ITEM
1.
|
FINANCIAL
STATEMENTS
|
Professional
Diversity Network, Inc.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Amounts related to variable interest entity of $341,800 and $683,043 as of March 31, 2019 and December 31, 2018, respectively)
|
|
$
|
793,863
|
|
|
$
|
1,441,607
|
|
Accounts receivable, net
|
|
|
445,821
|
|
|
|
816,698
|
|
Incremental direct costs
|
|
|
48,154
|
|
|
|
20,797
|
|
Prepaid expenses and other current assets
|
|
|
483,426
|
|
|
|
350,906
|
|
Current assets from discontinued operations
|
|
|
26,539
|
|
|
|
126,270
|
|
Total current assets
|
|
|
1,797,803
|
|
|
|
2,756,278
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
67,273
|
|
|
|
83,608
|
|
Capitalized technology, net
|
|
|
169,626
|
|
|
|
194,833
|
|
Goodwill
|
|
|
339,451
|
|
|
|
339,451
|
|
Intangible assets, net
|
|
|
837,774
|
|
|
|
1,020,942
|
|
Right-of-use assets
|
|
|
353,486
|
|
|
|
-
|
|
Merchant reserve
|
|
|
760,849
|
|
|
|
760,849
|
|
Security deposits
|
|
|
90,574
|
|
|
|
82,139
|
|
Total assets
|
|
$
|
4,416,836
|
|
|
$
|
5,238,100
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,676,620
|
|
|
$
|
1,843,688
|
|
Accrued expenses
|
|
|
1,063,914
|
|
|
|
989,626
|
|
Deferred revenue
|
|
|
2,254,170
|
|
|
|
2,460,436
|
|
Note Payable – related party
|
|
|
207,118
|
|
|
|
500,000
|
|
Revolving Credit Facility– related party
|
|
|
292,882
|
|
|
|
-
|
|
Lease liability, current portion
|
|
|
300,456
|
|
|
|
-
|
|
Current liabilities from discontinued operations
|
|
|
303,794
|
|
|
|
346,528
|
|
Total current liabilities
|
|
|
6,098,954
|
|
|
|
6,140,278
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
122,824
|
|
|
|
194,786
|
|
Deferred rent
|
|
|
-
|
|
|
|
13,742
|
|
Other liabilities
|
|
|
84
|
|
|
|
82
|
|
Lease liability, non-current portion
|
|
|
60,910
|
|
|
|
-
|
|
Long-term liabilities from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
6,282,772
|
|
|
|
6,348,888
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 45,000,000 shares authorized; 5,060,176 shares and 4,856,213 shares issued as of March 31, 2019 and December 31, 2018, respectively; and 5,059,128 shares and 4,855,165 shares outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
50,602
|
|
|
|
48,562
|
|
Additional paid in capital
|
|
|
84,108,048
|
|
|
|
83,728,903
|
|
Accumulated other comprehensive loss
|
|
|
(1,305
|
)
|
|
|
(24,340
|
)
|
Accumulated deficit
|
|
|
(85,986,164
|
)
|
|
|
(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
|
|
|
(1,865,936
|
)
|
|
|
(1,110,788
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,416,836
|
|
|
$
|
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
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
829,420
|
|
|
$
|
1,612,221
|
|
Recruitment services
|
|
|
474,260
|
|
|
|
621,415
|
|
Product sales and other
|
|
|
2,812
|
|
|
|
3,657
|
|
Education and training
|
|
|
4,069
|
|
|
|
6,471
|
|
Consumer advertising and marketing solutions
|
|
|
35,716
|
|
|
|
69,734
|
|
Total revenues
|
|
|
1,346,277
|
|
|
|
2,313,498
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
187,581
|
|
|
|
285,833
|
|
Sales and marketing
|
|
|
780,747
|
|
|
|
1,093,124
|
|
General and administrative
|
|
|
1,358,556
|
|
|
|
2,351,931
|
|
Depreciation and amortization
|
|
|
221,422
|
|
|
|
679,761
|
|
Total costs and expenses
|
|
|
2,548,306
|
|
|
|
4,410,649
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,202,029
|
)
|
|
|
(2,097,151
|
)
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,133
|
)
|
|
|
-
|
|
Interest and other income
|
|
|
-
|
|
|
|
890
|
|
Other income (expense)
|
|
|
-
|
|
|
|
22,558
|
|
Other income, net
|
|
|
(8,133
|
)
|
|
|
23,448
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense (benefit)
|
|
|
(1,210,162
|
)
|
|
|
(2,073,703
|
)
|
Income tax expense (benefit)
|
|
|
(65,633
|
)
|
|
|
(249,050
|
)
|
Loss from continuing operations
|
|
|
(1,144,529
|
)
|
|
|
(1,824,653
|
)
|
Loss from discontinued operations (net of tax benefit of $1,211, and $35,036, in the three months ended March 31, 2019 and 2018, respectively)
|
|
|
(14,840
|
)
|
|
|
(209,760
|
)
|
Net loss
|
|
|
(1,159,369
|
)
|
|
|
(2,034,413
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
(1,159,369
|
)
|
|
|
(2,034,413
|
)
|
Foreign currency translation adjustment
|
|
|
23,035
|
|
|
|
76,708
|
|
Comprehensive loss
|
|
$
|
(1,136,334
|
)
|
|
$
|
(1,957,705
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.23
|
)
|
|
|
(0.43
|
)
|
Discontinued operations
|
|
|
(0.00
|
)
|
|
|
(0.05
|
)
|
Net loss
|
|
$
|
(0.23
|
)
|
|
$
|
(0.48
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares used in computing net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
4,969,230
|
|
|
|
4,221,620
|
|
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)
|
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(1,144,529
|
)
|
|
$
|
(1,824,653
|
)
|
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities– continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
221,422
|
|
|
|
679,761
|
|
Deferred tax expense (benefit)
|
|
|
(65,633
|
)
|
|
|
(58,907
|
)
|
Amortization of right-of-use asset
|
|
|
86,304
|
|
|
|
-
|
|
Accretion of lease liability
|
|
|
3,902
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
8,289
|
|
|
|
118,398
|
|
Provision for bad debt
|
|
|
-
|
|
|
|
560
|
|
Write-off of property and equipment
|
|
|
581
|
|
|
|
51,804
|
|
Payment of lease obligations
|
|
|
(93,758
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities, net of effects of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
370,877
|
|
|
|
423,490
|
|
Prepaid expenses and other current assets
|
|
|
(131,010
|
)
|
|
|
(90,187
|
)
|
Incremental direct costs
|
|
|
(27,357
|
)
|
|
|
77,493
|
|
Accounts payable
|
|
|
(172,775
|
)
|
|
|
(7,122
|
)
|
Accrued expenses
|
|
|
76,199
|
|
|
|
(299,869
|
)
|
Deferred revenue
|
|
|
(211,227
|
)
|
|
|
(605,110
|
)
|
Deferred rent
|
|
|
-
|
|
|
|
(7,961
|
)
|
Other liabilities
|
|
|
-
|
|
|
|
(26,161
|
)
|
