|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
Capitalized
cost:
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
2,165,545
|
|
|
$
|
2,163,044
|
|
Additional
capitalized cost
|
|
|
3,700
|
|
|
|
2,501
|
|
Balance,
end of period
|
|
|
2,169,245
|
|
|
|
2,165,545
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization:
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
2,087,886
|
|
|
$
|
1,968,213
|
|
Provision
for amortization
|
|
|
6,607
|
|
|
|
101,448
|
|
Balance,
end of period
|
|
|
2,094,493
|
|
|
|
2,069,661
|
|
Capitalized
Technology, net
|
|
|
74,752
|
|
|
|
95,884
|
|
For
the three months ended March 31, 2020 and 2019, amortization expense was $6,605 and $25,000, respectively, and is recorded in
depreciation and amortization expense in the accompanying statements of operations.
5.
Intangible Assets
Intangible
assets, net was as follows:
|
|
Useful
Lives
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
March
31, 2020
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Long-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Process
|
|
|
10
|
|
|
$
|
2,130,956
|
|
|
$
|
(1,788,023
|
)
|
|
$
|
342,933
|
|
Paid
Member Relationships
|
|
|
5
|
|
|
|
803,472
|
|
|
|
(803,472
|
)
|
|
|
-
|
|
Member
Lists
|
|
|
5
|
|
|
|
8,086,181
|
|
|
|
(8,086,181
|
)
|
|
|
-
|
|
Developed
Technology
|
|
|
3
|
|
|
|
648,000
|
|
|
|
(648,000
|
)
|
|
|
-
|
|
Trade
Name/Trademarks
|
|
|
4
|
|
|
|
440,000
|
|
|
|
(440,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
12,108,609
|
|
|
|
(11,765,676
|
)
|
|
|
342,933
|
|
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400
|
|
Intangible
assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
433,333
|
|
|
|
Useful
Lives
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
December
31, 2019
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Long-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Process
|
|
|
10
|
|
|
$
|
2,130,956
|
|
|
$
|
(1,768,971
|
)
|
|
$
|
361,985
|
|
Paid
Member Relationships
|
|
|
5
|
|
|
|
803,472
|
|
|
|
(803,472
|
)
|
|
|
-
|
|
Member
Lists
|
|
|
5
|
|
|
|
8,086,181
|
|
|
|
(8,086,181
|
)
|
|
|
-
|
|
Developed
Technology
|
|
|
3
|
|
|
|
648,000
|
|
|
|
(648,000
|
)
|
|
|
-
|
|
Trade
Name/Trademarks
|
|
|
4
|
|
|
|
440,000
|
|
|
|
(440,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
12,108,609
|
|
|
|
(11,746,624
|
)
|
|
|
361,985
|
|
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400
|
|
Intangible
assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
452,385
|
|
As
of March 31, 2020, estimated amortization expense in future fiscal years is summarized as follows:
Year
ended December 31,
|
|
|
|
Remaining
of 2020
|
|
$
|
57,155
|
|
2021
|
|
|
76,207
|
|
2022
|
|
|
76,207
|
|
2023
|
|
|
76,207
|
|
2024
and thereafter
|
|
|
57,157
|
|
|
|
$
|
342,933
|
|
For
the three months ended March 31, 2020 and 2019, amortization expense was $19,052 and $183,000, respectively, and is recorded in
depreciation and amortization expense in the accompanying statements of operations.
6.
Revolving Credit Facility – Related Party
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 December 31, 2019, the Company did not have any outstanding debt
under this facility. At March 31, 2020, the Company did not have any outstanding debt under this facility and does not
intend to draw under it until its expiration.
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.
As
of March 31, 2020, right of use assets were $54,149 and current lease obligations were $60,910.
PDN
China’s bank account with balance of approximately $2,987,939 was frozen by Guangzhou Police due to Gatewang Case. The Company
has classified this entire cash balance as a long-term asset presented in discontinued operations.
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 v. Professional Diversity Network, Inc., 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 has moved to once
again to dismiss the complaint in its entirety for failure to state a claim. The entire motion package, comprised of the Company’s
motion to dismiss and accompanying memorandum, White Winston’s opposition, and the Company’s reply brief, were filed
with the court on Monday, March 25, 2019. This motion was not granted. We have since then substantially completed all of the discovery
process and will begin expert witness disclosures. 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 Case index No. LT-000421/2018,
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. The case is currently being litigated, and we are currently
in the fact damages phase of the litigation.
The
Company is a party to a proceeding captioned Gerbie, et al. v. Professional Diversity Network, Inc. (U.S. Dist. Ct., N.D. Ill.),
a putative class action alleging violations of the Telephone Consumer Protection Act. A settlement has been reached and case has
been dismissed by the court. The Company believes that its practices and procedures were compliant with the Telephone Consumer
Protection Act and admitted no fault.
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 on June 20, 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 and we have completed depositions of relevant witnesses. During the first quarter of 2020,
the Company recorded a $450,000 litigation settlement reserve in the event of an unfavorable outcome in this proceeding.
