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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.
Effective January 5, 2023, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation
in order to implement a 2-for-1 reverse stock split, through which each two shares of common stock issued and outstanding were combined
and changed into one share of common stock. All share amounts and share prices in this annual report on Form 10-K have been adjusted to
give effect to the reverse stock split.
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, persons with disabilities, 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 and 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.
Environmental,
Social and Governance
As
a global developer and operator of online and in-person networks that provides access to networking, training, educational and employment
opportunities for diverse individuals, Professional Diversity Network, Inc., is striving to be at the forefront of fostering supportive
and inclusive cultures. We are committed to creating permanent, systemic changes that address social inequalities in our communities
by providing avenues for employers and under-represented people to engage.
We
are proud of our continued leadership in social stewardship. Our mission is to utilize the collective strength of our subsidiaries,
members, partners and unique proprietary platform to increase diversity recruiting, networking and professional development for women,
minorities, veterans, LGBTQ+ and persons with disabilities.
Through
an online employee recruitment platform that leverages our affinity groups, we provide our employer clients a means to identify and acquire
diverse talent and assist them with their efforts to diversify their talent pool and comply with the Equal Employment Opportunity Office
of Federal Contract Compliance Program.
Inclusion
and Diversity
We
believe in maintaining a supportive and inclusive culture that values everyone’s talents, life experiences and backgrounds.
|
● |
We
are proud of the strength and diversity within our Board of Directors, comprised of 20% female directors and 60% of directors who
are non-white as of December 31, 2022; |
|
● |
One-third
of our Audit Committee are female; |
|
● |
Our
Senior Management team is comprised of 33% female and 33% non-white males; and |
|
● |
The
following table depicts a breakdown of ethnicity of our full-time and part-time employees as of December 31, 2022: |
Ethnicity | |
Female | | |
Male | | |
Total | |
Asian (not Hispanic or Latino) | |
| 6 | | |
| 1 | | |
| 7 | |
Black or African American (not Hispanic or Latino) | |
| 4 | | |
| - | | |
| 4 | |
Hispanic or Latino | |
| 6 | | |
| 4 | | |
| 10 | |
White (not Hispanic or Latino) | |
| 10 | | |
| 10 | | |
| 20 | |
Total | |
| 26 | | |
| 15 | | |
| 41 | |
Our
Strategy
We
provide 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.
Our
diversity recruitment business provides additional value for our other business segments by providing our registered users and members
with access to employment opportunities at leading companies. We have focused our efforts on placing talent in IT, Finance, and similarly
related fields. The core diversity recruitment business also includes executive placement services for leading companies seeking to hire
diverse talent. This business line addresses a need for employers who want to secure leading diverse talent in management, senior management
and executive capacities.
Our
strategy encompasses the following key elements:
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Grow
and diversify our member and client base; |
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Improve
branding and brand awareness; |
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Utilize
social media to effectively engage with the community; |
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Maximize
revenue through synergies among the segments; |
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Launch
new products and services; |
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Streamline
infrastructure to capture efficiency; and |
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Continue
to expand in diversity recruitment by growing our core offerings of recruitment advertising, Office of Federal Contract Compliance
Programs (OFCCP) compliance offerings and our new diversity placement services. |
We
remain interested in pursuing acquisition and/or development opportunities that would increase returns of capital to our
shareholders, such as the recent purchase of a significant equity stake in RemoteMore USA, Inc. The timing, size, success and
associated potential future capital commitments related to such opportunities are unknown at this time. Accordingly, a material acceleration of our growth
strategy could require us to obtain additional capital through debt and/or equity financings. There can be no assurance that
adequate debt and equity financing will be available on satisfactory terms.
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 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. |
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Growing
Ethnic Diversity of the U.S. Population and Labor Force. Diversity recruitment is increasingly becoming a common,
if not standard, business practice by major employers. 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 42.2% of the U.S. population in 2020. According to the U.S. Census Bureau, 2020 National Projections, the multicultural population
is expected to increase 89% between 2016 and 2060. In sheer numbers, Hispanic-Americans are expected to experience the most growth
among diversity groups, growing from 18% of the total population in 2014 to 28% by 2060. African-American population is expected
to increase from 13% in 2014 to 15% in 2060, and Asian-American population from 6% in 2014 to 9% in 2060. According to the Current
Population Survey conducted by the Bureau of Census for the Bureau of Labor Statistics, of the 2022 annual average of approximately
158 million employees nationwide, approximately 47% were women and approximately 38% were Hispanic, African American or Asian American.
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Demographic
Trend Toward Women’s Career Advancement. According to the U.S. Bureau of Labor Statistics, the number of women in
the labor force in 2021 was approximately 75.7 million and is expected to increase to 77.2 million by 2024. Women accounted for 51.5%
of all workers employed in management, professional, and related occupations in 2022, somewhat more than their share of total employment
(46.8%). The share of women in specific occupations within this large category varied. For example, 21.5% of software developers,
29.2% of chief executives, and 38.5% of lawyers were women, all increases from 2021, whereas 87.9% of registered
nurses, 79.7% of elementary and middle school teachers, and 58.8% of accountants and auditors were women. |
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Rising
Spending Power of Diverse Population. PDN segments are focused on providing professional enhancement tools to diverse Americans
including women. We believe diverse professionals are underserved and represent a very strong opportunity to enhance our shareholders’
value. The Selig Center for Economic Growth, estimates the nation’s total buying power (defined as
total income after taxes) reached $13.9 trillion in 2016 and grew to $17.5 trillion by 2020 with minority groups making the fastest
gains. For example, between 2010 and 2020, Asian-American buying power grew by 111% to $1.3 trillion; the buying power for those
of Hispanic ethnicity grew by 87% to $1.9 trillion, Native American buying power grew by 67% to $140 billion, and African American
buying power grew by 61% to $1.6 trillion. |
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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 three business segments comprised of: (i) Professional Diversity Network (“PDN Network”), which
includes online professional networking communities with career resources tailored to the needs of various diverse cultural groups; (ii) National Association of Professional Women (“NAPW Network”), a women-only professional networking organization,
and (iii) RemoteMore USA (“RemoteMore”) which provides companies with talented engineers to provide solutions to their
software needs. In 2018, we started transacting new NAPW Network memberships under the International Association of Women (“IAW”)
brand in the USA.
In
2022, our PDN Network, NAPW Network and RemoteMore business units represented approximately 61%, 7% and 32% of our gross revenues,
respectively.
For
financial information about our operating segments please see Note 15 of our Consolidated Financial Statements included in this Annual
Report.
PDN
Network
Recruitment
Solutions. The PDN Network consists of several online professional job seeker 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 or career fairs 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. Leveraging the power of our affinity job seeker groups, these professionals harness the Company’s
relationships with employers and recruiters to help advance their careers. We operate these recruitment affinity groups within the
following sectors: Women, Hispanic-Americans, African-Americans, Asian-Americans, persons with disabilities, Military Professionals, Lesbians, Gay,
Bisexual, Transgender and Queer (LGBTQ+), and Students and Graduates seeking to transition from education to career. In addition, the
Company also manages the job seeker websites and career fairs for prominent diverse membership-based organizations including but not
limited to NAACP, National Urban League, and Kappa Alpha Psi. Employers and recruiters benefit from the Company’s relationship
with these organizations and allows them to access to a large pool of diverse jobs seekers in a centralized manner.
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 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, 2022, we had approximately 320 enterprise companies and 1500 total customers 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 Diversity Career Fairs. The Company’s diversity events help employers connect with a
new marketplace of diverse professionals. We believe our events are the only events of their type endorsed by leading organizations
such as the NAACP, National Urban League, Phi Beta Sigma 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 historically black sorority and fraternity conferences. Since 2017, we host and
produce virtual career fairs serving veterans, women and STEM professionals.
