Professional Diversity Network(US:IPDN)2021-04-09 19:16PART I Business The company operates two diversity-focused professional networks, PDN and NAPW, with a strategy to grow membership and recruitment services, discontinuing China operations in 2020 - The company's core strategy includes growing its member and client base, maximizing revenue through synergies, launching new services, streamlining infrastructure, and expanding its diversity recruitment offerings20 - The PDN Network provides recruitment solutions, including advertising, job postings, and career fairs, to a client base of approximately 1,250 companies as of December 31, 2020252728 - The NAPW Network offers women networking opportunities through its website and local chapters, which shifted to a virtual format in March 2020 due to the COVID-19 pandemic3132 - On March 4, 2020, the Board of Directors approved the discontinuation of all China operations, with historical financial results now reported as discontinued operations62 2020 Revenue by Business Segment | Segment | Revenue Contribution (%) | | :--- | :--- | | PDN Network | 70% | | NAPW Network | 30% | Risk Factors The company faces risks from persistent losses, intense competition, operational vulnerabilities, concentrated ownership, and material weaknesses in internal controls - The company has a history of financial struggles, recording a net loss from continuing operations of approximately $4.2 million in 2020, an increase from the $2.8 million loss in 201966 - Competition is a major risk, with the company facing challenges from larger online professional networks such as LinkedIn and Monster Worldwide, as well as social networks like Facebook676870 - The COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on the business and financial results, potentially impacting liquidity and the ability to execute business strategies105 - As of March 31, 2021, Cosmic Forward Limited (CFL) beneficially owned approximately 25.5% of the company's common stock, giving it significant influence over stockholder matters108 - Management determined that as of December 31, 2020, the company's internal controls over financial reporting had material weaknesses, which could result in material misstatements in financial statements115 Properties The company leases its 4,902 sq. ft. Chicago headquarters until 2027 and a smaller 300 sq. ft. office in Minnetonka - The main corporate office is a leased space of 4,902 sq. ft. in Chicago, IL, with the lease term extending to September 2027125 - A smaller office of 300 sq. ft. is leased in Minnetonka, MN, for the Events division under a flexible quarter-to-quarter lease125 Legal Proceedings The company is involved in multiple legal matters, including a settled lawsuit, a $746K judgment against NAPW, and a $450K FLSA lawsuit - The lawsuit with White Winston was settled on October 28, 2020, including a $250,000 cash payment, a subsequent $350,000 payment, and the issuance of 150,000 shares of common stock128 - A judgment of $746,142.41 was obtained against the company's subsidiary, NAPW, regarding a former lease, with a litigation settlement reserve of $780,000 recorded129 - The company is a defendant in a lawsuit alleging violations of the Fair Labor Standards Act, with a $450,000 litigation settlement reserve recorded and trial expected in 2021130 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's NASDAQ-listed common stock experienced volatility in 2020, with no dividends paid, and capital was raised through private placements 2020 Common Stock Price Range | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | | Q1 | 0.91 | 0.91 | | Q2 | 3.98 | 0.91 | | Q3 | 3.20 | 0.76 | | Q4 | 5.56 | 0.91 | - The company has never declared or paid cash dividends and intends to retain future earnings to finance business development and expansion138 - In 2020, the company raised capital through private placements, including selling shares to Malven Group Limited for gross proceeds of $1.5 million in March and $1.0 million in June140 Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues declined 11.3% in 2020 to $4.46M, driven by NAPW, while expenses rose 16% to $9.3M, resulting in a $4.16M net loss and going concern doubt Results of Operations Total revenues decreased by 11.3% to $4.46 million in 2020, while expenses increased by 16.0%, leading to a $4.16 million net loss Consolidated Revenues (FY 2020 vs. FY 2019) | Revenue Category | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Membership fees and related services | $1,346 | $2,428 | -44.6% | | Recruitment services | $2,962 | $2,451 | +20.8% | | Total revenues | $4,457 | $5,025 | -11.3% | Segment Revenues (FY 2020 vs. FY 2019) | Segment | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | PDN Network | $3,106 | $2,592 | +19.8% | | NAPW Network | $1,351 | $2,433 | -44.5% | - Total costs and expenses