Net cash used in operating activities– continuing operations
|
|
|
(1,078,714
|
)
|
|
|
(1,568,464
|
)
|
Net cash provided by (used in) operating activities – discontinued operations
|
|
|
40,945
|
|
|
|
(196,012
|
)
|
Net cash used in operating activities
|
|
|
(1,037,769
|
)
|
|
|
(1,764,476
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Costs incurred to develop technology
|
|
|
-
|
|
|
|
(13,261
|
)
|
Purchases of property and equipment
|
|
|
3,351
|
|
|
|
-
|
|
Security deposit
|
|
|
(6,691
|
)
|
|
|
(1,494
|
)
|
Net cash (used in) provided by investing activities– continuing operations
|
|
|
(3,340
|
)
|
|
|
(14,755
|
)
|
Net cash provided by investing activities – discontinued operations
|
|
|
-
|
|
|
|
(13,322
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(3,340
|
)
|
|
|
(28,077
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the sales of common stock
|
|
|
372,896
|
|
|
|
1,486,954
|
|
Repayment of note payable - related party
|
|
|
(292,882
|
)
|
|
|
-
|
|
Proceeds from line of credit - related party
|
|
|
292,882
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
372,896
|
|
|
|
1,486,954
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
20,469
|
|
|
|
86,906
|
|
Net decrease in cash and cash equivalents
|
|
|
(647,745
|
)
|
|
|
(218,693
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,441,607
|
|
|
|
2,926,088
|
|
Cash and cash equivalents, end of period
|
|
$
|
793,862
|
|
|
$
|
2,707,395
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of other cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
6,966
|
|
|
$
|
65,689
|
|
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”), Noble Voice LLC and Compliant Lead LLC (collectively,
“Noble Voice”), 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 an exclusive women-only professional networking
organization, 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.
On
May 25, 2018, the Company sold Noble Voice to a long-time customer of the Company and exited the business segment conducted by
Noble Voice. See Note 3 for additional information.
2.
Going Concern and Management’s Plans
At
March 31, 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 three months of 2019.
The
Company had an accumulated deficit of approximately $85,986,000 at March 31, 2019. During the three months ended March 31, 2019,
the Company generated a net loss from continuing operations of approximately $1,145,000, used cash in continuing operations of
approximately $1,079,000, and the Company expects that it will continue to generate operating losses for the foreseeable
future. At March 31, 2019, the Company had a cash balance of approximately $794,000. Total revenues were approximately
$1,346,000 and $2,313,000 for the three months ended March 31, 2019 and 2018, respectively. The Company had working capital deficiency
of approximately $4,301,000 and $3,384,000 at March 31, 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 quarter 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 16, 2018, the Company entered
into a revolving credit facility agreement with GNet Tech Holdings, a related party through one of the Company’s shareholders,
Cosmic Forward Limited (“CFL”), 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. At March 31,
2019, the Company drew $293,000 under this facility. At May 15, 2019, approximately $1,707,000 was available for us to draw.
From January 9, 2019 to April 2, 2019,
the Company sold an aggregate of 232,515 shares of its common stock at a purchase price ranging from $1.146 to $3.85 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 $479,931 under this private placement. All of the purchasers are
citizens of the People’s Republic of China.
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 fund its operations, the Company will
need to either raise capital by issuance of stock, or utilize a revolving credit facility with GNet; 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 March 31, 2019 we had a $761,000 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 March 31, 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:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
342
|
|
|
|
683
|
|
Total assets
|
|
$
|
1,204
|
|
|
|
1,180
|
|
Total liabilities
|
|
$
|
72
|
|
|
|
65
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Total net revenue
|
|
$
|
35
|
|
|
$
|
-
|
|
Net loss
|
|
$
|
(6
|
)
|
|
$
|
-
|
|
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 March 31, 2019, loss from discontinued operations was $15,000,
net of tax benefit of $1,000, compared to a loss of $210,000, net of tax benefit of $35,000 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 March 31, 2019, the
current assets from discontinued operations were $27,000, compared to $126,000 as of December 31, 2018. As of March 31, 2019,
current liabilities from discontinued operations were $304,000 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 March 31, 2019 and 2018, the Company incurred advertising and marketing expenses of approximately $185,000
and $322,000, respectively. These amounts are included in sales and marketing expenses in the accompanying condensed consolidated
statements of comprehensive loss. At March 31, 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 March
31, 2019 and 2018 excludes the potentially dilutive securities summarized in the table below because their inclusion would be
anti-dilutive.
|
|
As of March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants to purchase common stock
|
|
|
170,314
|
|
|
|
170,314
|
|
Stock options
|
|
|
409,126
|
|
|
|
246,564
|
|
Unvested Restricted stock units
|
|
|
83,057
|
|
|
|
15,544
|
|
Unvested restricted stock
|
|
|
4,886
|
|
|
|
-
|
|
Total dilutive securities
|
|
|
667,383
|
|
|
|
432,422
|
|
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 March 31, 2019, right of use assets
were $354,000, current lease obligations were $300,000, and non-current lease obligations were $61,000.
