Professional Diversity Network, Inc. filed 10-Q with SEC. Read ‘s full filing at 000149315219007910.

On November 16, 2018, the Company entered into a revolving credit facility agreement with GNet Tech Holdings, a related party through one of the Company’s shareholders, Cosmic Forward Limited (‘CFL’), that matures on May 31, 2020, under which we can draw up to GBP £1,500,000 (approximately $2,000,000). Interest is payable on any outstanding principal balance at a rate equal to the LIBOR rate plus 4%. Amounts drawn under this facility are payable at the end of one, three, or six months periods at the election of the Company. At March 31, 2019, the Company drew $293,000 under this facility. At May 15, 2019, approximately $1,707,000 was available for us to draw.

From January 9, 2019 to April 2, 2019, the Company sold an aggregate of 232,515 shares of its common stock at a purchase price ranging from $1.146 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription. As of the date of this annual report, the Company has received an aggregate gross proceeds of $479,931 under this private placement. All of the purchasers are citizens of the People’s Republic of China.

On November 5, 2018, the Company entered into a note purchase agreement (the ‘Note Purchase Agreement’) with GNet Tech Holdings Public Limited Company (the ‘GNet Tech’), a related party through one of the Company’s shareholders, Cosmic Forward Limited (‘CFL’), pursuant to which the Company issued to GNet Tech a $500,000 convertible promissory note with an interest rate of 6% per annum (the ‘Note’). The Note shall mature six months after the date of issuance (the ‘Maturity Date’). Pursuant to the Note Purchase Agreement and the Note, at any time on or after the Maturity Date, at the election of the note holder, the Note will convert into the Company’s common stock (the ‘Common Stock’) at a conversion price of the lower of (i) the closing price of the Common Stock on NASDAQ immediately preceding the date of issuance or the date of conversion, as applicable, or (ii) the average closing price of the Common Stock on NASDAQ for the five trading days immediately preceding the date of issuance or the date of conversion, as applicable (the ‘Minimum Price’). However, in no event shall the conversion price be less than the Minimum Price on the date of issuance. The issuance of the Note is exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.

On November 16, 2018, the Company entered into a revolving credit facility agreement with GNet Tech Holdings, a related party through one of the Company’s shareholders, Cosmic Forward Limited (‘CFL’), that matures on May 31, 2020, under which we can draw up to GBP £1,500,000 (approximately $2,000,000). Interest is payable on any outstanding principal balance at a rate equal to the LIBOR rate plus 4%. Amounts drawn under this facility are payable at the end of one, three, or six months periods at the election of the Company. During the quarter ended March 31, 2019, the Company drew $293,000 under this facility.

On March 11, 2019 (the ‘He Effective Date’), the Company entered into an employment agreement (the ‘He Employment Agreement’) with Mr. He, which He Employment Agreement continues until terminated in writing by either party or earlier terminated pursuant to the provisions of the He Employment Agreement. Under the He Employment Agreement, Mr. He will receive an annual base salary of $200,000, subject to adjustment in the sole discretion of the Board or the Compensation Committee of the Board; provided however, that such annual base salary may not be decreased during Mr. He’s employment period. Mr. He will be eligible to receive an annual incentive bonus in an amount equal to up to fifty percent (50%) of his base salary, based upon the achievement of one or more performance goals, targets, measurements and other factors, established for such year by the Compensation Committee. Mr. He will also participate in all benefit plans and programs, subject to certain conditions and exceptions, as are generally provided by the Company to its other senior executive employees.

The effective income tax rate for the three months ended March 31, 2019 and 2018 was 5.4% and 12.0%, respectively, resulting in a $66,000, and $249,000 income tax benefit, respectively. The difference in the effective income tax rate for the three months ended March 31, 2019, compared to the three months ended March 31, 2018, is mainly attributable to the decrease in tax rates pursuant to the U.S. Tax Cuts and Jobs Act, and a change in the valuation allowance. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of March 31, 2019 and December 31, 2018.

