PROFESSIONAL DIVERSITY NETWORK, INC. Basis of Presentation
This MD&A should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto, and the audited condensed consolidated financial statements and notes thereto included in our 2020 Form 10-K.
Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Item 1A. Risk Factors of our 2020 Form 10-K for a discussion of these risks and uncertainties. Overview We are an operator of professional networks with a focus on diversity, employment, education and training. We use the term "diversity" (or "diverse") to describe communities, or "affinities," that are distinct based on a wide array of criteria, including ethnic, national, cultural, racial, religious or gender classification. We serve a variety of such communities, including Women, Hispanic-Americans, African-Americans, Asian-Americans, Disabled, Military Professionals, and Lesbian, Gay, Bisexual and Transgender (LGBT+). We currently operate in two business segments: (i)Professional Diversity Network ("PDN Network"), which includes online professional networking communities with career resources tailored to the needs of various diverse cultural groups and employers looking to hire members of such groups, and (ii)National Association of Professional Women ("NAPW Network"), a women-only professional networking organization. OnMarch 4, 2020 the Board decided to discontinue all of the Company's operations inthe People's Republic of China , ("China Operations"), which focused on providing tools, products and services inChina to assist women, students and business professionals in personal and professional development. Our value proposition is simple: (i) we provide a robust online and in-person network for our women members to make professional and personal connections for our diverse audience of women: African Americans, Hispanics, Asians, Veterans, individuals with disabilities and members of the LGBT+ community (with the ability to roll out to our other affinities); (ii) we assist our registered users, or members, in their efforts to connect with like-minded individuals and identify career opportunities within the network; and (iii) we help employers address their workforce diversity needs by connecting them with the right candidates. OnMarch 4, 2020 , our Board of Directors (the "Board") decided to discontinue all operations inChina . The resolution approved by the Board does not contemplate a sale of the business unit or a sale of any assets to a third-party for itsChina operations, but to effectively cease operations, which will commence during the second quarter of 2020. Accordingly, all historical financial results associated with theChina operations have been reclassified to discontinued operations and current and prior period financial results have been reclassified.China operations were previously disclosed as a reportable operating segment as "China Operations". 24 Impact of COVID-19
The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains and created significant volatility and disruption of financial markets. The COVID-19 pandemic may have an adverse effect on our business and financial performance. The extent of the impact of the COVID-19 pandemic, including our ability to execute our business strategies as planned, will depend on future developments, including the duration and severity of the pandemic, which are highly uncertain and cannot be predicted. In response to mandates and recommendations from federal, state and local authorities, as well as decisions we have made to protect the health and safety of our employees with respect to the COVID-19 pandemic, we temporarily closed our offices and had our employees work remotely untilJuly 6, 2021 . We may face more closure requirements and other operation restrictions for prolonged periods of time due to, among other factors, evolving and stringent public health directives, quarantine policies, social distancing measures, or other local and/or governmental restrictions, which could have a further material impact on our sales and profits. The COVID-19 pandemic could also adversely affect our liquidity and ability to access the capital markets. Uncertainty regarding the duration of the COVID-19 pandemic may adversely impact our ability to raise additional capital, or require additional capital, or require additional reductions in capital expenditures that are otherwise needed to implement our strategies.
The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the pandemic, the implementation or recurrence of shelter in place or similar orders in the future. Sources of Revenue We generate revenue from (i) paid membership subscriptions and related services, (ii) recruitment services, (iii) product sales, (iv) education and training and (v) consumer advertising and consumer marketing solutions. The following table sets forth our revenues from each product as a percentage of total revenue for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results. 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" networking 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 HERizonInsights and theLeadership Lab 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 access to networking events and member programming. Upgrades to an Innovator membership include the Initiator benefits as well enhanced education and mentorship. 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 discounts through the IAW Perks program and preferred partners. 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. As part of the launch of IAW inthe United States , the Company began to offer a monthly membership option inJanuary 2018 , in addition to an annual membership option. While this has increased the number of new members registering, membership revenue is received on a monthly rather than an annual basis. Recruitment Services. We provide recruitment services through PDN Network to medium and large employers 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 theEqual Employment Opportunity Office of Federal Contract Compliance Program ("OFCCP") our OFCCP compliance product, which combines diversity recruitment advertising with job postings and compliance services. 25
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.
