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 consolidated financial statements and notes thereto included in our 2021 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 "Note Regarding Forward-Looking Statements" section of this Quarterly Report on Form 10-Q and Item 1A. Risk Factors of our 2021 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 (LGBTQ+). We currently operate in three business segments. PDN Network, our primary business segment, includes online professional job seeking communities with career resources tailored to the needs of various diverse cultural groups and employers looking to hire members of such groups. Our second business segment consists of the NAPW Network, a women-only professional networking organization. Our third business segment consists of RemoteMore, which connects companies with reliable, cost-efficient developers with less effort and friction, and empowers software developers to find meaningful jobs regardless of their location.
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 by:
? Helping employers address their workforce diversity needs by
connecting them with the right candidates from our diverse job
seeking communities such as African Americans, Hispanics, Asians,
Veterans, individuals with disabilities and members of the LGBTQ+
community (with the ability to roll out to our otheraffinities);
? Providing a robust online and in-person network for our women
members to make professional and personal connections; and
? Connecting companies with reliable, cost-efficient developers to
meet their software needs.
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 impacted our ability
to host in-person events associated with our NAPW Network and we had to use
alternative methods such as virtual events to conduct our events. 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, and may have an adverse effect on our business and financialperformance. 24 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. We reopened our offices onApril 4, 2022 , with a hybrid work schedule. 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 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. Sources of Revenue We generate revenue from (i) paid membership subscriptions and related services, (ii) recruitment services, (iii) contracted software development, and (iv) 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. Six Months Ended June 30, 2022 2021 Revenues: Membership fees and related services 8.4 % 17.7 % Recruitment services 62.9 % 79.0 % Contracted software development 26.5 % - % Consumer advertising and marketing solutions 2.2 % 3.3 % Membership Fees 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" 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. 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. 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, contingent search and hiring, and career fairs. 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.
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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 hosting member conferences
and local chapter meetings are also included in the cost of revenue for NAPW
Network. Costs of paying outside developers are included in the cost of revenue
for RemoteMore.
Six Months Ended June 30,
2022 2021
Cost of revenues:
PDN Network 35.8 % 87.0 %
NAPW Network 7.9 % 13.0 %
RemoteMore 56.3 % - %
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 June 30 Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
Revenues:
Membership fees and related
services $ 161 $ 260 $ (99 ) (38.1 )%
Recruitment services 1,341 1,152 189 16.4 %Contracted software development 648 -
648 100.0 %
Consumer advertising and
marketing solutions 45 49 (4 ) (8.2 )%
Total revenues $ 2,195 $ 1,461 $ 734 50.2 %
Total revenues for the three months ended June 30, 2022 increased approximately
$734,000 , or 50.2%, to approximately $2,195,000 from approximately $1,461,000
during the same period in the prior year. The increase was predominately
attributable to an approximate $648,000 of contracted software development
related to RemoteMore for which there was no comparable activity in the same
period of the prior year. Also contributing to the increase in the period was an
increase in recruitment services revenues of approximately $189,000 , partially
offset by an approximate $99,000 decrease in membership fees and related
services revenues, as compared to the same period in the prior year.