In
January 2023, the Company’s newly formed wholly-owned subsidiary, Expo Experts Events, LLC, pursuant to an asset purchase agreement
with Expo Experts, LLC (“Expo Experts”), an Ohio limited liability company, has purchased the assets and operations of Expo
Experts. Expo Experts specializes in producing premier face-to-face and virtual recruiting events for Engineering,
Technology and Security Clearance positions, designed to attract diverse candidates who
may also have STEM-based background. We believe that this acquisition compliments our current career fair business.
PDNRecruits.
We use matching and targeting technology to match members with our clients open jobs on a renewing month-to-month license basis,
designed to provide the Company with increasing residual income as we add new clients and sell additional licenses. The PDNRecruits product is a significant step towards increasing online sales in a scalable and residual manner.
PDN
Diversity Placement. As part of our robust suite of recruitment offerings for employers, the Company offers a contingent hiring solution.
It is a pay-per-hire offering that charges 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
Network
The
NAPW Network is a professional networking organization for women. We use the terms “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 local chapters across the United States. In March
2020, due to the COVID-19 pandemic, all events shifted to a virtual format hosted on electronic platforms, such as Zoom. In October
2021, NAPW launched a Global virtual chapter to expand its audience outside of the United States. 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.
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 President, 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. Members are also able to access a recording of these events in the NAPW
website.
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.
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 United States and create opportunities to network with women around the world.
RemoteMore
USA
RemoteMore
USA is an innovative, global entity that provides remote-hiring marketplace services for software developers and companies.
Companies are connected with reliable, cost-efficient, vetted developers, and software developers are empowered to find meaningful jobs
regardless of their location.
Operations:
Sales, Marketing and Customer Support
Sales
and Marketing
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.
We
sell NAPW/IAW Network membership subscriptions offline through our NAPW/IAW Network sales force, which currently includes 2 sales professionals,
all of who 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.
RemoteMore
contracts with companies that are in need of customized software development and pairs them with developers from a database of developers.
Services vary from simple software solutions to detailed programming where teams of developers work together.
Customer
Support and Compliance
In addition to our sales professionals,
we also employ support teams to provide customer support, compliance and enhance member experience. Our customer support teams work together
to improve engagement with our members and to ensure a high degree of member satisfaction and retention. Our customer support teams also
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 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
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 job seeker websites, such as Indeed or ZipRecruiter. We provide a platform that allows employers to recruit and attract
from a targeted pool of diverse candidates rather than a pool of general market candidates. It provides employers unique advantages
in terms of costs savings and time, and allows employers to advance their corporate DEI strategy. Additionally, our strategic
partnerships with diversity based membership organizations such as TechLatino.org, Kappa Alpha Psi, etc., provide our clients
enhanced access to specialized talent using the PDN platform. |
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Online
and Offline Diversity Career Fair Services. The Company has a comprehensive and coordinated method of connecting diverse job
seekers with companies seeking to hire diverse employees using virtual and brick and mortar career fairs. The fairs allow us to
connect with local employers, recruiters, and job seekers in specific cities across the U.S. Our career fair services allow the
Company to diversity its offerings and complement its online job board services |
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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. |
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Relationships
with Strategic Partners. We consider our partner alliances to be a key value to our clients because they enable 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. Websites for the PDN Network are hosted by a third party, who provides hosting and customization for
the Company’s job boards. and 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. |
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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, but not limited to: |
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DisabledPersons.com |
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HireVeterans.com
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Delta Sigma Theta |
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Iota Phi Theta |
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Kappa
Alpha Psi |
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Phi
Beta Sigma |
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Black Women TalkTech |
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Job
Opportunities for Disabled American Veterans (JOFDAV) |
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PR Girl Manifesto |
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National
Association for the Advancement of Colored People (NAACP) |
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The
National Urban League |
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Disability Solutions |
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TechLatino |
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LeanIN Latinas |
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ERG Alliance |
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Gamma Phi Alpha |
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Lambda Sigma Upsilon |
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Sigma
Gamma Rho |
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Alpha Phi Alpha |
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Customized
Technology Platform. The current technology platform being used has been custom-designed and built to facilitate 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. |
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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. |
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Large
and Diverse National Membership Base. 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. |
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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. 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-based 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. |
Operations:
Geography
Our
headquarters is located in Chicago, Illinois, and houses our key executives, as well as many of our sales, customer support, marketing and IT personnel.
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”, as well as others. 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.
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, Indeed, Zip
Recruiter, and Monster Worldwide, Inc., as well as ethnic minority focused social networking websites, such as Diversityjobs.com, Workplacediversity.com,
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 group
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 concerns 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. Telemarketers are required to pay a fee to access the registry and are required to compare their call lists against the nations “do not call” registry at least once
every 31 days. 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.
Seasonality
Our
quarterly operating results are affected by the seasonality of employers’ businesses and hiring practices.
Employees
As
of December 31, 2022, we had a total of 41 employees; 37 were full-time employees in various United States locations. We also regularly engage
independent contractors to perform various services. As of December 31, 2022, 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.
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, as authorities began updating mandates and
recommendations, we adopted a hybrid model where employees worked from the office and remotely.
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. We acquired the NAPW Network in September 2014.
We
commenced 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. 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 for more details.
Our
principal executive offices are located at 55 E. Monroe Street, Suite 2120, Chicago, Illinois, 60603 and our telephone number is
(312) 614-0950. Our Corporate 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.
ITEM
1A - RISK FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment
decision. The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently
believe are immaterial may also impair our business operations. Our business could be harmed by any of these risks. The trading price
of our common stock or other securities could decline due to any of these risks, 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 $3.1 million for the year ended December 31, 2022 and $2.9 million for
the year ended December 31, 2021. Our revenues increased from $6.1 million to $8.3 million during 2022, and our costs and expenses increased
from $8.9 million during the year ended December 31, 2021, to $11.4 million during the year ended December 31, 2022. In addition, we
used $2.2 million in cash flow from continuing operations during the year ended December 31, 2022. Our independent registered public
accounting firm has included in its audit report for the year ended December 31, 2022, an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern. We will need to continue 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.
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.
Maintaining,
protecting and enhancing all of our brands is critical to expanding the base of members for the PDN Network and NAPW 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. 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. 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 PDN Network or the NAPW 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 PDN Network or the NAPW 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.
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.
Membership
fees and related services from NAPW have declined in recent periods. 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.
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
from the segment may fall short of our projections.
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:
|
● |
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. We continuously attempt to optimize the direct sales team and
refine 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.
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
business involves higher risks associated with remote work.
RemoteMore’s
business heavily relies on remote working with its customers, which means many contractors will use their own personal devices and
home networks to perform work tasks. This presents some of the largest risks to the worker and the business. Many personal devices
lack the hardened nature of a corporate device and other security capabilities, such as encryption, auto-backups, authentication and
security monitoring, which may expose our business or our customers’ business to additional risk of cyber-attack. This remote
working environment makes it more difficult to monitor contractor access to data, information sent and received online, and
legitimacy of access.
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.
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.
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, and again following the development of the COVID-19 pandemic in 2020,
unemployment in the United States increased and hiring activity was limited. Although the economy has begun to recover and
unemployment in the United States 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 over time. 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.
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.
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 Part 1, Item 1. “Business—Government Regulation” in 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” in our periodic filings with
the SEC. 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.
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 Larry Aichler, our Chief Financial Officer, 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. 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 or the implementation or recurrence of shelter in place or similar orders in the future.
