UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission file number: 001-35824
Professional Diversity Network, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
55 E. Monroe Street, Suite 2120
Chicago, Illinois
(Address of Principal Executive Offices)
80-0900177
(I.R.S. Employer
Identification No.)
60603
(Zip Code)
(312) 614-0950
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to
submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K
[X]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check One):
Large accelerated filer [ ]
Emerging growth company [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant on June 30, 2020, the last business day of the Registrant’s most recently
completed second fiscal quarter, was approximately $14,182,000 (based on a price per share of $2.86, the price at which the common shares were last sold as reported on the
NASDAQ Capital Market on such date).
There were 13,465,022 shares outstanding of the Registrant’s common stock as of April 9, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Registrant’s 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
PROFESSIONAL DIVERSITY NETWORK, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
ITEM 1 - BUSINESS
ITEM 1A - RISK FACTORS
ITEM 1B - UNRESOLVED STAFF COMMENTS
ITEM 2 - PROPERTIES
ITEM 3 - LEGAL PROCEEDINGS
ITEM 4 - MINE SAFETY DISCLOSURES
PART I
PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
ITEM 9A - CONTROLS AND PROCEDURES
ITEM 9B - OTHER INFORMATION
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART III
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
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PROFESSIONAL DIVERSITY NETWORK, INC.
PART I
Unless we specify otherwise, all references in this annual report on Form 10-K (the “Annual Report”) to “PDN,” “the Company,” “we,” “our,” and “us” refer to
Professional Diversity Network, Inc. and its consolidated subsidiaries. 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 Annual Report.
ITEM 1 - BUSINESS
Overview
The Company is a dynamic operator of professional networks with a focus on diversity. We use the term “diversity” (or “diverse”) to describe communities, or
“affinities,” that are distinctly based on a wide array of criteria which may change from time to time, 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, Transgender and Queer (LGBTQ). Our goal is (i) to assist our registered users and members in their efforts to connect with like-minded individuals,
identify career opportunities within the network and (ii) connect members with prospective employers while helping the employers address their workforce diversity needs. 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
clients.
Our Strategy
Since November 2016, we began our efforts to leverage PDN’s assets to maximize profitability, beginning with refining operations and enhancing sales in order to
transform the Company from historical losses to future profits. The Company currently provides services for employers who want to hire diverse talent, to individuals seeking to
network on a professional level and to job seekers who desire to improve their professional situation.
The core diversity recruitment business expanded in 2017 to include executive placement services for leading companies seeking to hire diverse talent. This new
business line addresses a need for employers who want to secure leading diverse talent in management, senior management and executive capacities. Efforts have been focused
on placing talent in IT, Finance, and similarly related fields. Our diversity recruitment business provides additional value for our other business segments by providing our
registered users and members with access to employment opportunity at leading companies.
Our strategy encompasses the following key elements:
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Grow and diversify our member and client base;
Improving branding and brand awareness
Utilize social media to effectively engage with the community
Maximize revenue through synergies among the segments;
Launch new products and services;
Streamline infrastructure to capture efficiency; and
Continue to expand in diversity recruitment by growing our core offerings of recruitment advertising, The Office of Federal Contract Compliance Programs
(OFCCP) compliance offerings and our new diversity placement services.
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Industry Overview
The diversity recruitment market is highly fragmented and is characterized by the following trends:
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Regulatory Environment Favorable to Promoting Diversity in the Workplace. In August of 2011, President Obama signed Executive Order 13583 to establish a
coordinated government-wide initiative to promote diversity and inclusion in the federal workforce. This Executive Order requires companies considering
contracting with the federal government to be prepared to demonstrate the diversity of their workforce. Certain companies that have federal contracts are subject
to this Executive Order. In the public sector, the Dodd–Frank Wall Street Reform and Consumer Protection Act (the “ Dodd-Frank Act”) mandated that each
of the eight U.S. financial agencies, including the Department of the Treasury, the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation and the Office of the Comptroller of the Currency, and twelve Federal Reserve banks create Offices of Minority and Women Inclusion (“OMWI”)
to be responsible for all agency matters relating to diversity in management, employment and business activities. The OMWI monitor diversity within their
ranks as well as within the pool of contractors who provide goods and services to the government.
Growing Ethnic Diversity of the U.S. Population and Labor Force. Multicultural groups are the fastest growing segment of the U.S. population. Hispanics,
African-Americans, Asian-Americans, and all other multicultural groups were estimated by the U.S. Census Bureau to make up 39.6% of the U.S. population in
2018, with census projections showing that multicultural populations will become a numeric majority by 2044. According to the U.S. Census Bureau, 2014
National Projections, the multicultural population is expected to increase 95% between 2014 and 2060. In sheer numbers, Hispanic-Americans are expected to
experience the most growth among diversity groups, growing from 17% of the total population in 2014 to 29% by 2060. African-American population is
expected to increase from 14% in 2014 to 18% in 2060, and Asian-American population from 6% in 2014 to 12% in 2060. Not surprisingly, diversity
recruitment is increasingly becoming a common, if not standard, business practice by major employers. According to the Current Population Survey conducted
by the Bureau of Census for the Bureau of Labor Statistics, of the 2015 annual average of approximately 149 million employees nationwide, approximately
47% were women and approximately 34% were Hispanic, African American or Asian American. According to a job report on private sector hiring published by
the U.S. Equal Employment Opportunity Commission in July 2015, the percentage of minority employment in the U.S. compared to overall employment grew
from 11% in 1966 to 37% in 2014. In the U.S., Hispanic-Americans had the fastest growth rate in the U.S. private sector, with employment of Hispanic-
Americans increasing from 2.5% to 13.9% between 1966 and 2013. The share of the labor force that is Hispanic-American is projected to increase from 16.3%
in 2014 to 19.8% in 2024, according to the Bureau of Labor Statistics.
Demographic Trend Toward Women’s Career Advancement. According to the U.S. Bureau of Labor Statistics, there were over 74 million women 16 years old
and over in the workforce as of January 2016. The number of women in the labor force is expected to increase to 77.2 million by 2024. In 2019, women
accounted for 57.4% of all workers employed in management, professional, and related occupations. According to the Current Population Survey conducted by
the Bureau of Census for the Bureau of Labor Statistics, in 2018 women also made up the majority of healthcare support occupations (74%) and financial
activities (53%).
Rising Spending Power of Diverse Population. IPDN US segments are focused on providing professional enhancement tools to diverse Americans including
women. We believe diverse professionals are underserved and represents a very strong opportunity to enhance our shareholders value. Published by the Selig
Center for Economic Growth, the report estimates the nation’s total buying power reached $13.9 trillion in 2016 and predicts it will hit $16.6 trillion by 2021,
with minority groups making the fastest gains. For example, African-American buying power, estimated at $1.2 trillion in 2016, will grow to $1.5 trillion by
2021, making it the largest racial minority consumer market.
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Increasing Socialization of the Internet. The Internet has revolutionized how information is created and communicated - a wealth of information is readily
accessible by browsing the Internet anonymously. However, we believe the social aspect of the Internet is emerging as an increasingly powerful influence on
our lives. While an individual’s interpersonal connections traditionally have not been visible to others, social and professional networking websites enable
members to share, and thereby unlock, the value of their connections by making them visible. Today, personal connections and other information, such as
online social and professional networking websites, are increasingly becoming a powerful tool for a growing population of users to connect with one another.
Our Solutions
We currently operate in two business segments: (i) Professional Diversity Network (“PDN Network”), which includes online professional networking communities
with career resources tailored to the needs of various diverse cultural groups and (ii) National Association of Professional Women (“ NAPW Network”), a women-only
professional networking organization. In 2020, our PDN Network, and NAPW Network represented 70%, and 30% of our revenues, respectively. In 2018, we started
transacting new memberships under the International Association of Women brand in the USA.
For financial information about our operating segments please see Note 13 of our Consolidated Financial Statements included in this Annual Report.
PDN Network
Recruitment Solutions. The PDN Network consists of several online professional networking communities dedicated to serving diverse professionals in the United
States and employers seeking to hire diverse talent. We use the word “professional” to describe any person interested in the Company’s websites presumably for the purpose of
career advancement or related benefits offered by the Company, whether or not such person is employed and regardless of the level of education or skills possessed by such
person. Our networking communities harness our relationship recruitment methodology to facilitate and empower professional networking within common affinities. We
believe that those within a common affinity often are more aggressive in helping others within their affinity progress professionally. We operate these relationship recruitment
affinity groups within the following sectors: Women, Hispanic-Americans, African-Americans, Asian-Americans, Disabled, Military Professionals, Lesbians, Gay, Bisexual,
Transgender and Queer (LGBTQ), and Students and Graduates seeking to transition from education to career.
Our PDN Network has registered users for our recruitment services. We use the term “registered user” to describe a consumer who has affirmatively visited one of our
properties, opted into an affinity group and provided us with demographic or contact information enabling us to match them with employers and/or jobs, and to sell them
ancillary products and services. We expect that continued registered user growth of the PDN Network will enable us to further develop our list of online professional diversity
networking and career placement solutions. We currently provide access to our PDN Network websites to registered users at no cost. The Company is always exploring various
partnerships with other service providers to increase their offerings to both job seekers and employers. Our goal is to use an asset light approach to provide quality products and
services, to increase our value to those we serve and drive additional capital without significant capital investments. For example, we announced our partnership with Web
Scribble, the leading provider of career technology for professional and trade associations. Leveraging our existing assets through relationships with other technology firms
such as Web Scribble allows us to grow our relationships with employers without investing in sophisticated, proprietary resources.
We offer employers of all sizes seeking to diversify their employment ranks, and to third party recruiters (i) real-time solutions that deliver diverse talent, (ii)
advertising and promotion of their job opportunities to our networks of diverse professionals and (iii) assistance with posting their job opportunities to career agencies in a
manner compliant with the regulations and requirements of the Equal Employment Opportunity OFCCP, including those of state and local governments. Our recruitment
advertising solutions promote hiring and retention success by providing job seekers with information that we believe allows them to look beyond a corporate brand, deeper into
employers’ core values. We use sophisticated technology to deliver recruitment advertising using internet banner ads and email marketing targeted by geography and
occupation, based upon data from our audiences’ profiles and job searches on our websites. As of December 31, 2020, we had approximately 1,250 companies utilizing our
products and services.
Career Fairs. Through our events business, a part of our PDN Network business segment, we produce premier face-to-face and virtual recruiting events we call
Professional & Technical Diversity Career Fairs. The Company’s diversity events help employers connect with a new marketplace of diverse professionals. Our events are the
only events of their type endorsed by leading organizations such as the NAACP, Urban League, BDPA and others. Participating employers range from Fortune 500 companies
to federal, state and local agencies and from smaller employers to non-profit organizations, all of which seek a proactive approach to diversity recruiting. We also produce
virtual and in-person career fairs as part of high-profile national events such as the NAACP National Convention, the Urban League National Conference and HBCU sorority
and fraternity conferences. Since 2017 we host and produce virtual career fairs serving veterans, women and STEAM professionals.
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PDN (Hired). We use matching and targeting technology to match members with our partners on a renewing license basis, designed to provide the Company with
increasing residual income as we add new partners and sell additional licenses. Though in its early stages, the PDN (Hired) product is a significant step towards increasing
online sales in a scalable and residual manner. In 2017 we combined the functionality of these two products and relaunched them as PDN Quick. This product meets the
increased demand of entry level and hourly workforce needs of our clients. The product is a solution for America’s shrinking unemployment rate which has decreased the
amount of readily available hourly/part-time workers but driven demand higher for growing employers. The product has a unique Pay Only For Performance structure in which
employers only pay when qualified and interested candidates are delivered directly to them for specific in-demand roles. The product utilizes SMS Texting technology to reach
interested candidates which creates very little lag time and increased savings and efficiencies for both PDN and our clients. PDN Quick is offered to employers on a Cost Per
Applicant (“CPA”) basis. This enables employers to pay only for applicants they receive, as opposed to a diversity outreach campaign that promotes job openings for a fixed
amount based on the number of jobs offered and the duration of the job promotions.
PDN Diversity Placement. In 2018, the Company launched a diversity placement service that has initially focused on high demand positions in digital transformation
and finance. We are currently recruiting for leading employers who pay a monthly license fee and a percentage of the first year’s annual salary plus bonus for candidates we
source and they hire. We believe our superior brand positioning, large network of diverse talent and our vast employer relationships position us well for continued growth in
this segment.
NAPW Networking
The NAPW Network is a professional networking organization for women. We use the term “member or membership” to describe a consumer who has viewed our
marketing material, opted into membership with the NAPW Network, provided demographic information and engaged in an onboarding call with a membership coordinator.
Paid memberships provide greater access to networking opportunities and other membership perks, including access to upgraded packages. Members of the NAPW Network
enjoy a wealth of resources dedicated to developing their professional networks, furthering their education and skills and promoting their businesses and career
accomplishments.
We provide NAPW Network members with opportunities to network and develop valuable business relationships with other professionals through NAPW’s website,
as well as at events hosted at approximately 50 local chapters across the United States. In March 2020, due to the Covid-19 pandemic, all events shifted to a virtual format
hosted on Zoom platforms. PDN Network products and services are being deployed to provide enhanced value to the NAPW membership experience, which we believe will be
an important component in increasing both the number of new memberships and renewals of existing memberships.
NAPW eChapter. NAPW operates a series of virtual national chapter meetings, The events are held online monthly, and include presentations by guest speakers
including NAPW management, chapter presidents, or prominent members, and a panel discussion often including NAPW members on topics focused on inspiring professional
women to tackle and overcome challenges encountered in their careers and businesses. Topics are aligned with NAPW’s content strategy and include discussions on finding and
igniting your passion, turning passion into opportunity, building confidence and professional growth through taking on new challenges. The on-line events also include the
opportunity for members to network with other participants in the live chat room. The events often attract approximately 500 registrants and 100-200 participants. We define
registrants as those who enroll in an eChapter meeting but for some reason fail to attend, and participants as those who both enroll and attend. We track registrants, though they
do not attend, because they are an indicator of our marketing reach and membership engagement.
IAW Leadership Lab. In 2020, IAW launched the Leadership Lab platform as an enhancement to the NAPW eCoaching platform. IAW also offers virtual networking
roundtable events throughout the month where members who are established experts in their field provide participants insight and tips on how to overcome career and business
challenges. Hosted by NAPW’s VP of Marketing & Membership Experience, our unique platform connects our members with professional life and career coaches from within
the NAPW membership base. Through these events, members gain insight, guidance and inspiration to help them maximize their personal and professional potential. Topics
include the Power of Intentionality - Turning Good Intentions Into Actions, The Power of Authentic Communication, and Confident Steps To Create a Thriving Life. The on-
line events also include the opportunity for members to network with other participants in the live chat room. The events have attracted approximately 500 registrants and 150 -
300 participants.
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Professional Identity Management. Through the NAPW Network website, NAPW Network members are able to create, manage and share their professional identity
online and promote themselves and their businesses. NAPW Network members can also promote their career achievements and their businesses through placement on the
NAPW Network website’s home page, in proprietary press releases, in the online Member Marketplace and in monthly newsletter publications. In addition, the PDN Network
provides members with direct access to employers seeking to hire professional women at a high level of connectivity and efficiency. Our synergies enable us to match members
with our employment partners and then converse with the member to confirm such member’s desire to take the position to which we matched them, confirm that member is
qualified for the position and directly notify the employer about a member that we have qualified and confirmed has competed an application within the employer’s recruitment
system.
Networking Events. Historically, NAPW Network’s offline networking opportunities included monthly local chapter events and a large National Networking
Conference. Because PDN Network networking career events are already being conducted we have the ability to add an additional event for NAPW at the same venue, one hour
after the PDN Network event ends, at a substantially lower cost compared to hosting a stand-alone NAPW event. Employers who sponsor the PDN Network career networking
events will have the opportunity to participate in the NAPW event and meet with members to discuss employment opportunities in what we believe is an inviting and upscale
networking environment. We believe that providing the opportunity for NAPW Registered Users to meet, outside of the monthly local chapter events and the single national
event, will add value to all NAPW Registered Users through allowing them to attend any or all of our PDN Network events. Non-members may also attend, subject to certain
restrictions.
Access to Knowledge. In addition to networking and promotional opportunities, NAPW Network also provides to its members the ability to further develop their skills
and expand their knowledge base through monthly newsletters, online and in-person seminars, webinars and certification courses.
Upgraded Memberships and Ancillary Products. Upgraded packages include additional promotional and publicity tools as well as free access for the member to
National Summits and continuing education programs and the press release package, which provides members with the opportunity to work with professional writers to publish
personalized press releases and thereby secure valuable online presence.
Partner Discounts. We also offer to NAPW Network members exclusive discounts on third-party products and services.
IAW Global Women’s Network. This network offers in-person and online networking with like-minded women to foster enhanced career connections and
opportunities. Members can promote their brands, identify new career opportunities, and build lasting relationships at monthly meetings and events. These interactive events
allow members to improve their verbal resumes, expand their networks, and hear from inspiring speakers. Regional and National Conferences provide inspirational panels,
unique networking opportunities, and the chance for members to promote their business or services. Our partners allow members to explore events outside the US and create
opportunities to network with women around the world.
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Operations: Sales, Marketing and Customer Support
Sales and Marketing
We sell NAPW/IAW Network membership subscriptions offline through our NAPW/IAW Network sales force, which currently includes 3 sales professionals, all of
whom sell initial membership services. We also support online membership subscriptions through online sales via our website. We developed a secure, work-from-home
technology along with a training and supervision platform aimed at reducing the overhead costs, increasing per-representative profitability, and offering our sales professionals
flexible working arrangements. All sales representatives are capable of selling upgraded memberships and ancillary products.
Our PDN sales resources for recruitment and recruitment advertising products and services include a sales force with 7 sales professionals, third-party strategic partners
who deliver employers with demand for our products, and technology, which facilitates e-commerce transactions. We market directly to employers and third-party recruiters.
Our sales team uses a combination of telephone, email and face-to-face marketing, including personal visits to companies or their recruitment agencies, as well as appearances
at industry and trade group events where diversity recruitment recruiters are in attendance. We have also formed strategic alliances with parties who are able to help extend our
organic reach. In addition, we are developing purely online marketing channels to bring recruiters to us in bulk and use products based on a matching and targeting technology
to facilitate sales. We have specialty units within our sales force dedicated to serving: (i) federal, state and local governments and companies and contractors who serve these
governmental entities, (ii) small and medium sized businesses as defined by companies with less than 2,500 employees and (iii) large enterprises with greater than 2,500
employees.
Customer Support, Compliance and Testing
In addition to our sales professionals, we also employ support teams to provide customer support, compliance and testing. Our customer support teams work together to
improve engagement with our members and to ensure a high degree of member satisfaction and retention. Our compliance team focuses on ensuring the integrity of the NAPW
Network sales process. The team works closely with customer support and sales management to ensure that sales are conducted in an ethical manner and to identify sales
representatives who would benefit from enhanced training. Our testing team consists of representatives who work with our Development and Executive teams to identify new
lead-generation, sales and membership product opportunities, and to test those as well as new approaches to our current sales.