We
are also generally subject to legal proceedings and litigation arising in the ordinary course of business.
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.
8.
CFL Transaction
On
August 12, 2016, the Company entered into a stock purchase agreement (the “Purchase Agreement”), with CFL, a Republic
of Seychelles company wholly-owned by a group of Chinese investors. Pursuant to the Purchase Agreement, the Company agreed to
issue and sell to CFL (the “Share Issuance and Sale”), and CFL agreed to purchase, at a price of $9.60 per share (the
“Per Share Price”), upon the terms and subject to the conditions set forth in the Purchase Agreement, a number of
shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), such that CFL will hold
shares of Common Stock equal to approximately 51% of the outstanding shares of Common Stock, determined on a fully-diluted basis,
after giving effect to the consummation of the transactions contemplated by the Purchase Agreement, including the Tender Offer
described below (the “CFL Transaction”).
On
November 7, 2016, the Company consummated the Share Issuance and Sale of 1,777,417 shares of its common stock to CFL at a price
of $9.60 per share, pursuant to the terms of the Purchase Agreement, dated August 12, 2016. In addition, on November 7, 2016,
the Company completed the purchase of 312,500 shares of its common stock at a price of $9.60 per share, net to the seller in cash,
pursuant to the Tender Offer. The Company received approximately $9,000,000 in net proceeds from the Share Issuance and Sale,
after the payment for the shares repurchased in the Tender Offer, the repayment of all amounts outstanding under the Master Credit
Facility and the payment of transaction-related expenses.
At
the closing of the CFL Transaction, the Company entered into a Stockholders’ Agreement, dated November 7, 2016 (the “Stockholders’
Agreement”) with CFL and each of its shareholders: Maoji (Michael) Wang, Jingbo Song, Yong Xiong Zheng and Nan Kou (the
“CFL Shareholders”). The Stockholders’ Agreement sets forth the agreement of the Company, CFL and the CFL Shareholders
relating to board representation rights, transfer restrictions, standstill provisions, voting, registration rights and other matters
following the closing of the Share Issuance and Sale (see Note 13).
On
November 15, 2019, CFL purchased additional 1,142,857 shares of the Company’s common stock for $1.75 per share for gross
proceeds of $2,000,000 from an existing shareholder.
9.
Stockholders’ Equity
Preferred
Stock – The Company has no preferred stock issued. The Company’s amended and restated certificate of incorporation
and amended and restated bylaws include provisions that allow the Company’s Board of Directors to issue, without further
action by the stockholders, up to 1,000,000 shares of undesignated preferred stock.
Common
Stock – The Company has one class of common stock outstanding with a total number of shares authorized of 45,000,000.
As of March 31, 2020, the Company had 10,920,973 shares of common stock outstanding.
On
March 22, 2020, the Company entered into an agreement with Malven Group Limited, a company established under the laws of the British
Virgin Islands, in connection with the purchase of 1,939,237 shares of common stock of the Company at a price of $0.7735 per share
for gross consideration of $1,500,000. The closing of the transaction took place on March 31, 2020.
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
fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined
by the Black-Scholes pricing model is affected by the Company’s stock price as well as assumptions regarding a number of
highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over
the term of the awards, and actual and projected employee stock option exercise behaviors. The risk free rate is based on the
U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities
of peer companies, the expected life is based on the estimated average of the life of options using the simplified method, and
forfeitures are estimated on the date of grant based on certain historical data. The Company utilizes the simplified method to
determine the expected life of its options due to insufficient exercise activity during recent years as a basis from which to
estimate future exercise patterns. The expected dividend assumption is based on the Company’s history and expectation of
dividend payouts.
Forfeitures
are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates.
The
following table summarizes the Company’s stock option activity for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(in
Years)
|
|
|
Value
|
|
Outstanding
- January 1, 2020
|
|
|
295,793
|
|
|
$
|
8.88
|
|
|
|
7.5
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(256,667
|
)
|
|
|
9.28
|
|
|
|
-
|
|
|
|
|
|
Outstanding
- March 31, 2020
|
|
|
39,126
|
|
|
$
|
6.27
|
|
|
|
8.1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2020
|
|
|
29,126
|
|
|
$
|
7.65
|
|
|
|
7.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(in
Years)
|
|
|
Value
|
|
Outstanding
- January 1, 2019
|
|
|
499,439
|
|
|
$
|
6.94
|
|
|
$
|
9.0
|
|
|
$
|
-
|
|
Granted
|
|
|
30,000
|
|
|
|
2.23
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(120,313
|
)
|
|
|
2.88
|
|
|
|
-
|
|
|
|
|
|
Outstanding
- March 31, 2019
|
|
|
409,126
|
|
|
$
|
7.78
|
|
|
|
8.4
|
|
|
$
|
80,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31, 2019
|
|
|
330,959
|
|
|
$
|
9.01
|
|
|
|
8.2
|
|
|
$
|
32,710
|
|
During
the three months ended March 31, 2020, vested stock options of 256,667 with a weighted average exercise price of $9.28 were forfeited
Total unrecognized pre-tax stock-based compensation expense related to unvested stock options at March 31, 2020 was $16,321, which
is expected to be recognized through the first quarter of 2021.