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 26% of our common stock as of December 31, 2022. As a result of
its ownership CFL is able to influence significantly all matters requiring approval by our stockholders, including the election of
directors. We also sold 1,162,791 shares of our common stock, or approximately 11.7% of the outstanding stock at the time, to a
single investor in a private placement on December 16, 2022. In addition, our directors and executive officers and their affiliated
entities, in the aggregate, beneficially own approximately 2.91% of our outstanding common stock as of December 31, 2022.
Stockholders other than these principal stockholders may, therefore, have relatively 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 $0.98 to $2.16 during the fiscal year of
2022. 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:
|
● |
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. CFL has the right to require the Company to register the public resale under a registration statement filed with the
SEC. We also registered for resale 1,162,791 shares of our common stock, or approximately 11.7% of the outstanding stock at the
time, that we sold in a private placement to a single investor on December 16, 2022. 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. In addition, sales of securities under our “shelf” registration statement, which allows for the issuance
of shares of our common stock, preferred stock, rights, warrants, and units from time to time up to an aggregate amount of
$45,000,000, may cause the market price of our stock to decline.
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. Following amendments approved by the Company’s stockholders
in June 2017, November 2018 and June 2021, the Company is now authorized to issue 750,000 shares under the amended 2013 Plan. For more
information about our 2013 Equity Compensation Plan, please see Note 13 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:
|
● |
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,
the substantial number of shares of common stock owned by CFL may make it more difficult for any third party to effect a change in control
without CFL’s approval.
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.
Our
management determined as of both December 31, 2020 and December 31, 2021 that our internal control over financial reporting had
material weaknesses. In response we completed certain measures to remediate the material weaknesses related to our internal control
over financial reporting that had been identified. For example, during 2022, 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 pertaining to amounts allocated from revenue sharing agreements with partners and properly estimate allowance for
doubtful accounts and bad debt expense, (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 analyses for each non-routine event or
transaction that required management’s judgement and/or estimate.
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.
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 4,900 square feet of space for our headquarters in Chicago, Illinois under a lease that expires on September 30,
2027.
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
On
June 7, 2022, we settled a lawsuit whereby NAPW Inc., a wholly-owned subsidiary of ours, was named as a defendant in a Nassau County
(NY) Supreme Court case [NAPW Case index No. LT 000421/2018; NAPW’s former Garden City, NY, office], and whereby TL Franklin
Avenue Plaza LLC had sued and obtained a judgment against NAPW in the amount of $855,002, plus accrued interest through the
settlement date. The settlement was for a cash payment of $70,000 to be made to the plaintiff, resulting in the reduction of our
reserve and a one-time, non-cash gain of $908,564 reflected in our consolidated financial statements during 2022. A stipulation for
settlement was filed with the court on June 7, 2022, and the lawsuit was effectively terminated with prejudice upon such
filing.
We
and our 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. Plaintiffs are seeking monetary damages and equitable relief. 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, we 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. While the COVID-19 pandemic has caused delays
to the litigation, it is expected that these delays will decrease as the disruption caused by the pandemic subsides.
We
are also generally subject to legal proceedings and litigation arising in the ordinary course of business.
ITEM
4 - MINE SAFETY DISCLOSURES
Not
applicable.
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,
persons with disabilities, 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 a 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.
RemoteMore
USA is an innovative, global entity that provides remote-hiring marketplace services for developers and companies. Companies are
connected with reliable, cost-efficient, vetted developers, and empowers every developer to find a meaningful job regardless of
their location.
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, 2022, 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, 2022.
The
Company had an accumulated deficit of ($98,382,540) at December 31, 2022. During the year ended December 31, 2022, the Company generated
a net loss from continuing operations of approximately ($3,157,000) and used cash in continuing operations during the twelve months ended
December 31, 2022, of approximately $2,250,000. At December 31, 2022, the Company had a cash balance of $1,236,771. Total revenues during
the year ended December 31, 2022, were approximately $8,314,000 compared to total revenues of approximately $6,099,000 during the year
ended December 31, 2021. The Company had a working capital deficit from continuing operations of approximately $187,000 and working capital
from continuing operations of approximately $834,000 at December 31, 2022 and 2021. 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 be sufficient to meet our working capital requirements
for the next twelve months, however, in order to accomplish our business plan objectives, the Company will need to continue its cost
reduction efforts, increase revenues, and raise capital through the issuance of common stock, or through a strategic merger or
acquisition. 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
available on acceptable terms.
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 U.S. 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 consolidated 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, its wholly owned subsidiaries,
and those subsidiaries where less than 50% is owned but consolidation is required. 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, 2022 and 2021, the allowance for doubtful accounts was approximately
$103,000 and $247,000, respectively.
Other
Receivables – Other receivables represent amounts that are owed to the Company that are not considered
trade receivables. The Company periodically reviews its other receivables for credit risk to determine whether an allowance is
necessary 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, 2022, the balance in other receivables as reported on the consolidated balance sheet was
deemed collectible. In the first quarter of fiscal year 2023, the Company received $200,000
related to the other receivables balance.
Property
and Equipment - Property and equipment are 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, 2022 and 2021 was $9,012 and $6,281, respectively, and is recorded in depreciation and amortization expense in the accompanying consolidated
statements of operations. Accumulated depreciation as of December 31, 2022, and 2021, was approximately $14,600 and $10,800, respectively. There was approximately
$5,200 of computer equipment disposed of in fiscal year 2022 as these items reached their useful life.
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. (See Note 4 – Business Combinations.)
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. (See Note 4 – Business Combinations and Note 7 – Intangible Assets.)
Goodwill
is tested for impairment at the reporting unit level on an annual basis (December 31) 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.
Contingent
Liabilities – Our determination of the treatment of contingent liabilities in the consolidated financial statements is
based on our view of the expected outcome of the applicable contingency. In the ordinary course of business, we consult with legal
counsel on matters related to litigation and other experts both within and outside our Company. We accrue a liability if the
likelihood of an adverse outcome is probable and the amount of loss is reasonably estimable. We disclose the matter, but do not
accrue a liability if the likelihood of an adverse outcome is reasonably possible and an estimate of loss is not determinable. Legal
and other costs incurred in conjunction with loss contingencies are expensed as incurred.
Treasury
Stock – Treasury stock is recorded at cost as a reduction of stockholders’ equity in the accompanying consolidated
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. (See
Note 5 – Revenue Recognition.)
Deferred
revenue includes customer payments, which are received prior to performing services and revenues are recognized as benefits are provided
to the customer. 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.
Discontinued
Operations
China
Operations
The
Company previously disclosed in its Form 10-K for the year ending December 31, 2019 (the “2019 10-K”) and subsequently that
the assets of PDN China were frozen by Chinese local authorities in November 2019 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 was affiliated.
A subsequent investigation led by a special committee of the Board concluded that it did not find any evidence that the Company or PDN
China has engaged in the criminal activity of illegal fund-raising as alleged against Gatewang. The Company subsequently discontinued
all of its operations in China.
The
Company also previously disclosed in the 2019 Form 10-K that the seizure of PDN China’s assets had been lifted in March
2020. However on April 22, 2021, the Company learned that RMB 18,841,064.15
(approximately $2.9
million) had been seized from the PDN China account by Longxu District Court of Wuzhou City in Guangxi Province to satisfy a
judgment in favor of the plaintiffs in the Gatewang Case. On April 26, 2021, the Company concluded that the seizure of such cash
assets is a material reduction of Company assets. The Company has reflected the seizure of these cash funds in its
consolidated balance sheets.
The
Company has asserted its claim to these funds as the genuine owner to the Chinese officials and asked for their return. The Company plans
to pursue all possible legal alternatives to have these funds returned to the Company, but such return is uncertain at this time.
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 and comprehensive loss. For the year ended December 31, 2022, loss from discontinued operations
was approximately ($65,100) compared to a loss from discontinued operations of ($89,000) for the year ended December 31, 2021.