Our Strengths
We believe the following elements give us a competitive advantage to accomplish our mission:
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Dedicated Focus on Diverse Professionals. Our focus on providing career opportunities for diverse professionals differentiates us from other online social
networking websites, such as Facebook. We believe our websites have a distinctly career-oriented feel and utility when compared with other online social
networking websites. We believe that users prefer to manage their professional and social identities and contacts separately. While other online professional
networking websites, such as LinkedIn, also have a professional focus, we are singularly focused on diverse professionals in the United States. We believe that
we communicate effectively with each of our diverse communities and create environments that harness a natural affinity among members of common culture,
ethnicity, gender, orientation, nationality and experience to stimulate increased member trust, networking and engagement.
Online and Offline Diversity Career Services. The Company has a comprehensive and coordinated method of connecting diverse job seekers with companies
seeking to hire diverse employees. Our advantage comes through our call center operations which facilitate timely, accurate matching of job seekers and
employers. Many competitors do not have such a service in-house. Additionally, we operate live and virtual job fairs which allow job seekers and employers to
meet one-on-one. Many competitors also have to outsource this service. We provide a wide continuum of contact points to facilitate employers’ desire to
identify and hire diverse talent in an OFCCP-compliant manner.
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Platform That Harnesses the Power of Web Socialization. We believe that our membership base will continue to grow and that our platform will be an
increasingly powerful tool that enables our members to leverage their connections and shared information for the collective benefit of all of the participants on
our platform. We believe that we are the first online professional network to focus on the diversity recruitment sector.
Relationships with Strategic Partners. We believe that our relationships with strategic partners are difficult to replicate and give us a competitive advantage in
the networking opportunities, career tools and resources we can offer to our members, as well as the diverse audiences we can access for employers and
advertisers.
Relationships with Professional Entities & Organizations. Our team has experience working with multicultural professional organizations. We partner with a
number of leading minority professional organizations, including:
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DisabledPersons.com;
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Ebony Magazine
The Grio
HireVeterans.com
National Association of Hispanic Journalists (NAHJ)
Illinois Hispanic Nursing Association
IT Diversity Careers
The Commonwealth Compact
Greek Diversity
Latinos in Information Science and Technology Association (LISTA)
Job Opportunities for Disabled American Veterans (JOFDAV)
Veterans Exchange
National Association of African Americans in Human Resources
National Association for the Advancement of Colored People (NAACP)
The National Urban League
VFW Veterans Job Board Vetjobs
Wall Street Warfighters
Women in Biology
Women in Technology International (WITI)
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Customized Technology Platform. Our technology platform has been custom-designed and built to facilitate networking engagement, job searching, real-time
job qualification and matching, and text-based communications.
We believe that the following elements give us a competitive advantage with respect to the NAPW Network:
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Exclusive Focus on Professional Women. As a result of NAPW Network’s exclusive focus on professional women, we believe that through NAPW Network we
provide a secure and less intimidating environment within which our members can successfully network and establish new and lasting business relationships.
Attractive Industry Demographic Trends. Favorable demographic trends regarding women’s participation in the labor force will further the growth in NAPW
Network’s membership base and we have first-mover advantage with respect to generalized professional networking for women.
Large, growing and diverse national membership base. We believe that NAPW Network is the largest women-only networking organization in the United
States by number of members. The membership base of the NAPW Network is diverse in terms of ethnicity, age, income, experience, industry and occupation.
It includes members from small and large corporations, as well as entrepreneurs and business owners. We believe the diversity of the NAPW Network
membership base is a key component of its value.
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Comprehensive Product and Service Offerings to Deliver Value to Members. We believe that our comprehensive product offerings provide women valuable
tools to help them advance their careers and expand their businesses. Through networking opportunities online and at local chapter events in their communities,
regional events and the NAPW Network national Networking Conference, discounts provided on seminars, webinars and educational certification courses, and
opportunities to promote themselves and their businesses, NAPW members are provided the opportunities and tools for their professional development.
Business Model with Efficient Member Acquisition and Recurring Cash Flow. We believe that NAPW Network’s direct marketing lead generation efforts,
which utilize a combination of digital strategies, are among the most efficient in the industry as measured by our internal response and click-through rates. This
efficiency, combined with our effective call center operations, results in what we believe to be our market leading members acquisition process and direct
variable contribution. Additionally, in addition to an evolving eCommerce model, the company has been actively growing a Member-to-member acquisition
model as we strive to move to an organic growth model. We have implemented web -technologies to assist our members recruit colleagues and friends to the
organization. Further, NAPW Network memberships renew annually, providing a valuable recurring stream of cash flow.
Strategic Alliances
We consider our partner alliances to be a key value to our clients because it enables us to expand our job distribution and outreach efforts. We continue to expand our
relationships with key strategic partners that we believe are valuable to our core clients, as noted in section “Our Strengths” above.
Operations: Geography
Our headquarter is located in Chicago, Illinois, and houses our key executives, as well as many of our sales, marketing and IT personnel. We also have an office in
Minnetonka, MN where an inside sales team for our Events business is located. Websites for the PDN Network are hosted by Web Scribble, who provides hosting and
customization for the Company’s job boards. Web Scribble also provides sales resources to help promote our PDN Network and our partners’ products. Our websites have
backup and contingency plans in place in the event that an unexpected circumstance occurs.
Intellectual Property
To protect our intellectual property rights, we rely on a combination of federal, state and common law rights, as well as contractual restrictions. We rely on trade secret,
copyright and trademark rights to protect our intellectual property. We pursue the registration of our domain names and trademarks in the United States. Our registered
trademarks in the United States include the “iHispano” mark with stylized logo, the “Black Career Network” mark with stylized logo, the “Professional Diversity Network”
mark with our tagline “the power of millions for the benefit of one,” the name “National Association of Professional Women” and “NAPW,” and the name “International
Association of Women” and “IAW.” We also own the copyrights to certain articles in NAPW publications. We strive to exert control over access to our intellectual property and
customized technology by entering into confidentiality and invention assignment agreements with our employees and contractors and confidentiality agreements with third
parties in the ordinary course of our business.
Our efforts to protect our proprietary rights may not be successful. Any significant impairment of our intellectual property rights could adversely impact our business
or our ability to compete. In addition, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property
could make it more expensive to do business and adversely affect our operating results.
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Competition
We face significant competition in all aspects of our business. Specifically, with respect to our members and our recruitment consumer advertising and marketing
solutions, we compete with existing general market online professional networking websites, such as LinkedIn and Monster Worldwide, Inc., as well as ethnic minority focused
social networking websites, such as Black Planet and LatPro, and other companies such as Facebook, Google, Microsoft and Twitter that are developing or could develop
competing solutions. We also generally compete with online and offline enterprises, including newspapers, television and direct mail marketers that generate revenue from
recruiters, advertisers and marketers, and professional organizations. With respect to our hiring solutions, we also compete with traditional online recruiting companies such as
Career Builder, talent management companies such as Taleo, and traditional recruiting firms.
Larger, more well-established companies may focus on professional networking and could directly compete with us. Other companies might also launch new
competing services that we do not offer. Nevertheless, we believe that our focus on diverse online professional networking communities and the number of registered users or
members, as the case may be, overall and within each affinity that we serve, are competitive strengths in our market.
Government Regulation
We are subject to a number of federal, state and foreign laws and regulations that affect companies conducting business on the Internet. These laws are still evolving
and could be amended or interpreted in ways that could be detrimental to our business. In the United States and abroad, laws relating to the liability of providers of online
services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair
competition, copyright and trademark infringement and other theories based on the nature and content of the materials searched, the advertisements posted or the content
provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for the activities of their users and other third parties
could materially harm our business. In addition, rising concern about the use of social networking technologies for illegal conduct, such as the unauthorized dissemination of
national security information, money laundering or supporting terrorist activities may in the future produce legislation or other governmental action that could require changes
to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our service.
In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security incident, or security breach
for personal data, or requiring the adoption of minimum information security standards that are often unclear and difficult to implement. The costs of compliance with these laws
are significant and may increase in the future. Further, we may be subject to significant liabilities if we fail to comply with these laws.
We are also subject to federal, state and foreign laws regarding privacy and protection of member data. We post on our websites our privacy policy and terms of use.
Compliance with privacy-related laws may be costly. However, any failure by us to comply with our privacy policy or privacy-related laws could result in proceedings against
us by governmental authorities or private parties, which could be detrimental to our business. Further, any failure by us to protect our members’ privacy and data could result in
a loss of member confidence in us and ultimately in a loss of members and customers, which could adversely affect our business.
Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, including in jurisdictions where
we have no local entity, employees or infrastructure.
Our direct marketing operations with respect to the NAPW Network are subject to various federal and state “do not call” list requirements. The Federal Trade
Commission has created a national “do not call” registry. Under these federal regulations, consumers may have their phone numbers added to the national “do not call” registry.
Generally, we are prohibited from calling anyone on that registry. In September 2003, telemarketers were granted access to the registry and are now required to compare their
call lists against the national “do not call” registry at least once every 31 days. Telemarketers are required to pay a fee to access the registry. Enforcement of the “do not call”
provisions began in late 2003, and the rule provides for fines of up to $16,000 per violation and other possible penalties. These rules may be construed to limit our ability to
market our products and services to new customers. Further, we may incur penalties if we do not conduct our telemarketing activities in compliance with these rules.
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Seasonality
Our quarterly operating results are affected by the seasonality of employers’ businesses. Historically, demand for employment hiring is lower during the first quarter
and typically increases during the remainder of the year.
Employees
As of December 31, 2020, we had a total of 39 employees; 36 were full time employees in various U.S. locations. We also regularly engage independent contractors to
perform various services. As of December 31, 2020, we engaged 3 independent contractors. None of our employees are covered by a collective bargaining agreement. We
believe that we have good relationships with our employees.
Corporate History
We were incorporated in Illinois in October 2003 under the name of IH Acquisition, LLC and changed our name to iHispano.com LLC in February 2004. In 2007, we
changed our business platform and implemented technology to become the operator of communities of professional networking sites for diverse professionals. In March 2012,
we changed our name to Professional Diversity Network, LLC. In March 2013, we completed our initial public offering and converted from an Illinois LLC to a Delaware
corporation. In September 2014 we acquired the NAPW Network through a merger of NAPW, Inc., a New York corporation (“Old NAPW”) with and into NAPW Merger Sub,
Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”). Upon the closing of the merger under the Agreement and Plan of Merger, between Merger Sub,
Old NAPW and Matthew B. Proman, the sole shareholder of Old NAPW, dated July 11, 2014 (the “Merger Agreement”), Old NAPW ceased to exist and Merger Sub continued
as the surviving corporation, and a wholly-owned subsidiary of the Company, which was renamed to NAPW, Inc.
We started our operations in China in March 2017. We established two entities in Hong Kong, PDN (Hong Kong) International Education Ltd and PDN (Hong Kong)
International Education Information Co., Ltd in January 2017, and the Company established its China subsidiary, PDN (China) International Culture Development Co. Ltd in
March 2017. In November of 2017, Jiangxi PDN Culture Media Co., Ltd became a consolidated variable interest entity controlled by the Company. On March 4, 2020, the
Company’s Board of Directors approved a motion decided to discontinue all China operations. Accordingly, all historical operating results for the Company’s China operations
are now reflected in loss from discontinued operations, net of tax, in the accompanying consolidated statement of operations. Please refer to Note 3 - Operating Results of
Discontinued Operations in this Annual Report for more details.
Our principal executive offices is located at 55 E. Monroe Street, Suite 2120, Chicago, Illinois, 60603 and our telephone number is (312) 614-0950. Our website
address is www.ipdnusa.com. References to our website addressed in this report are provided as a convenience and do not constitute, and should not be viewed as an
incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.
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ITEM 1A - RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other
information in this Annual Report, including our consolidated financial statements and related notes, before making an investment in our common stock. If any of the following
risks are realized, our business, results of operations, cash flows and financial condition could be materially and adversely affected. In that event, the market price of our
common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Financial Condition
We have incurred net losses, our liquidity has been significantly reduced and we could continue to incur losses and negative cash flow in the future.
We recorded a net loss from continuing operations of approximately $4.2 million for the year ended December 31, 2020 and $2.8 million for the year ended December
31, 2019. Our revenues declined from $5.0 million to $4.5 million during 2020, however, our costs and expenses increased from $8.0 million during the year ended December
31, 2019, to $9.3 million during the year ended December 31, 2020. In addition, we used $2.7 million in cash flow from continuing operations during the year ended December
31, 2020. We will need to increase revenues and reduce our corporate operating expenses to achieve profitability and positive cash flow from operations. Despite our efforts,
including our restructuring and cost-cutting program, we may not achieve profitability or positive cash flow in the future, and even if we do, we may not be able to sustain being
profitable.
The market for online professional networks is highly competitive, and if we are unable to compete effectively our sales and results of operations will suffer.
We face significant competition in all aspects of our business, and we expect such competition to increase, particularly in the market for online professional networks.
Our industry is rapidly evolving and is becoming increasingly competitive. Larger and more established online professional networking companies, such as LinkedIn
or Monster Worldwide, may focus on the online diversity professional networking market and could directly compete with us. Rival companies or smaller companies, including
application developers, could also launch new products and services that could compete with us and gain market acceptance quickly. Individual employers have and may
continue to create and maintain their own network of diverse candidates.
We also expect that our existing competitors will focus on professional diversity recruiting. A number of these companies may have greater resources than we do,
which may enable them to compete more effectively. For example, our competitors with greater resources may partner with wireless telecommunications carriers or other
Internet service providers that may provide Internet users, especially those that access the Internet through mobile devices, incentives to visit our competitors’ websites. Such
tactics or similar tactics could decrease the number of our visits, unique visitors and number of users and members, which would materially and adversely affect our business,
operating results and financial condition.
Additionally, users of online social networks, such as Facebook, may choose to use, or increase their use of, those networks for professional purposes, which may
result in those users decreasing or eliminating their use of our specialized online professional network. Companies that currently do not focus on online professional diversity
networking could also expand their focus to diversity networking. LinkedIn may develop its own proprietary online diversity network and compete directly against us. To the
extent LinkedIn develops its own network or establishes alliances and relationships with others, our business, operating results and financial condition could be materially
harmed. Finally, other companies that provide content for professionals could develop more compelling offerings that compete with us and adversely impact our ability to keep
our members, attract new members or sell our solutions to customers.
If we do not continue to attract new members to the NAPW Network, or if existing NAPW Network members do not renew their subscriptions, renew at lower levels or on
less favorable terms, or fail to purchase additional offerings, we may not achieve our revenue projections, and our operating results would be harmed.
In order to grow the NAPW Network, we must continually attract new members to the NAPW Network, sell additional product and service offerings to existing
NAPW Network members and increase the level of renewals. Our ability to do so depends in large part on the success of our sales and marketing efforts. Unlike companies that
provide more tangible products, the nature of our product and service offerings is such that members may decide to terminate or not renew their agreements because they do not
see their cancellation as causing significant disruptions to their own businesses.
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We must demonstrate to NAPW Network members that our product and service offerings provide them with access to an audience of influential, affluent and highly-
educated women. However, potential members may not be familiar with our product and service offerings or may prefer other more traditional products and services for their
professional advancement and networking needs. The rate at which we expand the NAPW Network’s membership base or increase its members’ renewal rates may decline or
fluctuate because of several factors, including the prices of product and service offerings, the prices of products and services offered by competitors or reductions in their
professional advancement and networking spending levels due to macroeconomic or other factors and the efficacy and cost-effectiveness of our offerings. If we do not attract
new members to the NAPW Network or if NAPW Network members do not renew their agreements for our product and service offerings, renew at lower levels or on less
favorable terms or do not purchase additional offerings, our revenue may grow more slowly than expected or decline.
We may not be able to successfully identify and complete sufficient acquisitions to meet our growth strategy, and even if we are able to do so, we may not realize the
anticipated benefits of these acquisitions.
Part of our growth strategy is to acquire companies that we believe will add to and/or expand our service offerings.
Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to identify suitable candidates or complete acquisitions
in a timely manner, on a cost-effective basis or at all. Even if we complete an acquisition, we may not realize the anticipated benefits of such acquisition. Actual cost savings
and synergies which may be achieved from an acquired entity may be lower than expected and may take a longer time to achieve than we anticipate. Our acquisitions have
previously required, and any similar future transactions may also require, significant efforts and expenditures, in particular with respect to integrating the acquired business with
our historical business. We may encounter unexpected difficulties, or incur unexpected costs, in connection with acquisition activities and integration efforts, which include:
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conflicts and inconsistencies in information technology and infrastructures;
inconsistencies in standards, controls, procedures and policies, business cultures and compensation structures between us and an acquired entity;
difficulties in the retention of existing customers and attraction of new customers;
overlap of users and members of an acquired entity and one of our websites;
difficulties in retaining key employees;
the identification and elimination of redundant and underperforming operations and assets;
diversion of management’s attention from ongoing business concerns;
the possibility of tax costs or inefficiencies associated with the integration of the operations; and
loss of customer goodwill.
If we fail to successfully complete the integration of an acquired entity, or to realize the anticipated benefits of the integration of an acquired entity, our financial
condition and results of operations could be materially and adversely affected.
We rely heavily on our information systems and if our access to this technology is impaired, or we fail to further develop our technology, our business could be significantly
harmed.
Our success depends in large part upon our ability to store, retrieve, process and manage substantial amounts of information, including our database of our members.
To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. Our future success will depend on our ability
to adapt to rapidly changing technologies, to adapt our information systems to evolving industry standards and to improve the performance and reliability of our information
systems. This may require the acquisition of equipment and software and the development, either internally or through independent consultants, of new proprietary software.
Our inability to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively
would materially and adversely affect our business, financial condition and operating results.
Our direct sales strategy, which requires personal interaction with employers and third-party recruiters, may limit our ability to grow recruitment revenue and recruitment
advertising revenue.
As part of our strategy to market our products and services directly to employers and third-party recruiters, we rely on our direct sales force for recruitment revenue and
recruitment advertising revenue. We currently employ professionals in sales, sales support and marketing who are trained in selling our products and services. Since its creation
in 2013, we have been optimizing the direct sales team and refining the manner in which our products and services are sold. While the Company made progress in growing its
direct sales, we have not matured the sales force to the point of predictability, nor have we sold enough services to achieve profitability. There is no assurance that our direct
sales strategy we will yield sufficient recruitment revenue and recruitment advertising revenue in the future.
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We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our websites are accessible within an acceptable load
time.
An element that is key to our continued growth is the ability of our members and other users that we work with to access any of our websites within acceptable load
times. We call this website performance. We have experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety
of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our websites simultaneously, and
denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable
period of time.
If any of our websites are unavailable when users attempt to access them or they do not load as quickly as users expect, users may seek other websites to obtain the
information or services for which they are looking, and may not return to our websites as often in the future, or at all. This would negatively impact our ability to attract
members and other users and increase engagement on our websites. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and
continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, operating results and financial
condition may be materially and adversely affected.
Our systems are vulnerable to natural disasters, acts of terrorism and cyber-attacks.
Our systems are vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist
attacks, cyber-attacks and similar events. For systems which are not based in cloud storage, we have implemented a disaster recovery program, maintained by a third-party
vendor, which allows us to move production to a back-up data center in the event of a catastrophe. Although this program is functional, it does not yet provide a real-time back-
up data center, so if our primary data center shuts down, there will be a period of time that such website will remain shut down while the transition to the back-up data center
takes place. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our hosting facilities could result in lengthy
interruptions in our services. Although we carry cyber security insurance our claims may exceed the insurance coverage, and we may not be fully compensated by third party
insurers in the event of service interruption or cyber-attack. Furthermore, our business may never recover from such an event.
