Professional Diversity Network, Inc. annual report, FY2021

Professional Diversity Network, Inc. — FY2021 Form 10-K

Reporting period: Year ended December 31, 2021; comparative figures are for FY2020. This is an annual filing, and the supplied filing text does not provide standalone fourth-quarter results. The company operates diversity-focused recruitment and professional networks, a women’s membership network (NAPW/IAW), and, beginning in 2021, RemoteMore’s software-development recruiting business.

Financial performance and liquidity

MetricFY2021FY2020
Revenue$6.10 million$4.46 million
Cost of revenue$1.52 million$0.79 million
Gross profit and margin$4.57 million; approximately 75%$3.67 million; approximately 82%
Total costs and expenses$8.99 million$9.30 million
Loss from continuing operations, net of tax$2.86 million$4.16 million
Consolidated net loss, including noncontrolling interests$2.95 million$4.35 million
Adjusted EBITDA (non-GAAP)$(1.50) million$(2.58) million
Cash used in continuing operating activities$1.84 million$3.34 million
Cash and cash equivalents at year-end$3.40 million$2.12 million
Working capital$0.42 million$(1.16) million

Revenue growth was led by recruitment services, which rose 56.9% to $4.65 million. Membership fees and related services fell 27.1% to $0.99 million. RemoteMore contributed $0.30 million after its acquisition; consumer advertising and marketing solutions generated $0.16 million. The filing reports no material conventional borrowing balance at year-end; liabilities include lease obligations and other recorded liabilities. The 2020 comparison includes $651,077 of PPP loan forgiveness in other income, with no comparable 2021 item.

Material changes and unusual items

  • Revenue increased 36.8%, while total costs and expenses decreased 3.4%. Lower general and administrative expense, largely reflecting reduced litigation settlement costs and legal fees, more than offset higher cost of revenue, sales and marketing, and amortization.
  • PDN Network revenue rose 54.9% to $4.81 million; NAPW revenue declined 27.0% to $0.99 million. Management attributed NAPW weakness partly to lower legacy membership and pandemic-related pressure on discretionary spending, while reporting improved retention among members enrolled in 2021.
  • On September 20, 2021, the company acquired a 45.62% interest in RemoteMore for an estimated $1.36 million, including $863,333 cash and $500,000 payable in one year. It consolidated RemoteMore based on management’s significant influence. RemoteMore recorded $0.30 million revenue and a $0.35 million pretax loss after acquisition.
  • The company raised approximately $4.45 million in 2021 common-stock proceeds through private and registered offerings, including issuances to an investor and controlling shareholder Cosmic Forward Limited (CFL). Shares outstanding increased from 12.82 million at 2020 year-end to 16.07 million at 2021 year-end.
  • The China business was discontinued. The filing says approximately $2.9 million of China cash was seized in 2021 in connection with the Gatewang case; the company is pursuing its return, but recovery is uncertain.

Outlook, risks, and contingencies

The auditor’s report includes a going-concern explanatory paragraph, stating that significant losses and the need for additional funds raise substantial doubt about the company’s ability to continue as a going concern. Management says available cash and operating cash flows may cover working-capital requirements for the next 12 months, but continued operations depend on executing its growth plan, increasing revenue, reducing costs, and potentially raising capital. The company expects near-term losses and negative operating cash flow; it gives no specific numerical revenue or earnings guidance.

  • Key risks include persistent operating losses and cash burn, dependence on additional financing, competitive pressure, recruitment demand and NAPW renewal trends, and execution and integration risks for acquisitions.
  • The company relies on member data and technology systems and identifies cybersecurity, privacy, website availability, regulatory compliance, and remote-work security as material risks. Recruitment-services revenue also has partner concentration: one alliance relationship accounted for 25% of that revenue.
  • Recorded litigation reserves included approximately $855,002 for a judgment involving NAPW’s former premises and a $450,000 reserve related to a wage-and-hour lawsuit that the company disputes. The filing says the latter matter was in late-stage discovery and mediation had not resulted in settlement.
  • Management reported that 2020 internal-control material weaknesses were remediated during 2021 and concluded internal control over financial reporting was effective at year-end. The auditor did not attest to management’s control assessment.
  • In January 2022, the board authorized up to $2 million of share repurchases. Through March 28, 2022, 127,326 shares had been repurchased for approximately $127,300. This authorization followed the year-end period and is notable alongside the going-concern disclosure.

Most important facts for investors to verify

  • Whether operating cash burn can be reduced and whether available liquidity is adequate beyond management’s stated 12-month expectation.
  • Recruitment revenue growth, customer demand, and the durability of PDN’s new sales collaborations; separately, NAPW membership acquisition, renewals, and revenue trends.
  • RemoteMore’s subsequent performance, the $500,000 deferred purchase-price obligation, and the company’s option to acquire an additional 20% interest for $100,000.
  • The status and potential recovery of the approximately $2.9 million seized in China, and any financial effect of the pending litigation or recorded reserves.
  • Potential dilution and financing flexibility, including future share issuances, CFL’s ownership and participation rights, and the share-repurchase program.