ITEM 1.
|
FINANCIAL STATEMENTS
|
Professional Diversity
Network, Inc.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Amounts related to variable interest entity of $120,584 and $683,043 as of June 30, 2019 and December 31, 2018, respectively)
|
|
$
|
1,184,330
|
|
|
$
|
1,441,607
|
|
Accounts receivable, net
|
|
|
431,825
|
|
|
|
816,698
|
|
Incremental direct costs
|
|
|
41,142
|
|
|
|
20,797
|
|
Prepaid expenses and other current assets
|
|
|
354,569
|
|
|
|
350,906
|
|
Current assets from discontinued operations
|
|
|
7,228
|
|
|
|
126,270
|
|
Total current assets
|
|
|
2,019,094
|
|
|
|
2,756,278
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
53,065
|
|
|
|
83,608
|
|
Capitalized technology, net
|
|
|
146,713
|
|
|
|
194,833
|
|
Goodwill
|
|
|
339,451
|
|
|
|
339,451
|
|
Intangible assets, net
|
|
|
654,606
|
|
|
|
1,020,942
|
|
Right-of-use assets
|
|
|
268,134
|
|
|
|
-
|
|
Merchant reserve
|
|
|
760,849
|
|
|
|
760,849
|
|
Security deposits
|
|
|
105,899
|
|
|
|
82,139
|
|
Total assets
|
|
$
|
4,347,811
|
|
|
$
|
5,238,100
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,120,948
|
|
|
$
|
1,843,688
|
|
Accrued expenses
|
|
|
1,051,243
|
|
|
|
989,626
|
|
Deferred revenue
|
|
|
2,021,557
|
|
|
|
2,460,436
|
|
Short-term loan – related party
|
|
|
200,000
|
|
|
|
-
|
|
Note Payable – related party
|
|
|
-
|
|
|
|
500,000
|
|
Lease liability, current portion
|
|
|
254,135
|
|
|
|
-
|
|
Current liabilities from discontinued operations
|
|
|
299,372
|
|
|
|
346,528
|
|
Total current liabilities
|
|
|
4,947,255
|
|
|
|
6,140,278
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
115,728
|
|
|
|
194,786
|
|
Deferred rent
|
|
|
-
|
|
|
|
13,742
|
|
Other liabilities
|
|
|
1,042
|
|
|
|
82
|
|
Lease liability, non-current portion
|
|
|
16,016
|
|
|
|
-
|
|
Total liabilities
|
|
|
5,080,041
|
|
|
|
6,348,888
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 45,000,000 shares authorized; 5,860,850 shares and 4,856,213 shares issued as of June 30, 2019 and December 31, 2018, respectively; and 5,859,802 shares and 4,855,165 shares outstanding as of June 30, 2019 and December 31, 2018, respectively
|
|
|
58,609
|
|
|
|
48,562
|
|
Additional paid in capital
|
|
|
86,014,332
|
|
|
|
83,728,903
|
|
Accumulated other comprehensive loss
|
|
|
(10,654
|
)
|
|
|
(24,340
|
)
|
Accumulated deficit
|
|
|
(86,757,400
|
)
|
|
|
(84,826,796
|
)
|
Treasury stock, at cost; 1,048 shares at March 31, 2019 and December 31, 2018
|
|
|
(37,117
|
)
|
|
|
(37,117
|
)
|
Total stockholders’ equity
|
|
|
(732,230
|
)
|
|
|
(1,110,788
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,347,811
|
|
|
$
|
5,238,100
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Professional Diversity
Network, Inc.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (Unaudited)
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
636,219
|
|
|
$
|
1,335,726
|
|
|
$
|
1,434,827
|
|
|
$
|
2,947,947
|
|
Recruitment services
|
|
|
651,046
|
|
|
|
692,377
|
|
|
|
1,125,306
|
|
|
|
1,313,792
|
|
Product sales and other
|
|
|
1,143
|
|
|
|
6,360
|
|
|
|
3,955
|
|
|
|
10,017
|
|
Education and training
|
|
|
-
|
|
|
|
9,577
|
|
|
|
34,881
|
|
|
|
16,048
|
|
Consumer advertising and marketing solutions
|
|
|
38,059
|
|
|
|
74,543
|
|
|
|
73,775
|
|
|
|
144,277
|
|
Total revenues
|
|
|
1,326,467
|
|
|
|
2,118,583
|
|
|
|
2,672,744
|
|
|
|
4,432,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
239,952
|
|
|
|
339,911
|
|
|
|
427,533
|
|
|
|
625,744
|
|
Sales and marketing
|
|
|
538,801
|
|
|
|
1,023,526
|
|
|
|
1,319,548
|
|
|
|
2,116,650
|
|
General and administrative
|
|
|
1,441,764
|
|
|
|
2,063,866
|
|
|
|
2,800,320
|
|
|
|
4,415,678
|
|
Depreciation and amortization
|
|
|
221,541
|
|
|
|
659,143
|
|
|
|
442,963
|
|
|
|
1,339,022
|
|
Total costs and expenses
|
|
|
2,442,058
|
|
|
|
4,086,446
|
|
|
|
4,990,364
|
|
|
|
8,497,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,115,591
|
)
|
|
|
(1,967,863
|
)
|
|
|
(2,317,620
|
)
|
|
|
(4,065,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(6,049
|
)
|
|
|
-
|
|
|
|
(14,182
|
)
|
|
|
-
|
|
Interest and other income
|
|
|
376,068
|
|
|
|
3,777
|
|
|
|
376,068
|
|
|
|
4,667
|
|
Other finance costs
|
|
|
1,261
|
|
|
|
-
|
|
|
|
1,261
|
|
|
|
22,558
|
|
Other (expense) income, net
|
|
|
371,280
|
|
|
|
3,777
|
|
|
|
363,147
|
|
|
|
27,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(744,311
|
)
|
|
|
(1,964,086
|
)
|
|
|
(1,954,473
|
)
|
|
|
(4,037,788
|
)
|
Income tax benefit
|
|
|
(1,642
|
)
|
|
|
(123,415
|
)
|
|
|
(67,275
|
)
|
|
|
(372,465
|
)
|
Loss from continuing operations
|
|
|
(742,669
|
)
|
|
|
(1,840,671
|
)
|
|
|
(1,887,198
|
)
|
|
|
(3,665,323
|
)
|
Loss from discontinued operations (net of tax benefit of $1,575, and $15,458, in the three months ended June 30, 2019 and 2018, respectively, and net of tax benefit of $2,786, and $50,494, in the six months ended June 30, 2019 and 2018, respectively)
|
|
|
(28,565
|
)
|
|
|
(174,763
|
)
|
|
|
(43,405
|
)
|
|
|
(384,523
|
)
|
Net loss
|
|
|
(771,234
|
)
|
|
|
(2,015,434
|
)
|
|
|
(1,930,603
|
)
|
|
|
(4,049,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
(771,234
|
)
|
|
|
(2,015,434
|
)
|
|
|
(1,930,603
|
)
|
|
|
(4,049,846
|
)
|
Foreign currency translation adjustment
|
|
|
(9,349
|
)
|
|
|
(90,459
|
)
|
|
|
13,686
|
|
|
|
(13,751
|
)
|
Comprehensive loss
|
|
$
|
(780,583
|
)
|
|
$
|
(2,105,893
|
)
|
|
$
|
(1,916,917
|
)
|
|
$
|
(4,063,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.15
|
)
|
|
|
(0.42
|
)
|
|
|
(0.37
|
)
|
|
|
(0.85
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.09
|
)
|
Net loss
|
|
$
|
(0.15
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
5,074,480
|
|
|
|
4,371,440
|
|
|
|
5,117,098
|
|
|
|
4,296,944
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Professional Diversity
Network, Inc.
|
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (Unaudited)
|
|
|
Common Stock
|
|
|
Additional Paid In
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Accumulated Other Comprehensive
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Equity
|
|
Balance at January 1, 2018
|
|
|
3,963,864
|
|
|
$
|
39,639
|
|
|
$
|
80,016,218
|
|
|
$
|
(69,745,785
|
)
|
|
|
1,048
|
|
|
$
|
(37,117
|
)
|
|
|
28,848
|
|
|
$
|
10,301,803
|
|
Sale of common stock
|
|
|
876,805
|
|
|
|
8,768
|
|
|
|
2,913,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,921,868
|
|
Translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,751
|
)
|
|
|
(13,751
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
465,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
465,810
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,049,847
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,049,847
|
)
|
Balance at June 30, 2018
|
|
|
4,840,669
|
|
|
$
|
48,407
|
|
|
$
|
83,395,128
|
|
|
$
|
(73,795,632
|
)
|
|
|
1,048
|
|
|
$
|
(37,117
|
)
|
|
$
|
15,097
|
|
|
$
|
9,625,883
|
|
|
|
Common Stock
|
|
|
Additional Paid In
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Accumulated Other Comprehensive
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Equity
|
|
Balance at January 1, 2019
|
|
|
4,856,213
|
|
|
$
|
48,562
|
|
|
$
|
83,728,904
|
|
|
$
|
(84,826,797
|
)
|
|
|
1,048
|
|
|
$
|
(37,117
|
)
|
|
|
(24,340
|
)
|
|
$
|
(1,110,788
|
)
|
Sale of common stock
|
|
|
737,031
|
|
|
|
7,370
|
|
|
|
1,590,445
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
1,597,815
|
|
Conversion of note payable – related party
|
|
|
209,205
|
|
|
|
2,092
|
|
|
|
497,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
Issuance of common stock for settlement of accounts payable
|
|
|
30,640
|
|
|
|
306
|
|
|
|
98,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,970
|
|
Issuance of vested restricted shares
|
|
|
27,761
|
|
|
|
278
|
|
|
|
(278
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0
|
)
|
Translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,686
|
|
|
|
13,686
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
98,689
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,689
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,930,603
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(1,930,603
|
)
|
Balance at June 30, 2019
|
|
|
5,860,850
|
|
|
$
|
58,608
|
|
|
$
|
86,014,332
|
|
|
$
|
(86,757,400
|
)
|
|
|
1,048
|
|
|
$
|
(37,117
|
)
|
|
$
|
(10,654
|
)
|
|
$
|
(732,231
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Professional Diversity
Network, Inc.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(1,887,198
|
)
|
|
$
|
(3,665,323
|
)
|
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities– continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
442,963
|
|
|
|
1,339,022
|
|
Deferred tax expense (benefit)
|
|
|
(77,444
|
)
|
|
|
(374,730
|
)
|
Amortization of right-of-use asset
|
|
|
172,364
|
|
|
|
-
|
|
Accretion of lease liability
|
|
|
8,736
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
98,689
|
|
|
|
465,810
|
|
Provision for (recovery of) bad debt
|
|
|
(2,025
|
)
|
|
|
3,355
|
|
Write off of security deposit
|
|
|
-
|
|
|
|
149,292
|
|
Write off of accounts payable
|
|
|
(375,997
|
)
|
|
|
-
|
|
Write-off of property and equipment
|
|
|
1,385
|
|
|
|
51,804
|
|
Payment of lease obligations
|
|
|
(191,079
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities, net of effects of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
386,898
|
|
|
|
480,018
|
|
Prepaid expenses and other current assets
|
|
|
(3,918
|
)
|
|
|
(221,623
|
)
|
Incremental direct costs
|
|
|
(20,345
|
)
|
|
|
110,945
|
|
Accounts payable
|
|
|
(250,111
|
)
|
|
|
106,011
|
|
Accrued expenses
|
|
|
71,687
|
|
|
|
(406,731
|
)
|
Deferred revenue
|
|
|
(439,346
|
)
|
|
|
(1,195,746
|
)
|
Deferred rent
|
|
|
-
|
|
|
|
(15,922
|
)
|
Other liabilities
|
|
|
971
|
|
|
|
(52,321
|
)
|
Net cash used in operating activities– continuing operations
|
|
|
(2,063,770
|
)
|
|
|
(3,226,139
|
)
|
Net cash provided by (used in) operating activities – discontinued operations
|
|
|
27,269
|
|
|
|
(82,418
|
)
|
Net cash used in operating activities
|
|
|
(2,036,501
|
)
|
|
|
(3,308,557
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Costs incurred to develop technology
|
|
|
(2,500
|
)
|
|
|
(57,814
|
)
|
Purchases of property and equipment
|
|
|
3,336
|
|
|
|
(3,567
|
)
|
Security deposit
|
|
|
(23,888
|
)
|
|
|
(27
|
)
|
Net cash (used in) provided by investing activities– continuing operations
|
|
|
(23,052
|
)
|
|
|
(61,408
|
)
|
Net cash provided by investing activities – discontinued operations
|
|
|
-
|
|
|
|
200,000
|
|
Net cash provided by (used in) investing activities
|
|
|
(23,052
|
)
|
|
|
(138,592
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the sales of common stock
|
|
|
1,597,815
|
|
|
|
2,921,868
|
|
Proceeds from short-term loan - related party
|
|
|
400,000
|
|
|
|
-
|
|
Repayment of short-term loan - related party
|
|
|
(200,000
|
)
|
|
|
-
|
|
Proceeds from line of credit - related party
|
|
|
(292,882
|
)
|
|
|
-
|
|
Repayment of line of credit - related party
|
|
|
292,882
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
1,797,815
|
|
|
|
2,921,868
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
4,660
|
|
|
|
(11,159
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(257,277
|
)
|
|
|
(259,256
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,441,607
|
|
|
|
2,926,088
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,184,330
|
|
|
$
|
2,666,832
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of other cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
8,594
|
|
|
$
|
67,954
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
1.
