This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes the matters that we consider to be important to understanding the results of our operations for each of the two years in the years ended December 31, 2022 and 2021, and our capital resources and liquidity as of December 31, 2022 and 2021. Our fiscal year begins on January 1 and ends on December 31. We analyze the results of our operations for the last two years, including the trends in the overall business followed by a discussion of our cash flows and liquidity, and contractual commitments. We then provide a review of the critical accounting judgments and estimates that we have made that we believe are most important to an understanding of our MD&A and our consolidated financial statements. We conclude our MD&A with information on recent accounting pronouncements which we adopted during the year, as well as those not yet adopted that are expected to have an impact on our financial accounting practices.

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto, all included elsewhere herein. The forward-looking statements in this section and other parts of this document involve risks and uncertainties including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" below and as a result of certain factors, including but not limited to those set forth in "Part I - Item 1A. Risk Factors". The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of the Company.





Overview

We operate an On Demand recruiting platform aimed at transforming the $28.5 billion dollar Employment and Recruitment Agency industry. Recruiter.com combines an online hiring software solution with On Demand recruiting services. Businesses of all sizes recruit talent faster using the Recruiter.com platform.

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, aided by cutting edge artificial intelligence-based candidate sourcing, matching and video screening technologies. We operate a cloud-based scalable software for professional hiring, which provides prospective employers access to a rich and diverse data set of prospective candidates.

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 our 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.





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·   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.

·   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 certification program
    that encompasses our recruitment related training content, which we make
    accessible through our online learning management system. Customers of the
    recruiter certification program use a self-managed system to navigate through
    a digital course of study. Upon completion of the program, we issue a
    certificate of completion and make available a digital badge to certify their
    achievement for display on their online recruiter profile on the Platform.
    Additionally, we partner with Careerdash, a high-quality training company, to
    provide Recruiter.com Academy, an immersive training experience for career
    changers.

·   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.





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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.





2022 Business Update

In 2022, we focused on improving our product offerings, financial position, corporate governance, and streamlining operations. Additionally, we continued investing and partnering to expand our service offerings and client and candidate reach. All the while, we shared our progress with media outreach and a focused investor relations effort.





Key Highlights include:



Corporate Organization



    ?   Signed a strategic partnership with Talent, Inc, a leading career services
        company that provides a job seeker platform, professional resume writing
        and interview coaching, that included: the sale of certain intellectual
        property of our AI Software and a revenue-sharing agreement for the
        promotion and reselling of career services. No such revenues were recorded
        in fiscal 2022.




    ?   Awarded a trademark registration (Reg. No. 6,565,232) from the U.S.
        Trademark Office for the word-mark "Recruiter.com."?





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Partnerships/Acquisitions



    •   Launched Recruiter.com shortlist, a service to provide clients a shortlist
        of ten hand-selected candidates to help fill open roles;

    •   Selected by Deel, a platform that streamlines worldwide compliance and
        payments for international teams, to join their exclusive new Talent
        Marketplace?

    •   Partnered with Professional Diversity Network, Inc. to help employers
        access diverse talent?

    •   Announced multiple partnerships with leading global employment platforms,
        including Velocity Global, Deel, Oyster, and Multiplier.

    •   Signed an Accounts Receivable-backed with recourse factoring agreement to
        support our growth from Bay View Funding, a subsidiary of Heritage Bank of
        Commerce (HTBK), a premier community business bank in the heart of Silicon
        Valley.




Since December 31, 2022, we:



    ?   Announced a client case study with First, a leading global brand
        experience agency, which Recruiter.com helped grow its specialized talent
        pool.

        Launched a ChatGPT content series that explores the impact of this
    ?   powerful artificial intelligence technology on talent acquisition and
        recruiting.







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    ?   Formed a strategic partnership with hireEZ, the award winning outbound
        recruiting platform, to provide the recruitment industry with an elevated
        level of efficiency and effectiveness when hiring talent.




          ·   Launched RecruitingClasses.com, a training platform for recruitment
              professionals.