Six Months Ended June 30 Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
Revenues:
Membership fees and related
services $ 357 $ 524 $ (167 ) (31.9 )%
Recruitment services 2,674 2,327 347 14.9 %Contracted software development 1,125 -
1,125 100.0 % Consumer advertising and marketing solutions 92 94 (2 ) (2.1 )% Total revenues$ 4,248 $ 2,945 $ 1,303 44.2 % 26 Total revenues for the six months endedJune 30, 2022 increased approximately$1,303,000 , or 44.2%, to approximately$4,248,000 from approximately$2,945,000 during the same period in the prior year. The increase was predominately attributable to an approximate$1,125,000 of contracted software development related to RemoteMore for which there was no comparable activity in the same period of the prior year. Also contributing to the increase in the period was an increase in recruitment services revenues of approximately$347,000 , partially offset by an approximate$167,000 decrease in membership fees and related services revenues, as compared to the same period in the prior year. Revenues by Segment The following table sets forth each operating segment's revenues for the periods presented. The period-to-period comparison is not necessarily indicative of future results. Three Months Ended June 30, Change Change 2022 2021 (Dollars) (Percent) (in thousands) PDN Network$ 1,386 $ 1,201 $ 185 15.4 % NAPW Network 161 260 (99 ) (38.1 )% RemoteMore 648 - 648 100.0 % Total revenues$ 2,195 $ 1,461 $ 734 50.2 % During the three months endedJune 30, 2022 , our PDN Network generated approximately$1,386,000 in revenues compared to approximately$1,201,000 in revenues during the three months endedJune 30, 2021 , an increase of approximately$185,000 or 15.4 percent. The increase in revenues was primarily driven by event revenues of approximately$111,000 , and job placement commissions of approximately$86,000 , slightly offset by a decline in other diversity recruitment initiatives by our clients. During the three months endedJune 30, 2022 , NAPW Network revenues were approximately$161,000 , compared to revenues of approximately$260,000 during the same period in the prior year, a decrease of approximately$99,000 or 38.1 percent. The decrease in revenues was primarily due to an approximate$75,000 decrease in legacy membership retention rates as compared to the same period in the prior year, and the continued effects of COVID-19 causing new membership enrollment to decline throughout 2021 and the second quarter of 2022. Retention rates for new members that have enrolled in 2021 have continued to increase as compared to the same period in prior year. We believe that the membership services that we provide to our customers continues to represent a discretionary spending item and the services that we provide were postponed by the consumer as a result of the financial and economic impact of COVID-19 and the current economy.
During the three months ended
Six Months Ended June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
PDN Network $ 2,766 $ 2,421 $ 345 14.3 %
NAPW Network 357 524 (167 ) (31.9 )%
RemoteMore 1,125 - 1,125 100.0 %
Total revenues $ 4,248 $ 2,945 $ 1,303 44.2 %
During the six months ended June 30, 2022 , our PDN Network generated
approximately $2,766,000 in revenues compared to approximately $2,421,000 in
revenues during the six months ended June 30, 2021 , an increase of approximately
$345,000 or 14.3 percent. The increase in revenues was primarily driven by job
placement commissions of approximately $161,000 , event revenues of $120,000 , and
continued diversity recruitment initiatives by our clients of $65,000 .
27
During the six months ended June 30, 2022 , NAPW Network revenues were
approximately $357,000 , compared to revenues of approximately $524,000 during
the same period in the prior year, a decrease of approximately $167,000 or 31.9
percent. The decrease in revenues was primarily due to an approximate $130,000
decrease in legacy membership retention rates as compared to the same period in
the prior year, and the continued effects of COVID-19 causing new membership
enrollment to decline throughout 2021 and the second quarter of 2022. Retention
rates for new members that have enrolled in 2021 have continued to increase as
compared to the same period in prior year. We believe that the membership
services that we provide to our customers continues to represent a discretionary
spending item and the services that we provide were postponed by the consumer as
a result of the financial and economic impact of COVID-19 and the current
economy.
During the six months ended June 30, 2022 , RemoteMore revenue was approximately
$1,125,000 , for which there was no comparable revenue in the same period of
the
prior year.
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 June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
Cost and expenses:
Cost of revenues $ 932 $ 260 $ 672 258.5 %
Sales and marketing 700 600 100 16.7 %
General and administrative 359 1,112 (753 ) (67.7 )%
Depreciation and amortization 232 29 203 700.0 %
Total cost and expenses: $ 2,223 $ 2,001 $ 222 11.1 %
Six Months Ended June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
Cost and expenses:
Cost of revenues $ 1,794 $ 521 $ 1,273 244.3 %
Sales and marketing 1,419 1,300 119 9.2 %
General and administrative 1,466 2,430 (964 ) (39.7 )%
Depreciation and amortization 513 59 454 769.5 %
Total cost and expenses: $ 5,192 $ 4,310 $ 882 20.5 %
Cost of revenues: Cost of revenues during the three months ended June 30, 2022
was approximately $932,000 , an increase of approximately $672,000 , or 258.5
percent, from approximately $260,000 during the same period of the prior year.
