend yield		-

During the three months ended June 30, 2023 and 2022, we recorded $219,560 and $381,351 of compensation expense, respectively, related to stock options, and during the six months ended June 30, 2023 and 2022, we recorded $762,509 and $1,779,155 of compensation expense, respectively related to stock options.

A summary of the status of the Company’s stock options as of June 30, 2023, and changes during the period are presented below:

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Life (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2022		3,705,121			3.05		2.80	$	-
Granted		192,500			0.25		-		-
Exercised		-			-		-		-
Expired or cancelled		(658,318	)		2.84		-		-
Outstanding at June 30, 2023		3,239,303			2.93		3.35	$	4,677
Exercisable at June 30, 2023		2,398,584			-		3.34	$	1,889

As of June 30, 2023, there was approximately $816,946 of unrecognized compensation cost related to unvested stock options which vest over time and are expected to be recognized over a period of four years, as follows: 2023 (remainder of year), $324,784; 2024, $333,924; 2025, $132,761; 2026, $24,605; and 2027 and thereafter, $1,021. The intrinsic value of options outstanding is $4,677 at June 30, 2023 and the intrinsic value of options exercisable is $1,889 at June 30, 2023.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Warrants

2023 Warrant Grants

Warrant repricing

On February 3, 2023, the Company entered into amendments to Common Stock Purchase Warrants issued on August 17, 2022 to each of Cavalry Fund I LP, Firstfire Global Opportunities Fund LLC, and Porter Partners, L.P. The warrant amendments modify the time period until the holders of these warrants are permitted to exercise the Warrants by means of a “cashless exercise.” In addition, the warrant amendments lower the exercise price of the Warrants to $0.38 per warrant share, as further described in the warrant amendments. These amendments were treated as modifications to induce the exercise of warrants, and as such, resulted in deferred equity costs of $10,400 on the date of the amendment. As a result of the lowered exercise price of the Warrants, the exercise price of warrants issued by the Company on May 28, 2020, January 5, 2021, January 20, 2021, August 17, 2022, and August 30, 2022, will be automatically lowered to $0.38 per warrant share due to anti-dilution provisions in these warrants. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $503,643 as a result of the trigger of the anti-dilution provisions.

Warrants exercised into Common Stock

In February 2023, we issued 821,521 common shares to investors who exercised warrants with a strike price of $0.38 for gross proceeds of $315,178.

In June 2023, we issued 582,066 common shares to investors who cashless exercised 587,945 warrants.

2022 Warrant Grants

Warrant exchange for Common Stock

On January 6, 2022, the Company issued 112,726 shares of common stock upon the exchange of 112,726 warrants (See Note 7).

Warrants issued with Debt Financing

During August 2022, the Company granted 1,510,417 warrants as a part of various debt financings (See Note 6). These warrants had an exercise price per share of $2.00 and expire in five years. The exercise price of the warrants was then reduced from $2.00 to $0.98 in connection with the issuance of stock to Parrut on October 14, 2022. The aggregate relative fair value of the warrants, which was allocated against the debt proceeds totaled $1,032,842 at the date of issuance based on the Black Scholes Merton pricing model using the following estimates: exercise price of $2.00, 3.04-3.27% risk free rate, 175.47% volatility and expected life of the warrants of 5 years. The relative fair value was reflected in additional paid-in capital and as a debt discount to be amortized over the term of the loans.

In connection with the October 19, 2022 Loan Agreement, as discussed in Note 6, the Company will issue 706,551 warrants to purchase common stock of the Company (the “Warrants”) to the Lender, with 622,803 Warrants issued and exercisable upon the Closing Date and the additional 83,708 Warrants becoming exercisable upon funding of the second Advance. The Warrants are exercisable for ten years from the Closing Date at an exercise price of $2.00 per share, subject to certain adjustments. Upon the earlier of the Maturity Date or a sale of the Company or other change in control, the Lender has the right to cause the Company to repurchase the Warrants (“Puttable Warrant”) for up to $703,125 ($600,000 if only the first Advance has been made and $703,125 if both Advances have been made). The Company is also obligated to pay the Lender a cash fee equal to 1.25% of the aggregate principal amount of the Advances that is outstanding on each anniversary of the Closing Date if (i) the average closing price of the Company’s common stock for the thirty (30) day period prior to such anniversary date is less than $2.00 or (ii) the closing price of the Company’s common stock for the date immediately prior to such anniversary date is less than $2.00.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

The Company recorded the puttable warrant at its fair value, which is the cash surrender value the holder can put the warrant at. As such, on the issuance date, the Company recorded a $600,000 warrant liability for puttable warrants, offset by a debt discount to be amortized over the life of the loan. Upon the advance of the second advance tranche to the Company, it will record an additional debt discount and warrant liability in the amount of $103,125, the cash surrender value of the second tranche of warrants.

Warrant repricing

As a result of the sale in August 2022 of notes and warrants as described above and in Note 6, the number and exercise price of the 2020 Warrants and the 2021 Warrants in connection with the 2020 and 2021 debentures were adjusted due to anti-dilution provisions in such warrants. The exercise price was reduced to $2.00 from $5.00 and the number of warrants was increased from 1,512,090 to 2,447,045. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $658,266 as a result of the trigger of the anti-dilution provisions.

On October 19, 2022, as a result of the Parrut earnout shares issued we reduced the exercise price of the 2020 and 2021 Debenture Note holder warrants from $2.00 to $0.98 due to anti-dilution provisions in these warrants. We also increased the number of warrants issued with the August 17, 2022 and August 30, 2022 notes (See Note 6) from 1,510,417 to 3,020,834 and reduced the exercise price from $2.00 to $0.98 due to anti-dilution provisions in these warrants. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $1,262,947 as a result of the trigger of the anti-dilution provisions.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Warrants for services

On December 8, 2022, the Company issued 30,000 five-year term warrants to a consultant with an exercise price of $1.00.