Warrants
As
of March 31, 2020 and December 31, 2019, 125,000 warrants were outstanding and exercisable with an exercise price of $20.00 per
share. The aggregate intrinsic value was $0 and the warrants are scheduled to expire on December 27, 2021.
Restricted
Stock
As
of March 31, 2020 and 2019, the following is a summary of restricted stock activity:
|
|
Number
of
|
|
|
|
Shares
|
|
Outstanding
- January 1, 2020
|
|
|
27,319
|
|
Granted
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
Vested
|
|
|
(27,319
|
)
|
Outstanding
- March 31, 2020
|
|
|
-
|
|
|
|
Number
of
|
|
|
|
Shares
|
|
Outstanding
- January 1, 2019
|
|
|
60,651
|
|
Granted
|
|
|
8,090
|
|
Forfeited
|
|
|
(22,730
|
)
|
Vested
|
|
|
-
|
|
Outstanding
- March 31, 2019
|
|
|
46,011
|
|
During
the three months ended March 31, 2020, 27,319 in restricted stock vested. Additionally, the Company recorded non-cash pre-tax
stock-based compensation expense of $0 and $3,000 for the three months ended March 31, 2020 and March 31, 2019, as a component
of general and administrative expenses in the accompanying statements of operations, pertaining to restricted stock.
Total
unrecognized pre-tax stock-based compensation expense related to unvested restricted stock at March 31, 2020 was $0.
11.
Income Taxes
The
Company’s quarterly income tax provision is based upon an estimated annual income tax rate. The Company’s quarterly
provision for income taxes also includes the tax impact of discrete items, if any, including changes in judgment about valuation
allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
During
the three months ended March 31, 2020 and 2019, the Company recorded a benefit for income tax of $5,900 and $66,000. The decrease
in income tax benefit during the current period was primarily due to a reduction in discrete tax item associated with stock-based
compensation expense in addition to a reduction in our valuation allowance
The
valuation allowance at March 31, 2020 was approximately $7,701,000. The net change in the valuation allowance during the three
months ended March 31, 2020 was a decrease of approximately $41,000. 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 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 valuation allowance as of March 31, 2020.
12.
Segment Information
Beginning
on May 26, 2018, the Company operated in the following segments: (A) United States: (i) PDN Network and (ii) NAPW Network, (B)
China Operations, and (C) Corporate Overhead. The segments are categorized based on their business activities and organization.
On March 4, 2020, the Company’s Board of Directors decided to suspend all China operations. As of December 31, 2019, the
Company operated in the following segments: (i) NAPW Network, (ii) PDN Network and (iii) Corporate Overhead. Accordingly, all
financial results for Noble Voice and China Operations have been reclassified from the Company’s reportable segments to
discontinued operations for all periods presented.
The
following tables present key financial information of the Company’s reportable segments as of March 31, 2020 and December
31, 2019 and for the three months ended March 31, 2020 and 2019:
|
|
Three
Months Ended March 31, 2020
|
|
|
|
PDN
|
|
|
NAPW
|
|
|
Corporate
|
|
|
|
|
|
|
Network
|
|
|
Network
|
|
|
Overhead
|
|
|
Consolidated
|
|
Membership
fees and related services
|
|
$
|
-
|
|
|
$
|
383,831
|
|
|
$
|
-
|
|
|
$
|
383,831
|
|
Recruitment
services
|
|
|
566,687
|
|
|
|
-
|
|
|
|
-
|
|
|
|
566,687
|
|
Products
sales and other
|
|
|
-
|
|
|
|
1,431
|
|
|
|
-
|
|
|
|
1,431
|
|
Consumer
advertising and marketing solutions
|
|
|
30,348
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,348
|
|
Total
revenues
|
|
|
597,035
|
|
|
|
385,262
|
|
|
|
-
|
|
|
|
982,297
|
|
Loss
from continuing operations
|
|
|
(150,024
|
)
|
|
|
(68,110
|
)
|
|
|
(1,210,870
|
)
|
|
|
(1,429,004
|
)
|
Depreciation
and amortization
|
|
|
14,675
|
|
|
|
37,326
|
|
|
|
-
|
|
|
|
52,001
|
|
Income
tax benefit
|
|
|
(951
|
)
|
|
|
(407
|
)
|
|
|
(4,551
|
)
|
|
|
(5,909
|
)
|
Net
loss from continuing operations
|
|
|
(148,409
|
)
|
|
|
(67,703
|
)
|
|
|
(1,206,319
|
)
|
|
|
(1,422,431
|
)
|
|
|
As
of March 31, 2020
|
|
Goodwill
|
|
$
|
339,451
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
339,451
|
|
Intangibles
assets, net
|
|
|
90,400
|
|
|
|
342,933
|
|
|
|
-
|
|
|
|
433,333
|
|
Assets
from continuing operations
|
|
|
2,625,138
|
|
|
|
1,242,192
|
|
|
|
-
|
|
|
|
3,867,330
|
|
|
|
Three
Months Ended March 31, 2019
|
|
|
|
PDN
|
|
|
NAPW
|
|
|
Corporate
|
|
|
|
|
|
|
Network
|
|
|
Network
|
|
|
Overhead
|
|
|
Consolidated
|
|
Membership
fees and related services
|
|
$
|
-
|
|
|
$
|
794,539
|
|
|
$
|
-
|
|
|
$
|
794,539
|
|
Recruitment
services
|
|
|
474,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
474,260
|
|
Products
sales and other
|
|
|
-
|
|
|
|
2,812
|
|
|
