UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 10-Q

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(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September 30, 2016~~March 31, 2017 (OR)

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from ________ to________.

Commission file number: 001-35824

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Professional Diversity Network, Inc.

(Exact name of Registrant as Specified in Its Charter)

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Delaware (State or Other Jurisdiction of Incorporation or Organization)	80-0900177 (I.R.S. Employer Identification No.)

801 W. Adams Street, Suite 600, Chicago, Illinois 60607 (Address of Principal Executive Offices) (Zip Code) Telephone: (312) 614-0950 (Registrant’s Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large-accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

There were ~~3,622,851~~3,934,616 shares outstanding of the registrant’s common stock as of ~~November 9, 2016.~~May 11, 2017.

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PROFESSIONAL DIVERSITY NETWORK, INC.

FORM 10-Q
FOR THE THREE MONTHS ENDED ~~SEPTEMBER 30, 2016~~MARCH 31, 2017

TABLE OF CONTENTS

			Page
PART I			1
	ITEM 1.	FINANCIAL STATEMENTS	1
��	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2414
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3722
	ITEM 4.	CONTROLS AND PROCEDURES	3722
PART II			3823
	ITEM 1.	LEGAL PROCEEDINGS	3823
	ITEM 1A.	RISK FACTORS	3923
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3924
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3924
	ITEM 4.	MINE SAFETY DISCLOSURE	3924
	ITEM 5.	OTHER INFORMATION	4024
	ITEM 6.	EXHIBITS	4024

PART I

ITEM 1.

FINANCIAL STATEMENTS

Professional Diversity Network, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,			March 31,			December 31,
	2016			2015			2017			2016
	(Unaudited)			(Revised)			(Unaudited)
Current Assets:
Cash and cash equivalents	$	515,963		$	2,070,693		$	5,562,237		$	6,068,973
Accounts receivable, net		1,839,474			2,510,530			2,661,755			2,170,529
Short-term investments		-			500,000
Incremental direct costs		547,616			1,023,916			418,795			423,023
Prepaid license fee		-			112,500
Prepaid expenses and other current assets		229,689			411,592			667,043			957,140
Total current assets		3,132,742			6,629,231			9,309,830			9,619,665

Property and equipment, net		313,622			444,398			276,019			277,534
Capitalized technology, net		240,463			456,523			108,408			173,368
Goodwill		20,201,190			20,201,190			20,201,190			20,201,190
Intangible assets, net		9,900,539			12,051,839			8,466,339			9,183,439
Merchant reserve		1,426,927			1,260,849			1,426,927			1,426,927
Security deposits		189,375			383,786			175,375			220,754
Other assets		1,049,026			-			-			35,000
Total assets	$	36,453,884		$	41,427,816		$	39,964,088		$	41,137,877

Current Liabilities:
Accounts payable	$	5,359,151		$	4,465,941		$	1,190,956		$	2,172,332
Accrued expenses		1,519,491			837,712			1,259,629			962,172
Deferred revenue		6,406,542			9,966,893			5,431,317			5,485,599
Customer deposits		-			112,500
Promissory note		445,000			445,000
Total current liabilities		13,730,184			15,828,046			7,881,902			8,620,103

Deferred tax liability		3,724,816			4,942,908			2,998,519			3,653,274
Line of credit – Master Credit Facility, net of unamortized debt issuance costs		827,679			-
Deferred rent		55,434			45,155			54,275			55,718
Other liabilities		47,367			426,267			18,951			33,159
Total liabilities		18,385,480			21,242,376			10,953,647			12,362,254

Commitments and contingencies

Stockholders' Equity
Common stock, $0.01 par value; 45,000,000 shares authorized; 1,815,232 shares issued as of September 30, 2016 and December 31, 2015; and 1,808,628 shares outstanding as of September 30, 2016 and December 31, 2015		18,097			18,097
Common stock, $0.01 par value; 45,000,000 shares authorized; 3,934,616 shares and 3,623,899 shares issued as of March 31, 2017 and December 31, 2016, respectively; and 3,931,838 shares and 3,619,338 shares outstanding as of March 31, 2017 and December 31, 2016, respectively								39,329			36,204
Additional paid in capital		64,956,199			63,554,194			79,568,158			76,234,772
Accumulated other comprehensive loss								(112	)		-
Accumulated deficit		(46,868,775	)		(43,349,734	)		(50,559,817	)		(47,458,236	)
Treasury stock, at cost; 1,048 shares at September 30, 2016 and December 31, 2015		(37,117	)		(37,117	)
Treasury stock, at cost; 1,048 shares at March 31, 2017 and December 31, 2016								(37,117	)		(37,117	)
Total stockholders' equity		18,068,404			20,185,440			29,010,441			28,775,623

Total liabilities and stockholders' equity	$	36,453,884		$	41,427,816		$	39,964,088		$	41,137,877

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Professional Diversity Network, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2016			2015			2017			2016
				(Revised)						(Revised)
Revenues
Revenues:
Membership fees and related services	$	3,748,334		$	5,652,873		$	13,047,652		$	18,885,308		$	2,815,496		$	5,040,174
Lead generation		1,554,370			2,334,276			4,489,919			7,853,402			1,724,167			1,519,591
Recruitment services		954,887			830,250			2,295,556			2,432,951			658,544			623,309
Product sales and other		52,857			330,769			544,440			631,198			46,368			86,993
Education and training														324,204			-
Consumer advertising and marketing solutions		49,719			73,011			176,771			209,097			65,702			73,076
Total revenues		6,360,167			9,221,179			20,554,338			30,011,956			5,634,481			7,343,143

Costs and expenses:
Cost of revenues		745,159			1,464,214			2,433,550			4,647,520			700,646			884,745
Sales and marketing		3,064,454			5,132,077			10,314,145			17,226,640			3,254,897			3,821,576
General and administrative		3,010,862			3,748,138			9,428,493			11,593,955			4,534,502			3,168,417
Impairment expense		-			26,744,249			-			26,744,249
Litigation settlement														-			500,000
Depreciation and amortization		819,894			925,684			2,498,136			2,730,880			835,830			867,010
Loss on sale of property and equipment		-			32,649			-			32,649
Total costs and expenses		7,640,369			38,047,011			24,674,324			62,975,893			9,325,875			9,241,748

Loss from operations		(1,280,202	)		(28,825,832	)		(4,119,986	)		(32,963,937	)		(3,691,394	)		(1,898,605	)

Other (expense) income
Interest expense		(215,781	)		(9,229	)		(216,948	)		(84,339	)		(12,399	)		(389	)
Interest and other income		150			2,382			801			25,566			2,250			1,132
Other income (expense), net		(215,631	)		(6,847	)		(216,147	)		(58,773	)

Change in fair value of warrant liability		(401,000	)		2,224			(401,000	)		93,784
Other finance costs														(2,324	)		-
Other (expense) income, net														(12,473	)		743

Loss before income tax benefit		(1,896,833	)		(28,830,455	)		(4,737,133	)		(32,928,926	)		(3,703,867	)		(1,897,862	)
Income tax expense (benefit)		(623,699	)		2,976,217			(1,218,092	)		1,509,395
Income tax benefit														(602,286	)		(458,224	)
Net loss	$	(1,273,134	)	$	(31,806,672	)	$	(3,519,041	)	$	(34,438,321	)		(3,101,581	)		(1,439,638	)

Other comprehensive loss:
Foreign currency translation adjustment														(112	)		-
Comprehensive loss													$	(3,101,693	)	$	(1,439,638	)

Net loss per common share, basic and diluted	$	(0.70	)	$	(17.59	)	$	(1.94	)	$	(20.05	)	$	(0.80	)	$	(0.80	)

Weighted average shares used in computing net loss per common share:
Basic and diluted		1,809,676			1,808,099			1,809,676			1,717,816			3,870,386			1,808,314

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Professional Diversity Network, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Cash flows from operating activities:				(Revised)
Net loss	$	(3,519,041	)	$	(34,438,321	)	$	(3,101,581	)	$	(1,439,638	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,498,136			2,730,880			835,830			867,010
Deferred tax benefit		(1,218,092	)		1,509,395
Gain on lease cancellation		(423,998	)		-
Impairment expense		-			26,744,249
Deferred tax								(654,755	)		(458,224	)
Stock-based compensation expense		217,547			350,667			515,511			57,184
Amortization of deferred financing costs		156,594			-
Provision for bad debt								145,891			-
Amortization of prepaid license fees		112,500			168,750			-			56,250
Amortization of premium on short-term investments, net		-			76,878
Amortization of customer deposits		(112,500	)		(168,750	)		-			(56,250	)
Change in fair value of warrant liability		401,000			(93,784	)
Accretion of debt discount		-			7,814
Loss on sale of property and equipment		-			32,649
Changes in operating assets and liabilities:
Accounts receivable		671,056			886,810			(637,117	)		743,108
Prepaid expenses and other current assets		181,903			(682,541	)		290,097			(57,284	)
Incremental direct costs		476,300			(184,420	)		4,228			142,372
Accounts payable		893,210			(1,630,793	)		(981,376	)		(152,666	)
Accrued expenses		681,779			1,510,273			297,457			789,639
Deferred revenue		(3,560,351	)		(1,089,802	)		(54,282	)		(882,111	)
Deferred rent		10,279			63,267			(1,443	)		3,794
Other liabilities		45,098			-			(14,208	)		(58,071	)
Net cash used in operating activities		(2,488,580	)		(4,206,779	)		(3,355,748	)		(444,887	)

Cash flows from investing activities:
Proceeds from maturities of short-term investments		500,000			5,297,000			-			250,000
Purchases of short-term investments		-			(925,000	)
Costs incurred to develop technology		-			(393,385	)		(10,692	)		-
Purchases of property and equipment		-			(53,596	)		(41,563	)		-
Security deposit		194,411			(14,952	)		45,379			(9,439	)
Net cash provided by investing activities		694,411			3,910,067
Net cash (used in) provided by investing activities								(6,876	)		240,561

Cash flows from financing activities:
Proceeds from the sale of common stock		-			5,235,300			3,000,000			-
Repayment of note payable		-			(1,294,753	)
Payment of offering costs		-			(670,877	)		(144,000	)		-
Proceeds from line of credit		1,942,625			-
Payment of debt issuance costs related to Master Credit Facility		(488,082	)		-
Payment of deferred offering costs related to CFL Transaction		(1,049,026	)		-
Merchant reserve		(166,078	)		(400,000	)		-			(165,841	)
Shares repurchased on vesting of restricted stock		-			(195,976	)
Payments of capital leases		-			(15,232	)
Net cash provided by financing activities		239,439			2,658,462
Net cash provided by (used in) financing activities								2,856,000			(165,841	)

Net (decrease) increase in cash and cash equivalents		(1,554,730	)		2,361,750
Effect of exchange rate fluctuations on cash and cash equivalents								(112	)		-
Net decrease in cash and cash equivalents								(506,736	)		(370,167	)
Cash and cash equivalents, beginning of period		2,070,693			1,519,467			6,068,973			2,070,693
Cash and cash equivalents, end of period	$	515,963		$	3,881,217		$	5,562,237		$	1,700,526

Supplemental disclosures of other cash flow information:
Cash paid for income taxes	$	4,605		$	4,631		$	300		$	4,605
Cash paid for interest	$	21,740		$	-		$	-		$	-



Non-cash investing and financing activities:
Issuance of warrants in connection with Master Credit Facility	$	783,458		$	-
Reclassification of derivative liability to additional paid in capital	$	781,000		$	-
Working capital adjustment to note payable	$	-		$	32,281
Increase in goodwill resulting from NAPW legal settlement	$	-		$	133,693

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

1. Description of Business

Professional Diversity Network, Inc. is both the operator of the Professional Diversity Network (the “Company,” “we,~~��~~” “our,” “us,” “PDN Network,” “PDN” or the “Professional Diversity Network”) and a holding company for NAPW, Inc., a wholly-owned subsidiary of the Company and the operator of the National Association of Professional Women (the “NAPW Network” or “NAPW”), as well as Noble Voice LLC and Compliant Lead LLC (collectively, “Noble Voice”), each of which is a wholly-owned subsidiary of the Company and together provide career consultation services. The Company ishas also recently incorporated, in Hong Kong, PDN HK International Education Ltd. and PDN HK International Education Information Co. Ltd., wholly-owned subsidiaries which are not yet operational but are intended to support the Company’s China expansion. During the first quarter of 2017 the Company also incorporated in China PDN (China) International Culture Development Ltd. Co., a ~~corporation organized under~~wholly-owned subsidiary through which the ~~laws of Delaware, originally formed as IH Acquisition, LLC under~~Company intends to operate the ~~laws of the State of Illinois on October 3, 2003.~~China Operations described below. The PDN Network operates online professional networking communities with career resources specifically tailored to the needs of ~~different~~ diverse cultural groups including: Women, Hispanic-Americans, African-Americans, Asian-Americans, Disabled, Military Professionals, Lesbians, Gay, Bisexual and Transgender (LGBT), and Students and Graduates seeking to transition from education to career. The networks’ purposes, among others, are to assist its registered users in their efforts to connect with like-minded individuals, identify career opportunities within the network and connect with prospective employers. The Company’s technology platform is integral to the operation of its business. The NAPW Network is an exclusive women-only professional networking organization, whereby its members can develop their professional networks, further their education and skills, and promote their business and career accomplishments. NAPW provides its members with opportunities to network and develop valuable business relationships with other professionals through its website, as well as at events hosted at its local chapters across the country. ~~The Noble Voice division typically conducts over 24,000 career consultations per week.~~ Noble Voice monetizes ~~these consultations~~its consumer transactions by using proprietary technology to drive inexpensive online traffic to our offline call center and generating value-added leads for the Company’s strategic partners who provide continuing education and career services.

~~Reverse Stock Split~~The Company began business operations in China in the first quarter of 2017, similar to those in the United States, focusing on providing tools, products and ~~Increase~~services which will assist in ~~Authorized Shares~~

~~On September 27, 2016,~~personal and professional development. The Company intends to cooperate with existing companies and organizations in China in a manner that will deliver valuable products and services, in a short time frame with minimum investment from the ~~Company effected a 1-for-8 reverse stock split of its common stock (“Reverse Stock Split”) and proportionately reduced~~Company. The Chinese operations will focus on the ~~number of shares of common stock~~following areas: (a) Women’s Networking, which will be the ~~Company is authorized to issue. The par value~~Chinese expansion of the ~~Company’s common stock remained~~NAPW business called “The International Association of Women” or “IAW;” (b) Secondary Education Services for Chinese Children, which will provide services to assist families in China identify, prepare for and attend secondary education schools in the ~~same. As a result of~~United States and other countries; and (c) Education and Training for Accomplished Chinese Business People, which will provide education and training seminars in China and the Reverse Stock Split, every eight shares of common stock was combined into one share of common stock. Immediately after the September 27, 2016 effective date, the Company had 1,808,628 shares of common stock outstanding. All share and per share amounts have been retroactively restated to reflect the Reverse Stock Split.

On October 17, 2016, following the approval of its stockholders, the Company amended its Amended and Restated Certificate of Incorporation in order to increase the number of authorized shares of its common stock to 45,000,000 shares.United States.

2. Liquidity, Financial Condition and Management’s Plans

At ~~September 30, 2016,~~March 31, 2017, the Company’s principal sources of liquidity were its cash and cash equivalents ~~the net proceeds from its 2015 public offering~~ and the ~~Master Credit Facility (as defined in Note 6) with White Winston, as described in Note 6. As discussed in Note 14, in November 2016, the Company received~~ net proceeds from the closing of the CFL Transaction (as defined in Note ~~8) and terminated the Master Credit Facility.~~7).

The Company had an accumulated deficit of approximately ~~$46,869,000~~$50,560,000 at ~~September 30, 2016.~~March 31, 2017. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company generated a net loss of approximately ~~$3,519,000,~~$3,102,000, used cash in operations of approximately ~~$2,489,000,~~$3,356,000, which includes $1,450,000 paid to LinkedIn as a litigation settlement, and the Company expects that it will continue to generate operating losses for the foreseeable future. At ~~September 30, 2016,~~March 31, 2017, the Company had a cash balance of approximately ~~$516,000.~~$5,562,000. Total revenues were approximately ~~$6,360,000~~$5,634,000 and ~~$9,221,000~~$7,343,000 for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and approximately $20,554,000 and $30,012,000 for the nine months ended September 30, 2016 and 2015,~~ respectively. The Company had apositive working capital ~~deficit~~ of approximately ~~$10,597,000~~$1,428,000 and ~~$9,199,000~~$1,000,000 at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

The Company is closely monitoring operating costs and capital requirements and has developed an operating plan for ~~2016. The Company is making~~2017 that includes cost reductions in the areas of its staffing levels and operating budgets. In addition, on March 30, 2016, the Company entered into a Master Credit Facility pursuant to which it was granted a revolving credit facility in the principal amount up to the lesser of $5,000,000 or 75% of the outstanding balance of eligible customer receivables, or, if requested, the lender may approve discretionary drawdowns under the facility. On June 30, 2016, the Company closed the Master Credit Facility and received an initial disbursement of $1,572,576 (before reduction of related fees and expenses) (see Note 6). During the three months ended September 30, 2016, the Company received additional advances in the aggregate amount of $370,050. As of September 30, 2016, the Company had drawn approximately $791,000 more than its availability under the Master Credit Facility. As described in Note 14, on November 7, 2016, in connection with the Share Issuance described below, the Company repaid all outstanding obligations under the Master Credit Facility and terminated the Master Credit Facility.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

On November 7, 2016, the Company consummated the issuance and sale of 1,777,417 shares of the Company’s common stock to Cosmic Forward Limited, a Republic of Seychelles company wholly-owned by a group of Chinese investors (“CFL”), in a private placement, at a price of $9.60 per share (“Share Issuance”) ~~(see Note 14)~~. In addition, on November 7, 2016, the Company completed the ~~purchase~~repurchase of 312,500 shares of its common stock at a price of $9.60 per share (“Tender Offer”) ~~(see Note 14)~~. The Company received total gross proceeds of ~~$17,100,000~~$17,063,000 from the Share Issuance, or ~~$14,100,000~~$14,063,000 after giving effect to the payment for the 312,500 shares of common stock from the Tender Offer. The Company received approximately $9,000,000 in net proceeds from the Share Issuance, after repayment of all amounts outstanding under ~~the~~its Master Credit Facility and the payment of transaction-related expenses.