Warrant activity for the six months ended June 30, 2023 is as follows:

				Weighted
				Average
				Exercise
	Warrants			Price per
	Outstanding			Share
Outstanding at December 31, 2022		11,290,951		$	2.84
Issued		-			-
Exercised		(1,403,587	)		0.38
Expired or cancelled		(1,336,457	)		0.54
Outstanding at June 30, 2023		8,550,907		$	3.22

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

With the exception of the below, the Company is not a party to any legal proceedings or claims at June 30, 2023. From time-to-time, we may be a party to, or otherwise involved in, legal proceedings arising in the normal course of business. The nature of our business ordinarily results in a certain amount of pending as well as threatened claims, litigation, investigations, regulatory and legal and administrative cases, matters and proceedings, all of which are considered incidental to the normal conduct of business. When we determine that we have meritorious defenses to the claims asserted, we vigorously defend ourselves. We consider settlement of cases when, in management’s judgment, it is in the best interests of both the Company and its shareholders to do so.

Recruiter.com Group, Inc. v. BKR Strategy Group.

We are currently pursuing two related collections matters against BKR Strategy Group. Since 2013, BKR Strategy Group has provided talent acquisition strategy and services to top companies. Starting in the third quarter of 2021, BKR Strategy Group subcontracted Recruiter.com to perform on Demand recruiter services on behalf of BKR Strategy Group’s clients. Although payments for services rendered were initially received in a timely fashion, BKR Strategy Group’s balance grew throughout the third and fourth quarters of 2021. This led to BKR Strategy Group executing a Promissory Note with a payment schedule for $500,000 on November 30, 2021 with a personal guarantee from its business principal as part of the note. After failing to meet the payment schedule and after repeated attempts to collect the balance due, we retained the law firm of Berkovitch & Bouskila, PLLC and filed two lawsuits against BKR Strategy Group on February 18, 2022, the first, to collect on unpaid invoices and the second, to enforce the promissory note, for a total sum of $1,400,000. On March 24, 2022, BKR Strategy Group made a counterclaim against us for $500,000 on the grounds of alleged overbilling. Management denies the basis for the counterclaim and expects to vigorously defend itself from this counterclaim. Outside counsel for the company has advised that at this stage in the proceedings, it cannot offer an opinion as to the probable outcome. As it is not possible to estimate if a loss will be incurred, there has been no accrual.

On June 21, 2022, the Supreme Court of the State of New York, New York County ruled in favor of the Company that BKR Strategy Group owes the Company $500,000, plus interest at 12% since November 22, 2021, through the entry of judgement in the lawsuit related to the enforcement on the Promissory Note executed by BKR Strategy Group. Proceedings in the other lawsuit remain ongoing.

In April 2023, we settled an outstanding balance with a vendor and recorded a gain of $178,749.

ERC Activity

During the second quarter, the company received $754,796 related to an employee retention credit from the IRS, which was recorded as other income. The services provided by a third-party company for assistance with the ERC application totaled $327,073, which was recorded as finance cost. Additionally, the company obtained two advance loans on the ERC credits totaling $450,000 with an original issue discount of $133,333, that was fully expensed as interest expense for a total owed of $583,333. The OID was repaid during the three months ended June 30, 2023. Of this amount, $80,528 of the advances was repaid during the six months ended June 30, 2023, and the ending balance for the two loans was $369,472. These amounts are included in other liabilities as of June 30, 2023.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

Service Agreement

In December of 2021 we entered into an agreement wherein a third party will assume responsibility for several of our staffing clients and in return the third party would enter into Recruiters on Demand service agreements and software subscriptions with us. As of December 31, 2022, all the conditions of the agreement have not been met. However, one of the provisions has been implemented whereby we entered into a payroll service agreement for employer of record services for one of our clients. As a result, we have recognized revenue $0 and $214,247 during the three and six months ended June 30, 2023 and 2022, respectively, related to this agreement.

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 became increasingly widespread in the United States, including in each of the areas in which we operate. While to date, we have not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. We previously reduced certain billing rates to respond to the economic climate, however, those billing rates have returned to normal. Demand for recruiting solutions and our Platform improved in 2022 versus 2021. The COVID-19 pandemic has been characterized by rises and falls of case numbers due to unforeseen factors and variants of concern and consequently has had varying amounts of impact on our operations and financial prospects. The extent to which the COVID-19 pandemic will impact operations, ability to obtain financing or future financial results is uncertain at this time.

Our management team believes that COVID-19 accelerated significant technology trends that had already existed before the pandemic. For example, the gig economy's growth (i.e., temporary, flexible jobs) was facilitated by technology, virtual and remote telework with video, and the emergence of On Demand labor through online marketplaces all happened before the crisis. The necessity of lockdowns and business closures drove increased technology adoption and moved these trends rapidly forward. As we operate as a virtual, AI, and video-based hiring platform operating in the gig economy, these trends may act as tailwinds for the adoption of our products and services.

We expect but cannot guarantee that demand for its recruiting solutions will improve in 2023, as certain clients re-open or accelerate their hiring initiatives, and new clients utilize our services. Overall, management is focused on effectively positioning the Company for a rebound in hiring which we believe will continue to happen in 2023. Ultimately, the recovery may be delayed and the economic conditions may worsen, depending upon changes in the impact from the COVID-19 pandemic. We continue to closely monitor the confidence of our recruiter users and customers, and their respective job requirement load through offline discussions and our Recruiter Index survey.

We also may depend on raising additional debt or equity capital to stay operational. The economic impact of COVID-19, should the COVID-19 pandemic worsen, 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.

On June 5, 2023, the Company entered into a stock purchase agreement with GoLogiq Inc., a Delaware corporation (“GoLogiq”). GoLogiq owns all of the issued and outstanding membership interests (the “Membership Interests”) of GOLQ LLC, a Nevada limited liability company. Upon the terms and subject to the conditions of the stock purchase agreement, GoLogiq is selling to the Company, and the Company is purchasing from GoLogiq, the Membership Interests. This transaction has not yet closed.