During the quarter ended March 31, 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.
Professional
Diversity Network, Inc.
|
Condensed
Consolidated Notes to Financial Statements (Unaudited)
|
4.
Capitalized Technology
Capitalized
technology, net is as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Capitalized cost:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,163,044
|
|
|
$
|
2,043,122
|
|
Additional capitalized cost
|
|
|
-
|
|
|
|
119,922
|
|
Balance, end of period
|
|
$
|
2,163,044
|
|
|
$
|
2,163,044
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
1,968,213
|
|
|
$
|
1,889,741
|
|
Provision for amortization
|
|
|
25,206
|
|
|
|
78,472
|
|
Balance, end of period
|
|
$
|
1,993,419
|
|
|
$
|
1,968,213
|
|
Capitalized Technology, net
|
|
$
|
169,625
|
|
|
$
|
194,831
|
|
Amortization
expense were approximately $25,000 and $16,000 for the three months ended March 31, 2019 and 2018, respectively, and are 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:
March 31, 2019
|
|
Useful Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Long-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Process
|
|
|
10
|
|
|
$
|
2,130,956
|
|
|
$
|
(1,711,816
|
)
|
|
$
|
419,140
|
|
Paid Member Relationships
|
|
|
5
|
|
|
|
803,472
|
|
|
|
(773,805
|
)
|
|
|
29,667
|
|
Member Lists
|
|
|
5
|
|
|
|
8,086,181
|
|
|
|
(7,787,614
|
)
|
|
|
298,567
|
|
Developed Technology
|
|
|
3
|
|
|
|
648,000
|
|
|
|
(648,000
|
)
|
|
|
-
|
|
Trade Name/Trademarks
|
|
|
4
|
|
|
|
440,000
|
|
|
|
(440,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
$
|
12,108,609
|
|
|
$
|
(11,361,235
|
)
|
|
|
747,374
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
837,774
|
|
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
|
|
|
382,904
|
|
2020
|
|
|
72,894
|
|
2021
|
|
|
72,894
|
|
2022
|
|
|
72,894
|
|
Thereafter
|
|
|
145,788
|
|
|
|
$
|
747,374
|
|
Amortization
expenses for the three months ended March 31, 2019 and 2018 were $183,000 and $619,000, respectively, and are 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)
|
6. Note Payable – Related Party
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 which the Company issued to GNet has been extended by one year from May 5,
2019 to May 5, 2020.
During the quarter ended March 31, 2019,
the Company repaid $292,882 of the Note.
At May 17, 2019, the remaining balance
of the Note was $207,118.
7. Revolving Credit Facility –
Related Party
On November 16, 2018, the Company entered
into a revolving credit facility agreement with GNet Tech Holdings, a related party through one of the Company’s shareholders,
Cosmic Forward Limited (“CFL”), 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. During the quarter
ended March 31, 2019, the Company drew $293,000 under this facility.
At May 17, 2019, approximately $1,707,000
was available for us to draw.
8
.
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 March 31, 2019, right of use assets
were $354,000, current lease obligations were $300,000, and non-current lease obligations were $61,000.
During the quarter ended March 31, 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, amounted to approximately $107,000 and $314,000 for
the three months ended March 31, 2019 and 2018, respectively, and 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 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, was filed with the court on Monday, March 25, 2019. The hearing on the motion
to dismiss has been scheduled for May 29, 2019. 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, and we are currently in the summary judgment 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.
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 feels, interest, and costs owing to the Petitioner. The
case is settled and both parties have agreed to a Stipulation and Order of Dismissal.
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 is a party to a proceeding captioned Jacqueline M. Jefferson v. Noble Voice, No. 440-2018-06979 (EEOC), filed with the
Equal Employment Opportunity Commission (“EEOC”) on July 10, 2018 and alleging violations of Title VII and the Equal
Pay Act of 1963, where an employee alleges she was terminated by the Company due to her age on May 25, 2018. Ms. Jefferson’s
termination was as a result of the sale of the Noble Voice business on May 25, 2018. The EEOC has closed its file on this charge
and we await to see if any private action will be filed by June 1, 2019.
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)
|
9.
Employment Agreements
James
Kirsch, formerly Co-Executive Chairman of the Company, was party to an employment contract with the Company dated September 24,
2014. As the Company previously reported in its March 8, 2018 Form 8-K, Mr. Kirsch tendered his resignation as Co-executive Chairman
on March 6, 2018. Mr. Kirsch’s decision to resign was due to his personal reasons and was not a result of any dispute with
the Company. No compensation was provided in connection with his departure.
Jiangping
(Gary) Xiao, formerly Chief Financial Officer of the Company, was party to an employment contract with the Company dated March
7, 2017. As the Company previously reported in its February 12, 2019 Form 8-K, Mr. Xiao tendered his resignation on February 6,
2019 as Chief Financial Officer, effective March 19, 2019. Mr. Xiao’s decision to resign was due to his personal reasons
and was not a result of any dispute with the Company. No compensation was provided in connection with his departure.