If our security measures are compromised, or if any of our websites are subject to attacks that degrade or deny the ability of members or customers to access our solutions,
members and customers may curtail or stop use of our solutions.
Our members provide us with information relevant to their professional networking and/or career-seeking experience with the option of having their information
become public or remain private. If we experience compromises to our security that result in website performance or availability problems, the complete shutdown of our
websites or the loss or unauthorized disclosure of confidential information, our members may lose trust and confidence in us, and will use our websites less often or stop using
our websites entirely. Further, outside parties may attempt to fraudulently induce employees, members or customers to disclose sensitive information in order to gain access to
our information or our members’ or customers’ information. Because the methods used to obtain unauthorized access, disable or degrade service, or sabotage systems change
frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively
address these methods or to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new members and increase
engagement by existing members, cause existing members to close their accounts or existing customers to cancel their contracts, subject us to lawsuits, regulatory fines or other
action or liability, thereby materially and adversely affecting our reputation, our business, operating results and financial condition.
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The widespread adoption of different smart phones, smart phone operating systems and mobile applications, or apps, could require us to make substantial expenditures to
modify or adapt our websites, applications and services.
The number of people who access the Internet through devices other than personal computers, including personal digital assistants, smart phones and handheld tablets
or computers, has increased dramatically in the past few years and we believe this number will continue to increase. Each manufacturer or distributor of these devices may
establish unique technical standards, and our services may not work or be viewable on these devices as a result. Furthermore, as new devices and new platforms are continually
released, it is difficult to predict the problems we may encounter in developing versions of our services for use on these alternative devices and we may need to devote
significant resources to the creation, support and maintenance of such devices. Our websites are designed using responsive technology and are built to provide a positive user
experience on a user’s Internet device, whether a mobile phone, and tablet, laptop or personal computer. If we are slow to develop products and technologies that are compatible
with such devices, we might fail to capture a significant share of an increasingly important portion of the market for our services.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, our member engagement and number of members and
users could decline.
We depend in part on various Internet search engines, such as Google, Bing and Yahoo!, to direct a significant amount of traffic to our websites. Our ability to maintain
the number of visitors directed to our websites is not entirely within our control. Our competitors’ search engine optimization (“SEO”) efforts may result in their websites
receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in an attempt to improve their search results, which could
adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our new user growth
or in ways that make it harder for our members to use our websites, or if our competitors’ SEO efforts are more successful than ours, overall growth in our member base could
slow, member engagement could decrease, and we could lose existing members. These modifications may be prompted by search engine companies entering the online
professional networking market or aligning with competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate similar
fluctuations in the future. Any reduction in the number of users directed to our websites would materially harm our business and operating results. Our platform includes
connectivity across the social graph, including websites such as Facebook, Google+, LinkedIn and Twitter. If for any reason these websites discontinue or alter their current
open platform policy it could have a negative impact on our user experience and our ability to compete in the same manner we do today.
Wireless communications providers may give their customers greater access to our competitors’ websites.
Wireless communications providers may provide users of mobile devices greater access to websites that compete with our websites at more favorable rates or at faster
download speeds. This could have a material adverse effect on the Company’s business, operating results and financial condition. Creation of an unequal playing field in terms
of Internet access could significantly benefit larger and better capitalized companies competing with us.
The effect of significant declines in our ability to generate revenue may not be reflected in our short-term results of operations.
We recognize revenue from sales of our hiring solutions over the life of a contract (typically 12 months) beginning the first month after the contract is signed. As a
result, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. In addition, we may be unable to adjust
our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in our ability to generate revenue may not be reflected in our short-term results of
operations.
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The existing global economic and financial market environment has had, and may continue to have, a negative effect on our business and operations.
Demand for our services is sensitive to changes in the level of economic activity. Many companies hire fewer employees when economic activity is slow. Following
the financial crisis in 2008, unemployment in the U.S. increased and hiring activity was limited. Although the economy has begun to recover and unemployment in the U.S. has
improved, if the economy does not continue to recover or worsens, or unemployment returns to high levels, demand for our services and our revenue may be reduced. In
addition, lower demand for our services may lead to lower prices for our services. The volatility in global financial markets may also limit our ability to access the capital
markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions. Accordingly,
if the economy does not fully recover or worsens, our business, results of operations and financial condition could be materially and adversely affected.
Our growth strategy may fail as a result of changing social trends.
Our business is dependent on the continuity of certain social trends, such as the increasing socialization of the Internet, the demographic trend towards women’s career
advancement, the growing ethnic diversity of the United States population and labor force, a regulatory environment that promotes diversity in the workplace, the growing
ethnic population’s spending power and the acceptance and growth of online recruitment and advertising. Some or all of these trends may change overtime. For example,
increased privacy concerns may jeopardize the growth of online social and professional network websites. Furthermore, it is possible that people may not want to identify in
online social or professional networks with a focus on diversity at all. Or alternatively, people who belong to more than one diversity group (such as Hispanic-American
females, among others) may not be drawn to our websites, which singularly focus on one specific diversity group. Our strategy may fail as a result of these changing social
trends, and if we do not timely adjust our strategy to adapt to changing social trends, we will lose members, and our business, operating results and financial condition would be
materially and adversely affected.
The regulatory environment favorable to promoting diversity in the workplace may change.
Federal and state laws and regulations require certain companies engaged in business with governmental entities to report and promote diverse hiring practices. Repeal
or modification of such laws and regulations could decrease the incentives for employers to actively seek diverse employee candidates through networks such as ours and
materially affect our revenues.
If our member profiles are out-of-date, inaccurate or lack the information that users and customers want to see, we may not be able to realize the full potential of our
networks, which could adversely impact our future growth.
We do not impose any selective or qualification criteria on membership and do not verify that any member of a particular Company website qualifies as a member of
the ethnic, cultural or other group identified by that website. If our members do not update their information or provide accurate and complete information when they join our
networks or do not establish sufficient connections, the value of our networks may be negatively impacted because our value proposition as diversity professional networks and
as a source of accurate and comprehensive data will be weakened. For example, our hiring solutions customers may find that certain members misidentify their ethnic, national,
cultural, racial, religious or gender classification, which could result in mismatches that erode customer confidence in our solutions. Similarly, incomplete or outdated member
information would diminish the ability of our marketing solutions customers to reach their target audiences and our ability to provide research data to our customers. Therefore,
we must provide features and products that demonstrate the value of our networks to our members and motivate them to add additional, timely and accurate information to their
profile and our networks. If we fail to successfully motivate our members to do so, our business, operating results and financial condition could be materially and adversely
affected.
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Our business depends on strong brands, and any failure to maintain, protect and enhance our brands would hurt our ability to retain or expand our base of members,
enterprises and professional organizations, or our ability to increase their level of engagement.
We have devoted significant resources to develop our brands, particularly NAPW. That brand is predicated on the idea that professional women will trust it and find
value in building and maintaining their professional identities and reputations on the NAPW Network platform. Maintaining, protecting and enhancing all of our brands is
critical to expanding the base of members for the NAPW Network and PDN Network and increasing their engagement with the product and services offerings of the Company,
and will depend largely on our ability to maintain member trust, be a technology leader and continue to provide high-quality offerings, which we may not do successfully in the
future. Despite our efforts to protect our brands and prevent their misuse, if others misuse any of our brands or pass themselves off as being endorsed or affiliated with the
NAPW Network or the PDN Network, it could harm our reputation and our business could suffer. If members of any of our networks or potential members determine that they
can use other platforms, such as social networks, for the same purposes as or as a replacement for the NAPW Network or the PDN Network, or if they choose to blend their
professional and social networking activities, our brands and the business of the Company could be harmed. Members of any of our networks could find that new product or
service offerings that are introduced are difficult to use or may feel that they degrade their experience with our organization, which could harm the reputation of the networks
and the Company for delivering high-quality offerings. Our brands are also important in attracting and maintaining high performing employees. If we do not successfully
maintain strong and trusted brands for our networks, our business can be materially and adversely affected.
Failure to protect or enforce our intellectual property rights could materially harm our business and operating results.
We regard the protection of our intellectual property as critical to our success. In particular, we must maintain, protect and enhance our brands. We strive to protect our
intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. In the ordinary course, we enter into confidentiality and
invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to,
and disclosure and use of, our proprietary information and customized technology platform. However, these contractual arrangements and the other steps we have taken to
protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.
We pursue the registration of our domain names, trademarks and service marks in the United States and in certain locations outside the United States. Effective
trademark, trade dress and domain names are expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our
rights. We are seeking to protect our trademarks and domain names, a process that is expensive and may not be successful.
Litigation may be necessary to enforce our intellectual property rights or determine the validity and scope of proprietary rights claimed by others. Any litigation of this
nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business
and operating results. We may incur significant costs in enforcing our trademarks against those who attempt to imitate our brands. If we fail to maintain, protect and enhance
our intellectual property rights, our business and financial condition could be materially and adversely affected.
We process, store and use personal information and other data, which subjects us to governmental regulation, enforcement actions and other legal obligations or liability
related to data privacy and security, and our actual or perceived failure to comply with such obligations could materially and adversely affect our business.
We receive, store and process personal information and other member data, and we enable our members to share their personal information with each other and with
third parties. There are numerous federal, state, local and foreign laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal
information and other member data, the scope of which are changing, subject to differing interpretations and may be inconsistent between countries or conflict with other rules.
We generally comply with industry standards and adhere to the terms of our privacy policies and privacy-related obligations to third parties (including voluntary third-party
certification bodies such as TRUSTe). We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data
protection. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with
other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our
privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other member data,
may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our members and customers
to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable
laws or our policies, such violations may also put our members’ information at risk and could in turn have an adverse effect on our business.
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Public scrutiny of Internet privacy issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current
products and solutions to our members and customers, thereby materially harming our business.
The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use,
storage, transmission and security of personal information by companies operating over the Internet have recently come under increased public scrutiny. The U.S. government,
including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information
concerning consumer behavior on the Internet, including regulation aimed at restricting certain on-line tracking and targeted advertising practices. In addition, various
government and consumer agencies have also called for new regulations and changes in industry practices.
Our business could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business
practices or that require changes to these practices, the design of our websites, products, features or our privacy policy. In particular, the success of our business has been, and
we expect will continue to be, driven by our ability to use the data that our members share with us in accordance with each of our website privacy policies and terms of use.
Therefore, our business, operating results and financial condition could be materially and adversely affected by any significant change to applicable laws, regulations or industry
practices regarding the use or disclosure of data our members choose to share with us, or regarding the manner in which the express or implied consent of consumers for such
use and disclosure is obtained. Such changes may require us to modify our products and features, possibly in a material manner, and may limit our ability to develop new
products and features that make use of the data that our members voluntarily share with us.
Our business is subject to a variety of U.S. laws and regulations, many of which are unsettled and still developing and which could subject us to claims or otherwise
materially harm our business.
We are subject to a variety of laws and regulations in the United States, including laws regarding data retention, privacy and consumer protection, which are
continually evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting. For example, laws
relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based
on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched,
the ads posted or the content provided by users. In addition, regulatory authorities are considering a number of legislative and regulatory proposals concerning data protection
and other matters that may be applicable to our business. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become
subject. See the discussion included in “Business – Government Regulation” beginning on page 11 of this Annual Report.
If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be harmed, and we may be forced to
implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain solutions, which would materially
and adversely affect our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and
legislative proposals could materially harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could
materially and adversely affect our business, financial condition and results of operations.
We are currently party to litigation and may in the future be subject to additional legal proceedings and litigation which may be costly to defend and could materially and
adversely affect our business results or operating and financial condition.
We are currently party to litigation and may be party to additional lawsuits in the normal course of business. Results of the litigation to which we are a party cannot be
predicted with certainty and there can be no assurance that this litigation will be resolved in our favor. These matters are described in more detail under the heading “Legal
Proceedings.” Litigation in general is often expensive and disruptive to normal business operations. We may face in the future allegations and lawsuits that we have infringed
the intellectual property and other rights of third parties, including patents, privacy, trademarks, copyrights and other rights. Litigation, particularly intellectual property and
class action matters, may be protracted and expensive, and the results are difficult to predict. Adverse outcomes may result in significant settlement costs or judgments, require
us to modify our products and features while we develop non-infringing substitutes or require us to stop offering certain features.
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From time to time, we may face claims against companies that incorporate open source software into their products, claiming ownership of, or demanding release of,
the source code, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open
source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to
change our solutions, any of which could have a negative effect on our business and operating results.
Our success depends in large part upon our management and key personnel. Our inability to attract and retain these individuals could materially and adversely affect our
business, results of operations and financial condition.
We are highly dependent on our management and other key employees. The skills, knowledge and experience of our management team, are critical to the growth of
our business. In particular, Mr. Adam He, our Chief Executive Officer, provides significant leadership in every aspect of our business operations and strategic direction. Mr. He
is supported by a talented group of knowledgeable executives in business operations, sales and marketing, and information technology including Charles OBrien our Interim
Chief Financial Officer, Joseph Bzdyl our Executive VP of Operations and Chad Hoersten our Chief technology Officer. Our future performance will be dependent upon the
continued successful service of members of our management and key employees. We do not maintain life insurance for any of the members of our management team or other
key personnel. Competition for management in our industry is intense, and although we have entered into employment agreements with certain members of our management
team, we may not be able to retain our management and key personnel or attract and retain new management and key personnel in the future, which could materially and
adversely affect our business, results of operations and financial condition.
The impact of the COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on our business and our financial results.
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains and created significant volatility and
disruption of financial markets. The COVID-19 pandemic may have an adverse effect on our business and financial performance. The extent of the impact of the COVID-19
pandemic, including our ability to execute our business strategies as planned, will depend on future developments, including the duration and severity of the pandemic, which
are highly uncertain and cannot be predicted. In response to mandates and recommendations from federal, state and local authorities, as well as decisions we have made to
protect the health and safety of our employees with respect to the COVID-19 pandemic, we temporarily closed our offices and had our employees work remotely. We may face
more closure requirements and other operation restrictions for prolonged periods of time due to, among other factors, evolving and stringent public health directives, quarantine
policies, social distancing measures, or other governmental restrictions, which could have a further material impact on our sales and profits. The COVID-19 pandemic could
also adversely affect our liquidity and ability to access the capital markets. Uncertainty regarding the duration of the COVID-19 pandemic may adversely impact our ability to
raise additional capital, or require additional capital, or require additional reductions in capital expenditures that are otherwise needed to implement our strategies.
The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the pandemic,
the implementation or recurrence of shelter in place or similar orders in the future.
20
Risks Related to Our Common Stock
Our significant stockholder and our directors and executive officers have substantial control over the Company and could limit your ability to influence the outcome of key
transactions, including changes of control.
Cosmic Forward Limited (“CFL”) beneficially owned approximately 25.5% of our common stock as of March 31, 2021. As a result of its ownership CFL is able to
influence significantly all matters requiring approval by our stockholders, including the election of directors. In addition, our directors and executive officers and their affiliated
entities, in the aggregate, beneficially own approximately 1.70% of our outstanding common stock as of March 31, 2021. Stockholders other than these principal stockholders
are therefore likely to have little influence on decisions regarding such matters. These stockholders may have interests that differ from yours, and they may vote in a way with
which you disagree and that may be adverse to your interests. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a
change of control of our Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company and may
affect the market price of our common stock. This concentration of ownership also limits the number of shares of stock likely to be traded in public markets and therefore will
adversely affect liquidity in the trading of our common stock. This concentration of ownership of our common stock may also have the effect of influencing the completion of a
change in control that may not necessarily be in the best interests of all of our stockholders.
The market price for our securities may be subject to wide fluctuations and the value of an investment in our common stock may decline.
The trading price of our common stock has been, and is likely to continue to be, volatile. Since shares of our common stock were sold in our initial public offering at a
price of $64.00 per share, our stock price has ranged from $0.91 to $5.56 during the fiscal year of 2020. In addition to the factors discussed in this Annual Report, the trading
price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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price and volume fluctuations in the stock market, including as a result of trends in the economy as a whole or relating to companies in our industry;
actual or anticipated fluctuations in our revenue, operating results or key metrics, including our number of members and unique visitors;
investor sentiment with respect to our competitors, our business partners and our industry in general;
announcements by us or our competitors of significant products or features, technical innovations, strategic partnerships, joint ventures or acquisitions;
additional shares of our common stock being sold into the market by us or our existing stockholders or the anticipation of such sales; and
other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
The securities of technology companies, especially Internet companies, have experienced wide fluctuations subsequent to their initial public offerings, including
trading at prices below the initial public offering prices. Factors that could affect the price of our common stock include risk factors described in this section. In addition, the
securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular industries or
companies. These market fluctuations may also have a material adverse effect on the market price of our common stock.
Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
The market price of our common stock could decline as a result of (i) substantial sales of our common stock, particularly sales by CFL and/or our directors, executive
officers, employees, or other significant stockholders, (ii) a large number of shares of our common stock becoming available for sale, or (iii) the perception in the market that
holders of a large number of shares intend to sell their shares. As a result of the consummation of the issuance and sale of 1,777,417 shares of our common stock to CFL in
November 2016, and a subsequent issuance to CFL of an additional 312,500 shares in January 2017, and additional purchase of 1,142,857 shares from another shareholder in
November 2019, CFL owns approximately 25.5% of our outstanding common stock as of March 31, 2021, with respect to which CFL has the right to require the Company to
register the public resale under a registration statement filed with the SEC. The eventual resale of some or all of such shares, or the perception that such sale or sales could be
imminent, could result in a material decline in the market value of our common stock. We have also filed a universal shelf registration statement on Form S-3, with the SEC on
September 7, 2018, which was declared effective on September 18, 2018. This registration statement provides for the issuance of shares of our common stock, preferred stock,
depositary shares, rights, warrants, units and debt securities up to an aggregate amount of $25,000,000.
21
In addition, 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. For more information about our 2013 Equity Compensation Plan, please see Note 11 of our Consolidated Financial Statements included in this Annual
Report.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our Company more difficult, limit attempts by our stockholders to
replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control
or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
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authorize our board of directors to issue, without further action by the stockholders, up to 1,000,000 shares of undesignated preferred stock;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election
to our board of directors, and also specify requirements as to the form and content of a stockholder’s notice;
that our directors may be removed only for cause and only by the affirmative vote of at least a majority of the total voting power of our outstanding capital
stock, voting as a single class; and
do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock voting in any election of directors to
elect all of the directors standing for election, if they should so choose).
These provisions may frustrate or prevent attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to
replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range
of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Finally,
because CFL holds a majority of our outstanding shares of common stock, CFL’s approval will be necessary to effect any change in control.
Our failure to implement and maintain effective internal control over financial reporting could result in material misstatements in our financial statements, which could
require us to restate financial statements, cause investors to lose confidence in our reported financial information and could have an adverse effect on our stock price or
our debt ratings.