In exchange for the Company Membership Interests, the Buyer is agreeing to pay the Seller total consideration of (1) the number of shares of common stock of the Buyer (“Buyer Common Stock”) that represents 84% of the total issued and outstanding shares of the Buyer common stock at the closing of the purchase of the Company Membership Interest (“Closing” and such date, the “Closing Date”) and (2) an earn-out payment (the “Earn-Out Payment”) payable pursuant to the terms of the Agreement. The Earn-Out Payment will be payable if on a date that is six months after the Closing Date (the “Earn-Out Determination Date”), Buyer’s market capitalization at the close of the trading day (the “Buyer Market Cap”) exceeds the Assumed Closing Valuation. The assumed closing valuation refers to the current value of the Company, which is deemed to be $105,000,000 (“Assumed Closing Valuation”). The Assumed Closing Valuation is the sum of the Company’s assumed valuation of $88,000,000 and the Buyer’s assumed valuation of $17,000,000. The Earn-Out Payment shall be as follows: (i) if the Buyer Market Cap on the Earn-Out Determination Date exceeds the Assumed Closing Valuation but is less than or equals to $130,000,000, Seller shall receive such additional number of shares of Buyer Common Stock representing seventy percent (70%) of the increase in value over the Assumed Closing Valuation; (ii) if the Buyer Market Cap on the Earn-out Determination Date exceeds $130,000,000 but is less than or equals to $160,000,000, Seller shall receive such additional number of shares of Buyer Common Stock representing eighty percent (80%) of the increase in value over the Assumed Closing Valuation; and (iii) if the Buyer Market Cap on the Earn-out Determination Date exceeds $160,000,000, Seller shall receive such additional number of shares of Buyer Common Stock representing ninety percent (90%) of the increase in value over the Assumed Closing Valuation.

Concurrent with the Closing, Recruiter.com’s existing operating business, assets, and liabilities are planned to be spun off into a new entity that will be quoted on the OTC Market (“NewCo”). Upon the completion of such spin-off, the legacy stockholders of record for Recruiter.com prior to the Closing Date will hold securities in Buyer and NewCo.

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RECRUITER.COM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(UNAUDITED)

NOTE 10 - RELATED PARTY TRANSACTIONS

Under a technology services agreement entered into on January 17, 2020, we use a related party firm of the Company, Recruiter.com Mauritius, for software development and maintenance related to our website and Platform underlying our operations. This was an oral arrangement prior to January 17, 2020. The initial term of the Services Agreement is five years, whereupon it shall automatically renew for additional successive 12-month terms until terminated by either party by submitting a 90-day prior written notice of non-renewal. The firm was formed outside of the United States solely for the purpose of performing services for the Company and has no other clients. The consultant to the Company, who was our Chief Technology Officer until July 15, 2021, and thereafter our Chief Web Officer until August 23, 2023, is an employee of Recruiter.com Mauritius and exerts control over Recruiter.com Mauritius. Pursuant to the Services Agreement, the Company has agreed to pay Recruiter.com Mauritius fees in the amount equal to the actualized documented costs incurred by Recruiter.com Mauritius in rendering the services pursuant to the Services Agreement, expenses to this firm were $17,855 and $0 for the three months ended June 30, 2023 and 2022, respectively, and expenses to this firm were $27,041 and $16,667 for the six months ended June 30, 2023 and 2022, respectively. These Expenses are included in product development expense in our condensed consolidated statements of operations.

We were a party to that certain license agreement with Genesys. An executive officer of Genesys is a significant equity holder and a member of our Board of directors. Pursuant to the License Agreement Genesys has granted us an exclusive license to use certain candidate matching software and renders certain related services to us. The Company has agreed to pay to Genesys (now called Opptly) a monthly license fee of $5,000 beginning September 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 assisted with closing a recruiting program. During the three months ended June 30, 2023 and 2022 respectively, no operating expenses were provided by Opptly. During the six months ended June 30, 2023 and 2022, we charged to operating expense $0 and $19,825 for services provided by Opptly. The license agreement expired on March 31, 2022 and was not renewed.

An employer of a director utilized the Company for services during the three months ended June 30, 2023 and 2022 in the amount of $0 and $6,000, respectively, and during the six months ended June 30, 2023 and 2022 in the amount of $0 and $6,000, respectively.

NOTE 11 - SUBSEQUENT EVENTS

On July 11, 2023, the company paid off the entire outstanding balances for the two Employee Retention Credits loans. (See Note 9)

On July 25, 2023, Recruiter.com Group, Inc. (the “Company” or "Purchaser") entered into a Securities Purchase Agreement (the “Agreement”) with Synergy Management Group, LLC (the "Shareholder"). Pursuant to the Agreement, the Company purchased 1,000,000 shares (the “Shares”) of the Series A Preferred Stock (“Series A Stock”) of Atlantic Energy Solutions, Inc., a company quoted on the OTC Markets under the symbol “AESO” ("AES"). Each share of Series A Stock is convertible into 1,000 shares of common stock of AES.

The total purchase price for the Shares was $80,000, with an initial non-refundable payment of $8,000 due immediately upon the execution of the Agreement, and the balance to be paid at the closing of the transaction.

On August 9, 2023, the Company approved a one-for-fifteen (1:15) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). Proportional adjustments for the Reverse Stock Split will be made to the Company’s outstanding stock options, warrants and equity incentive plans upon effectiveness. The Company is awaiting the approval of the Financial Industry Regulatory Authority (“FINRA”) for the market effectiveness of the Reverse Stock Split.

On August 9, 2023, (i) Recruiter.com Consulting, LLC and Insigma, Inc., a Virginia corporation and a wholly owned subsidiary of Futuris Company, a Wyoming corporation (“FTRS”), entered into an asset purchase agreement and (ii) Recruiter Consulting and Akvarr, Inc., a Delaware corporation (“Akvarr”) and a wholly owned subsidiary of FTRS, entered into an asset purchase agreement. Upon the terms and subject to the conditions of the agreements, Recruiter Consulting agreed to sell its right, title, and exclusive interest in certain client contracts and associated staff, contractors, business information, and relationships related thereto to Insigma and Akvarr.

As consideration for the Acquired Assets, and upon completion of the assignment of certain Acquired Assets to Insigma, Insigma shall issue to Recruiter Consulting a number of shares of common stock of FTRS equal to $500,000 based on the 30 day Volume Weighted Average Price (VWAP) preceding the Closing Date (as defined in the Insigma Agreement). The Insigma Agreement also provides for the payment of up to $2,000,000 of additional cash consideration as an earnout payment to Recruiter Consulting, which shall be payable in monthly installments beginning 30 days from the Closing Date and based on the Gross Margin (as defined in the Insigma Agreement) generated by the Acquired Assets.