Results of Operations



Revenue

Our revenue for the year ended December 31, 2022 was $25.4 million compared to $22.2 million for the prior year representing an increase of $3.2 million or 14%. This increase resulted primarily from an increase in our Recruiters On Demand business of $4.6 million or 40% due to contributions from acquisitions as well as growth in new customers. Additionally, Software Subscriptions contributed $2.5 million in revenue in 2022, compared to $1.4 million in 2021.

We had an increase in our Marketplace Solutions revenue of $417 thousand or 57% from contributions from recent acquisitions as well as growth in new customers. We had a decrease in Permanent Placement fees of $154 thousand or 14% and a decrease in our Consulting and Staffing business of $2.7 million or 36% as we focused resources on growing more strategic lines of business.





Cost of Revenue

Cost of revenue for the year ended December 31, 2022 was $16.6 million, which included related party costs of $0, compared to $14.9 million in the prior year, which included related party costs of $599 thousand. This increase resulted primarily from an increase in compensation expense to support revenue growth, third party staffing costs and other fees related to the recruitment and staffing businesses acquired, as well as costs for contract recruiters supporting the Recruiters On Demand business.

Our gross profit for 2022 was $8.7 million which produced a gross profit margin of 35%. In 2021 our gross profit was $7.3 million which produced a gross profit margin of 33%. The increase in the gross profit margin from 2021 to 2022 reflects the shift in the mix in sales for the period as areas of our business with higher gross margins grew while our staffing business declined.






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Operating Expenses

We had total operating expenses of $25.5 million for the year ended December 31, 2022 compared to $24.2 million for the year ended December 31, 2021. This increase was primarily due to increases in amortization expense of $909 thousand, impairment expense of $1.9 million, sales and marketing of $253 thousand, and product and development of $206 thousand, offset by a decrease in bad debt expense of $435 thousand in 2022 compared to 2021.





Sales and Marketing

Our sales and marketing expense for the year ended December 31, 2022 was $726 thousand compared to $472 thousand for the prior year, which reflects an increase in personnel, advertising, and marketing expense to help drive growth in our business.





Product Development

Our product development expense for the year ended December 31, 2022 increased to $1.4 million from $1.2 million for the prior year. This increase was attributable to the continued investment in our product offerings. The product development expense in 2022 included approximately $36 thousand paid to Recruiter.com Mauritius, a related party. In 2021, product development expense included $162 thousand paid to Recruiter.com Mauritius.

Amortization of Intangibles and Impairment Expense

For the year ended December 31, 2022, we incurred a non-cash amortization charge of $3.7 million as compared to $2.7 million for the corresponding period in 2021. The amortization expense increase was a direct result of the acquisitions of intangible assets that occurred in 2021, with a full year of amortization in 2022. For the year ended December 31, 2022, we incurred an impairment charge of $4.4 million related to the impairment of Upsider AI Software and customer relationships, compared to an impairment charge of $2.5 million in 2021 related to the goodwill from the 2019 acquisition of Genesys.





General and Administrative

General and administrative expense include 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 year ended December 31, 2022, our general and administrative expense was $15.3 million including $4.1 million of non-cash stock-based compensation and $493 thousand in bad debt expense. In 2021, our general and administrative expense was $17.3 million including $5.4 million of non- cash stock-based compensation and $928 thousand in bad debt expense. This decrease primarily reflects the decline in non-cash stock-based compensation.





Other Income (Expense)

Other income (expense) for the year ended December 31, 2022 consisted of other income of $258 thousand compared to other income of $610 thousand in 2021. In 2022, the other income was mostly from a gain on debt extinguishment of $1.2 million, offset by interest expense of $965 thousand.





Net loss

In the year ended December 31, 2022, we incurred a net loss of $16.5 million compared to a net loss of $16.3 million in the year ended December 31, 2021.