On January 18, 2017, the Company consummated the issuance and sale of 312,500 shares of the Company’s common stock to CFL at a price of $9.60 per share, for total gross proceeds of $3,000,000, or $2,821,000 after giving effect to the payment of transaction-related expenses.

Management believes that its available funds ~~and cash flow from operations~~ will be sufficient to meet its working capital requirements ~~for the next twelve months from the date of this filing.~~through May 2018. However, there can be no assurances that the plans and actions proposed by management will be successful, that the Company 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.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

3. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 as filed with the SEC on March ~~30, 2016 and amended May 4, 2016~~31, 2017 (the “Annual Report”), which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended December 31, ~~2015~~2016 and ~~2014.~~2015. The financial information as of December 31, ~~2015~~2016 is derived from the audited financial statements presented in the Annual Report. The interim results for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2016~~2017 or for any future interim periods.

Use of Estimates– The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited interim condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future intervening events. Accordingly, the actual results could differ significantly from estimates.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

Significant estimates underlying the financial statements include the fair value of acquired assets and liabilities associated with acquisitions; assessment of goodwill impairment, other intangible assets and long-lived assets for impairment; allowances for doubtful accounts and assumptions related to the valuation allowances on deferred taxes, the valuation of stock-based ~~compensation.~~compensation and the valuation of stock warrants.

Principles of Consolidation– The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

~~Revision of Financial Statements~~ – During the preparation of the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, the Company determined that it had incorrectly recorded a discount against certain deferred revenue acquired in the acquisition of NAPW on September 24, 2014 and miscalculated amortization of such deferred revenue during the quarter ended March 31, 2015. The error resulted in an understatement of “Deferred revenue” and “Goodwill” recorded in the acquisition and subsequently resulted in an overstatement of “Revenues” and an understatement of “Impairment expense” and “Net loss” during each of the quarterly periods during the year ended December 31, 2015 and for the year ended December 31, 2015. The Company assessed the materiality of the misstatement in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and concluded that this misstatement was not material to the Company’s consolidated financial position or results of operations for the prior periods and that amendments of previously filed reports were not required. However, the Company determined that the impact of the corrections would be too significant to record in the third quarter of fiscal 2016. As such, the revision for the correction is reflected in the three and nine months ended September 30, 2015 financial information in this Quarterly Report on Form 10‑Q. Disclosure of the revised amounts will also be reflected in future filings containing the applicable periods.

~~The effect of this revision on the line items within the Company’s condensed consolidated balance sheets as of December 31, 2015 was as follows:~~

December 31, 2015
As previously
reported Adjustment As revised
Deferred revenue $ 7,507,176 $ 2,459,717 $ 9,966,893
Total current liabilities 13,368,329 2,459,717 15,828,046
Total liabilities 18,782,659 2,459,717 21,242,376
Accumulated deficit (40,890,017 ) (2,459,717 ) (43,349,734 )
Stockholders’ equity $ 22,645,157 $ (2,459,717 ) $ 20,185,440

The effect of this revision on the line items within the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2015 was as follows:

Three Months Ended
September 30, 2015
As previously
reported Adjustment As revised
Revenues $ 9,343,312 $ (122,133 ) $ 9,221,179
Impairment expense 24,717,157 2,027,092 26,744,249
Loss from operations (26,676,607 ) (2,149,225 ) (28,825,832 )
Net loss $ (29,657,447 ) $ (2,149,225 ) $ (31,806,672 )
Net loss per share:
Basic and Diluted (as adjusted for the Reverse Stock Split) $ (16.40 ) $ (1.19 ) $ (17.59 )

Nine Months Ended
September 30, 2015
As previously
reported Adjustment As revised
Revenues $ 30,444,581 $ (432,625 ) $ 30,011,956
Impairment expense 24,717,157 2,027,092 26,744,249
Loss from operations (30,504,220 ) (2,459,717 ) (32,963,937 )
Net loss $ (31,978,604 ) $ (2,459,717 ) $ (34,438,321 )
Net loss per share:
Basic and Diluted (as adjusted for the Reverse Stock Split) $ (18.62 ) $ (1.43 ) $ (20.05 )

~~The effect of this revision on the line items within the Company’s condensed consolidated statements of cash flows for the nine months ended September 30, 2015 was as follows:~~

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

Nine Months Ended
September 30, 2015
As previously
reported Adjustment As revised
Net loss $ (31,978,604 ) $ (2,459,717 ) $ (34,438,321 )
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment expense 24,717,157 2,027,092 26,744,249
Changes in operating assets and liabilities: deferred revenue (1,522,427 ) 432,625 (1,089,802 )
Cash used in operating activities $ (4,206,779 ) $ — $ (4,206,779 )

~~Short-Term Investments~~– All highly liquid investments that have an original maturity of greater than 90 days but less than one year at the date of purchase are classified as short-term investments. The Company classifies short-term investments as held to maturity and carries them at amortized cost if the Company has the positive intent and ability to hold the securities to maturity.

Revenue Recognition – Revenue is recognized when all of the following conditions exist: (1) persuasive evidence of an arrangement exists, (2) services are performed, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

Membership Fees and Related Services

Membership fees are collected up-front and member benefits become available immediately; however those benefits must remain available over the 12 month membership period. At the time of enrollment, membership fees are recorded as ~~a liability under~~ deferred revenue and are recognized as revenue ratably over the 12 month membership period. Members who are enrolled in this plan may cancel their membership in the program at any time and receive a partial refund (amount remaining in deferred revenue) or due to consumer protection legislation, a full refund based on the policies of the member’s credit card company.

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.

Lead Generation

The Company derives lead generation revenues pursuant to arrangements with for-profit educational centers. Under these arrangements, the Company matches educational centers with potential candidates, pursuant to specific parameters defined in each arrangement. The Company invoices the educational centers on a monthly basis based upon the number of leads provided. Revenues related to lead generation are recognized at the time the educational centers are invoiced.

Recruitment Services

The Company’s recruitment services revenue is derived from the Company’s 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. Recruitment revenue includes revenue recognized from direct sales to customers for recruitment services and events, as well as revenue from the Company’s direct e-commerce sales. Direct sales to customers are most typically a twelve month contract for services and as such the revenue for each contract is recognized ratably over its twelve month term. Event revenue is recognized in the month that the event takes place and e-commerce sales are for one month job postings and the revenue from those sales are recognized in the month the sale is made.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

Product Sales and Other Revenue

Products offered to members relate to custom made plaques and an annual registry book. Product sales are recognized as ~~liabilities under~~ deferred revenue at the time the initial order is placed. Revenue is then recognized at the time these products are shipped. The Company’s shipping and handling costs are included in cost of sales in the accompanying ~~condensed~~ consolidated statements of ~~comprehensive loss.~~operations.

Consumer Advertising and Marketing Solutions

The Company provides career opportunity services to its various partner organizations through advertising and job postings on their websites. The Company works with its partners to develop customized websites and job boards where the partners can generate advertising, job postings and career services to their members, students and alumni. Partner revenue is recognized as jobs are posted to their hosted sites.

Advertising and Marketing Expenses– Advertising and marketing expenses are expensed as incurred or the first time the advertising takes place. The production costs of advertising are expensed the first time the advertising takes place. For the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ the Company incurred advertising and marketing expenses of approximately ~~$657,000~~$922,300 and ~~$1,506,000, respectively. For the nine months ended September 30, 2016 and 2015, the Company incurred advertising and marketing expenses of approximately $1,842,000 and $4,227,000,~~$664,000, respectively. These amounts are included in sales and marketing expenses in the accompanying condensed consolidated statements of comprehensive loss. At ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, there were no prepaid advertising expenses recorded in the accompanying condensed consolidated balance sheets.

Net Loss per Share– The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic net loss per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive.

2016 2015
Warrants to purchase common stock 514,064 45,314
Stock options 72,886 19,732
Unvested restricted stock 5,556 25,002
592,506 90,048

~~Recently Issued Accounting Pronouncements~~

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control” (“ASU 2016-17”). ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a variable interest entity (“VIE”) held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02 and currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company does not anticipate that the adoption of ASU 2016-17 will have a material effect on its financial position or results of operations.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740)” (“ASU 2016-16”), which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted using a modified retrospective transition approach. The Company is currently assessing the impact of the adoption of this guidance on its consolidated financial statements.

	Three Months Ended March 31,
	2017		2016
Warrants to purchase common stock		170,314		45,314
Stock options		304,064		18,232
Unvested restricted stock		2,778		5,556
		477,156		69,102

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August ~~2016, the FASB issued~~2015 by ASU No. 2016-15, “Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments2015-14, Revenue from Contracts with ~~coupon interest rates that are insignificant in relation to the effective interest rate~~Customers: Deferral of the ~~borrowing; contingent consideration payments made after~~Effective Date. As a ~~business combination; proceeds from~~result, the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU ~~2016-15~~No. 2014-09 is effective retrospectively for ~~annual~~fiscal years and interim periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments~~ – Credit Losses” (“ASU 2016-13”). ASU 2016-13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 is effective for public business entities in fiscalwithin those years beginning after December 15, ~~2019, including interim periods within those fiscal years,~~2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with ~~early application of the guidance permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.~~

customers. In ~~May~~ 2016, the FASB issued ~~ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which further amended ASU 2016-09 by providing~~ additional ~~clarity in recognizing revenue from contracts~~ASUs that have been modified prior to the transition period to the new standard, as well as providing additional disclosure requirements for businesses and other organizations that make the transition to the new standard by adjusting amounts from prior reporting periods via retrospective application. The Company is continuing to evaluate the expected impact of this standard on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The update is effective for annual periods beginning after December 15, 2017 including interim reporting periods therein. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016. This guidance can be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material effect on its consolidated financial statements.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from contracts with customers (Topic 606): Principal versus Agent Considerations Reporting Revenue Gross versus Net.” The amendments are intended to improve the operability and understandability ofclarify the implementation guidance on principal versus agent considerations ~~by amending certain existing illustrative examples~~(ASU 2016-08), on identifying performance obligations and ~~adding additional illustrative examples~~licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company will adopt the standard on January 1, 2018, using the full retrospective transition method, which may result in a cumulative-effect adjustment for deferred revenue to ~~assist in~~ the ~~application~~opening balance sheet for 2018 and the restatement of the ~~guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09. Public entities should apply the amendments in ASU 2014-09~~financial statements for ~~annual reporting~~all prior periods ~~beginning after December 15, 2017, including interim reporting periods therein. Private entities must apply the amendments one year later.~~presented. The Company ~~is currently evaluating~~continues to evaluate the impact of ~~the new guidance~~adoption of this standard on its consolidated financial ~~statements.~~statements and disclosures.

In February 2016, the FASB issued new lease accounting guidance ASU No. 2016-02, “Leases” (“ASU 2016-02”). Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In ~~August 2014,~~March 2016, the FASB issued ASU ~~2014-15, “Disclosure of Uncertainties about an Entity’s Ability~~No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to ~~Continue as a Going Concern”~~Employee Share-Based Payment Accounting” (“ASU ~~2014-15”~~2016-09”). ASU ~~2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability~~2016-09 was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued.their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU ~~2014-15 are~~2016-09 is effective ~~for annual reporting periods ending after December 15, 2016, and~~ for annual and interim periods ~~thereafter.~~beginning after December 15, 2016. This guidance can be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. The Company ~~will adopt~~adopted the methodologies prescribed by ASU 2014-15 ~~by the date required, and does not anticipate that the~~as of January 1, 2017. The adoption of ASU ~~2014-15 will~~2016-09 did not have a material effect on ~~its~~the Company’s financial position or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The core principle of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 was initially effective for fiscal years beginning after December 15, 2017 and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. In July 2015, the FASB deferred the effective date of ASU 2014-09 for one year, and proposed some modifications to the original provisions.

4. Capitalized Technology

Capitalized ~~Technology,~~technology, net is as follows:

September 30,
2016

December 31,
2015

Capitalized cost:
Balance, beginning of period $ 1,888,791 $ 1,469,432
Additional capitalized cost - 419,359
Balance, end of period $ 1,888,791 $ 1,888,791

Accumulated amortization:
Balance, beginning of period $ 1,432,268 $ 943,362
Provision for amortization 216,060 488,906
Balance, end of period $ 1,648,328 $ 1,432,268
Capitalized Technology, net $ 240,463 $ 456,523

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

	March 31, 2017		December 31, 2016
Capitalized cost:
Balance, beginning of period	$	1,888,791	$	1,888,791
Additional capitalized cost		10,692		-
Balance, end of period	$	1,899,483	$	1,888,791


Accumulated amortization:
Balance, beginning of period	$	1,715,423	$	1,432,268
Provision for amortization		75,652		283,155
Balance, end of period	$	1,791,075	$	1,715,423
Capitalized Technology, net	$	108,408	$	173,368

Amortization expense of ~~$62,495~~$75,652 and ~~$153,984~~$108,329 for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and $216,060 and $335,585 for the nine months ended September 30, 2016 and 2015,~~ respectively, is recorded in depreciation and amortization expense in the accompanying condensed consolidated statements of operations and comprehensive loss.

~~5. Intangible Assets~~

~~Intangible assets, net is as follows:~~

September 30, 2016
Useful Lives
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Long-lived intangible assets:
Sales Process 10 $ 3,970,000 $ (799,514 ) $ 3,170,486
Paid Member Relationships 5 890,000 (358,472 ) 531,528
Member Lists 5 8,957,000 (3,607,681 ) 5,349,319
Developed Technology 3 978,000 (636,666 ) 341,334
Trade Name/Trademarks 4 480,000 (239,861 ) 240,139
Customer Relationships 5 280,000 (102,667 ) 177,333
15,555,000 (5,744,861 ) 9,810,139
Indefinite-lived intangible assets:
Trade Name 90,400

Intangible assets, net $ 9,900,539

December 31, 2015
Useful Lives
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Long-lived intangible assets:
Sales Process 10 $ 3,970,000 $ (501,764 ) $ 3,468,236
Paid Member Relationships 5 890,000 (224,972 ) 665,028
Member Lists 5 8,957,000 (2,264,131 ) 6,692,869
Developed Technology 3 978,000 (392,167 ) 585,833
Trade Name/Trademarks 4 480,000 (149,860 ) 330,140
Customer Relationships 5 280,000 (60,667 ) 219,333
15,555,000 (3,593,561 ) 11,961,439
Indefinite-lived intangible assets:
Trade Name 90,400

Intangible assets, net $ 12,051,839

~~Future annual estimated amortization expense is summarized as follows:~~

Years ending December 31,
2016 (three months) $ 717,100
2017 2,802,233
2018 2,563,872
2019 1,846,697
2020 397,000
2021 397,000
Thereafter 1,086,237
$ 9,810,139

117

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

5. Intangible Assets

Intangible assets, net is as follows:

March 31, 2017	Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Long-lived intangible assets:
Sales Process		10	$	3,970,000	$	(998,014	)	$	2,971,986
Paid Member Relationships		5		890,000		(447,472	)		442,528
Member Lists		5		8,957,000		(4,503,381	)		4,453,619
Developed Technology		3		978,000		(799,666	)		178,334
Trade Name/Trademarks		4		480,000		(299,861	)		180,139
Customer Relationships		5		280,000		(130,667	)		149,333
			$	15,555,000	$	(7,179,061	)		8,375,939
Indefinite-lived intangible assets:
Trade Name									90,400

Intangible assets, net								$	8,466,399

December 31, 2016	Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Long-lived intangible assets:
Sales Process		10	$	3,970,000	$	(898,764	)	$	3,071,236
Paid Member Relationships		5		890,000		(402,972	)		487,028
Member Lists		5		8,957,000		(4,055,531	)		4,901,469
Developed Technology		3		978,000		(718,166	)		259,834
Trade Name/Trademarks		4		480,000		(269,861	)		210,139
Customer Relationships		5		280,000		(116,667	)		163,333
			$	15,555,000	$	(6,461,961	)		9,093,039
Indefinite-lived intangible assets:
Trade Name									90,400

Intangible assets, net								$	9,183,439

Future annual estimated amortization expense is summarized as follows:

Years ending December 31,
2017 (nine months)	$	2,085,133
2018		2,563,872
2019		1,846,697
2020		397,000
2021		397,000
2022		397,000
Thereafter		689,237
	$	8,375,939

Amortization expense of $717,100 for the three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015 and $2,151,300 and $2,165,286 for the nine months ended September 30, 2016 and 2015, respectively,~~ is recorded in depreciation and amortization expense in the accompanying condensed consolidated statements of operations and comprehensive loss.