Jingbo
(James) Song, formerly Co-Executive Chairman of the Company, was party to an employment contract with the Company dated January
12, 2017. As the Company previously reported in its February 22, 2019 Form 8-K, Mr. Song tendered his resignation on February
20, 2019 as Executive Chairman of the Board of Directors and director of the Company, effective immediately. Also on February
20, 2019, the Board of Directors resolved to accept Mr. Song’s resignation with immediate effect. Mr. Song’s resignation
from the Board of Directors of the Company was for personal health reasons. Mr. Song served as a valued member of the Board since
November, 2016, and his decision to resign was not due to any disagreement with the Company. No compensation was provided in connection
with his departure.
On
March 11, 2019 (the “He Effective Date”), the Company entered into an employment agreement (the “He Employment
Agreement”) with Mr. 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 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.
10.
Income Taxes
The
effective income tax rate for the three months ended March 31, 2019 and 2018 was 5.4% and 12.0%, respectively, resulting in a
$66,000, and $249,000 income tax benefit, respectively. The difference in the effective income tax rate for the three months ended
March 31, 2019, compared to the three months ended March 31, 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 March 31, 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. Because of the complexity of these rules, and anticipated guidance from U.S. Treasury we will
continue to evaluate the impact on the Company’s financial statements. Therefore, we have not recorded any deferred taxes
related to GILTI and have not made a policy decision regarding whether to record deferred taxes on GILTI.
Professional
Diversity Network, Inc.
|
Condensed
Consolidated Notes to Financial Statements (Unaudited)
|
11.
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 three months ended March 31, 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
|
|
|
(120,313
|
)
|
|
|
2.88
|
|
|
|
|
|
|
|
|
|
Outstanding – March 31, 2019
|
|
|
409,126
|
|
|
$
|
7.78
|
|
|
|
8.4
|
|
|
$
|
80,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – March 31, 2019
|
|
|
330,959
|
|
|
$
|
9.01
|
|
|
|
8.2
|
|
|
$
|
32,710
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding – March 31, 2018
|
|
|
246,564
|
|
|
$
|
11.17
|
|
|
|
8.9
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – March 31, 2018
|
|
|
166,564
|
|
|
$
|
11.39
|
|
|
|
8.8
|
|
|
$
|
—
|
|
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 $6,000 and $88,000 for the three months ended March 31, 2019 and 2018,
respectively, related to stock option grants.
Total
unrecognized compensation expense related to unvested stock options at March 31, 2019 amounted to approximately $89,000 and is
expected to be recognized over a remaining weighted average period of 1.4 years.
Warrants
As
of March 31, 2019, there were 170,314 warrants outstanding and exercisable, with a weighted average exercise price of $32.44 per
share. The weighted average remaining contractual life of the warrants at March 31, 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 three months ended March 31, 2019.
No
compensation cost was recognized for the three months ended March 31, 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 three months of 2019, the Company granted 8,090 restricted stock units (“RSUs”) to a Board member The RSUs
vest one year after they were awarded, subject to continued service on the vesting date. The RSUs have no voting or dividend rights.
The fair value of the common stock on the date of grant were $3.09 per share, based upon the closing market price on the grant
dates. The aggregate grant date fair value of the combined awards amounted to $25,000.
A
summary of the restricted stock award activity for the three months ended March 31, 2019, and 2018 is as follows:
|
|
Number of
Shares
|
|
|
|
|
|
Unvested Outstanding - January 1, 2019
|
|
|
60,651
|
|
Granted
|
|
|
8,090
|
|
Forfeited
|
|
|
(22,730
|
)
|
Vested
|
|
|
-
|
|
Unvested Outstanding - March 31, 2019
|
|
|
46,011
|
|
|
|
Number
of
Shares
|
|
|
|
|
|
Unvested Outstanding - January 1, 2018
|
|
|
15,544
|
|
Granted
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
Vested
|
|
|
—
|
|
Unvested Outstanding - March 31, 2018
|
|
|
15,544
|
|
The
Company recorded non-cash compensation expenses of approximately $3,000 and $30,000 for the three months ended March 31, 2019
and 2018, respectively, related to restricted stock grants.
Total
unrecognized compensation expense related to unvested restricted stock and unvested restricted stock units at March 31, 2019 amounts
to approximately $56,000 and is expected to be recognized over a weighted average period of 0.4 year.
12.
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 months
ended March 31, 2019 and 2018:
|
|
Three Months Ended March 31, 2019
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate
Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
794,539
|
|
|
$
|
34,881
|
|
|
$
|
-
|
|
|
$
|
829,420
|
|
Recruitment services
|
|
|
474,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
474,260
|
|
Products sales and other
|
|
|
-
|
|
|
|
2,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,812
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
4,069
|
|
|
|
|
|
|
|
4,069
|
|
Consumer advertising and marketing solutions
|
|
|
35,716
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,716
|
|
Total revenues
|
|
|
509,976
|
|
|
|
797,351
|
|
|
|
38,950
|
|
|
|
-
|
|
|
|
1,346,277
|
|
(Loss) income from continuing operations
|
|
|
(171,476
|
)
|
|
|
(107,731
|
)
|
|
|
(334,847
|
)
|
|
|
(587,975
|
)
|
|
|
(1,202,029
|
)
|
Depreciation and amortization
|
|
|
15,741
|
|
|
|
201,442
|
|
|
|
4,239
|
|
|
|
-
|
|
|
|
221,422
|
|
Income tax expense (benefit)
|
|
|
(13,135
|
)
|
|
|
(8,129
|
)
|
|
|
-
|
|
|
|
(44,369
|
)
|
|
|
(65,633
|
)
|
Net (loss) income from continuing operations
|
|
|
(160,924
|
)
|
|
|
(99,602
|
)
|
|
|
(340,397
|
)
|
|
|
(543,606
|
)
|
|
|
(1,144,529
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
3,351
|
|
|
|
-
|
|
|
|
3,351
|
|
|
|
March 31, 2019
|
|
Goodwill
|
|
$
|
339,451
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
339,451
|
|
Intangible assets, net
|
|
|
90,400
|
|
|
|
747,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
837,774
|
|
Assets from continuing operations
|
|
|
1,610,239
|
|
|
|
1,705,760
|
|
|
|
1,074,298
|
|
|
|
-
|
|
|
|
4,390,297
|
|
Professional
Diversity Network, Inc.