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 ability to post recruitment advertising and job openings. We generate revenue from fees charged for those postings. Cost of Revenue
Cost of revenue primarily consists of costs of producing job fair and other events, revenue sharing with partner organizations, costs of web hosting and operating our websites for the PDN Network. Costs of producing wall plaques, hosting member conferences and local chapter meetings are also included in the cost of revenue for NAPW Network. Non-GAAP Financial Measure Adjusted EBITDA We believe Adjusted EBITDA provides a meaningful representation of our operating performance that provides useful information to investors regarding our financial condition and results of operations. Adjusted EBITDA is commonly used by financial analysts and others to measure operating performance. Furthermore, management believes that this non-GAAP financial measure may provide investors with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. However, while we consider Adjusted EBITDA to be an important measure of operating performance, Adjusted EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Further, Adjusted EBITDA, as we define it, may not be comparable to EBITDA, or similarly titled measures, as defined by other companies.
The following table provides a reconciliation of net loss from continuing
operations to Adjusted EBITDA for the three and nine months ended
Three Months Ended September 30,
2021 2020
(in thousands)Loss from Continuing Operations $ (88 ) $
(912 )
Stock-based compensation 127 111
Litigation settlement reserve - 766Loss attributable to noncontrolling interest 19
-
Depreciation and amortization 30 38
Interest and other income (2 ) 5
Income tax expense (benefit) (2 ) (14 )
Adjusted EBITDA $ 82 $ (6 )
Nine Months Ended September 30,
2021 2020
(in thousands)Loss from Continuing Operations$ (1,434 ) $
(4,116 ) Stock-based compensation 436 509 Litigation settlement reserve 75 1,475
Loss attributable to noncontrolling interest 19
-
Depreciation and amortization 88
138
Interest and other income (5 ) (1 )
Income tax benefit (19 ) (32 )
Adjusted EBITDA $ (840 ) $ (2,027 )
26
Results of Operations
Revenues
Total Revenues
The following tables set forth our revenue for the periods presented. The
period-to-period comparison of financial results is not necessarily indicative
of future results.
Three Months Ended
September 30 Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
Revenues:
Membership fees and related
services $ 240 $ 319 $ (79 ) (24.8 )%
Recruitment services 1,368 930 438 47.1 %
Products sales and other 20 - 20 100.0 %
Consumer advertising and marketing
solutions 55 56 (1 ) (1.8 )%
Total revenues $ 1,683 $ 1,305 $ 378 29.0 %
Total revenues for the three months ended September 30, 2021 increased
approximately $378,000 , or 29.0%, to approximately $1,683,000 from approximately
$1,305,000 during the same period in the prior year. The increase was
predominately attributable to an approximate $438,000 increase in recruitment
services revenues in the current period, partially offset by an approximate
$79,000 decrease in membership fees and related services revenues, as compared
to the same period in the prior year.
Nine Months Ended
September 30 Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
Revenues:
Membership fees and related
services $ 761 $ 1,056 $ (295 ) (27.9 )%
Recruitment services 3,695 2,069 1,626 78.6 %
Products sales and other 23 4 19 475.0 %
Consumer advertising and marketing
solutions 149 110 39 35.5 %
Total revenues $ 4,628 $ 3,239 $ 1,389 42.9 %
Total revenues for the nine months ended September 30, 2021 increased
approximately $1,389,000 , or 42.9%, to approximately $4,628,000 from
approximately $3,239,000 during the same period in the prior year. The increase
was predominately attributable to an approximate $1,626,000 increase in
recruitment services revenues in the current period, partially offset by an
approximate $295,000 decrease in membership fees and related services revenues,
as compared to the same period in the prior year.
27
Revenues by Segment
The following table sets forth each operating segment's revenues for the periods
presented. The period-to-period comparison is not necessarily indicative of
future results.