Assets
and liabilities of China operations are now included in current and long-term assets from discontinued operations, and current
and long-term liabilities from discontinued operations. As of December 31, 2022, current assets from discontinued operations
were approximately $4,600, compared to approximately $4,600 as of December 31, 2021, and long-term assets from discontinued operations
were approximately $197,000 at December 31, 2022, compared to approximately $198,000 as of December 31, 2021. As of December 31, 2022,
current liabilities from discontinued operations were approximately $503,000, compared to approximately $421,000 as of December 31, 2021.
Operating
Results of Discontinued Operations
The
following table represents the components of operating results from discontinued operations, net of intercompany eliminations, as presented
in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021:
Schedule of Operating
Results of Discontinued Operations
| |
2022 | | |
2021 | |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
General and administrative | |
| 64,944 | | |
| 89,477 | |
Non-operating (expense) income | |
| 111 | | |
| (664 | ) |
Loss from discontinued operations before income tax | |
| (65,055 | ) | |
| (88,813 | ) |
Income tax expense | |
| - | | |
| - | |
Net loss from discontinued operations | |
$ | (65,055 | ) | |
$ | (88,813 | ) |
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, 2022 and 2021, the Company incurred advertising and marketing expenses of approximately $1,106,000 and $887,000. These amounts are
included in sales and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss.
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 Federal Deposit Insurance Corporation 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.
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, 2022. 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 tax 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, 2018 through 2021.
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 December 31, 2022.
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, 2022 and 2021, excludes the potentially dilutive securities summarized in the
table below because their inclusion would be anti-dilutive.
Schedule of Antidilutive Securities Excluded
from Computation of Earnings Per Share
| |
2022 | | |
2021 | |
| |
As of December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Stock options | |
| 11,532 | | |
| 18,063 | |
Unvested restricted stock | |
| 34,557
| | |
| 79,762 | |
Total dilutive securities | |
| 46,089 | | |
| 97,825 | |
Reclassifications
- Certain prior year amounts in the Consolidated Statements of Operations and Comprehensive Loss have been reclassified
to conform with the current year presentation.
Recent
Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. The main objective of this update is to provide financial statement users with more decision-useful information about
the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current
U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. For public business entities that are smaller reporting companies under SEC
rules, the amendments in this update are effective for fiscal years beginning after January 2023, including interim periods within
those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its financial position, results
of operations, statement of comprehensive loss, and cash flows, and will adopt the provisions of this statement in the first
quarter of fiscal year 2023.
4.
Business Combinations
RemoteMore USA, Inc.
On
September 20, 2021, the Company acquired a 45.62% interest in RemoteMore USA, Inc. (“RemoteMore”), a software developer recruiting
company, for an estimated total purchase price of $1,363,333, paying $863,333 in cash and $500,000 to be paid in one year (see below).
The acquisition is expected to significantly grow the Company’s revenues and recruiting platform and also included bringing onboard
Boris Krastev and Boris Borisov, the co-founders of RemoteMore.
The
purchase price allocation as of the date of the acquisition was based on a detailed analysis about the fair value of assets acquired.
No liabilities were assumed. The major classes of assets to which we have allocated the purchase price were as follows:
Schedule of Company Measurement
|
|
|
|
|
Goodwill |
|
$ |
935,334 |
|
Intangible
assets, net of noncontrolling interest |
|
|
427,999 |
|
Business
combination total |
|
$ |
1,363,333 |
|
The
goodwill recognized in connection with the acquisition is primarily attributable to anticipated synergies from future growth and is expected
to be deductible for tax purposes.
Intangible
assets purchased in connection with the acquisition primarily represent contracts acquired, and to a lesser extent trademarks, and are
reflected in the Company’s consolidated balance sheets at gross amounts, net of accumulated amortization (see Note 7
– Intangible Assets).
Operations
for RemoteMore are included in the Company’s consolidated financial statements at gross amounts as the Company has significant
influence in the way RemoteMore operates. The 54.38%
interest retained by the seller are included in the Company’s consolidated financial statements as non-controlling interest.
For the year ended December 31, 2022, RemoteMore generated approximately $2,646,000
of revenues and incurred approximately $3,665,847
of operating costs, inclusive of approximately $667,000
of amortization expense related to the acquisition of intangible assets, for a loss before income taxes of approximately $1,020,000.
From
September 20, 2021, through December 31, 2021, RemoteMore generated approximately $303,000 of revenues and incurred approximately $655,000
of operating costs, for a loss before income taxes of approximately $354,000.
RemoteMore
was incorporated in December 2020, and did not begin operations until on or about July 1, 2021. From January 1, 2021, through the acquisition
date of September 20, 2021, revenues and expenses would have been deemed immaterial to the Company’s consolidated financial statements.
The Company expects to fully realize its interest in the revenues with associated with the contracts acquired (see Note 7 – Intangible
Assets).
In
February 2022, in connection with the September 2021 acquisition of the 45.62%
interest in RemoteMore USA, Inc., the Company issued 139,860
shares of its common stock, with a value of $400,000,
to the co-founders of RemoteMore.
In March 2023, the Company exercised its option to purchase an additional
20% interest in RemoteMore for $116,667 furthering its interest in RemoteMore to 65.62%.
Expo Experts, LLC
In
January 2023, the Company’s newly formed wholly-owned subsidiary, Expo Experts Events, LLC, pursuant to an asset
purchase agreement with Expo Experts, LLC (“Expo Experts”), an Ohio limited liability company, has purchased the assets and
operations of Expo Experts for a total consideration of $600,000 funded by the payment of $400,000 in cash and the issuance of restricted
shares of PDN common stock valued at $200,000 based on the volume weighted-average price as of twenty (20) days prior to the closing
date.
5.
Revenue Recognition
The
Company recognizes revenue under the core principle of ASC 606 – Revenue from Contracts with Customers (“ASC 606”),
to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order
to achieve that core principle, the Company has applied the following five-step approach: (1) identify the contract with a customer,
(2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to
the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The
Company’s contracts with customers may provide for multiple promised goods and services. The Company typically analyzes the contract
and identifies the performance obligations by evaluating whether the promised goods and services are capable of being distinct within
the context of the contract at contract inception. Promised goods and services that are not distinct at contract inception are combined.
The next step after identifying the performance obligations is determining the transaction price, which includes the impact of variable
consideration, based on contractually fixed amounts and an estimation of variable consideration. The Company allocates the transaction
price to each performance obligation based on relative stand-alone selling price. Judgment is exercised to determine the stand-alone
selling price of each distinct performance obligation. The Company estimates the standalone selling price by reference to the total transaction
price less the sum of the observable stand-alone selling prices of other goods or services promised in the contract. In general, transaction
price is determined by estimating the fixed amount of consideration to which we are entitled for transfer of goods and services and all
relevant sources and components of variable consideration. Revenues are generally recognized when control of the promised goods or services
is transferred to their customers either at a point in time or over time, in an amount that reflects the consideration it expects to
be entitled to in exchange for those goods or services.
Many
of the Company’s contracts have one performance obligation and all consideration is allocated to that performance obligation and
recognized at a point in time contemporaneous when the service is performed or with the date of the event.
Payment is typically due in full, at net 30, from the moment control of
the goods or services have begun to transfer, unless both parties have negotiated an installment-based payment arrangement through the
term of the contract. The
Company may have contracts where there is an extended timing difference between payment and the time when control of the goods or services
is transferred, or has begun transferring, to the customer.
Nature
of Goods and Services
The
following is a description of principal activities from which the Company generates its revenue:
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 period that the event takes place and e-commerce sales are for sixty-to-ninety-day job postings
and the revenue from those sales are recognized when the service is provided. The Company’s 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, Kappa Alpha Psi, Phi Beta Sigma and many other partner organizations; |
|
|
● |
OFCCP
job promotion and recordation services; |
|
|
● |
Diversity
job fairs, both in person and virtual fairs; |
|
|
● |
Diversity
recruitment job advertising services; and |
|
|
● |
Diversity
executive staffing services. |
Membership
Fees and Related Services
Membership
fees of longer than one month 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.