|
-
|
|
|
|
2,812
|
|
Consumer
advertising and marketing solutions
|
|
|
35,716
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,716
|
|
Total
revenues
|
|
|
509,976
|
|
|
|
797,351
|
|
|
|
-
|
|
|
|
1,307,327
|
|
Loss
from continuing operations
|
|
|
(171,416
|
)
|
|
|
(107,731
|
)
|
|
|
(587,975
|
)
|
|
|
(867,122
|
)
|
Depreciation
and amortization
|
|
|
15,741
|
|
|
|
201,442
|
|
|
|
-
|
|
|
|
217,183
|
|
Income
tax benefit
|
|
|
(8,129
|
)
|
|
|
(13,135
|
)
|
|
|
(44,369
|
)
|
|
|
(65,633
|
)
|
Net
loss from continuing operations
|
|
|
(160,924
|
)
|
|
|
(99,602
|
)
|
|
|
(543,606
|
)
|
|
|
(804,132
|
)
|
|
|
As
of December 31, 2019
|
|
Goodwill
|
|
$
|
339,451
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
339,451
|
|
Intangibles
assets, net
|
|
|
90,400
|
|
|
|
361,985
|
|
|
|
-
|
|
|
|
452,385
|
|
Assets
from continuing operations
|
|
|
2,151,734
|
|
|
|
1,254,693
|
|
|
|
-
|
|
|
|
3,406,427
|
|
13.
Subsequent Events
The
CARES Act was enacted on March 27, 2020. Among the provisions contained in the CARES Act was the creation of the Paycheck Protection
Program (“PPP”) that provides for under the Small Business Administration (“SBA”) Section 7(a) loans for
qualified small businesses. PPP loan proceeds are available to be used to pay for payroll costs, including salaries, commissions,
and similar compensation, group health care benefits, and paid leaves, rent, utilities and interest on certain other outstanding
debt. The amount that will be forgiven will be calculated in part with reference to the Company’s full-time headcount during
the eight-week period following the funding of the PPP loan. The Company applied for the PPP loan and on May 5, 2020, the Company
received total proceeds of $651,077 from the SBA. In accordance with the loan forgiveness requirements under the CARES Act, the
Company intends to use the proceeds from the PPP Loan primarily for payroll costs, rent and utilities, thus the Company anticipates
that 100% of the loan will be forgiven.
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis
of Presentation
This
MD&A should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto,
and the audited consolidated financial statements and notes thereto included in our 2019 Form 10-K.
Forward-looking
statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause
actual results to differ materially from those projected. Refer to the “Forward-Looking Statements” section of this
MD&A and Item 1A. Risk Factors of our 2019 Form 10-K for a discussion of these risks and uncertainties.
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 two 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, and (ii) National Association of Professional Women (“NAPW Network”),
a women-only professional networking organization. On March 4, 2020 the Board decided to discontinue all of the Company’s
operations in the People’s Republic of China, ( “China Operations”), which focused on providing tools,
products and services in China to 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.
During
the three months ended March 31, 2020 our PDN Network and NAPW Network businesses represented 61% and 39% of our revenues. As
of March 31, 2020, we had approximately 10.8 million registered users in our PDN Network and approximately 948,000 registered
users, or members, in the NAPW Network. Included in 948,000 NAPW Network registered users, there were 5,000 and 9,000 paid members
as of March 31, 2020 and 2019. 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.
On
March 4, 2020, our Board of Directors (the “Board”) decided to discontinue all operations in China. The resolution
approved by the Board does not contemplate a sale of the business unit or a sale of any assets to a third-party for its China
operations, but to effectively cease operations, which will commence during the second quarter of 2020. Accordingly, all historical
financial results associated with the China operations have been reclassified to discontinued operations and current and prior
period financial results have been reclassified. China operations were previously disclosed as a reportable operating segment
as “China Operations”.
Impact
of COVID-19
The
outbreak of the novel coronavirus (COVID-19) has resulted and will continue to result in disruptions to our business and operations.
In March 2020, we began to experience reductions in new memberships and enrollment renewals due to COVID-19 as customers deferred
our services due to financial and economic concerns. Additionally, revenues associated with our events business may be delayed
or cancelled due to social distancing measures currently in place as well as travel restrictions. General business and customer
financial uncertainty may negatively impact new and existing customers that could result in a reduction in expected revenues and
an increase in certain costs.