Three Months Ended September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
PDN Network $ 1,425 $ 986 $ 439 44.5 %
Other 258 319 (61 ) (19.1 )%
Total revenues $ 1,683 $ 1,305 $ 378 29.0 %
During the three months ended
During the three months endedSeptember 30, 2021 , Other revenues were approximately$258,000 , compared to revenues of approximately$319,000 during the same period in the prior year, a decrease of approximately$61,000 or 19.1 percent. The decrease in revenues was primarily due a continued decrease in legacy membership retention rates and the continued effects of COVID-19 for the NAPW network of approximately$80,000 . Partially offsetting the decrease was an increase in revenues of approximately$19,000 associated with RemoteMore for which there were no comparable revenues in the prior year. Nine Months Ended September 30, Change Change 2021 2020 (Dollars) (Percent) (in thousands) PDN Network$ 3,845 $ 2,180 $ 1,665 76.4 % Other 783 1,059 (276 ) (26.1 )% Total revenues$ 4,628 $ 3,239 $ 1,389 42.9 % During the nine months ended September, 2021, our PDN Network generated approximately$3,845,000 in revenues compared to approximately$2,180,000 in revenues during the nine months endedSeptember 30, 2020 , an increase of approximately$1,665,000 or 76.4 percent. The increase in revenues was predominately driven by continued improvements in our e-commerce platform and new sales collaborations, higher new client acquisitions and a significant increase in diversity recruitment initiatives by our clients During the nine months endedSeptember 30, 2021 , Other revenues were approximately$783,000 , compared to revenues of approximately$1,059,000 during the same period in the prior year, a decrease of approximately$276,000 or 26.1 percent. The decrease in revenues was primarily due a continued decrease in legacy membership retention rates and the continued effects of COVID- for the NAPW network of approximately$295,000 . Partially offsetting the decrease was an increase in revenues of approximately$19,000 associated with RemoteMore for which there were no comparable revenues in the prior year. We believe that the membership services that we provide to our customers turned into a discretionary spending decision for our patrons during 2020 and continued throughout the first nine months of 2021. Many of the services that we provide, including all in-person events, were postponed as a result of the COVID-19 pandemic. Partially offsetting the decrease was an increase in revenues of approximately$19,000 associated with RemoteMore for which there were no comparable revenues in the prior year. 28 Costs and Expenses
The following tables set forth our costs and expenses for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
Three Months Ended September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
Cost and expenses:
Cost of revenues $ 347 $ 206 $ 141 68.4 %
Sales and marketing 526 420 106 25.2 %
General and administrative 873 1,562 (689 ) (44.1 )%
Depreciation and amortization 29 38 (9 ) (23.7 )%
Total pre-tax cost and expenses: $ 1,775 $ 2,226 $ (451 ) (20.3 )%
Nine Months Ended
September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
Cost and expenses:
Cost of revenues $ 868 $ 549 $ 319 58.1 %
Sales and marketing 1,826 1,404 422 30.1 %
General and administrative 3,303 5,297 (1,994 ) (37.6 )%
Depreciation and amortization 88 138 (50 ) (36.2 )%Total pre-tax cost and expenses:$ 6,085 $ 7,388 $ (1,303 )
(17.6 )%
Cost of revenues: Cost of revenues during the three months endedSeptember 30, 2021 was approximately$347,000 , an increase of approximately$141,000 , or 68.4 percent, from approximately$206,000 during the same period of the prior year, as a direct result of increased revenues of approximately$378,000 , or 29.0 percent. Cost of revenues during the nine months endedSeptember 30, 2021 was approximately$868,000 , an increase of approximately$319,000 , or 58.1 percent, from approximately$549,000 during the same period in the prior year, as a direct result of increased revenues of approximately$1,389,000 , or 42.9 percent. Sales and marketing expense: Sales and marketing expense during the three months endedSeptember 30, 2021 was approximately$526,000 , an increase of approximately$106,000 , or 25.2 percent, from$420,000 during the same period in the prior year. Sales and marketing expense during the nine months endedSeptember 30, 2021 was approximately$1,826,000 , an increase of approximately$422,000 , or 30.1 percent, from$1,404,000 during the same period in the prior year. The increase in the three and nine month periods are a result of sales and marketing costs driving the aforementioned increases in revenues. General and administrative expense: General and administrative expenses decreased by approximately$689,000 , or 44.1 percent, to approximately$873,000 during the three months endedSeptember 30, 2021 , as compared to the same period in the prior year. The decrease, as compared to the same period in the prior year, was primarily a result of reductions in professional services charges of approximately$645,000 payroll related costs of approximately$62,000 , and bad debt charges of approximately$34,000 , partially offset by expenses related to RemoteMore of approximately$53,000 , for which there was no charges in the comparable period. General and administrative expenses decreased by approximately$1,994,000 , or 37.6 percent, to approximately 3,303,000 during the nine months endedSeptember 30, 2021 , as compared to the same period in the prior year. The decrease was primarily a result of a reduction in professional services charges of approximately$1,459,000 , litigation settlement reserve of$450,000 recorded in the first quarter of 2020, partially offset by an increase in litigation settlement reserve of$75,000 in the second quarter of 2021, bad debt charges of approximately$82,000 , stock-based compensation costs of approximately$73,000 , bad debt charges of approximately$82,000 , and payroll related costs of approximately$79,000 , as compared to the same period in the prior year. Offsetting the decrease were expenses related to RemoteMore of approximately$53,000 , for which there was no charges in the comparable period. Depreciation and amortization expense: Depreciation and amortization expense during the three and nine months endedSeptember 30, 2021 was approximately$29,000 and$88,000 , compared to approximately$38,000 and$138,000 during the same periods in the prior year. The decreases were primarily attributable to assets and intangible assets reaching the end of their useful lives. 29
Costs and Expenses by Segment
The following table sets forth each operating segment's costs and expenses for the periods presented. The period-to-period comparison is not necessarily indicative of future results.