Monthly
membership revenues are recognized in the same month 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.
Products
offered to members relate to custom made plaques. Product sales are recognized as deferred revenue at the time the initial order is placed.
Revenue is then recognized at the time these products are shipped. The Company’s shipping and handling costs are included in cost
of sales in the accompanying consolidated statements of operations.
Contracted
Software Development
Revenues
for RemoteMore are generated from providing customized software solutions to customers and are recognized in the period work is performed.
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.
Revenue
Concentration
The
Company, in alliance with another company, partners to sell two recruitment services products. This alliance member builds, hosts, and
manages the Company’s job boards and website. This alliance member also bills customers, collects fees, and provides customer services.
For the year ended December 31, 2022 and 2021, the Company recorded approximately 11.4% and 11.1% of its recruitment services revenue
from this alliance sales relationship, respectively.
Disaggregation
of revenue
Revenue
is disaggregated by product line and timing of transfer of products and services (see Note 15 - Segment Information).
Contract
Balances
The
Company’s rights to consideration for work completed, but not billed at the reporting date, is classified as a receivable, as it
has an unconditional right to payment or only conditional for the passage of time. The Company has no recorded contract assets as of
December 31, 2022.
Consideration
received in advance from customers is recorded as a contract liability, if a contract exists under ASC 606, until services are delivered,
or obligations are met and revenue is earned. Contract liability represents the excess of amounts invoiced over amounts recognized as
revenues. Contract liabilities to be recognized in the succeeding twelve-month period are classified as current contract liabilities
and the remaining amounts, if any, are classified as non-current contract liabilities. Contract liabilities of approximately $1,926,000
are included in current deferred revenues, on the consolidated balance sheets as of December 31, 2022. For the three months
ended December 31, 2022, we recognized revenue associated with contract liabilities of approximately $1,154,000 that was included in
the contract liabilities balance at September 30, 2022.
Transaction
price allocated to the remaining performance obligations
The
Company applies the optional exemptions and does not disclose: a) information about remaining performance obligations that have an original
expected duration of one year or less or b) transaction price allocated to unsatisfied performance obligations for which variable consideration
is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or
service that forms part of a single performance obligation in accordance with the series guidance.
The
typical duration of all event related and other contracts is one year or less and, as a result, the Company applies the optional exemptions
and does not disclose information about remaining performance obligations that have an original expected duration of one year or less.
6.
Capitalized Technology
Capitalized
Technology, net is as follows:
Schedule of Capitalized Technology
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Capitalized cost: | |
| | | |
| | |
Balance, beginning of period | |
$ | 43,038 | | |
$ | 25,867 | |
Additional capitalized cost | |
| 45,196 | | |
| 49,970 | |
Provision for amortization | |
| (23,735 | ) | |
| (32,799 | ) |
Balance, end of period | |
$ | 64,499 | | |
$ | 43,038 | |
Amortization
expense related to capitalized technology of $23,735 and $32,799 for the years ended December 31, 2022 and 2021, respectively, is recorded
in depreciation and amortization expense in the accompanying consolidated statements of operations.
7.
Intangible Assets
Intangible
assets, net is as follows:
Schedule of Intangible Assets
|
|
Useful
Lives |
|
|
Gross
Carrying |
|
|
Accumulated |
|
|
Net
Carrying |
|
December
31, 2022 |
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Long-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Process |
|
|
10 |
|
|
$ |
2,130,956 |
|
|
$ |
(1,997,593 |
) |
|
$ |
133,363 |
|
Paid
Member Relationships |
|
|
5 |
|
|
|
803,472 |
|
|
|
(803,472 |
) |
|
|
- |
|
Member
Lists |
|
|
5 |
|
|
|
8,086,181 |
|
|
|
(8,086,181 |
) |
|
|
- |
|
Developed
Technology |
|
|
3 |
|
|
|
648,000 |
|
|
|
(648,000 |
) |
|
|
- |
|
Trade
Name/Trademarks |
|
|
4 |
|
|
|
442,500 |
|
|
|
(441,042 |
) |
|
|
1,458 |
|
Contracts
acquired in RemoteMore acquisition |
|
|
3
- 12 months |
|
|
|
935,683 |
|
|
|
(935,683 |
) |
|
|
- |
|
|
|
|
|
|
|
|
13,046,792 |
|
|
|
(12,911,971 |
) |
|
|
134,821 |
|
Indefinite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400 |
|
Intangible
assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
225,221 |
|
|
|
Useful
Lives |
|
|
Gross
Carrying |
|
|
Accumulated |
|
|
Net
Carrying |
|
December
31, 2021 |
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Long-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Process |
|
|
10 |
|
|
$ |
2,130,956 |
|
|
$ |
(1,921,386 |
) |
|
$ |
209,570 |
|
Paid
Member Relationships |
|
|
5 |
|
|
|
803,472 |
|
|
|
(803,472 |
) |
|
|
- |
|
Member
Lists |
|
|
5 |
|
|
|
8,086,181 |
|
|
|
(8,086,181 |
) |
|
|
- |
|
Developed
Technology |
|
|
3 |
|
|
|
648,000 |
|
|
|
(648,000 |
) |
|
|
- |
|
Trade
Name/Trademarks |
|
|
4 |
|
|
|
442,500 |
|
|
|
(440,208 |
) |
|
|
2,292 |
|
Contracts
acquired in RemoteMore acquisition |
|
|
3-12
months |
|
|
|
935,683 |
|
|
|
(269,664 |
) |
|
|
666,019 |
|
|
|
|
|
|
|
|
13,046,792 |
|
|
|
(12,168,911 |
) |
|
|
877,881 |
|
Indefinite-lived
intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,400 |
|
Intangible
assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
968,281 |
|
Future
annual estimated amortization expense is summarized as follows:
Schedule
of Future Annual Estimated Amortization Expense
Year
ended December 31, |
|
|
|
2023 |
|
$ |
77,041 |
|
2024 |
|
|
57,780 |
|
Net
Carrying Amount |
|
$ |
134,821 |
|
Amortization
expense related to intangible assets of $734,346 and $346,080 for the years ended December 31, 2022 and 2021, respectively, is recorded
in depreciation and amortization expense in the accompanying consolidated statements of operations.
8.
Long-term Investments
On
September 27, 2022, the Company entered into a Stock Purchase Agreement (the “SPA”) with Koala Malta Limited, a private limited
liability company registered under the laws of Malta (the “Seller”).
Upon
the execution of the SPA, the Company purchased 65,700 issued ordinary shares of Koala Crypto Limited (“KCL”) from Seller,
representing 9 percent of the total issued share capital of KCL, and in exchange, the Company issued 863,392 shares of its common stock
to Seller in a private placement (the “Consideration Shares”). The Consideration Shares were valued at $1,350,000 in the
aggregate based on the volume weighted-average price of the common stock of the Company for the 20 trading days immediately prior to
the date of the SPA and is recorded in the consolidated balance sheets as long-term investments.
Upon
execution of the SPA, the Company, the Seller and KCL also entered into a Shareholders’ Agreement. The Shareholders’ Agreement
imposes certain transfer restrictions on the Seller and the Company as shareholders of KCL, provides for certain governance and approval
rights among the parties, and gives the Company a put option with respect to its investment in KCL in the event of a change of control
of the Seller. At the same time, Alan Tak Wai Yau, an individual and the majority shareholder of Koala Capital Limited, which is the
parent company of the Seller (“Koala Capital”), provided the Company with a share charge over 15 percent of the issued share
capital of Koala Capital (the “Share Charge”) and Koala Capital provided the Company with a guaranty and indemnity (the “Guarantee”),
which Share Charge and Guarantee were granted as security for a number of the Seller’s obligations as set forth therein, including
obtaining the lifting of the voluntary suspension of KCL’s virtual financial assets license by the Malta Financial Services Authority
by December 31, 2022.