We
are focused on ensuring that our employees are safe and transitioned our workforce to work from home. The extent of the impact
of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration,
severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by
governmental authorities are uncertain and cannot be predicted.
We
believe that our existing cash balances will provide us the necessary capital to navigate the COVID-19 pandemic.
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.
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.
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.
Recruitment
Services. We provide recruitment services through PDN Network to medium and large employers 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.
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.
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 ability to post recruitment advertising and job openings. We generate
revenue from fees charged for those postings.
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. Costs of producing wall plaques, hosting member conferences and
local chapter meetings are also included in the cost of revenue for NAPW Network.
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 as of the periods presented:
|
|
As
of March 31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
PDN
Network Registered Users (1)
|
|
|
10,826
|
|
|
|
10,695
|
|
|
|
1.2
|
%
|
NAPW
Network Total Membership (2)
|
|
|
948
|
|
|
|
952
|
|
|
|
-0.4
|
%
|
(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 #17 —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, 2019 (the “2019 Annual Report” as filed with the SEC on May 4, 2020).
(2)
Includes both Paid Members and Unpaid Members. There were 5,000 and 9,000 Paid Members as of March 31, 2020 and 2019.
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 for the three months ended
March 31, 2020 and 2019, the most directly comparable GAAP measure reported in our consolidated financial statements:
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in
thousands)
|
|
Loss
from Continuing Operations
|
|
$
|
(1,422
|
)
|
|
$
|
(804
|
)
|
Stock-based
compensation
|
|
|
19
|
|
|
|
8
|
|
Litigation
settlement reserve
|
|
|
450
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
52
|
|
|
|
217
|
|
Interest
expense
|
|
|
-
|
|
|
|
3
|
|
Interest
and other income
|
|
|
1
|
|
|
|
-
|
|
Income
tax benefit
|
|
|
(6
|
)
|
|
|
(66
|
)
|
Adjusted
EBITDA
|
|
$
|
(906
|
)
|
|
$
|
(642
|
)
|
Results
of Operations
Revenues
Total
Revenues
The
following tables set forth our revenue for the periods presented. The period-to-period comparison of financial results is not
necessarily indicative of future results.
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
fees and related services
|
|
$
|
384
|
|
|
$
|
794
|
|
|
$
|
(410
|
)
|
|
|
-51.6
|
%
|
Recruitment
services
|
|
|
567
|
|
|
|
474
|
|
|
|
93
|
|
|
|
19.6
|
%
|
Products
sales and other
|
|
|
1
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
-66.7
|
%
|
Consumer
advertising and marketing solutions
|
|
|
30
|
|
|
|
36
|
|
|
|
(6
|
)
|
|
|
-16.7
|
%
|
Total
revenues
|
|
$
|
982
|
|
|
$
|
1,307
|
|
|
$
|
(325
|
)
|
|
|
-24.9
|
%
|
Total
revenues decreased $325,000, or 24.9%, from $1,307,000 during the three months ended March 31, 2019, to $982,000 during the three
months ended March 31, 2020. The decrease was primarily attributable to a $410,000 decline in new membership and related services
revenues in the current period, partially offset by a $93,000 increase in recruitment revenues during the three months ended March
31, 2020.
Revenues
by Segment
The
following table sets forth each operating segment’s revenues for the periods presented. The period-to-period comparison
is not necessarily indicative of future results.
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
PDN
Network
|
|
$
|
597
|
|
|
$
|
510
|
|
|
$
|
87
|
|
|
|
17.1
|
%
|
NAPW
Network
|
|
|
385
|
|
|
|
797
|
|
|
|
(412
|
)
|
|
|
-51.7
|
%
|
Total
revenues
|
|
$
|
982
|
|
|
$
|
1,307
|
|
|
$
|
(325
|
)
|
|
|
-24.9
|
%
|
During
the three months ended March 31, 2020, our PDN Network generated $597,000 in revenues compared to $510,000 in revenues during
the three months ended March 31, 2019, an increase of $87,000 or 17.1%. The increase in revenues was primarily of an increase
in recruitment revenues generated in the current period.
During
the three months ended March 31, 2020, our NAPW Network revenues were $385,000, compared to revenues of $797,000 during the three
months ended March 31, 2019, a decrease of $412,000 or 51.7%. The decrease in revenues was primarily due to the effects of staffing
reductions in our sales force during the first quarter of 2019, which resulted in a corresponding decline in customer lead generation
and membership enrollment and renewals.
Costs
and Expenses
The
following tables set forth our costs and expenses for the periods presented. The period-to-period comparison of financial results
is not necessarily indicative of future results.