Description of Business
Professional
Diversity Network, Inc. is both the operator of the Professional Diversity Network (the “Company,” “we,”
“our,” “us,” “PDN Network,” “PDN” or the “Professional Diversity Network”)
and a holding company for NAPW, Inc., a wholly-owned subsidiary of the Company and the operator of the National Association of
Professional Women (the “NAPW Network” or “NAPW”), PDN (Hong Kong) International Education Ltd, PDN (Hong
Kong) International Education Information Co., Ltd, and PDN (China) International Culture Development Co. Ltd, each of which is
a wholly-owned subsidiary of the Company and together provide career consultation services. In November 2017, Jiangxi PDN Culture
Media Co., Ltd became our consolidated variable interest entity (VIE). Laws and regulations of the People’s Republic of
China (“PRC”) prohibit or restrict companies with foreign ownership from certain activities and benefits including
eligibility for certain government grants and certain rebates related to commercial activities. To provide the Company the expected
residual returns of the VIE, the Company, through its wholly-owned subsidiary PDN (China) International Culture Development Co.,
Ltd., entered into a series of contractual arrangements with the VIE and its registered shareholders to enable the Company, to
exercise effective control over the VIE, receive substantially all of the economic benefits and residual returns, and absorb substantially
all the risks of the VIE as if it were the sole shareholder; and have an exclusive option to purchase all of the equity interests
in the VIE. Please refer to Note 3 for more details about the VIE. The PDN Network operates online professional networking communities
with career resources specifically tailored to the needs of different diverse cultural groups including: Women, Hispanic-Americans,
African-Americans, Asian-Americans, Disabled, Military Professionals, Lesbians, Gay, Bisexual and Transgender (LGBT), and Students
and Graduates seeking to transition from education to career. The networks’ purposes, among others, are to assist its registered
users in their efforts to connect with like-minded individuals, identify career opportunities within the network and connect with
prospective employers. The Company’s technology platform is integral to the operation of its business. The NAPW Network
is networking organization for professional women, whereby its members can develop their professional networks, further
their education and skills, and promote their business and career accomplishments. NAPW provides its members with opportunities
to network and develop valuable business relationships with other professionals through its website, as well as at events hosted
at its local chapters across the country. The Company established business operations in China in 2017. Our business activities,
similar to those in the United States, will be focused on providing tools, products and services in China, which will assist in
personal and professional development.
In
2019, PDN China will focus on developing the education business while continuing to grow the Business Club and IAW China segments.
There are two segments under the education business:
Vocational
education program with foreign countries
-- PDN China has partnered with The Chinese People’s Association for Friendship
with Foreign Countries to develop the China-Germany Nursing Program that recruits students from China to study, work and immigrate
to Germany. The Company has developed 10 citywide agents across China to promote recruitment and German language training business.
Essential-qualities
oriented education for elementary and junior high school students
-- In June of 2019, the Company established Kids Enrichment
Academy Ltd.(“KEA”) in Beijing through Jianxi PDN Culture Media Co. Ltd, a VIE structured subsidiary, which will offer
after-school and online education programs for primary and secondary schools in China. Through a combination of online and offline
experience, KEA will create a variety of programs including science education, STEAM education (an educational approach to learning
that uses Science, Technology, Engineering, the Arts and Mathematics as access points for guiding student inquiry, dialogue, and
critical thinking), mental health education, etc. According to the “2019 China Education Industry Research Report”
by Amazing House, China’s K12 education market size was about 880 billion RMB in 2018. By 2019, the market size is expected
to reach 1 trillion RMB, with a compound annual growth rate of 16.2% in five years. As a subdivision in the K12 field, after-school
educational programs are also in high demand. According to the National Statistical Reports on Education Development and “2017
China Family Quality Education Consumption Report” by Rayee ACE, the potential market size of after-school educational programs
in China by 2020 will reach 171 billion RMB.
On
May 25, 2018, the Company sold Noble Voice assets to a long-time customer of the Company and exited the business segment conducted
by Noble Voice. The Noble Voice and Compliant Lead legal entities were terminated in August of 2019. There will be no further
assets or liabilities associated with these entities. See Note 3 for additional information.
2.
Going Concern and Management’s Plans
At
June 30, 2019 the Company’s principal sources of liquidity were its cash and cash equivalents and the net proceeds from
the sales of shares of common stock in the first six months of 2019.
The
Company had an accumulated deficit of approximately $86,757,000 at June 30, 2019. During the six months ended June 30, 2019, the
Company generated a net loss from continuing operations of approximately $1,887,000, used cash in continuing operations of approximately
$2,064,000, and the Company expects that it will continue to generate operating losses for the foreseeable future. At June 30,
2019, the Company had a cash balance of approximately $1,184,000. Total revenues were approximately $1,326,000 and $2,119,000
for the three months ended June 30, 2019 and 2018, respectively, and approximately $2,673,000 and $4,432,000 for the six months
ended June 30, 2019 and 2018, respectively. The Company had working capital deficiency of approximately $2,928,000 and $3,384,000
at June 30, 2019 and December 31, 2018, respectively. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. In order to alleviate the substantial doubt, the Company has approved and undertaken several measures.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
The
Company is closely monitoring operating costs and capital requirements. Management of the Company also made efforts in 2018 and
first two quarters of 2019 to contain and reduce cost, including implementing a new approval process over travel and other expenses,
significantly reducing the cash compensation for independent board directors, terminating non-performing employees and eliminating
certain positions, and replacing and negotiating with certain vendors. We also sold our Noble Voice business on May 25, 2018 to
reduce operating losses and cash burns. If we are still not successful in sufficiently reducing our costs, we may then need to
dispose our other assets or discontinue business lines.
On November 5, 2018, the Company entered
into a $500,000 convertible note (the “Note”) with GNet Tech Holdings Public Limited Company (the “GNet”)
in London, whose majority shareholder is also a shareholder of the Company’s largest shareholder, Cosmic Forward Limited
(“CFL”), with a simple rate of 6% per annum interest. On June 14, 2019, the Company issued 209,205 shares to convert
the principal of this Note. As a result, the Note has been satisfied and is no longer outstanding.
From
January 9, 2019 to April 16, 2019, the Company sold an aggregate of 237,031 shares of its common stock at a purchase price
ranging from $1.146 to $3.96 per share, representing 120% of the closing price the trading day immediately prior to the date of
subscription. As of the date of this annual report, the Company has received an aggregate gross proceeds of $497,816 under
this private placement. All of the purchasers are residents of the People’s Republic of China.
On June 11, 2019, the Company entered into
a Stock Purchase Agreement with one purchaser Ms. Xiaoqian (the “Purchaser Zheng”), pursuant to which the Purchaser
Zheng agreed to purchase 500,000 shares (the “Shares”) of the Company’s common stock for $2.20 per share for
gross proceeds of $1,100,000 (the “Purchase Price”). The Purchase Zheng Price was received by the Company on June
14, 2019.
On August 5, 2019, the Company entered into a Stock Purchase Agreement with one purchaser
Ms. Yingling Wu (the “Purchaser Wu”), pursuant to which the Purchaser Wu agreed to purchase 1,142,857 shares (the
“Shares”) of the Company’s common stock for $1.75 per share for gross proceeds of $2,000,000 (the “Purchase
Price”). This transaction was closed on August 6, 2019.
Management
believes that its available funds and cash flow from operations may not be sufficient to meet our working capital requirements
for the twelve months subsequent to the issuance of our financial statements. In order to accomplish its business plan
objectives, the Company will need to either raise capital by issuance of stock, or utilize the $2,000,000 revolving
credit facility with GNet, or strategic merge and acquisitions. Management believes that it will be successful in obtaining
additional financing based on its limited history of raising funds; However, there can be no assurances that our business
plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances will not require
additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may
not be successful or they may not be available on acceptable terms, if at all. In addition, due to China’s foreign currency
control, the Company cannot move money between China and the USA freely. The People’s Bank of China (PBOC) and State Administration
of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country strictly. We need to get approval from
Chinese government to move money from China to the U.S. which might take extra time. As of June 30, 2019 we had a $345,000 cash
balance in China.
3.
Summary of Significant Accounting Policies
Basis
of Presentation
–
The accompanying unaudited interim condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for
interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States
Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for
interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive
presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the
accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring
nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods
presented.
The
accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on April 15, 2019 (the “Annual Report”),
which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for
the years ended December 31, 2018 and 2017. The financial information as of December 31, 2018 is derived from the audited financial
statements presented in the Annual Report. The interim results for the three months ended June 30, 2019 are not necessarily indicative
of the results to be expected for the year ending December 31, 2019 or for any future interim periods.
Use
of Estimates
–
The preparation of unaudited condensed consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the unaudited interim condensed consolidated financial
statements, which management considered in formulating its estimate, could change in the near term due to one or more future intervening
events. Accordingly, the actual results could differ significantly from estimates.
Significant
estimates underlying the financial statements include the fair value of acquired assets and liabilities associated with acquisitions;
assessment of goodwill impairment, other intangible assets and long-lived assets for impairment; allowances for doubtful accounts
and assumptions related to the valuation allowances on deferred taxes, the valuation of stock-based compensation and the valuation
of stock warrants.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
Principles
of Consolidation
–
The accompanying unaudited condensed consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and its VIE, Jiangxi PDN Culture & Media Co. All significant intercompany balances
and transactions have been eliminated in consolidation.
Variable
Interest Entity – (VIE)
Financial
Information of VIE
In
November 2017, Jiangxi PDN Culture Media Co., Ltd became a consolidated VIE. Liabilities recognized as a result of consolidating
this VIE do not represent additional claims on the Company’s general assets. VIE assets can be used to settle obligations
of the primary beneficiary. The financial information of Jiangxi PDN Culture & Media Co., which was included in the accompanying
condensed financial statements, is presented as follows:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
121
|
|
|
|
683
|
|
Total assets
|
|
$
|
1,114
|
|
|
|
1,180
|
|
Total liabilities
|
|
$
|
70
|
|
|
|
65
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Total net revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35
|
|
|
$
|
-
|
|
Net loss
|
|
$
|
(70
|
)
|
|
$
|
(123
|
)
|
|
$
|
(75
|
)
|
|
$
|
(109
|
)
|
Goodwill
and Intangible Assets -
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles
– Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives
should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an
asset has decreased below its carrying value.
Goodwill
is tested for impairment at the reporting unit level on an annual basis (December 31 for the Company) and between annual tests
if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including
goodwill, when performing its goodwill impairment test.
When
conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is
more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not
that goodwill is impaired, the Company then compares the fair value of the Company’s reporting unit to its carrying or book
value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required
to perform further testing. If the carrying value of a reporting unit exceeds its fair value, the Company will measure any goodwill
impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total
amount of goodwill allocated to that reporting unit.
Revenue
Recognition
–
Revenue is recognized when all of the following conditions exist: (1) persuasive evidence of
an arrangement exists, (2) services are performed, (3) the sales price is fixed or determinable, and (4) collectability is reasonably
assured.
Membership
Fees and Related Services
Membership
fees are collected up-front and member benefits become available immediately; however those benefits must remain available over
the 12 month membership period. At the time of enrollment, membership fees are recorded as deferred revenue and are recognized
as revenue ratably over the 12 month membership period. Members who are enrolled in this plan may cancel their membership in the
program at any time and receive a partial refund (amount remaining in deferred revenue) or due to consumer protection legislation,
a full refund based on the policies of the member’s credit card company.
Starting
January 2, 2018, we also offer a monthly membership for which we collect fees on a monthly basis and we recognize revenue in the
same month as we collect the monthly fees.
Revenue
from related membership services are derived from fees for development and set-up of a member’s personal on-line profile
and/or press release announcements. Fees related to these services are recognized as revenue at the time the on-line profile is
complete and press release is distributed.
Deferred
Revenue – Deferred revenue includes customer deposits received prior to performing services which are recognized as revenue
when revenue recognition criteria are met, and membership fees for annual memberships that are collected at the time of enrollment
and are recognized as revenue ratably over the 12 month membership period.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
Recruitment
Services
The
Company’s recruitment services revenue is derived from the Company’s agreements through single and multiple job postings,
recruitment media, talent recruitment communities, basic and premier corporate memberships, hiring campaign marketing and advertising,
e-newsletter marketing and research and outreach services. Recruitment revenue includes revenue recognized from direct sales to
customers for recruitment services and events, as well as revenue from the Company’s direct e-commerce sales. Direct sales
to customers are most typically a twelve month contract for services and as such the revenue for each contract is recognized ratably
over its twelve month term. Event revenue is recognized in the month that the event takes place and e-commerce sales are for one
month job postings and the revenue from those sales are recognized in the month the sale is made. Our recruitment services mainly
consist of the following products:
●
|
On-line job postings
to our diversity sites and to our broader network of websites including the National Association for the Advancement of Colored
People, National Urban League and over 20 other partner organizations
|
|
|
●
|
OFCCP job promotion
and recordation services
|
|
|
●
|
Diversity job fairs,
both in person and virtual fairs
|
|
|
●
|
Diversity recruitment
job advertising services
|
|
|
●
|
Cost per application,
a service that employers can purchase whereby PDN sources qualified candidates and charges only for those applicants who meet
the employers’ minimum qualifications
|
|
|
●
|
Diversity executive
staffing services
|
Product
Sales and Other Revenue
Products
offered to members relate to custom made plaques. Product sales are recognized as deferred revenue at the time the initial order
is placed. Revenue is then recognized at the time these products are shipped. The Company’s shipping and handling costs
are included in cost of sales in the accompanying consolidated statements of operations.