On August 10, 2023, the Company granted an employee 50,000 options to purchase common stock, exercisable at $0.20 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vest monthly through December 31, 2023.

On August 7, 2023 the Company signed an amendment to two promissory notes for $800,000 and $200,000 for one investor. The amendment extends each of the maturity dates of August 17, 2023 and August 30, 2023 respectively, by 180 days. In return, the company has agreed to give $50,000 in either stock or cash at its discretion within ninety days of signing the amendment.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 31, 2023.

For purposes of this Quarterly Report, “Recruiter.com,” “we,” “our,” “us,” or similar references refers to Recruiter.com Group, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

Overview

We operate an On Demand recruiting platform to transform the $28.5 billion Employment and Recruitment Agency industry. We help businesses accelerate and streamline their recruiting and hiring processes by providing On-Demand recruiting services and technology. We leverage our network of recruiters to place recruiters on a project basis and provide additional AI-enabled platforms, training and upskilling programs, staffing services, and career communities. Our mission is to become a preferred solution for hiring specialized talent.

Operating Businesses and Revenue

We generate revenue from the following activities:

Software Subscriptions: We offer a subscription to our web-based platforms that help employers recruit talent. Our platforms allow customers to source, contact, screen, and sort candidates using data science, advanced email campaigning tools, and predictive analytics. As part of our software subscriptions, we offer enhanced support packages and On Demand recruiting support services for an additional fee. Additional fees may be charged when we place a candidate with our customer, depending on the subscription type. In such cases, if the candidate ceases to be employed by the customer during the initial 90 days (the 90-day guarantee), we refund the customer in full for all fees paid by the customer. In December of 2022, we sold one of our software platforms to Talent, Inc. that was used in the delivery of the subscription service. Subsequently, we continued providing the service, but leveraged third-party tools in the delivery of services.

Recruiters On Demand: Consists of a consulting and staffing service specifically for the placement of professional recruiters, which we market as Recruiters On Demand. Recruiters On Demand is a flexible, time-based solution that provides businesses of all sizes access to recruiters on an outsourced, virtual basis for help with their hiring needs. As with other consulting and staffing solutions, we procure for our employer clients qualified professional recruiters, and then place them on assignment with our employer clients. We derive revenue from Recruiters On Demand by billing the employer clients for the placed recruiters' ongoing work at an agreed-upon, time-based rate. We directly source recruiter candidates from our network of recruiters. In addition, we also offer talent planning, talent assessment, strategic guidance, and organizational development services, which we market as our “Talent Effectiveness” practice. Companies prepay for a certain number of consulting hours at an agreed-upon, time-based rate. We source and provide the independent consultants that provide the service. In March 2023, we announced a strategic partnership with Job Mobz to transition certain Recruiters on Demand clients and staff to Job Mobz in exchange for an ongoing revenue stream. (See below Revenue Share)

·	Full-time Placement: Consists of providing referrals of qualified candidates to employers to hire staff for full-time positions. We generate full-time placement revenue by earning one-time fees for each time that employers hire one of the candidates that we refer. Employers alert us of their hiring needs through our Platform, or other communications. We source qualified candidate referrals for the employers’ available jobs through independent recruiter users that access the Platform and other tools. We support and supplement the independent recruiters’ efforts with dedicated internal employees we call our internal talent delivery team. Our talent delivery team selects and delivers candidate profiles and resumes to our employer clients for their review and ultimate selection. Upon the employer hiring one or more of our candidate referrals, we earn a “full-time placement fee”, an amount separately negotiated with each employer client. The full-time placement fee is typically either a percentage of the referred candidates’ first year base salary or an agreed-upon flat fee.

·	Marketplace: Our Marketplace category comprises services for businesses and individuals that leverage our online presence and career communities. For businesses, this includes job postings, sponsorship of digital newsletters, online content promotion, social media distribution, banner advertising, and other branded electronic communications, such as in our quarterly digital publication on recruiting trends and issues. We earn revenue by completing agreed upon marketing related deliverables and milestones using pricing and terms set by mutual agreement with the customer. In some cases, we earn a percentage of revenue a business receives from attracting new clients by advertising on the Platform. Companies can also pay us to post job openings on our proprietary job boards to promote open job positions they are trying to fill. In addition to our work with direct clients, we categorize all online advertising and affiliate marketing revenue as Marketplace revenue.

	For individuals, Marketplace includes services to assist with career development and advancement, including a resume distribution service that promotes these job seekers’ profiles and resumes to help with their procuring employment, upskilling, and training. Our resume distribution service allows a job seeker to upload their resume to our database, which we then distribute to our network of recruiters on the Platform. We earn revenue from a one-time flat fee for this service. We also offer a recruiter training program through our online learning management system, located at RecruitingClasses.com and other training and upskilling programs.

·	Consulting and Staffing: Consists of providing consulting and staffing personnel services to employers to satisfy their demand for long- and short-term consulting and temporary employee needs. We generate revenue by first referring qualified personnel for the employer’s specific talent needs, then placing such personnel with the employer, but with our providers acting as the employer of record for us, and finally, billing the employer for the time and work of our placed personnel on an ongoing basis. Our process for finding candidates for consulting and staffing engagements largely mirrors our process for full-time placement hiring. This process includes employers informing us of open consulting and temporary staffing opportunities and projects, sourcing qualified candidates through the Platform and other similar means, and, finally, the employer selecting our candidates for placement after a process of review and selection. We bill these employer clients for our placed candidates’ ongoing work at an agreed-upon, time-based rate, typically on a weekly schedule of invoicing.

·	Revenue Share: We refer certain clients to a third party in exchange for a referral fee. The amount of the referral fee is dependent upon whether the referral is an existing client of ours and what services we currently provide that client, or a client of a third party who is not historically serviced by us. Referral fees under the revenue share arrangement are subject to certain minimum and maximum payout amounts. We record referral fees earned under our revenue share arrangement on a net basis.