Three Months Ended September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
PDN Network $ 732 670 62 9.3 %
Other 460 277 183 66.1 %
Corporate Overhead 583 1,279 (696 ) (54.4 )%
Total pre-tax costs and expenses: $ 1,775 $ 2,226 $ 451 (20.3 )%
Nine Months Ended
September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
PDN Network $ 2,546 2,098 448 21.4 %
Other 1,403 1,455 (52 ) (3.6 )%
Corporate Overhead 2,136 3,835 (1,699
) (44.3 )%
Total pre-tax costs and expenses:
For the three months ended
For the nine months endedSeptember 30, 2021 , pre-tax costs and expenses related to Corporate Overhead decreased by approximately$1,699,000 , or 44.3 percent, as compared to the same period in the prior year. The reduction is primarily as a result of a decrease in professional services of approximately$1,376,000 , litigation settlement reserve of$450,000 recorded in the first quarter of 2020 in the current period, and stock-based compensation costs of approximately$73,000 , as compared to the same period in the prior year. Partially offsetting the reductions were employee related costs of approximately$74,000 For the three months endedSeptember 30, 2021 , pre-tax costs and expenses related to our PDN Network segment increased by approximately$62,000 , or 9.3%, as compared to the same period in the prior year. The increase is primarily as a result of approximately$94,000 of costs and revenues and$46,000 of sales and marketing costs driving the aforementioned increased revenues, partially offset by a reduction of general and administrative and other costs of approximately$81,000 , as compared to the same period in the prior year. For the nine months ended September, 2021, pre-tax costs and expenses related to our PDN Network segment increased by approximately$448,000 , or 21.4%, as compared to the same period in the prior year. The increase is primarily as a result of approximately$358,000 of sales and marketing costs and$225,000 of costs and revenues and driving increased revenues, partially offset by a reduction of general and administrative and other costs of approximately$112,000 , as compared to the same period in the prior year. For the three months endedSeptember 30, 2021 , pre-tax costs and expenses related to Other increased by approximately$183,000 . The increase in the period is primarily related to approximately$60,000 of sales and marketing costs and$46,000 of costs and revenues due to increased advertising, promotions and member benefits in an effort to increase future revenues, general and administrative expenses of approximately$35,000 , as well as expenses related to RemoteMore of approximately$53,000 , for which there was no charges in the comparable period and approximately For the nine months endedSeptember 30, 2021 , pre-tax costs and expenses related to Other decreased by approximately$52,000 . The decrease in the period is primarily related to reductions in professional services of approximately$226,000 and salary related expenses of approximately$233,000 , partially offset by a non-cash charge to litigation settlement reserve of$75,000 and expenses related to RemoteMore of approximately$53,000 , for which there was no charges in the comparable period, and other operating costs. Income Tax Benefit Three Months Ended September 30, Change Change 2021 2020 (Dollars) (Percent) (in thousands)
Income tax expense (benefit) $ (2 ) $
(14 ) $ 12 (85.7 )% During the three months endedSeptember 30, 2021 and 2020, we recorded income tax benefit for income tax of approximately$2,000 and$14,000 , respectively. The decrease in income tax benefit during the current period was primarily due to an increase in discrete tax items associated with litigation settlement reserves and changes in the Company's net operating losses. 30 Nine Months Ended September 30, Change Change 2021 2020 (Dollars) (Percent) (in thousands) Income tax benefit$ (19 ) $ (32 ) $ 13 (40.6 )% During the nine months endedSeptember 30, 2021 and 2020, we recorded a benefit for income tax of approximately$19,000 and$32,000 , respectively. The decrease in income tax benefit during the current period was primarily due to an increase in discrete tax items associated with litigation settlement reserves and changes in the Company's net operating losses.