Education
and Training
The
Company works with its business partners to provide education and training seminars to business people in China. Revenues are
recognized in the month when the seminar takes place.
Consumer
Advertising and Marketing Solutions
The
Company provides career opportunity services to its various partner organizations through advertising and job postings on their
websites. The Company works with its partners to develop customized websites and job boards where the partners can generate advertising,
job postings and career services to their members, students and alumni. Consumer advertising and marketing solutions revenue is
recognized as jobs are posted to their hosted sites.
The
Company’s partner organizations include NAACP and National Urban League,VetJobs, among others.
Discontinued
Operations
On
May 25, 2018, the Company sold Noble Voice to a long-time customer of the Company and exited the business segment previously conducted
by Noble Voice. The sales included all property, equipment, intangible assets, and other long-term assets. The Company retained
cash, receivables, payables, and other current and non-current assets and liabilities. The purchase price was $200,000 and the
gain on the transaction was approximately $64,000.
All
historical operating results for Noble Voice are included in a loss from discontinued operations, net of tax, in the accompanying
consolidated statement of operations. During the three months ended June 30, 2019, loss from discontinued operations was $29,000,
net of tax benefit of $2,000, compared to a loss of $175,000, net of tax benefit of $15,000 during same period in the prior year.
During six months ended June 30, 2019, loss from discontinued operations was $43,000, net of tax benefit of $3,000, compared to
a loss of $385,000, net of tax benefit of $50,000 during same period in the prior year.
Assets
and liabilities that the Company retained, which were previously reported in the Noble Voice operating segment, are now included
in current assets from discontinued operations, and current liabilities from discontinued operations. As of June 30, 2019, the
current assets from discontinued operations were $7,000, compared to $126,000 as of December 31, 2018. As of June 30, 2019, current
liabilities from discontinued operations were $299,000 compared to $347,000 as of December 31, 2018.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
Advertising
and Marketing Expenses
–
Advertising and marketing expenses are expensed as incurred or the first time the
advertising takes place. The production costs of advertising are expensed the first time the advertising takes place. For the
three months ended June 30, 2019 and 2018, the Company incurred advertising and marketing expenses of approximately $112,000 and
$351,000, respectively. For the six months ended June 30, 2019 and 2018, the Company incurred advertising and marketing expenses
of approximately $297,000 and $673,000, respectively. These amounts are included in sales and marketing expenses in the accompanying
condensed consolidated statements of comprehensive loss. At June 30, 2019 and December 31, 2018, there were no prepaid advertising
expenses recorded in the accompanying condensed consolidated balance sheets.
Net
Loss per Share
–
The Company computes basic net loss per share by dividing net loss per share available to
common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any
potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the
exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or
“if converted” methods as applicable. The computation of basic net loss per share for the three months ended June,
2019 and 2018 excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive.
|
|
As of June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants to purchase common stock
|
|
|
153,907
|
|
|
|
170,314
|
|
Stock options
|
|
|
319,126
|
|
|
|
496,439
|
|
Unvested Restricted stock units
|
|
|
61,707
|
|
|
|
51,400
|
|
Unvested restricted stock
|
|
|
4,886
|
|
|
|
5,000
|
|
Total dilutive securities
|
|
|
539,626
|
|
|
|
723,153
|
|
Recently
Adopted Accounting Pronouncements
In
February 2016, the FASB issued new lease accounting guidance ASU No. 2016-02, “Leases” (“ASU 2016-02”),
as amended by ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic
842): Targeted Improvements.” Under the new guidance, at the commencement date, lessees will be required to recognize a
lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;
and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is
largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. ASC 842 was previously
required to be adopted using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows
for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings
in the period of adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements)
to the comparative prior periods presented. Management expects that most of its operating leases (primarily office space) will
be recognized as operating lease liabilities and right of use assets on its consolidated balance sheet. The Company has elected
to adopt certain of the optional practical expedients, including the package of practical expedients, which, among other things,
gives the option to not reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification
for expired or existing leases; and 3) initial direct costs for existing leases. The Company adopted ASC 842, effective January
1, 2019.
As
of June 30, 2019, right of use assets were $268,000, current lease obligations were $254,000, and non-current lease obligations
were $16,000.
During
the three and six months ended June 30, 2019, the Company recorded lease amortization expense of $86,000 and $172,000, respectively,
which is continued to be classified in general and administrative expense in the condensed consolidated statements of operations
and comprehensive loss.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
4.
Capitalized Technology
Capitalized
technology, net is as follows:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Capitalized cost:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,163,044
|
|
|
$
|
2,043,122
|
|
Additional capitalized cost
|
|
|
2,500
|
|
|
|
119,922
|
|
Balance, end of period
|
|
$
|
2,165,544
|
|
|
$
|
2,163,044
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
1,968,213
|
|
|
$
|
1,889,741
|
|
Provision for amortization
|
|
|
50,618
|
|
|
|
78,472
|
|
Balance, end of period
|
|
$
|
2,018,831
|
|
|
$
|
1,968,213
|
|
Capitalized Technology, net
|
|
$
|
146,713
|
|
|
$
|
194,831
|
|
Amortization
expense of approximately $25,000 and $15,000 for the three months ended June 30, 2019 and 2018, respectively, and approximately
$51,000 and $34,000 for the six months ended June 30, 2019 and 2018, respectively, is recorded in depreciation and amortization
expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
5.
Intangible Assets
Intangible
assets, net is as follows:
June
30, 2019
|
|
Useful
Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Long-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Process
|
|
|
10
|
|
|
$
|
2,130,956
|
|
|
$
|
(1,730,868
|
)
|
|
$
|
400,088
|
|
Paid Member Relationships
|
|
|
5
|
|
|
|
803,472
|
|
|
|
(788,638
|
)
|
|
|
14,834
|
|
Member Lists
|
|
|
5
|
|
|
|
8,086,181
|
|
|
|
(7,936,897
|
)
|
|
|
149,284
|
|
Developed Technology
|
|
|
3
|
|
|
|
648,000
|
|
|
|
(648,000
|
)
|
|
|
-
|
|
Trade
Name/Trademarks
|
|
|
4
|
|
|
|
440,000
|
|
|
|
(440,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
$
|
12,108,609
|
|
|
$
|
(11,544,403
|
)
|
|
|
564,206
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
654,606
|
|
December
31, 2018
|
|
Useful
Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Long-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Process
|
|
|
10
|
|
|
$
|
2,130,956
|
|
|
$
|
(1,692,764
|
)
|
|
$
|
438,192
|
|
Paid Member Relationships
|
|
|
5
|
|
|
|
803,472
|
|
|
|
(758,972
|
)
|
|
|
44,500
|
|
Member Lists
|
|
|
5
|
|
|
|
8,086,181
|
|
|
|
(7,638,331
|
)
|
|
|
447,850
|
|
Developed Technology
|
|
|
3
|
|
|
|
648,000
|
|
|
|
(648,000
|
)
|
|
|
-
|
|
Trade Name/Trademarks
|
|
|
4
|
|
|
|
440,000
|
|
|
|
(440,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
$
|
12,108,609
|
|
|
$
|
(11,178,067
|
)
|
|
|
930,542
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,020,942
|
|
Future
annual estimated amortization expense is summarized as follows:
Years
ending December 31,
|
|
|
|
2019
|
|
|
198,908
|
|
2020
|
|
|
69,581
|
|
2021
|
|
|
69,581
|
|
2022
|
|
|
69,581
|
|
Thereafter
|
|
|
156,555
|
|
|
|
$
|
564,206
|
|
Amortization
expense of $183,000 and $619,000 for the three months ended June 30, 2019 and 2018, respectively, and $366,000 and $1,238,000
for the six months ended June 30, 2019 and 2018, respectively, is recorded in depreciation and amortization expense in the accompanying
condensed consolidated statements of operations and comprehensive loss.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
6.
Related Party Transactions
Note
Payable
On
November 5, 2018, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with GNet Tech
Holdings Public Limited Company (the “GNet Tech”), a related party through one of the Company’s shareholders,
Cosmic Forward Limited (“CFL”), pursuant to which the Company issued to GNet Tech a $500,000 convertible promissory
note with an interest rate of 6% per annum (the “Note”). The Note shall mature six months after the date of issuance
(the “Maturity Date”). Pursuant to the Note Purchase Agreement and the Note, at any time on or after the Maturity
Date, at the election of the note holder, the Note will convert into the Company’s common stock (the “Common Stock”)
at a conversion price of the lower of (i) the closing price of the Common Stock on NASDAQ immediately preceding the date of issuance
or the date of conversion, as applicable, or (ii) the average closing price of the Common Stock on NASDAQ for the five trading
days immediately preceding the date of issuance or the date of conversion, as applicable (the “Minimum Price”). However,
in no event shall the conversion price be less than the Minimum Price on the date of issuance. The issuance of the Note is exempt
from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public
offering.
On
April 30, 2019, the Company amended a note purchase agreement from November 5, 2018 with GNet Tech Holdings Public Limited Company
(the “GNet Tech”), a related party through one of the Company’s shareholders, Cosmic Forward Limited (“CFL”),
pursuant to which maturity of the $500,000 convertible promissory note.
On
June 14, 2019, the Company issued 209,205 shares to convert it, in result the Note has been satisfied and is no longer
outstanding.
Short-term
Loan
On June 7, 2019, the Company entered into
a loan agreement (the “Loan”) with GNet Tech Holdings Public Limited Company (“GNet”), a related party
in amount of $400,000, payable within two weeks of the date of the agreement. As of June 30, 2019, the Company repaid $200,000
of the Loan, and the outstanding balance as of June 30, 2019 and August 13, 2019 was $200,000.
Revolving
Credit Facility
On November 16, 2018, the Company entered
into a revolving credit facility agreement with GNet Tech Holdings Public Limited Company (GNet), ”), that matures on May
31, 2020, under which we can draw up to GBP £1,500,000 (approximately $2,000,000). Interest is payable on any outstanding
principal balance at a rate equal to the LIBOR rate plus 4%. Amounts drawn under this facility are payable at the end of one,
three, or six months periods at the election of the Company. On January 14, 2019, the Company drew $293,000 under this facility
and repaid it on June 7, 2019. At June 30, 2019, the Company did not have any outstanding debt under this facility.
At
August 13, 2019, approximately $2,000,000 was available for us to draw.
7.
Commitments and Contingencies
Lease
Obligations
–
The Company leases office space and equipment under various operating lease agreements, including
an office for its headquarters, as well as office spaces for its events business, sales and administrative offices under non-cancelable
lease arrangements that provide for payments on a graduated basis with various expiration dates.
The
Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 842, effective
January 1, 2019. Under the new guidance, at the commencement date, lessees are required to recognize a lease liability, which
is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. The new guidance is not applicable for leases with a term of 12 months or less. ASC 842 was previously required to be adopted
using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows for retrospective
application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of
adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative
prior periods presented.
As
of June 30, 2019, right of use assets were $268,000, current lease obligations were $254,000, and non-current lease obligations
were $16,000.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
During
the quarter ended June 30, 2019, The Company recorded lease amortization expense of $86,000 which is continued to be classified
in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
Total
lease expense, including lease amortization, of approximately $108,000 and $94,000 for the three months ended June 30, 2019 and
2018, respectively, and $215,000 and $407,000 for the six months ended June 30, 2019 and 2018, respectively, is included in general
and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
Legal
Proceedings
In
a letter dated October 12, 2017, White Winston Select Asset Funds (“White Winston”) threatened to assert claims
against the Company in excess of $2 million based on White Winston’s contention that the Company’s conduct delayed
White Winston’s ability to sell shares in the Company during a period when the Company’s stock price was generally
falling. On April 30, 2018, White Winston filed a lawsuit, entitled White Winston Select Asset Funds, LLC, No. 18-cv-10844,
(the “Federal Action”) in the United States District Court for the District of Massachusetts, asserting federal
jurisdiction based on diversity of citizenship. The four-count complaint in the Federal Action alleged that White Winston
is entitled to recover compensatory damages of $1,708,233, plus attorneys’ fees, treble damages and other amounts.
White Winston served the complaint on July 12, 2018, and the Company moved to dismiss the entire action for failure to state
a claim. On October 15, 2018, prior to addressing the motion to dismiss, the Court issued an order noting that White
Winston (which is a limited liability company) had failed to allege the citizenship of its members and ordered White Winston
to show cause that complete diversity exists between the parties and that the Court had jurisdiction. On October 23, 2018,
White Winston dismissed the Federal Action without prejudice. On December 18, 2018, White Winston filed a complaint in Massachusetts
Superior Court in Suffolk County in Boston alleging the same claims and rights to relief as in the Federal Action. The
Company again moved to dismiss the complaint in its entirety for failure to state a claim. The Court heard the motion on
May 29, 2019 issued a written order on May 30, 2019 denying the motion. On July 10, 2019, the Court held a Rule 16 conference,
following which it set a case management schedule. Fact discovery has now commenced. The Company denies liability for
all claims.
NAPW
is a defendant in a Nassau County (NY) Supreme Court case, whereby TL Franklin Avenue Plaza LLC has sued NAPW with respect to
NAPW’s former Garden City NY Premises. NAPW had surrendered the Premises to the Landlord, and the Landlord is suing NAPW
for the balance of the rent due under the Lease Term – which term is less than one year remaining. The case is currently
being litigated, summary judgment was rendered for the plaintiff and only the calculation of damages remains in this litigation.