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
$
|
173
|
|
|
$
|
184
|
|
|
$
|
(11
|
)
|
|
|
-6.0
|
%
|
Sales
and marketing
|
|
|
525
|
|
|
|
696
|
|
|
|
(171
|
)
|
|
|
-24.6
|
%
|
General
and administrative
|
|
|
1,661
|
|
|
|
1,078
|
|
|
|
583
|
|
|
|
54.1
|
%
|
Depreciation
and amortization
|
|
|
52
|
|
|
|
217
|
|
|
|
(165
|
)
|
|
|
-76.0
|
%
|
Total
cost and expenses:
|
|
$
|
2,411
|
|
|
$
|
2,175
|
|
|
$
|
236
|
|
|
|
10.9
|
%
|
Total
costs and expenses increased during the three months ended March 31, 2020 to $2,411,000 compared to $2,175,000 during the three
months ended March 31, 2019. The increase was primarily the result of $450,000 litigation settlement reserve and $251,000 in higher
legal and accounting fees, partially offset by lower intangible amortization expense of $165,000 in the current period. The litigation
settlement reserve is reflected in our Corporate Overhead segment in general and administrative expenses.
Costs
and Expenses by Segment
The
following table sets forth each operating segment’s costs and expenses for the periods presented. The period-to-period comparison
is not necessarily indicative of future results.
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
PDN
Network
|
|
$
|
747
|
|
|
$
|
681
|
|
|
$
|
66
|
|
|
|
9.7
|
%
|
NAPW
Network
|
|
|
453
|
|
|
|
905
|
|
|
|
(452
|
)
|
|
|
-49.9
|
%
|
Corporate
Overhead
|
|
|
1,211
|
|
|
|
589
|
|
|
|
622
|
|
|
|
105.6
|
%
|
Total
cost and expenses:
|
|
$
|
2,411
|
|
|
$
|
2,175
|
|
|
$
|
236
|
|
|
|
10.9
|
%
|
Costs
and expenses decreased $452,000, or 49.9%, in our NAPW Network segment primarily as a result of lower intangible amortization
expense of $165,000, $95,000 decrease in sales and marketing expenses as a result of staffing reductions, a $56,000 decrease in
digital advertising and marketing initiatives and $50,000 in lower general and administrative personnel costs.
Costs
and expenses increased $66,000, or 9.7%, in the PDN Network segment primarily due to an increase in bad debt expense of $28,000
and $11,000 in higher rent expenses.
Corporate
overhead expenses increased $622,000 during the three months ended March 31, 2020 primarily as a result of a litigation settlement
reserve of $450,000 recorded in the first quarter of 2020 in addition to $251,000 in higher legal and accounting fees.
Operating
Expenses
Cost
of revenues: Cost of revenues during the three months ended March 31, 2020 was $173,000, a decrease of $11,000, or 6.0%, from
$184,000 during the three months ended March 31, 2019 as a result of lower revenues of $325,000, or 24.9%, which resulted in a
corresponding decrease in cost of revenue.
Sales
and marketing expense: Sales and marketing expense during the three months ended March 31, 2020 was $525,000, a decrease of
$171,000, or 24.6%, from $696,000 during the three months ended March 31, 2019. The decrease is mainly attributable to a decrease
of $95,000 in personnel cost, a $36,000 reduction in digital marketing spending and $20,000 in lower branding and marketing costs
in the current period.
General
and administrative expense: General and administrative expenses increased by $583,000, or 54.1%, to $1,661,000 during the
three months ended March 31, 2020. The increase was a result of a litigation settlement reserve of $450,000 recorded in the first
quarter of 2020, a $251,000 increase in legal and accounting fees, partially offset by a reduction of $133,000 in personnel costs.
Depreciation
and amortization expense: Depreciation and amortization expense during the three months ended March 31, 2020 was $52,000,
compared to $217,000 during the three months ended March 31, 2019, a decrease of $165,000, or 76.0%. The decrease was primarily
attributable to $165,000 in lower intangible amortization expense due to a $2,796,000 impairment charge recorded in the fourth
quarter of 2018 in our NAPW segment.
Income
Tax Benefit
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
$
|
(6
|
)
|
|
$
|
(66
|
)
|
|
$
|
60
|
|
|
|
-90.9
|
%
|
During the three months
ended March 31, 2020 and 2019, we recorded a benefit for income tax of $6,000 and $66,000, respectively. The decrease in
income tax benefit during the current period was primarily due to a reduction in a discrete tax item associated with stock-based
compensation expense in addition to a reduction in our valuation allowance
Discontinued
Operations
In
March 2020, our Board decided to suspend all China operations generated by the former CEO, Michael Wang. The results of operations
for China operations are presented in the statements of operation and comprehensive loss as loss from discontinued operations.
In May 2018, we sold Noble Voice to a long-time customer of the Company and exited the business segment previously conducted by
Noble Voice. For the three months ended March 31, 2019, results from discontinued operations incudes costs and expenses associated
with Noble Voice.