Our management determined that as of December 31, 2020, our internal controls over financial reporting had material weaknesses. Specifically, (i) policies and
procedures were not implemented to recognize revenue equal to the amount allocated from revenue sharing agreements with partners, (ii) accounting policies and procedures
associated with its revenue sharing agreement were not implemented to properly estimate allowance for doubtful accounts and bad debt expense, and (iii) accounting procedures
were not sufficiently formal that management can determine whether the control objective is met, documentation supporting the procedures is in place, and personnel routinely
know the procedures that need to be performed. During 2020, we completed certain measures to remediate material weaknesses related to our internal control over financial
reporting that had been identified as of December 31, 2019. Specifically, we (i) improved the use of relevant operating information to adequately develop accounting and
financial information to serve as our basis for reliable financial reporting, (ii) hired experienced staff and utilized third party consultants to provide technical competencies
necessary for the nature and complexity of the entity’s activities, and (iii) performed supporting analysis for each non-routine event or transaction that required management’s
judgement and/or estimate. Although these measures improved our internal controls over financial reporting, they did not fully remediate deficiencies in controls.
22
Additional material weaknesses in our internal control over financial reporting may be identified in the future. Any failure to maintain existing or implement required
new or improved controls, or any difficulties we encounter in their implementation, or in remediating identified weakness, could result in additional control deficiencies, cause
us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. The existence of a material weakness could result in errors in
our financial statements that could result in a restatement of financial statements and cause us to fail to meet our reporting obligations. If we are unable to effectively remediate
material weaknesses in a timely manner, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our
stock price.
We do not intend to pay dividends in the foreseeable future.
We do not intend to declare or pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development
of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors
must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
CFL holds participation rights and other rights that could affect our ability to raise funds.
Under our stockholders agreement with CFL and each of its shareholders (collectively, the “CFL Shareholders”), we granted to CFL and the CFL Shareholders a
participation right with respect to any future issuances of common stock by the Company, such that CFL and the CFL Shareholders may purchase an amount of shares
necessary to maintain CFL’s then-current beneficial ownership interest, up to a maximum of 54.64% of our then-outstanding common stock, on a fully-diluted basis, subject to
certain exceptions. This participation right could limit our ability to enter into equity financings and to raise funds from third parties.
In connection with the stockholders agreement with CFL and the CFL Shareholders, we also granted to CFL and the CFL Shareholders unlimited demand, shelf and
piggyback registration rights, effective upon the expiration of CFL’s initial lock-up period, to require us to effect a registration under the Securities Act of a resale of the shares
of common stock held by CFL. This may create the perception of a large number of shares of our common stock becoming available for sale or the perception in the market that
holders of a large number of shares intent to sell their shares, especially if CFL were to exercise its registration rights, thereby potentially further limiting our ability to enter into
equity financings and to raise funds from third parties.
Techniques employed by short sellers may drive down the market price of the Company’s common stock.
Short selling is the practice of selling securities that the seller does not own, but rather has borrowed from a third party with the intention of buying identical securities
back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the
purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the
price of the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuer
and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. While traditionally these disclosed shorts
were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements
regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and
veracity by means of so-called research reports that mimic the type of investment analysis performed by large Wall Street firm and independent research analysts.
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These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers who have limited trading volumes and are
susceptible to higher volatility levels than U.S. domestic large-cap stocks can be particularly vulnerable to such short attacks.
Reports and information have been published about us which have occasionally been followed by a decline in our stock price. It is not clear what additional effects the
negative publicity will have on the Company, if any, other than potentially affecting the market price of our common stock. Additionally, such allegations against the Company
could negatively impact its business operations and stockholders’ equity, and the value of any investment in the Company’s stock could be reduced.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
We lease approximately 4,902 square feet of space for our headquarter in Chicago, Illinois under a lease that expires on September 30, 2027. We also lease
approximately 300 square feet of office space in Minnetonka, Minnesota for our Events division under a quarter-to-quarter lease.
We believe that our current facilities are adequate to meet our current needs. We may expand our facilities or add new facilities as we add employees and enter new
geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate ongoing operations and any such growth. However,
we expect to incur additional expenses in connection with such new or expanded facilities.
ITEM 3 - LEGAL PROCEEDINGS
In a letter dated October 12, 2017, White Winston Select Asset Funds (“White Winston”) threatened to assert claims against the Company in excess of $2 million
based on White Winston’s contention that the Company’s conduct delayed White Winston’s ability to sell shares in the Company during a period when the Company’s stock
price was generally falling. On April 30, 2018, White Winston filed a lawsuit, entitled White Winston Select Asset Funds, LLC v. Professional Diversity Network, Inc., No. 18-
cv-10844, (the “Federal Action”) in the United States District Court for the District of Massachusetts, asserting federal jurisdiction based on diversity of citizenship. The four-
count complaint in the Federal Action alleged that White Winston is entitled to recover compensatory damages of $1,708,233, plus attorneys’ fees, treble damages and other
amounts. White Winston served the complaint on July 12, 2018, and the Company moved to dismiss the entire action for failure to state a claim. On October 15, 2018, prior to
addressing the motion to dismiss, the Court issued an order noting that White Winston (which is a limited liability company) had failed to allege the citizenship of its members
and ordered White Winston to show cause that complete diversity exists between the parties and that the Court had jurisdiction. On October 23, 2018, White Winston dismissed
the Federal Action without prejudice. On December 18, 2018, White Winston filed a complaint in Massachusetts Superior Court in Suffolk County in Boston alleging the same
claims and rights to relief as in the Federal Action. The Company has moved to once again to dismiss the complaint in its entirety for failure to state a claim. The entire motion
package, comprised of the Company’s motion to dismiss and accompanying memorandum, White Winston’s opposition, and the Company’s reply brief, were filed with the
court on Monday, March 25, 2019. This motion was not granted.
On October 28, 2020, the Company and White Winston reached a settlement agreement, in which the Company made a cash payment of $250,000 on October 29,
2020 and a second cash payment of $350,000 was paid on February 16, 2021. In addition, the Company issued 150,000 shares of the Company’s common stock to White
Winston in January 2021.
NAPW is a defendant in a Nassau County (NY) Supreme Court case, whereby TL Franklin Avenue Plaza LLC has sued NAPW Case index No. LT-000421/2018, with
respect to NAPW’s former Garden City NY Premises. NAPW had surrendered the Premises to the Landlord, and the Landlord has obtained a judgment against NAPW in the
amount of $746,142.41. As a result of the judgement order, the Company recorded a $780,000 litigation settlement reserve in the second quarter of 2020, which reflected the
judgement order in addition to imputed interest costs and legal fees. NAPW is currently negotiating a settlement with the Landlord.
24
The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to a proceeding captioned Deborah Bayne, et al. vs. NAPW, Inc. and Professional Diversity
Network, Inc., No. 18-cv-3591 (E.D.N.Y.), filed on June 20, 2018 and alleging violations of the Fair Labor Standards Act and certain provisions of the New York Labor Law.
The Company disputes that it or its subsidiary violated the applicable laws or that either entity has any liability and intends to vigorously defend against these claims. The
matter is in the final stages of discovery and we have completed depositions of relevant witnesses. During the first quarter of 2020, the Company recorded a $450,000 litigation
settlement reserve in the event of an unfavorable outcome in this proceeding. In November 2020, both parties entered into mediation proceedings but a settlement was not
reached. This matter is scheduled to go to trial in 2021.
We are also generally subject to legal proceedings and litigation arising in the ordinary course of business.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock has been listed on the NASDAQ Capital Market under the symbol “IPDN” since March 5, 2013. Prior to that date, there was no public trading
market for our common stock.
Year Ended December 31, 2020
First Quarter (1)
Second Quarter (1)
Third Quarter
Fourth Quarter
Year Ended December 31, 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter (1)
High
Low
$
$
$
$
$
$
$
$
0.91 $
3.98 $
3.20 $
5.56 $
3.21 $
3.52 $
2.67 $
1.62 $
0.91
0.91
0.76
0.91
1.01
1.64
1.22
0.87
(1) On November 26, 2019 through June 23, 2020, trading in our common stock was halted by NASDAQ. The closing price of our common stock on November 26, 2019 was
$0.91 per share.
Holders
As of April 9, 2021, we had 53 holders of record of our common stock. Since certain of our shares are held by brokers and other institutions on behalf of stockholders,
the foregoing number is not representative of the number of beneficial owners of our common stock.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to use the net proceeds from any offerings of our securities and our future
earnings, if any, to finance the further development and expansion of our business and do not intend or expect to pay cash dividends in the foreseeable future. Payment of future
cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and
anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.
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Recent Sales of Unregistered Securities
On March 31, 2020 the Company entered into a private placement with Malven Group Limited, a company established under the laws of the British Virgin Islands
(“Malven”), in connection with the purchase by Malven of 1,939,237 shares of our common stock at a price of $0.7735 per share for gross proceeds of $1,500,000. The
Company’s Form 8-K filed on March 27, 2020 is incorporated herein by reference. On June 26, 2020, Malven purchased an additional 312,500 shares of common stock of the
Company at a price of $3.20 per share for gross proceeds of $1,000,000. The closing of the transaction took place on June 29, 2020. The Company’s Form 8-K filed on June 29,
2020 is incorporated herein by reference.
On July 27, 2020, the Company entered into a Securities Purchase Agreement with three institutional accredited investors, in which the Company sold 1,481,484
shares of its common stock at a per share price of $1.35 for gross proceeds of approximately $2,000,000 pursuant to the Company’s Registration Statement filed on Form S-3.
The transaction closed on July 29, 2020. The Company’s Form 8-K filed on July 29, 2020 is incorporated herein by reference.
On February 1, 2021, the Company entered into a private placement with Ms. Yiran Gu, in which the Company sold 500,000 shares of its common stock at a price per
share of $2.00 for gross proceeds of $1,000,000. The Company’s Form 8-K filed on February 2, 2021 is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 8, “Financial Statements and Supplementary Data,” in Part II of this Annual 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 Annual 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, Transgender
and Queer (LGBTQ).
We currently operate in two business segments: (i) Professional Diversity Network (“PDN Network”), which includes online professional networking communities
with career resources tailored to the needs of various diverse cultural groups and employers looking to hire members of such groups, and (ii) National Association of
Professional Women (“NAPW Network”), a women-only professional networking organization.
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; and
(iii) we help employers address their workforce diversity needs by connecting them with the right candidates. 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.
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On March 4, 2020, our Board of Directors (the “Board”) decided to discontinue all operations in China. The resolution approved by our Board was to effectively cease
and discontinue operations. Accordingly, all historical financial results associated with our China operations have been reclassified to discontinued operations and current and
prior period financial results have been reclassified to conform. China operations were previously disclosed as a reportable operating segment as “China Operations.”
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.
Revenues:
Membership fees and related services
Recruitment services
Products sales and other
Consumer advertising and marketing solutions
Year Ended December 31,
2020
2019
30.2%
66.5%
0.1%
3.2%
48.3%
48.8%
0.1%
2.8%
Membership Fees 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 over a 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.
Recruitment Services. We provide recruitment services through PDN Network to medium and large employers seeking to diversify their employment ranks. Our
recruitment services include recruitment advertising, job postings, semantic search technology and paid access to, and placement in, or advertising around our career and
networking events. The majority of recruitment services revenue comes from job recruitment advertising. We also offer to businesses subject to the regulations and requirements
of the Equal Employment Opportunity Office of Federal Contract Compliance Program (“OFCCP”) our OFCCP compliance product, which combines diversity recruitment
advertising with job postings and compliance services.
Product Sales and Other. We offer to new purchasers of our NAPW memberships the opportunity to purchase a commemorative wall plaque at the time of purchase.
They may purchase up to two plaques at that time.
Consumer Advertising and Marketing Solutions. We work with partner organizations to provide them with integrated job boards on their websites which offer their
members or customers the ability to post recruitment advertising and job openings. We generate revenue from fees charged for those postings.
27
Cost of Revenue
Cost of revenue primarily consists of costs of producing job fair and other events, revenue sharing with partner organizations, costs of web hosting and operating our
websites for the PDN Network. Costs of producing wall plaques, hosting member conferences and local chapter meetings are also included in the cost of revenue for NAPW
Network.
Non-GAAP Financial Measure
Adjusted EBITDA
We believe Adjusted EBITDA provides a meaningful representation of our operating performance that provides useful information to investors regarding our financial
condition and results of operations. Adjusted EBITDA is commonly used by financial analysts and others to measure operating performance. Furthermore, management
believes that this non-GAAP financial measure may provide investors with additional meaningful comparisons between current results and results of prior periods as they are
expected to be reflective of our core ongoing business. However, while we consider Adjusted EBITDA to be an important measure of operating performance, Adjusted
EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported
under GAAP. Further, Adjusted EBITDA, as we define it, may not be comparable to EBITDA, or similarly titled measures, as defined by other companies.
The following table provides a reconciliation of net loss from continuing operations to Adjusted EBITDA for the years ended December 31, 2020 and 2019, the most
directly comparable GAAP measure as reported in the consolidated financial statements:
Years Ended December 31,
2020
2019
(in thousands)
(4,158) $
620
1,475
170
(652)
(35)
(2,580) $
(2,792)
225
-
704
(8)
(178)
(2,049)
$
$
28
Loss from Continuing Operations
Share-based compensation
Litigation settlement reserve
Depreciation and amortization
Other income
Income tax benefit
Adjusted EBITDA
Results of Operations
Revenues
Total Revenues
The following tables set forth our revenues for the years ended December 31, 2020 and 2019:
Revenues:
Membership fees and related services
Recruitment services
Products sales and other
Consumer advertising and marketing solutions
Total revenues
Year Ended December 31,
2019
2020
(in thousands)
Change
(Dollars)
Change
(Percent)
$
$
1,346
2,962
5
144
4,457
$
$
2,428
2,451
5
141
5,025
$
$
(1,082)
511
-
3
(568)
-44.6%
20.8%
0.0%
2.1%
-11.3%
Total revenues decreased $568,000, or 11.3%, from $5,025,000 for the year ended December 31, 2019 to $4,457,000 for the year ended December 31, 2020. The
decrease in revenues was primarily attributable to a $1,082,000 or 44.6% decline in membership fees and related services, partially offset by $511,000 or a 20.8% increase in
recruitment service revenues.
Revenues by Segment
The following table sets forth each operating segment’s revenues for the years ended December 31, 2020 and 2019:
Year Ended December 31,
2020
2019
Change
(Dollars)
Change
(Percent)
PDN Network
NAPW Network
Total revenues
$
$
$
(in thousands)
3,106
1,351
4,457
$
2,592
2,433
5,025
$
$
514
(1,082)
(568)
19.8%
-44.5%
-11.3%
During the year ended December 31, 2020, our PDN Network generated $3,106,000 in revenues compared to $2,592,000 in revenues during the year ended December
31, 2019, an increase of $514,000 or 19.8%. The increase in revenues was primarily due to improvements in our e-commerce platform and new sales collaborations, higher new
client acquisitions and a significant increase in diversity recruitment initiatives by our clients during the second half of 2020.
During the year ended December 31, 2020, our NAPW Network revenues were $1,351,000, compared to revenues of $2,433,000 during the year ended December 31,
2019, a decrease of $1,082,000 or 44.5%. The decrease in revenues was primarily due a continued decrease in legacy membership retention rates and the continued effects of
COVID-19 as new membership enrollment significantly declined throughout 2020. We believe that the membership services that we provide to our customers turned into a
discretionary spending item during 2020 and the services that we provide were postponed as a result of the financial and economic impact of COVID-19.
29
Costs and Expenses
The following tables set forth our costs and expenses for the years ended December 31, 2020 and 2019:
Cost and expenses:
Cost of revenues
Sales and marketing
General and administrative
Depreciation and amortization
Total cost and expenses:
Year Ended December 31,
2020
2019
(in thousands)
Change
(Dollars)
Change
(Percent)
$
$
787
1,915
6,429
170
9,301
$
$
884
2,159
4,274
704
8,021
$
$
(97)
(244)
2,155
(534)
1,280
-11.0%
-11.3%
50.4%
-75.9%
16.0%
Total costs and expenses increased for the year ended December 31, 2020 to $9,301,000 compared to $8,021,000 for the year ended December 31, 2019. The
$1,280,000 or 16.0% increase in costs and expenses was primarily attributable to a $2,155,000 increase in general and administrative expenses associated with higher share-
based compensation expense, bad debt reserves, legal expense and litigation settlement reserves, partially offset by a decrease of $534,000 in depreciation and amortization
expense and a $244,000 decrease in sales and marketing expenses due to lower salaries and benefit expenses.
Costs and Expenses by Segment
The following table sets forth each operating segment’s costs and expenses for the years ended December 31, 2020 and 2019:
Year Ended December 31,
2020
2019
Change
(Dollars)
Change
(Percent)
PDN Network
NAPW Network
Corporate Overhead
Total cost and expenses:
$
$
$
(in thousands)
2,908
1,894
4,499
9,301
$
2,949
2,706
2,367
8,021
$
$
(41)
(812)
2,132
1,280
-1.4%
-30.0%
90.1%
16.0%
Costs and expenses decreased $41,000, or 1.4%, in our PDN Network during the year ended December 31, 2020 primarily due to $114,000 in lower selling and
marketing personnel costs and a $52,000 decrease in event and facility costs due to the elimination of in-person recruiting events due to COVID-19, which was partially offset
by a $139,000 increase in bad debt expense.
Costs and expenses decreased $812,000, or 30.0%, in our NAPW Network during the year ended December 31 2020 primarily as a result of a $492,000 decrease in
intangible amortization expense and a $319,000 reduction in personnel costs.
Corporate overhead expenses increased $2,133,000 or 90.2% during the year December 31, 2020 primarily as a result of $1,167,000 in litigation settlement reserves,
$722,000 in higher legal fees and $396,000 in higher non-cash share-based compensation, which was partially offset by $304,000 in lower administrative salaries and benefits
expense.
Operating Expenses
Cost of revenues: Cost of revenues during the year ended December 31, 2020 was $787,000, a decrease of $97,000, or 11.0%, from $884,000, during the year ended
December 31, 2019, as a result of an $82,000 decrease in event and facility costs due to the elimination of in-person recruiting events in our PDN Network due to COVID-19.
Sales and marketing expense: Sales and marketing expense for the year ended December 31, 2020 was $1,915,000, a decrease of $244,000, or 11.3%, from $2,159,000
for the year ended December 31, 2019. The decrease is mainly attributable to a $257,000 reduction in the personnel costs, partially offset by a $16,000 increase in consulting
fees.
30
General and administrative expense: General and administrative expenses increased $2,155,000, or 50.4%, to $6,429,000 for the year ended December 31, 2020,
compared to general and administrative expenses of $4,274,000 for the year ended December 31, 2019. The increase was primarily the result of $1,947,000 in legal settlement
reserves associated with settlements and court awarded judgements recorded in the current year, $396,000 in higher non-cash share-based compensation expenses associated
with restricted stock awards and a $139,000 increase in bad debt expense, which was partially offset by a $482,000 reduction in personnel and benefit costs.
Depreciation and amortization expense: Depreciation and amortization expense for the year ended December 31, 2020 was $170,000, compared to $704,000 for the
year ended December 31, 2019, a decrease of $534,000, or 75.9%. The decrease was mainly attributable to lower amortization expense associated with a $2,796,000 impairment
charge recorded in the fourth quarter of 2018 against long-lived intangible assets in our NAPW Network, which effectively lower future amortization expenses.