NAPW
and PDN are two of the named Respondents in a Superior Court of New Jersey Proceeding, and they are being sued by Shore Digital
LLC. The Petitioner in this matter, Shore Digital LLC is alleging that both NAPW and PDN are in breach of contract, and the matter
involves the payment of the entire value of the contract plus council fees, interest, and costs owing to the Petitioner. The case
is settled and both parties have agreed to a Stipulation and Order of Dismissal which has been agreed upon and entered by the
court.
The
Company and its wholly-owned subsidiary, NAPW, Inc., are parties to a proceeding captioned Deborah Bayne, et al. vs. NAPW, Inc.
and Professional Diversity Network, Inc., No. 18-cv-3591 (E.D.N.Y.), filed in June of 2018 and alleging violations of the Fair
Labor Standards Act and certain provisions of the New York Labor Law. The Company disputes that it or its subsidiary violated
the applicable laws or that either entity has any liability and intends to vigorously defend against these claims. The matter
is in the final stages of discovery. The potential financial impact on the Company is inherently uncertain at this point.
The Company was named in a state court
action in Miami-Dade County, No. 2019-014773-CA-01 by Local Staffing, LLC (“Local Staffing”) vs. Professional Diversity
Network, Inc. on alleged breach of contract and account stated claims. The Company disputes liability, but has entered into a
confidential settlement agreement and parties agreed to dismiss the case.
General
Legal Matters
From
time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes
that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business
for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial
condition or results of operations.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
8.
Employment Agreements
On
March 11, 2019 (the “He Effective Date”), the Company entered into an employment agreement (the “He Employment
Agreement”) with Mr. Xin (Adam) He, which He Employment Agreement continues until terminated in writing by either party
or earlier terminated pursuant to the provisions of the He Employment Agreement. Under the He Employment Agreement, Mr. He will
serve as the Company’s Chief Financial Officer, and receive an annual base salary of $200,000, subject to adjustment in
the sole discretion of the Board or the Compensation Committee of the Board; provided however, that such annual base salary may
not be decreased during Mr. He’s employment period. Mr. He will be eligible to receive an annual incentive bonus in an amount
equal to up to fifty percent (50%) of his base salary, based upon the achievement of one or more performance goals, targets, measurements
and other factors, established for such year by the Compensation Committee. Mr. He will also participate in all benefit plans
and programs, subject to certain conditions and exceptions, as are generally provided by the Company to its other senior executive
employees.
Under
the terms of the He Employment Agreement, Mr. He is subject to non-solicitation, non-competition and non-interference restrictive
covenants during his employment and for the 12-month period following his last day of employment with the Company. The He Employment
Agreement also contains customary confidentiality, work product and return of Company property covenants.
In
addition, Mr. He is entitled to severance pay if he is terminated without “cause” or resigns for “good reason,”
each as defined in the He Employment Agreement. Upon such termination, Mr. He will be entitled to receive an amount equal to 30
days of his base salary, any earned but unpaid bonus for the year prior to the year of termination, and the pro rata portion of
any bonus earned for the year in which termination occurs, as well as continuation of applicable benefits for a period of six
months following his termination.
In
connection with the approval of the He Employment Agreement, Mr. He also received a non-qualified stock option to purchase 30,000
shares of the Company’s common stock. The option will vest in accordance with the following schedule: (i) 1/3 of the shares
underlying the option will vest immediately upon award, (ii) 1/3 of the shares underlying the option will vest on the first anniversary
of the He Effective Date, and (iii) 1/3 of the shares underlying the option will vest on the second anniversary of the He Effective
Date.
9.
Income Taxes
The
effective income tax rate for the three months ended June 30, 2019 and 2018 was 0.2% and 6.3%, respectively, resulting in a $2,000,
and $123,000 income tax benefit, respectively. The effective income tax rate for the six months ended June 30, 2019 and 2018 was
3.4% and 9.2%, respectively, resulting in a $67,000 and $372,000 income tax benefit, respectively. The difference in the effective
income tax rate for the three and six months ended June 30, 2019, compared to the three and six months ended June 30, 2018, is
mainly attributable to the decrease in tax rates pursuant to the U.S. Tax Cuts and Jobs Act, and a change in the valuation allowance.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based on the consideration of these items, management has determined that enough uncertainty exists
relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance
as of June 30, 2019 and December 31, 2018.
The
U.S. Tax Cuts and Jobs Act subjects a U.S. parent shareholder to current tax on its “global intangible low-taxed income”
(GILTI). We are allowed under ASC 740 to elect an accounting policy choice of either (1) treating taxes due on future U.S. inclusions
in taxable income related to GILTI as a current period expense when incurred or (2) factoring such amounts into the Company’s
measurement of its deferred taxes. The Company has elected to account for GILTI as a current period expense when incurred.
Professional Diversity
Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
10.
Stock-Based Compensation
Equity
Incentive Plans
– The Company’s 2013 Equity Compensation Plan (the “2013 Plan”) was adopted for
the purpose of providing equity incentives to employees, officers, directors and consultants including options, restricted stock,
restricted stock units, stock appreciation rights, other equity awards, annual incentive awards and dividend equivalents. The
Company amended the 2013 Plan to increase the number of authorized shares of common stock under the Plan from 225,000 shares to
615,000 shares, which the Company’s stockholders approved on June 26, 2017. The Company further amended the 2013 Plan to
increase the number of authorized shares of common stock under the Plan by 300,000 shares, which the Company’s stockholders
approved and ratified on November 8, 2018. The Company is now authorized to issue 915,000 shares under the amended 2013 Plan.
Stock
Options
The
following tables summarize the Company’s stock option activity for the six months ended June 30, 2019, and 2018:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in
Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding – January
1, 2019
|
|
|
499,439
|
|
|
$
|
6.94
|
|
|
|
9.0
|
|
|
$
|
-
|
|
Granted
|
|
|
30,000
|
|
|
|
2.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled/Expired
|
|
|
(210,313
|
)
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
Outstanding –
June 30, 2019
|
|
|
319,126
|
|
|
$
|
8.44
|
|
|
|
8.1
|
|
|
$
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable –
June 30, 2019
|
|
|
252,459
|
|
|
$
|
9.97
|
|
|
|
7.8
|
|
|
$
|
2,800
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding – January 1, 2018
|
|
|
246,564
|
|
|
$
|
11.17
|
|
|
|
9.1
|
|
|
$
|
-
|
|
Granted
|
|
|
250,000
|
|
|
|
2.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled/Expired
|
|
|
(125
|
)
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
Outstanding – June 30, 2018
|
|
|
496,439
|
|
|
$
|
6.97
|
|
|
|
9.2
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – June 30, 2018
|
|
|
249,772
|
|
|
$
|
8.52
|
|
|
|
9.0
|
|
|
$
|
83.333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
March 11, 2019, the Company granted 30,000 stock options to CFO Adam He, in connection with his employment agreement. These options
had an aggregate fair value of $54,000, using the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate
|
|
|
2.44
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
102.71
|
%
|
Expected term
|
|
|
5.75 years
|
|
The
March 11, 2019 options granted are exercisable at an exercise price of $2.23 over a ten-year term and vest over two years, with
one-third vested upon grant.
The
Company recorded non-cash compensation expense, which is included in general and administrative expenses in the accompanying condensed
consolidated statement of operations, of approximately $18,000 and $298,000 for the three months ended June 30, 2019 and 2018,
respectively, and approximately $23,000 and $387,000 for the six months ended June 30, 2019 and 2018, respectively related to
stock option grants.
Total
unrecognized compensation expense related to unvested stock options at June 30, 2019 amounted to approximately $72,000 and is
expected to be recognized over a remaining weighted average period of 1.1 years.
Warrants
As
of June 30, 2019, there were 153,907 warrants outstanding and exercisable, with a weighted average exercise price of $27.37 per
share. The weighted average remaining contractual life of the warrants at June 30, 2019 and December 31, 2018 was 1.8 and 2.6
years, respectively, and the aggregate intrinsic value was 0.
The
Company did not grant any warrants to purchase shares of common stock during the six months ended June 30, 2019.
No
compensation cost was recognized for the three and six months ended June 30, 2019, and 2018 pertaining to warrants.
Professional
Diversity Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
Restricted
Stock and Restricted Stock Units
During
the first six months of 2019, the Company granted 46,402 restricted stock units (“RSUs”) to certain Board members
and 1,166 RSUs to CFO Adam He. The RSUs granted to Board members vest one year after they were awarded (with the ex, subject to
continued service on the vesting date), and the RSUs granted to CFO Adam He vested immediately. The RSUs have no voting or dividend
rights. The fair value of the common stock on the dates of grant were $3.09 and $3.32 per share, based upon the closing market
price on the grant dates. The aggregate grant date fair value of the combined awards amounted to $156,000.
A
summary of the restricted stock award activity for the six months ended June 30, 2019, and 2018 is as follows:
|
|
Number
of
Shares
|
|
|
|
|
|
Unvested Outstanding - January
1, 2019
|
|
|
60,651
|
|
Granted
|
|
|
47,568
|
|
Forfeited
|
|
|
(13,865
|
)
|
Vested
|
|
|
(27,761
|
)
|
Unvested Outstanding
– June 30, 2019
|
|
|
66,593
|
|
|
|
Number
of
Shares
|
|
|
|
|
|
Unvested Outstanding - January
1, 2018
|
|
|
15,544
|
|
Granted
|
|
|
40,460
|
|
Forfeited
|
|
|
-
|
|
Vested
|
|
|
(15,544
|
)
|
Unvested Outstanding
– June 30, 2018
|
|
|
40,460
|
|
The
Company recorded non-cash compensation expenses of approximately $73,000 and $49,000 for the three months ended June 30, 2019
and 2018, respectively, and approximately $75,000 and $79,000 for the six months ended June 30, 2019 and 2018, respectively, related
to restricted stock grants.
Total
unrecognized compensation expense related to unvested restricted stock and unvested restricted stock units at June 30, 2019 amounts
to approximately $140,000 and is expected to be recognized over a weighted average period of 0.4 year.
11.
Segment Information
Beginning
on May 26, 2018, the Company operates in the following segments: (A) United States: (i) PDN Network and (ii) NAPW Network, and
(B) China Operations. The segments are categorized based on their business activities and organization. Prior to May 26, 2018,
the Company operated in the following segments: (A) United States: (i) PDN Network, (ii) NAPW Network, and (B) China Operations.
The following tables present key financial information of the Company’s reportable segments as of and for the three and
six months ended June 30, 2019 and 2018:
|
|
Three Months Ended June 30, 2019
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate
Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
633,914
|
|
|
$
|
2,305
|
|
|
$
|
-
|
|
|
$
|
636,219
|
|
Recruitment services
|
|
|
651,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
651,046
|
|
Products sales and other
|
|
|
-
|
|
|
|
1,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,143
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Consumer advertising and marketing solutions
|
|
|
38,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,059
|
|
Total revenues
|
|
|
689,105
|
|
|
|
635,057
|
|
|
|
2,305
|
|
|
|
-
|
|
|
|
1,326,467
|
|
(Loss) income from continuing operations
|
|
|
(19,545
|
)
|
|
|
(44,245
|
)
|
|
|
(351,828
|
)
|
|
|
(699,973
|
)
|
|
|
(1,115,591
|
)
|
Depreciation and amortization
|
|
|
15,891
|
|
|
|
201,443
|
|
|
|
4,207
|
|
|
|
-
|
|
|
|
221,541
|
|
Income tax expense (benefit)
|
|
|
24,110
|
|
|
|
(1,037
|
)
|
|
|
8,594
|
|
|
|
(33,309
|
)
|
|
|
(1,642
|
)
|
Net (loss) income from continuing operations
|
|
|
331,914
|
|
|
|
(43,208
|
)
|
|
|
(364,711
|
)
|
|
|
(666,664
|
)
|
|
|
(742,669
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate
Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
1,428,453
|
|
|
$
|
6,374
|
|
|
$
|
-
|
|
|
$
|
1,434,827
|
|
Recruitment services
|
|
|
1,125,306
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,125,306
|
|
Products sales and other
|
|
|
-
|
|
|
|
3,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,955
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
34,881
|
|
|
|
|
|
|
|
34,881
|
|
Consumer advertising and marketing solutions
|
|
|
73,775
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73,775
|
|
Total revenues
|
|
|
1,199,081
|
|
|
|
1,432,408
|
|
|
|
41,255
|
|
|
|
-
|
|
|
|
2,672,744
|
|
(Loss) income from continuing operations
|
|
|
(191,021
|
)
|
|
|
(151,976
|
)
|
|
|
(686,675
|
)
|
|
|
(1,287,948
|
)
|
|
|
(2,317,620
|
)
|
Depreciation and amortization
|
|
|
31,632
|
|
|
|
402,885
|
|
|
|
8,446
|
|
|
|
-
|
|
|
|
442,963
|
|
Income tax expense (benefit)
|
|
|
10,975
|
|
|
|
(9,166
|
)
|
|
|
8,594
|
|
|
|
(77,678
|
)
|
|
|
(67,275
|
)
|
Net (loss) income from continuing operations
|
|
|
170,990
|
|
|
|
(142,810
|
)
|
|
|
(705,108
|
)
|
|
|
(1,210,270
|
)
|
|
|
(1,887,198
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
3,336
|
|
|
|
-
|
|
|
|
3,336
|
|
|
|
June 30, 2019
|
|
Goodwill
|
|
$
|
339,451
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
339,451
|
|
Intangible assets, net
|
|
|
90,400
|
|
|
|
564,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
654,606
|
|
Assets from continuing operations
|
|
|
2,166,721
|
|
|
|
1,533,653
|
|
|
|
640,209
|
|
|
|
-
|
|
|
|
4,340,583
|
|
Professional
Diversity Network, Inc.