As
of December 31, 2022, KCL was in its beta testing of its software and expects to be fully operational by the second quarter of fiscal
year 2023.
9.
Accrued Liabilities
As
of December 31, 2022 and 2021, accrued liabilities consisted of the following:
Schedule of Accrued Liabilities
| |
2022 | | |
2021 | |
| |
As of December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Litigation reserve | |
$ | 450,000 | | |
$ | 1,406,002 | |
Contractor expenses | |
| 247,909 | | |
| 78,524 | |
Accrued payroll | |
| 83,514 | | |
| 65,941 | |
Accrued legal fees | |
| 15,000 | | |
| 43,574 | |
Accrued Board of Director fees | |
| 50,112 | | |
| 60,503 | |
Accrued revenue sharing agreements | |
| 83,832 | | |
| 76,373 | |
Other | |
| 141,475 | | |
| 147,498 | |
Total accrued liabilities | |
$ | 1,071,842 | | |
$ | 1,878,415 | |
10.
Commitments and Contingencies
Lease
Obligations - The Company leases office space and equipment under various operating lease agreements, including an office for
its headquarters, as well as office spaces for its events business, sales and administrative offices under non-cancelable lease arrangements
that provide for payments on a graduated basis with various expiration dates.
As
of December 31, 2022 and 2021, right of use assets were $365,324 and $427,652, and related lease obligations were $444,720 and $516,763,
as recorded on the Company’s consolidated balance sheets. The Company made approximately $101,100 and $25,100 of cash payments for lease expenses related to the office space
for the years ended December 31, 2022 and 2021, respectively.
Other
- PDN China’s bank account with a balance of approximately $195,000, at December 31, 2022, was frozen by Guangzhou Police
due to the Gatewang Case. The Company has classified this entire cash balance as a long-term assets presented in discontinued operations
(see Note 3 - Summary of Significant Accounting Policies – 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 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 75,000 shares of the Company’s
common stock in January 2021.
On
June 7, 2022, the Company settled a lawsuit whereby NAPW Inc., a wholly-owned subsidiary of the Company, was named as a defendant in
a Nassau County (NY) Supreme Court case [NAPW Case index No. LT 000421/2018; NAPW’s former Garden City, NY, office], and whereby
TL Franklin Avenue Plaza LLC had sued and obtained a judgment against NAPW in the amount of $855,002, plus accrued interest through the
settlement date. The settlement was for a cash payment of $70,000 to be made to the plaintiff, resulting in the reduction of the Company’s
reserve and a one-time, non-cash gain to the Company of $908,564 reflected in the Company’s consolidated financial statements.
A stipulation for settlement was filed with the court on June 7, 2022, and the lawsuit was effectively terminated with prejudice upon
such filing.
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. Plaintiffs are seeking monetary damages and equitable relief. 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. While the COVID-19 pandemic has caused
delays to the litigation, it is expected that these delays will decrease as the disruption caused by the pandemic subsides.
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.
11.
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, and CFL agreed to purchase, 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 would 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.
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.
On
September 22, 2021, the Company entered into a stock purchase agreement with CFL, in which the Company sold 474,384 shares of its common
stock at a price per share of $2.10 for gross proceeds of approximately $1,000,000. On October 30, 2021, CFL entered into a transfer
stock agreement with a former shareholder of the Company to purchase an additional 375,869 shares of its common stock.
As
of December 31, 2022, CFL beneficially held 5,139,203 shares of the Company’s outstanding Common Stock equal to approximately 26.1%
of the outstanding class.
12.
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, 2022, the Company had 10,367,431 shares of common stock issued.
In
January 2021, the Company issued 75,000 shares of the Company’s common stock to White Winston as a result of a settlement agreement.
On
February 1, 2021, the Company entered into a private placement with Ms. Yiran Gu, in which the Company sold 250,000 shares of its common
stock at a price per share of $4.00 for gross proceeds of $1,000,000.
On
July 9, 2021, the Company closed the registered direct offering, pursuant to which certain institutional accredited investors purchased
735,294 shares of the Company’s common stock, par value $0.01 per share, at a per share price equal to $3.40 for gross proceeds
of $2,499,999.60.
On
September 22, 2021, the Company entered into a stock purchase agreement with CFL, in which the Company sold 474,384 shares of its common
stock at a price per share of $2.10 for gross proceeds of approximately $1,000,000.
In
February 2022, in connection with the September 2021 acquisition of the 45.62% interest in RemoteMore USA, Inc., and as a component of
the $500,000 to be paid within one year, the Company issued 139,860 shares of its common stock, with a value of $400,000, to the co-founders
of RemoteMore (see Note 4 – Business Combinations).
In
September 2022, in connection with the acquisition of a 9% interest in Koala Crypto Limited the Company issued 863,392 shares of its
common stock to Seller in a private placement (the “Consideration Shares”). The Consideration Shares were valued at $1,350,000
(see Note 8 – Long-term Investments).
In
December 2022, the Company entered into a stock purchase agreement with Ms. Hongjun Chen, in which the Company sold 1,162,791
shares of its common stock at a price per share of $0.86
for gross proceeds of approximately $1,000,000.
Total
shares issued during fiscal year 2022 were as follows:
Schedule of Shares Issued
| |
| | |
| | |
Additional | | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Stock | |
| |
Shares | | |
Amount | | |
Capital | | |
Issuances | |
| |
| | |
| | |
| | |
| |
Issuance of common stock | |
| | | |
| | | |
| | | |
| | |
Co-founders of RemoteMore | |
| 139,860 | | |
$ | 1,398 | | |
$ | 398,602 | | |
$ | 400,000 | |
Koala Crypto Limited | |
| 863,392 | | |
| 8,634 | | |
| 1,341,366 | | |
| 1,350,000 | |
Ms. Hongjun Chen | |
| 1,162,791 | | |
| 11,628 | | |
| 988,372 | | |
| 1,000,000 | |
| |
| | | |
| | | |
| | | |
| | |
Vesting of grant to CEO* | |
| 50,000 | | |
| 500 | | |
| 181,473 | | |
| 181,973 | |
Vesting of grants to Board of Directors* | |
| 29,761 | | |
| 298 | | |
| 124,702 | | |
| 125,000 | |
Grants to management* | |
| 88,000 | | |
| 880 | | |
| 172,576 | | |
| 174,456 | |
Grants | |
| 88,000 | | |
| 880 | | |
| 172,576 | | |
| 174,456 | |
Total | |
| 2,333,804 | | |
$ | 23,338 | | |
$ | 3,208,091 | | |
$ | 3,231,429 | |
Issuance of common stock | |
| 2,333,804 | | |
$ | 23,338 | | |
$ | 3,208,091 | | |
$ | 3,231,429 | |
* |
see
Note 13 – Stock-Based Compensation – Restricted Stock |
Stock
Buyback Plan – The Company has a share repurchase program (“Stock Buyback Plan”) under which it is authorized
to purchase up to $2.0
million of its outstanding common shares. The
timing and amount of any shares repurchased under the Stock Buyback Plan will depend on a variety of factors, including price, corporate
and regulatory requirements, capital availability and other market conditions. The Stock Purchase Plan may be suspended or discontinued
at any time without prior notice. Repurchases may also be made under a plan meeting the requirements of Rule 10b5-1 under the Securities
Exchange Act of 1934, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider
trading laws. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes. No
shares have been or will be knowingly purchased from Company insiders or their affiliates. From inception of the Stock Buyback Plan through
December 20, 2022, the Company purchased 530,421
shares of its common shares, for a total of approximately
$855,000
at an average cost of approximately $1.62
per share (excluding commissions). Transactions
occurred in open market purchases and pursuant to a trading plan under Rule 10b5-1. As of December 20, 2022, the Company suspended the
Stock Buyback Plan.