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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.

The costs of our revenue primarily consist of employee costs, third-party staffing costs and other fees, outsourced recruiter fees and commissions based on a percentage of our gross margin.

Quarter Overview

During the three months ended June 30, 2023, we streamlined our operations and worked to complete the partnership with Job Mobz, which further reduced operating expenses. We also focused on developing new high-margin offerings such as our AI-enabled software product “Candidate Pitch” for transforming resumes into career summaries and our “Recruiting Classes” online training program. Additionally, we worked to develop the capabilities of our job board software, providing Cost per Click (“CPC) abilities and other feature enhancements.

We also worked to negotiate plans for a strategic asset acquisition with GoLogiq, which would have the effect of refocusing the company around Fintech industry, and spinning out our existing operations to a newly formed company. To that end, we also took steps to prepare ourselves for this transaction, creating CognoGroup, Inc., a Nevada corporation, for the purpose of the spin out, as well as announcing a Securities Purchase Agreement with Synergy Asset Management Group, which allows for the Company to purchase 1,000,000 shares of the Series A Preferred Stock (“Series A Stock”) of Atlantic Energy Solutions, Inc., a company quoted on the OTC Markets under the symbol “AESO”.

Our key highlights during the three months ended June 30, 2023, include the following:

Select Achievements:

	·	Announced the launch of OnDemand Recruiter Marketplace platform, which automates the procurement of the professional services of recruiters
	·	Launched Candidate Pitch, a ChatGPT-driven software platform that uses artificial intelligence to instantly create professional summaries
	·	Announced a business combination with GoLogiq, consisting of an asset acquisition of certain Fintech-related assets of GoLogiq, which would realign the Company to Fintech
	·	Announced a strategic plan, in tandem with the GoLogiq acquisition, to refocus the company around work technology and AI businesses.
	·	Forged a partnership to apply artificial intelligence to hiring with millionways, a startup that provides “emotionally intelligent” AI.
	·	Held a number of webinars and events focused around artificial intelligence, including events with third-party companies including Secta Labs and Conductor AI.

Since June 30, 2023, our key highlights include the following:

	·	Entered into a Securities Purchase Agreement with Synergy Asset Management to purchase 1,000,000 shares of Series A Pref Preferred Stock (“Series A Stock”) of Atlantic Energy Solutions, Inc., a company quoted on the OTC Markets under the symbol “AESO”.
	·	Announced an acquisition of our healthcare related business to Futuris Company.
	·	Announced the extension of certain debenture agreements with Calvary Fund

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022:

Revenue

We had revenue of $2.0 million for the three-month period ended June 30, 2023, as compared to $7.1 million for the three-month period ended June 30, 2022, representing a decrease of $5.1 million or 71%. This decrease resulted primarily from a decrease in our Recruiters on Demand business of $4.5 million or 96% as we transitioned this business to JobMobz. Software Subscriptions contributed $35 thousand of revenue in 2023 compared to $808 thousand in 2022 as we had sold our software technology last year. We also had a decrease in Permanent Placement fees of $313 thousand or 100% due to reduced focus on this line of business. We also had a decrease in our Marketplace Solutions revenue of $184 thousand or 50% due to customer churn. The decrease in revenue was offset by an increase in Consulting and Staffing Services of approximately 61% to $1.5 million as our healthcare staffing business continued to grow. Additionally, we recognized approximately $100 thousand in revenue share from the JobMobz agreement.

Cost of Revenue

Cost of revenue was $1.6 million for the three-month period ended June 30, 2023, compared to $4.2 million for the corresponding three-month period in 2022, representing a decrease of $2.6 million or 62%. This decrease resulted primarily from a decrease in compensation expense in line with the decrease in revenue. Cost of revenue was primarily attributable to third party staffing costs and other fees related to the recruitment and staffing business acquired from Genesys, which after its purchase, serves as our Recruiting Solutions division, as well as costs for contract recruiters supporting the Recruiters on Demand business.

Our gross profit for the three-month period ended June 30, 2023 was $437 thousand, producing a gross profit margin of 21.5%. Our gross profit for the corresponding 2022 three-month period was $2.9 million, producing a gross profit margin of 41%. The decrease in the gross profit margin from the 2023 period to the 2022 period reflects the shift in the mix in sales for the period as our Consulting and Staffing Services has the lowest gross margin of all areas of business.

Operating Expenses

We had total operating expense of $1.4 million for the three-month period ended June 30, 2023 compared to $5.3 million for the corresponding three-month period in 2022, a decrease of $3.9 million or 74%. This decrease was primarily due to lower product development, and general and administrative expense, and lower amortization of intangibles expense of $325 thousand from $917 thousand that occurred for the three-month period ended June 30, 2022. Expenses declined in line with the decline in sales.

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Sales and Marketing

Our sales and marketing expense for the three-month period ended June 30, 2023 was $79 thousand compared to $158 thousand for the corresponding three-month period in 2022, which reflects a decrease in personnel and advertising and marketing expense in line with the decline in sales.

Product Development

Our product development expense for the three-months ended June 30, 2023 decreased to $84 thousand from $89 thousand for the corresponding period in 2022. This decrease was attributable to a decrease in technology and research and development expenses. The product development expense included $19 thousand and $0 for the three months ended June 30, 2023 and 2022, respectively paid to Recruiter.com Mauritius, Ltd, a development team employed by us that is a related party.

Amortization of Intangibles

For the three-month period ended June 30, 2023, we incurred a non-cash amortization charge of $325 thousand as compared to $917 thousand for the corresponding period in 2022. The amortization expense in 2023 and 2022 relates to the intangible assets acquired from Genesys (now our Recruiting Solutions division), Scouted, Upsider, OneWire, Parrut and Novo Group.

General and Administrative

General and administrative expense for the three-month period ended June 30, 2023 includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. For the three-month period ended June 30, 2023, our general and administrative expense was $887 thousand, including $220 thousand of non-cash stock-based compensation. In 2022, for the corresponding period, our general and administrative expense was $4.1 million, including $669 thousand of non-cash stock-based compensation. This 78% decrease was in line with the decline in sales.