The increase was predominately attributed to approximately $543,000 of
contracted software development costs related to RemoteMore, for which there was
no comparable activity in the same period of the prior year. Also contributing
to the increase was approximately $130,000 of costs as a direct result of
increased revenues.
Cost of revenues during the six months ended June 30, 2022 was approximately
$1,794,000 , an increase of approximately $1,273,000 , or 244.3 percent, from
approximately $521,000 during the same period of the prior year. The increase
was predominately attributed to approximately $1,010,000 of contracted software
development costs related to RemoteMore, for which there was no comparable
activity in the same period of the prior year. Also contributing to the increase
was approximately $263,000 of costs as a direct result of increased revenues.
Sales and marketing expense: Sales and marketing expense during the three months
ended June 30, 2022 was approximately $700,000 , an increase of approximately
$100,000 , or 16.7 percent, from $600,000 during the same period in the prior
year.
Sales and marketing expense during the six months ended
28 General and administrative expense: General and administrative expenses decreased by approximately$753,000 , or 67.7 percent, to approximately$359,000 during the three months endedJune 30, 2022 , as compared to the same period in the prior year. The decrease was predominately due to settlement of litigation resulting in a one-time, non-cash gain of approximately$909,000 , a reduction in other legal expenses and litigation charges of$174,000 and comparable payroll related costs of approximately$53,000 , offset by an increase of$23,000 related to discretionary incentive payments made as compared to the same period in the prior year. Offsetting the decrease were increases in expenses related to RemoteMore of approximately$175,000 , for which there were no comparable charges in the same period in the prior year, share based compensation of$78,000 , and purchased services of$52,000 . In addition, the three month period endedJune 30, 2021 included$60,000 in mergers and acquisition expenses, for which there was no comparable expense in the current period. General and administrative expenses decreased by approximately$964,000 , or 39.7 percent, to approximately$1,466,000 during the six months endedJune 30, 2022 , as compared to the same period in the prior year. The decrease was predominately due to settlement of litigation resulting in a one-time, non-cash gain of approximately$909,000 , a result of reductions of comparable payroll related costs of approximately$250,000 , of which approximately$52,000 related to discretionary incentive payments made in the prior year as compared to the current period. Also contributing to the decrease were reductions in other legal expenses and litigation charges of$152,000 , and various other general and administrative expenses of$105,000 . Offsetting the reduction in expenses were increases in charges related to RemoteMore of approximately$308,000 , for which there were no comparable charges in the same period in the prior year, other purchased services of approximately$120,000 , share-based compensation of$96,000 , and accounting expenses of$72,000 . Depreciation and amortization expense: Depreciation and amortization expense during the three months endedJune 30, 2022 was approximately$232,000 , an increase of approximately$203,000 , compared to approximately$29,000 during the same period in the prior year. The increase was primarily attributable to approximately$206,000 of amortization expense related to RemoteMore's intangible assets, for which there were no comparable charges in the same period of the prior year, partially offset by assets and intangible assets reaching the end of their useful lives.
Depreciation and amortization expense during the six months endedJune 30, 2022 was approximately$513,000 , an increase of approximately$454,000 , compared to approximately$59,000 during the same period in the prior year. The increase was primarily attributable to approximately$461,000 of amortization expense related to RemoteMore's intangible assets, for which there were no comparable charges in the same period of the prior year, partially offset by assets and intangible assets reaching the end of their useful lives.