Other Income (Expenses)
Other income
Year Ended December 31,
2020
2019
(in thousands)
Change
(Dollars)
Change
(Percent)
$
652
$
26
$
626
2407.7%
Other income for the year ended December 31, 2020 was $652,000, compared to other income of $26,000 during the year ended December 31, 2019. The increase in
other income during the current year was primarily due to the Paycheck Protection Program (“PPP”) loan forgiveness we received from the Small Business Administration
(“SBA”) in the fourth quarter of 2020. Due to the financial and economic impact of COVID-19, the CARES Act was enacted on March 27, 2020 and among the provisions
contained in the CARES Act was the creation of the PPP that provided SBA loans for qualified small businesses and the loan proceeds were intended to be used for payroll
costs, group health care benefits, rent, utilities and certain other operating related expenses. We applied for the PPP loan and on May 5, 2020, we received total proceeds of
$651,077 from the SBA. In accordance with the loan forgiveness requirements under the CARES Act, we utilized the proceeds from the PPP loan for payroll costs, rent and
utilities.
We applied for loan forgiveness during the fourth quarter of 2020 and the PPP loan was fully forgiven by the SBA. Prior to loan forgiveness, we had recorded the
receipts under the PPP loan as a short-term and long-term loan in our consolidated balance sheets. Upon receiving loan forgiveness, we eliminated the short-term and long-term
loan liability and the loan amount of $651,077 was reflected as PPP loan forgiveness in other income in our consolidated statements of operations during the fourth quarter of
2020.
Income Tax Benefit
Income tax benefit
Year Ended December 31,
2020
2019
$
(in thousands)
(35)
$
Change
(Dollars)
Change
(Percent)
(177)
$
142
-80.2%
During the years ended December 31, 2020 and 2019, we recorded a benefit for income tax of $35,000 and $177,000. The decrease in income tax benefit during the
current period was primarily due to a decrease in tax rates pursuant to the U.S. Tax Cuts and Jobs Act enacted in January 2018 year in addition to a reduction in our deferred tax
liabilities in the current year.
31
Discontinued Operations
In March 2020, our Board of Directors decided to suspend all operations in China. The results for operations of China are presented in the consolidated statements of
operation and comprehensive loss as loss from discontinued operations.
The following table presents results from discontinued operations for the years ended December 31, 2020 and 2019:
Revenues
Cost of Sales
Depreciation and amortization
Sales and marketing
General and administrative
Non-operating (expense) income
Loss from discontinued operations before income tax
Income tax expense
Net loss from discontinued operations
Net loss
Year Ended December 31,
2019
2020
$
(in thousands)
- $
13
-
3
170
(8)
(194)
-
(194) $
$
108
34
17
316
843
196
(906)
147
(1,052)
The following table sets forth each operating segment’s net income or loss for the periods presented. The period-to-period comparison is not necessarily indicative of
future results.
Year Ended December 31,
2020
2019
Change
(Dollars)
Change
(Percent)
PDN Network
NAPW Network
Corporate Overhead
Consolidated net loss from continuing operations
$
$
$
(in thousands)
841
(539)
(4,460)
(4,158)
$
(168)
(319)
(2,305)
(2,792)
$
$
1,009
(220)
(2,155)
(1,366)
-600.6%
69.0%
93.5%
48.9%
Consolidated Net Loss from Continuing Operations. As the result of the factors discussed above, during the year ended December 31, 2020, we incurred a net loss of
$4,158,000 from continuing operations, an increase of $1,366,000 or 48.9% from a net loss of $2,792,000 for the year ended December 31, 2019.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of December 31, 2020 and 2019:
Cash and cash equivalents
Working capital (deficiency)
As of December 31,
2020
2019
$
$
(in thousands)
2,118 $
(1,156) $
634
(2,114)
As of December 31, 2020, we had cash and cash equivalents of $2,118,000 compared to cash and cash equivalents of $634,000 at December 31, 2019. Our principal
sources of liquidity are our cash and cash equivalents, including net proceeds from the issuances of common stock. As of December 31, 2020, we had a working capital deficit
of approximately $1,156,000, compared to a working capital deficit of approximately $2,114,000 as of December 31, 2019. We had an accumulated deficit of approximately
$93,023,000 at December 31, 2020. During the years ended December 31, 2020 and 2019, we generated a net loss from continuing operations of approximately $4,158,000 and
2,792,000 and used cash from continuing operations of approximately $3,337,000 and 3,290,000.
32
During 2020, we continued our focus on cost cutting initiatives and have continued our focus on improving our overall profitability though new sales and marking
initiatives and through business collaborations, however, we have continued to generate negative cash flows from operations and we expect to incur net losses for the foreseeable
future. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to further
implement our business plan, raise capital, make strategic acquisitions and generate organic growth in revenues from our existing operating segments. The consolidated
financial statements do not include any adjustments that might be necessary if we unable to continue as a going concern.
On March 22, 2020, we entered into an agreement with Malven Group Limited, a company established under the laws of the British Virgin Islands (“Malven”), in
connection with the purchase by Malven of 1,939,237 shares of our common stock at a price of $0.7735 per share for gross proceeds of $1,500,000. The closing of the
transaction took place on March 31, 2020. On June 26, 2020, we entered into a second agreement with Malven, in connection with the purchase of 312,500 shares of common
stock at a price of $3.20 per share for gross proceeds of $1,000,000. The closing of the transaction took place on June 29, 2020 and we received the funds in July 2020.
On July 27, 2020, we entered into a Securities Purchase Agreement (the “Agreement”) with three institutional accredited investors. Pursuant to the Agreement, we
offered and sold 1,481,484 shares of our common stock at a per share price of $1.35 for gross proceeds of approximately $2,000,000. The transaction closed on July 29, 2020
and we received net proceeds of $1,814,353, after deducting financial advisory, legal and escrow related fees.
On February 1, 2021, we entered into a private placement with Ms. Yiran Gu, in which the Company sold 500,000 shares of its common stock at a price per share of
$2.00 for gross proceeds of $1,000,000.
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 interim financial information. In order to fund our operations, we will need to increase revenues or raise capital by the issuance of common
stock. However, there can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances
similar to COVID-19 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.
We collect membership fees generally at the commencement of the membership term or at renewal periods thereafter. The memberships we sell are for one year and
we defer recognition of the revenue from membership sales and renewals and recognize it ratably over the twelve-month period. Starting January 2, 2018, we also offer a
monthly membership for IAW USA for which we collect a fee on a monthly basis. Our PDN Network also sells recruitment services to employers, generally on a one-year
contract basis. This revenue is also deferred and recognized over the life of the contract. Our payment terms for PDN Network customers range from 30 to 60 days. We consider
the difference between the payment terms and payment receipts a result of transit time for invoice and payment processing and to date have not experienced any liquidity issues
as a result of the payments extending past the specified terms. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market
funds.
33
Cash (used in) provided by continued operations
Operating activities
Investing activities
Financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Cash (used in) provided by discontinued operations
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
Cash and Cash Equivalents
Year Ended December 31,
2020
2019
(in thousands)
$
$
(3,337) $
(65)
4,928
157
(199)
-
-
1,484 $
(3,290)
(3)
6,615
43
(3,184)
58
289
528
The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have
original maturities of three months or less.
Net Cash Used in Operating Activities
Net cash used in operating activities from continuing operations during the year ended December 31, 2020 was $3,337,000. We had a net loss from continuing
operations of $4,158,000 during the year ended December 31, 2020, which included a non-cash PPP loan forgiveness of $651,077, $350,000 in litigation settlements to be paid
during the first quarter of 2021, share-based compensation expense of $620,000 and depreciation and amortization expense of $170,000 and amortization of right-of-use assets
of $116,000, which was partially offset by payments of lease obligations of $107,000. Changes in operating assets and liabilities used $771,000 of cash during the year ended
December 31, 2020, consisting primarily of a $834,000 decrease in accounts payable, a $285,000 decrease in accounts receivable and a $114,000 decrease in prepaid expenses,
which was partially offset by a $264,000 increase in accrued liabilities and a $202,000 increase in deferred revenues.
Net cash used in operating activities from continuing operations for the year ended December 31, 2019 was $3,290,000. We had a net loss of $2,792,000, write off of
accounts payable of $376,000, payments of lease obligations of $164,000, which was partially offset by non-cash depreciation and amortization of $704,000, Share-based
compensation expense of $225,000, amortization of leases of $151,000, and deferred tax expense of $177,000. Changes in operating assets and liabilities used $872,000 of cash
during the year ended December 31, 2019, consisting primarily of decreases in accounts payable of $432,000 and a $564,000 decrease in deferred revenues, which was partially
offset by increases in accounts receivable of $96,000 and an increase in prepaid expenses of $54,000. Net cash used in operating activities from discontinued operations was
$3,183,594, which primarily consisted of the funds in PDN China’s frozen bank account due to the Gatewang Case.
Net Cash Used in Investing Activities
Net cash used in investing activities from continuing operations during the year ended December 31, 2020 was approximately $65,000, which consisted primarily of a
security deposit on our new office lease of $66,000, $10,000 associated with the purchases of computer equipment and $4,000 in costs associated with internally developed
technology. During the year ended December 31, 2019, net cash used in investing activities from continuing operations was $3,000 and consisted of investments in internally
developed technology.
Net Cash Provided by Financing Activities
Net cash provided by financing activities from continuing operations during the year ended December 31, 2020 was approximately $4,928,000, which reflected
proceeds from the sale of common stock of $4,277,000.
34
On March 22, 2020, we entered into an agreement with Malven Group Limited, a company established under the laws of the British Virgin Islands, in connection with
the purchase of 1,939,237 shares of our common stock at a price of $0.7735 per share for gross proceeds of $1,500,000. The closing of the transaction took place on March 30,
2020.
On June 26, 2020, we entered into a second agreement with Malven Group Limited, in connection with the purchase of 312,500 shares of common stock at a price of
$3.20 per share for gross proceeds of $1,000,000. The closing of the transaction took place on June 29, 2020 and gross proceeds of $1,000,000 were received in July 2020.
On July 27, 2020, we entered into a Securities Purchase Agreement (the “Agreement”) with three institutional accredited investors. Pursuant to the Agreement, the
Company offered and sold 1,481,484 shares of our common stock at a per share price of $1.35 for gross proceeds of approximately $2,000,000. The transaction closed on July
29, 2020 and the Company received net proceeds of $1,814,353, after deducting financial advisory, legal and escrow related fees.
Net cash provided by financing activities from continuing operations during the year ended December 31, 2019 was approximately $6,615,000, consisting of
$1,100,000 in gross proceeds from the sale of 500,000 shares of our common stock to one purchaser at a purchase price $2.20 per share, $2,000,000 in gross proceeds from sale
of 1,142,857 shares of common stock to one purchaser at a purchase price $1.75 per share, $700,000 in gross proceeds from the sale of 442,830 shares of our common stock to
one purchaser at a purchase price $1.58 per share, $300,000 in gross proceeds from sale of 189,873 shares of common stock to one purchaser at a purchase price $1.58 per
share, $400,000 in gross proceeds from a short-term loan from GNet Tech Holdings, a related party through one of our shareholders, Cosmic Forward Limited, partially offset
by a $400,000 repayment of the short-term loan from GNet Tech Holdings
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet activities as defined in Regulation S-K Item 303(a)(4).
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to
exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets
and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the consolidated financial statements.
We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products,
the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and
modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources.
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the
results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
While our significant accounting policies are more fully described in Note 3 to our consolidated financial statements included at the end of this Annual Report, we
believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant
judgments and estimates that we use in the preparation of our consolidated financial statements.
35
Accounts Receivable
Our policy is to reserve for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We
periodically review our accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors
that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote.
Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”). ASC 350 requires that
goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an
asset has decreased below its carrying value.
Goodwill is tested for impairment at the reporting unit level on an annual basis (December 31 for the Company) and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the
carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test.
When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that
goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then compares the fair value of the
Company’s reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not
required to perform further testing. If the carrying value of a reporting unit exceeds its fair value, the Company will measure any goodwill impairment losses as the amount by
which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Capitalized Technology Costs
We account for capitalized technology costs in accordance with ASC 350-40, Internal-Use Software (“ASC 350-40”). In accordance with ASC 350-40, we capitalize
certain external and internal computer software costs incurred during the application development stage. The application development stage generally includes software design
and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is
probable that such expenditures will result in additional functionality. Capitalized software costs are amortized over the estimated useful lives of the software assets on a
straight-line basis, generally not exceeding three years.
Business Combinations
ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a
controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer : a) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired and
the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the
acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and
liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one
year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the consolidated statements of comprehensive loss.
36
Revenue Recognition
Our principal sources of revenue are recruitment revenue, consumer marketing and consumer advertising revenue, membership subscription fees, and product sales.
Recruitment revenue includes revenue recognized from direct sales to customers for recruitment services and events, as well as revenue from our direct ecommerce sales.
Revenues from recruitment services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed or determinable and collectability is
probable. Our recruitment revenue is derived from agreements through single and multiple job postings, recruitment media, talent recruitment communities, basic and premier
corporate memberships, hiring campaign marketing and advertising, e-newsletter marketing and research and outreach services.
Consumer marketing and consumer advertising revenue is recognized either based upon a fixed fee for revenue sharing agreements in which payment is required at the
time of posting, or billed based upon the number of impressions (the number of times an advertisement is displayed) recorded on the websites as specified in the customer
agreement.
Revenue generated from NAPW Network membership subscriptions is recognized ratably over the 12-month membership period, although members pay their annual
fees at the commencement of the membership period. Starting January 2, 2018, we also offer a monthly membership for which we collect fees on a monthly basis and we
recognize revenue in the same month as the fees are collected. Revenue from related membership services are derived from fees for development and set-up of a member’s
personal on-line profile and/or press release announcements. Fees related to these services are recognized as revenue at the time the on-line profile is complete and press release
is distributed.
Recent Accounting Pronouncements
See Note 3 to our consolidated financial statements.
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, including Part I, Item 1. “Business” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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
Annual Report contains forward-looking statements regarding:
●
●
●
●
●
our beliefs regarding our ability to capture and capitalize on market trends;
our expectations on the future growth and financial health of the online diversity recruitment industry and the industry participants, and the drivers of such
growth;
our expectations regarding continued membership growth;
our beliefs regarding the increased value derived from the synergies among our segments; 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;
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 intellectual property 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.
Additional factors, risks and uncertainties that may affect our results, are discussed in Item 1A. “Risk Factors” of this Annual Report beginning on page 13, and in our
subsequent filings with the SEC. 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 Annual 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 Annual Report.
37
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s financial statements required by this item are included on pages F-1 through F-23 of this Annual Report. See Item 15(a)(l) for a listing of financial
statements provided.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2020, our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures; as is defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). We recognize that there are material weaknesses related to our internal controls. Therefore, our Chief Executive Officer and
Interim Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, as of the end of the period covered by this Annual Report on
Form 10-K. This includes ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms. Furthermore, to provide reasonable assurance that information required to be disclosed is accumulated and communicated to our management, including our
Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal executive officer) and Interim Chief Financial Officer
(principal financial officer), is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act. We have designed our internal controls to provide reasonable assurance that our financial statements are prepared in accordance with generally accepted
accounting principles in the United States (U.S. GAAP), and include those policies and procedures that:
●
●
●
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
the financial statements.
Our management conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2020. In making this evaluation,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its 2013 Internal Control — Integrated
Framework.
Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our internal controls over financial reporting were not
effective as of the end of the period covered in this Annual Report on Form 10-K. Management undertook several remediation actions, including hiring experienced accounting
personnel, improvements in the segregation of duties within our accounting and financial reporting functions, GAAP training of internal staff and engaging an outside
consultant to assist the Company on complex GAAP matters. Although these measures greatly helped to improve our internal controls, they did not fully remediate deficiencies
in controls. Despite this, our management has concluded that the financial statements included in this report fairly present in all material respects our financial position and
results of operations.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a control deficiency or a combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. Our management had concluded that, as of December 31, 2020, we did not maintain effective controls
over the preparation, review, presentation and disclosure of our financial statements. Specifically, we noted the following.
● Management has not implemented policies and procedures to recognize revenue equal to the amount allocated from revenue sharing arrangements with partners.
Specifically, invoices of such arrangements are not agreed to approved price list before recording and related write-offs and credit memos for payments to be received
are not reviewed or approved by management.
●
The Company does not have accounting policies and procedures to specify the correct treatment for estimating the allowance for doubtful accounts and bad debt expense
of recruitment services. Specifically, a supporting analysis is not prepared for estimating the allowance for doubtful accounts and bad debt expense. Delinquent accounts
receivable are not reviewed.
● Accounting procedures are not sufficiently formal that management can determine whether the control objective is met, documentation supporting the procedures is in
place, and personnel routinely know the procedures that need to be performed. Specifically, data from foreign subsidiaries underlying financial statements is not
captured completely, accurately, and timely, in accordance with the entity’s policies and procedure
38
Plan for Remediation of Material Weakness
During 2020, we continued our initiatives to improve and remediate material weaknesses related to our internal control over financial reporting for the period ended
December 31, 2019. Specifically:
● We expanded our corporate accounting staff and added qualified personnel with knowledge of U.S. GAAP,
● We engaged an outside consultant to assist the Company on complex GAAP issues, including proper supporting documentation for technical accounting decisions and
complex transactions;
● We improved financial reporting processes that included monthly and quarterly closing check-list and monthly review of the financial reports by the Company’s Finance
Department leadership.
We anticipate that the actions described above and resulting improvements in controls will strengthen the Company’s internal control over financial reporting and will, over
time, address the related material weakness. However, because many of the controls in the Company’s system of internal controls rely extensively on manual review and
approval, the successful operation of these controls may be required for several quarters prior to management being able to conclude that the material weakness has been
remediated.
Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in
designing, implementing, operating and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal
control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure
you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the fiscal year ended December 31, 2020 we continued to undertake efforts to enhance the overall internal control structure. We implemented additional review
and approval policies and procedures within our operations. There have been no other changes in our internal control over financial reporting that occurred during our fiscal
year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
With the exception of the description of our Code of Business Conduct and Ethics below, the information required by this item is incorporated herein by reference
from the discussion under the headings “Directors and Director Compensation,” “Corporate Governance,” “Executive Officers” and “Other Matters—Delinquent Section 16(a)
Reports” in our definitive Proxy Statement to be filed in connection with our 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”).
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial
reporting. The code of business conduct and ethics is available on our corporate website at www.ipdnusa.com. Any amendment to, or waiver from, a provision of such code of
ethics will be posted on our website. Information on the Company’s website is not incorporated by reference herein.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding director and executive compensation is incorporated by reference from the discussion under the headings “Directors and Director
Compensation” and “Executive Officers and Executive Compensation” in the 2021 Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain of the information required by this item is incorporated herein by reference from the discussion under the heading “Security Ownership of Certain Beneficial
Holders and Management” in the 2021 Proxy Statement.