Other Income (Expense)

Other income (expense) for the three-month period ended June 30, 2023 was expense of $41 thousand compared to income of $1.1 million in the corresponding 2022 period. The primary reason for the decrease in income of $1.2 million was due to an increase in interest expense of $647 thousand and a decrease in gain on debt extinguishment, and an increase of $327 thousand of finance cost. Offsetting these are an increase in other income of $754 thousand due to the company successfully receiving employee retention credits.

Net Income (Loss)

For the three-months ended June 30, 2023, we had a net loss of $980 thousand compared to a net loss of $1.2 million during the corresponding three-month period in 2022.

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Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022:

Revenue

We had revenue of $5.3 million for the six-month period ended June 30, 2023, as compared to $14.0 million for the six-month period ended June 30, 2022, representing a decrease of $8.6 million or 62%. This decrease resulted primarily from a decrease in our Recruiters on Demand business of $7.1 million during the period, or 80%, as we transitioned this business to JobMobz. Software Subscriptions contributed $413 thousand of revenue in 2023 compared to $1.5 million in 2022 as we had sold our software technology last year. We also had a decrease in Permanent Placement fees of $598 thousand during the first half of 2023, or 97%, due to reduced focus on this line of business, and a decrease in our Marketplace Solutions revenue of $315 thousand, or 45%, due to customer churn. The decrease in revenue was offset by an increase in Consulting and Staffing Services of approximately 16% to $2.6 million as our healthcare staffing business continued to grow. Additionally, we recognized approximately $100 thousand in revenue share from the JobMobz agreement.

Cost of Revenue

Cost of revenue was $4.2 million for the six-month period ended June 30, 2023, compared to $8.4 million for the corresponding six-month period in 2022, representing a decrease of $4.2 million or 50%. This decrease resulted primarily from a decrease in compensation expense in line with the decrease in revenue. Cost of revenue for the six-month period was primarily attributable to third party staffing costs and other fees related to the recruitment and staffing business acquired from Genesys, which after its purchase, serves as our Recruiting Solutions division, as well as costs for contract recruiters supporting the Recruiters on Demand business.

Our gross profit for the six-month period ended June 30, 2023 was $1.2 million, producing a gross profit margin of 22%. Our gross profit for the corresponding 2022 six-month period was $5.6 million, producing a gross profit margin of 40%. The decrease in the gross profit margin from 2022 to 2023 reflects the shift in the mix in sales for the period as our Consulting and Staffing Services has the lowest gross margin of all areas of business.

Operating Expenses

We had total operating expense of $4.9 million for the six-month period ended June 30, 2023 compared to $12.1 million for the corresponding six-month period in 2022, a decrease of $7.2 million or 59%. This decrease was primarily due to lower product development, and general and administrative expense, and lower amortization of intangibles expense of $633 thousand from $1.9 million that occurred for the six-month period ended June 30, 2022. Expenses declined in line with the decline in sales.

Sales and Marketing

Our sales and marketing expense for the six-month period ended June 30, 2023 was $236 thousand compared to $277 thousand for the corresponding six-month period in 2022, which reflects a decrease in personnel and advertising and marketing expense reflecting the decline in sales.

Product Development

Our product development expense for the six-months ended June 30, 2023 decreased to $327 thousand from $683 thousand for the corresponding period in 2022. This decrease was due to a decline in personnel reflecting the decline in sales. The product development expense included $27 thousand and $17 thousand for the six months ended June 30, 2023 and 2022, respectively, paid to Recruiter.com Mauritius, Ltd, a development team employed by us that is a related party.

Amortization of Intangibles

For the six-month period ended June 30, 2023, we incurred a non-cash amortization charge of $633 thousand as compared to $1.9 million for the corresponding period in 2022. The amortization expense in 2023 and 2022 relates to the intangible assets acquired from Genesys (now our Recruiting Solutions division), Scouted, Upsider, OneWire, Parrut and Novo Group.

General and Administrative

General and administrative expense for the six-month period ended June 30, 2023 includes compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and professional services, and general corporate expenses. For the six-month period ended June 30, 2023, our general and administrative expense was $3.7 million, including $762 thousand of non-cash stock-based compensation. In 2022, for the corresponding period, our general and administrative expense was $9.2 million, including $2.5 million of non-cash stock-based compensation. This 60% decrease was in line with the decline in sales.

Other Income (Expense)

Other income (expense) for the six-month period ended June 30, 2023 was an expense of $534 thousand compared to income of $1.1 million in the corresponding 2022 period. The primary reason for the decrease in income of $1.6 million was due to an increase in interest expense of $1.0 million, a decrease in the gain on debt extinguishment of $1.2 million, and an increase of $327 thousand of finance cost, offset by an increase in other income of $756 thousand due to the company successfully receiving employee retention credits.

Net Income (Loss)

For the six-months ended June 30, 2023, we had a net loss of $4.3 million compared to a net loss of $5.4 million during the corresponding six-month period in 2022.

Net Income (Loss) attributable to common shareholders

For the six-months ended June 30, 2023, we had a net loss attributable to common shareholders of $4.8 million compared to a net loss of $5.4 million during the corresponding six-month period in 2022. The increase in net loss attributable to common shareholders versus the net loss reflects a deemed dividend recorded for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $534 thousand as a result of the trigger of the anti-dilution provisions.

Non-GAAP Financial Measures

The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives, to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of our historical operating results nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.

Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.

We define Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.