|
Condensed Consolidated Notes to Financial
Statements (Unaudited)
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
1,270,500
|
|
|
$
|
65,226
|
|
|
$
|
-
|
|
|
$
|
1,335,726
|
|
Recruitment services
|
|
|
692,377
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
692,377
|
|
Products sales and other
|
|
|
-
|
|
|
|
6,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,360
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
9,577
|
|
|
|
-
|
|
|
|
9,577
|
|
Consumer advertising and marketing solutions
|
|
|
74,543
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,543
|
|
Total revenues
|
|
|
766,920
|
|
|
|
1,276,860
|
|
|
|
74,803
|
|
|
|
-
|
|
|
|
2,118,583
|
|
(Loss) income from continuing operations
|
|
|
15,445
|
|
|
|
(431,475
|
)
|
|
|
(474,066
|
)
|
|
|
(1,077,767
|
)
|
|
|
(1,967,863
|
)
|
Depreciation and amortization
|
|
|
16,978
|
|
|
|
636,448
|
|
|
|
5,835
|
|
|
|
-
|
|
|
|
659,261
|
|
Income tax expense (benefit)
|
|
|
4,095
|
|
|
|
(29,363
|
)
|
|
|
2,265
|
|
|
|
(100,412
|
)
|
|
|
(123,415
|
)
|
Net (loss) income from continuing operations
|
|
|
16,900
|
|
|
|
(402,112
|
)
|
|
|
(478,103
|
)
|
|
|
(977,355
|
)
|
|
|
(1,840,670
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,567
|
)
|
|
|
-
|
|
|
|
(3,567
|
)
|
|
|
Six Months Ended June
30, 2018
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
2,820,432
|
|
|
$
|
127,515
|
|
|
$
|
-
|
|
|
$
|
2,947,947
|
|
Recruitment services
|
|
|
1,313,792
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,313,792
|
|
Products sales and other
|
|
|
-
|
|
|
|
10,017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,017
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
16,048
|
|
|
|
-
|
|
|
|
16,048
|
|
Consumer advertising and marketing solutions
|
|
|
144,277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
144,277
|
|
Total revenues
|
|
|
1,458,069
|
|
|
|
2,830,449
|
|
|
|
143,563
|
|
|
|
-
|
|
|
|
4,432,081
|
|
Loss from continuing operations
|
|
|
(51,759
|
)
|
|
|
(1,197,530
|
)
|
|
|
(825,182
|
)
|
|
|
(1,990,542
|
)
|
|
|
(4,065,013
|
)
|
Depreciation and amortization
|
|
|
33,965
|
|
|
|
1,294,881
|
|
|
|
10,176
|
|
|
|
-
|
|
|
|
1,339,022
|
|
Income tax expense (benefit)
|
|
|
(4,678
|
)
|
|
|
(139,002
|
)
|
|
|
2,265
|
|
|
|
(231,050
|
)
|
|
|
(372,465
|
)
|
Net loss from continuing operations
|
|
|
(35,624
|
)
|
|
|
(1,058,528
|
)
|
|
|
(811,680
|
)
|
|
|
(1,759,492
|
)
|
|
|
(3,665,324
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,567
|
)
|
|
|
|
|
|
|
(3,567
|
)
|
|
|
December 31, 2018
|
|
Goodwill
|
|
$
|
339,451
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
339,451
|
|
Intangible assets, net
|
|
|
90,400
|
|
|
|
930,543
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020,943
|
|
Assets from continuing operations
|
|
|
1,654,346
|
|
|
|
1,970,594
|
|
|
|
1,486,891
|
|
|
|
-
|
|
|
|
5,111,831
|
|
Professional
Diversity Network, Inc.
|
Condensed Consolidated
Notes to Financial Statements (Unaudited)
|
12.
Subsequent Events
The
Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the consolidated
financial statements were issued for potential recognition or disclosure. Other than as described below, the Company did not identify
any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
On
July 16, 2019, Professional Diversity Network, Inc. (the “Company”) received a letter from The Nasdaq Stock Market
LLC (“Nasdaq”) stating that the Nasdaq staff granted the Company an extension until September 16, 2019 to regain compliance
with NASDAQ Listing Rule 5550(b), which requires a minimum $2,500,000 stockholders’ equity, $35,000,000 market value of
listed securities, or $500,000 net income from continuing operations.
As efforts to meet the NASDAQ’s
requirement, the Company has completed two following private placement
s
in total amount of $3,100,000 net proceeds:
On June 11, 2019, the Company entered into
a Stock Purchase Agreement with one purchaser Ms. Xiaoqian (the “Purchaser Zheng”), pursuant to which the Purchaser
Zheng agreed to purchase 500,000 shares (the “Shares”) of the Company’s common stock for $2.20 per share for
gross proceeds of $1,100,000 (the “Purchase Price”). The Purchase Zheng Price was received by the Company on June
14, 2019.
On August 5, 2019, the Company entered into a Stock Purchase Agreement with one purchaser
Ms. Yingling Wu (the “Purchaser Wu”), pursuant to which the Purchaser Wu agreed to purchase 1,142,857 shares (the
“Shares”) of the Company’s common stock for $1.75 per share for gross proceeds of $2,000,000 (the “Purchase
Price”). This transaction was closed on August 6, 2019.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Unless
we specify otherwise, all references in this Quarterly Report on Form 10-Q (the “
Quarterly Report
”) to “PDN,”
“the Company,” “we,” “our,” and “us” refer to Professional Diversity Network,
Inc. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the related notes thereto in Item 1, “Financial
Statements,” in Part I of this Quarterly Report. This discussion contains forward-looking statements, which are based on
our assumptions about the future of our business. Our actual results will likely differ materially from those contained in the
forward-looking statements. Please read “Special Note Regarding Forward-Looking Statements” for additional information
regarding forward-looking statements used in this Quarterly Report.
Overview
We
are an operator of professional networks with a focus on diversity, employment, education and training. We use the term “diversity”
(or “diverse”) to describe communities, or “affinities,” that are distinct based on a wide array of criteria,
including ethnic, national, cultural, racial, religious or gender classification. We serve a variety of such communities, including
Women, Hispanic-Americans, African-Americans, Asian-Americans, Disabled, Military Professionals, and Lesbian, Gay, Bisexual and
Transgender (LGBT+).
We
currently operate in three business segments: (i) Professional Diversity Network (
“PDN Network”
), which includes
online professional networking communities with career resources tailored to the needs of various diverse cultural groups and
employers looking to hire members of such groups, (ii) National Association of Professional Women (
“NAPW Network”
),
a women-only professional networking organization, and (iii) China operations (
“China Operations”
), which
focuses on providing tools, products and services in China which will assist women, students and business professionals in personal
and professional development.
Our
value proposition is simple: (i) we provide a robust online and in-person network for our women members to make professional and
personal connections for our diverse audience of women: African Americans, Hispanics, Asians, Veterans, individuals with disabilities
and members of the gay community (with the ability to roll out to our other affinities); (ii) we assist our registered users,
or members, in their efforts to connect with like-minded individuals and identify career opportunities within the network; (iii)
we help employers address their workforce diversity needs by connecting them with the right candidates; and (iv) we leverage our
U.S. expertise and China connections to deliver these values to China, one of the world’s fastest-growing markets for professional
networking.
In
2017, the Company established PDN Hong Kong and PDN China through its wholly owned subsidiary there. We are currently
executing our strategic plan to build in China entirely new networking, training and education businesses. We believe that coupling
the Company’s expertise in networking and careers with our Chinese executives’ expertise in the China market will
provide us with an opportunity for success with our overseas expansion
In June of 2019, the Company established a new wholly owned subsidiary – Kids
Enrichment Academy Ltd.(“KEA”) in Beijing, which will offer after-school and online education programs for primary
and secondary schools in China. Through a combination of online and offline experience, KEA will create a variety of programs
including science education, STEAM education (an educational approach to learning that uses Science, Technology, Engineering,
the Arts and Mathematics as access points for guiding student inquiry, dialogue, and critical thinking), mental health education,
etc. According to the “2019 China Education Industry Research Report” by Amazing House, China’s K12 education
market size was about 880 billion RMB in 2018. By 2019, the market size is expected to reach 1 trillion RMB, with a compound annual
growth rate of 16.2% in five years. As a subdivision in the K12 field, after-school educational programs are also in high demand.
According to the National Statistical Reports on Education Development and “2017 China Family Quality Education Consumption
Report” by Rayee ACE, the potential market size of after-school educational programs in China by 2020 will reach 171 billion
RMB.
Through
the second quarter of 2019, our PDN Network, NAPW Network, and China Operations businesses represented 44.9%, 53.6%, and
1.5% of our revenues, respectively. As of June 30, 2019, we had approximately 10.7 million registered users in our PDN
Network and approximately 951,000 registered users, or members, in the NAPW Network. Included in 951,000 NAPW Network registered
users, there were 9,000, and 18,000 paid members as of June 30, 2019 and 2018, respectively. We believe that the combination of
our solutions allows us to approach recruiting and professional networking in a unique way and thus create enhanced value for
our members and customers.
Sources
of Revenue
We
generate revenue from (i) paid membership subscriptions and related services, (ii) recruitment services, (iii) product
sales, (iv) education and training and (v) consumer advertising and consumer marketing solutions. The following table sets
forth our revenues from each product as a percentage of total revenue for the periods presented. The period-to-period
comparison of financial results is not necessarily indicative of future results.
|
|
Three Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Percentage of revenue by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
|
48.0
|
%
|
|
|
63.0
|
%
|
|
|
53.7
|
%
|
|
|
66.6
|
%
|
Recruitment services
|
|
|
49.0
|
%
|
|
|
32.7
|
%
|
|
|
42.1
|
%
|
|
|
29.6
|
%
|
Products sales and other
|
|
|
0.1
|
%
|
|
|
0.3
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Education and training
|
|
|
0.0
|
%
|
|
|
0.5
|
%
|
|
|
1.3
|
%
|
|
|
0.4
|
%
|
Consumer advertising and consumer marketing solutions
|
|
|
2.9
|
%
|
|
|
3.5
|
%
|
|
|
2.8
|
%
|
|
|
3.2
|
%
|
Paid
Membership Subscriptions and Related Services.
Paid Membership Subscriptions and Related Services. We offer paid membership
subscriptions through our NAPW Network, a women-only professional networking organization, operated by our wholly-owned subsidiary.
Members gain access to networking opportunities through a members-only website at www.iawomen.com and “virtual” eChapter
events which occur in a webcast setting as well as through in-person networking at approximately 100 local chapters nationwide,
additional career and networking events such as the National Networking Summit Series, Power Networking Events and the PDN Network
events. NAPW members also receive ancillary (non-networking) benefits such as educational discounts, shopping, and other membership
perks. The basic package is the Initiator level, which provides online benefits only. Upgrades to an Innovator membership include
the Initiator benefits as well as membership in local chapters, and access to live in-person events. The most comprehensive level,
the Influencer, provides all the aforementioned benefits plus admission to exclusive “live” events and expanded opportunities
for marketing and promotion, including the creation and distribution of a press release, which is prepared by professional writers
and sent over major newswires. Additionally, all memberships offer educational programs with discounts or at no cost, based on
the membership level. NAPW Membership is renewable and fees are payable on an annual or monthly basis, with the first fee payable
at the commencement of the membership. NAPW Membership subscriptions represented approximately 99.8% and 99.5%, respectively,
of revenue attributable to the NAPW Network business segment for the three months ended June 30, 2019 and 2018, and 99.7% and
99.6%, respectively, for the six months ended June 30, 2019 and 2018.
As
part of the launch of IAW in the United States, the Company began to offer a monthly membership option in January 2018, in addition
to an annual membership option. While this has increased the number of new members registering, membership revenue is received
on a monthly rather than an annual basis. The new IAW is focused on delivering member benefits and providing value to those who
join as paid members.
In
the third quarter of 2017, PDN China began to transact IAW annual memberships in China, ranging from RMB 20,000 to RMB 200,000
(approximately $3,000 to $30,000). In the fourth quarter of 2017, PDN China began to transact annual business club memberships
in China, ranging from RMB 20,000 to RMB 100,000 (approximately $3,000 to $15,000). IAW memberships comprised approximately 100%
and 87.2%, respectively, of revenue attributable to China Operations for the three months ended June 30, 2019 and 2018, and 15.5%
and 88.8%, respectively, for the six months ended June 30, 2019 and 2018.
Recruitment
Services
. We provide recruitment services through our PDN Network to employers, ranging from small to large sized organizations,
seeking to diversify their employment ranks. Our recruitment services include recruitment advertising, job postings, semantic
search technology and paid access to, and placement in, or advertising around our career and networking events. The majority of
recruitment services revenue comes from job recruitment advertising. We also offer to businesses subject to the regulations and
requirements of the Equal Employment Opportunity Office of Federal Contract Compliance Program (“
OFCCP
”) our
OFCCP compliance product, which combines diversity recruitment advertising with job postings and compliance services. Recruitment
advertising revenue constituted approximately 94.5% and 90.3%, respectively, of revenue attributable to the PDN Network business
segment for the three months ended June 30, 2019 and 2018. For the six months ended June 30, 2019 and 2018, recruitment advertising
revenue constituted approximately 93.8% and 90.1%, respectively, of the revenue attributable to the PDN Network business segment.