39
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2020, with respect to shares of our common stock that may be issued under our existing equity
compensation plans:
Equity Compensation Plan Information
(a)
(b)
Number of
securities to be
issued upon
exercise
of outstanding
options,
warrants
and rights
Weighted -
average
exercise price of
outstanding
options
(c)
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
272,901
—
272,901
$
$
5.24
—
5.24
514,780
—
514,780
Equity compensation plans approved by our shareholders (1)
Equity compensation plans not approved by our shareholders
Total
Plan category
(1) Includes outstanding stock options to purchase shares of our common stock and outstanding restricted stock awards pursuant to the Company’s 2013 Equity Compensation
Plan, as amended. Each of these plans has been approved by our stockholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference from the discussion under the headings “Certain Transactions and Business Relationships”
and “Corporate Governance” in the 2021 Proxy Statement.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference from the discussion under the heading “Ratification of Appointment of Independent
Registered Public Accounting Firm” in the 2021 Proxy Statement.
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
The financial statements and schedules listed in the accompanying Index to Financial Statements on page F-1 are filed as part of this report.
2. Financial Statement Schedules
The financial statement schedules have been omitted because they are not applicable or because the required information is given in the consolidated financial statements and
notes thereto.
3. Exhibits
The exhibits listed on the Index to Exhibits (pages 41 through 42) are filed as part of this Annual Report.
ITEM 16. FORM 10-K SUMMARY
None.
Exhibit
Number
Description of Exhibit
40
2.1
2.2
3.1
3.2
4.1
4.2
4.3±
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Agreement and Plan of Merger among the Company, NAPW Merger Sub, Inc., NAPW, Inc. and Matthew B. Proman, dated as of July 11, 2014 (incorporated
herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on July 14, 2014).
Stock Purchase Agreement, dated as of August 12, 2016, by and between Professional Diversity Network, Inc. and Cosmic Forward Limited, including as Exhibit
A the form of Stockholders’ Agreement (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on
August 15, 2016).
Amended and Restated Certificate of Incorporation of the Company, as amended through October 17, 2016 (incorporated herein by reference to Exhibit 3.1 of the
Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2016).
Second Amended and Restated Bylaws of the Company, as amended (incorporated herein by reference to Exhibit 3.2 of the Company’s Current Report on Form
8-K filed with the SEC on November 8, 2016).
Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 of Amendment No. 12 to the Company’s Registration Statement on Form S-1 (No.
333-181594), filed with the SEC on February 28, 2013).
Form of Underwriters’ Warrant (incorporated herein by reference to Exhibit 1.1 of Amendment No. 12 to the Company’s Registration Statement on Form S-1 (No.
333-181594), filed with the SEC on February 28, 2013).
Common Stock Purchase Warrant for the Purchase of 6,000 Shares of Common Stock of Professional Diversity Network, Inc. between David Bocchi and the
Company, dated as of September 24, 2014 (incorporated by reference herein to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on
September 26, 2014).
Common Stock Purchase Warrant for the Purchase of 50,000 Shares of Common Stock of Professional Diversity Network, Inc. between Matthew B. Proman and
the Company, dated as of September 24, 2014 (incorporated by reference herein to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC
on September 26, 2014).
Common Stock Warrant for the Purchase of 131,250 Shares of Common Stock of Professional Diversity Network, Inc. between Matthew B. Proman and the
Company, dated as of September 24, 2014 (incorporated by reference herein to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on
September 26, 2014).
Warrant for the Purchase of 1,000,000 Shares of Common Stock of Professional Diversity Network, Inc. at a purchase price of $0.25 between White Winston
Select Asset Funds, LLC and Professional Diversity Network, Inc., dated June 30, 2016 (incorporated herein by reference to Exhibit 4.6 to the Company’s Current
Report on Form 8-K filed with the SEC on July 6, 2016).
Warrant for the Purchase of 1,750,000 Shares of Common Stock of Professional Diversity Network, Inc. at a purchase price of $0.25 between White Winston
Select Asset Funds, LLC and Professional Diversity Network, Inc., dated June 30, 2016 incorporated herein by reference to Exhibit 4.7 to the Company’s Current
Report on Form 8-K filed with the SEC on July 6, 2016).
Warrant for the Purchase of 1,000,000 Shares of Common Stock of Professional Diversity Network, Inc. at a purchase price of $2.50 between White Winston
Select Asset Funds, LLC and Professional Diversity Network, Inc., dated June 30, 2016 (incorporated herein by reference to Exhibit 4.8 to the Company’s Current
Report on Form 8-K filed with the SEC on July 6, 2016).
Stockholders’ Agreement, dated as of November 7, 2016, by and among Professional Diversity Network, Inc., Cosmic Forward Limited, Maoji (Michael) Wang,
Jingbo Song, Yong Xiong Zheng and Nan Nan Kou (incorporated herein by reference to Exhibit 4.9 to the Company’s Current Report on Form 8-K filed with the
SEC on November 8, 2016).
Agreement on Exclusive Technical Support, Consultation and Service, dated as of November 16, 2017 between PDN (China) International Culture Development
Co., Ltd. and Jiangxi PDN Culture & Media Co., Ltd. (incorporated herein by reference to Exhibit 4.10 to the Company’s Annual Report on Form 10-K filed with
the SEC on March 30, 2018).
4.11
Business Operation Agreement, dated as of November 16, 2017 between PDN (China) International Culture Development Co., Ltd. and Jiangxi PDN Culture &
Media Co., Ltd. (incorporated herein by reference to Exhibit 4.11 to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2018).
41
4.12
4.13
4.14
Equity Interest Pledge Agreement, dated as of February 26, 2018 between PDN (China) International Culture Development Co., Ltd., Maoji (Michael) Wang and
Anyong Wu. (incorporated herein by reference to Exhibit 4.12 to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2018).
Exclusive Stock Option Agreement, dated as of November 16, 2017 between PDN (China) International Culture Development Co., Ltd., Maoji (Michael) Wang
and Anyong Wu. (incorporated herein by reference to Exhibit 4.13 to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2018).
Intellectual Property Licensing Agreement, dated as of November 16, 2017 between PDN (China) International Culture Development Co., Ltd. and Jiangxi PDN
Culture & Media Co., Ltd. (incorporated herein by reference to Exhibit 4.14 to the Company’s Annual Report on Form 10-K filed with the SEC on March 30,
2018).
4.15
21*
23.1*
24
31.1*
31.2*
32.1*
32.2*
Professional Diversity Network, Inc. Announces Agreement to Acquire Interests in RemoteMore USA, Inc., a Provider of Remote-hiring (incorporated herein by
reference to the Company’s Current Report on Form 8-K filed with the SEC on March 26, 2021).
List of Subsidiaries of the Company
Consent of Ciro E. Adams, CPA, LLC.
Powers of Attorney (included on the signature page to this report)
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
Confidential treatment requested as to certain portions of this exhibit. Such portions have been redacted and submitted separately to the SEC.
*
†
# Denotes a management contract or compensation plan or arrangement
±
The Common Stock Purchase Warrants issued by the Company to each of Craig Skop, Priyanka Mahajan, Kevin Mangan, Eric Lord, Ramnarain Jaigobind, Zachary Hirsch,
Joseph Haughton, Phillip Michals, Raffaele Gambardella and Robert Eide, all of whom are affiliates of Aegis Capital Corp., are substantially identical in all material respects
to the Common Stock Purchase Warrant issued to David Bocchi and filed as an exhibit, except as to the recipient of such warrants and the number of shares of Common
Stock issuable upon exercise of such warrants. Pursuant to SEC regulation, we have omitted filing copies of such warrants as exhibits to this Annual Report on Form 10-K.
42
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm - Ciro E. Adams, CPA, LLC
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Professional Diversity Network, Inc.
Chicago, IL 60603-5713
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Professional Diversity Network, Inc., (the Company), as of December 31, 2020 and 2019, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in
conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has
a significant working capital deficiency, has incurred significant losses, and needs to raise additional funds to meet its obligations and sustain its operations. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
56 Rockford Road, Wilmington, DE 19806-1004 | Phone: 302-652-4783
ciroadamscpa.com
F-2
Description of the Matter
Revenue Recognition
As described in Note 3 to the consolidated financial statements, the Company derives its revenue from membership fees and recruitment services, which it recognizes
ratably over the membership periods and the contractual terms. The Company’s revenue recognition processes involve several applications responsible for the initiation,
processing, and recording of transactions from the Company’s various sales channels, and the calculation of revenue in accordance with the Company’s accounting
policy.
Auditing the Company’s accounting for revenue from recruitment services was challenging due to the material weaknesses in internal control over revenue sharing
arrangements with partners. Specifically, invoices of such arrangements are not agreed to approved price list before recording and related write-offs and credit memos
for payments to be received are not reviewed or approved by management.
How We Addressed the Matter in Our Audit
We obtained an understanding of internal controls over the Company’s accounting for revenue from membership fees and recruitment services. To test the Company’s
accounting for revenue from recruitment services, we performed substantive audit procedures that included, among others, testing on a sample basis the completeness
and accuracy of the underlying data within the Company’s billing system, performing data analytics by extracting data from the system to evaluate the completeness and
accuracy of recorded revenue and deferred revenue amounts, tracing a sample of sales transactions to source data, and testing a sample of cash to billings reconciliations.
Description of the Matter
Allowance for Doubtful Accounts
As described in Note 3 to the consolidated financial statements, the Company periodically reviews its accounts receivable to determine whether an allowance for
doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. A portion
of the uncollectable amounts comprised of adjustments to historical loss information subject to management’s estimate and judgment.
Auditing the Company’s allowance for doubtful accounts was challenging due to the material weaknesses in internal control over estimating the allowance for doubtful
accounts and bad debt expense of recruitment services. Specifically, supporting analyses are not prepared by management for estimating the allowance for doubtful
accounts and bad debt expense.
How We Addressed the Matter in Our Audit
We obtained an understanding of internal controls over the Company’s accounting for an allowance for doubtful accounts. To test the Company’s allowance for doubtful
accounts, we performed substantive audit procedures that included, among others, testing subsequent collections posted to the aged trial balance by examining
supporting documents (deposit slips and remittance advices) and matching cash receipts to specific invoices.
Wilmington, DE 19806-1004
April 9, 2021
We have served as the Company’s auditor since 2018.
Professional Diversity Network, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Incremental direct costs
Prepaid expense and other current assets
Current assets from discontinued operations
Total current assets
Property and equipment, net
F-3
December 31,
2020
2019
$
$
2,117,569
1,005,482
36,212
355,260
6,898
3,521,421
10,382
633,615
720,750
33,258
240,763
75,996
1,704,382
21,188
Capitalized technology, net
Goodwill
Intangible assets, net
Right-of-use assets
Merchant reserve
Security deposits
Long-term assets from discontinued operations
Total assets
Current Liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Lease liability, current portion
Current liabilities from discontinued operations
Total current liabilities
Lease liability, non-current portion
Deferred tax liability
Total liabilities
Commitments and contingencies
Stockholders’ Equity
Common stock, $0.01 par value; 45,000,000 shares authorized, 12,820,891 shares and 8,928,611 shares issued as of
December 31, 2020 and 2019, and 12,819,843 and 8,927,563 shares outstanding as of December 31, 2020 and 2019
Additional paid in capital
Accumulated other comprehensive income
Accumulated deficit
Treasury stock, at cost; 1,048 shares at December 31, 2020 and 2019
Total stockholders’ equity
Total liabilities and stockholders’ equity
25,867
339,451
376,178
487,677
760,849
66,340
3,085,178
8,673,343
728,379
1,626,164
1,901,129
46,526
375,276
4,677,474
463,998
186,039
5,327,511
128,198
95,985,080
292,506
(93,022,835)
(37,117)
3,345,832
8,673,343
$
$
$
95,884
339,451
452,385
93,251
760,849
15,033
3,109,200
6,591,623
796,137
654,169
1,699,001
105,083
564,044
3,818,434
-
221,254
4,039,688
89,286
91,126,784
44,242
(88,671,260)
(37,117)
2,551,935
6,591,623
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Professional Diversity Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Revenues:
Membership fees and related services
Recruitment services
Products sales and other
Consumer advertising and marketing solutions
Total revenues
Costs and expenses:
Cost of revenues
Sales and marketing
General and administrative
Depreciation and amortization
Total costs and expenses
Loss from continuing operations
Other income (expense)
PPP loan forgiveness
Interest income
Other income, net
Other income (expense), net
Loss before income tax benefit
Income tax benefit
Loss from continuing operations
Loss from discontinued operations
Net loss
Other comprehensive loss:
Net loss
Foreign currency translation adjustment
Comprehensive loss:
Basic and diluted loss per share:
Continuing operations
Discontinued operations
Year Ended December 31,
2020
2019
$
1,345,707
2,962,275
4,820
143,934
4,456,736
787,184
1,915,422
6,429,445
169,902
9,301,953
2,428,060
2,450,742
5,644
140,766
5,025,212
884,374
2,159,315
4,273,941
703,717
8,021,347
(4,845,217)
(2,996,135)
651,077
-
963
652,040
(4,193,177)
(35,215)
(4,157,962)
(193,613)
(4,351,575)
(4,351,575)
248,264
(4,103,311)
(0.37)
(0.02)
$
$
$
$
$
-
8,017
18,488
26,505
(2,969,630)
(177,501)
(2,792,129)
(1,052,334)
(3,844,463)
(3,844,463)
68,452
(3,776,011)
(0.43)
(0.16)
$
$
$
$
$
$
Net loss
$
(0.39)
$
(0.59)
Weighted average outstanding shares used in computing net loss per common share:
Basic and diluted
11,276,228
6,547,815
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Professional Diversity Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Additional
Common Stock
Paid in Accumulated
Shares
Amount Capital
Deficit
Accumulated
Other
Comprehensive
Shares Amount Income (Loss)
Treasury Stock
Balance at January 1, 2019
Issuance of common stock
Conversion of note payable
Issuance of common stock for settlement of
acounts payable
Share-based compensation
Translation adjustments
Net loss
Balance at December 31, 2019
Issuance of common stock
Share-based compensation
Translation adjustments
Net loss
Balance at December 31, 2020
4,856,213 $ 48,562 $ 83,728,904 $ (84,826,797)
3,832,553
-
209,205
38,326 6,576,602
497,908
2,092
1,048 $ (37,117) $
-
-
(24,340) $
-
30,640
-
-
-
306
-
-
-
98,664
224,706
-
-
-
-
(3,844,463)
8,928,611 $ 89,286 $ 91,126,784 $ (88,671,260)
-
3,891,232
-
-
-
-
(4,351,575)
-
12,819,843 $ 128,198 $ 95,985,080 $ (93,022,835)
38,912 4,237,915
620,381
-
-
-
-
-
-
-
-
-
-
-
1,048 $ (37,117) $
-
-
-
-
1,048 $ (37,117) $
-
-
-
-
-
68,582
-
44,242 $
-
-
248,264
-
292,506 $
Total
Stockholders’
Equity
(1,110,788)
6,614,928
500,000
98,970
224,706
68,582
(3,844,463)
2,551,935
4,276,827
620,381
248,264
(4,351,575)
3,345,832
The accompanying notes are an integral part of these financial statements.
F-6
Professional Diversity Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Loss from continuing operations
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities - continuing
operations:
PPP loan forgiveness
Depreciation and amortization
Deferred tax benefit
Amortization of right-of-use asset
Accretion of lease liability
Share-based compensation expense
Litigation settlement reserve
Write-off of accounts payable
Write-off of property and equipment
Recovery of bad debt expense
Payment of lease obligations
Changes in operating assets and liabilities, net of effects of discontinued operations:
Accounts receivable
Prepaid expenses and other current assets
Incremental direct costs
Accounts payable
Accrued expenses
Deferred revenue
Net cash used in operating activities - continuing operations
Net cash used in operating actvities - discontinued operations
Net cash used in operating activities
Cash flows from investing activities:
Costs incurred to develop technology
Purchases of property and equipment
Payment of security deposit
Net cash used in investing activities - continuing operations
Net cash provided by investing actvities - discontinued operations
Net cash provided used in investing activities
Cash flows from financing activities:
Proceeds from the sale of common stock
Year Ended December 31,
2020
2019
$
(4,157,962)
$
(2,792,129)
(651,077)
169,903
(35,215)
116,098
2,318
620,381
1,474,922
-
1,232
-
(107,401)
(284,732)
(114,497)
(2,954)
(834,259)
263,574
202,128
(3,337,541)
(198,535)
(3,536,076)
(3,700)
(10,404)
(51,307)
(65,411)
-
(65,411)
-
703,717
(177,501)
151,520
10,765
224,706
-
(375,997)
1,385
(102)
(164,194)
96,050
54,170
(12,461)
(431,899)
(14,196)
(563,570)
(3,289,736)
(3,183,594)
(6,473,330)
(2,499)
(550)
-
(3,049)
57,846
54,797
4,276,827
6,614,928
Proceeds from short-term loan
Repayment from short-term loan
Proceeds from line of credit
Repayment of line of credit
Net cash provided by financing activities - continuing operations
Net cash provided by financing actvities - discontinued operations
Net cash provided by financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Net increase in cash and cash equivalents
Cash, cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of other cash flow information:
Cash paid for income taxes
Cash paid for interest
Supplemental disclosures of non cash flow information:
PPP loan forgiveness
651,077
-
-
-
4,927,904
-
4,927,904
157,537
1,483,954
633,615
2,117,569
$
$
$
-
-
651,077
$
$
$
400,000
(400,000)
292,882
(292,882)
6,614,928
288,632
6,903,560
42,918
527,945
105,670
633,615
8,594
18,819
-
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Professional Diversity Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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”). 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, Transgender and Queer (LGBTQ), and Students and Graduates seeking to transition from education to career. The networks’ purposes, among others, are to
assist its registered users in their efforts to connect with like-minded individuals, identify career opportunities within the network and connect with prospective employers. The
Company’s technology platform is integral to the operation of its business. The NAPW Network is networking organization for professional women, whereby its members can
develop their professional networks, further their education and skills, and promote their business and career accomplishments. NAPW provides its members with opportunities
to network and develop valuable business relationships with other professionals through its website, as well as at events hosted at its local chapters across the country.
In March 2020, our Board of Directors decided to suspend all China operations generated by the former CEO, Michael Wang. The results of China operations are presented in
the consolidated statements of operations and comprehensive loss as net loss from discontinued operations. On March 19, 2020, Jiangxi PDN Culture Media Co., Ltd. (“Jiangxi
PDN”), a company established under the laws of the People’s Republic of China and a variable interest entity (VIE) controlled by Professional Diversity Network, Inc.
(“PDN”), issued a Notice of Termination of the Agreement of Acquisition and Equity Transfer (the “Termination”). This Notice was exercised under Jiangxi PDN’s unilateral
right and was delivered on March 19, 2020. Under the terms of the Termination, no additional due diligence shall be completed, any materials shall be returned to the
respective owners, and there shall be no breakup fee or penalty associated with this Termination. We expect no further involvement in this matter.
2. Going Concern and Management’s Plans
At December 31, 2020, the Company’s principal sources of liquidity were its cash and cash equivalents and the net proceeds from the sale of common stock during the twelve
months ended December 31, 2020.
The Company had an accumulated deficit of ($93,022,835) at December 31, 2020. During the year ended December 31, 2020, the Company generated a net loss from
continuing operations of approximately ($4,158,000) and used cash in continuing operations during the twelve months ended December 31, 2020 of approximately $3,337,000.
