Professional Diversity Network, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
For the three and six months ended June 30, 2021. The company operates the PDN Network, which provides diversity-focused recruitment and career services, and the NAPW Network, a professional membership organization for women. China operations are discontinued and reported separately.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $1.460 million | $0.952 million | $2.945 million | $1.934 million |
| Gross profit (revenue less cost of revenue) | $1.200 million | $0.782 million | $2.424 million | $1.591 million |
| Continuing-operations loss, after tax | $0.590 million | $1.781 million | $1.345 million | $3.203 million |
| Net loss, including discontinued operations | $0.636 million | $1.839 million | $1.406 million | $3.331 million |
| Adjusted EBITDA (non-GAAP) | $(0.235) million | $(1.116) million | $(0.922) million | $(2.021) million |
At June 30, cash and cash equivalents were $2.508 million, total assets $5.904 million, total liabilities $5.369 million, and stockholders’ equity $0.535 million. The company reported a continuing-operations working-capital deficiency of approximately $0.738 million. Operating cash use was $0.663 million for the first half; investing cash use was $0.080 million, and financing provided $1.167 million, principally from common-stock sales. No conventional borrowings were reported at June 30; lease liabilities totaled approximately $0.526 million.
Material changes versus the prior comparable period
- Revenue increased 53.5% in Q2 and 52.3% for the first half. Recruitment services drove the growth, rising 101.4% and 104.3%, respectively.
- Membership fees and related services fell 27.1% in Q2 and 29.3% for the first half. Management attributed weakness to lower legacy retention and COVID-related pressure on new enrollment.
- Q2 continuing-operations loss narrowed by approximately $1.191 million; first-half loss narrowed by approximately $1.858 million. Lower general and administrative expense, including reduced professional-services and stock-compensation costs, contributed to the improvement.
- PDN Network reported first-half revenue of $2.421 million and continuing-operations income of $0.599 million; NAPW reported revenue of $0.524 million and a $0.412 million loss. Corporate overhead generated a $1.532 million loss.
- Cash rose from $2.118 million at December 31, 2020, supported by first-half equity proceeds. The balance sheet shows $2,507,585 at June 30; the MD&A separately states $2,508,585.
Outlook, risks, contingencies and unusual items
- Going concern: Management says available cash and operating cash flow may not meet working-capital needs for the 12 months after issuance of the financial statements. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Plans include cost reduction, revenue growth and additional capital, but success and access to financing are not assured. Management expects losses to continue for the foreseeable future.
- Subsequent financing and listing: A July 9 registered direct offering raised approximately $2.5 million gross through 1,470,588 shares at $1.70 per share. The filing states post-offering stockholders’ equity was approximately $2.9 million and Nasdaq found the company compliant with its $2.5 million equity requirement on July 15, but the company must demonstrate continued compliance in future reports to avoid possible delisting.
- China assets: In April 2021, approximately RMB 18.84 million (about $2.9 million) in PDN China funds was seized pursuant to a judgment in the Gatewang case. The company asserts ownership and is pursuing return of the funds, but recovery is uncertain. Approximately $0.203 million in another China bank account remains frozen.
- Investment: In August 2021, the company purchased a 5.625% interest in RemoteMore for $0.180 million and made an additional $0.300 million refundable deposit toward a planned transaction. The filing describes the deposits as refundable if the transaction does not close.
- Legal matters: NAPW has a $746,142 judgment relating to a former office lease and says it has reserved for it. The company and NAPW face a wage-and-hour lawsuit; a $450,000 reserve was recorded in 2020, and the matter was scheduled for trial in 2021. A further $75,000 litigation reserve was recorded in Q2 2021. The White Winston settlement included $0.600 million in cash payments and 150,000 shares.
- Controls: Management concluded disclosure controls were not effective at June 30 and cited unremediated material weaknesses involving revenue-sharing revenue recognition, receivables allowances, and financial reporting procedures, including foreign-subsidiary data. Remediation efforts are ongoing.
- COVID-19 and other risks: The company cites uncertain pandemic effects on sales, operations, liquidity and access to capital, as well as competition, privacy regulation, execution and fundraising risks. It provided no quantified revenue or earnings guidance.
Important facts for investors to verify
- Reconcile the $1,000 difference between the June 30 cash balance in the balance sheet and the MD&A.
- Track cash burn, working-capital needs, fundraising capacity and continued Nasdaq equity compliance in subsequent filings.
- Monitor recovery efforts and legal developments concerning the seized China funds, frozen account and pending litigation.
- Assess progress in remediating the disclosed material weaknesses and whether management later concludes controls are effective.
- Confirm the status, final terms and accounting treatment of the RemoteMore transaction and refundable deposits.