Product
Sales
. We offer to new purchasers of our NAPW memberships the opportunity to purchase a commemorative wall plaque at the time
of purchase. They may purchase up to two plaques at that time. Product sales represented approximately 0.2% and 0.5%, respectively,
of revenue attributable to the NAPW Network business segment for the three months ended June 30, 2019 and 2018, and 0.3% and 0.4%,
respectively, of revenue attributable to the NAPW Network business segment for the six months ended June 30, 2019 and 2018.
Education
and Training
. In March of 2017 we began our China Operations by creating a Shared Economy summit series designed to provide
education and training to Chinese business people. Our initial event was a paid event which generated revenue through paid event
admission fees. Education and training represented approximately 0% and 12.8%, respectively, of the revenue attributable to China
Operations for the three months ended June 30, 2019 and 2018, and 84.5% and 11.2%, respectively, of revenue attributable to China
Operations for the six months ended June 30, 2019 and 2018.
Consumer
Advertising and Consumer Marketing Solutions
. We work with partner organizations to provide them with integrated job boards
on their websites which offer their members or customers the opportunity to post recruitment advertising and job openings. We
generate revenue from fees charged for those postings. Consumer advertising and marketing solutions represented approximately
5.5% and 9.7%, respectively, of the revenue attributable to the PDN Network business segment for the three months ended June 30,
2019 and 2018. For the six months ended June 30, 2019 and 2018, consumer advertising and consumer marketing solutions revenue
constituted approximately 6.2% and 9.9%, respectively, of the revenue attributable to the PDN Network business segment.
Cost
of Revenue
Cost
of revenue primarily consists of costs of producing job fair and other events, revenue sharing with partner organizations, costs
of web hosting and operating our websites for the PDN Network, and costs of producing education and training events and serving
IAW members for our China business. Costs of producing wall plaques, hosting member conferences and local chapter meetings are
also included in the cost of revenue for NAPW Network.
Financial
Overview
During
the three and six months ended June 30, 2019, we experienced losses as we continued our efforts to develop China Operations, reduce
costs and streamline our business. For the three months ended June 30, 2019, we realized a net loss from continuing operations
of approximately $743,000, a $1,098,000 decrease from the comparable prior year period. This decrease in net loss was primarily
a result of a decrease of $622,000 in overall general and administrative expenses, a decrease of $485,000 in overall sales and
marketing costs, a decrease of $437,000 in amortization expense of long-lived intangible assets of our NAPW segment as a result
of $2,796,000 impairment charge the Company recorded in fourth quarter of 2018, and $376,000 write off of accounts payable recorded
during the quarter ended June 30, 2019, partially offset by a decrease of $731,000 in revenues from membership fees. For the six
months ended June 30, 2019, we realized a net loss from continuing operations of approximately $1,887,000, a $1,778,000 decrease
from the comparable prior year period. This decrease in net loss is primarily related to a decrease of $1,616,000 in overall general
and administrative expenses, a decrease of $896,000 in amortization expense of long-lived intangible assets of our NAPW segment
as a result of $2,796,000 impairment charge the Company recorded in fourth quarter of 2018, a decrease of $797,000 in overall
sales and marketing costs, and $376,000 write off of accounts payable recorded during the quarter ended June 30, 2019, partially
offset by a decrease of $1,513,000 in revenues from membership fees. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to further implement its business plan, raise capital, and generate revenues. The consolidated financial statements do
not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Key
Metrics
We
believe that one of the key metrics in evaluating and measuring our performance is the number of registered users. We define the
number of registered users as (i) the number of individual job seekers who affirmatively visited one of PDN Network’s properties,
opted into an affinity group and provided us with demographic or contact information enabling us to match them with employers
and/or jobs (PDN Network registered users); and (ii) the number of consumers who have viewed our marketing material, opted into
membership in the NAPW Network, provided demographic information and engaged in an onboarding call with a membership coordinator
(NAPW Network registered users). We believe that a higher number of registered users will result in increased sales of our products
and services, as customers will have access to a larger pool of professional talent. However, a higher number of registered users
will not immediately translate to increased revenue, as there is a lag between the time we acquire a registered user through our
lead-generation process and the time we generate revenue from a registered user by selling them one of our paid products or services.
The
following table sets forth the number of registered users on our PDN Network and total membership on our NAPW Network as of the
periods presented:
|
|
As
of June 30,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
PDN
Network Registered Users (1)
|
|
|
10,747
|
|
|
|
10,691
|
|
|
|
1.6
|
%
|
NAPW Network
Total Membership (2)
|
|
|
951
|
|
|
|
955
|
|
|
|
(0.3
|
)%
|
(1)
|
The
number of registered users may be higher than the number of actual users due to various factors. For more information, see
“Risk Factors page #18 —The reported number of our registered users is higher than the number of actual individual
users, and a substantial majority of our visits are generated by a minority of our users
” in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report” as filed with the SEC on April
15, 2019).
|
|
|
(2)
|
Includes
both Paid Members and Unpaid Members. There were 9,000, and 18,000 Paid Members as of June 30, 2019 and 2018, respectively.
|
Non-GAAP
Financial Measure
Adjusted
EBITDA
We
believe Adjusted EBITDA provides a meaningful representation of our operating performance that provides useful information to
investors regarding our financial condition and results of operations. Adjusted EBITDA is commonly used by financial analysts
and others to measure operating performance. Furthermore, management believes that this non-GAAP financial measure may provide
investors with additional meaningful comparisons between current results and results of prior periods as they are expected to
be reflective of our core ongoing business. However, while we consider Adjusted EBITDA to be an important measure of operating
performance, Adjusted EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in
isolation or as a substitute for analysis of our results as reported under GAAP. Further, Adjusted EBITDA, as we define it, may
not be comparable to EBITDA, or similarly titled measures, as defined by other companies.
The
following table provides a reconciliation of Net Loss from continuing operations to Adjusted EBITDA, the most directly comparable
GAAP measure reported in our consolidated financial statements:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Loss from Continuing Operations
|
|
$
|
(743
|
)
|
|
$
|
(1,841
|
)
|
|
$
|
(1,887
|
)
|
|
$
|
(3,665
|
)
|
Stock-based compensation expense
|
|
|
90
|
|
|
|
347
|
|
|
|
99
|
|
|
|
466
|
|
Depreciation and amortization
|
|
|
222
|
|
|
|
659
|
|
|
|
443
|
|
|
|
1,339
|
|
Interest Expense
|
|
|
6
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Interest and other income
|
|
|
(376
|
)
|
|
|
(4
|
)
|
|
|
(376
|
)
|
|
|
(5
|
)
|
Income tax benefit
|
|
|
(2
|
)
|
|
|
(123
|
)
|
|
|
(67
|
)
|
|
|
(372
|
)
|
Adjusted EBITDA
|
|
$
|
(803
|
)
|
|
$
|
(962
|
)
|
|
$
|
(1,775
|
)
|
|
$
|
(2,237
|
)
|
Results
of Operations
Revenues
Total
Revenues
The
following tables set forth our revenues for the period presented. The period-to-period comparison of financial results is not
necessarily indicative of future results.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
636
|
|
|
$
|
1,336
|
|
|
$
|
(700
|
)
|
|
|
(52.4
|
)%
|
Recruitment services
|
|
|
651
|
|
|
|
692
|
|
|
|
(41
|
)
|
|
|
(5.9
|
)%
|
Products sales and other
|
|
|
1
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
(83.3
|
)%
|
Education and training
|
|
|
-
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
(100.0
|
)%
|
Consumer advertising and marketing solutions
|
|
|
38
|
|
|
|
75
|
|
|
|
(37
|
)
|
|
|
(49.3
|
)%
|
Total revenues
|
|
$
|
1,326
|
|
|
$
|
2,119
|
|
|
$
|
(793
|
)
|
|
|
(37.4
|
)%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
1,435
|
|
|
$
|
2,948
|
|
|
$
|
(1,513
|
)
|
|
|
(51.3
|
)%
|
Recruitment services
|
|
|
1,125
|
|
|
|
1,314
|
|
|
|
(189
|
)
|
|
|
(14.4
|
)%
|
Products sales and other
|
|
|
4
|
|
|
|
10
|
|
|
|
(6
|
)
|
|
|
(60.0
|
)%
|
Education and training
|
|
|
35
|
|
|
|
16
|
|
|
|
19
|
|
|
|
118.8
|
%
|
Consumer advertising and marketing solutions
|
|
|
74
|
|
|
|
144
|
|
|
|
(70
|
)
|
|
|
(48.6
|
)%
|
Total revenues
|
|
$
|
2,673
|
|
|
$
|
4,432
|
|
|
$
|
(1,759
|
)
|
|
|
(39.7
|
)%
|
Total
revenues decreased $793,000, or 37.4% for the three months ended June 30, 2019, compared to the same prior year period, and $1,759,000,
or 39.7%, for the six months ended June 30, 2019, compared to the same prior year period, due primarily to management’s
focus on reduction in sales and operations workforce as a means to improved efficiencies and operational effectiveness while rebranding
the business.
Revenues
by Segment
The
following tables set forth each operating segment’s revenues for the period presented. The period-to-period comparison is
not necessarily indicative of future results.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
635
|
|
|
$
|
1,277
|
|
|
$
|
(642
|
)
|
|
|
(50.3
|
)%
|
PDN Network
|
|
|
689
|
|
|
|
767
|
|
|
|
(78
|
)
|
|
|
(10.2
|
)%
|
China
|
|
|
2
|
|
|
|
75
|
|
|
|
(73
|
)
|
|
|
(97.3
|
)%
|
Total revenues
|
|
$
|
1,326
|
|
|
$
|
2,119
|
|
|
$
|
(793
|
)
|
|
|
(37.4
|
)%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
1,432
|
|
|
$
|
2,830
|
|
|
$
|
(1,398
|
)
|
|
|
(49.4
|
)%
|
PDN Network
|
|
|
1,199
|
|
|
|
1,458
|
|
|
|
(259
|
)
|
|
|
(17.8
|
)%
|
China
|
|
|
41
|
|
|
|
144
|
|
|
|
(103
|
)
|
|
|
(71.5
|
)%
|
Total revenues
|
|
$
|
2,672
|
|
|
$
|
4,432
|
|
|
$
|
(1,760
|
)
|
|
|
(39.7
|
)%
|
During
the three months ended June 30, 2019, our NAPW Network generated $635,000 in revenue from membership fees and related services
and product sales, compared to $1,277,000 for the same period in the prior year, a decrease of $642,000, or 50.3%. During the
six months ended June 30, 2019, our NAPW Network generated $1,432,000 in revenue from membership fees and related services and
product sales, compared to $2,830,000 for the same period in the prior year, a decrease of $1,398,000, or 49.4%. The decreases
in revenue was mainly attributable to reductions in NAPW sales staff from 17 sales representatives on average during the first
six months of 2018 to 4 sales representatives on average during the six three months of 2019. As a part of rebranding the NAPW
business, the Company also re-tooled its lead-generation and other marketing activities.
During
the three months ended June 30, 2019, our PDN Network generated $689,000 in revenue, compared to $767,000 for the same period
in the prior year, a decrease of $78,000, or 10.2%. During the six months ended June 30, 2019, our PDN Network generated $1,199,000
in revenue, compared to $1,458,000 for the same period in the prior year, a decrease of $259,000, or 17.8%. The decrease was a
result of lower sales staffing and resources in 2019 compared to 2018. We anticipate more robust sales in the latter half of the
year.
During
the three months ended June 30, 2019, our China Operations generated $2,000 in revenue, compared to $75,000 for the same period
in the prior year, a decrease of $73,000 or 97.3%. During the six months ended June 30, 2019, our China Operations
generated $41,000 in revenue, compared to $144,000 for the same period in the prior year, a decrease of $103,000 or 71.5%.
We did not hold any major paid events in the first three months of 2019 as most our efforts were devoted to future business
development.
Costs
and Expenses
The
following tables set forth our costs and expenses for the period presented. The period-to-period comparison of financial results
is not necessarily indicative of future results.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
240
|
|
|
$
|
340
|
|
|
$
|
(100
|
)
|
|
|
(29.4
|
)%
|
Sales and marketing
|
|
|
539
|
|
|
|
1,024
|
|
|
|
(485
|
)
|
|
|
(47.4
|
)%
|
General and administrative
|
|
|
1,442
|
|
|
|
2,064
|
|
|
|
(622
|
)
|
|
|
(30.1
|
)%
|
Depreciation and amortization
|
|
|
222
|
|
|
|
659
|
|
|
|
(437
|
)
|
|
|
(66.3
|
)%
|
Total costs and expenses
|
|
$
|
2,443
|
|
|
$
|
4,087
|
|
|
$
|
(1,644
|
)
|
|
|
(40.2
|
)%
|
During
the three months ended June 30, 2019, total costs and expenses were $2,443,000, compared to $4,087,000 for same period in the
prior year, decrease of $1,644,000 or 40.2%. The decrease is primarily the result of $622,000 or 30.1% decrease in general and
administrative expenses, a $485,000, or 47.4% decrease in sales and marketing expenses, and a $437,000 or 66.3% decrease in depreciation
and amortization expenses.