At December 31, 2020, the Company had a cash balance of $2,117,569. Total revenues during the year ended December 31, 2020 were approximately $4,457,000 compared to
total revenues of approximately $5,025,000 during the year ended December 31, 2019. The Company had a working capital deficiency from continuing operations of
approximately ($1,156,000) and ($2,114,000) at December 31, 2020 and 2019. 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 information contained herein does not include any adjustments that might be necessary if the Company is unable to continue as a going
concern.
Management believes that its available cash on hand and cash flows from operations may not be sufficient to meet our working capital requirements for the next twelve months.
In order to accomplish our business plan objectives, the Company will need to continue its cost reduction efforts, increase revenues, raise capital through the issuance of
common stock, or through a strategic merger or acquisition. 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 or impact plans to conserve liquidity. Future efforts to improve liquidity
through the issuance of our common stock may not be successful, or if available, they may not be negotiable on acceptable terms.
F-8
On March 22, 2020, the Company entered into an agreement with Malven Group Limited, a company established under the laws of the British Virgin Islands (“Malven”), in
connection with the purchase by Malven of 1,939,237 shares of common stock of the Company (collectively the “Shares”) at a price of $0.7735 per share for gross proceeds of
$1,500,000. The closing of the transaction took place on March 30, 2020.On June 26, 2020, Malven purchased additional 312,500 shares of common stock of the Company at a
price of $3.20 per share for gross proceeds of $1,000,000. The closing date of the transaction was June 29, 2020 and gross proceeds of $1,000,000 were received in July 2020.
On July 27, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) with three institutional accredited investors. Pursuant to the Agreement, the
Company offered and sold 1,481,484 shares of its common stock at a per share price of $1.35 for gross proceeds of approximately $2,000,000 pursuant to the Company’s
Registration Statement on Form S-3 (Registration Statement No. 333-227249) (the “Transaction”). The Transaction closed on July 29, 2020 and the Company received net
proceeds of $1,814,353, after deducting financial advisory, legal and escrow related fees.
On February 1, 2021, the Company entered into a private placement with Ms. Yiran Gu, in which the Company sold 500,000 shares of its common stock at a price per share of
$2.00 for gross proceeds of $1,000,000.
3. Summary of Significant Accounting Policies
Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Use of Estimates – The preparation of 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 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 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, impact of applying the revised federal tax rates on deferred taxes, the valuation of stock-based compensation and the valuation of stock warrants.
Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash Equivalents - The Company considers cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have
original maturities of three months or less.
Accounts Receivable - Accounts receivable represent receivables generated from fees earned from customers and advertising revenue. The Company’s policy is to reserve for
uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts
receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the
realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. As of December 31, 2020 and 2019, the allowance for doubtful accounts was $156,927 and $20,007.
F-9
Incremental Direct Costs - Incremental direct costs incurred in connection with enrolling members in the NAPW Network consist of sales commissions paid to the Company’s
direct sales agents. Incremental direct costs associated with the PDN Network consists of commissions paid to third-party agencies. Commissions associated with the NAPW
Network are deferred and amortized over the term of membership, which is a 12-month period and agency commissions associated with the PDN Network are deferred and
amortized over the membership service period. Total incremental direct costs related to the NAPW and PDN Network during the years ended December 31, 2020 and 2019 was
$107,000 and $33,000.
Property and Equipment - Property and equipment is stated at cost, including any cost to place the property into service, less accumulated depreciation. Depreciation is
recorded on a straight-line basis over the estimated useful lives of the assets which currently range from three to five years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the lease. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and
betterments are capitalized. The cost of any assets sold or retired and related accumulated depreciation are removed from the accounts at the time of disposition, and any
resulting profit or loss is reflected in income or expense for the period. Depreciation expense for the years ended December 31, 2020 and 2019 was $19,978 and $33,711, and is
recorded in depreciation and amortization expense in the accompanying consolidated statements of operations.
Lease Obligations - The Company leases office space and equipment under various operating lease agreements, including an office for its corporate 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.
On September 23, 2020, the Company entered into a new office lease agreement for its corporate headquarters. The office lease is for 4,902 square feet of office space and the
lease term is for 84 months, commencing on October 1, 2020. Additionally, the office lease required a security deposit of $66,340 and the lease agreement provided for a rent
abatement of twelve months beginning in October 2020.
Capitalized Technology Costs - In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40, Internal-Use
Software, the Company capitalizes certain external and internal computer software costs incurred during the application development stage. The application development stage
generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and
enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Capitalized software costs are amortized over the estimated useful
lives of the software assets on a straight-line basis, generally not exceeding three years.
Business Combinations - ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the
acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets
acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of
the acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired
and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to
one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded in the interim financial information.
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.
F-10
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.
Treasury Stock – Treasury stock is recorded at cost as a reduction of stockholders’ equity in the accompanying balance sheets.
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.
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 a press release is distributed.
Deferred Revenue – Deferred revenue includes customer payments which are received prior to performing services and revenues are recognized upon the completion of these
services. Annual membership fees collected at the time of enrollment are recognized as revenue ratably over the membership period, which are typically for a 12-month
membership period.
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
F-11
● 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.
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
China Operations
On November 25, 2019, PDN China received a Seizure Decision Notice (the “Notice”) from the Yuexiu District Branch of the Police Department of Guangzhou City, the
People’s Republic of China. The Notice stated that it is necessary to seize the assets of PDN China in connection with the criminal investigation of alleged illegal public fund
raising by Gatewang Group (the “Gatewang Case”), a separate company organized under the laws of the People’s Republic of China (“Gatewang”), with which Mr. Maoji
(Michael) Wang, the former Chairman and CEO of the Company (“Michael Wang”) is affiliated, who was subsequently held in custody by the local police department.
In response to such events, on December 12, 2019 the Company’s Board of Directors (the “Board”) established the Special Committee to investigate the situation, and retained
the international law firm of King & Wood Mallesons (“KWM”) to assist the Special Committee in connection with the Special Committee’s investigation of the Company’s
operations in the People’s Republic of China and related events, in collaboration with the Company’s external auditor Ciro E. Adams CPA LLC. KWM conducted extensive
research into public records in China, and interviewed the relevant divisions of the Public Security Bureau in China and any related witnesses in relation to the operations and
specific transactions that had some relationship to the Gatewang entities. On April 16, 2020, based upon the information obtained, the investigation team concluded that it did
not find any evidence that the Company or PDN China engaged in any criminal activity of illegal fund raising as alleged against Gatewang.
The Investigation also revealed that three entities and two individuals (the “Payors”), who appeared to be related to Gatewang, collectively paid RMB 14.25 million to PDN
China on behalf of EGBT Foundation Ltd., a private placement investor that purchased 1,265,823 shares of the Company’s common stock (approximately 11.6%) in September
2019 (the “EGBT Transaction”). To the knowledge of the Investigation team, the bank account holding the proceeds of the EGBT Transaction is still frozen by the Chinese
authorities. The seizure of PDN China office by the local police was lifted on March 23, 2020. These funds, approximately $2.89 million dollars (USD) continue to be subject to
the PRC government’s jurisdiction. If the source of funds is actually (or perceived to be) connected to Gatewang, the Chinese authorities may not unfreeze PDN China’s bank
account. If and when the bank account is unfrozen, the Company will consider whether the EGBT Transaction needs to be unwound or further documented to be in full
compliance with applicable law.
F-12
The Company’s operations in China have been suspended since December 2019. On March 4, 2020 the Board decided to discontinue all of the Company’s operations in the
People’s Republic of China, namely PDN (China) International Culture Development Co. Ltd., a wholly owned subsidiary of the Company, Jiangxi PDN Culture Media Co.,
Ltd. (“PDN Jiangxi”), a variable interest entity controlled by of the Company, and the joint venture between PDN Jiangxi, Guangzhou Zengcheng District Zhili Education
Training Center, and Guangzhou Angye Education Consulting Co. Ltd.
All historical operating results for the Company’s China operations are included in loss from discontinued operations, net of tax, in the accompanying consolidated statement of
operations. For the year ended December 31, 2020, loss from discontinued operations was approximately ($216,000) compared to a loss from discontinued operations of
($1,052,000) for the year ended December 31, 2019.
Assets and liabilities of China operations are now included in current assets and long-term assets from discontinued operations, and current liabilities and long-term liabilities
from discontinued operations. As of December 31, 2020, current assets from discontinued operations were approximately $6,900, compared to approximately $76,000 as of
December 31, 2019, and long-term assets from discontinued operations were approximately $3,085,000 at December 31, 2020, compared to approximately $3,109,000 as of
December 31, 2019. As of December 31, 2020, current liabilities from discontinued operations were approximately $375,000, compared to approximately $564,000 as of
December 31, 2019.
Operating Results of Discontinued Operations
The following table represents the components of operating results from discontinued operations, as presented in the consolidated statements of operations and comprehensive
loss for the years ended December 31, 2020 and 2019:
Year Ended December 31,
2019
2020
Revenues
$
- $
107,584
Cost of Sales
Depreciation and amortization
Sales and marketing
General and administrative
Non-operating (expense) income
Loss from discontinued operations before income tax
Income tax expense
Net loss from discontinued operations
12,963
-
2,856
170,196
(8,301)
(193,613)
-
$
(193,613) $
33,803
16,626
315,713
842,667
195,593
(905,632)
146,702
(1,052,334)
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 years ended December 31, 2020 and 2019, the Company incurred advertising and marketing expenses
of approximately $681,000 and $649,000. These amounts are included in sales and marketing expenses in the accompanying statements of operations.
Concentrations of Credit Risk - Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents
and accounts receivable. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The
Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on the account.
F-13
Income Taxes - The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and
assets based on the differences between the financial statement basis and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences
are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax
jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax
asset will not be realized in future periods. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 740-20 and prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31,
2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company may be subject to potential income tax examinations by federal or state authorities. These potential examinations may include questioning the timing and amount
of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. Management does not expect that the total amount of
unrecognized tax benefits will materially change over the next twelve months. Tax years that remain open for assessment for federal and state tax purposes include the years
ended December 31, 2017 through 2020.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts
accrued for penalties or interest as of September 30, 2020.
Fair Value of Financial Assets and Liabilities - Financial instruments, including cash and cash equivalents, short-term investments and accounts payable, are carried at cost.
Management believes that the recorded amounts approximate fair value due to the short-term nature of these instruments.
Net Loss per Share - The Company computes basic net loss per share by dividing net loss 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 years ended December 31, 2020 and 2019 excludes the potentially dilutive securities summarized in the table below because their
inclusion would be anti-dilutive.
Warrants to purchase common stock
Stock options
Unvested restricted stock
Total dilutive securities
Recent Accounting Pronouncements
As of December 31,
2020
2019
125,000
66,126
206,775
397,901
125,000
295,793
27,319
448,112
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU 2019-12, Simplifying the Accounting for Income Taxes, as
part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for
intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU
2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of Generally Accepted Accounting Principles. The guidance is effective
for interim and annual period beginning after December 15, 2020, with early adoption permitted. The Company will adopt ASU 2019-12 during the first quarter of 2021 and the
adoption of ASU 2019-12 will effect the classification of income taxes, but is not expected to impact reported results in the consolidated financial statements.
4. Capitalized Technology
Capitalized Technology, net is as follows:
Capitalized cost:
Balance, beginning of period
Additional capitalized cost
Balance, end of period
Accumulated amortization:
Balance, beginning of period
Provision for amortization
Balance, end of period
Capitalized Technology, net
F-14
$
$
December 31,
2020
2019
2,165,545 $
3,700
2,169,245
2,163,044
2,501
2,165,545
2,130,037 $
13,341
2,143,378
25,867
1,968,213
101,448
2,069,661
95,884
Amortization expense of $13,341 and $101,448 for the years ended December 31, 2020 and 2019, respectively, is recorded in depreciation and amortization expense in the
accompanying consolidated statements of operations.
5. Intangible Assets
Intangible assets, net is as follows:
December 31, 2020
Useful Lives
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Long-lived intangible assets:
Sales Process
Paid Member Relationships
Member Lists
Developed Technology
Trade Name/Trademarks
Indefinite-lived intangible assets:
Trade name
Intangible assets, net
December 31, 2019
Long-lived intangible assets:
Sales Process
Paid Member Relationships
Member Lists
Developed Technology
Trade Name/Trademarks
Indefinite-lived intangible assets:
Trade name
Intangible assets, net
Future annual estimated amortization expense is summarized as follows:
$
$
$
$
10
5
5
3
4
10
5
5
3
4
2,130,956
803,472
8,086,181
648,000
440,000
12,108,609
Gross
Carrying
Amount
2,130,956
803,472
8,086,181
648,000
440,000
12,108,609
F-15
Useful Lives
(Years)
(1,845,178)
(803,472)
(8,086,181)
(648,000)
(440,000)
(11,822,831)
$
$
285,778
-
-
-
-
285,778
90,400
376,178
Accumulated
Amortization
Net Carrying
Amount
(1,768,971)
(803,472)
(8,086,181)
(648,000)
(440,000)
(11,746,624)
$
$
361,985
-
-
-
-
361,985
90,400
452,385
Year ended December 31,
2021
2022
2023
2024 and thereafter
$
$
76,207
76,207
76,207
57,157
285,778
Amortization expense of $76,207 and $568,558 for the years ended December 31, 2020 and 2019, respectively, is recorded in depreciation and amortization expense in the
accompanying consolidated statements of operations.
6. PPP Loan
The CARES Act was enacted on March 27, 2020. Among the provisions contained in the CARES Act was the creation of the Paycheck Protection Program (“PPP”) that
provides for under the Small Business Administration (“SBA”) Section 7(a) loans for qualified small businesses. PPP loan proceeds are available to be used to pay for payroll
costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves, rent, utilities and interest on certain other outstanding debt. The
amount that will be forgiven will be calculated in part with reference to the Company’s full-time headcount during the eight-week period following the funding of the PPP loan.
The Company applied for the PPP loan and on May 5, 2020, the Company received total proceeds of $651,077 from the SBA. In accordance with the loan forgiveness
requirements under the CARES Act, the Company utilized the proceeds from the PPP Loan for payroll costs, rent and utilities.
The Company accounted for the proceeds received from the PPP loan as debt in accordance with ASC 470, Debt. Accordingly, the Company accounted for the proceeds
received as short-term and long-term loan in its consolidated balance sheets until forgiveness of the PPP loan was received. The Company applied for loan forgiveness during
the fourth quarter of 2020 and the PPP loan was fully forgiven by the SBA. Upon receiving forgiveness of the PPP loan, the Company eliminated the short-term and long-term
loan debt liability and the loan forgiveness amount of $651,077 was applied as PPP loan forgiveness in the other income section of the Company’s consolidated statements of
operations during the fourth quarter of 2020.
F-16
7. Accrued Liabilities
As of December 31, 2020 and 2019, accrued liabilities consisted of the following:
Litigation reserve
Accrued payroll
Accrued legal fees
Accrued Board of Director fees
Accrued revenue sharing agreements
Other
Total accrued liabilities
8. Commitments and Contingencies
As of December 31,
2020
2019
1,412,502
75,263
-
61,277
53,266
23,856
1,626,164 $
348,000
72,166
69,896
50,364
43,844
69,899
654,169
$
PDN China’s bank account with a balance of approximately $3.1 million was frozen by Guangzhou Police due to the Gatewang Case. The Company has classified this entire
cash balance as a long-term asset and is classified in discontinued operations.
Legal Proceedings
In a letter dated October 12, 2017, White Winston Select Asset Funds (“White Winston”) threatened to assert claims against the Company in excess of $2 million based on
White Winston’s contention that the Company’s conduct delayed White Winston’s ability to sell shares in the Company during a period when the Company’s stock price was
generally falling. On April 30, 2018, White Winston filed a lawsuit, entitled White Winston Select Asset Funds, LLC v. Professional Diversity Network, Inc., No. 18-cv-10844,
(the “Federal Action”) in the United States District Court for the District of Massachusetts, asserting federal jurisdiction based on diversity of citizenship. The four-count
complaint in the Federal Action alleged that White Winston is entitled to recover compensatory damages of $1,708,233, plus attorneys’ fees, treble damages and other amounts.
White Winston served the complaint on July 12, 2018, and the Company moved to dismiss the entire action for failure to state a claim. On October 15, 2018, prior to addressing
the motion to dismiss, the Court issued an order noting that White Winston (which is a limited liability company) had failed to allege the citizenship of its members and ordered
White Winston to show cause that complete diversity exists between the parties and that the Court had jurisdiction. On October 23, 2018, White Winston dismissed the Federal
Action without prejudice. On December 18, 2018, White Winston filed a complaint in Massachusetts Superior Court in Suffolk County in Boston alleging the same claims and
rights to relief as in the Federal Action. The Company has moved to once again to dismiss the complaint in its entirety for failure to state a claim. The entire motion package,
comprised of the Company’s motion to dismiss and accompanying memorandum, White Winston’s opposition, and the Company’s reply brief, were filed with the court on
Monday, March 25, 2019. This motion was not granted.
On October 28, 2020, the Company and White Winston reached a settlement agreement, in which the Company made a cash payment of $250,000 on October 29, 2020 and a
second cash payment of $350,000 was paid on February 16, 2021. In addition, the Company issued 150,000 shares of the Company’s common stock in January 2021.
NAPW is a defendant in a Nassau County (NY) Supreme Court case, whereby TL Franklin Avenue Plaza LLC has sued NAPW Case index No. LT-000421/2018, with respect
to NAPW’s former Garden City NY Premises. NAPW had surrendered the Premises to the Landlord, and the Landlord has obtained a judgment against NAPW in the amount of
$746,142.41. As a result of the judgement order, the Company recorded a $780,000 litigation settlement reserve in the second quarter of 2020, which reflected the judgement
order in addition to imputed interest costs and legal fees. NAPW is currently negotiating a settlement with the Landlord.
The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to a proceeding captioned Deborah Bayne, et al. vs. NAPW, Inc. and Professional Diversity Network,
Inc., No. 18-cv-3591 (E.D.N.Y.), filed on June 20, 2018 and alleging violations of the Fair Labor Standards Act and certain provisions of the New York Labor Law. The
Company disputes that it or its subsidiary violated the applicable laws or that either entity has any liability and intends to vigorously defend against these claims. The matter is
in the final stages of discovery and we have completed depositions of relevant witnesses. During the first quarter of 2020, the Company recorded a $450,000 litigation
settlement reserve in the event of an unfavorable outcome in this proceeding. In November 2020, both parties entered into mediation proceedings but a settlement was not
reached. This matter is scheduled to go to trial in 2021.
F-17
We are also generally subject to legal proceedings and litigation arising in the ordinary course of business.
General Legal Matters
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material,
there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse
effect on its business, financial condition or results of operations.
9. CFL Transaction
On August 12, 2016, the Company entered into a stock purchase agreement (the “Purchase Agreement”), with CFL, a Republic of Seychelles company wholly-owned by a
group of Chinese investors. Pursuant to the Purchase Agreement, the Company agreed to issue and sell to CFL (the “Share Issuance and Sale”), and CFL agreed to purchase, at a
price of $9.60 per share (the “Per Share Price”), upon the terms and subject to the conditions set forth in the Purchase Agreement, a number of shares of the Company’s
common stock, par value $0.01 per share (the “Common Stock”), such that CFL will hold shares of Common Stock equal to approximately 51% of the outstanding shares of
Common Stock, determined on a fully-diluted basis, after giving effect to the consummation of the transactions contemplated by the Purchase Agreement, including the Tender
Offer described below (the “CFL Transaction”).