|
Condensed
Consolidated Notes to Financial Statements (Unaudited)
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
PDN
Network
|
|
|
NAPW
Network
|
|
|
China
Operations
|
|
|
Corporate
Overhead
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
-
|
|
|
$
|
1,549,932
|
|
|
$
|
62,289
|
|
|
$
|
-
|
|
|
$
|
1,612,221
|
|
Recruitment services
|
|
|
621,415
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
621,415
|
|
Products sales and other
|
|
|
-
|
|
|
|
3,657
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,657
|
|
Education and training
|
|
|
-
|
|
|
|
-
|
|
|
|
6,471
|
|
|
|
-
|
|
|
|
6,471
|
|
Consumer advertising and marketing solutions
|
|
|
69,734
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,734
|
|
Total revenues
|
|
|
691,149
|
|
|
|
1,553,589
|
|
|
|
68,760
|
|
|
|
-
|
|
|
|
2,313,498
|
|
(Loss) income from continuing operations
|
|
|
(67,204
|
)
|
|
|
(766,055
|
)
|
|
|
(351,117
|
)
|
|
|
(912,775
|
)
|
|
|
(2,097,151
|
)
|
Depreciation and amortization
|
|
|
16,987
|
|
|
|
658,433
|
|
|
|
4,341
|
|
|
|
-
|
|
|
|
679,761
|
|
Income tax expense (benefit)
|
|
|
(8,773
|
)
|
|
|
(109,639
|
)
|
|
|
-
|
|
|
|
(130,638
|
)
|
|
|
(249,050
|
)
|
Net (loss) income from continuing operations
|
|
|
(52,524
|
)
|
|
|
(656,416
|
)
|
|
|
(333,576
|
)
|
|
|
(782,137
|
)
|
|
|
(1,824,653
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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)
|
13.
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.
From
April 1, 2019 to April 2, 2019, the Company sold an aggregate of 28,552 shares of its common stock at a purchase price ranging
from $3.70 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription.
As of the date of this quarterly report, the Company has received an aggregate gross proceeds of $107,036 under this private placement.
All of the purchasers are citizens of the People’s Republic of China.
On
April 16, 2019, the Company issued a press release announcing that the Company’s variable interest entity, Jiangxi PDN Culture
Media Co., Ltd. has signed a letter of intent to acquire 51% of the equity interests of Zhejiang Xili Valley Tourism Development
Co., Ltd., an affiliate of the Company’s partner in Guangzhou.
On
April 24, 2019, the Company received a letter from Nasdaq notifying the Company that it is not in compliance with the minimum
stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires
listed companies to maintain stockholders’ equity of at least $2.5 million. In the Company’s Annual Report on Form
10-K for the period ended December 31, 2018, the Company reported stockholders’ equity of $(1,110,788), which is below the
minimum stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). Further, as of April
24, 2019, the Company does not meet the alternatives of market value of listed securities or net income from continuing operations.
This notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market. Nasdaq has provided the
Company with 45 calendar days, or until June 8, 2019, to submit a plan to regain compliance with the minimum stockholders’
equity standard. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar
days from the date of the notification letter, or until October 21, 2019, to evidence compliance. The Company is presently evaluating
various courses of action to regain compliance and intends to timely submit a plan to Nasdaq to regain compliance with the Nasdaq
minimum stockholders’ equity standard.
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 which the Company issued to GNet has been extended by one
year from May 5, 2019 to May 5, 2020.
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.
On
May 25, 2018, the Company sold Noble Voice to a long-time customer of the Company and exited the business segment. The Company
retained all receivables and payables prior to the May 25, 2018 closing date and as a result of this divestiture, ceased operating
losses on that division immediately upon the sale. Management believes that education lead generation business is not important
to the Company’s long-term strategy and with the sale of the Noble Voice division, the Company is now able to focus on executing
its long term plan for its PDN jobs recruitment division and NAPW.
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
January of 2017, the Company established PDN Hong Kong through its two wholly-owned subsidiaries there and in March of 2017 the
Company established PDN China through its 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. During the first two quarters of 2017, we held seven events as part of our education and training business line’s
“Shared Economy” summit series, attracting over 7,800 paid attendees. Additionally, during the second quarter of 2017,
we held a selective marketing event to introduce IAW, the PDN China women’s networking business.
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). Additionally IAW China held its first IAW VIP China event at the Women’s Forum Global
Meeting, in Paris, France. Also, on December 2, 2017, PDN China held its largest education and training event of the year. The
event, “The International Capital Leadership Summit”, took place in Beijing, China. Among its many notable speakers
was Mr. Bruce Aust, Vice Chairman of the Nasdaq Exchange, who was featured at the event. 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).