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
428
|
|
|
$
|
626
|
|
|
$
|
(198
|
)
|
|
|
(31.6
|
)%
|
Sales and marketing
|
|
|
1,320
|
|
|
|
2,117
|
|
|
|
(797
|
)
|
|
|
(37.6
|
)%
|
General and administrative
|
|
|
2,800
|
|
|
|
4,416
|
|
|
|
(1,616
|
)
|
|
|
(36.6
|
)%
|
Depreciation and amortization
|
|
|
443
|
|
|
|
1,339
|
|
|
|
(896
|
)
|
|
|
(66.9
|
)%
|
Total costs and expenses
|
|
$
|
4,991
|
|
|
$
|
8,498
|
|
|
$
|
(3,507
|
)
|
|
|
(41.3
|
)%
|
During
the six months ended June 30, 2019, total costs and expenses were $4,991,000, compared to $8,498,000 for same period in the prior
year, decrease of $3,507,000 or 41.3%. The decrease is primarily the result of $1,616,000 or 36.6% decrease in general
and administrative expenses, a $896,000 or 66.9% decrease in depreciation and amortization expenses, and a $797,000, or 37.6%
decrease in sales and marketing expenses.
Operating
Expenses
Cost
of revenue
: Cost of revenues decreased during the three months ended June 30, 2019 to $240,000, compared to $340,000 for the
same period in the prior year, a decrease of $100,000, or 29.4%. During the six months ended June 30, 2019, cost of revenues was
$428,000, compared to $626,000 for the same period in the prior year, a reduction of $198,000 or 31.6%. The decrease is
in
tandem
with lower revenues.
Sales
and marketing expenses
: Sales and marketing expenses during the three months ended June 30, 2019 were $539,000, compared to
$1,024,000 for the same period in the prior year, a decrease of $485,000, or 47.4%. The decrease was mostly attributable to a
$169,000 decrease in personnel cost due to sales force reduction in our NAPW segment, a $115,000 reduction in lead spending in
our NAPW segment, and a $62,000 reduction in sales commission expenses. Sales and marketing for the six months ended June 30,
2018 were $1,320,000, compared to $2,117,000 for the same period in the prior year, a decrease of $797,000, or 37.6%. The decrease
was primarily due to sales force reduction in our NAPW segment that resulted in $267,000 decrease in personnel cost, a $245,000
reduction in lead spending in our NAPW segment, and a $76,000 reduction in commission expenses.
General
and administrative expenses
: General and administrative expenses for the three months ended June 30, 2019 were $1,442,000,
compared to $2,064,000 for the same period in the prior year, a decrease of $622,000 or 30.1%. The decrease was mainly attributable
to a $451,000 reduction in personnel costs, and a $257,000 decrease in stock-based compensation. General and administrative expenses
for the six months ended June 30, 2019 were $2,800,000, compared to $4,416,000 for the same period in the prior year, a decrease
of $1,616,000 or 36.6%. The decrease was mainly attributable to a $911,000 reduction in personnel costs, a $192,000 reduction
in rent expenses because we centralized our US operations in Chicago and executed a work-from-home model for certain employees
at our NAPW segment in 2018, and a $367,000 decrease in stock-based compensation, and a $125,000 decrease in audit fees.
Depreciation
and amortization expenses
: Depreciation and amortization expenses for the three months ended June 30, 2019 were $222,000,
compared to $659,000 for the same period in the prior year, a decrease of $437,000 or 66.3%. Depreciation and amortization expenses
for the six months ended June 30, 2019 were $443,000, compared to $1,339,000 for the same period in the prior year, a decrease
of $896,000 or 66.9%. The decrease for the three and six months ended June 30, 2019 was mainly a result of $2,796,000 impairment
charge against long-lived intangible assets in our NAPW segment that the Company recorded in fourth quarter of 2018. Amortization
of the intangible assets is listed in Note 5 on page 12 of this quarterly report.
Costs
and Expenses by Segment
The
following tables set forth each operating segment’s costs and expenses for the period presented. The period-to-period comparison
is not necessarily indicative of future results.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
679
|
|
|
$
|
1,708
|
|
|
$
|
(1,029
|
)
|
|
|
(60.2
|
)%
|
PDN Network
|
|
|
709
|
|
|
|
751
|
|
|
|
(42
|
)
|
|
|
(5.6
|
)%
|
China
|
|
|
354
|
|
|
|
549
|
|
|
|
(195
|
)
|
|
|
(35.5
|
)%
|
Corporate Overhead
|
|
|
700
|
|
|
|
1,078
|
|
|
|
(378
|
)
|
|
|
(35.1
|
)%
|
Total costs and expenses
|
|
$
|
2,442
|
|
|
$
|
4,086
|
|
|
$
|
(1,644
|
)
|
|
|
(40.2
|
)%
|
NAPW
Network:
During the three months ended June 30, 2019, total costs and expenses in our NAPW segment were $679,000, compared
to $1,708,000 for the same period in the prior year, a decrease of $1,029,000 or 60.2%. The decrease was a result of a $436,000
decrease in amortization expense of long-lived intangible assets as a result of $2,796,000 impairment charge the Company recorded
in fourth quarter of 2018, a $302,000 decrease in personnel costs, and $115,000 reduction in lead generation spending.
PDN
Network:
During the three months ended June 30, 2019, total costs and expenses in our PDN segment were $709,000, compared
to $751,000 for the same period in the prior year, a decrease of $42,000, or 5.6%. The decrease was primarily cost of revenues
and was in tandem with lower revenues.
China
Operations:
During the three months ended June 30, 2019, total costs and expenses in our China operations were $354,000, compared
to $549,000 for the same period in the prior year, a decrease of $195,000 or 35.5%. The decrease was primarily cost of
sales as a result of lower revenues, and lower general and administrative expenses mainly as a result of lower personnel costs.
Corporate
Overhead:
During the three months ended June 30, 2019, total costs and expenses incurred by our Corporate Overhead segment
were $700,000, compared to $1,078,000 for the same period in the prior year, a decrease of $378,000 or 35.1%. The decrease was
primarily a result of $257,000 decrease in stock based compensation expenses, and $64,000 reduction in corporate personnel cost.
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
1,584
|
|
|
$
|
4,028
|
|
|
$
|
(2,444
|
)
|
|
|
(60.7
|
)%
|
PDN Network
|
|
|
1,390
|
|
|
|
1,510
|
|
|
|
(120
|
)
|
|
|
(7.9
|
)%
|
China
|
|
|
728
|
|
|
|
969
|
|
|
|
(241
|
)
|
|
|
(24.9
|
)%
|
Corporate Overhead
|
|
|
1,288
|
|
|
|
1,991
|
|
|
|
(703
|
)
|
|
|
(35.3
|
)%
|
Total costs and expenses
|
|
$
|
4,990
|
|
|
$
|
8,498
|
|
|
$
|
(3,508
|
)
|
|
|
(41.3
|
)%
|
NAPW
Network:
During the six months ended June 30, 2019, total costs and expenses in our NAPW segment were $1,584,000, compared
to $4,028,000 for the same period in the prior year, a decrease of $2,444,000 or 60.7%. The decrease was a result of a $872,000
decrease in amortization expense of long-lived intangible assets as a result of $2,796,000 impairment charge the Company recorded
in fourth quarter of 2018, a $644,000 decrease in personnel costs, a $224,000 reduction in rent expenses because we centralized
our US operations in Chicago and executed a work-from-home model for certain employees at our NAPW segment in 2018, and a $245,000
reduction in lead generation spending.
PDN
Network:
During the six months ended June 30, 2019, total costs and expenses in our PDN segment were $1,390,000, compared
to $1,510,000 for the same period in the prior year, a decrease of $120,000, or 7.9%. The decrease was primarily cost of revenues
and was in tandem with lower revenues.
China
Operations:
During the six months ended June 30, 2019, total costs and expenses in our China operations were $728,000, compared
to $969,000 for the same period in the prior year, a decrease of $241,000 or 24.9%. The decrease was primarily cost of sales as
a result of lower revenues, and lower general and administrative expenses mainly as a result of lower personnel costs.
Corporate
Overhead:
During the six months ended June 30, 2019, total costs and expenses incurred by our Corporate Overhead segment were
$1,288,000, compared to $1,991,000 for the same period in the prior year, a decrease of $703,000 or 35.3%. The decrease was primarily
a result of $367,000 decrease in stock based compensation expenses, a $125,000 reduction in audit related expenses, and $91,000
reduction in corporate personnel cost
Income
Tax Expense (Benefit)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2
|
)
|
|
$
|
(123
|
)
|
|
$
|
121
|
|
|
|
(98.4
|
)%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Total
|
|
$
|
(67
|
)
|
|
$
|
(372
|
)
|
|
$
|
305
|
|
|
|
(82.0
|
)%
|
The
effective income tax rate for the three months ended June 30, 2019 and 2018 was 0.2% and 6.3%, respectively, resulting in a $2,000,
and $123,000 income tax benefit, respectively. The effective income tax rate for the six months ended June 30, 2019 and 2018 was
3.4% and 9.2%, respectively, resulting in a $67,000 and $372,000 income tax benefit, respectively. The difference in the effective
income tax rate for the three and six months ended June 30, 2019, compared to the three and six months ended June 30, 2018, is
mainly attributable to the decrease in tax rates pursuant to the U.S. Tax Cuts and Jobs Act, change in the valuation allowance
and the foreign tax rate differential due to the Company’s China Operations. Management has determined that enough uncertainty
exists relative to the realization of the deferred income tax asset balances to warrant the application of a valuation allowance
as of June 30, 2019 and December 31, 2018.
Net
Loss from Continuing Operations by Segment
The
following tables set forth each operating segment’s net loss from continuing operations for the periods presented. The period-to-period
comparison is not necessarily indicative of future results.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
(43
|
)
|
|
$
|
(402
|
)
|
|
$
|
359
|
|
|
|
(89.3
|
)%
|
PDN Network
|
|
|
332
|
|
|
|
17
|
|
|
|
315
|
|
|
|
1,852.9
|
%
|
China
|
|
|
(365
|
)
|
|
|
(478
|
)
|
|
|
113
|
|
|
|
(23.6
|
)%
|
Corporate Overhead
|
|
|
(667
|
)
|
|
|
(977
|
)
|
|
|
310
|
|
|
|
(31.7
|
)%
|
Consolidated Net Loss from continuing operations
|
|
$
|
(743
|
)
|
|
$
|
(1,840
|
)
|
|
$
|
1,097
|
|
|
|
(59.6
|
)%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
(143
|
)
|
|
$
|
(1,059
|
)
|
|
$
|
916
|
|
|
|
(86.5
|
)%
|
PDN Network
|
|
|
171
|
|
|
|
(36
|
)
|
|
|
207
|
|
|
|
(575.0
|
)%
|
China
|
|
|
(705
|
)
|
|
|
(812
|
)
|
|
|
107
|
|
|
|
(13.2
|
)%
|
Corporate Overhead
|
|
|
(1,210
|
)
|
|
|
(1,759
|
)
|
|
|
549
|
|
|
|
(31.2
|
)%
|
Consolidated Net Loss from continuing operations
|
|
$
|
(1,887
|
)
|
|
$
|
(3,666
|
)
|
|
$
|
1,779
|
|
|
|
(48.5
|
)%
|
As
the result of the factors discussed above, during the three and six months ended June 30, 2019 we incurred $743,000 and $1,887,000
respectively, of net loss from continuing operations, a decrease of 59.6% and 48.5% from net loss from continuing operations of
$1,840,000 and $3,666,000 for the three and six months ended June 30, 2018, respectively. The $1,097,000 decrease in net
loss for the three months ended June 30, 2019 was primarily driven by a $622,000 decrease in general and administrative expenses,
a $485,000 decrease in sales and marketing expenses, a $437,000 decrease in depreciation and amortization expenses, and a $376,000
write off of accounts payable recorded during the quarter ended June 30, 2019, partially offset by a $731,000 decrease in revenue
from membership fees, related services at our NAPW segment. The $1,779,000 decrease in net loss for the six months ended June
30, 2019 was primarily driven by a $1,616,000 decrease in general and administrative expenses, a $896,000 decrease in depreciation
and amortization expenses, a $797,000 decrease in sales and marketing expenses, and a $376,000 write off of accounts payable recorded
during the quarter ended June 30, 2019, partially offset by a $1,513,000 decrease in revenue from membership fees, related services
at our NAPW segment.
NAPW
Network
. During the three months ended June 30, 2019, our NAPW segment incurred a net loss of $43,000, compared to a net loss
of $402,000 for the three months ended June 30, 2018. The $359,000 decrease in net loss for was a result of continued cost cutting
efforts that began in the third quarter of 2017, mainly reduction in the work force that resulted in a $302,000 decrease in personnel
costs, a $115,000 reduction in lead generation spending, and a $436,000 decrease in amortization expense of long-lived intangible
assets as a result of $2,796,000 impairment charge the Company recorded in fourth quarter of 2018, partially offset by a $731,000
decrease in revenues from membership fees. During the six months ended June 30, 2019, we incurred a loss of $143,000, compared
to net loss of $1,059,000 for the six months ended June 30, 2018. The $916,000 decrease in net loss was primarily driven by a
$872,000 decrease in amortization expense of long-lived intangible assets as a result of $2,796,000 impairment charge the Company
recorded in fourth quarter of 2018, a reduction in the work force that resulted in a $644,000 decrease in personnel costs, a $245,000
reduction in lead generation spending, and a $224,000 reduction in rent expenses because we centralized our US operations in Chicago
and executed a work-from-home model for certain employees at our NAPW segment in 2018, partially offset by a $1,513,000 decrease
in revenues from membership fees.
PDN
Network
. During the three months ended June 30, 2019, our PDN segment generated a net profit of $332,000, compared to a net
profit of $17,000 for the three months ended June 30, 2018. The increase in net profit of $315,000 was mainly a result of $376,000
write off of accounts payable recorded during the quarter ended June 30, 2019. During the six months ended June 30, 2019, we incurred
a net profit of $171,000, compared to net loss of $36,000 for the six months ended June 30, 2018. The decrease in net loss of
$207,000 was primarily attributable to a $376,000 write off of accounts payable recorded during the quarter ended June 30, 2019,
and a $102,000 reduction in cost of revenue, partially offset by a $259,000 decrease in revenues.