The
following table presents results from discontinued operations for the three months ended March 31, 2020 and 2019:
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
7
|
|
|
|
17
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
4
|
|
Sales
and marketing
|
|
|
2
|
|
|
|
85
|
|
General
and administrative
|
|
|
61
|
|
|
|
283
|
|
Non-operating
income (expense)
|
|
|
-
|
|
|
|
(6
|
)
|
Loss
from discontinued operations before income tax
|
|
|
(70
|
)
|
|
|
(356
|
)
|
Income
tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
Net
loss from discontinued operations
|
|
$
|
(70
|
)
|
|
$
|
(356
|
)
|
Net
loss
The
following table sets forth each operating segment’s net income or loss for the periods presented. The period-to-period comparison
is not necessarily indicative of future results.
|
|
Three
Months Ended March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
PDN
Network
|
|
$
|
(148
|
)
|
|
$
|
(161
|
)
|
|
$
|
13
|
|
|
|
-8.1
|
%
|
NAPW
Network
|
|
|
(68
|
)
|
|
|
(100
|
)
|
|
|
32
|
|
|
|
-32.0
|
%
|
Corporate
Overhead
|
|
|
(1,206
|
)
|
|
|
(543
|
)
|
|
|
(663
|
)
|
|
|
122.1
|
%
|
Consolidated
net loss from continuing operations
|
|
$
|
(1,422
|
)
|
|
$
|
(804
|
)
|
|
$
|
(618
|
)
|
|
|
76.9
|
%
|
Consolidated
Net Loss from Continuing Operations. As the result of the factors discussed above, during the three months ended March 31,
2020, we incurred a net loss of $1,422,000 from continuing operations, an increase of $618,000 or 76.9%, compared to a net loss
of $804,000 during the three months ended March 31, 2019.
NAPW
Network Net Loss. During the three months ended March 31, 2020, we incurred a net loss of $68,000, compared to a net loss
$100,000 during the three months ended March 31, 2019. The decrease in net loss was primarily attributable to a $412,000 in lower
revenues in the current period, which was partially offset by a $165,000 decrease in intangible amortization, $95,000 decrease
in sales and marketing personnel costs, a $56,000 decrease in digital advertising and marketing expenses and a $50,000 decrease
in general and administrative personnel costs.
PDN
Network Net Loss. During the three months ended March 31, 2020, we incurred a net loss of $148,000 compared to the net loss
of $161,000 incurred during the three months ended March 31, 2019. This decrease in net loss was primarily attributable to lower
revenues in the current year, partially offset by lower personnel costs.
Corporate
Overhead. During the three months ended March 31, 2020, we incurred a net loss of $1,206,000, an increase of $663,000, compared
to a net loss of $543,000 incurred during the three months ended March 31, 2019. The increase in net loss was primarily a result
of a litigation settlement reserve of $450,000 recorded in the first quarter of 2020, $251,000 increase in legal and accounting
fees, which was partially offset by a reduction of $133,000 in personnel costs.
Liquidity
and Capital Resources
The
following table summarizes our liquidity and capital resources as of March 31, 2020 and December 31, 2019:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
$
|
1,555
|
|
|
$
|
634
|
|
Working
capital (deficiency)
|
|
$
|
(1,741
|
)
|
|
$
|
(2,114
|
)
|
As of March 31, 2020,
we had cash and cash equivalents of $1,555,000 compared to cash and cash equivalents of $634,000 at December 31, 2019. Our principal
sources of liquidity are our cash and cash equivalents, including net proceeds from the issuances of common stock. As of March
31, 2020, we had a working capital deficiency of approximately $1,741,000, compared to a working capital deficiency of
approximately $2,114,000 as of December 31, 2019. We had an accumulated deficit of approximately $90,163,000 at March 31, 2020.
During the three months ended March 31, 2020, we generated a net loss from continuing operations of approximately $1,422,000 and
used cash from continuing operations of approximately $574,000.
While
we have aggressively reduced operating and overhead expenses, and while we continue to focus on our overall profitability, we
have continued to generate negative cash flows from operations, and we expect to incur net losses for the foreseeable future,
especially considering the negative impact COVID-19 will have on our liquidity and financial position. These conditions raise
substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on
our ability to further implement our business plan, raise capital, and generate revenues. The consolidated financial statements
do not include any adjustments that might be necessary if we unable to continue as a going concern.
We
are closely monitoring operating costs and capital requirements. Our Management also made efforts in 2019 and 2018 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 overseeing travel and other expenses, and significantly reducing the cash
compensation for independent board directors. 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
March 22, 2020, we entered into an agreement with Malven Group Limited, a company established under the laws of the British Virgin
Islands (“Malven”), in connection with the purchase by Malven of 1,939,237 shares of our common stock at a price of
$0.7735 per share for gross proceeds of $1,500,000. The closing of the transaction took place on March 31, 2020.
Due
to COVID-19 and the financial impact and business interruption that this pandemic will have, we applied for the Paycheck Protection
Program (“PPP”) under the Small Business Administration (“SBA”) Section 7(a) loans for qualified small
businesses. On May 5, 2020, we received total proceeds of $651,077 from the SBA. In accordance with the loan forgiveness requirements
under the SBA CARES Act, we intend to use the proceeds from the PPP loan primarily for payroll costs, rent and utilities and we
anticipate that the PPP loan will be forgiven by the SBA upon meeting the loan requirements under the PPP.
We
currently anticipate that our 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 fund our operations, we
will need to increase revenues or raise capital by the issuance of stock. 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.