From April 1, 2019 to April 2, 2019, the Company sold an aggregate of 28,552 shares of its common stock at a purchase price ranging from $3.70 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription. As of the date of this quarterly report, the Company has received an aggregate gross proceeds of $107,036 under this private placement. All of the purchasers are citizens of the People’s Republic of China.

On April 16, 2019, the Company issued a press release announcing that the Company’s variable interest entity, Jiangxi PDN Culture Media Co., Ltd. has signed a letter of intent to acquire 51% of the equity interests of Zhejiang Xili Valley Tourism Development Co., Ltd., an affiliate of the Company’s partner in Guangzhou.

Through the first quarter of 2019, our PDN Network, NAPW Network, and China Operations businesses represented 37.9%, 59.2%, and 2.9% of our revenues, respectively. As of March 31, 2019, we had approximately 10.7 million registered users in our PDN Network and approximately 952,000 registered users, or members, in the NAPW Network. Included in 952,000 NAPW Network registered users, there were 9,000, and 22,000 paid members as of March 31, 2019 and 2018, respectively. We believe that the combination of our solutions allows us to approach recruiting and professional networking in a unique way and thus create enhanced value for our members and customers.

Paid Membership Subscriptions and Related Services. Paid Membership Subscriptions and Related Services. We offer paid membership subscriptions through our NAPW Network, a women-only professional networking organization, operated by our wholly-owned subsidiary. Members gain access to networking opportunities through a members-only website at www.iawomen.com and ‘virtual’ eChapter events which occur in a webcast setting as well as through in-person networking at approximately 100 local chapters nationwide, additional career and networking events such as the National Networking Summit Series, Power Networking Events and the PDN Network events. NAPW members also receive ancillary (non-networking) benefits such as educational discounts, shopping, and other membership perks. The basic package is the Initiator level, which provides online benefits only. Upgrades to an Innovator membership include the Initiator benefits as well as membership in local chapters, and access to live in-person events. The most comprehensive level, the Influencer, provides all the aforementioned benefits plus admission to exclusive ‘live’ events and expanded opportunities for marketing and promotion, including the creation and distribution of a press release, which is prepared by professional writers and sent over major newswires. Additionally, all memberships offer educational programs with discounts or at no cost, based on the membership level. NAPW Membership is renewable and fees are payable on an annual or monthly basis, with the first fee payable at the commencement of the membership. NAPW Membership subscriptions represented approximately 99.6% and 99.8%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended March 31, 2019 and 2018.

In the third quarter of 2017, PDN China began to transact IAW annual memberships in China, ranging from RMB 20,000 to RMB 200,000 (approximately $3,000 to $30,000). In the fourth quarter of 2017, PDN China began to transact annual business club memberships in China, ranging from RMB 20,000 to RMB 100,000 (approximately $3,000 to $15,000). IAW memberships comprised approximately 89.6% and 90.6%, respectively, of revenue attributable to China Operations for the three months ended March 31, 2019 and 2018.

Recruitment Services. We provide recruitment services through our PDN Network to employers, ranging from small to large sized organizations, seeking to diversify their employment ranks. Our recruitment services include recruitment advertising, job postings, semantic search technology and paid access to, and placement in, or advertising around our career and networking events. The majority of recruitment services revenue comes from job recruitment advertising. We also offer to businesses subject to the regulations and requirements of the Equal Employment Opportunity Office of Federal Contract Compliance Program (‘OFCCP’) our OFCCP compliance product, which combines diversity recruitment advertising with job postings and compliance services. Recruitment advertising revenue constituted approximately 93.0% and 89.9%, respectively, of revenue attributable to the PDN Network business segment for the three months ended March 31, 2019 and 2018.

Product Sales. We offer to new purchasers of our NAPW memberships the opportunity to purchase a commemorative wall plaque at the time of purchase. They may purchase up to two plaques at that time. Product sales represented approximately 0.4% and 0.2%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended March 31, 2019 and 2018.