~~6. Master Credit Facility~~

~~At September 30, 2016, the Company’s Master Credit Facility is comprised of the following:~~

Total Master Credit Facility $ 1,942,625
Less: Unamortized debt issuance costs (1,114,946 )
Total Master Credit Facility, net of unamortized debt issuance costs 827,679
Less: Current portion of Master Credit Facility -
Long-term portion $ 827,679

On March 30, 2016, the Company entered into a Master Credit Facility with White Winston Select Asset Funds, LLC (“White Winston”), a private investment fund, pursuant to which the Company was granted a revolving credit facility (the “Master Credit Facility”) in the aggregate amount of up to $5,000,000. On June 30, 2016 (the “Closing Date”), the Company closed the Master Credit Facility and an initial disbursement of $1,572,576 (before reduction of related fees and expenses, or $1,022,623 of net proceeds) was made pursuant to the Master Credit Facility. Advances under the Master Credit Facility were issued at 95% of par value (the “Debt Discount”), with such Debt Discount deducted from the gross amount of the proceeds available under the Master Credit Facility at Closing and recorded as a debt issuance cost. White Winston could make advances under the Master Credit Facility provided that the aggregate principal amount outstanding under the Master Credit Facility did not exceed 75% of the then-outstanding balance of the Company’s customer receivables (as defined in the Master Credit Facility). During the three months ended September 30, 2016, the Company received additional advances in the aggregate amount of $370,050. With the discretionary approval of White Winston, as of September 30, 2016, the Company had drawn approximately $791,000 more than its availability under the Master Credit Facility. The Company could also request, subject to White Winston’s discretionary approval, additional advances that would be exempt from the limitation of eligible receivables. The Master Credit Facility originally matured on June 30, 2018 and bore interest at a rate of 8.0% per annum. Interest was payable monthly in arrears. In addition, from and after the first anniversary of the date of the Master Credit Facility and continuing until the Master Credit Facility was repaid in full, the Company was required to pay an additional fee of 3.0% on the average daily unborrowed portion of the Master Credit Facility. The fee was payable quarterly in arrears. As more fully discussed in Note 14, on November 7, 2016, in connection with the closing of the Share Issuance, the Company repaid in full all amounts owing under the Mater Credit Facility and terminated the Master Credit Facility and the related Board Representation Agreement.

The Company granted White Winston a first priority lien in all tangible and intangible property now owned by the Company or to be acquired in the future, including all receivables and all of the outstanding ownership interests in each of the Company’s subsidiaries. In addition, the Company established a cash collateral account, pursuant to which all revenues and payments due to the Company were deposited into such account and acted as security for the Master Credit Facility. The Company had unrestricted access to the cash collateral account.

Pursuant to the terms of the Master Credit Facility, on June 30, 2016, the Company issued to White Winston warrants to purchase up to (i) 125,000 shares of the Company’s common stock at a price of $2.00 per share (the “Fixed $2.00 Warrant”); (ii) 218,750 shares of the Company’s common stock at a price of $2.00 per share (the “Pro Rata Warrant”), provided that the number of shares for which the Pro Rata Warrants were exercisable would be pro-rata based on the ratio of the actual advances made under the Master Credit Facility to the aggregate face amount of the Master Credit Facility and (iii) 125,000 shares of the Company’s common stock at a price of $20.00 per share (the “Fixed $20.00 Warrant”). The Fixed $2.00 Warrant and the Pro Rata Warrant are exercisable for five years from the date of issuance and the Fixed $20.00 Warrant is exercisable for five years beginning on December 30, 2016.

128

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

Pursuant to the terms of a Board Representation Agreement between the Company and White Winston, White Winston had the right to designate nominees for election to the Company’s Board of Directors from the date the principal amount outstanding under the Master Credit Facility first exceeded $2,000,000 until such time as White Winston’s interest (as defined in the Board Representation Agreement) fell below five percent for 60 consecutive days. The number of nominees that White Winston was entitled to designate was determined in accordance with the terms of the Board Representation Agreement and, provided that no event of default had occurred, could not exceed two nominees. If an event of default had occurred and was continuing, White Winston had the right to designate two additional nominees for election to the Company’s Board of Directors. However, the aggregate number of nominees that White Winston was entitled to designate in no event could exceed (i) 50 percent of the number of directors, rounded down to the nearest whole number, if the Board is comprised of an odd number of Directors, and (ii) one less than half of the number of Directors, if the Board is comprised of an even number of Directors.

The Company determined the fair value of the Fixed $2.00 Warrant and Fixed $20.00 Warrant issued to White Winston to be $272,133 using the Black-Scholes option-pricing model with the following assumptions: (1) expected volatility of 54.63%, (2) risk-free interest rate of 1.01% and (3) expected life of five years.

The Company determined that the Pro Rata Warrant should be treated as a derivative liability in accordance with ASC 815-40, “Derivatives and Hedging, Contracts in Entity’s Own Equity,” due to the variable number of shares issuable. Accordingly, the Pro Rata Warrant was initially recorded at fair value, with changes in the fair value of the liability recorded in other income/expense in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company determined the fair value of the Pro Rata Warrant issued to White Winston on June 30, 2016 to be $511,325, of which $380,000 was valued as the portion attributable to the unexercisable Pro Rata Warrant using the Monte Carlo model with the following assumptions: (1) expected volatility of 100.00%, (2) risk-free interest rate of 1.01% and (3) expected life of five years. The Company recorded a $401,000 change in the fair value of the liability during the three and nine months ended September 30, 2016 (see Note 12).

The Company recorded the value of $131,325 attributable to the 68,800 exercisable Pro Rata Warrants at June 30, 2016 as a component of additional paid in capital in the accompanying condensed consolidated balance sheets.

On August 10, 2016, the Company entered into an Amendment to Master Credit Facility and Consent and Waiver Agreement (the “Amendment”) with White Winston in connection with the CFL Transaction (see Note 8). Pursuant to the Amendment, White Winston consented to the CFL Transaction and waived its participation rights and board representation rights under the Board Representation Agreement in connection with the CFL Transaction. In consideration for the Amendment, the Company agreed that the Pro Rata Warrant would be fully exercisable, notwithstanding the pro rata formula set forth in the warrant, and paid a fee of $15,000. In addition, White Winston granted the Company an option to repurchase its outstanding, in-the-money warrants following consummation of the Tender Offer on the terms set forth in the Amendment.

As a result of the Amendment, all 218,750 Pro Rata Warrants became exercisable and the derivative liability in the amount of $781,000 pertaining to the Pro Rata Warrants was reclassified to additional paid in capital (see Note 12).

The issuance of the Fixed $2.00 Warrant, the Fixed $20.00 Warrant and the Pro Rata Warrant has been treated as a debt issue cost and, accordingly, has been recorded as a direct deduction from the carrying amount of Master Credit Facility and is being amortized to interest expense over the contractual term of the Master Credit Facility. During the three and nine months ended September 30, 2016, accretion of the costs amounted to $97,933.

The Company incurred cash fees associated with the closing of the Master Credit Facility of $488,082. These amounts have been treated as a debt issue cost and, accordingly, have been recorded as a direct deduction from the carrying amount of Master Credit Facility and are being amortized to interest expense over the contractual term of the Master Credit Facility. During the three and nine months ended September 30, 2016, accretion of the fees amounted to $58,661.

~~Contractual interest expense on the Master Credit Facility amounted to $35,000 for the three and nine months ended September 30, 2016.~~

On November 7, 2016, in connection with the closing of the CFL Transaction described below, the Company (i) repaid in full amounts owed under the Master Credit Facility and (ii) terminated the Master Credit Facility and related agreements between the Company and White Winston, including the Board Representation Agreement. All security interest created under the Master Credit Facility were released upon repayment of the amounts due under and the termination of the Master Credit Facility.

The Fixed $20.00 Warrant issued to White Winston is still held by White Winston and remains outstanding. On November 7, 2016, White Winston exercised the Fixed $2.00 Warrant and the Pro Rata Warrant to purchase an aggregate of 343,750 shares of common stock.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

7.6. Commitments and Contingencies

Lease Obligations– The Company leases office space, a corporate apartment, office furniture and equipment under various operating lease ~~agreements.~~

~~The Company leases~~agreements, including an office for its headquarters, ~~in Illinois,~~ as well as office spaces for its events business, sales and administrative offices under non-cancelable lease arrangements that provide for payments on a graduated basis with various expiration dates.

Rent expense, amounting to approximately ~~$258,000~~$272,000 and ~~$383,000~~$309,000 for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and approximately $808,000 and $1,083,000 for the nine months ended September 30, 2016 and 2015,~~ respectively, is included in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss. Included in rent expense is sublease income of approximately ~~$93,000~~$96,000 and $90,000 for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and approximately $279,000 and $255,000 for the nine months ended September 30, 2016 and 2015,~~ respectively.

During the nine months ended September 30, 2016, the Company recorded a gain on lease cancellation of approximately $424,000 related to the closing of its Los Angeles, CA office in general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

Legal Proceedings

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to an action captioned LinkedIn Corp. v. NAPW, Inc. and Professional Diversity Network, Inc., No. 16-CV-299784 (Santa Clara Superior Ct.). The complaint was filed on September 12, 2016. LinkedIn Corp. (“LinkedIn”), the plaintiff, seeks payment of outstanding amounts it claims are owed under a marketing agreement between LinkedIn and NAPW. The Company has prepared but has not yet filed a counterclaim. LinkedIn has agreed to postpone the deadline for the Company to file a responsive pleading to January 5, 2017. The parties have also agreed to mediate their respective claims, with a mediation currently scheduled for December 20, 2016. The case is in its preliminary stages and it is uncertain whether or not its outcome is likely to have a material impact on the Company’s financial position.

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to litigation captioned Gauri Ramnath, et al. v. Professional Diversity Network, Inc., et al., No. BC604153 (Los Angeles Superior Ct.), a putative class action filed in January 2016 alleging violations of various California Labor Code (wage & hour) sections. ~~The plaintiffs seek unspecified damages. The complaint was filed in December 2015 and~~During the first quarter of 2016, the Company ~~has answered. On April 28,~~executed a settlement agreement, subject to later Court approval, in which the Company agreed in principle to pay $500,000 for a global settlement of the class action. During the first quarter of 2016, the ~~parties entered into~~Company also recorded a ~~mutual~~litigation settlement ~~agreement and release, on behalf of all putative class participants,~~expense in the amount of $500,000. ~~Such amount is recorded in accrued expenses in~~This matter was s fully resolved by the ~~accompanying condensed consolidated balance sheet as of September 30, 2016. The~~Court’s November 28, 2016 Order approving the parties’ proposed settlement agreement and ~~its amount are subject~~appointing a third-party administrator to handle class notification and payout. In December of 2016, the Company paid $500,000 into the Court’s fund and the third-party administrator began making payouts under the Court’s Order. During the three months ended March 31, 2017, the third-party administrator continued paying settlements under the fund, a process expected to conclude with the third-party administrator’s report to the Court, ~~and state agency approval.~~which is due by July 19, 2017. The Company ~~has been notified~~expects that the matter will be fully concluded, without further obligation to the Company, by Order of the Court ~~will hold a hearing to consider final approval~~ on ~~November 28, 2016. The Company anticipates that, if the global settlement is approved, it will have to fund the settlement in late Fourth Quarter of 2016~~ or ~~early First Quarter of~~about August 2, 2017.

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to ~~an administrative action before the National Labor Relations Board~~a proceeding captioned as In re Professional Diversity Network, Cases 31-CA-159810 and 31-CA-162904 ~~(NLRB)~~(“NLRB”), filed with the National Labor Relations Board in June 2015 and alleging violations of the National Labor Relations Act against the Company and its wholly-owned subsidiary, NAPW, Inc., where employee was allegedly terminated for asserting “union organizing” rights. While the Company disputes that any rights were impacted, the NLRB has issued its preliminary order requiring the Company to take certain remedial actions in the form of posting notices and revising certain policies. The NLRB’s order was recently affirmed by the U.S. Court of Appeals for the Ninth Circuit and the Company ~~is currently working with the agency~~expects to ~~comply~~work with the NLRB ~~order. The Company does not anticipate that~~to carry out the effects of its ~~outcome will have a material impact on the Company’s financial position.~~order.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

The Company is a party to ~~an administrative action before the Equal Employment Opportunity Commission~~a proceeding captioned as Paul Sutcliffe v. Professional Diversity Network, Inc., No. 533-2016-00033 (EEOC), filed with the Equal Employment Opportunity Commission in April 2016 and alleging violations of Title VII and the Age Discrimination in Employment Act, where employee was allegedly terminated due to his race (Caucasian) and his age (over 40). The EEOC has issued a preliminary finding that the Company discriminated against the complainant. The ~~Company is currently weighing its appellate options, but does~~complainant has not ~~anticipate that this case will have~~yet filed a ~~material impact on the Company’s financial position.~~

On November 4, 2016, the Company entered into a Confidential Settlement and Mutual Release of All Claims (the “Release”) with Matthew B. Proman (“Proman”), pursuant to which the Company agreed among other things that (i) it would pay Proman $300,000 at the closing of the Share Issuance, (ii) the Separation Agreement and Mutual Release of All Claims, dated July 16, 2015 between Proman and the Company (the “Separation Agreement”) would be terminated as of November 4, 2016, and (iii) the Seller Promissory Note in the principal amount of $445,000 dated September 24, 2014 in favor of Proman (the “Promissory Note”) would be terminated as of November 4, 2016. The Company also agreed that notwithstanding the termination of the Separation Agreement pursuant to the Release, Proman’s co-sale right would be preserved and he would continue to hold the options and warrants he held as of November 4, 2016. On November 7, 2016, the Company paid Proman $300,000 pursuant to the Release.

lawsuit.

General Legal Matters

From time to time, the Company is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.

8.7. CFL Transaction

On ~~August 12, 2016,~~January 13, 2017, the Company entered into a stock purchase agreement (the “Purchase Agreement”), with Cosmic Forward ~~Limited, a Republic of Seychelles company wholly-owned by a group of Chinese investors~~Ltd. (“CFL”)~~. Pursuant~~, pursuant to ~~the Purchase Agreement,~~which, the Company agreed to issue and sell to CFL (the ~~“Share Issuance and Sale”~~“Second Share Issuance”), and CFL agreed to purchase, at a price of $9.60 per share (the “Per Share Price”), upon the terms and subject to the conditions set forth in the Purchase Agreement, ~~a number of~~312,500 shares of the Company’s common ~~stock, par value $0.01 per share (the “Common Stock”), such that~~stock. On January 18, 2017, the Company consummated the Second Share Issuance. As a result of the completion of the Second Share Issuance, as of January 18, 2017, CFL ~~will hold shares~~beneficially owned 54.64% of ~~Common Stock equal to approximately 51% of~~ the Company’s outstanding shares of ~~Common Stock, determined~~common stock, on a ~~fully-diluted basis,~~fully diluted basis.

The Company received total gross proceeds of $3,000,000 from the Second Share Issuance, or approximately $2,821,000 in net proceeds after ~~giving effect~~payment of transaction-related expenses. The Company retained Aegis Capital Corp. (“Aegis”) as the exclusive placement agent in connection with the transaction. Aegis received a cash placement fee of $144,000 in connection with the transaction. The Company accounted for the fee paid to ~~the consummation~~Aegis as a cost of the ~~transactions contemplated by the Purchase Agreement, including the Tender Offer described below (the “CFL Transaction”).~~

~~Pursuant~~transaction resulting in a charge directly to a co-sale right, an existing shareholder of the Company would have the right to sell up to 205,925 shares of Common Stock to CFL as of the date of the Purchase Agreement (the “Co-Sale Right”), and such Co-Sale Right, to the extent exercised, would reduce the number of shares of Common Stock to be purchased by CFL directly from the Company. The Company also commenced a partial issuer tender offer to purchase up to 312,500 shares of Common Stock (the “Tender Offer”). The number of shares of Common Stock that CFL agreed to purchase was that amount that would allow it to hold 51% of the outstanding shares of Common Stock, determined on a fully-diluted basis, after giving effect to the number of shares of Common Stock (if any) the Company purchases in the Tender Offer, and any shares sold to CFL pursuant to the co-sale right (collectively, the “Common Shares”). The parties agreed that, if, immediately following the consummation of the Tender Offer and after giving effect to the purchase by the Company of all shares of Common Stock validly tendered and not withdrawn in the Tender Offer, the Common Shares amount to less than 51% of the then-outstanding shares of Common Stock, determined on a fully-diluted basis, then CFL shall have an option (the “Call Option”) to purchase, at a price per share equal to the Per Share Price, such additional number of shares of Common Stock (the “Call Option Shares”) as are necessary for the previously issued Common Shares plus the Call Option Shares to equal 51% of the then-outstanding shares of Common Stock determined on a fully-diluted basis, taking into account the issuance of the Call Option Shares.

Pursuant to the terms of the Escrow Agreement, dated as of August 12, 2016 (the “Escrow Agreement”), by and among the Company, CFL and Wilmington Trust, N.A., as escrow agent (the “Escrow Agent”), CFL deposited approximately $1.7 million (the “Escrow Amount”) into an escrow account with the Escrow Agent as security for CFL’s potential termination fee obligations under the Purchase Agreement described below. The Escrow Amount was being held by the Escrow Agent in accordance with, and was released pursuant to the terms and subject to the conditions set forth in, the Escrow Agreement.stockholders’ equity.