13.
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. Through a series of amendments
to the 2013 Plan, the Company is authorized to issue 1,500,000 shares under the amended 2013 Plan.
Stock
Options
The
fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the
Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards,
and actual and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected
life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is
based on the estimated average of the life of options using the simplified method, and forfeitures are estimated on the date of grant
based on certain historical data. The Company utilizes the simplified method to determine the expected life of its options due to insufficient
exercise activity during recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is
based on the Company’s history and expectation of dividend payouts.
Forfeitures
are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates.
The
following table summarizes the Company’s stock option activity for the years ended December 31, 2022 and 2021:
Schedule of Fair Value Measurement Assumptions
| |
2022 | | |
2021 | |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
Expected dividend yield | |
| - | | |
| - | |
Risk-free interest rate | |
| - | % | |
| 0.33 | % |
Expected volatility | |
| - | % | |
| 122.69 | % |
Expected term (in years) | |
| - | | |
| 3.00 | |
Grant-date fair value of stock options awarded | |
$ | - | | |
$ | 1.09 | |
The
Company recorded non-cash stock-based compensation expense of approximately $11,000 and $19,000 as a component of general and administrative
expenses in the accompanying consolidated statements of operations for the years ended December 31, 2022 and 2021, pertaining to stock
options awards.
Total
unrecognized stock-based compensation expense related to unvested stock options at December 31, 2022 was approximately $16,000 and is
expected to be recognized through the second quarter of 2024.
Warrants
As
of December 31, 2022 and 2021, there were no warrants outstanding and exercisable.
Restricted
Stock
A
summary of restricted stock activity for the years ended December 31, 2022 and 2021 is as follows:
Schedule of Restricted Stock Award Activity
| |
Number of | |
| |
Shares | |
Outstanding - January 1, 2021 | |
| 116,938 | |
Granted | |
| 54,263 | |
Forfeited | |
| - | |
Vested | |
| (91,438 | ) |
Outstanding - December 31, 2021 | |
| 79,763 | |
Granted | |
| 170,937 | |
Forfeited | |
| (13,823 | ) |
Vested | |
| (167,763 | ) |
Outstanding - December 31, 2022 | |
| 69,114 | |
During
the year ended December 31, 2022 the Company granted 69,114 restricted stock units (“RSUs”) to non-employee directors as
partial compensation for their service as a director. The aggregate grant date fair value of the combined awards amounted to approximately
$125,000. The RSU award to the Board member fully vests on the one-year anniversary after the date of grant. The Company also granted
88,000 RSUs to certain officers and managers with immediate vesting. The aggregate grant date fair value of the combined awards
amounted to approximately $284,156.
During
the year ended December 31, 2021 the Company granted 29,763 RSUs to non-employee directors as
partial compensation for their service as a director. The aggregate grant date fair value of the combined awards amounted to approximately
$125,000. The RSU awards to the Board members fully vested on the one-year anniversary after the date of grant. The Company also granted
24,500 RSUs to certain officers and managers with immediate vesting. The aggregate grant date fair value of the combined awards
amounted to approximately $195,000.
The
Company recorded non-cash stock-based compensation expense of approximately $481,000 and $634,000 as a component of general and administrative
expenses in the accompanying consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively, pertaining
to restricted stock awards.
Total
unrecognized stock-based compensation expense related to unvested restricted stock at December 31, 2022 was approximately $53,000 and
is expected to be recognized through the second quarter of 2023.
14.
Income Taxes
The
Company has the following net deferred tax assets and liabilities:
Schedule of Net Deferred Tax Assets and Liabilities
|
|
2022 |
|
|
2021 |
|
|
|
December
31, |
|
|
|
2022 |
|
|
2021 |
|
Goodwill
and intangible assets |
|
$ |
(35,912 |
) |
|
$ |
(38,346 |
) |
Developed
technology |
|
|
(5,894 |
) |
|
|
(11,251 |
) |
Derivative
liability |
|
|
- |
|
|
|
(112,564 |
) |
Property
and equipment |
|
|
(8,942 |
) |
|
|
(8,023 |
)
|
Other
deferred tax assets |
|
|
231,451 |
|
|
|
141,745 |
|
Settlements |
|
|
121,950 |
|
|
|
381,026 |
|
Stock
based compensation |
|
|
58,447 |
|
|
|
107,028 |
|
Net
operating loss |
|
|
9,474,230 |
|
|
|
8,671,958 |
|
Valuation
allowance |
|
|
(9,978,399 |
) |
|
|
(9,293,933 |
) |
Net
deferred tax liability |
|
$ |
(143,069 |
) |
|
$ |
(162,360 |
) |
The
benefit for income taxes for the years ended December 31, 2022 and 2021, consists of the following:
Schedule of Benefits for Income Taxes
|
|
2022 |
|
|
2021 |
|
|
|
Year
Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Federal: |
|
|
|
|
|
|
|
|
Current
provision |
|
$ |
- |
|
|
$ |
- |
|
Deferred
tax benefit |
|
|
(14,950 |
) |
|
|
(18,764 |
) |
Total Federal |
|
$ |
(14,950 |
) |
|
$ |
(18,764 |
) |
State: |
|
|
|
|
|
|
|
|
Current
provision |
|
$ |
- |
|
|
$ |
- |
|
Deferred
tax benefit |
|
|
1,762 |
|
|
|
(2,776 |
) |
Total State |
|
$ |
1,762 |
|
|
$ |
(2,776 |
) |
Foreign: |
|
|
|
|
|
|
|
|
Current
provision |
|
$ |
- |
|
|
$ |
- |
|
Deferred
provision (benefit) |
|
|
- |
|
|
|
- |
|
Total Foreign |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Income
tax expense benefit |
|
$ |
(13,188 |
) |
|
$ |
(21,540 |
) |
A
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
Schedule of Reconciliation of Statutory Federal Income Tax Rate
|
|
2022 |
|
|
2021 |
|
|
|
Year
Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Expected
federal statutory rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State
income taxes, net of federal benefit |
|
|
6.1 |
% |
|
|
6.1 |
% |
Valuation
allowance |
|
|
(22.0 |
)% |
|
|
(23.0 |
)% |
Permanent
items |
|
|
(2.9 |
)% |
|
|
(2.2 |
)% |
Other |
|
|
(1.6 |
)% |
|
|
(1.1 |
)% |
Effective
income tax rate |
|
|
0.6 |
% |
|
|
0.8 |
% |
The
valuation allowance at December 31, 2022 was $9,978,399. The net change in the valuation allowance during the year ended December
31, 2022 was an increase of approximately $684,000. 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, 2022.
At
December 31, 2022, the Company had U.S. federal, Illinois, and New York net operating loss carryforwards of approximately
$34,397,000, $15,209,000, and $11,995,000 respectively. Of
the federal amount, $19,304,000 expires between 2034 and 2038, and $15,093,000 has an indefinite carryforward period. The Illinois losses
may be carried forward 12 years and begin to expire in 2026. The New York losses may be carried forward 20 year and begin to expire
in 2035. 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 and Illinois.
The
U.S. Tax Cuts and Jobs Act of 2017 provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign earnings
and profit (“E&P”) through the year ended December 31, 2017. Due to the seizure of cash, by Chinese local authorities, the
Company’s undistributed foreign E&P has been reduced to $0.