Education and Training. In March of 2017 we began our China Operations by creating a Shared Economy summit series designed to provide education and training to Chinese business people. Our initial event was a paid event which generated revenue through paid event admission fees. Education and training represented approximately 10.4% and 9.4%, respectively, of the revenue attributable to China Operations for the three months ended March 31, 2019 and 2018.

Consumer Advertising and Consumer Marketing Solutions. We work with partner organizations to provide them with integrated job boards on their websites which offer their members or customers the opportunity to post recruitment advertising and job openings. We generate revenue from fees charged for those postings. Consumer advertising and marketing solutions represented approximately 7.0% and 10.1%, respectively, of the revenue attributable to the PDN Network business segment for the three months ended March 31, 2019 and 2018.

Total revenues decreased $967,000, or 41.8% for the three months ended March 31, 2019, compared to the same prior year period, due primarily to management’s focus on reduction in sales and operations workforce as a means to improved efficiencies and operational effectiveness while rebranding the business.

During the three months ended March 31, 2019, our NAPW Network generated $797,000 in revenue from membership fees and related services and product sales, compared to $1,554,000 for the same period in the prior year, a decrease of $756,000, or 48.7%. The decrease was mainly attributable to reductions in NAPW sales staff from 19 sales representatives on average during the first three months of 2018 to 7 sales representatives on average during the first three months of 2019. As a part of rebranding the NAPW business, the Company also re-tooled its lead-generation and other marketing activities.

During the three months ended March 31, 2019, our PDN Network generated $510,000 in revenue, compared to $691,000 for the same period in the prior year, a decrease of $181,000, or 26.2%. The decrease was a result of lower sales staffing and resources in 2019 compared to 2018. We anticipate more robust sales in the latter half of the year.

During the three months ended March 31, 2019, our China Operations generated $39,000 in revenue, compared to $69,000 for the same period in the prior year, a decrease of $30,000 or 43.6%. We did not hold any major paid events in the first three months of 2019 as most our efforts were devoted to future business development.

During the first three months ended March 31, 2019, total costs and expenses were $2,550,000, compared to $4,410,000 for same period in the prior year, decrease of $1,860,000 or 42.2%. The decrease is primarily the result of $992,000 or 42.2% decrease in general and administrative expenses, a $459,000 or 67.5% decrease in depreciation and amortization expenses, and a $312,000, or 28.5% decrease in sales and marketing expenses.

Cost of revenue: Cost of revenues decreased during the three months ended March 31, 2019 to $189,000, compared to $286,000 for the same period in the prior year, a decrease of $97,000, or 33.9%. The decrease is in tandem with lower revenues.

Sales and marketing expenses: Sales and marketing expenses during the three months ended March 31, 2019 were $781,000, compared to $1,093,000 for the same period in the prior year, a decrease of $312,000, or 28.5%. The decrease was mostly attributable to a $130,000 reduction in lead spending in our NAPW segment, $109,000 decrease in personnel cost due to sales force reduction in our NAPW segment, a $73,000 reduction in sales commission expenses, and overall better marketing cost management.

General and administrative expenses: General and administrative expenses for the three months ended March 31, 2019 were $1,359,000, compared to $2,351,000 for the same period in the prior year, a decrease of $992,000 or 42.2%. The decrease was mainly attributable to a $314,000 reduction in personnel costs, a $207,000 reduction in rent expenses because we centralized our US operations in Chicago and executed a work-from-home model for certain employees at our NAPW segment in 2018, and a $110,000 decrease in stock based compensation expenses, and $102,000 reduction in audit related expenses.

Depreciation and amortization expenses: Depreciation and amortization expenses for the three months ended March 31, 2019 were $221,000, compared to $680,000 for the same period in the prior year, a decrease of $459,000 or 67.5%. The decrease was mainly a result of $2,796,000 impairment charge against long-lived intangible assets in our NAPW segment that the Company recorded in fourth quarter of 2018. Amortization of the intangible assets is listed in Note 5 on page 10 of this quarterly report.

