Professional Diversity Network, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. The filing was signed November 15, 2021.
Business context
PDN operates online professional networks and diversity-focused recruitment services, alongside the National Association of Professional Women (NAPW). Its reported segments include PDN Network, Other (including NAPW and RemoteMore), and Corporate Overhead. China operations remain discontinued. On September 20, 2021, PDN acquired a 45.62% interest in RemoteMore USA and consolidates its results because of significant influence over its operations.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1.683 million | $1.306 million | $4.628 million | $3.240 million |
| Loss from continuing operations, net of tax | $88,000 | $912,000 | $1.434 million | $4.116 million |
| Net loss attributable to PDN | $81,000 | $942,000 | $1.487 million | $4.273 million |
| Basic and diluted loss per share | $0.01 | $0.07 | $0.11 | $0.39 |
| Adjusted EBITDA, non-GAAP | $82,000 | $(6,000) | $(840,000) | $(2.027 million) |
Revenue grew 29.0% in Q3 and 42.9% for the nine-month period. Recruitment services drove the increase: up 47.1% in Q3 and 78.6% year to date. Membership fees and related services declined 24.8% and 27.9%, respectively. Calculated gross margin was approximately 79.4% in Q3 2021 versus 84.2% in Q3 2020, and 81.3% for the first nine months versus 83.0%.
At September 30, 2021, cash and cash equivalents were $4.092 million, versus $2.118 million at December 31, 2020. Working capital from continuing operations was approximately $1.019 million, compared with a $1.156 million deficiency at year-end 2020. Total assets were $9.800 million and total liabilities were $5.450 million. The filing reports lease liabilities of about $534,000 in total; it does not report conventional borrowings outstanding at period-end.
For the first nine months, cash used in operating activities was $1.193 million, including $1.160 million from continuing operations; investing activities used $1.279 million, principally for RemoteMore and investment deposits; financing activities provided $4.445 million, primarily from common-stock sales. Cash increased by $1.975 million overall.
Material changes and unusual items
- PDN Network revenue increased 44.5% in Q3 and 76.4% year to date, which management attributed to e-commerce improvements, sales collaborations, new clients, and increased client diversity-recruitment activity.
- Other-segment revenue fell 19.1% in Q3 and 26.1% year to date, mainly due to lower NAPW retention and COVID-19 effects, including postponed in-person events. RemoteMore contributed approximately $19,000 of revenue in the reported periods, with no comparable prior-year revenue.
- General and administrative costs fell 44.1% in Q3 and 37.6% year to date, largely reflecting lower professional-services costs and the absence of the prior-year litigation reserve charge. Cost of revenue and sales and marketing expense rose as revenue increased.
- RemoteMore’s estimated purchase price was $1.363 million: $863,333 paid in cash and $500,000 payable in one year. The preliminary allocation included $935,334 of goodwill and $427,999 of intangible assets; the filing states the allocation was based on a detailed analysis.
- PDN raised gross proceeds of approximately $4.5 million through common-stock sales in 2021, including the February private placement, July registered direct offering, and September sale to Cosmic Forward Limited. Common shares outstanding rose from approximately 12.8 million at December 31, 2020 to approximately 16.0 million at September 30, 2021.
- China-related assets were materially reduced after approximately RMB 18.8 million (about $2.9 million) was seized in April 2021 to satisfy a judgment in the Gatewang case. PDN asserts ownership and is pursuing return of the funds, but recovery is uncertain. A separate approximately $195,000 China bank balance remained frozen.
Outlook, risks and contingencies
Going concern: Management reported substantial doubt about the Company’s ability to continue as a going concern. It said available cash and operating cash flow may not meet working-capital needs for the 12 months after the financial statements’ issuance. Management expects continued losses and says the business depends on executing its plan, increasing revenue, reducing costs, and/or raising capital; success and access to financing on acceptable terms are not assured. No quantified revenue or earnings guidance is provided.
Risks and legal matters: Management cites COVID-19 uncertainty, competition, privacy and regulatory obligations, execution and integration risks, and the need for future capital. NAPW has an $855,002 lease judgment for which it has reserved. PDN and NAPW also face a wage-and-hour case; the Company disputes liability, had recorded a $450,000 reserve in 2020, and reported the case was scheduled for trial in 2021. The filing does not clearly state the case’s subsequent status. The White Winston matter was settled through cash payments and 150,000 shares issued in January 2021.
Controls: Management concluded disclosure controls were not effective at September 30, 2021 and reported unresolved material weaknesses involving revenue-sharing controls, receivables and bad-debt estimates, and completeness and timeliness of foreign-subsidiary financial data. Remediation efforts included additional accounting staff, updated procedures, a new accounting system launched October 1, 2021, and enhanced closing reviews; management said remediation would require sustained operation of controls.
Important facts for investors to verify
- Whether operating cash flow, revenue growth, cost reductions, or new financing can address the disclosed 12-month liquidity shortfall and going-concern uncertainty.
- RemoteMore’s subsequent performance, final acquisition accounting, and the Company’s ability to realize the anticipated growth and synergies.
- The status and potential financial impact of the China asset seizure and frozen balance, including prospects for recovery.
- The status and potential exposure from the wage-and-hour litigation and the $855,002 NAPW lease judgment.
- Progress in remediating material weaknesses, particularly controls over revenue sharing, receivables, and foreign-subsidiary reporting.
- Further share issuance or other dilution; the filing reports approximately 16.1 million shares outstanding as of November 15, 2021.