We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

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The following table presents a reconciliation of net loss to Adjusted EBITDA:

	Three months Ended June 30,
	2023			2022

Net Income (loss)	$	(980,273	)	$	(1,188,760	)
Interest (income) expense and finance cost, net		647,213			64,491
Depreciation & amortization		331,959			917,431
EBITDA (loss)		(1,101	)		(206,838	)
Bad debt expense		-			345,202
Gain on Settlement of Payables		(178,749	)		-
Stock-based compensation		219,560			669,047
Gain on debt extinguishment		-			(1,205,195	)
Adjusted EBITDA (Loss)	$	39,710		$	(397,784	)

	Six months Ended June 30,
	2023			2022

Net Income (loss)	$	(4,296,042	)	$	(5,371,098	)
Interest expense and finance cost, net		1,161,369			131,906
Depreciation & amortization		645,943			1,926,194
EBITDA (loss)		(2,488,730	)		(3,312,998	)
Bad debt expense		200,000			363,702
Gain on Settlement of Payables		(178,749	)		-
Stock-based compensation		762,509			2,404,064
Gain on debt extinguishment		-			(1,205,195	)
Adjusted EBITDA (Loss)	$	(1,704,970	)	$	(1,750,427	)

Liquidity and Capital Resources

For the six months ended June 30, 2023, net cash used in operating activities was $1.7 million, compared to net cash used in operating activities of $1.7 million for the corresponding six-month period in 2022. For the six months ended June 30, 2023, net loss was $4.3 million. Net loss includes non-cash items of depreciation and amortization expense of $646 thousand, bad debt expense of $200 thousand, equity-based compensation expense of $763 thousand, amortization of debt discount and debt costs of $727 and a factoring discount fee and interest of $20 thousand, and a gain on settlement of payables of $179 thousand. Changes in operating assets and liabilities include primarily the following: accounts receivable increased by $591 thousand and prepaid expenses and other current assets decrease by $10 thousand. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, and deferred revenue increase in total by $184 thousand.

For the six months ended June 30, 2022, net cash used in operating activities was $1.7 million. For the six months ended June 30, 2022, net loss was $5.4 million. Net loss included non-cash items of depreciation and amortization expense of $1.9 million, bad debt expense of $364 thousand, warrant modification expense of $152 thousand, equity-based compensation expense of $2.4 million, factoring discount fees and interest expense of $45,413 and a positive change in fair value of earn-out liability of $27 thousand. Changes in operating assets and liabilities included primarily the following: accounts receivable (including related party) decreased by $183 thousand and prepaid expenses and other current assets decreased by $35 thousand. Due from factor increased by $330 thousand. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, customer advances, and deferred revenue decreased in total by $292 thousand.

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For the six months ended June 30, 2023 and 2022, net cash used in investing activities was $0 and $764 thousand resulting from the capitalization of software development costs.

For the six months ended June 30, 2023, net cash provided by financing activities was $1.2 million. The principal factor was $450 thousand of proceeds from ERC advances, $871 thousand of proceeds from factoring agreement, and $315 thousand of proceeds from the exercise of warrants, offset by repayment of ERC advances notes and the factoring agreement of $347 thousand.

For the six months ended June 30, 2022, net cash provided by financing activities was $1.6 million. The principal factor was $2.7 million in net proceeds from factoring agreement, offset by $1.1 million from the payments of notes.

Based on cash on hand as of August 11, 2023 of approximately $442 thousand, we do not have the capital resources to meet our working capital needs for the next 12 months.

Our consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We incurred net losses and negative operating cash flows since inception. For the six months ended June 30, 2023, we recorded a net loss of $4.3 million. We have not yet established an ongoing source of revenue that is sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we become profitable.

Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern. We can give no assurances that any additional capital that we are able to obtain, if any, will be sufficient to meet our needs, or that any such financing will be obtainable on acceptable terms. If we are unable to obtain adequate capital, we could be forced to cease operations or substantially curtail our commercial activities. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern.

To date, equity offerings have been our primary source of liquidity and we expect to fund future operations through additional securities offerings.

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Financing Arrangements

Promissory Notes Payable

We received $250,000 in proceeds from an institutional investor pursuant to a promissory note issued on May 6, 2021. The note bears interest at 12% per year and matures on May 6, 2023. In April 2022, we paid off the total principal balance of the note and the accrued interest.

In February 2023, we entered into an additional Amendment to the Promissory Note with Novo Group, Inc. (the “Novo Amendment”). The Novo Amendment further modifies the Promissory Note issued to Novo on August 27, 2021 (the “Novo Note”) and amended on April 1, 2022, by amending the payment schedule pursuant to which we would make payments of principal and interest to Novo. Novo agreed we would pay interest only for the period starting November 1, 2022 though and including June 30, 2023, with payments of principal and interest to resume starting April 1, 2023. We also replaced the existing payment schedule with a new payment schedule terminating on October 31, 2023.

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Factoring Arrangement

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Off-Balance Sheet Arrangements

None.

Critical Accounting Estimates and Recent Accounting Pronouncements

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ from management’s estimates and assumptions. Included in these estimates are assumptions used to estimate collection of accounts receivable, fair value of marketable securities, fair value of assets acquired and liabilities assumed in asset acquisitions and the estimated useful life of assets acquired, fair value of contingent consideration, asset acquisitions and business combinations, fair value of derivative liabilities, fair value of securities issued for acquisitions and business combinations, fair value of assets acquired and liabilities assumed in business combinations, fair value of intangible assets and goodwill, fair value of capitalized software, fair value of non-monetary transactions, deferred income tax asset valuation allowances, and valuation of stock based compensation expense.

Revenue Recognition

Policy

We recognize revenue in accordance with the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification (“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

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Revenues as presented on the statement of operations represent services rendered to customers less sales adjustments and allowances.

Marketplace Solutions revenues are recognized either on a gross basis when the advertising is placed and displayed or when lead generation activities and online publications are completed, which is the point at which the performance obligations are satisfied. Payments for marketing and publishing are typically due within 30 days of completion of services.

Consulting and Staffing Services revenues represent services rendered to customers less sales adjustments and allowances. Reimbursements, including those related to travel and out- of-pocket expenses, are also included in the net service revenues and equivalent amounts of reimbursable expenses are included in costs of revenue. We record substantially all revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of this line of revenues and expenses. We have concluded that gross reporting is appropriate because we have the task of identifying and hiring qualified employees, and our discretion to select the employees and establish their compensation and duties causes us to bear the risk for services that are not fully paid for by customers. Consulting and staffing revenues are recognized when the services are rendered by the temporary employees. We assume the risk of acceptability of the employees to customers. Payments for consulting and staffing services are typically due within 90 days of completion of services.

Sales tax collected is recorded on a net basis and is excluded from revenue.