NAPW Network: During the three months ended March 31, 2019, total costs and expenses in our NAPW segment were $905,000, compared to $2,320,000 for the same period in the prior year, a decrease of $1,415,000 or 61.0%. The decrease was a result of a $436,000 decrease in amortization expense of long-lived intangible assets as a result of $2,796,000 impairment charge the Company recorded in fourth quarter of 2018, a $342,000 decrease in personnel costs, a $207,000 reduction in rent expenses because we centralized our US operations in Chicago and executed a work-from-home model for certain employees at our NAPW segment in 2018, and a $130,000 reduction in lead generation spending.

PDN Network: During the three months ended March 31, 2019, total costs and expenses in our PDN segment were $681,000, compared to $758,000 for the same period in the prior year, a decrease of $77,000, or 10.2%. The decrease was primarily cost of revenues and was in tandem with lower revenues.

China Operations: During the three months ended March 31, 2019, total costs and expenses in our China operations were $374,000, compared to $420,000 for the same period in the prior year, a decrease of $46,000 or 11.0%. The primary reason for the decrease in cost of sales was lower revenues.

Corporate Overhead: During the three months ended March 31, 2019, total costs and expenses incurred by our Corporate Overhead segment were $588,000, compared to $913,000 for the same period in the prior year, a decrease of $325,000 or 35.6%. The decrease was primarily a result of $110,000 decrease in stock based compensation expenses, and $102,000 reduction in audit related expenses.

The effective income tax rate for the three months ended March 31, 2019 and 2018 was 5.4% and 12.0%, respectively, resulting in a $66,000, and $249,000 income tax benefit, respectively. The difference in the effective income tax rate for the three months ended March 31, 2019, compared to the three months ended March 31, 2018, is mainly attributable to the decrease in tax rates pursuant to the U.S. Tax Cuts and Jobs Act, an impairment charge recognized on NAPW’s goodwill, change in the valuation allowance and the foreign tax rate differential due to the Company’s China Operations. Management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a valuation allowance as of March 31, 2019 and December 31, 2018.

As the result of the factors discussed above, during the three months ended March 31, 2019 we incurred a net loss from continuing operations of $1,145,000, a decrease of 37.3% from net loss from continuing operations of $1,825,000 during the three months ended March 31, 2018. The $680,000 decrease in net loss was primarily driven by a $992,000 decrease in general and administrative expenses, a $459,000 decrease in depreciation and amortization expenses, and a $312,000 decrease in sales and marketing expenses, partially offset by a $756,000 decrease in revenue from membership fees, related services at our NAPW segment.

On November 16, 2018, the Company entered into a revolving credit facility agreement with GNet Tech Holdings, a related party through one of the Company’s shareholders, Cosmic Forward Limited (‘CFL’), that matures on May 31, 2020, under which we can draw up to GBP £1,500,000 (approximately $2,000,000). Interest is payable on any outstanding principal balance at a rate equal to the LIBOR rate plus 4%. Amounts drawn under this facility are payable at the end of one, three, or six months periods at the election of the Company. At December 31, 2018, there were no outstanding amounts drawn under this facility. At May 15, 2019, approximately $1,707,000 was available for us to draw.

From January 9, 2019 to April 2, 2019, the Company sold an aggregate of 232,515 shares of its common stock at a purchase price ranging from $1.146 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription. As of the date of this annual report, the Company has received an aggregate gross proceeds of $479,931 under this private placement. All of the purchasers are citizens of the People’s Republic of China.

Net cash provided by financing activities in continuing operations during the three months ended March 31, 2019 was $373,000, consisting of $373,000 in gross proceeds from sale of 203,963 shares of common stock at a purchase price ranging from $1.42 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription to citizens of the People’s Republic of China.

During the first quarter of 2019, the Company sold an aggregate of 203,963 shares of its common stock at a purchase price ranging from $1.42 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription.

Subsequent to March 31, 2019, the Company sold an aggregate of 28,552 shares of its common stock at a purchase price ranging from $3.70 to $3.85 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription.

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