Through
the first quarter of 2019, our PDN Network, NAPW Network, and China Operations businesses represented 37.9%, 59.2%, and 2.9% of
our revenues, respectively. As of March 31, 2019, we had approximately 10.7 million registered users in our PDN Network and approximately
952,000 registered users, or members, in the NAPW Network. Included in 952,000 NAPW Network registered users, there were 9,000,
and 22,000 paid members as of March 31, 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
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Percentage of revenue by product:
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
|
61.6
|
%
|
|
|
69.7
|
%
|
Recruitment services
|
|
|
35.2
|
%
|
|
|
26.8
|
%
|
Products sales and other
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
Education and training
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
Consumer advertising and consumer marketing solutions
|
|
|
2.7
|
%
|
|
|
3.0
|
%
|
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 99.6% and 99.8%, respectively,
of revenue attributable to the NAPW Network business segment for the three months ended March 31, 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 89.6%
and 90.6%, respectively, of revenue attributable to China Operations for the three months ended March 31, 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 93.0% and 89.9%, respectively, of revenue attributable to the PDN Network business
segment for the three months ended March 31, 2019 and 2018.
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 0.4% and 0.2%, respectively,
of revenue attributable to the NAPW Network business segment for the three months ended March 31, 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 10.4% and 9.4%, respectively, of the revenue attributable to
China Operations for the three months ended March 31, 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
7.0% and 10.1%, respectively, of the revenue attributable to the PDN Network business segment for the three months ended March
31, 2019 and 2018.
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 months ended March 31, 2019, we experienced losses as we continued our efforts to develop China Operations, reduce costs
and streamline our business. We realized a net loss from continuing operations of approximately $1,145,000, a $681,000 decrease
from the comparable prior year period. This decrease in net loss was primarily a result of a decrease of $992,000 in overall general
and administrative expenses, a decrease of $436,000 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 a decrease of $312,000 in overall
sales and marketing costs, partially offset by a decrease of $783,000 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 March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
PDN Network Registered Users (1)
|
|
|
10,695
|
|
|
|
10,529
|
|
|
|
1.6
|
%
|
NAPW Network Total Membership (2)
|
|
|
952
|
|
|
|
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 22,000 Paid Members as of March 31, 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
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Loss from Continuing Operations
|
|
$
|
(1,145
|
)
|
|
$
|
(1,825
|
)
|
Stock-based compensation expense
|
|
|
8
|
|
|
|
118
|
|
Depreciation and amortization
|
|
|
221
|
|
|
|
680
|
|
Interest Expense
|
|
|
8
|
|
|
|
-
|
|
Interest and other income
|
|
|
-
|
|
|
|
(1
|
)
|
Income tax expense (benefit)
|
|
|
(66
|
)
|
|
|
(249
|
)
|
Adjusted EBITDA
|
|
$
|
(974
|
)
|
|
$
|
(1,277
|
)
|
Results
of Operations
Revenues
Total
Revenues
The
following table sets 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
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership fees and related services
|
|
$
|
829
|
|
|
$
|
1,612
|
|
|
$
|
(783
|
)
|
|
|
(48.6
|
)%
|
Recruitment services
|
|
|
474
|
|
|
|
621
|
|
|
|
(147
|
)
|
|
|
(23.7
|
)%
|
Products sales and other
|
|
|
3
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(25.0
|
)%
|
Education and training
|
|
|
4
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
(33.3
|
)%
|
Consumer advertising and marketing solutions
|
|
|
36
|
|
|
|
70
|
|
|
|
(34
|
)
|
|
|
(48.6
|
)%
|
Total revenues
|
|
$
|
1,346
|
|
|
$
|
2,313
|
|
|
$
|
(967
|
)
|
|
|
(41.8
|
)%
|
Total
revenues decreased $967,000, or 41.8% for the three months ended March 31, 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 table sets 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
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
797
|
|
|
$
|
1,554
|
|
|
$
|
(756
|
)
|
|
|
(48.7
|
)%
|
PDN Network
|
|
|
510
|
|
|
|
691
|
|
|
|
(181
|
)
|
|
|
(26.2
|
)%
|
China
|
|
|
39
|
|
|
|
69
|
|
|
|
(30
|
)
|
|
|
(43.5
|
)%
|
Total revenues
|
|
$
|
1,346
|
|
|
$
|
2,313
|
|
|
$
|
(967
|
)
|
|
|
(41.8
|
)%
|
During
the three months ended March 31, 2019, our NAPW Network generated $797,000 in revenue from membership fees and related services
and product sales, compared to $1,554,000 for the same period in the prior year, a decrease of $756,000, or 48.7%. The decrease
was mainly attributable to reductions in NAPW sales staff from 19 sales representatives on average during the first three months
of 2018 to 7 sales representatives on average during the first 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 March 31, 2019, our PDN Network generated $510,000 in revenue, compared to $691,000 for the same period
in the prior year, a decrease of $181,000, or 26.2%. 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 March 31, 2019, our China Operations generated $39,000 in revenue, compared to $69,000 for the same period
in the prior year, a decrease of $30,000 or 43.6%. 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 table sets 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
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
189
|
|
|
$
|
286
|
|
|
$
|
(97
|
)
|
|
|
(33.9
|
)%
|
Sales and marketing
|
|
|
781
|
|
|
|
1,093
|
|
|
|
(312
|
)
|
|
|
(28.5
|
)%
|
General and administrative
|
|
|
1,359
|
|
|
|
2,351
|
|
|
|
(992
|
)
|
|
|
(42.2
|
)%
|
Depreciation and amortization
|
|
|
221
|
|
|
|
680
|
|
|
|
(459
|
)
|
|
|
(67.5
|
)%
|
Total costs and expenses
|
|
$
|
2,550
|
|
|
$
|
4,410
|
|
|
$
|
(1,860
|
)
|
|
|
(42.2
|
)%
|
During
the first three months ended March 31, 2019, total costs and expenses were $2,550,000, compared to $4,410,000 for same period
in the prior year, decrease of $1,860,000 or 42.2%. The decrease is primarily the result of $992,000 or 42.2% decrease in general
and administrative expenses, a $459,000 or 67.5% decrease in depreciation and amortization expenses, and a $312,000, or 28.5%
decrease in sales and marketing expenses.