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Definition of Non-GAAP Financial Measures

The following discussion and analysis include 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 of Recruiter, 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 our results and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

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





                                                              Year Ended
                                                             December 31,
                                                        2022              2021
Net loss                                            $ (16,474,688 )   $ (16,334,615 )
Interest expense and finance cost, net                    965,323         3,137,050
Depreciation & amortization                             3,663,953         2,742,162
EBITDA (loss)                                         (11,845,412 )     (10,455,403 )
Bad debt expense                                          492,906           927,847
Gain on debt extinguishment                            (1,205,195 )         (24,925 )
Warrant modification expense                                    -            12,624
Initial derivative expense                                      -         3,585,983
Loss (gain) on change in fair value of derivative               -        (7,315,580 )
Impairment expense                                      4,420,539         2,530,325
Stock-based compensation                                4,106,040         5,400,975
Adjusted EBITDA (Loss)                              $  (4,031,122 )   $  (5,338,154 )





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Liquidity and Capital Resources

For the year ended December 31, 2022, net cash used in operating activities was $6.9 million, compared to net cash used in operating activities of $9.0 million for 2021. The decrease in cash used in operating activities was attributable to the change in operating expenses outlined previously supporting the changes in our business. For the year ended December 31, 2022, net loss was $16.5 million. Net loss includes non-cash items of depreciation and amortization expense of $3.7 million, bad debt expense of $493 thousand, gain on debt extinguishment of $1.2 million, equity-based compensation expense of $4.1 million, amortization of debt discount and debt costs of $499 thousand, impairment expense of $4.4 million, and a warrant modification expense of $152 thousand. Changes in operating assets and liabilities include primarily the following: accounts receivable increased by $1.5 million and prepaid expenses and other current assets decreased by $253 thousand. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, and deferred revenue decreased in total by $1.3 million.

For the year ended December 31, 2021, net cash used in operating activities was $9.0 million, compared to net cash used in operating activities of $2.5 million for 2020. The increase in cash used in operating activities was attributable to the increase in operating expenses outlined previously supporting the investments to grow our business. For the year ended December 31, 2021, net loss was $16.3 million. Net loss includes non-cash items of depreciation and amortization expense of $2.7 million, bad debt expense of $928 thousand, gain on forgiveness of debt of $25 thousand, equity-based compensation expense of $5.4 million, recognized loss on marketable securities of $1,424, loan principal paid directly through grant of $2,992, amortization of debt discount and debt costs of $2.5 million, initial derivative expense of $3.6 million, impairment expense of $2.5 million, and a positive change in fair value of derivative liability of $7.3 million. The bad debt expense primarily relates to a one-time reserve for a customer for $650 thousand due to the customer's lack of payment. See Item 3. Legal Proceedings for more details. Changes in operating assets and liabilities include primarily the following: accounts receivable increased by $4.7 million and prepaid expenses and other current assets increased by $74 thousand. Accounts payable, accrued liabilities, deferred payroll taxes, other liabilities, and deferred revenue increased in total by $1.7 million.

For 2022, cash used in investing activities was $350 thousand as a result of capitalized software development costs of $1.3 million offset by proceeds received from the sale of intangible assets of $1.1 million, compared to $2.2 million of cash used in investing activities in 2021 principally as a result of cash paid for acquisitions.

In 2022, net cash provided by financing activities was $5.7 million. The principal factors were $4.1 million from the sale of notes, net of original issue discounts and offering costs and $7.3 million from proceeds from factor, offset by $2.0 million in repayments of notes, and $3.7 million in repayments to factor. In the 2021 period, financing activities provided $13.7 million, primarily due to $2.2 million from the sale of convertible notes, net of original issue discounts and offering costs, $250 thousand proceeds from notes, $13.8 million gross proceeds from the sale of common stock and warrants, offset by $1.7 million of offering costs, $78 thousand in deferred offering costs, $724 thousand in repayments of notes, and $11 thousand in repayments of sale of future revenues.