China
Operations.
During the three months ended June 30, 2019, our China Operations incurred a net loss of $365,000, compared to
a net loss of $478,000 for the same period in the prior year. The decrease in net loss of $113,000 was mainly a result of a $50,000
decrease in personnel cost, and $54,000 decreased in cost of revenues, partially offset by lower revenues. During the six months
ended June 30, 2019, we incurred a net loss of $705,000, compared to a net loss of $812,000 for the prior year period. The decrease
in net loss of $107,000 was primarily driven by a $51,000 decrease in personnel cost, and $102,000 decreased in cost of revenues
as a result of lower revenues.
Corporate
Overhead.
During the three months ended June 30, 2019, our Corporate Overhead segment incurred a net loss of $667,000, compared
to a net loss of $977,000 for the three months ended June 30, 2018. In the second quarter of 2019 we continued our efforts to
reduce corporate level expenses, such as $257,000 decrease in stock based compensation expenses, and $64,000 reduction in corporate
salaries expenses. During the six months ended June 30, 2019, we incurred a net loss of $1,210,000, compared to a net loss of
$1,759,000 for the prior year period. The decrease in net loss of $549,000 was primarily driven by a $367,000 reduction in stock-based
compensation, a $125,000 reduction in audit related fees, a $91,000 decrease in in corporate salaries expenses.
Liquidity
and Capital Resources
The
following table summarizes our liquidity and capital resources as of June 30, 2019 and December 31, 2018, respectively, and is
intended to supplement the more detailed discussion that follows:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
1,184
|
|
|
$
|
1,442
|
|
Working (deficiency) capital
|
|
$
|
(2,928
|
)
|
|
$
|
(3,384
|
)
|
Our
principal sources of liquidity are our cash and cash equivalents, including the net proceeds from the issuances of common stock
to CFL and other investors. As of June 30, 2019 and December 31, 2018, we had working capital deficiency of approximately $2,928,000
and $3,384,000, respectively. During the six months ended June 30, 2019, we generated a net loss from continuing operations of
approximately $1,887,000 used cash in continuing operations of approximately $2,064,000, and we expect that we will continue to
generate operating losses for the foreseeable future. These conditions raise substantial doubt about its ability to continue as
a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further
implement its business plan, raise capital, and generate revenues. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
The
Company is closely monitoring operating costs and capital requirements. Management of the Company also made efforts in 2018 and
first two quarters of 2019 to contain and reduce cost, including terminating non-performing employees and eliminating certain
positions, replacing and negotiating with certain vendors, implementing a new approval process over travel and other expenses,
and significantly reducing the cash compensation for independent board directors. We also sold our Noble Voice business on May
25, 2018 to reduce operating losses and cash burns. If we are still not successful in sufficiently reducing our costs, we may
then need to dispose of our other assets or discontinue business lines.
On November 16, 2018, the Company entered
into a revolving credit facility agreement with GNet Tech Holdings Public Limited Company (“GNet”), that matures on
May 31, 2020, under which we can draw up to GBP £1,500,000 (approximately $2,000,000). Interest is payable on any outstanding
principal balance at a rate equal to the LIBOR rate plus 4%. Amounts drawn under this facility are payable at the end of one,
three, or six months periods at the election of the Company. On January 14, 2019, the Company drew $293,000 under this facility
and repaid it on June 7, 2019. At June 30, 2019, the Company did not have any outstanding debt under this facility. At August
13, 2019, approximately $2,000,000 was available for us to draw.
From January 9, 2019 to April 16, 2019,
the Company sold an aggregate of 237,031 shares of its common stock at a purchase price ranging from $1.146 to $3.96 per share,
representing 120% of the closing price the trading day immediately prior to the date of subscription. As of the date of this annual
report, the Company has received an aggregate gross proceeds of $497,816 under this private placement. All of the purchasers are
residents of the People’s Republic of China.
On June 7, 2019, the Company entered into
a loan agreement (the “Loan”) with GNet Tech Holdings Public Limited Company (“GNet”), a related party
in amount of $400,000, payable within two weeks of the date of the agreement. As of June 30, 2019, the Company repaid $200,000
of the Loan, and the outstanding balance as of June 30, 2019 and August 13, 2019 was $200,000.
On June 11, 2019, the Company entered into a Stock Purchase Agreement with one purchaser
Ms. Xiaoqian (the “Purchaser Zheng”), pursuant to which the Purchaser Zheng agreed to purchase 500,000 shares (the
“Shares”) of the Company’s common stock for $2.20 per share for gross proceeds of $1,100,000 (the “Purchase
Price”). The Purchase Zheng Price was received by the Company on June 14, 2019.
For additional information about the uncertainties and risks of our financing plans,
see
Part II, Item 1A, “
Risk Factors
”
of this report.
We
collect membership fees generally at the commencement of the membership term or at renewal periods thereafter. The memberships
we sell are for one year and we defer recognition of the revenue from membership sales and renewals and recognize it ratably over
the twelve month period. Starting January 2, 2018, we also offer a monthly membership for IAW in the USA for which we collect
a fee on a monthly basis. Our PDN Network also sells recruitment services to employers, generally on a one year contract basis.
This revenue is also deferred and recognized over the life of the contract. Our payment terms for PDN Network and Noble Voice
customers range from 30 to 60 days. We consider the difference between the payment terms and payment receipts a result of transit
time for invoice and payment processing and to date have not experienced any liquidity issues as a result of the payments extending
past the specified terms. Cash and cash equivalents and short term investments consist primarily of cash on deposit with banks
and investments in money market funds, corporate and municipal debt and U.S. government and U.S. government agency securities.
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Cash provided by (used in) continuing operations
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(2,064
|
)
|
|
$
|
(3,226
|
)
|
Investing activities
|
|
|
(23
|
)
|
|
|
(61
|
)
|
Financing activities
|
|
|
1,799
|
|
|
|
2,922
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
4
|
|
|
|
(11
|
)
|
Cash provided by (used in) discontinued operations:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
27
|
|
|
|
(83
|
)
|
Investing activities
|
|
|
-
|
|
|
|
200
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(257
|
)
|
|
$
|
(259
|
)
|
Net
Cash Used in Operating Activities
For
the six months ended June 30, 2019, net cash used in operating activities in continuing operations was $2,064,000. We had a net
loss of $1,887,000, write off of accounts payable of $376,000 payments of lease obligations of $191,000, deferred tax benefit
of $77,000, and recovery of bad debt of $2,000, which was offset by non-cash depreciation and amortization of $443,000, amortization
of leases of $172,000, and stock-based compensation expense of $99,000. Changes in operating assets and liabilities used $254,000
of cash during the six months ended June 30, 2019, consisting primarily of decreases in accounts payable and deferred revenue,
partially offset by increases in accounts receivable, and increase in accrued expenses.
Net
cash used in operating activities in continuing operations for the six months ended June 30, 2018 was $3,226,000. We had a net
loss of $3,665,000, a deferred income tax benefit of $375,000, which was offset by non-cash depreciation and amortization of $1,339,000
and stock-based compensation expense of $466,000. Changes in operating assets and liabilities used $1,195,000 of cash during the
six months ended June 30, 2018, consisting primarily of decreases in deferred revenue, accrued expenses, and prepayments, partially
offset by increases in accounts receivable.
Net
Cash Used in Investing Activities
Net
cash used in investing activities in continuing operations for the six months ended June 30, 2019 was $23,000, mainly consisting
of security deposits.
Net
cash used in investing activities in continuing operations for the six months ended June 30, 2018 was $61,000, mainly consisting
of $58,000 invested to develop technology.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities in continuing operations during the six months ended June 30, 2019 was $1,799,000, consisting
of $1,100,000 in gross proceeds from sale of 500,000 shares of common stock to one purchaser at a purchase price $2.20 per share,
$498,000 in gross proceeds from sale of 237,031 shares of common stock ranging from $1.146 to $3.96 per share, representing
120% of the closing price the trading day immediately prior to the date of subscription to citizens of the People’s Republic
of China, and $400,000 in gross proceeds from short-term loan (the “Loan”) from GNet Tech Holdings, a related party
through one of the Company’s shareholders, Cosmic Forward Limited, partially offset by $200,000 of repayment of the Loan.
Net
cash provided by financing activities in continuing operations during the six months ended June 30, 2018 was $2,922,000, consisting
of the $1,487,000 in gross proceeds from January 29, 2018 issuance and sale of 380,295 shares of common stock at a price of $3.91
per share to Mr. Shengqi Cai, an individual and a resident of the People’s Republic of China, and $1,435,000 in gross proceeds
from a June 25, 2018 sale of 496,510 shares of common stock at a price of $2.89 per share to China EWI International Finance Group
Co., Limited, a limited liability company based in the People’s Republic of China.
Net
Cash Provided by (Used in) Discontinued Operations
On
May 25, 2018 we sold our Noble Voice operations.
Net
cash provided by operating activities in discontinued operations for the six months ended June 30, 2019 was $27,000.
Net
cash used in operating activities in discontinued operations for the six months ended June 30, 2018 was $83,000.
Net
cash provided by investing activities for the six months ended June 30, 2018 was $200,000, consisting of $200,000 in gross proceeds
from the sale of Noble Voice operations.
Off-Balance
Sheet Arrangements
Since
inception, we have not engaged in any off-balance sheet activities as defined in Regulation S-K Item 303(a)(4).
Critical
Accounting Policies and Estimates
Pursuant
to the provisions of the Jumpstart Our Business Startups Act (the “
JOBS Act
”), as an “emerging growth
company,” we may delay adoption of new or revised accounting standards applicable to public companies until the earlier
of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended
transition period for complying with such new or revised accounting standards. We have elected to take advantage of the benefits
of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies
that comply with such new or revised accounting standards. Upon issuance of new or revised accounting standards that apply to
our consolidated financial statements, we will disclose the date on which adoption is required for non-emerging growth companies
and the date on which we will adopt the recently issued accounting guidelines.
Our
management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S.
GAAP. The preparation of these consolidated financial statements requires us to exercise considerable judgment with respect to
establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets
and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the
consolidated financial statements.
We
base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions,
the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically
re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate
that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
While
we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies,
we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise
of judgment, actual results could differ from such estimates.
There
have been no material changes to the Company’s critical accounting policies and estimates as compared to the critical accounting
policies and estimates described in the 2018 Annual Report, which we believe are the most critical to our business and the understanding
of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our financial
statements.
Recent
Accounting Pronouncements
See
Note 3 to our unaudited condensed consolidated financial statements regarding recent accounting pronouncements.
Special
Note Regarding Forward-Looking Statements
This
Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements concern expectations, beliefs,
projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical
facts. Specifically, this Quarterly Report contains forward-looking statements regarding:
|
●
|
our
beliefs regarding our ability to create enhanced value for our members and customers;
|
|
●
|
our
beliefs regarding the relation between the number of members or registered users and our revenues;
|
|
●
|
our
expectations regarding future changes in our salesforce;
|
|
●
|
our
expectations regarding the changes in revenues in 2018, 2019 and 2020;
|
|
●
|
our
expectations regarding future increases in sales and marketing costs and general and administrative expenses; and
|
|
●
|
our
beliefs regarding our liquidity requirements, the availability of cash and capital resources to fund our business in the future
and intended use of liquidity.
|
These
forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions.
We wish to caution readers that certain important factors may have affected and could in the future affect our actual results
and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important
factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the
actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not
limited to, the following:
|
●
|
our
ability to raise funds in the future to support operations failure to realize synergies and other financial benefits from
mergers and acquisitions within expected time frames, including increases in expected costs or difficulties related to integration
of merger and acquisition partners;
|
|
●
|
inability
to identify and successfully negotiate and complete additional combinations with potential merger or acquisition partners
or to successfully integrate such businesses;
|
|
●
|
our
history of operating losses;
|
|
●
|
we
may not be able to reverse the significant decline in our revenues;
|
|
●
|
our
limited operating history in a new and unproven market;
|
|
●
|
increasing
competition in the market for online professional networks;
|
|
●
|
our
ability to comply with increasing governmental regulation and other legal obligations related to privacy;
|
|
●
|
our
ability to adapt to changing technologies and social trends and preferences;
|
|
●
|
our
ability to attract and retain a sales and marketing team, management and other key personnel and the ability of that team
to execute on the Company’s business strategies and plans;
|
|
●
|
our
ability to obtain and maintain protection for our intellectual property;
|
|
●
|
any
future litigation regarding our business, including intellectual property claims;
|
|
●
|
general
and economic business conditions; and
|
|
●
|
legal
and regulatory developments.
|
The
foregoing list of important factors may not include all such factors. You should consult other disclosures made by the Company
(such as in our other filings with the SEC or in company press releases) for additional factors, risks and uncertainties that
may cause actual results to differ materially from those projected by the Company. Please refer to Part II, Item 1A, “
Risk
Factors
” of this Quarterly Report and to Part I, Item 1A, “
Risk Factors
” of our 2018 Annual Report
for additional information regarding factors that could affect our results of operations, financial condition and cash flow. You
should consider these factors, risks and uncertainties when evaluating any forward-looking statements and you should not place
undue reliance on any forward-looking statement. Forward-looking statements represent our views as of the date of this Quarterly
Report, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events
that arise after the date of this Quarterly Report.