Operating
Expenses
Cost
of revenue
: Cost of revenues decreased during the three months ended March 31, 2019 to $189,000, compared to $286,000 for
the same period in the prior year, a decrease of $97,000, or 33.9%. The decrease is
in tandem
with lower revenues.
Sales
and marketing expenses
: Sales and marketing expenses during the three months ended March 31, 2019 were $781,000, compared
to $1,093,000 for the same period in the prior year, a decrease of $312,000, or 28.5%. The decrease was mostly attributable to
a $130,000 reduction in lead spending in our NAPW segment, $109,000 decrease in personnel cost due to sales force reduction in
our NAPW segment, a $73,000 reduction in sales commission expenses, and overall better marketing cost management.
General
and administrative expenses
: General and administrative expenses for the three months ended March 31, 2019 were $1,359,000,
compared to $2,351,000 for the same period in the prior year, a decrease of $992,000 or 42.2%. The decrease was mainly attributable
to a $314,000 reduction in personnel costs, a $207,000 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 $110,000 decrease in stock
based compensation expenses, and $102,000 reduction in audit related expenses.
Depreciation
and amortization expenses
: Depreciation and amortization expenses for the three months ended March 31, 2019 were $221,000,
compared to $680,000 for the same period in the prior year, a decrease of $459,000 or 67.5%. The decrease 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 10 of this quarterly report.
Costs
and Expenses by Segment
The
following table sets 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
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
905
|
|
|
$
|
2,320
|
|
|
$
|
(1,415
|
)
|
|
|
(61.0
|
)%
|
PDN Network
|
|
|
681
|
|
|
|
758
|
|
|
|
(77
|
)
|
|
|
(10.2
|
)%
|
China
|
|
|
374
|
|
|
|
420
|
|
|
|
(46
|
)
|
|
|
(11.0
|
)%
|
Corporate Overhead
|
|
|
588
|
|
|
|
913
|
|
|
|
(325
|
)
|
|
|
(35.6
|
)%
|
Total costs and expenses
|
|
$
|
2,548
|
|
|
$
|
4,411
|
|
|
$
|
(1,863
|
)
|
|
|
(42.2
|
)%
|
NAPW
Network:
During the three months ended March 31, 2019, total costs and expenses in our NAPW segment were $905,000, compared
to $2,320,000 for the same period in the prior year, a decrease of $1,415,000 or 61.0%. 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 $342,000 decrease in personnel costs, a $207,000 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 $130,000
reduction in lead generation spending.
PDN
Network:
During the three months ended March 31, 2019, total costs and expenses in our PDN segment were $681,000, compared
to $758,000 for the same period in the prior year, a decrease of $77,000, or 10.2%. The decrease was primarily cost of revenues
and was in tandem with lower revenues.
China
Operations:
During the three months ended March 31, 2019, total costs and expenses in our China operations were $374,000,
compared to $420,000 for the same period in the prior year, a decrease of $46,000 or 11.0%. The primary reason for the decrease
in cost of sales was lower revenues.
Corporate
Overhead:
During the three months ended March 31, 2019, total costs and expenses incurred by our Corporate Overhead segment
were $588,000, compared to $913,000 for the same period in the prior year, a decrease of $325,000 or 35.6%. The decrease was primarily
a result of $110,000 decrease in stock based compensation expenses, and $102,000 reduction in audit related expenses.
Income
Tax Expense (Benefit)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Total
|
|
$
|
(66
|
)
|
|
$
|
(249
|
)
|
|
$
|
183
|
|
|
|
(73.5
|
)%
|
The
effective income tax rate for the three months ended March 31, 2019 and 2018 was 5.4% and 12.0%, respectively, resulting in a
$66,000, and $249,000 income tax benefit, respectively. The difference in the effective income tax rate for the three months ended
March 31, 2019, compared to the three months ended March 31, 2018, is mainly attributable to the decrease in tax rates pursuant
to the U.S. Tax Cuts and Jobs Act, an impairment charge recognized on NAPW’s goodwill, 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 March 31, 2019 and December 31, 2018.
Net
Loss from Continuing Operations by Segment
The
following table sets 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
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
(Dollars)
|
|
|
(Percent)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
NAPW Network
|
|
$
|
(100
|
)
|
|
$
|
(656
|
)
|
|
$
|
556
|
|
|
|
(84.7
|
)%
|
PDN Network
|
|
|
(161
|
)
|
|
|
(53
|
)
|
|
|
(108
|
)
|
|
|
205.8
|
%
|
China
|
|
|
(340
|
)
|
|
|
(334
|
)
|
|
|
(6
|
)
|
|
|
1.8
|
%
|
Corporate Overhead
|
|
|
(544
|
)
|
|
|
(782
|
)
|
|
|
238
|
|
|
|
(30.4
|
)%
|
Consolidated Net Loss from continuing operations
|
|
$
|
(1,145
|
)
|
|
$
|
(1,825
|
)
|
|
$
|
680
|
|
|
|
(37.3
|
)%
|
As
the result of the factors discussed above, during the three months ended March 31, 2019 we incurred a net loss from continuing
operations of $1,145,000, a decrease of 37.3% from net loss from continuing operations of $1,825,000 during the three months ended
March 31, 2018. The $680,000 decrease in net loss was primarily driven by a $992,000 decrease in general and administrative
expenses, a $459,000 decrease in depreciation and amortization expenses, and a $312,000 decrease in sales and marketing expenses,
partially offset by a $756,000 decrease in revenue from membership fees, related services at our NAPW segment.