159

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

The Purchase Agreement contained customary representations, warranties, covenants and agreements of the parties thereto, and completion of the Share Issuance and Sale was subject to the approval of the Company’s stockholders at a special meeting of stockholders. The Purchase Agreement also contained other customary closing conditions, including, among others, the execution of certain ancillary agreements and documentation; all receipt of all required consents and approvals necessary to consummate the Share Issuance and Sale; the absence of any injunction or proceeding by a government entity seeking to restrain or prohibit consummation of the CFL Transaction; the absence of any change or event that has had or would reasonably be expected to have a material adverse effect on the Company; and receipt of a clearance by the Committee on Foreign Investment in the United States.

~~The Purchase Agreement also contained customary indemnification and termination provisions.~~

~~Under the terms of the Purchase Agreement and as a condition to consummating the Share Issuance and Sale, at~~At the closing of the Second Share Issuance, and ~~Sale,~~as contemplated by the Purchase Agreement, the Company ~~CFL and each~~entered into an amendment, dated as of ~~the shareholders of CFL~~January 18, 2017 (the ~~“CFL Shareholders”~~“Amendment”) ~~agreed~~, to ~~enter into a stockholders’ agreement~~ ~~(“Stockholders’ Agreement”). The~~the Stockholders’ Agreement ~~provides certain limitations on the ability of~~with CFL and the Buyer Parties (as defined in the Stockholders’ Agreement). The Amendment increased the cap on the amount of common stock that the CFL Shareholders and their respective controlled affiliates (collectively, the “CFL Group”) may, directly or indirectly acquire, agree to acquire ~~additional securities~~or publicly propose or offer to acquire from the Company, ~~and provides~~or pursuant to a tender or exchange offer for certain participation rights to CFL, to enable CFL to participate in future equity issuances by the Company, in order to maintain its then-current beneficial ownership interest in the Company, up to the CFL Shareholders’ then-current ownership percentage based on the number ofany shares of ~~Common Stock then-outstanding, but no greater than 51.0%~~common stock, from 51% of the then outstanding shares of ~~Common Stock, determined~~common stock, on a fully-diluted basis, to 54.64% of the then outstanding shares of common stock, on a ~~given date.~~fully-diluted basis. The ~~Stockholders’ Agreement~~Amendment also ~~provides for certain “standstill” covenants prohibiting~~clarifies that the 312,500 shares of common stock purchased by CFL orin the ~~CFL Shareholders or their respective affiliates from taking certain actions with respect~~Second Share Issuance are subject to all of the ~~Company or the Board of Directors. Under~~restrictions contained in the Stockholders’ Agreement, ~~CFL is entitled to nominate individuals reasonably acceptable to the Nominating~~as amended. All other terms and ~~Governance Committee~~conditions of the Board of Directors for election as directors of the Company, so long as CFL’s beneficial ownership level exceeds certain predefined percentage thresholds of the Company’s issued and outstanding Common Stock. The Stockholders’ Agreement ~~provides that, upon~~remain in full force and effect and were ratified and affirmed by the closing of the Share Issuance and Sale and for so long as CFL’s beneficial ownership level exceeds 49.5% of the Company’s issued and outstanding Common Stock, CFL is entitled to nominate five of nine directors on the Board of Directors. The Stockholders’ Agreement further provides certain restrictions on the transfer of the Common Shares issued and sold to CFLparties in the Share Issuance and Sale, including, among other restrictions, a lock-up during the one-year period following the closing of the Share Issuance and Sale. The Stockholders’ Agreement also provides certain demand, shelf and piggyback registration rights to CFL that require the Company to effect the registration under the Securities Act of 1933, as amended (the “Securities Act”), of the resale of the Common Shares and other shares of Common Stock (including the Call Option Shares) acquired by CFL.Amendment.

~~As described in Note 14, on November 7, 2016, the CFL Transaction closed.~~

9.8. Employment ~~Agreement~~Agreements

On ~~September 30, 2016,~~March 7, 2017, the Company entered into an employment agreement (the ~~“Employment Agreement”)~~“Xiao Employment Agreement) with ~~Katherine Butkevich,~~Jiangping (Gary) Xiao, the Company’s new Chief ~~Executive~~Financial Officer. The Xiao Employment Agreement ~~provides for an initial term of two years, and is subject~~continues until terminated in writing by either party or earlier terminated pursuant to ~~extension upon agreement~~the provisions of the ~~Company and Ms. Butkevich unless either party provides advance written notice of its or her intention not to extend.~~Xiao Employment Agreement. Under the Xiao Employment Agreement, ~~Ms. Butkevich~~Mr. Xiao will receive an annual base salary of ~~$300,000,~~$200,000, subject to ~~increase, but not decrease,~~adjustment in the sole discretion of the ~~Company’s~~ Board ~~of Directors (the “Board”)~~ or the Compensation Committee of the ~~Board (the “Compensation Committee”). Ms. Butkevich~~Board; provided however, that such annual base salary may not be decreased. Mr. Xiao will be eligible to receive an annual incentive bonus ~~at a target~~in an amount equal to up to fifty percent (50%) of ~~not less than her~~his base salary, based upon the achievement of one or more performance goals, targets, measurements and other factors, established for such year by the Compensation Committee. ~~Ms. Butkevich will also participate in all benefit plans and programs, subject to certain conditions and exceptions, as are generally provided by the Company to its other senior executive employees.~~

Under the terms of Employment Agreement, Ms. Butkevich is subject to non-solicitation, non-competition and non-interference restrictive covenants during her employment and for the 12-month period following her last day of employment with the Company. The Employment Agreement also contains customary confidentiality, work product and return of Company property covenants.

In addition, ~~Ms. Butkevich~~Mr. Xiao is entitled to severance pay if ~~she~~he is terminated without “cause” or resigns for “good reason,” each as defined in the Xiao Employment Agreement. Upon such termination, provided that ~~she~~he executes a release and waiver agreement, ~~Ms. Butkevich~~Mr. Xiao will be entitled to receive an amount equal to six months of his base salary, any earned but unpaid bonus for the year prior to the year of termination, and the pro rata portion of any bonus earned for the year in which termination occurs, as well as continuation of applicable benefits for a period of six months following his termination. In connection with the approval of the Xiao Employment Agreement, Mr. Xiao also received a non-qualified stock option to purchase 30,000 shares of the Company’s common stock.

On March 9, 2017, the Company also entered into an employment agreement effective as of December 22, 2016 (the “Wang Employment Agreement”) with Maoji (Michael) Wang, the Company’s Chief Executive Officer. The Wang Employment Agreement continues until terminated in writing by either party or earlier terminated pursuant to the provisions of the Wang Employment Agreement. Under the Wang Employment Agreement, Mr. Wang will receive an annual base salary of $320,000, subject to adjustment in the sole discretion of the Board or the Compensation Committee of the Board; provided however, that such annual base salary may not be decreased until the first anniversary of the effective date of the Wang Employment Agreement. Mr. Wang will be eligible to receive an annual incentive bonus, at a target amount of not less than his base salary, based upon the achievement of one or more performance goals, targets, measurements and other factors, established for such year by the Board or the Compensation Committee. In addition, Mr. Wang is entitled to severance pay if he is terminated without “cause” or resigns for “good reason,” each as defined in the Wang Employment Agreement. Upon such termination, provided that he executes a release and waiver agreement, Mr. Wang will be entitled to receive an amount equal to the sum of ~~her~~his base salary, any earned but unpaid bonus for the year prior to the year of termination, and the pro rata portion of any bonus earned for the year in which termination occurs, as well as continuation of applicable benefits for a period of 12 months following ~~her~~his termination.

In connection with the approval of the Wang Employment Agreement, ~~Ms. Butkevich~~Mr. Wang also received a non-qualified stock option to purchase ~~57,500~~210,000 shares of the Company’s common stock at an exercise price of $8.19 per share. The option will vest in accordance with the following schedule: (i) 1/3 of the shares underlying the option will vest immediately upon award, (ii) 1/3 of the shares underlying the option will vest on March 31, 2017, and (iii) 1/3 of the shares underlying the option will vest on March 31, 2018.stock.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

~~10.~~9. Income Taxes

The effective income tax rate for the three months ended ~~September 30,~~March 31, 2017 and 2016 was 16.3% and ~~2015 was 32.9% and (10.3)%~~24.1%, respectively, resulting in a ~~$624,000~~$602,000 and $458,000 income tax benefit, ~~and $2,976,000 income tax expense,~~ respectively. The difference in the effective income tax rate for the ~~nine~~three months ended ~~September 30, 2016 and 2015 was 25.7% and (4.6)%, respectively, resulting in a $1,218,000 income tax benefit and $1,509,000 income tax expense, respectively. During~~March 31, 2017, compared to the three months ended ~~September 30,~~March 31, 2016, ~~and 2015,~~is mainly attributable to the ~~Company recorded a~~change in the valuation allowance ~~of $458,000~~ and ~~$4,106,000, respectively, and during~~ the ~~nine months ended September 30, 2016 and 2015,~~foreign tax rate differential due to the ~~Company recorded a valuation allowance of $832,000 and $4,106,000, respectively.~~Company’s China Operations. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management ~~considered~~considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the consideration of these items, management has determined that ~~it is more likely than not that~~enough uncertainty exists relative to the ~~Company will not realize~~realization of the deferred income tax asset balances ~~and therefore, initially recorded~~to warrant the application of a valuation allowance as of ~~September 30, 2015. Management~~March 31, 2017 and December 31, 2016.

The Company has ~~again evaluated~~not provided deferred income taxes on the ~~deferred~~undistributed earnings of its foreign subsidiaries. The amount of such earnings was insignificant. These earnings have been permanently reinvested and the Company does not plan to initiate action that would precipitate the payment of income taxes thereon. It is not practicable to estimate the amount of additional tax ~~asset for~~that might be payable on the ~~nine months ended September 30, 2016 and has determined a full valuation allowance continues to be applicable.~~undistributed earnings of its foreign subsidiaries.

~~11.~~10. Stock-Based Compensation

Equity Incentive Plans – The Company adopted the 2013 Equity Compensation Plan (the “2013 Plan”) under which the Company reserved 62,500 shares of common stock for the purpose of providing equity incentives to employees, officers, directors and consultants including options, restricted stock, restricted stock units, stock appreciation rights, other equity awards, annual incentive awards and dividend equivalents. The Company subsequently amended the ~~plan~~2013 Plan to increase the number of authorized shares of common stock under the ~~plan~~2013 Plan to 225,000 shares, which the Company’s stockholders approved on June 3, 2015.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

Stock Options

The following table summarizes the Company’s stock option activity for the ~~nine~~three months ended ~~September 30, 2016:~~March 31, 2017:

	Number of Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value		Number of Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding - December 31, 2015		19,653		$	30.00			8.0	$	-
Outstanding - December 31, 2016												69,950		$	12.07			9.0	$	156,975
Granted		57,500			8.19							240,000			10.72
Exercised		-			-							-			-
Forfeited/Canceled/Expired		(4,287	)		(31.81	)						(5,886	)		(32.63	)
Outstanding – September 30, 2016		72,866		$	12.69			9.5	$	-
Outstanding – March 31, 2017												304,064		$	10.61			9.8	$	80,500

Exercisable – September 30, 2016		30,264		$	16.29			9.2	$	-
Exercisable – March 31, 2017												44,897		$	11.03			9.1	$	53,666

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

~~A summary of the changes in the Company’s unvested stock options is as follows:~~

Number of
Options

Weighted
Average
Grant
Date Fair
Value

Unvested - December 31, 2015 13,571 $ 13.76
Granted 57,500 4.01
Vested (27,552 ) (7.07 )
Forfeited/Canceled/Expired (917 ) (13.83 )
Unvested – September 30, 2016 42,602 $ 4.93

As discussed in Note 9,8, the Company granted ~~57,500~~210,000 and 30,000 stock options to ~~Ms. Butkevich~~Messrs. Wang and Xiao, respectively, in connection with ~~her Employment Agreement.~~their employment agreements. These options had aan aggregate fair value of ~~$230,575,~~$1,260,000, using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate		~~1.14~~2.13	%
Expected dividend yield		0.00	%
Expected volatility		~~53.96~~52.09	%
Expected term	5.5 years

The options are exercisable at an exercise price of ~~$8.19~~$10.72 per share over a ten-year term and vest over three ~~years.~~years, with one-third vested upon grant. The options are subject to the approval by the Company’s stockholders of the amendment to the 2013 Plan to increase the number of authorized shares of common stock under the 2013 Plan. As of March 31, 2017, none of the stock options are exercisable and 80,000 options have vested. The Company recorded ~~$77,000~~$455,000 as compensation expense during the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 pertaining to ~~this grant.~~these grants.

The Company recorded non-cash compensation expense of approximately ~~$90,000~~$488,000 and ~~$31,000~~$30,000 as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and approximately $135,000 and $74,000 for the nine months ended September 30, 2016 and 2015,~~ respectively, pertaining to stock options.

Total unrecognized compensation expense related to unvested stock options at ~~September 30, 2016~~March 31, 2017 amounts to approximately ~~$182,000~~$907,000 and is expected to be recognized over a remaining weighted average period of ~~1.4~~1.8 years.

Warrants

As of March 31, 2017, there were 170,314 warrants outstanding and exercisable, with a weighted average exercise price of $32.44 per share. The ~~following table summarizes~~weighted average remaining contractual life of the ~~Company’s warrant activity for~~warrants at March 31, 2017 and December 31, 2016 was 4.1 and 4.3 years, respectively, and the ~~nine months ended September 30, 2016:~~aggregate intrinsic value was $0.

Number of
Warrants

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life
(in Years)

Aggregate
Intrinsic
Value

Outstanding – December 31, 2015
45,314 $ 66.72 3.5 $ -
Granted 468,750 6.80
Exercised - -
Forfeited/Canceled/Expired - -
Outstanding – September 30, 2016 514,064 $ 12.09 4.7 $ 2,127,813

Exercisable – September 30, 2016 389,064 $ 9.54 4.5 $ 2,127,813

~~As discussed in Note 6, on June 30, 2016, the~~The Company ~~granted~~did not grant any warrants to purchase ~~468,750~~ shares of common ~~stock. The fair value of~~stock during the ~~warrants issued of $783,458 has been recorded as a direct deduction from~~three months ended March 31, 2017.

No compensation cost was recognized for the ~~carrying amount of Master Credit Facility.~~three months ended March 31, 2017 and 2016 pertaining to warrants.

1811

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

~~A summary of the changes in the Company’s unvested warrants is as follows:~~

Number of
Warrants

Weighted
Average
Grant
Date Fair
Value

Unvested – December 31, 2015
- $ -
Granted 468,750 1.67
Vested (468,750 ) (1.67 )
Forfeited/Canceled/Expired - -
Unvested – September 30, 2016 - $ -

~~On November 7, 2016, warrants to purchase an aggregate of 343,750 shares of common stock were exercised for an aggregate exercise price of $687,500.~~

Restricted Stock

As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, there were ~~5,556~~2,778 shares of unvested restricted stock outstanding.

The Company recorded non-cash compensation expense of approximately $28,000 ~~and $83,000~~ for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and approximately $83,000 and $277,000 for the nine months ended September 30, 2016 and 2015, respectively,~~ pertaining to restricted stock.

Total unrecognized compensation expense related to unvested restricted stock at ~~September 30, 2016~~March 31, 2017 amounts to approximately ~~$129,000~~$74,000 and is expected to be recognized over a weighted average period of ~~1.2~~0.7 years.

~~12. Fair Value of Financial Instruments~~

Financial instruments, including cash and cash equivalents, short-term investments, accounts payable and accrued liabilities, are carried at historical cost. Management believes that the recorded amounts approximate fair value due to the short-term nature of these instruments.

The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value:

~~Level 1 — quoted prices in active markets for identical assets or liabilities~~

~~Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable~~

~~Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)~~

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

~~Level 3 Valuation Techniques:~~

Level 3 financial liabilities consist of warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

The Company uses the Monte Carlo model to value Level 3 financial liabilities at inception and on subsequent valuation dates. This model is a discrete-time model that allows for sources of uncertainty and simulates the movements of the underlying asset and calculates the resulting derivative value for each trial. Such simulations are performed for a number of trials and the average value across all trials is determined in order to arrive at the concluded value of such derivative. The model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, and risk free rates, as well as volatility. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the derivative liabilities are recorded in “change in fair value of warrant liability” in the Company’s condensed consolidated statements of operations and comprehensive loss.

~~As of September 30, 2016 and December 31, 2015, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.~~

~~The warrant liability was valued using the Monte Carlo model and the following assumptions:~~

August 10, June 30,
2016 2016
Strike price $ 2.00 $ 2.00
Market price $ 6.08 $ 3.20
Expected life 5 years 5 years
Risk-free interest rate 1.07 % 1.01 %
Dividend yield 0.00 % 0.00 %
Volatility 100 % 100 %

~~The following table sets forth a summary of the changes in the fair value of the Level 3 financial liabilities that are measured at fair value on a recurring basis:~~

~~Balance – January 1, 2016~~	$	-
~~Initial value of derivative liability~~		~~380,000~~
~~Change in fair value of derivative liability~~		~~401,000~~
~~Reclassification of derivative liability to additional paid in capital~~		~~(781,000~~	)
~~Balance – September 30, 2016~~	$	-

As discussed in Note 6, on August 10, 2016, the Company entered into an Amendment with White Winston pursuant to which the Company agreed that the Pro Rata Warrant would be fully exercisable, notwithstanding the pro rata formula set forth in the warrant. Accordingly, as the derivative liability was eliminated on August 10, 2016, the Company reclassified $781,000 to additional paid in capital.