Net loss from Continuing Operations
The following table sets forth each operating segment's net income or loss for the periods presented. The period-to-period comparison is not necessarily indicative of future results.
Three Months Ended September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
PDN Network $ 687 308 379 122.9 %
NAPW Network (200 ) 43 (243 ) (569.1 )%
Corporate Overhead (576 ) (1,263 ) 688 (54.5 )%
Consolidated net loss from
continuing operations $ (88 ) $ (912 ) $ 824 (90.4 )%
Nine Months Ended
September 30, Change Change
2021 2020 (Dollars) (Percent)
(in thousands)
PDN Network $ 1,287 84 1,203 1432.1 %
NAPW Network (612 ) (393 ) (219 ) 55.7 %
Corporate Overhead (2,108 ) (3,807 ) 1,699 (44.6 )%
Consolidated net loss from
continuing operations $ (1,434 ) $ (4,116 ) $ 2,682 (65.2 )%
Consolidated Net Loss from Continuing Operations. As the result of the factors
discussed above, during the three months ended September 30, 2021 , we incurred a
net loss of approximately $88,000 from continuing operations, an increase of
approximately $824,000 or 90.4 percent, compared to a net loss of approximately
$912,000 during the three months ended September 30, 2020 . During the nine
months ended September 30, 2021 , we incurred a net loss of approximately
$1,434,000 from continuing operations, an increase of approximately $2,682,000
or 65.2 percent, compared to a net loss of approximately $4,116,000 during the
same period in the prior year.
Discontinued Operations
InMarch 2020 , our Board decided to suspend allChina operations generated by the former CEO,Michael Wang . The results of operations forChina operations are presented in the statements of operation and comprehensive loss as loss from discontinued operations. 31
Operating Results of Discontinued Operations
The following table represents the components of gross operating results from discontinued operations, which are included in the statements of operations and comprehensive loss for the three and nine months endedSeptember 30, 2021 and 2020: Nine Months Ended Three Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues $ - $ - $ - $ - Cost of Sales 10 4 30 19 Depreciation and amortization - - - 2 Sales and marketing - - - 82 General and administrative 7 27 37 50 Non-operating expense (6 ) (2 ) 5 (4 ) Loss from discontinued operations before income tax (11 ) (29 ) 72 (157 ) Income tax expense (benefit) - - - - Net loss from discontinued operations $ (11 ) $ (29 )$ 72 $ (157 )
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of
September 30, December 31,
2021 2020
(in thousands)
Cash and cash equivalents $ 4,092 $ 2,118
Working capital (deficiency) $ 1,019 $ (1,156 )
Our principal sources of liquidity are our cash and cash equivalents, including
net proceeds from the issuances of common stock. As of September 30, 2021 , we
had cash and cash equivalents of $4,092,473 compared to cash and cash
equivalents of $2,117,569 at December 31, 2020 . We had an accumulated deficit of
$94,509,710 at September 30, 2021 . During the nine months ended September 30,
2021 , we generated a net loss from continuing operations of $1,433,612 . For the
nine months ended September 30, 2021 we used cash from continuing operations of
approximately $1,159,745 .