Pursuant to a co-sale right, an existing shareholder of the Company would have the right to sell up to 205,925 shares of Common Stock to CFL as of the date of the Purchase
Agreement (the “Co-Sale Right”), and such Co-Sale Right, to the extent exercised, would reduce the number of shares of Common Stock to be purchased by CFL directly from
the Company. The Company also commenced a partial issuer tender offer to purchase up to 312,500 shares of Common Stock (the “Tender Offer”). The number of shares of
Common Stock that CFL agreed to purchase was that amount that would allow it to hold 51% of the outstanding shares of Common Stock, determined on a fully-diluted basis,
after giving effect to the number of shares of Common Stock (if any) the Company purchases in the Tender Offer, and any shares sold to CFL pursuant to the co-sale right
(collectively, the “Common Shares”). The parties agreed that, if, immediately following the consummation of the Tender Offer and after giving effect to the purchase by the
Company of all shares of Common Stock validly tendered and not withdrawn in the Tender Offer, the Common Shares amount to less than 51% of the then-outstanding shares
of Common Stock, determined on a fully-diluted basis, then CFL shall have an option (the “Call Option”) to purchase, at a price per share equal to the Per Share Price, such
additional number of shares of Common Stock (the “Call Option Shares”) as are necessary for the previously issued Common Shares plus the Call Option Shares to equal 51%
of the then-outstanding shares of Common Stock determined on a fully-diluted basis, taking into account the issuance of the Call Option Shares.
On November 7, 2016, the Company consummated the Share Issuance and Sale of 1,777,417 shares of its common stock to CFL at a price of $9.60 per share, pursuant to the
terms of the Purchase Agreement, dated August 12, 2016. In addition, on November 7, 2016, the Company completed the purchase of 312,500 shares of its common stock at a
price of $9.60 per share, net to the seller in cash, pursuant to the Tender Offer. The Company received approximately $9,000,000 in net proceeds from the Share Issuance and
Sale, after the payment for the shares repurchased in the Tender Offer, the repayment of all amounts outstanding under the Master Credit Facility and the payment of
transaction-related expenses.
At the closing of the CFL Transaction, the Company entered into a Stockholders’ Agreement, dated November 7, 2016 (the “Stockholders’ Agreement”) with CFL and each of
its shareholders: Maoji (Michael) Wang, Jingbo Song, Yong Xiong Zheng and Nan Kou (the “CFL Shareholders”). The Stockholders’ Agreement sets forth the agreement of the
Company, CFL and the CFL Shareholders relating to board representation rights, transfer restrictions, standstill provisions, voting, registration rights and other matters
following the closing of the Share Issuance and Sale (see Note 13).
F-18
On November 15, 2019, CFL purchased additional 1,142,857 shares of the Company’s common stock for $1.75 per share for gross proceeds of $2,000,000 from an existing
shareholder.
10. Stockholders’ Equity
Preferred Stock – The Company has no preferred stock issued. The Company’s amended and restated certificate of incorporation and amended and restated bylaws include
provisions that allow the Company’s Board of Directors to issue, without further action by the stockholders, up to 1,000,000 shares of undesignated preferred stock.
Common Stock – The Company has one class of common stock outstanding with a total number of shares authorized of 45,000,000. As of December 31, 2020, the Company
had 12,819,843 shares of common stock outstanding.
On March 22, 2020, the Company entered into an agreement with Malven Group Limited, a company established under the laws of the British Virgin Islands, in connection
with the purchase of 1,939,237 shares of common stock of the Company at a price of $0.7735 per share for gross proceeds of $1,500,000. On June 26, 2020, Malven purchased
additional 312,500 shares of common stock of the Company at a price of $3.20 per share for gross proceeds of $1,000,000.
On July 27, 2020, the Company entered into a Securities Purchase Agreement with three institutional accredited investors, in which the Company sold 1,481,484 shares of the
Company’s common stock at a per share price of $1.35 for net proceeds of $1,814,353, after deducting financial advisory, legal and escrow related fees. The Company’s sale of
common stock sale was completed pursuant to the Company’s Registration Statement filed on Form S-3.
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 fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is
affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to,
expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury
rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is based on the estimated
average of the life of options using the simplified method, and forfeitures are estimated on the date of grant based on certain historical data. The Company utilizes the simplified
method to determine the expected life of its options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The
expected dividend assumption is based on the Company’s history and expectation of dividend payouts.
Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
F-19
The following table summarizes the Company’s stock option activity for the years ended December 31, 2020 and 2019:
Outstanding - January 1, 2020
Granted
Exercised
Forfeited
Outstanding - December 31, 2020
Exercisable at December 31, 2020
Outstanding - January 1, 2019
Granted
Exercised
Forfeited
Outstanding - December 31, 2019
Exercisable at December 31, 2019
Weighted
Average
Exercise
Price
8.88
3.69
-
9.21
5.24
8.18
Weighted
Average
Remaining
Contractual
Life
(in Years)
Aggregrate
Intrinsic
Value
(in thousands)
7.5
$
-
8.3
7.0
$
$
10.8
7.2
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(in Years)
6.94
2.23
-
3.87
8.88
9.37
Aggregrate
Intrinsic
Value
-
-
-
9.0
$
7.5
7.4
$
$
Number of
Options
295,793
30,000
-
(259,667)
66,126
26,126
Number of
Options
499,439
30,000
-
(233,646)
295,793
275,793
$
$
$
$
$
$
On June 25, 2020, the Company granted 30,000 stock options. The stock option exercise price was $3.69 and the grant date fair value of this award was $90,840.
On March 11, 2019, the Company granted 30,000 stock options at a stock option exercise price of $2.23 and the grant date fair value was $53,400. The Company computes the
grant date fair value of stock option awards using the Black-Scholes option-pricing model and the fair value of stock option awards are amortized on a straight-line basis over
the requisite service period of the stock option awards.
The following assumptions were utilized in the Black-Scholes option pricing for the stock option grants for the years ended December 31, 2020 and 2019:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected term (in years)
Grant-date fair value of stock options awarded
Year Ended December 31,
2020
2019
-
0.33%
111.55%
5.75
3.03
$
-
2.44%
102.71%
5.75
1.78
$
The Company recorded non-cash stock-based compensation expense of approximately $33,000 and $24,000 as a component of general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December 31, 2020 and 2019, pertaining to stock options awards.
F-20
Total unrecognized stock-based compensation expense related to unvested stock options at December 31, 2020 was approximately $78,000 and is expected to be recognized
through the second quarter of 2023.
Warrants
As of December 31, 2020 and 2019, there were 125,000 warrants outstanding and exercisable, with a weighted average exercise price of $20.00 per share and these warrants are
scheduled to expire on June 30, 2021.
Restricted Stock
A summary of restricted stock activity for the years ended December 31, 2020 and 2019 is as follows:
Outstanding - January 1, 2019
Granted
Forfeited
Vested
Outstanding - December 31, 2019
Granted
Forfeited
Vested
Outstanding - December 31, 2020
Number of
Shares
60,651
47,568
(13,865)
(67,035)
27,319
306,775
-
(127,319
)
206,775
During the year ended December 31, 2020, the Company granted 300,000 restricted stock units (“RSUs”) to the Company’s Chief executive Officer Xin (Adam) He and 6,775
RSUs to a newly elected Board of Director. The RSU award grant to Mr. He vest 1/3 on grant date and the remaining 2/3 to vest equally on the annual grant date anniversary of
the award over the next two years. The RSU award to the Board member fully vests on the one-year anniversary of the RSU award. The aggregate grant date fair value of the
combined awards amounted to $1,132,000.
During the year ended December 31, 2019, the Company granted 46,402 to certain Board of Directors and 1,166 RSUs to Mr. He for their board services. The RSUs awards
had no voting or dividend rights. The fair value of the common stock on the dates of grant were $3.09 and $3.32 per share, based upon the closing market price on the grant
dates. The aggregate grant date fair value of the combined awards amounted to $156,000.
The Company recorded non-cash stock-based compensation expense of approximately $587,000 and $201,000 as a component of general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively, pertaining to restricted stock awards.
Total unrecognized stock-based compensation expense related to unvested restricted stock at December 31, 2020 was $559,000 and is expected to be recognized through the
second quarter of 2022.
F-21
12. Income Taxes
The Company has the following net deferred tax assets and liabilities at December 31, 2020 and 2019:
Goodwill and intangible assets
Developed technology
Derivative liability
Property and equipment
Other deferred tax assets
Settlements
Stock based compensation
Net operating loss
Valuation allowance
Net deferred tax liability
The benefit for income taxes for the years ended December 31, 2020 and 2019 consists of the following:
Federal:
Current provision
Deferred tax benefit
State:
Current provision
Deferred tax benefit
Foreign:
Current provision
Deferred provision (benefit)
Income tax expense benefit
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
Expected federal statutory rate
State income taxes, net of federal benefit
Impairment charge
Valuation allowance
Permanent items
Rate change
Other
$
$
$
$
$
$
$
$
$
December 31,
2020
2019
(41,780)
(7,010)
(112,564)
3,378
23,627
473,302
95,103
8,017,170
(8,637,265)
(186,039)
$
$
(44,715)
(25,985)
(112,564)
18,399
42,678
150,290
331,731
7,161,406
(7,742,494)
(221,254)
Year Ended December 31,
2020
2019
-
(27,288)
(27,288)
-
(7,927)
(7,927)
-
-
-
(35,215)
$
$
$
$
$
$
$
Year Ended December 31,
2020
2019
21.0%
6.1%
0.0%
-21.4%
-3.4%
0.0%
-1.5%
0.8%
-
(134,163)
(134,163)
-
(43,338)
(43,338)
-
-
-
(177,501)
21.0%
6.1%
0.0%
-13.5%
-0.1%
-2.6%
-4.9%
6.0%
The valuation allowance at December 31, 2020 was approximately $8,637,000. The net change in the valuation allowance during the year ended December 31, 2020 was an
increase of approximately $895,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the
realization of the deferred income tax asset balances to warrant the application of a valuation allowance as of December 31, 2020.
F-22
At December 31, 2020, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $29,584,000. Of this amount,
$20,476,000 expires between 2034 and 2038, and $9,108,000 has an indefinite carryforward period. Certain tax attributes are subject to an annual limitation as a result of
changes in ownership as defined under Internal Revenue Code Section 382. The Company files tax returns in multiple jurisdictions and is subject to examination in these
jurisdictions. Significant jurisdictions in the U.S. include New York, Illinois and California.
The U.S. Tax Cuts and Jobs Act of 2017 provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign E&P through the year ended December 31,
2017. The Company had an estimated $332,000 of undistributed foreign E&P subject to the deemed mandatory repatriation, this income was offset by U.S. operating losses. As
of December 31, 2020, foreign withholding taxes have not been provided on the undistributed E&P of its foreign subsidiaries as the Company intend to permanently reinvest
these foreign earnings in those businesses outside the U.S.
Beginning in 2018, the Tax Act includes a new U.S. tax base erosion provision designed to tax the global intangible low-taxed income (“GILTI”). The GILTI provisions require
us to include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has elected to
recognize the tax on GILT as a period expense in the period the tax is incurred.
13. Segment Information
The Company operates in the following segments: (i) NAPW Network, (ii) PDN Network and (iii) Corporate Overhead. The financial results of China Operations have been
reclassified from the Company’s reportable segments to discontinued operations for all periods presented.
The following tables present key financial information of the Company’s reportable segments as of and for the years ended December 31, 2020 and 2019:
PDN
Network
Year Ended December 31, 2020
NAPW
Network
Corporate
Overhead
Membership fees and related services
Recruitment services
Products sales and other
Consumer advertising and marketing solutions
Total revenues
Income (loss) from continuing operations
Depreciation and amortization
Income tax expense (benefit)
Net income (loss) from continuing operations
Goodwill
Intangibles assets, net
Assets from continuing operations
Membership fees and related services
Recruitment services
Products sales and other
Consumer advertising and marketing solutions
Total revenues
Loss from continuing operations
Depreciation and amortization
Income tax (benefit) expense
Net (loss) income from continuing operations
Goodwill
Intangibles assets, net
Assets from continuing operations
14. Employee benefit plans
$
$
$
$
-
2,962,275
-
143,934
3,106,209
197,739
32,885
9,119
840,660
339,451
90,400
4,455,262
F-23
PDN
Network
-
2,450,742
-
140,766
2,591,508
(357,067)
62,064
(162,281)
(168,281)
339,451
90,400
2,151,734
$
$
$
$
$
1,345,707
-
4,820
-
1,350,527
(543,706)
137,017
(4,797)
(538,909)
-
-
-
-
-
(4,499,250)
-
(39,537)
(4,459,713)
$
Consolidated
1,345,707
2,962,275
4,820
143,934
4,456,736
(4,845,217)
169,902
(35,215)
(4,157,962)
As of December 31, 2020
$
-
285,778
1,126,005
$
-
-
-
339,451
376,178
5,581,267
Year Ended December 31, 2019
NAPW
Network
Corporate
Overhead
$
2,428,060
-
5,644
-
2,433,704
(272,528)
641,653
46,778
(319,306)
-
-
-
-
-
(2,366,540)
-
(61,998)
(2,304,542)
$
Consolidated
2,428,060
2,450,742
5,644
140,766
5,025,212
(2,996,135)
703,717
(177,501)
(2,792,129)
As of December 31, 2019
$
-
361,985
1,254,693
$
-
-
-
339,451
452,385
3,406,427
The Company’s employee benefit plans currently consist of a defined contribution plan for all U.S. employees. The Company does not offer any other postretirement benefit
plans, such as retiree medical and dental benefits or deferred compensation agreements to its employees or officers.
U.S. regular, full-time employees are eligible to participate in the Professional Diversity Network Inc. 401(k) Plan, which is a qualified defined contribution plan under section
401(k) of the Internal Revenue Service Code. Under the Professional Diversity Networks Inc. 401(k) Plan, employees are eligible to participate after meeting eligibility
requirements and employees are always fully vested in their own contributions. The Company currently did not make any matching contributions during the year ended
December 31, 2020, but effective on January 1 2021, the Company has elected to match 4% of eligible employee contributions.
15. Subsequent Events
On February 1, 2021, the Company entered into a private placement with Ms. Yiran Gu, in which the Company sold 500,000 shares of its common stock at a price per share of
$2.00 for gross proceeds of $1,000,000.
On February 22, 2021, the Company issued a press release announcing a business and operational strategy change with respect to its NAPW Network. Prior to its scheduled
launch of a new membership website, the NAPW Network is transitioning to an online membership acquisition model utilizing ecommerce-centric technology to replace the
previous telemarketing business model. This change in business strategy is expected to increase productivity and reduce membership acquisition costs. As a result of the change
to an ecommerce business model, there was an approximate 50% reduction in customer service representatives in the Company’s NAPW Network during the first quarter of
2021.
On March 24, 2021, Professional Diversity Network, Inc. (“PDN”) entered into a stock purchase agreement to acquire equity interests (the “Transaction”) in RemoteMore USA,
Inc., a Delaware corporation (“RemoteMore”). At the closing, PDN, through a newly formed subsidiary, will own approximately 45.625% of the total outstanding capital stock
of RemoreMore and will have the power to appoint two directors on the three-person board of directors of RemoteMore. In addition, PDN will have the option to acquire an
additional 20% of RemoreMore’s outstanding capital stock after 24 months. At the closing of the Transaction, the two founders of RemoteMore, Mr. Boris Krastev and Mr.
Boris Borisov (the “Founders”), will enter into employment agreements with RemoreMore, and pursuant to such agreements each Founder will be entitled to receive that
number of newly-issued shares of PDN common stock with an aggregate value of $200,000.00, as determined by the average price of the closing trading prices of PDN
common stock on the NASDAQ Global Market in the ten consecutive (10) business days immediately prior to the closing date. The grant of such incentive stock will be subject
to approval of the Compensation Committee of PDN’s Board of Directors and other conditions. The Transaction is subject to satisfaction of closing conditions and is expected
to close in the second quarter of 2021.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
F-24
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 9, 2021.
PROFESSIONAL DIVERSITY NETWORK, INC.
/s/ Xin (Adam) He
By:
Name: Xin (Adam) He
Title:
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Xin (Adam) He, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated as of April 9, 2021.
/s/ Xin (Adam) He
Xin (Adam) He
Chief Executive Officer (Principal Executive Officer)
/s/ Charles OBrien
Charles OBrien
Interim Chief Financial Officer (Principal Financial Officer)
/s/ Courtney C. Shea
Courtney C. Shea
Director
/s/ Hao Zhang
Hao Zhang
Chair of Board, Director
/s/ Grace Reyes
Grace Reyes
Director
/s/ Michael Belsky
Michael Belsky
Director
/s/ Haibin Gong
Haibin Gong
Director
44
Professional Diversity Network, Inc.
Subsidiaries
As of April 9, 2021
Exhibit 21
Subsidiary
NAPW, Inc.
PDN (Hong Kong) International Education Ltd
PDN(Hong Kong)International Education Information Co., Ltd
PDN (China) International Culture Development Co. Ltd.
Jurisdiction of Incorporation or Formation
Delaware
Hong Kong
Hong Kong
People’s Republic of China
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Professional Diversity Network, Inc.
Chicago, IL 60603-5713
We consent to the incorporation by reference in Registration Statements on Form S-3 [File #333-227249] and Form S-8 [File #333-211382] of our report dated April 9, 2021,
relating to the consolidated financial statements of Professional Diversity Network, Inc., appearing in this Annual Report on Form 10-K of Professional Diversity Network, Inc.,
for the years ended December 31, 2020 and 2019. Our report contains an explanatory paragraph regarding Professional Diversity Network, Inc.’s, ability to continue as a going
concern.
Wilmington, DE 19806-1004
April 9, 2021
56 Rockford Road, Wilmington, DE 19806-1004 | Phone: 302-652-4783
ciroadamscpa.com
Exhibit 31.1
I, Xin (Adam) He, certify that:
1.
I have reviewed this annual report on Form 10-K of Professional Diversity Network, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the
Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and
the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: April 9, 2021
/s/ Xin (Adam) He
Xin (Adam) He
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Charles OBrien, certify that:
1.
I have reviewed this annual report on Form 10-K of Professional Diversity Network, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the
Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and
the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the Registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: April 9, 2021
/s/ Charles OBrien
Charles OBrien
Interim Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18
U.S.C. SECTION 1350
Exhibit 32.1
In connection with the Annual Report of Professional Diversity Network, Inc. (the “Registrant”) on Form 10-K for the fiscal year ended December 31, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the “report”), I, Xin (Adam) He, Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, that
to our knowledge:
(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: April 9, 2021
/s/ Xin (Adam) He
Xin (Adam) He
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18
U.S.C. SECTION 1350
Exhibit 32.2
In connection with the Annual Report of Professional Diversity Network, Inc. (the “Registrant”) on Form 10-K for the fiscal year ended December 31, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the “report”), I, Charles OBrien, Interim Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. §
1350, that to our knowledge:
(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: April 9, 2021
/s/ Charles OBrien
Charles OBrien
Interim Chief Financial Officer
(Principal Financial Officer)