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

~~13.~~11. Segment Information

~~The~~Beginning in January 2017, the Company operates in ~~three~~the following segments: (A) United States: (i) PDN Network, (ii) NAPW Network and (iii) Noble Voice operations, and (B) China Operations. The segments are categorized based on their business activities and organization. Prior to January 2017, the Company operated solely in the United States in the following segments: (i) PDN Network, ~~(2)~~(ii) NAPW Network and ~~(3)~~(iii) Noble Voice ~~operations, which are based on its business activities and organization.~~operations. The following tables present key financial information of the Company’s reportable segments as of and for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

Three Months Ended September 30, 2016
PDN
Network
NAPW
Network
Noble Voice Consolidated

Membership fees and related services $ - $ 3,748,334 $ - $ 3,748,334
Lead generation - - 1,554,370 1,554,370
Recruitment services 954,887 - - 954,887
Products sales and other - 52,857 - 52,857
Consumer advertising and marketing solutions 49,719 - - 49,719
Total revenues 1,004,606 3,801,191 1,554,370 6,360,167
Loss from operations (118,948 ) (894,361 ) (266,893 ) (1,280,202 )
Depreciation and amortization 33,471 738,473 47,950 819,894
Income tax expense (benefit) (222,808 ) (289,767 ) (111,124 ) (623,699 )
Capital expenditures - - - -
Net loss (512,771 ) (604,594 ) (155,769 ) (1,273,134 )

Nine Months Ended September 30, 2016
PDN
Network
NAPW
Network
Noble Voice Consolidated

Membership fees and related services $ - $ 13,047,652 $ - $ 13,047,652
Lead generation - - 4,489,919 4,489,919
Recruitment services 2,295,556 - - 2,295,556
Products sales and other - 544,440 - 544,440
Consumer advertising and marketing solutions 176,771 - - 176,771
Total revenues 2,472,327 13,592,092 4,489,919 20,554,338
Loss from operations (839,840 ) (2,173,251 ) (1,106,895 ) (4,119,986 )
Depreciation and amortization 130,121 2,207,703 160,312 2,498,136
Income benefit (373,717 ) (557,439 ) (286,936 ) (1,218,092 )
Capital expenditures - - - -
Net loss (1,083,270 ) (1,615,812 ) (819,959 ) (3,519,041 )

At September 30, 2016
Goodwill $ 339,451 $ 19,861,739 $ - $ 20,201,190
Intangible assets, net 90,400 9,482,806 327,333 9,900,539
Total assets 2,151,870 32,410,397 1,891,617 36,453,884

Three Months Ended September 30, 2015 (Revised)

PDN
Network

NAPW
Network
Noble Voice Consolidated

Membership fees and related services $ - $ 5,652,873 $ - $ 5,652,873
Lead generation - - 2,334,276 2,334,276
Recruitment services 830,250 - - 830,250
Products sales and other - 330,769 - 330,769
Consumer advertising and marketing solutions 73,011 - - 73,011
Total revenues 903,261 5,983,642 2,334,276 9,221,179
Loss from operations (491,126 ) (27,995,556 ) (339,150 ) (28,825,832 )
Depreciation and amortization 93,922 786,148 45,614 925,684
Income tax benefit 2,362,220 543,018 70,979 2,976,217
Capital expenditures - - - -
Net loss (2,857,969 ) (28,538,574 ) (410,129 ) (31,806,672 )

	Three Months Ended March 31, 2017
	United States
	PDN Network			NAPW Network			Noble Voice			China Operations			Consolidated

Membership fees and related services	$	-		$	2,815,496		$	-		$	-		$	2,815,496
Lead generation		-			-			1,724,167			-			1,724,167
Recruitment services		658,544			-			-			-			658,544
Products sales and other		-			46,368			-			-			46,368
Education and training		-			-			-			324,204			324,204
Consumer advertisin g and marketing solutions		65,702			-			-			-			65,702
Total revenues		724,246			2,861,864			1,724,167			324,204			5,634,481
(Loss) income from operations		(1,226,221	)		(2,066,168	)		(445,498	)		46,493			(3,691,394	)
Depreciatio n and amortization		46,829			739,126			49,875			-			835,830
Income tax expense (benefit)		(215,985	)		(360,945	)		(77,825	)		52,469			(602,286	)
Net loss		(1,020,385	)		(1,705,223	)		(367,673	)		(8,300	)		(3,101,581	)
Capital expenditures		5,554			3,814			341			31,854			41,563

2112

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

	March 31, 2017
Goodwill	$	339,451	$	19,861,739	$	-	$	-	$	20,201,190
Intangible assets, net		90,400		8,136,606		239,333		-		8,466,339
Total assets		6,503,219		30,978,114		1,968,654		514,101		39,964,088

	Three Months Ended March 31, 2016
	PDN Network			NAPW Network			Noble Voice			Consolidated

Membership fees and related services	$	-		$	5,040,174		$	-		$	5,040,174
Lead generation		-			-			1,519,591			1,519,591
Recruitment services		623,309			-			-			623,309
Products sales and other		-			86,993			-			86,993
Consumer advertising and marketing solutions		73,076			-			-			73,076
Total revenues		696,385			5,127,167			1,519,591			7,343,143
Loss from operations		(431,826	)		(1,046,745	)		(420,034	)		(1,898,605	)
Depreciation and amortization		49,332			772,064			45,614			867,010
Income tax benefit		(153,539	)		(285,731	)		(18,954	)		(458,224	)
Net loss		(277,544	)		(761,014	)		(401,080	)		(1,439,638	)

Nine Months Ended September 30, 2015 (Revised)

PDN
Network

NAPW
Network
Noble Voice Consolidated

Membership fees and related services $ - $ 18,885,308 $ - $ 18,885,308
Lead generation - - 7,853,402 7,853,402
Recruitment services 2,432,951 - - 2,432,951
Products sales and other - 631,198 - 631,198
Consumer advertising and marketing solutions 209,097 - - 209,097
Total revenues 2,642,048 19,516,506 7,853,402 30,011,956
Loss from operations (1,727,721 ) (30,417,806 ) (818,410 ) (32,963,937 )
Depreciation and amortization 285,677 2,308,361 136,842 2,730,880
Income tax expense (benefit) 1,895,588 (271,103 ) (115,090 ) 1,509,395
Capital expenditures - 50,216 13,938 64,154
Net loss (3,588,298 ) (30,146,703 ) (703,320 ) (34,438,321 )

	December 31, 2016
Goodwill	$	339,451	$	19,861,739	$	-	$	20,201,190
Intangible assets, net		90,400		8,809,706		283,333		9,183,439
Total assets		7,643,471		31,457,958		2,036,448		41,137,877

At December 31, 2015
Goodwill $ 339,451 $ 19,861,739 $ - $ 20,201,190
Intangible assets, net 90,400 11,502,106 459,333 12,051,839
Total assets 4,167,229 34,985,831 2,274,756 41,427,816

~~14.~~12. Subsequent Events

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the condensed consolidated financial statements were issued for potential recognition or disclosure.

~~Settlement with Matthew Proman~~

~~On November 4, 2016, the Company entered into the Release with Matthew Proman (see Note 7).~~

~~Exercise of Pro Rata and Fixed $2.00 Warrant~~

On November 4, 2016, White Winston exercised the Pro Rata Warrant and the Fixed $2.00 Warrant, such that the Company issued to White Winston an aggregate of 343,750 shares of the Company’s common stock for aggregate proceeds of $687,500. The Company ~~used these proceeds to pay down a portion of~~did not identify any subsequent events that would have required adjustment or disclosure in the ~~outstanding Master Credit Facility.~~consolidated financial statements.

~~Payoff and Termination of Master Credit Facility~~

~~Professional Diversity Network, Inc.~~

~~Condensed Consolidated Notes to Financial Statements (Unaudited)~~

~~CFL Share Issuance and Completion of the Tender Offer~~

On November 7, 2016, the Company consummated the issuance and sale of 1,777,417 shares of its common stock to CFL at a price of $9.60 per share, pursuant to the terms of the Purchase Agreement, dated August 12, 2016. In addition, on November 7, 2016, the Company completed the purchase of 312,500 shares of its common stock at a price of $9.60 per share, net to the seller in cash, pursuant to the Tender Offer. The Company received approximately $9,000,000 in net proceeds from the Share Issuance, after the payment for the shares repurchased in the Tender Offer, the repayment of all amounts outstanding under the Master Credit Facility and the payment of transaction-related expenses.

At the closing of the CFL Transaction, the Company entered into a Stockholders’ Agreement, dated November 7, 2016 (the “Stockholders’ Agreement”) with CFL and each of its shareholders: Maoji (Michael) Wang, Jingbo Song, Yong Xiong Zheng and Nan Nan Kou (the “CFL Shareholders”). The Stockholders’ Agreement sets forth the agreement of the Company, CFL and the CFL Shareholders relating to board representation rights, transfer restrictions, standstill provisions, voting, registration rights and other matters following the closing of the Share Issuance.

2313

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless we specify otherwise, all references in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to the “Company,” “we,” “our,” and “us” refer to Professional Diversity Network, Inc. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto in Item 1, “Financial Statements,” in Part I of this Quarterly Report. This discussion contains forward-looking statements, which are based on our assumptions about the future of our business. Our actual results will likely differ materially from those contained in the forward-looking statements. Please read “Special Note Regarding Forward-Looking Statements” for additional information regarding forward-looking statements used in this Quarterly Report.

Overview

We are a dynamic operator of professional networks with a focus on diversity. 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). Our value proposition is three-fold: (i) we provide a robust online and in-person network for our women members to make professional and personal connections (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. We operate in ~~three~~four 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, (ii) National Association of Professional Women (“NAPW Network”), a women-only professional networking organization, ~~and~~ (iii) Noble Voice operations (“Noble Voice”), a career consultation and lead generation ~~service.~~ service, and (iv) China operations (“China Operations”), which focus on providing tools, products and services in China which will assist women, students and business professionals in personal and professional development.

In January of 2017, the Company established two Hong Kong subsidiaries and in March of 2017 the Company established its China subsidiary. We are currently executing our strategic plan to build in China entirely new networking, training and education businesses. We believe that coupling the Company’s expertise in networking and careers with our Chinese executives’ expertise in the China market will provide us with an opportunity for success with our overseas expansion. During March and April of 2017 we held 4 events in China which have cumulatively attracted approximately 5,300 paid attendees.

Through the ~~third~~first quarter of ~~2016,~~2017, our PDN Network, NAPW Network, ~~and~~ Noble Voice and China Operations businesses represented ~~12.0%~~12.8%, ~~66.1%~~50.8%, 30.6% and ~~21.9%~~5.8% of our revenues, respectively. As of ~~September 30, 2016,~~March 31, 2017, we had approximately ~~9.0~~9.5 million registered users in our PDN Network; approximately ~~880,000~~936,000 registered users, or members, in the NAPW Network; and over ~~580~~1200 companies utilizing our products and services in our combined PDN Network and Noble Voice operations. 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.

Sources of Revenue

We generate revenue from (i) paid membership subscriptions and related services, (ii) lead generation, (iii) recruitment services, (iv) product sales, (v) education and ~~(v)~~training and (vi) 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.

													Three Months Ended
	Three Months Ended September 30,						Nine Months Ended September 30,						March 31,
	2016			2015			2016			2015			2017			2016
Percentage of revenue by product:
Membership fees and related services		58.9	%		61.3	%		63.5	%		62.9	%		50.0	%		68.6	%
Lead generation		24.4	%		25.3	%		21.8	%		26.2	%		30.6	%		20.7	%
Recruitment services		15.0	%		9.0	%		11.2	%		8.1	%		11.7	%		8.5	%
Products sales and other		0.8	%		3.6	%		2.6	%		2.1	%		0.8	%		1.2	%
Education and training														5.8	%		0.0	%
Consumer advertising and consumer marketing solutions		0.8	%		0.8	%		0.9	%		0.7	%		1.1	%		1.0	%

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.napw.com, as well as through in-person networking at nearly 200 local chapters nationwide, additional career and networking events such as the National Networking Summit Series and the PDN Network events, as well as ancillary (non-networking) benefits such as educational discounts, shopping, and other membership perks. Upgraded packages include (i) the VIP membership, which provides members with additional promotional and publicity tools as well as free access (including guest) to the National Networking Summits and free continuing education programs and (ii) the press release package, which provides members with the opportunity to work with professional writers to publish personalized press releases and thereby secure valuable online presence. NAPW Membership is renewable and fees are payable on an annual basis, with the first annual fee payable at the commencement of the membership. NAPW Membership subscriptions represented approximately ~~98.6%~~98.4% and ~~94.5%~~98.3%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015 and 96.0% and 96.8%, respectively, for the nine months ended September 30, 2016 and 2015.~~2016.

Lead ~~Generation~~Generation.. We monetize our career consultations conducted by our Noble Voice ~~division~~segment by generating and selling value-added leads to our strategic partners who provide continuing education and career services. We also generate revenue from sales of data not used in the lead generation process. Lead generation sales represented 100% of the revenue attributable to the Noble Voice business segment for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016.

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 the Equal Employment Opportunity Office of Federal Contract Compliance Program (“OFCCP”) our OFCCP compliance product, which combines diversity recruitment advertising with job postings and compliance services. ~~For the three months ended September 30, 2016 and 2015, recruitment~~Recruitment advertising revenue constituted approximately ~~95.0%~~90.9% and ~~91.9%~~89.5%, respectively, of ~~the~~ revenue attributable to the PDN Network business ~~segment. For~~segment for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, recruitment services revenue constituted approximately 92.8% and 92.1%, respectively, of the revenue attributable to the PDN Network business segment.~~2016.

Product Sales. We offer to new purchasers of our NAPW Network memberships the opportunity to purchase up to two commemorative wall plaques at the time of membership purchase. Product sales represented approximately ~~1.4%~~1.6% and ~~5.5%~~1.7%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015~~2016.

Education and ~~4.0%~~Training. In March of 2017 we began our China Operations by creating a Shared Economy summit series designed to provide education and ~~3.2%, respectively,~~training to Chinese business people. Our initial event was a paid event which generated revenue through paid event admission fees. Education and training represented 100% of the revenue attributable to ~~the NAPW Network business segment~~China Operations for the ~~nine~~three months ended ~~September 30, 2016 and 2015.~~March 31, 2017. Because China Operations first began in March of 2017 there is no period-over-period comparison.

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 to post recruitment advertising and job openings. We generate revenue from fees charged for those postings. ~~For the three months ended September 30, 2016 and 2015, consumer~~Consumer advertising and marketing solutions represented approximately ~~5.0%~~9.1% and ~~8.1%~~10.5%, respectively, of the revenue attributable to the PDN Network business ~~segment. For~~segment for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, consumer advertising and marketing represented approximately 7.2% and 7.9%, respectively, of the revenue attributable to the PDN Network business segment.~~2106.

Cost of Revenue

Cost of revenue primarily consists of data and related costs to generate leads for our Noble Voice customers, costs of producing job fair and other events, revenue sharing with partner organizations, and 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.

Financial Overview

During the quarter and ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, we experienced losses as we continued our efforts to integrate new management and China Operations, reduce costs and streamline our business. For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, we realized a net loss of approximately ~~$3,519,000,~~$3,102,000, a ~~$30,919,000,~~$1,662,000, or ~~89.8%, decrease~~115% increase from the comparable prior year period. This ~~decrease~~increase in ~~the~~ net loss for the quarter is primarily related to ~~a charge taken for~~ the impairment of goodwill at the NAPW Network taken on September 30, 2015 for $26,744,000. As discussed below, management determined that additional impairment charges are not appropriate for the nine months ended September 30, 2016. In addition, our net losses were further reduced by our efforts to reduce operatingdecrease in membership fees and related services revenue, an increase in stock-based compensation, and an increase in legal expenses partially offset by the decline in revenue. Costs of revenue declined 47.6% during the nine months ended September 30, 2016 on a year-over-year basis due to significant reductions in expenditures and improved buying efficiencies of data used in generating leads for our Noble Voice division. Sales and marketing expenses in the nine months ended September 30, 2016 declined approximately 40%, from the comparable prior year period, primarily as a result of our efforts to reduce marketing costs related to ~~lead generation at the NAPW Network, in an effort to optimize operating margins, combined~~non-recurring legal expenses associated with ~~significant reductions of sales staff at both the NAPW Network~~our registration statement, securities compliance filings and Noble Voice division on a year-over-year basis. General and administrative expenses in the nine months ended September 30, 2016 declined 18.7% reflecting the impact of our cost containment initiatives, combined with the reversal of sub-lease liability accrual recorded in the fourth quarter of 2015 related to the closing of the Company’s Los Angeles location.

~~On September 27, 2016, we effected a reverse stock split of our common stock, par value $0.01 per share (the “Common Stock”), at a ratio of 1-for-8 (the “Reverse Split~~”). As a result of the Reverse Split, every eight shares of the issued and outstanding Common Stock were automatically converted into one newly issued and outstanding share of Common Stock, without any change in the par value per share. Any fractional shares resulting from the Reverse Split were rounded up to the nearest whole share.other matters.