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 June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
PDN Network $ 1,208 906 302 33.3 %
NAPW Network (565 ) 431 (996 ) (231.1 )%
RemoteMore 923 - 923 100.0 %
Corporate Overhead 656 664 (8 ) (1.2 )%
Total costs and expenses: $ 2,222 $ 2,001 $ 221 11.0 %
Six Months Ended June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
PDN Network $ 2,316 1,815 501 27.6 %
NAPW Network (161 ) 942 (1,103 ) (117.1 )%
RemoteMore 1,779 - 1,779 100.0 %
Corporate Overhead 1,258 1,553 (295 ) (19.0 )%
Total costs and expenses: $ 5,192 $ 4,310 $ 882 20.5 %
For the three months endedJune 30, 2022 , costs and expenses related to our PDN Network segment increased by approximately$302,000 , or 33.3%, as compared to the same period in the prior year. The increase is primarily as a result of increases in general and administrative and other costs of approximately$105,000 , approximately$76,000 related to costs of revenues and$122,000 of sales and marketing costs driving the aforementioned increased revenues, as compared to the same period in the prior year. For the six months endedJune 30, 2022 , costs and expenses related to our PDN Network segment increased by approximately$501,000 , or 27.6%, as compared to the same period in the prior year. The increase is primarily as a result of general and administrative and other costs of approximately$258,000 , approximately$104,000 related to costs of revenues and$173,000 of sales and marketing costs driving the aforementioned increased revenues, as compared to the same period in the prior year. For the three months endedJune 30, 2022 , costs and expenses related to the NAPW Network decreased by approximately$996,000 , or 231.1 percent. The decrease in the period is predominately due to settlement of litigation resulting in a one-time, non-cash gain of approximately$909,000 , and reductions of approximately$977,000 of other legal expenses and litigation costs,$18,000 related to credit card fees due to a switch in credit card processors, and$8,000 in direct costs of revenues. Partially offsetting the decrease was approximately$9,000 in additional marketing costs compared to the same period in the prior year. 29 For the six months endedJune 30, 2022 , costs and expenses related to the NAPW Network decreased by approximately$1,103,000 , or 117.1 percent. The decrease in the period is predominately due to settlement of litigation resulting in a one-time, non-cash gain of approximately$909,000 , and reductions of approximately$180,000 of payroll related costs, predominately as a result of cost containment initiatives implemented in the prior year,$41,000 related to other legal expenses and litigation costs and$16,000 related to sales and marketing costs, partially offset by an increase of approximately$75,000 in costs of revenues due to increased conference expenses and member benefits in an effort to increase future revenues. For the three months endedJune 30, 2022 , cost and expenses related to RemoteMore was approximately$923,000 predominately consisting of contractor costs of approximately$543,000 , amortization of intangibles of approximately$206,000 , and other operating costs of approximately$175,000 . There were no comparable costs in the same period of the prior year. For the six months endedJune 30, 2022 , cost and expenses related to RemoteMore was approximately$1,779,000 predominately consisting of contractor costs of approximately$1,009,000 , amortization of intangibles of approximately$461,000 , and other operating costs of approximately$308,000 . There were no comparable costs in the same period of the prior year. For the three months endedJune 30, 2022 , costs and expenses related to Corporate Overhead decreased by approximately$8,000 , or 1.2 percent, as compared to the same period in the prior year. The reduction is primarily as a result of decreases in legal costs of approximately$61,000 , payroll related costs by$43,000 , and other miscellaneous state taxes and filing fees by approximately$59,000 . Partially offsetting the reductions were increased stock-based compensation costs of approximately$78,000 , and mergers and acquisitions costs of$60,000 in the prior year for which there was no comparable costs in the current period. For the six months endedJune 30, 2022 , costs and expenses related to Corporate Overhead decreased by approximately$295,000 , or 19.0 percent, as compared to the same period in the prior year. The reduction is primarily as a result of decreases in legal expenses of approximately$135,000 , payroll related costs by approximately$133,000 , of which$58,000 related to discretionary incentive payments made in the prior year for which there were no comparable charges in the current period, mergers and acquisition costs by approximately$50,000 and other miscellaneous state taxes and filing fees by approximately$146,000 . Partially offsetting the reductions were increased stock-based compensation costs of approximately$96,000 , and professional and other services by approximately$59,000 as compared to the same period in the prior year. Income Tax Benefit Three Months Ended June 30, Change Change 2022 2021 (Dollars) (Percent) (in thousands)
Income tax expense (benefit) $ 16 $ 50
$ (34 ) (68.0 )% Six Months Ended June 30, Change Change 2022 2021 (Dollars) (Percent) (in thousands)
Income tax expense (benefit)$ (10 ) $ (17 ) $
7 41.2 %
During the three months ended June 30, 2022 and 2021, we recorded income tax
expense of approximately $16,000 and $50,000 . The slight decrease in income tax
expense during the current period was primarily due to changes in discrete tax
items and in the Company's net operating losses.