32
We continue to focus on our overall profitability by reducing operating and overhead expenses, we have continued to generate negative cash flows from operations, and we expect to incur net losses for the foreseeable future, especially considering the negative impact COVID-19 will have on our liquidity and financial position. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. The condensed consolidated financial statements do not include any adjustments that might be necessary if we unable to continue as a going concern. We are closely monitoring operating costs and capital requirements. Our Management continues to contain and reduce costs, including terminating non-performing employees and eliminating certain positions, replacing and negotiating with certain vendors, implementing a new approval process overseeing travel and other expenses, and significantly reducing the cash compensation for independent board directors. If we are still not successful in sufficiently reducing our costs, we may then need to dispose of our other assets or discontinue business lines. OnFebruary 1, 2021 , we entered into a private placement with Ms.Yiran Gu , in which we sold 500,000 shares of our common stock at a price per share of$2.00 for gross proceeds of$1,000,000 . OnJuly 9, 2021 , we closed a registered direct offering, pursuant to which certain institutional accredited investors purchased 1,470,588 shares of the Company's common stock, par value$0.01 per share, at a per share price equal to$1.70 for gross proceeds of$2,499,999.60 . OnSeptember 22, 2021 , we entered into a stock purchase agreement withCosmic Forward Limited , in which we sold 948,767 shares of its common stock at a price per share of$1.054 for gross proceeds of approximately$1,000,000 . InMarch 2021 , we entered into a stock purchase agreement ("Stock Purchase Agreement") to purchase a significant equity stake inRemoteMore USA Inc. ("RemoteMore"), aDelaware corporation. OnSeptember 20, 2021 , we acquired 45.62% of the outstanding shares ofRemoteMore USA ("RemoteMore") stock, as well as certain assets, including contracts in place, certain domain names and other intellectual property. Based on the significant influence that our management has over the operations and guidance of RemoteMore, we have consolidated RemoteMore's account balances in our condensed consolidated financial statements. We currently anticipate that our available funds and cash flow from operations may not be sufficient to meet our working capital requirements for the twelve months subsequent to the issuance of our financial statements. In order to fund our operations, we will need to increase revenues or raise capital by the issuance of stock. However, there can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances will not require additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may not be successful or they may not be available on acceptable terms, if at all. We collect membership fees generally at the commencement of the membership term or at renewal periods thereafter. The memberships we sell are for one year and we defer recognition of the revenue from membership sales and renewals and recognize it ratably over the twelve-month period. StartingJanuary 2, 2018 , we began offering a monthly membership forIAW USA for which we collect a fee on a monthly basis. Our PDN Network also sells recruitment services to employers, generally on a one-year contract basis. This revenue is also deferred and recognized over the life of the contract. Our payment terms for PDN Network customers range from 30 to 60 days. We consider the difference between the payment terms and payment receipts a result of transit time for invoice and payment processing and to date have not experienced any liquidity issues as a result of the payments extending past the specified terms. Cash and cash equivalents and short-term investments consist primarily of cash on deposit with banks and investments in money market funds, corporate and municipal debt andU.S. government andU.S. government agency securities. 33 Nine Months Ended September 30, 2021 2020 Cash provided by (used in) continued operations (in thousands) Operating activities$ (1,160 ) $ (2,768 ) Investing activities (1,279 ) (78 ) Financing activities 4,445 4,928 Effect of exchange rate fluctuations on cash and cash equivalents 2
36
Cash provided by (used in) discontinued operations Operating activities (33 ) (66 ) Net increase (decrease) in cash and cash equivalents $ 1,975 $ 2,052 Cash and Cash Equivalents
The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.
Net cash used in operating activities from continuing operations during the nine months endedSeptember 30, 2021 was approximately$1,160,000 . We had a net loss from continuing operations of approximately$1,435,000 during the nine months endedSeptember 30, 2021 , which included a non-cash litigation settlement reserve of$75,000 , stock based compensation expense of approximately$436,000 , depreciation of amortization expense of$88,000 and amortization of right-of-use assets of$69,000 , which was partially offset by deferred tax benefit of approximately$17,000 . Changes in operating assets and liabilities used approximately$755,000 of cash during the nine months endedSeptember 30, 2021 , consisting primarily of decreases in accounts receivable, accounts payable, and accrued expenses, partially offset by increases in prepaid expenses and other current assets of approximately$104,000 and deferred revenues of approximately$102,000 . We received$380,000 in cash as a result of a decrease in our Merchant Reserve.
Net cash used in operating activities from continuing operations during the nine months endedSeptember 30, 2020 was$2,768,000 . We had a net loss from continuing operations of$4,116,000 during the nine months endedSeptember 30, 2020 , which included a non-cash litigation settlement reserve of$600,000 , stock-based compensation expenses of$509,000 and depreciation and amortization expense of$138,000 and amortization of right-of-use assets of$93,000 , which was partially offset by payments of lease obligations of$107,000 . Changes in operating assets and liabilities provided$732,000 of cash during the nine months endedSeptember 30, 2020 , consisting primarily of a$518,000 increase in accrued expenses and a$262,000 increase in account receivable, which was partially offset by a$220,000 reduction in deferred revenue and$288,000 reduction in prepaid expenses.