Recent Events

On ~~November 7, 2016, we consummated~~January 13, 2017, the ~~issuance and sale of 1,777,417 shares of Common Stock, to~~Company entered into a stock purchase agreement (the “Purchase Agreement”) with Cosmic Forward ~~Limited, a Republic of Seychelles company wholly-owned by a group of Chinese investors~~Ltd. (“~~CFL~~”CFL”), pursuant to which, the Company agreed to issue and sell to CFL (the “Second Share Issuance”), and CFL agreed to purchase, at a price of $9.60 per share ~~(giving effect~~(the “Per Share Price”), upon the terms and subject to the ~~Reverse Split), pursuant to the terms of our previously announced stock purchase agreement, dated August 12, 2016 (the “Purchase Agreement”), with CFL (the “Share Issuance”). At the closing of the Share Issuance, and as contemplated by~~conditions set forth in the Purchase Agreement, ~~we entered into a Stockholders’ Agreement, dated November 7, 2016 (the “Stockholders’ Agreement~~”), with CFL and each of its shareholders. As previously disclosed, the Stockholders’ Agreement sets forth the agreement of the Company, CFL and the CFL shareholders relating to board representation rights, transfer restrictions, standstill provisions, voting, registration rights and other matters following the closing of the Share Issuance.

~~In addition, on November 7, 2016, we completed the purchase of~~ 312,500 shares of Common Stock, at a price of $9.60 per share, net to the seller in cash, less any applicable withholding taxes and without interest, pursuant to our previously announced partial issuer tender offer as disclosed in the Company’s ~~Offer to Purchase, dated September 28, 2016, as amended (the “Tender Offer”).~~common stock. On January 18, 2017, the Company consummated the Second Share Issuance. As a result of the completion of the Second Share Issuance, ~~the Tender Offer and the other transactions contemplated by the Purchase Agreement,~~ as of ~~November 7, 2016,~~January 18, 2017, CFL beneficially owned ~~51%~~54.64% of the Company’s outstanding shares of ~~Common Stock,~~common stock, on a ~~fully-diluted~~fully diluted basis.

We The Company received total gross proceeds of $3,000,000 from the Second Share Issuance, or approximately ~~$9.0 million~~$2,821,000 in net proceeds ~~from the Share Issuance,~~ after ~~the payment for the shares repurchased in the Tender Offer, the repayment of all amounts outstanding under the Master Credit Facility and the~~ payment of transaction-related ~~expenses at the closing.~~

~~On November 4, 2016, we entered into a Confidential Settlement and Mutual Release of All Claims (the “Release”) with Matthew B. Proman (“Proman~~”), pursuant to which we agreed among other things that (i) the we would pay to Proman $300,000 at the closing of the Share Issuance, (ii) the Separation Agreement and Mutual Release of All Claims, dated July 16, 2015 between Proman and PDN (the “Separation Agreement”) would be terminated as of November 4, 2016, and (iii) the Seller Promissory Note in the principal amount of $445,000 dated September 24, 2014 in favor of Proman (the “~~Promissory Note~~”) would be terminated as of November 4, 2016. We have also agreed that notwithstanding the termination of the Separation Agreement pursuant to the Release, Proman’s co-sale right would be preserved and he would continue to hold the options and warrants he held as of November 4, 2016. On November 7, 2016, we paid Proman $300,000 pursuant to the Release.

On November 7, 2016, in connection with the closing of the Share Issuance, we (i) repaid in full all amounts owed under the Master Credit Facility among the Company, its wholly-owned subsidiaries NAPW, Inc., Noble Voice LLC and Compliant Lead LLC, and White Winston Select Asset Funds, LLC (“~~White Winston”), dated March 30, 2016 (the “Master Credit Facility~~”), and (ii) terminated the Master Credit Facility and related agreements between the Company and White Winston, including the Board Representation Agreement, dated as of June 30, 2016. All security interests created under the Master Credit Facility were released upon repayment of the amounts under and termination of the Master Credit Facility.

expenses.

Key Metrics

We believe that one of the key metrics in evaluating and measuring our performance is the number of registered users or members. We define a registered user as an individual job seeker who affirmatively visited one of PDN Network’s properties, opted into an affinity group and provided us with demographic or contact information enabling us to match him or her with employers and/or jobs (“PDN Network registered user”). We believe that a higher number of registered users will result in increased sales of our products and services, as employers will have access to a larger pool of professional talent.

We define a member as a consumer who has viewed our marketing material, opted into membership in the NAPW Network, provided demographic information and engaged in an onboarding call with a membership coordinator (the “NAPW Network member”). ~~We believe that a higher~~NAPW Network total membership is therefore comprised of members who paid for additional services (“Paid Members”) as well as members who opted into the NAPW Network and have not yet paid for additional services (“Unpaid Members”). The number of ~~registered users will result in increased sales~~Unpaid Members at the NAPW Network segment is significantly higher than the number of ~~our products and services, as employers will have access to a larger pool of professional talent.~~Paid Members. We believe that a higher number of NAPW Network ~~members~~Unpaid Members will result in increased conversions to Paid Members, which will further translate into increased revenues through membership subscriptions.

The following table sets forth the number of registered users on our PDN Network and total membership on our NAPW Network as of the periods presented:

As of
September 30,
Change
2016 2015 (Percent)
(in thousands)
PDN Network Registered Users (1) 8,951 6,837 30.9 %
NAPW Network Total Membership (2) 880 831 5.9 %

	As of March 31,				Change
	2017		2016		(Percent)
	(in thousands)
PDN Network Registered Users (1)		9,490		8,088		17.3	%
NAPW Network Total Membership (2)		936		861		8.7	%

(1)

The number of registered users may be higher than the number of actual users due to various factors. For more information, see “Risk Factors—The reported number of our registered users is higher than the number of actual individual users, and a substantial majority of our visits are generated by a minority of our users” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015, as amended on May 4,~~ 2016 ~~(the” 2015~~(the “2016 Annual Report”).

(2)	Includes both ~~paid~~Paid Members and ~~unpaid members.~~Unpaid Members.

We also track on a quarterly basis as our performance measurement gross bookings of services and products by NAPW Network and recruitment services and consumer advertising and marketing that we originate through PDN Network’s direct sales force and online products. Although direct bookings are non-binding and the revenue derived from such bookings is not recorded in earnings until all of the revenue recognition criteria are met, we consider direct bookings to be a key performance indicator of where we stand against our strategic plan.

~~The following table sets forth the booked revenues we originated as of the periods presented:~~

Three Months Ended
September 30,
Change
2016 2015 (Percent)
(in thousands)
NAPW Network bookings $ 2,904 $ 5,224 (44.4 %)
PDN Network bookings $ 778 $ 688 13.1 %

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 Adjusted EBITDA to ~~net loss,~~Net Loss, the most directly comparable GAAP measure reported in our consolidated financial statements:

(Amount in thousands)
													Three Months Ended
	Three Months Ended						Nine Months Ended						March 31,
	September 30,						September 30,						2017			2016
	2016			2015			2016			2015			(in thousands)
Net loss	$	(1,273	)	$	(31,807	)	$	(3,519	)	$	(34,438	)	$	(3,102	)	$	(1,440	)
Impairment expense		-			26,744			-			26,744
Stock-based compensation expense		118			114			218			351			516			57
Litigation settlement														-			500
Depreciation and amortization		820			926			2,498			2,731			836			867
Litigation settlement		-			-			500			-
Gain on lease cancellation		-			-			(424	)		-
Change in fair value of warrant liability		401			(2	)		401			(94	)
Interest expense		216			9			217			84			12			-
Interest and other income		-			(2	)		(1	)		(26	)		(2	)		(1	)
Income tax expense (benefit)		(624	)		2,976			(1,218	)		1,509
Income tax benefit														(602	)		(458	)
Adjusted EBITDA	$	(342	)	$	(1,042	)	$	(1,328	)	$	(3,139	)	$	(2,342	)	$	(475	)

Results of Operations

Revenues

Total Revenues

The following tables set forth our revenues 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
2016 2015 (Dollars) (Percent)
(in thousands)
Revenues
Membership fees and related services $ 3,748 $ 5,653 $ (1,905 ) (33.7 %)
Lead generation 1,554 2,334 (780 ) (33.4 %)
Recruitment services 955 830 125 15.1 %
Products sales and other 53 331 (278 ) (84.0 %)
Consumer advertising and marketing solutions 50 73 (23 ) (31.5 %)
Total revenues $ 6,360 $ 9,221 $ (2,861 ) (31.0 %)

	Nine Months Ended										Three Months Ended
	September 30,				Change			Change			March 31,						Change				Change
	2016		2015		(Dollars)			(Percent)			2017			2016			(Dollars)				(Percent)
	(in thousands)										(in thousands)
Revenues
Membership fees and related services	$	13,048	$	18,885	$	(5,837	)		(30.9	%)		$	2,815		$	5,040		$	(2,225	)		(44.1	%)
Lead generation		4,490		7,853		(3,363	)		(42.8	%)			1,724			1,520			204			13.4	%
Recruitment services		2,295		2,433		(138	)		(5.7	%)			659			623			36			5.8	%
Products sales and other		544		631		(87	)		(13.8	%)			46			87			(41	)		(47.1	%)
Education and training													324			-			324			100.0	%
Consumer advertising and marketing solutions		177		209		(32	)		(15.3	%)			66			73			(7	)		(9.6	%)
Total revenues	$	20,554	$	30,011	$	(9,457	)		(31.5	%)		$	5,634		$	7,343		$	(1,709	)		(23.2	%)

Total revenues decreased ~~$2.9 million,~~$1,709,000, or ~~31.0%~~23.2% for the three months ended ~~September 30, 2016, compared to the same prior year period, and $9.5 million, or 31.5%, for the nine months ended September 30, 2016,~~March 31, 2017, compared to the same prior year period, due primarily to management focus on cost reduction efforts, including the reduction in the salesforce and decreased spending on digital advertising and data purchases that favorably impacted our margins. Management expects revenues to continue to decrease during the remaining three months of 2016, with an anticipated slight increase in 2017, mainly with the PDN Network and Noble Voice, and further increases in all segments in 2018 and 2019.

purchases.

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										Three Months Ended
	September 30,				Change			Change			March 31,					Change			Change
	2016		2015		(Dollars)			(Percent)			2017			2016		(Dollars)			(Percent)
	(in thousands)										(in thousands)
NAPW Network	$	3,801	$	5,984	$	(2,183	)		(36.5	%)		$	2,861		5,127		(2,266	)		(44.2)%	%
PDN Network		1,005		903		102			11.3	%			725		696		29			4.2	%
Noble Voice		1,554		2,334		(780	)		(33.4	%)			1,724		1,520		204			13.4	%
China													324		-		324			100.0	%
Total revenues	$	6,360	$	9,221	$	(2,861	)		(31.0	%)		$	5,634		7,343		(1,709	)		(23.3	)%

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
NAPW Network $ 13,592 $ 19,516 $ (5,924 ) (30.4 %)
PDN Network 2,472 2,642 (170 ) (6.4 %)
Noble Voice 4,490 7,853 (3,363 ) (42.8 %)
Total revenues $ 20,554 $ 30,011 $ (9,457 ) (31.5 %)

~~Membership~~During the three months ended March 31, 2017, our NAPW Network generated $2,861,000 in revenue from membership fees and related services and ~~products~~product sales ~~of $3,801,000~~and other, compared to $5,127,000 for the ~~three months and $13,592,000 for~~same period in the ~~nine months ended September 30, 2016, attributable to the NAPW Network, represent~~prior year, a ~~reduction~~decrease of ~~$2,183,000 and $5,924,000, respectively, from the comparable periods in 2015,~~$2,266,000, or ~~36.5% and 30.4% respectively.~~44.2%. The decrease ~~is primarily the result of~~was mainly attributable to reductions of the NAPW sales staff ~~resulting from~~while the ~~closing of our Los Angeles, CA call center~~Company re-tooled its lead-generation and ~~reductions in workforce at our Garden City, NY call center. We do not anticipate further reductions and expect to increase the salesforce in future periods.~~other marketing activities. We also expect the NAPW Network to have decreased revenues, period-over-period compared to 2016, for at least the remainder of ~~2016 and the year ended December 31,~~ 2017, with anticipated increases ~~in revenues~~ in 2018 and 2019 as a result of increased investments in product, marketing and salesforce ~~development and will, therefore, be material to the Company’s financial condition and results of operations.~~development.

During the three months ended ~~September 30, 2016,~~March 31, 2017, our PDN Network generated ~~$1,005,000~~$725,000 in revenue, compared to ~~$903,000~~$696,000 for the same period in the prior year, an increase of ~~$102,000,~~$29,000, or ~~11.3%~~4.2%. The increase was mainly attributable to improved accountability in the sales organization, along with higher residual volume. PDN ~~Recruits~~continues to focus on new client acquisition in addition to product ~~that was added to our product line in December 2015 which targets a broader audience~~performance and ~~shorter sales cycle that can generate recurring revenue on a monthly basis~~development, renewals and ~~resulted in approximately $92,000 in revenue for the quarter.~~ service.

During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, our ~~PDN Network~~Noble Voice business generated ~~$2,472,000 in~~$1,724,000 of lead generation revenue, compared to ~~$2,642,000 generated~~$1,520,000 for the same period in the prior year, ~~period, a decrease of $170,000 or 6.4%. For the three and nine months ended September 30, 2016, we had~~ an increase of ~~$102,000 and a decrease of $170,000 respectively due~~$204,000 or 13.4%. The increase was mainly attributable to ~~the PDN Recruits revenue previously mentioned and strong activity~~an improvement in the ~~third quarter~~private education marketplace, coupled with strategic internal initiatives to increase volume. Staffing levels are heightened thus far in 2017 as operations continue to be optimized and efficiencies improved and managed. There has also been a focused commitment to improved customer relations with quality and growth the chief goals.

We generated $324,000 of ~~2016 for~~revenues with the ~~direct sales~~launch of our ~~recruitment services. Included in this change was (i) a $37,000 increase and $182,000 period-over-period reduction in direct sales of our recruitment services, for~~China Operations during the three ~~and nine~~ months ended ~~September 30, 2016, respectively,~~March 31, 2017. Our initial event was a paid event which was primarily attributable to the downsizing of the PDN Network sales team and a strong renewals of contracts in the third quarter of 2016, (ii) a $5,000 and $171,000 period-over-period decline in the PDN Network Events Divisiongenerated revenue for the three and nine months ended September 30, 2016, respectively, as a result of a lower number of PDN Network events held in the first nine months of 2016 compared to the first nine months of 2015 due to scheduling and venue changes, and (iii) a $2,000 increase and $25,000 decrease in our e-commerce revenues for the three and nine months ended September 30, 2016, respectively, as a result of our focus on new products in 2016. Revenue from the PDN Network’s consumer advertising and marketing solutions declined $23,000 and $32,000, respectively, compared to the three and nine months ended September 30, 2015 due to changes in relationships with partner organizations.through paid event admission fees.

2917

Noble Voice generated $1,554,000 and $4,490,000 of lead generation revenue for the three months and nine months ended September 30, 2016, respectively, compared to $2,334,000 and $7,853,000, respectively, for the same periods in 2015, representing a decrease of 33.4% and 42.8%. The decrease in revenue was the result of continuing compression in the markets served by Noble Voice and the closure of our Detroit, MI call center in February 2016 and the related reduction in the salesforce. Our efforts are focused on capturing additional market share through increased sales to our existing customer base and internal efforts to add new customers. Our Detroit sales efforts were transitioned to a smaller workforce of independent contractors that work from their homes. We have capacity at our Darien, IL call center to significantly grow our sales team without incurring additional rental costs. We have also added Noble Voice sales representatives in our Chicago office, without adding additional floor space, in order to attract employees from a larger geographic territory.

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										Three Months Ended
	September 30,				Change			Change			March 31,					Change			Change
	2016		2015		(Dollars)			(Percent)			2017			2016		(Dollars)			(Percent)
	(in thousands)										(in thousands)
Costs and expenses:
Cost of revenues	$	745	$	1,464	$	(719	)		(49.1	%)		$	701		885		(184	)		(20.8	%)
Sales and marketing		3,064		5,132		(2,068	)		(40.3	%)			3,255		3,822		(567	)		(14.8	%)
General and administrative		3,011		3,748		(737	)		(19.7	%)			4,534		3,168		1,366			43.2	%
Impairment expense		-		26,744		(26,744	)		(100.0	%)
Litigation settlement													-		500		(500	)		(100.0	%)
Depreciation and amortization		820		926		(106	)		(11.4	%)			836		867		(31	)		(3.6	%)
Loss on sale of property and equipment		-		33		(33	)		(100.0	%)
Total costs and expenses	$	7,640	$	38,047	$	(30,407	)		(79.9	%)		$	9,326		9,242		84			0.9	%

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Costs and expenses:
Cost of revenues $ 2,434 $ 4,647 $ (2,213 ) (47.6 %)
Sales and marketing 10,314 17,227 (6,913 ) (40.1 %)
General and administrative 9,428 11,594 (2,166 ) (18.7 %)
Impairment expense - 26,744 (26,744 ) (100.0 %)
Depreciation and amortization 2,498 2,731 (233 ) 8.5 %)
Gain on sale of property and equipment - 33 (33 ) (100.0 %)
Total costs and expenses $ 24,674 $ 62,976 $ (38,303 ) (60.8 %)

Total costs and expenses ~~decreased significantly~~increased in the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 to ~~$7,640,000 and $24,674,000, respectively,~~$9,326,000, compared to ~~$38,047,000 and $62,976,000~~$9,242,000 for the ~~three~~same period in the prior year, an increase of $84,000, or 0.9%. The increase was mainly attributable to a $1,367,000 increase in general and ~~nine months ended September 30, 2015, respectively. This decrease~~administrative expenses due to a $458,000 increase in stock-based compensation, an increase of ~~79.9%~~$240,000 related to start-up costs for our China Operations, a $137,000 bad debt expense and ~~60.8%, respectively, is primarily~~a $556,000 increase in legal expenses due to non-recurring activities during the first quarter of 2017 in connection with registration statements, securities compliance work, and other legal activities, partially offset by a $567,000 reduction in sales and marketing expenses as a result of ~~an impairment expense~~salesforce reductions, a $500,000 litigation settlement in the first quarter of ~~$26,744,000 taken~~2016 and a $184,000 reduction in ~~September 2015 that was not necessary~~cost of revenues due to improved efficiencies in lead data sourcing and spending in the Noble Voice segment.