During the six months ended June 30, 2022 and 2021, we recorded an income tax
benefit of approximately $10,000 and $17,000 . The slight decrease in income tax
benefit during the current period was primarily due to changes in discrete tax
items and in the Company's net operating losses.
30
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 June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
PDN Network $ 170 239 (69 ) (28.9 )%
NAPW Network 708 (186 ) 894 480.6 %
RemoteMore (287 ) - (287 ) (100.0 )%
Corporate Overhead (643 ) (643 ) 0 0.0 %
Consolidated net loss from
continuing operations $ (52 ) $ (590 ) $ 538 91.2 %
Six Months Ended June 30, Change Change
2022 2021 (Dollars) (Percent)
(in thousands)
PDN Network $ 436 599 (163 ) (27.2 )%
NAPW Network 513 (412 ) 925 224.5 %
RemoteMore (668 ) - (668 ) (100.0 )%Corporate Overhead (1,224 ) (1,532 ) 308 20.1 % Consolidated net loss from continuing operations$ (943 ) $ (1,345 ) $
402 29.9 %
Consolidated Net Loss from Continuing Operations. As the result of the factors
discussed above, during the three months ended June 30, 2022 , we incurred a net
loss of approximately $52,000 from continuing operations, an increase of
approximately $538,000 or 91.2 percent, compared to a net loss of approximately
$590,000 during the three months ended June 30, 2021 . During the six months
ended June 30, 2022 , we incurred a net loss of approximately $943,000 from
continuing operations, an increase of approximately $402,000 or 29.9 percent,
compared to a net loss of approximately $1,345,000 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 operating results from
discontinued operations, which are included in the statements of operations and
comprehensive loss for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Revenues $ - $ - - -
Cost of Sales 3 18 14 21Depreciation and amortization - -
- -
Sales and marketing - - - -
General and administrative 8 21 15 30
Non-operating expense 0 10 0 10
Loss from discontinuedoperations before income tax (11 ) (49 ) (29 ) (61 ) Income tax expense (benefit) - -
- -
Net loss from discontinued
operations $ (11 ) $ (49 ) (29 ) (61 )
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of
June 30, 2022 December 31, 2021
(in thousands)
Cash and cash equivalents $ 2,439 $ 3,403
Working capital (deficiency) $ 553 $ 418
Our principal sources of liquidity are our cash and cash equivalents, including
net proceeds from the issuances of common stock, if any. As of June 30, 2022 , we
had cash and cash equivalents of $2,439,386 compared to cash and cash
equivalents of $3,402,697 at December 31, 2021 . We had an accumulated deficit of
$($96,392,020 ) at June 30, 2022 . During the six months ended June 30, 2022 , we
generated a net loss from continuing operations of $($942,461 ). During the six
months ended June 30, 2022 , the Company used cash in continuing operationsof$569,545 .
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 has had and may continue 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, and implementing technology to reduce manual time spent on routine operations. 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. 32 While we believe that our cash and cash equivalents atJune 30, 2022 and cash flow from operations should be sufficient to meet our working capital requirements for the fiscal year endingDecember 31, 2022 , beyond that time frame our available funds and cash flow from operations may not be sufficient to meet our working capital requirements without the need to increase revenues or raise capital by the issuance of common stock. There can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances similar to COVID-19 will not require additional funding sources in the future or require an acceleration of 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. Our PDN Network sells recruitment services to employers, generally on a 30-to-60-day period or a one-year contract basis. This revenue is also deferred and recognized over the period 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. Our NAPW Network collects 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. We also offer monthly membership forIAW USA for which we collect a fee on a monthly basis. RemoteMore generates revenue by providing contracted programmers to assist customers with their software solutions through customized software development. Customers are charged for the period the work is performed and payment terms are typically net 10 days. Six Months Ended June 30, 2022 2021 Cash provided by (used in) continued operations (in thousands) Operating activities$ (570 ) $ (663 ) Investing activities (7 ) (81 ) Financing activities (387 ) 1,167 Effect of exchange rate fluctuations on cash and cash equivalents 1 (33 ) Cash provided by (used in) discontinued operations - -
Net increase (decrease) in cash and cash equivalents
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 and may consist of cash on deposit with banks and investments in money market funds, corporate and municipal debt andU.S. government andU.S. government agency securities. As ofJune 30, 2022 andDecember 31, 2021 , cash and cash equivalents consisted of cash on deposit with banks and investments in money market funds.