Based on cash on hand as of March 22, 2023 of approximately $428,000, 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 year ended December 31, 2022, we recorded a net loss of $16.5 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 and debt offerings have been our primary source of liquidity and we expect to fund future operations through additional securities offerings. We have also entered into arrangements with factoring companies to receive advances against certain future accounts receivable in order to supplement our liquidity.






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Financing Arrangements



Term Loans

We had outstanding balances of $0 and $50,431 pursuant to two term loans as of December 31, 2022 and 2021, respectively, which mature in 2023. The loans have variable interest rates, with current rates at 6.0% and 7.76%, respectively. Current monthly payments under the loans are $1,691 and $1,008, respectively. We have paid off the outstanding balance of both of these loans in February 2022. No new term loans were taken in 2022.

Paycheck Protection Program Loan

During 2021 our remaining loan pursuant to the Paycheck Protection Program under the CARES Act in the amount of $24,750 was forgiven. No new loans were taken under the Paycheck Protection Program of the CARES Act in 2022.





Common Stock Offering

We closed an underwritten public offering pursuant to a Registration Statement on Form S-1, as amended, on July 2, 2021, which was declared effective by the SEC on June 29, 2021. The gross proceeds to us from the underwritten public offering, before deducting underwriting discount, the underwriters' fees and expenses and our estimated expenses, were $13.8 million.

Senior Subordinated Secured Convertible Debentures

In May and June 2020, we entered into a Securities Purchase Agreement, effective May 28, 2020 (the "May Purchase Agreement") with several accredited investors (the "May Purchasers"). Four of the investors had previously invested in our preferred stock. Pursuant to the May Purchase Agreement, we sold to the May Purchasers a total of (i) $2,953,125 in the aggregate principal amount of 12.5% Original Issue Discount Senior Subordinated Secured Convertible Debentures (the "May Debentures"), and (ii) 738,282 common stock purchase warrants, which represents 100% warrant coverage. We also agreed to issue to the placement agent, Joseph Gunnar & Co., LLC, as additional compensation, 147,657 common stock purchase warrants exercisable at $5.00 per share.

Our obligations under the May Debentures were secured by a first priority lien on all of our assets and our subsidiaries' assets, subject to certain existing senior liens. Our obligations under the May Debentures were guaranteed by our subsidiaries.

On January 5, 2021, we entered into a Securities Purchase Agreement, effective January 5, 2021 (the "January Purchase Agreement"), with two accredited investors (the "January Purchasers"). Pursuant to the January Purchase Agreement, we agreed to sell to the January Purchasers a total of (i) $562,500 in the aggregate principal amount of 12.5% Original Issue Discount Senior Subordinated Secured Convertible Debentures (the "January Debentures"), and (ii) 140,625 common stock purchase warrants which represents 100% warrant coverage.

On January 20, 2021, the Company entered into a Securities Purchase Agreement, (the "Follow-on Purchase Agreement") with eighteen accredited investors (the "Follow-on Purchasers"). Pursuant to the Follow-on Purchase Agreement, we agreed to sell to the Follow-on Purchasers a total of (i) $2,236,500 in the aggregate principal amount of 12.5% Original Issue Discount Senior Subordinated Secured Convertible Debentures (the "Follow-on Debentures"), and (ii) 557,926 common stock purchase warrants, which represents 100% warrant coverage. Gunnar acted as placement agent for the offering of the Follow-on Debentures.

On July 2, 2021, we issued 1,489,437 shares of common stock upon the conversion of $5,588,359 of principal amount outstanding under the May Debentures, the January Debentures, and the Follow-on Debentures, which was the total principal amount outstanding, $115,593 of accrued interest through July 2, 2021, and a penalty amount of $253,767 on the May Debentures, which extinguished the May Debentures, the January Debentures, and the Follow-on Debentures.

On July 2, 2021, the number of placement agent warrants issued in 2020 and 2021 to Gunnar was reduced, from 287,606 to 36,364, and the exercise price was increased to $6.25.






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Shares issued upon exchange of common stock warrants

On January 6, 2022, upon agreement with 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 of $152,000 which was recorded in the first quarter of 2022.