Costs and Expenses by Segment

The following table sets forth each operating segment’s costs and expenses for the ~~nine months ended September 30, 2016, combined with management focus on cost reduction including the closure~~periods presented. The period-to-period comparison is not necessarily indicative of ~~operating facilities at NAPW and Noble Voice, reduced spending on digital advertising and direct mail and reductions in force across all divisions.~~future results.

	Three Months Ended
	March 31,					Change				Change
	2017			2016		(Dollars)				(Percent)
	(in thousands)
NAPW Network		$	4,928	$	6,174		$	(1,246	)		(20.2	)%
PDN Network			1,950		1,128			822			72.9	%
Noble Voice			2,170		1,940			230			11.9	%
China			278		-			278			100.0	%
Total costs and expenses		$	9,326	$	9,242			84			0.9	%

Operating Expenses

Cost of ~~revenues~~revenue: Cost of revenues ~~during~~decreased in the three ~~and nine~~ months ended ~~September 30, 2016 were $745,000 and $2,434,000, respectively,~~March 31, 2017 to $701,000, compared to $885,000 for the same period in the prior year, a decrease of ~~$719,000,~~$184,000 or ~~49.1%, and $2,213,000, or 47.6%, respectively, from $1,464,000 and $4,647,000, respectively, for the three and nine months ended September 30, 2015.~~20.8%. The decrease was mainly ~~due~~attributable to ~~(i) a period-over-period reduction of $533,000~~improved efficiencies in lead data sourcing and ~~$1,678,000 during~~spending in the ~~three and nine months ended September 30, 2016, respectively, of expenditures on data to generate call traffic at our~~ Noble Voice division as a result of reduced volume and increased efficiencies in purchasing data, (ii) a $40,000 and $188,000 decrease in the cost of technology delivery services by PDN Network for the three and nine months ended September 30, 2016, respectively, resulting from the improvements gained by renegotiating vendor contracts and reduced volume of recruitment services sales, (iii) a $78,000 and $234,000 period-over-period reduction of costs of products and membership services from NAPW Network for the three and nine months ended September 30, 2016, (iv) a decrease of $26,000 and $73,000 of direct costs incurred in connection with our Events Division during the three and nine months ended September 30, 2016, respectively, as a result of differences in scheduling and operating the events. Cost of revenues related to revenue sharing with our partner organizations decreased $38,000 and $36,000 respectively for the three and nine months ended September 30,2016 consistent with decreases in our consumer advertising revenues for the same quarterly and year to date periods.

segment.

Sales and marketing expense: Sales and marketing expense decreased in the three months ended March 31, 2017 to $3,255,000, compared to $3,822,000 for the ~~three and nine months ended September 30, 2016 was $3,064,000 and $10,314,000, respectively,~~same period in the prior year, a decrease of ~~2,068,000,~~$567,000 or ~~40.3%, and $6,913,000, or 40.1%, respectively, from $5,132,000 and $17,227,000 for the three and nine months ended September 30, 2015.~~14.8%. The decrease was ~~primarily~~mainly attributable to the ~~result of 49.6%, 17.6% and 39.3% year over year reductions in the salesforces at NAPW Network, PDN Network and Noble Voice, respectively, in an effort to improve efficiency and a~~ reduction in the ~~volume of digital advertising and direct mail to match the capacity of the reduced salesforce. We expect our~~NAPW segment sales ~~and marketing costs to increase~~force from 74 sales representatives in the ~~future, particularly~~three months ended March 31, 2016 to 57 in ~~NAPW Network, as we reinvest in our business.~~the three months ended March 31, 2017.

General and administrative expense: General and administrative expenses decreased by $737,000 and $2,166,000, or 19.7% and 18.7%, to $3,011,000 and $9,428,000 for the three and nine months ended September 30, 2016, respectively. The decrease was primarily due to (i) a $510,000 and $1,301,000 decreaseincreased in wages and benefits during the three and nine month ended September 30, 2016, respectively, due to decreases in the number of administrative personnel at NAPW Network, (ii) a $135,000 and $106,000 decrease during the three and nine month ended September 30, 2016, respectively, related to the closing the Los Angeles, CA office, which includes a gain on the lease cancellation of $424,000 recognized during the three months ended ~~September 30, 2016, partially offset by~~March 31, 2017 to $4,534,000, compared to $3,168,000 for the same period in the prior year, an increase of $1,366,000 or 43.2%. The increase was mainly attributable to a $458,000 increase in equity-based compensation, an increase of $240,000 related to start-up costs for our China Operations, a $137,000 bad debt expense and a $556,000 increase in legal expenses due to non-recurring activities during the first quarter of 2017, in connection with registration statements, securities compliance work, and other legal activities. Excluding these items, our general and administrative expenses for the first quarter of 2017 would have remained approximately flat when compared to the prior year.

Litigation settlement: Litigation settlement for the three months ended March 31, 2016 represents the expense related to a $500,000 settlement of a class action lawsuit as disclosed below in the discussion of Legal Proceedings; and (iii) decreases of $102,000 and $413,000 at Noble Voice and an increase of $7,000 and decrease of $108,000 at PDN Network during the three and nine months ended September 30, 2016, primarily due to reductions in administrative personnel and supervisors and aggressive vendor management and contract renegotiation partially offset by fees and expenses incurred related to the administration of our Master Credit facility during the quarter ended September 30, 2016. We expect general and administrative expenses to increase during the fourth quarter of 2016, mainly as a result of transaction expenses related to the Purchase Agreement with CFL discussed above.lawsuit.

~~Impairment expense:~~18 As a result of the recurring operating losses incurred in NAPW Network since its acquisition in September 2014, management undertook a review of the carrying amount of its goodwill as of September 30, 2015. We performed our review based on both qualitative and quantitative factors and determined that carrying value of NAPW’s goodwill exceeding its implied fair value at September 30, 2015. Accordingly, we recorded a goodwill impairment charge of $26,744,000 during the three and nine months ended September 30, 2015. We performed another review on both qualitative and quantitative factors as of September 30, 2016. As a result of that analysis we determined that the carrying value of NAPW’s goodwill fairly stated its implied fair value and no further impairment was necessary.

Depreciation and amortization expense: Depreciation and amortization expense decreased in the three months ended March 31, 2017 to $836,000, compared to $867,000 for the ~~three and nine months ended September 30, 2016 was $820,000 and $2,498,000, respectively, compared to $926,000 and $2,731,000 for~~same period in the ~~three and nine months ended September 30, 2015,~~prior year, a decrease of ~~$106,000,~~$31,000, or ~~11.4%, and $233,000, or 8.5%, respectively.~~3.6%. The decrease ~~included (i)~~was mainly attributable to a ~~$60,000 and $152,000, respectively~~ reduction in amortization expense resulting from the amortization of the capitalized technology costs from the PDN Network and (ii) a decrease of $48,000 and $87,000, respectively of depreciation expense related primarily to the closure of the NAPW Los Angeles, CA office including the related writedown of the Leasehold Improvements and furniture and fixtures from that office which was partially offset by depreciation increases of $14,000 and $35,000 from fixed asset additions, primarily furniture and fixtures and intangibles at Noble Voice for increased capacity at the Darien, IL call center.costs.

~~Other Income (Expenses)~~

Three Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (216 ) $ (7 ) $ (209 ) 2985.7 %

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (216 ) $ (59 ) $ (157 )    266.1 %

Interest expense resulting from our Master Credit Facility, which primarily includes cash interest expense and non-cash amortization of debt issue costs, during the three and nine months ended September 30, 2016 was $216,000. Interest expense for the three and nine months ended September 30, 2015 was $9,000 and $84,000, respectively and was the result of the amortization of accrued interest on purchased investment securities. In addition, for the three and six months ended June 30, 2015, we recognized interest income of $2,000 and $26,000, respectively from interest earned on our short-term investments of cash in excess of our current needs for operating capital. Interest earned on investments during the first nine months of 2016 was negligible.

~~Change in Fair Value of Warrant Liability~~

Three Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (401 ) $ 2 $ (403 ) (201.5 %)

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (401 ) $ 94 $ (495 ) (527 %)

The change in the fair value of the warrant liability is related to (i) the common stock purchase warrants issued to the White Winston on June 30, 2016 and (ii) the common stock purchase warrants issued to underwriters in the Company’s IPO on March 4, 2013. We recorded a non-cash expense of $401,000 during the three and nine months ended September 30, 2016 related to the warrants issued to White Winston. There was no change in the fair value of warrant liability during the three and nine months ended September 30 2016 related to the warrants issued to underwriters. We recorded a non-cash gain of $2,000 and $94,000 during the three and nine months ended September 30, 2015, respectively, related to changes in the fair value of our warrant liability. The change in the fair value of our warrant liability was primarily the result of changes in our stock price.

Income Tax ~~Expense (Benefit)~~Benefit

Three Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (624 ) $ 2,976 $ (3,600 ) (121.0 )%

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Total $ (1,218 ) $ 1,509 $ (2,727 ) (180.7 )%

	Three Months Ended
	March 31,						Change			Change
	2017			2016			(Dollars)			(Percent)
	(in thousands)
Total	$	(602	)	$	(458	)	$	(144	)		31.4	%

The effective income tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 was ~~32.9%~~16.3% and ~~25.7%~~24.1%, respectively, resulting in a $602,000 and $458,000 income tax ~~benefits of $624,000 and $1,218,000,~~benefit, respectively. The difference in the effective income tax rate for the three ~~and nine~~ months ended September 30, 2015 was (10.3)% and (4.6)%, respectively, resulting in income tax of $2,976,000 and $1,509,000, respectively. The majority of the difference in the effective income tax rate was due to the initial valuation allowance we took against our deferred tax assets in the third quarter of 2015 and have recorded a valuation allowance each subsequent quarter. We did not record an allowance in the first or second quarters of 2015. The remaining difference in the effective tax rates for the first nine months of 2016March 31, 2017, compared to the first nine months of 2015 was due primarily to the accrual of the non-recurring legal settlements of $500,000 through the second quarter of 2016 and a year over year reduction in the net operating losses of our businesses. During the three months ended ~~September 30,~~March 31, 2016, ~~and 2015,~~is mainly attributable to the ~~Company recorded a~~change in the valuation allowance ~~of $458,000~~ and ~~$4,106,000, respectively, and during~~ the ~~nine months ended September 30, 2016 and 2015,~~foreign tax rate differential due to the ~~Company recorded a valuation allowance of $832,000 and $4,106,000, respectively. In assessing~~Company’s China Operations. Management has determined that enough uncertainty exists relative to the ~~realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate~~ realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the consideration of these items, management determined that it is more likely than not that we will not realize the deferred income tax asset balances ~~and therefore, initially recorded~~to warrant the application of a valuation allowance as of ~~September 30, 2015. Management has again evaluated the deferred tax asset for the nine months ended September 30, 2016~~March 31, 2017 and ~~has determined a full valuation allowance continues to be applicable.~~ December 31, 2016.

Net ~~loss~~Loss

The following table sets forth each operating segment’s net loss for the periods presented. The period-to-period comparison is not necessarily indicative of future results.

	Three Months Ended											Three Months Ended
	September 30,						Change		Change			March 31,						Change			Change
	2016			2015			(Dollars)		(Percent)			2017			2016			(Dollars)			(Percent)
	(in thousands)											(in thousands)
NAPW Network	$	(604	)	$	(28,539	)	$	27,935		(97.9	%)	$	(1,705	)		(761	)		(944	)		124.0	%
PDN Network		(513	)		(2,858	)		2,345		(82.1	%)		(1,020	)		(278	)		(742	)		266.9	%
Noble Voice		(156	)		(410	)		254		(62.0	%)		(368	)		(401	)		33			(8.2	)%
China													(9	)		-			(9	)		100.0
Consolidated Net Loss	$	(1,273	)	$	(31,807	)	$	30,534		(96.0	%)	$	(3,102	)		(1,440	)		(1,662	)		115.4	%

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
NAPW Network $ (1,616 ) $ (30,146 ) $ 28,530 (94.6 %)
PDN Network (1,083 ) (3,588 ) 2,505 (69.8 %)
Noble Voice (820 ) (704 ) (116 ) 16.5 %
Consolidated Net Loss $ (3,519 ) $ (34,438 ) $ 30,919 (89.8 %)

As the result of the factors discussed above, during the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017, we incurred ~~$1,273,000 and $3,519,000~~$3,102,000 of net losses, ~~respectively, a decrease~~an increase of ~~96.0% and 89.8% from net losses for~~$1,662,000 or 115.4%, over the ~~three and nine months ended September 30, 2015.~~same period in the prior year. The ~~changes were~~increase was primarily attributable to a ~~goodwill impairment charge~~decrease of ~~$26,744,000 taken on September 30, 2015 against~~$2,266,000 in NAPW segment revenues from membership fees, related services and ~~reduced operating losses at NAPW Network, PDN Network~~product sales period-over-period, along with an increase of $1,367,000 in overall general and Noble Voice. The loss at NAPW Network for the nine months ended September 30, 2016 included a non-recurring expense of $500,000 related to the settlement of a lawsuit, offset by a $424,000 gain on the lease cancellation of our former Los Angeles, California NAPW office. The Company also recorded $624,000 and $1,218,000 of income tax benefits for the three and nine months ended September 30, 2016, respectively, compared to income tax expenses of $2,976,000 and $1,509,000 respectively for the same periods one year prior based on a reduced loss before income taxes and an initial allowance recorded against deferred tax assets on September 30, 2015. We anticipate to continue to have net losses for the foreseeable future, as we utilize our efforts and resources to re-invest in the Company and its business plan.administrative expenses.

During the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, we incurred a net loss of ~~$604,000 and $1,616,000, respectively,~~$1,705,000 attributable to the NAPW Network segment, compared to ~~$28,539,000 and $30,146,000~~$761,000 for the prior year ~~periods. This~~period. The increase in net loss was primarily attributable to a decrease of $2,266,000 in NAPW segment revenues from membership fees, related services and product sales period-over-period and increased corporate overhead allocated to the NAPW Network segment.

During the three months ended March 31, 2017, we incurred a net loss of $1,020,000 attributable to the PDN Network segment, compared to $278,000 for the prior year period. The increase in net loss was primarily attributable to $458,000 increase in stock-based compensation and increased corporate overhead allocated to the PDN Network segment and an increase in non-recurring legal expenses.

During the three months ended March 31, 2017, we incurred a net loss of $368,000 attributable to the Noble Voice segment, compared to $401,000 for the prior year period. The decrease in net loss was primarily attributable to a ~~goodwill impairment charge~~13.4% increase in sales, from $1,520,000 in the first quarter of ~~$-0- for~~2016 to $1,724,000 in the ~~three and nine months ended September 30, 2016, compared to $26,744,000 for the same prior year periods, gain from the lease cancellation, the closing~~first quarter of ~~NAPW Network office facilities during the year ended December 31, 2015 and the reductions in force and reduced spending on digital advertising,~~2017 partially offset by ~~a decrease in recognized revenue and the $500,000 of lawsuit settlements.~~higher corporate overhead allocations.

During the three and nine months ended September 30, 2016, we incurred $513,000 and $1,083,000 of net losses, respectively, attributable to the PDN Network, a decrease of $2,345,000 and $2,505,000, compared to the net losses incurred for the three and nine months ended September 30, 2015. This decrease in net loss is primarily attributable to reductions in staffing levels in our sales, marketing and general and administrative teams combined with increased revenue generated by our PDN Recruits product introduced in December 2015.

During the three and nine months ended September 30, 2016, we recognized a net loss of $156,000 and $820,000, respectively, attributable to the Noble Voice division, compared to net losses of $410,000 and $703,000 for the three and nine months ended September 30, 2015. The decrease in net losses for the three months and increases in losses for the nine months ended September 30, 2016, compared to the same prior year periods were primarily due to a decline in revenues of $780,000 and $3,363,000 for the same corresponding year-over-year periods, which were partially offset by reductions in costs of sales and service and sales and marketing costs largely due to efficiencies made in the purchase of data the Company uses to drive internet traffic and corresponding reductions to the salesforce.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, and is intended to supplement the more detailed discussion that follows:

September 30, December 31,
2016 2015
(in thousands)
Cash and cash equivalents $ 516 $ 2,071
Short-term investments $ - $ 500
Working capital (deficiency) $ (10,597 ) $ (9,199 )

	March 31,		December 31,
	2017		2016
	(in thousands)
Cash and cash equivalents	$	5,562	$	6,069
Working capital	$	1,428	$	1,000

Our principal sources of liquidity are our cash and cash equivalents, ~~and~~including the net proceeds from the recent ~~issuance~~issuances of Common Stock to CFL. During the third quarter of 2016, our principal sources of liquidity also included the proceeds from the Master Credit Facility with White Winston, which was terminated on November 7, 2016 as discussed in more detail below.