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Goodwill

Goodwill is comprised of the purchase price of business combinations in excess of the fair value assigned at acquisition to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized. We test goodwill for impairment for its reporting units on an annual basis, or when events occur, or circumstances indicate the fair value of a reporting unit is below its carrying value.

We perform our annual goodwill impairment assessment on December 31st of each year or as impairment indicators dictate.

When evaluating the potential impairment of goodwill, management first assess a range of qualitative factors, including but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy and changes in key personnel, and the overall financial performance for each of our reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then proceed to the impairment testing methodology using an appropriate valuation method.

We compare the carrying value of the reporting unit, including goodwill, with its fair value, as determined by its estimated discounted cash flows. If the carrying value of a reporting unit exceeds its fair value, then the amount of impairment to be recognized is recognized as the amount by which the carrying amount exceeds the fair value.

Long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. We periodically evaluate whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, we estimate the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether or not the asset values are recoverable.

Derivative Instruments

Our derivative financial instruments consisted of derivatives related to the warrants issued with the sale of our preferred stock in 2020 and 2019, and the warrants issued with the sale of convertible notes in 2020-2021. 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.

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Stock-Based Compensation

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

(a)	Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer had concluded that our disclosure controls and procedures were not effective due to material weaknesses in internal controls over financial reporting as identified below.

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(b)	Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this Quarterly Report. In making this assessment, our management used the criteria set forth by the Committee of Sponsor Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on that evaluation, as a result of the material weaknesses described below, management has concluded that our internal control over financial reporting was not effective as of June 30, 2023.

Although a material weakness identified as of December 31, 2019 (the lack of sufficient independent directors on our Board to maintain audit and other committees consistent with proper corporate governance standards) had been remediated as of December 31, 2022, management has determined that, as of that date, there were still material weaknesses in both the design and effectiveness of our internal control over financial reporting. A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified material weaknesses in our internal control over financial reporting. Specifically, (1) we lack a sufficient number of employees to properly segregate duties and provide adequate monitoring during the process leading to and including the preparation of the consolidated financial statements, and (2) We do not have the in-house technical expertise to identify and analyze complex or unusual transactions for proper accounting treatment. Accordingly, management’s assessment is that our internal controls over financial reporting were not effective as of June 30, 2023.

Changes in Internal Control over Financial Reporting

We have worked to establish all the checks and balances needed for all financial areas of our business. We hired a consultant in mid-2020 to establish best practices and help us document and implement these. This consultant is a CPA and has a significant background in running the accounting and budgeting process for public companies. We began adopting these best practices during the fourth quarter of 2020. We retained an outsourced firm with a panel of CPA consultants in 2021 to assist in building internal controls and preparing financial reports.

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Except for the BKR lawsuit and related counterclaim described under Note 9 to our unaudited consolidated financial statements, as of the date of this filing, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers, or affiliates are a party adverse to us or which have a material interest adverse to us.

ITEM 1A. - RISK FACTORS

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed March 31, 2023. These risks are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Shares issued upon exchange of common stock warrants

In June 2023, we issued 582,066 common shares to investors who exercised 587,945 warrants with a strike price of $0.01 for gross proceeds of $0.00 as a cashless exercise.

The above securities were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act of 1933, as amended. These securities qualified for exemption under Section 4(a)(2) since the issuance by us did not involve a public offering. The offerings were not “public offerings” as defined in 4(a)(2) due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(a)(2) since they agreed to and received securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering”. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these transactions.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 - OTHER INFORMATION

None.

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ITEM 6 - EXHIBITS

The following exhibits are filed as part of this Quarterly Report:

		Incorporated by Reference			Filed or Furnished
Exhibit No.	Exhibit Description	Form	Filing Date	Number	Herewith
2.1	Agreement and Plan of Merger, by and between Recruiter.com Group, Inc., a Delaware corporation and Recruiter.com Group, Inc., a Nevada corporation, and a wholly owned subsidiary of the Company, resulting in the Company’s reincorporation from the State of Delaware to the State of Nevada	10-K	3/9/21	2.1
3.1(a)	Articles of Incorporation	10-Q	6/25/20	3.1(a)
3.1(b)	Certificate of Designation of Series E Convertible Preferred Stock	10-Q	6/25/20	3.1(c)
3.1(c)	Certificate of Change pursuant to NRS 78.209, filed with Nevada Secretary of State on June 17, 2021	8-K	6/24/21	3.1
3.2	Bylaws, as amended	10-Q	6/25/20	3.2
4.1	Warrant Agent Agreement by and between Recruiter.com Group, Inc., and Philadelphia Stock Transfer, Inc., dated July 2, 2021	8-K	7/6/21	4.3
4.2	Promissory Note issued to Parrut, Inc. on July 7, 2021.	8-K	7/12/21	4.1
4.3	Promissory Note issued to the Novo Group, Inc. on August 27, 2021.	8-K	9/2/21	4.1
4.4	Form of Representative Warrant	8-k	7/6/21	4.1
4.5	Form of Placement Agent Warrant	8-k	7/6/21	4.2
4.6	Form of Amended and Restated Warrant	S-1	12/17/21	4.5
4.7	Legended Promissory Note, originally dated August 27, 2021, by the Company in favor of Novo Group, Inc.	8-K	4/7/22	4.1
4.8	Form of First Amendment to Warrant Agreement	8-K	2/8/23	4.1
31.1	Certification of Principal Executive Officer (302)				Filed
31.2	Certification of Principal Financial Officer (302)				Filed
32.1	Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer and Chief Financial Officer				Furnished*
101.INS	Inline XBRL Instance Document				Filed
101.SCH	Inline XBRL Taxonomy Extension Schema Document				Filed
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				Filed
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				Filed
104	The cover page for Recruiter.com Group, Inc.’s quarterly report on Form 10-Q for the period ended June 30, 2023, formatted in Inline XBRL (included with Exhibit 101 attachments).				Filed

______________

# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.

* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 14, 2023	RECRUITER.COM GROUP, INC.

	By:	/s/ Miles Jennings
		Miles Jennings
		Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Judy Krandel
		Judy Krandel
		Chief Financial Officer (Principal Financial Officer)