Shares issued for Services

In February 2022, we issued 22,000 shares to a vendor for services valued at $47,520.





Restricted stock units

On February 2, 2022, 7,500 common shares vested and 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, 76,175 shares have been issued to our CEO in connection with his employment agreement.

During the year ended December 31, 2022, 95,825 RSUs were granted to vendors for services. 88,325 RSUs vested immediately and were issued as common stock to the vendor, and the remaining 7,500 were vested and issuable as of December 31, 2022. The 95,825 RSUs were valued at $193,140 and were expensed as of December 31, 2022 based on the service period in the contract.

In April 2022, 66,325 common shares vested and were issued to vendors for services valued at $106,120.

Shares issued in relation to acquisitions of Parrut and Upsider

In October 2022, we confirmed Parrut earned the maximum earnout of $1,350,000 and we issued 1,374,678 common shares to Parrut at a price of $0.98 per share, the 20-day volume weighted average price prior to completion of the earnout period.

On October 14, 2022, we issued 51,940 shares to the original shareholders of Upsider held in escrow pursuant to the Asset Purchase Agreement dated March 25, 2021.





Issuance of Warrants

During August 2022, the Company granted 1,510,417 warrants as a part of various debt financings. 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, 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.

On October 19, 2022, we entered into a loan agreement with Montage Capital II, L.P. for up to $2.25 Million. We borrowed $2 Million and issued 622,803 warrants to Montage Capital II, L.P. with an exercise price of $2.00. An additional 83,708 Warrants will be issued and become exercisable upon funding of the second Advance. As of December 31, 2022, only one tranche was funded.

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.





Warrants issued for Services

In December 2022, we issued 30,000 warrants to a vendor for services with an exercise price of $1.00.






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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.

We issued a promissory note in the original principal amount of $1.75 million pursuant to the Parrut acquisition agreement dated July 7, 2021. The note amortized over 24 months, bore interest at 6% and originally matured on July 1, 2023.

On October 19, 2022, Parrut agreed to subordinate their note to the loan owed to Montage Capital II, L.P. In return, we increased the interest rate to 12% and restructured the payment schedule to Parrut with a maturity date of August 31, 2023.

We issued a promissory note in the original principal amount of $3.0 million pursuant to the Novo Group acquisition agreement dated August 27, 2021. The note originally amortized over 30 months, bore interest at 6% and was set to mature on February 1, 2024. 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 30, 2023.

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. As of December 31, 2022, per amendments to the note, the note bore interest at 12% and matured on November 30, 2023.

In February 2023, we entered into an 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 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.

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.

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.

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

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

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.

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

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

Goodwill

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






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

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

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

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





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.





Stock-Based Compensation

We account for all stock-based payment awards made to employees, directors and others based on their fair values and recognizes such awards as compensation expense over the vesting period for employees or service period for non-employees using the straight-line method over the requisite service period for each award as required by FASB ASC Topic No. 718, Compensation-Stock Compensation. If there are any modifications or cancellations of the underlying vested or unvested stock-based awards, we may be required to accelerate, increase, or cancel any remaining unearned stock-based compensation expense, or record additional expense for vested stock-based awards. Future stock-based compensation expense and unearned stock- based compensation may increase to the extent we grant additional stock options or other stock-based awards.






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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 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. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its consolidated financial statements or the method of adoption.

In May 2021, the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)". The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of ASU 2021-04 did not have a material impact on our consolidated financial statements.

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. The Company is currently evaluating the impact the adoption of this ASU would have on the Company's consolidated financial statements.

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 amendments will impact our disclosures but will not otherwise impact the consolidated financial statements. The Company is currently evaluating the impact the adoption of this ASU would have on the Company's consolidated financial statements.






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See "Part I - Item 1A. Risk Factors" for additional information regarding the risks and uncertainties that could affect our business, financial condition and results of operations. New risk factors emerge from time-to-time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report.

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