increased by 16.0% to $9.3 million in 2020, primarily due to a 50.4% increase in general and administrative expenses related to litigation reserves, legal fees, and share-based compensation160163166 - Net loss from continuing operations widened by 48.9% to $4.16 million in 2020, compared to a loss of $2.79 million in 2019175 - Other income was $652,000 in 2020, a significant increase from $26,000 in 2019, primarily due to the forgiveness of a $651,077 Paycheck Protection Program (PPP) loan168 Liquidity and Capital Resources The company's liquidity improved with increased cash, but persistent net losses and negative operating cash flow raise substantial doubt about its going concern ability Liquidity Position | Metric (in thousands) | As of Dec 31, 2020 | As of Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,118 | $634 | | Working capital (deficiency) | $(1,156) | $(2,114) | - The company's history of net losses and negative cash flows from operations ($3.3 million used in continuing operations in 2020) raises substantial doubt about its ability to continue as a going concern177186 - Net cash provided by financing activities was approximately $4.9 million in 2020, primarily from the sale of common stock to Malven Group Limited and other institutional investors178179189 Discontinued Operations In March 2020, the company suspended all China operations, with their financial results now reported as discontinued operations - In March 2020, the Board of Directors decided to suspend all operations in China, with the results of these operations presented as discontinued operations172 Results from Discontinued Operations (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $0 | $108 | | Net loss from discontinued operations | $(194) | $(1,052) | Financial Statements and Supplementary Data The FY2020 financial statements report a $4.35 million net loss on $4.46 million revenues, with the auditor highlighting going concern uncertainty and material weaknesses in controls Key Financial Metrics (FY 2020) | Metric | Amount (in millions) | | :--- | :--- | | Total Revenues | $4.46 | | Loss from Continuing Operations | $(4.16) | | Net Loss | $(4.35) | | Total Assets | $8.67 | | Total Liabilities | $5.33 | | Accumulated Deficit | $(93.02) | - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern, citing significant working capital deficiency and recurring losses250 - The auditor identified Revenue Recognition and Allowance for Doubtful Accounts as critical audit matters, noting challenges due to material weaknesses in internal controls related to these areas256257259260 - Subsequent to year-end, the company raised $1.0 million in a private placement in February 2021 and entered an agreement to acquire a 45.6% interest in RemoteMore USA, Inc. in March 2021366368 Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2020, due to material weaknesses in revenue recognition, doubtful accounts, and formal accounting procedures - Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were not effective as of December 31, 2020217220 - Material weaknesses were identified in three key areas: (1) revenue recognition policies for partner sharing arrangements, (2) procedures for estimating allowance for doubtful accounts, and (3) lack of formal accounting procedures, especially for foreign subsidiary data224 - Remediation efforts during 2020 included hiring experienced accounting personnel, engaging an outside consultant, and improving financial reporting processes, but these measures did not fully remediate the identified weaknesses220225234 PART III Directors, Executive Officers and Corporate Governance Information on directors and executive officers is incorporated by reference from the 2021 Proxy Statement, and the company has adopted a Code of Business Conduct and Ethics - Most information required by this item is incorporated by reference from the 2021 Proxy Statement230 - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors, which can be found on its website231 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is referenced from the 2021 Proxy Statement, with 272,901 securities issuable under equity plans and 514,780 remaining available as of December 31, 2020 Equity Compensation Plan Information (as of Dec 31, 2020) | Plan category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by shareholders | 272,901 | $5.24 | 514,780 | | Total | 272,901 | $5.24 | 514,780 | PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Annual Report, including corporate documents and certifications, and directs to financial statements starting on page F-1 - This item lists the financial statements filed with the report, which can be found starting on page F-1241 - An index of all exhibits filed as part of the Annual Report is provided, including agreements, corporate governance documents, and required certifications243245