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 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 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.
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash provided
by (used in) continued operations
|
|
(in
thousands)
|
|
Operating
activities
|
|
$
|
(574
|
)
|
|
$
|
(828
|
)
|
Investing
activities
|
|
|
(5
|
)
|
|
|
-
|
|
Financing
activities
|
|
|
1,500
|
|
|
|
373
|
|
Effect
of exchange rate fluctuations on cash and cash equivalents
|
|
|
(15
|
)
|
|
|
21
|
|
Cash
provided by (used in) discontinued operations
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
16
|
|
|
|
365
|
|
Investing
activities
|
|
|
-
|
|
|
|
(4
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
922
|
|
|
$
|
(73
|
)
|
Cash
and Cash Equivalents
The
Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible
to known amounts of cash and have original maturities of three months or less.
Net
Cash Used in Operating Activities
Net
cash used in operating activities from continuing operations during the three months ended March 31, 2002 was $574,000. We had
a net loss of $1,422,000 during the three months ended March 31, 2020, which included a non-cash litigation settlement reserve
of $450,000, depreciation of amortization expense of $52,000 and amortization of right-of-use assets of $39,000, which was partially
offset by payments of lease obligations of $46,000. Changes in operating assets and liabilities used $339,000 of cash during the
three months ended March 31, 2020, consisting primarily of increases in accounts receivable, accounts payable, deferred revenue
and accrued expenses, partially offset by decreases in deferred revenue and accrued expenses.
Net
cash used in operating activities from continuing operations for the three months ended March 31, 2019 was $828,000. We had a
net loss of $804,000 during the three months ended March 31, 2019, which included depreciation and amortization expense of $217,000
and amortization of right-of-use assets of $38,000, which was partially by a deferred tax benefit of $69,000 and payments of lease
obligations of $44,000. Changes in operating assets and liabilities used $179,000 of cash during the three months ended March
31, 2019, consisting primarily of decreases in deferred revenue, accounts payable, prepaid expenses and accrued expenses, partially
offset by increases in accounts receivable.
Net
Cash Used in Investing Activities
Net
cash used in investing activities from continuing operations during the three months ended March 31, 2020 was $4,500, which consisted
of investments in developed technology and computer equipment purchases.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities from continuing operations during the three months ended March 31, 2020 was $1,500,000 and
which reflected proceeds from the sale of common stock. On March 22, 2020, we entered into an agreement with Malven Group Limited,
a company established under the laws of the British Virgin Islands, in connection with the purchase of 1,939,237 shares of our
common stock at a price of $0.7735 per share for gross proceeds of $1,500,000. The closing of the transaction took place on March
30, 2020.
Net
cash provided by financing activities from continuing operations during the three months ended March 31, 2019 was $373,000, consisting
of $373,000 in gross proceeds from the sale of 203,963 shares of our common stock at a purchase price ranging from $1.42 to $3.85
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.
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
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.
While
our significant accounting policies are more fully described in Note 3 to our consolidated financial statements included at the
end of this Annual Report, we believe that the following accounting policies are the most critical to aid you in fully understanding
and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation
of our consolidated financial statements.
Accounts
Receivable
Our
policy is to reserve for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We periodically review our accounts receivable to determine whether an allowance for doubtful accounts is
necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may
be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
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.
Capitalized
Technology Costs
We
account for capitalized technology costs in accordance with ASC 350-40, Internal-Use Software (“ASC 350-40”). In accordance
with ASC 350-40, we capitalize certain external and internal computer software costs incurred during the application development
stage. The application development stage generally includes software design and configuration, coding, testing and installation
activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is
probable that such expenditures will result in additional functionality. Capitalized software costs are amortized over the estimated
useful lives of the software assets on a straight-line basis, generally not exceeding three years.
Business
Combinations
ASC
805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to
all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes
principles and requirements for how the acquirer : a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. Accounting for acquisitions
requires the Company to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date
fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date
fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately
value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments
to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement
period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments
are recorded to the consolidated statements of comprehensive loss.
Revenue
Recognition
Our
principal sources of revenue are recruitment revenue, consumer marketing and consumer advertising revenue, membership subscription
fees, and product sales. Recruitment revenue includes revenue recognized from direct sales to customers for recruitment services
and events, as well as revenue from our direct ecommerce sales. Revenues from recruitment services are recognized when the services
are performed, evidence of an arrangement exists, the fee is fixed or determinable and collectability is probable. Our recruitment
revenue is derived from 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.
Consumer
marketing and consumer advertising revenue is recognized either based upon a fixed fee for revenue sharing agreements in which
payment is required at the time of posting, or billed based upon the number of impressions (the number of times an advertisement
is displayed) recorded on the websites as specified in the customer agreement.
Revenue
generated from NAPW Network membership subscriptions is recognized ratably over the 12-month membership period, although members
pay their annual fees at the commencement of the membership period. 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 the fees are collected. 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.
Recent
Accounting Pronouncements
See
Note 3 to our financial statements.