Net cash used in operating activities from continuing operations during the six months endedJune 30, 2022 , was approximately$570,000 . We had a net loss from continuing operations of approximately$942,000 during the six months endedJune 30, 2022 , which included a non-cash litigation settlement reserve of approximately$909,000 , stock-based compensation expense of approximately$405,000 , depreciation and amortization expense of approximately$513,000 , which was partially offset by deferred tax benefit of approximately$16,000 and amortization of right-of-use assets of approximately$5,000 . We received$190,000 in cash resulting in a decrease of our Merchant Reserve. Changes in operating assets and liabilities provided approximately$193,000 of cash during the six months endedJune 30, 2022 , consisting primarily of decreases in accounts receivable, partially offset by increases in prepaid expenses, accounts payable, accrued expenses, and deferred revenues. 33
Net cash used in operating activities from continuing operations during the six months endedJune 30, 2021 , was approximately$663,000 . We had a net loss of approximately$1,345,227 during the six months endedJune 30, 2021 , which included a stock-based compensation expense of approximately$309,000 , depreciation of amortization expense of$52,000 and amortization of right-of-use assets of$46,000 , which was partially offset by deferred tax benefit of approximately$17,000 . Changes in operating assets and liabilities used approximately$162,462 of cash during the six months endedJune 30, 2021 , consisting primarily of increases in accounts receivable, accounts payable, deferred revenue and accrued expenses, partially offset by decreases in deferred revenue.
Net cash used in investing activities from continuing operations during the six
months ended
Net cash used in investing activities from continuing operations during the six
months ended
Net Cash Provided by Financing Activities
Net cash used in financing activities from continuing operations during the six months endedJune 30, 2022 , was approximately$387,000 which consisted of the reacquisition of previously issued common stock as a result of the stock buyback plan.
Net cash provided by financing activities from continuing operations during the six months endedJune 30, 2021 was$1,167,000 , which reflected proceeds from the sale of common stock. 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 non-GAAP financial information in the tables that follow are reconciled to comparable information presented using GAAP, derived by adjusting amounts determined in accordance with GAAP for certain items presented in the accompanying selected operating statement data.
The adjustments for the three and six months ended
The adjustments for the three and six months ended
Three Months Ended June 30,
2022 2021
(in thousands)Loss from Continuing Operations $ (53 ) $
(590 ) Stock-based compensation 281 203 Litigation settlement reserve (925 ) 75
Loss attributable to noncontrolling interest 155
-
Depreciation and amortization 232 29
Interest and other income (1 ) (2 )
Income tax expense (benefit) 16 50
Adjusted EBITDA $ (295 ) $ (235 )
34
Six Months Ended June 30,
2022 2021
(in thousands)
Loss from Continuing Operations $ (943 ) $ (1,345 )
Stock-based compensation 405 309
Litigation settlement reserve (909 ) 75Loss attributable to noncontrolling interest 359
-
Depreciation and amortization 513
59
Interest and other income (4 ) (3 ) Income tax expense (benefit) (10 )
(17 ) Adjusted EBITDA$ (589 ) $ (922 )
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet activities as defined within the meaning of Item 303 of Regulation S-K
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 in Part I, Item I of this Quarterly 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. 35
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. 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.
36
Revenue Recognition
Our principal sources of revenue are recruitment revenue, consumer marketing and
consumer advertising revenue, membership subscription fees, and contracted
software development. 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.
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 is 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.
Revenues generated from RemoteMore consist of contracts entered into to provide customers with software solutions and are recognized in the month work is performed.
Revenue Concentration
We are in an alliance with another company to build, host, and manage our job
boards and website. This alliance member also sells two of our recruitment
services products and bills customers, collects fees, and provides customer
services. For the six months ended
Recent Accounting Pronouncements
See Note 3 to our financial statements.
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