Professional Diversity Network, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company operates the PDN and NAPW professional networks and RemoteMore’s software-development recruiting business; China operations are discontinued.
Financial performance and position
| Metric | Q2 2023 | Six months 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | $1.84 million | $3.80 million | $2.20 million Q2; $4.25 million six months |
| Loss from continuing operations, net of tax | $1.43 million | $2.54 million | $53,000 Q2; $942,000 six months |
| Net loss including noncontrolling interests and discontinued operations | $1.44 million | $2.56 million | $64,000 Q2; $971,000 six months |
| Adjusted EBITDA, non-GAAP | $(1.23) million | $(2.14) million | $(295,000) Q2; $(589,000) six months |
- Six-month revenue fell 10.6%; recruitment services declined 18.5% and membership revenue declined 25.8%. Contracted software-development revenue rose 15.7%, partly reflecting RemoteMore growth.
- Six-month cost of revenue was $1.84 million, leaving gross profit of approximately $1.96 million and an approximate 51.5% gross margin. Sales and marketing expense rose 36.6% to $1.94 million; general and administrative expense rose 56.7% to $2.30 million.
- Operating cash used in the first half was $878,967 from continuing operations ($909,480 including discontinued operations). Investing used $821,208; financing provided $2.70 million, principally from common-stock sales. Cash increased to $2.21 million from $1.24 million at year-end 2022.
- At June 30, cash was $2.21 million and the company reported a $226,000 working-capital deficit from continuing operations. Total liabilities were $5.09 million; lease liabilities totaled approximately $406,000. The filing reports no interest expense for the periods shown and does not identify conventional debt borrowings.
- Accumulated deficit was $100.86 million. Total stockholders’ equity was $3.36 million.
Material changes and significant items
- PDN Network six-month revenue declined 19.4%, with management attributing weakness primarily to softer employer hiring amid macroeconomic conditions. NAPW revenue declined 25.8%; management says memberships remain discretionary, while in-person local events began resuming in Q2. RemoteMore revenue increased 15.7% for the first half.
- The company acquired Expo Experts in January for $600,000, comprising $400,000 cash and $200,000 in restricted shares. It contributed approximately $147,000 of first-half event revenue and brought acquired intangible assets and goodwill onto the balance sheet.
- PDN increased its RemoteMore ownership to 72.62% through additional purchases during 2023. The first-half cash outflow for the additional equity interest was approximately $352,000.
- In March, the company raised $700,000 from a common-stock sale. Under a June agreement with Tumim Stone Capital, it sold shares for $2.0 million gross and issued commitment shares valued at $750,000. The agreement permits, but does not require, additional stock sales up to $12.775 million, subject to conditions and limitations.
- Year-over-year expense comparisons were affected by a prior-year, noncash litigation-settlement-related gain of approximately $909,000; there was no comparable gain in 2023. Q2 general and administrative expense also included financing and legal costs associated mainly with the equity transaction.
- In July 2023, the company granted its CEO 120,000 restricted stock units under an employment agreement; vesting is staged over the grant date and following two anniversaries, subject to continued employment.
Outlook, risks, and contingencies
- Going concern: Management and the auditor-related disclosure identify conditions that raise substantial doubt about the company’s ability to continue as a going concern, including recurring losses, operating cash use, and a working-capital deficit. Management believes cash on hand and operating cash flow may meet working-capital needs through December 31, 2023, but says execution depends on cost reductions, revenue growth, and potentially further equity financing or strategic transactions. No assurance is given that these efforts will succeed or that financing will be available on acceptable terms.
- Management reports strategic measures intended to support the second half of 2023 and fiscal 2024: creating an internal marketing department, reducing NAPW staffing by 50%, switching or eliminating certain technology contracts, and restructuring vendor arrangements. The company also says it is monitoring costs and may dispose of assets or discontinue business lines if reductions are insufficient. No specific revenue, profit, or cash-flow guidance is provided.
- The company is defending a putative employment-law case alleging violations of federal and New York wage laws. Discovery was described as in its final stages; plaintiffs seek monetary damages and equitable relief. The filing does not provide a clear estimate of potential exposure.
- Approximately $195,000 held in a PDN China bank account remained frozen at June 30, 2023. Separately, the company says approximately $2.9 million was seized in 2021 in connection with the Gatewang case and that return of those funds is uncertain.
- The company’s $1.35 million investment in Koala Crypto is classified in other assets. The associated virtual-financial-asset license suspension was still under review by Malta’s regulator, according to the filing.
- Other stated risks include competition, privacy and regulatory compliance, ability to attract and retain personnel, acquisition integration, access to capital, and changing economic conditions. Management concluded disclosure controls were effective as of June 30, 2023 and reported no material second-quarter change in internal control over financial reporting.
Key facts for investors to verify
- Whether the company can reduce cash burn and fund operations beyond 2023, and the actual availability and dilution impact of further Tumim equity sales.
- Trends in recruitment demand, NAPW membership revenue, and the profitability and cash contribution of Expo Experts and RemoteMore.
- Progress and potential financial exposure in the employment litigation, and any developments regarding the frozen or seized China assets.
- Status, valuation, and recoverability of the Koala Crypto investment and related regulatory authorization.
- Reconciliation of the filing’s reported working-capital deficit from continuing operations with its consolidated balance-sheet current assets and liabilities, which also include discontinued-operation balances.