15.
Segment Information
The
Company operates in the following segments: (i) PDN Network, (ii) NAPW Network, (iii)RemoteMore (beginning in fiscal 2021) and (iv)
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, 2022 and 2021:
Schedule of Segment Information
| |
Network | | |
Network | | |
RemoteMore | | |
Overhead | | |
Consolidated | |
| |
Year Ended December 31, 2022 | |
| |
PDN | | |
NAPW | | |
| | |
Corporate | | |
| |
| |
Network | | |
Network | | |
RemoteMore | | |
Overhead | | |
Consolidated | |
Membership fees and related services | |
$ | - | | |
$ | 639,271 | | |
$ | - | | |
$ | - | | |
$ | 639,271 | |
Recruitment services | |
| 4,861,761 | | |
| - | | |
| - | | |
| - | | |
| 4,861,761 | |
Contracted software development | |
| - | | |
| - | | |
| 2,645,619 | | |
| - | | |
| 2,645,619 | |
Consumer advertising and marketing solutions | |
| 167,437 | | |
| - | | |
| - | | |
| - | | |
| 167,437 | |
Total revenues | |
| 5,029,198 | | |
| 639,271 | | |
| 2,645,619 | | |
| - | | |
| 8,314,088 | |
Income (loss) from continuing operations | |
| 415,217 | | |
| (196,117 | ) | |
| (1,008,101 | ) | |
| (2,312,874 | ) | |
| (3,101,875 | ) |
Depreciation and amortization | |
| 30,614 | | |
| 78,223 | | |
| 667,258 | | |
| - | | |
| 776,095 | |
Income tax expense (benefit) | |
| 9,200 | | |
| 24,629 | | |
| 126 | | |
| (47,143 | ) | |
| (13,188 | ) |
Net income (loss) from continuing operations | |
| 414,491 | | |
| (220,536 | ) | |
| (1,020,354 | ) | |
| (2,265,940 | ) | |
| (3,092,339 | ) |
|
|
As
of December 31, 2022 |
|
Goodwill |
|
$ |
339,451 |
|
|
$ |
- |
|
|
$ |
935,334 |
|
|
$ |
- |
|
|
$ |
1,274,785 |
|
Intangibles
assets, net |
|
|
90,400 |
|
|
|
133,363 |
|
|
|
1,458 |
|
|
|
- |
|
|
|
225,221 |
|
Assets
from continuing operations, net of eliminations |
|
|
6,718,226 |
|
|
|
203,534 |
|
|
|
(287,455 |
)
|
|
|
- |
|
|
|
6,634,305 |
|
| |
Network | | |
Network | | |
RemoteMore | | |
Overhead | | |
Consolidated | |
| |
Year Ended December 31, 2021 | |
| |
PDN | | |
NAPW | | |
| | |
Corporate | | |
| |
| |
Network | | |
Network | | |
RemoteMore | | |
Overhead | | |
Consolidated | |
Membership fees and related services | |
$ | - | | |
$ | 985,446 | | |
$ | - | | |
$ | - | | |
$ | 985,446 | |
Recruitment services | |
| 4,646,786 | | |
| - | | |
| - | | |
| - | | |
| 4,646,786 | |
Contracted software development | |
| - | | |
| - | | |
| 302,882 | | |
| - | | |
| 302,882 | |
Consumer advertising and marketing solutions | |
| 163,485 | | |
| - | | |
| - | | |
| - | | |
| 163,485 | |
Total revenues | |
| 4,810,271 | | |
| 985,446 | | |
| 302,882 | | |
| - | | |
| 6,098,599 | |
Income (loss) from continuing operations | |
| 1,069,451 | | |
| (849,599 | ) | |
| (352,165 | ) | |
| (2,758,151 | ) | |
| (2,890,464 | ) |
Depreciation and amortization | |
| 15,235 | | |
| 100,037 | | |
| 269,889 | | |
| - | | |
| 385,161 | |
Income tax expense (benefit) | |
| 12,135 | | |
| (8,757 | ) | |
| - | | |
| (24,918 | ) | |
| (21,540 | ) |
Net income (loss) from continuing operations | |
| 1,065,561 | | |
| (839,674 | ) | |
| (353,579 | ) | |
| (2,733,233 | ) | |
| (2,860,925 | ) |
|
|
As
of December 31, 2021 |
|
Goodwill |
|
$ |
339,451 |
|
|
$ |
- |
|
|
$ |
935,334 |
|
|
$ |
- |
|
|
$ |
1,274,785 |
|
Intangibles
assets, net |
|
|
90,400 |
|
|
|
209,570 |
|
|
|
668,311 |
|
|
|
- |
|
|
|
968,281 |
|
Assets
from continuing operations, net of eliminations |
|
|
7,596,499 |
|
|
|
684,881 |
|
|
|
501,198 |
|
|
|
- |
|
|
|
8,782,578 |
|
16.
Employee benefit plans
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 (“PDN
Plan”), which is a qualified defined contribution plan under section 401(k) of the Internal Revenue Service Code. Under the
PDN Plan, employees are eligible to participate after meeting eligibility requirements and employees are always fully vested in
their own contributions. Effective January 1, 2021, the Company has elected to match up to 5%
of eligible employee contributions. The contribution expense for the PDN Plan was approximately $82,000 and $74,000 for the years ended December 31,
2022, and 2021, respectively.
17.
Subsequent Events
As
previously disclosed in a Current Report on Form 8-K filed on November 28, 2022, the Company’s stockholders approved an
amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split (the
“Reverse Stock Split”) of the Company’s common stock, par value $0.01
per share (the “Common Stock”), between the range of 1.5
to 1 and 5 to 1 at the direction of the management (the “Split Ratio”), depending upon which exact ratio is
deemed necessary and desirable to achieve a minimum share price of at least $1.00
per share in the market trading price of the Common Stock and which may be done more than one time to achieve such minimum
price, and to cash out resulting fractional shares. On January 3, 2023, the board of directors of the Company (the
“Board”) adopted resolutions by unanimous written consent, pursuant to which the Board determined that it is advisable
and in the best interests of the
Company to fix the Split Ratio at 2 to 1. As a result of the effected Reverse Stock Split, all shares of common stock that were held by the Company as treasury
shares were retired in accordance with Section 243 of the Delaware General Corporation Law, immediately prior to the effectiveness of
the Reverse Stock Split, and such shares resumed the status of authorized and unissued shares of Common Stock.
As
discussed in Note 4, subsequent to year end, the Company completed the acquisition of Expo Experts, LLC and exercised its option to purchase
an additional 20% of RemoteMore.
On
March 13, 2023, Professional Diversity Network, Inc. (the “Company”) entered into a stock purchase agreement with Ms. Yiran
Gu, a former investor of the Company and a citizen of the People’s Republic of China, in connection with the purchase by Ms. Gu
of 333,181 shares of common stock of the Company at a price of approximately $2.10 per share for aggregate gross proceeds of $700,000.
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 March 31, 2023.
/s/
Xin (Adam) He |
|
Xin
(Adam) He |
|
Chief
Executive Officer (Principal Executive Officer) |
|
|
|
/s/
Larry S. Aichler |
|
Larry
S. Aichler |
|
Chief
Financial Officer (Principal Financial Officer) |
|
|
|
/s/
Courtney C. Shea |
|
Courtney
C. Shea |
|
Director |
|
|
|
/s/
Hao Zhang |
|
Hao
Zhang |
|
Chair
of Board, Director |
|
|
|
/s/
Scott Liu |
|
Scott
Liu
Director |
|
|
|
/s/
Michael Belsky |
|
Michael
Belsky |
|
Director |
|
|
|
/s/
Chris Renn |
|
Chris
Renn |
|
Director |
|
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