Net cash used in investing activities from continuing operations during the nine months endedSeptember 30, 2021 was approximately$1,279,000 , which predominately consisted of cash spent on the investment in RemoteMore of approximately$863,000 , refundable deposits related to future investments of approximately$350,000 , as well as investments in developed technology and computer equipment purchases. Net cash used in investing activities from continuing operations during the nine months endedSeptember 30, 2020 was$78,000 , which consisted of investments in developed technology and computer equipment purchases.
Net Cash Provided by Financing Activities
Net cash provided by financing activities from continuing operations during the
nine months ended
Net cash provided by financing activities from continuing operations during the nine months endedSeptember 30, 2020 was$4,928,000 , which reflected proceeds from the sale of common stock of$4,277,000 and$651,000 in proceeds received with respect to the Paycheck Protection Program loan. 34
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet activities as defined in Regulation S-K Item 303(a)(4).
Critical Accounting Policies and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements. We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
While our significant accounting policies are more fully described in Note 3 to our condensed consolidated financial statements included at the end of this Annual Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our condensed consolidated financial statements. Accounts Receivable Our policy is to reserve for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles -Goodwill and Other ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.Goodwill is tested for impairment at the reporting unit level on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test. 35 When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation of whether it is more likely than not that goodwill is impaired. If it is determined by a qualitative evaluation that it is more likely than not that goodwill is impaired, the Company then compares the fair value of the Company's reporting unit to its carrying or book value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of a reporting unit exceeds its fair value, the Company will measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Capitalized Technology Costs
We account for capitalized technology costs in accordance with ASC 350-40,Internal-Use Software ("ASC 350-40"). In accordance with ASC 350-40, we capitalize certain external and internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Capitalized software costs are amortized over the estimated useful lives of the software assets on a straight-line basis, generally not exceeding three years. Business Combinations
ASC 805, Business Combinations ("ASC 805"), applies the acquisition method of
accounting for business combinations to all acquisitions where the acquirer
gains a controlling interest, regardless of whether consideration was exchanged.
ASC 805 establishes principles and requirements for how the acquirer a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree; b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. Accounting for
acquisitions requires the Company to recognize, separately from goodwill, the
assets acquired and the liabilities assumed at their acquisition-date fair
values. Goodwill as of the acquisition date is measured as the excess of
consideration transferred and the net of the acquisition-date fair values of the
assets acquired and the liabilities assumed. While the Company uses its best
estimates and assumptions to accurately value assets acquired and liabilities
assumed at the acquisition date, the estimates are inherently uncertain and
subject to refinement. As a result, during the measurement period, which may be
up to one year from the acquisition date, the Company may record adjustments to
the assets acquired and liabilities assumed with the corresponding offset to
goodwill. Upon the conclusion of the measurement period or final determination
of the values of assets acquired or liabilities assumed, whichever comes first,
any subsequent adjustments are recorded to the condensed consolidated statements
of comprehensive loss.
Revenue Recognition
Our principal sources of revenue are recruitment revenue, consumer marketing and
consumer advertising revenue, membership subscription fees, and product sales.
Recruitment revenue includes revenue recognized from direct sales to customers
for recruitment services and events, as well as revenue from our direct
ecommerce sales. Revenues from recruitment services are recognized when the
services are performed, evidence of an arrangement exists, the fee is fixed or
determinable and collectability is probable. Our recruitment revenue is derived
from agreements through single and multiple job postings, recruitment media,
talent recruitment communities, basic and premier corporate memberships, hiring
campaign marketing and advertising, e-newsletter marketing and research and
outreach services.
Consumer marketing and consumer advertising revenue is recognized either based
upon a fixed fee for revenue sharing agreements in which payment is required at
the time of posting, or billed based upon the number of impressions (the number
of times an advertisement is displayed) recorded on the websites as specified in
the customer agreement.
36
Revenue generated from NAPW Network membership subscriptions is recognized ratably over the 12-month membership period, although members pay their annual fees at the commencement of the membership period. StartingJanuary 2, 2018 , we began offering a monthly membership for which we collect fees on a monthly basis and we recognize revenue in the same month as the fees are collected. Revenue from related membership services are derived from fees for development and set-up of a member's personal on-line profile and/or press release announcements. Fees related to these services are recognized as revenue at the time the on-line profile is complete and press release is distributed.
Recent Accounting Pronouncements
See Note 3 to our financial statements.
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