NAPW
Network
. During the three months ended March 31, 2019, our NAPW segment incurred a net loss of $100,000, compared to a net
loss of $656,000 for the three months ended March 31, 2018. The $556,000 decrease in net loss 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 $342,000 decrease in personnel
costs, a $207,000 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, a $130,000 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 $756,000 decrease in revenues from membership fees.
PDN
Network
. During the three months ended March 31, 2019, our PDN segment generated a net loss of $161,000, compared to a net
loss of $53,000 for the three months ended March 31, 2018. The increase in net loss of $108,000 was mainly due to a $181,000 decrease
in revenues as a result of lower sales staffing and resources in 2019 compared to 2018, partially offset by lower costs and expenses
by $77,000, mainly cost of revenues.
China
Operations.
During the three months ended March 31, 2019, our China Operations incurred a net loss of $340,000, compared to
a net loss of $334,000 for the same period in the prior year. The increase in net loss of $6,000 was mainly a result of a $30,000
decrease in revenue, partially offset by lower cost of revenues.
Corporate
Overhead.
During the three months ended March 31, 2019, our Corporate Overhead segment incurred a net loss of $544,000, compared
to a net loss of $782,000 for the three months ended March 31, 2018. In the first quarter of 2019 we continued our efforts to
reduce corporate level expenses, such as $110,000 decrease in stock based compensation expenses, $102,000 reduction in audit related
expenses, and $24,000 reduction in corporate salaries expenses.
Liquidity
and Capital Resources
The
following table summarizes our liquidity and capital resources as of March 31, 2019 and December 31, 2018, respectively, and is
intended to supplement the more detailed discussion that follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
794
|
|
|
$
|
1,442
|
|
Working (deficiency) capital
|
|
$
|
(4,301
|
)
|
|
$
|
(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 March 31, 2019 and December 31, 2018, we had working capital deficiency of approximately $4,301,000
and $3,384,000. During the three months ended March 31, 2019, we generated a net loss from continuing operations of approximately
$1,145,000 used cash in continuing operations of approximately $1,079,000, 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 quarter 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, a related party through
one of the Company’s shareholders, Cosmic Forward Limited (“CFL”), 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. At December 31, 2018, there were no outstanding amounts drawn under this facility. At
May 15, 2019, approximately $1,707,000 was available for us to draw.
From
January 9, 2019 to April 2, 2019, the Company sold an aggregate of 232,515 shares of its common stock at a purchase price ranging
from $1.146 to $3.85 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 $479,931 under this private placement.
All of the purchasers are citizens of the People’s Republic of China.
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 its operations, the
Company will need to either raise capital by issuance of stock, or utilize a revolving credit facility with GNet; 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 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.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
Cash provided by (used in) continuing operations
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,079
|
)
|
|
$
|
(1,568
|
)
|
Investing activities
|
|
|
(3
|
)
|
|
|
(15
|
)
|
Financing activities
|
|
|
373
|
|
|
|
1,487
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
20
|
|
|
|
87
|
|
Cash provided by (used in) discontinued operations:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
41
|
|
|
|
(196
|
)
|
Investing activities
|
|
|
-
|
|
|
|
(13
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(648
|
)
|
|
$
|
(218
|
)
|
Net
Cash Used in Operating Activities
For
the three months ended March 31, 2019, net cash used in operating activities in continuing operations was $1,079,000. We
had a net loss of $1,145,000, payments of lease obligations of $94,000, and deferred tax benefit of $66,000 which
was offset by non-cash depreciation and amortization of $221,000, amortization of leases of $86,000, stock-based compensation
expense of $8,000, accretion of lease liability of $4,000 and a write off of equipment of $1,000. Changes in operating assets
and liabilities used $95,000 of cash during the three months ended March 31, 2019, consisting primarily of decreases in
accounts payable and deferred revenue, and increase in prepayments, partially offset by decrease in accounts receivable, and increase
in accrued expenses.
Net
cash used in operating activities in continuing operations for the three months ended March 31, 2018 was $1,568,000. We
had a net loss of $1,825,000, a deferred tax benefit of $59,000 which was offset by non-cash depreciation and amortization
of $680,000, stock-based compensation expense of $118,000, write off of property and equipment of $52,000, and provision
for bad debt of $1,000. Changes in operating assets and liabilities used $535,000 of cash during the three months
ended March 31, 2018, consisting primarily of decreases in accrued expenses, and deferred revenue, and increase in prepayments,
partially offset by decreases in accounts receivable.
Net
Cash (Used in) Provided by Investing Activities
Net
cash used in investing activities in continuing operations for the three months ended March 31, 2019 was $3,000, mainly consisting
of security deposits.
Net cash used in investing activities in continuing
operations for the three months ended March 31, 2018 was $15,000, mainly consisting of investments to develop new technology.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities in continuing operations during the three months ended March 31, 2019 was $373,000, consisting
of $373,000 in gross proceeds from sale of 203,963 shares of 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.
Net
cash provided by financing activities in continuing operations during the three months ended March 31, 2018 was $1,487,000, consisting
of $1,487,000 in gross proceeds from the 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.
Net
Cash 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 three months ended March 31, 2019 was $41,000.
Net cash used in operating activities in discontinued
operations for the three months ended March 31, 2018 was $196,000.
Net cash used in investing activities in
discontinued operations for the three months ended March 31, 2018 was $13,000.
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.