As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016, we had working capital ~~deficiencies~~ of approximately ~~$10,597,000~~$1,428,000 and ~~$9,199,000 respectively. We had an accumulated deficit of approximately $46,869,000 at September 30, 2016.~~$1,000,000. During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, we generated a net loss of approximately ~~$3,519,000,~~$3,102,000, used cash in operations of approximately ~~$2,489,000,~~$3,356,000, which includes $1,450,000 paid to LinkedIn related to litigation that was settled in 2016, and we expect that we will continue to generate operating losses for the foreseeable future.

We are closely monitoring operating costs and capital requirements and have developed an operating plan for 2017. We have had cost reductions in the areas of staffing levels and operating budgets.

On November 7, 2016, we consummated the issuance and sale of 1,777,417 shares of Common Stock to CFL, at a price of $9.60 per ~~share (giving effect to the Reverse Split), pursuant to the terms of the Purchase Agreement with CFL.~~share. We received total gross proceeds of approximately $17.1 million from the Share Issuance, or $14.1 million after giving effect to the payment for 312,500 shares of Common Stock tendered and not withdrawn in the Tender Offer. We received approximately $9.0 million in net proceeds from the Share Issuance, after repayment of outstanding indebtedness and the payment of transaction-related expenses at the closing.

On ~~November 7, 2016, in connection with~~January 18, 2017, we sold 312,500 shares of Common Stock to CFL at a price of $9.60 per share, for total gross proceeds of $3,000,000, or $2,821,000 after giving effect to the ~~closing~~payment of the Share Issuance, we (i) repaid in full all amounts owed under the Master Credit Facility, and (ii) terminated the Master Credit Facility and related agreements between the Company and White Winston, including the Board Representation Agreement, dated as of June 30, 2016. All security interests created under the Master Credit Facility were released upon repayment of the amounts under and termination of the Master Credit Facility.transaction-related expenses.

We currently anticipate that our available funds ~~and cash flow from operations~~ will be sufficient to meet our working capital requirements through May of 2018. Since the Company expects that it will continue to generate operating losses for the ~~next twelve months. 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~~mid-term, the Company may require additional funding sources or need to further decrease expenses in ~~the future or effectuate plans~~order 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 NAPW Network membership fees generally at the commencement of ~~their~~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 12twelve month period. ~~As a result, we record a liability for the deferred revenue which results in a large working capital deficiency.~~ Our PDN ~~division~~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. ~~The deferred revenue from the PDN contracts also increases our working capital deficiency.~~ Our payment terms for PDN Network and Noble Voice 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 and U.S. government and U.S. government agency securities.

	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2016			2015			2017			2016
	(in thousands)						(in thousands)
Cash provided by (used in):
Operating activities	$	(2,489	)	$	(4,207	)	$	(3,356	)	$	(445	)
Investing activities		694			3,910			(7	)		241
Financing activities		239			2,658			2,856			(166	)
Net increase (decrease) in cash and cash equivalents	$	(1,556	)	$	2,361
Net decrease in cash and cash equivalents							$	(507	)	$	(370	)

Net Cash Used in Operating Activities

Net cash used in operating activities for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$2,489,000.~~$3,356,000. We had a net loss of ~~$3,519,000~~$3,102,000 during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017 and a deferred income tax benefit of ~~$1,218,000 and a gain on lease cancellation of $424,000,~~655,000, which were partially offset by ~~non-cash~~ depreciation and amortization of ~~$2,498,000, an increase in the fair value of warrant liabilities of $401,000,~~$836,000, stock-based compensation expense of ~~$218,000~~$516,000 and ~~deferred financing cost amortization~~a provision for bad debt expense of ~~$157,000.~~$145,891. Changes in operating assets and liabilities used ~~$601,000~~$1,097,000 of cash during the ~~nine~~three months ended ~~September 30, 2016, consisting primarily of decreases~~March 31, 2017, which includes $1,450,000 paid to LinkedIn related to litigation that was settled in ~~deferred revenue and increased prepaid expenses partially offset by increases in accrued expenses.~~2016.

Net cash used in operating activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$4,207,000.~~$445,000. We had a net loss of ~~$34,438,000~~$1,440,000 during the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016 and a deferred income tax benefit of $458,000, which ~~was~~were partially offset by ~~non-cash~~ depreciation and amortization of ~~$2,731,000, impairment expense of $26,744,000,~~$867,000 and stock-based compensation expense of $351,000, a decrease in the fair value of warrant liabilities of $94,000, the amortization of premiums paid on short-term investments of $77,000, a loss on the sale of property and equipment of $33,000, the amortization of debt discount related to the Promissory Note of $8,000 and a deferred tax benefit of $1,509,000.$57,000. Changes in operating assets and liabilities ~~used $1,127,000~~provided $529,000 of cash during the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016.

Net Cash (Used in) Provided by Investing Activities

Net cash ~~provided by~~used in investing activities for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$694,000,~~$7,000, consisting of ~~$500,000~~$11,000 invested to develop technology, $42,000 in purchases of ~~proceeds from the maturities of short-term investments~~property and ~~$194,000~~equipment and $45,000 of returned security deposits.

Net cash provided by investing activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$3,910,000,~~$241,000, consisting of ~~$5,297,000~~$250,000 of proceeds from the maturities of short-term investments, offset by ~~$925,000~~$9,000 from ~~the purchase of short-term investments, $393,000 invested to develop technology, $54,000 in purchases of property and equipment and $15,000~~ of new security deposits.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$239,000,~~$2,856,000, consisting of ~~$1,943,000~~the $3,000,000 in gross proceeds from the January 18, 2017 issuance and sale of ~~proceeds drawn on our Master Credit Facility,~~312,500 shares of common stock to CFL, partially offset by ~~$488,000 of costs related to securing that facility,~~the $144,000 payment of ~~$1,049,000 of~~offering costs ~~related~~ to third-party professionals.

Net cash used in financing activities during the ~~CFL Transaction and~~three months ended March 31, 2016 was $166,000 due to the increase in the ~~merchant~~Merchant reserve for NAPW Network.

Net cash provided by financing activities during the nine months ended September 30, 2015 was $2,658,000, consisting of $5,010,000 of proceeds from the sale of common stock and $225,000 of proceeds from the sale of over-allotment common stock to our underwriters, offset by $671,000 of costs related to the common stock offerings, $1,295,000 for the repayment of a note payable, $400,000 decrease in our merchant reserve, $196,000 for the repurchase of shares of vested restricted stock, and $15,000 for the payment of capital lease obligations.

~~Master Credit Facility~~

On November 7, 2016, in connection with the closing of the Share Issuance, we (i) repaid in full all amounts owed under the Master Credit Facility and (ii) terminated the Master Credit Facility and related agreements between the Company and White Winston, including the Board Representation Agreement, dated as of June 30, 2016. All security interests created under the Master Credit Facility were released upon repayment of the amounts under and termination of the Master Credit Facility.

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

Pursuant to the provisions of the Jumpstart Our Business Startups Act (the “JOBS Act”), as an “emerging growth company,” we may delay adoption of new or revised accounting standards applicable to public companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Upon issuance of new or revised accounting standards that apply to our consolidated financial statements, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting guidelines.

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these 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 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.

There have been no material changes to the Company’s critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the ~~2015~~2016 Annual Report, which we believe are the most critical to our business and the understanding of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this Quarterly Report contains forward-looking statements regarding:

our beliefs regarding our ability to create enhanced value for our members and customers;

our beliefs regarding the relation between the number of members or registered users and our revenues;

our expectations regarding future changes in our salesforce;

~~the anticipated effect of the Detroit office closure on the overhead costs and supervision;~~

our expectations regarding the changes in revenues in ~~2016,~~ 2017, 2018 and 2019;

our expectations regarding future increases in sales and marketing costs and general and administrative expenses; and

our beliefs regarding our liquidity requirements, the availability of cash and capital resources to fund our business in the future and intended use of liquidity.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:

our ability to ~~realize~~raise funds in the ~~anticipated benefits from the transaction with CFL;~~

future to support operations failure to realize synergies and other financial benefits from mergers and acquisitions within expected time frames, including increases in expected costs or difficulties related to integration of merger and acquisition partners;

inability to identify and successfully negotiate and complete additional combinations with potential merger or acquisition partners or to successfully integrate such businesses;

our history of operating losses;

we may not be able to reverse the significant decline in our revenues;

our limited operating history in a new and unproven market;

increasing competition in the market for online professional networks;

our ability to comply with increasing governmental regulation and other legal obligations related to privacy;

our ability to adapt to changing technologies and social trends and preferences;

our ability to attract and retain a sales and marketing team, management and other key personnel and the ability of that team to execute on the Company’s business strategies and plans;

our ability to obtain and maintain protection for our intellectual property;

any future litigation regarding our business, including intellectual property claims;

general and economic business conditions; and

legal and regulatory developments.

The foregoing list of important factors may not include all such factors. You should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for additional factors, risks and uncertainties that may cause actual results to differ materially from those projected by the Company. Please refer to Part I.II, Item ~~1A.,~~1A, “Risk Factors” of this Quarterly Report and to Part I.I, Item ~~1A.,~~1A, “Risk Factors” of our ~~2015~~2016 Annual Report for additional information regarding factors that could affect our results of operations, financial condition and cash flow. You should consider these factors, risks and uncertainties when evaluating any forward-looking statements and you should not place undue reliance on any forward-looking statement. Forward-looking statements represent our views as of the date of this Quarterly Report, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date of this Quarterly Report.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of ~~September 30, 2016,~~March 31, 2017, our management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation and because of the material weaknesses related to our internal controls as described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report in ensuring that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the ~~third~~first quarter of ~~2016,~~2017, we continued to undertake certain initiatives to improve and remediate material weaknesses related to our internal control over financial reporting that were identified for the ~~fiscal~~ year ended December 31, ~~2015.~~2016. Specifically, we continued implementing new policies to more fully segregate incompatible duties and enhance the overall internal control ~~structure.~~structure, including segregating check signing ability for finance personnel to improve our segregation of incompatible duties within our accounting and financial reporting functions; continued to consolidate our banking relationships for all reporting segments, resulting in improved internal and online cash controls; and continued to work with our consolidated payroll service provider, to enhance senior management oversight and control. From January 1, 2017 through March 6, 2017, the Company operated with an interim CFO. On March 7, 2017, the Company appointed Gary Xiao as its full-time CFO. The appointment of a full-time CFO improves our overall internal control environment. There have been no other changes in our internal control over financial reporting during the ~~third~~first quarter of ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

We anticipate that the actions described above and resulting improvements in controls will strengthen the Company’s internal control over financial reporting and will, over time, address the related material weakness. However, because many of the controls in the Company’s system of internal controls rely extensively on manual review and approval, the successful operation of these controls may be required for several quarters prior to management being able to conclude that the material weakness has been remediated.

PART II

ITEM 1.

LEGAL PROCEEDINGS

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to an action captioned LinkedIn Corp. v. NAPW, Inc. and Professional Diversity Network, Inc., No. 16-CV-299784 (Santa Clara Superior Ct.). The lawsuit was filed on September 12, 2016. LinkedIn Corp. (“LinkedIn”), the plaintiff, seeks payment of outstanding amounts it claims are owed under a marketing agreement between LinkedIn and NAPW, Inc. The Company has prepared but has not yet filed a counterclaim. LinkedIn has agreed to postpone the deadline for the Company to file a responsive pleading to January 5, 2017. The parties have also agreed to mediate their respective claims, with a mediation currently scheduled for December 20, 2016. The case is in its preliminary stages and it is uncertain whether or not its outcome is likely to have a material impact on the Company’s financial position.

~~The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to~~ litigation captioned Gauri Ramnath, et al. v. Professional Diversity Network, Inc., et al., No. BC604153 (Los Angeles Superior Ct.), a putative class action filed in January 2016 alleging violations of various California Labor Code (wage & hour) sections. ~~The plaintiffs seek unspecified damages. The complaint was filed in December 2015 and~~During the first quarter of 2016, the Company ~~has answered. On April 28,~~executed a settlement agreement, subject to later Court approval, in which the Company agreed in principle to pay $500,000 for a global settlement of the class action. During the first quarter of 2016, the ~~parties entered into~~Company also recorded a ~~mutual~~litigation settlement ~~agreement and release, on behalf of all putative class participants,~~expense in the amount of $500,000. ~~Such amount is recorded in accrued expenses in~~This matter was fully resolved by the ~~accompanying condensed consolidated balance sheet as of September 30, 2016. The~~Court’s November 28, 2016 Order approving the parties’ proposed settlement agreement and ~~its amount are subject~~appointing a third-party administrator to handle class notification and payout. In December of 2016, the Company paid $500,000 into the Court’s fund and the third-party administrator began making payouts under the Court’s Order. During the three months ended March 31, 2017, the third-party administrator continued paying settlements under the fund, a process expected to conclude with the third-party administrator’s report to the Court, ~~and state agency approval.~~which is due by July 19, 2017. The Company ~~has been notified~~expects that the matter will be fully concluded, without further obligation to the Company, by Order of the Court ~~will hold a hearing to consider final approval~~ on ~~November 28, 2016. The Company anticipates that, if the global settlement is approved, it will have to fund in late Fourth Quarter of 2016~~ or ~~early First Quarter of~~about August 2, 2017.

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to ~~an administrative action before~~a proceeding captioned In re Professional Diversity Network, Cases 31-CA-159810 and 31-CA-162904 (“NLRB”), filed with the National Labor Relations Board ~~captioned as~~ ~~In re Professional Diversity Network, Cases 31-CA-159810~~in June 2015 and ~~31-CA-162904 (NLRB),~~ alleging violations of the National Labor Relations Act against the Company and its wholly-owned subsidiary, NAPW, Inc., where employee was allegedly terminated for asserting “union organizing” rights. ~~The complaint was filed on September 21, 2015.~~ While the Company disputes that any rights were impacted, the NLRB has issued its preliminary order requiring the Company to take certain remedial actions in the form of posting notices and revising certain policies. The NLRB’s order was recently affirmed by the U.S. Court of Appeals for the Ninth Circuit and the Company ~~is currently working with the agency~~expects to ~~comply~~work with the NLRB ~~order. The Company does not anticipate that~~to carry out the effects of its ~~outcome will have a material impact on the Company’s financial position.~~order.

The Company is a party to ~~an administrative action before the Equal Employment Opportunity Commission~~a proceeding captioned as Paul Sutcliffe v. Professional Diversity Network, Inc., No. 533-2016-00033 (EEOC), filed with the Equal Employment Opportunity Commission in April 2016 and alleging violations of Title VII and the Age Discrimination in Employment Act, where employee was allegedly terminated due to his race (Caucasian) and his age (over 40). The ~~complaint was filed on August 4, 2016. The~~ EEOC has issued a preliminary finding that the Company discriminated against the complainant. The ~~Company is currently weighing its appellate options, but does~~complainant has not ~~anticipate that this case will have~~yet filed a ~~material impact on the Company’s financial position.~~

lawsuit.

ITEM 1A.

RISK FACTORS

The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our ~~2015~~2016 Annual ~~Report and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed with the SEC on August 15, 2016.~~Report.

The proceeds from the January 2017 Share Issuance may not be sufficient to implement our productivity improvement initiatives.

We received net proceeds of approximately ~~$9.0 million~~$2,856,000 from the January 18, 2017 Share Issuance, ~~after giving effect to the payment for 312,500 shares of Common Stock tendered and not withdrawn~~partially offset by approximately $144,000 in ~~the Tender Offer, repayment of outstanding indebtedness and the payment of transaction-related expenses at the closing.~~third-party professional fees. We expect to use the net proceeds for general corporate and working capital purposes including to implement the productivity improvement initiatives that we have identified as key to our ability to deliver profitable growth over the long term. We cannot be certain that the proceeds from the Share Issuance will be sufficient to implement all or any of the initiatives or that these initiatives will improve our short and long-term business performance or prospects. In the event that we cannot implement these initiatives or that these initiatives are not successful, we could again face liquidity and going concern issues, which could result in your losing your entire investment in the Company.

The Company is controlled by CFL, and CFL’s interests may differ from the interests of our other stockholders.

CFL beneficially owns ~~51%~~54.64% of our outstanding shares of Common Stock on a fully diluted basis. Five out of nine members of our Board of Directors are nominated by CFL. CFL may not exercise its rights as our controlling stockholder in a manner consistent with the interests of our other stockholders. By virtue of its ownership of a majority of our Common Stock and the power to designate the majority of our Board of Directors, CFL is in a position to influence the Company’s actions for its own benefit.

Public sales of a substantial number of shares of our Common Stock by CFL could cause our stock price to fall.

CFL beneficially owns ~~51%~~54.64% of our outstanding shares of Common Stock on a fully diluted basis. Pursuant to the Stockholders’ Agreement, dated November 7, 2016, by and among the Company, CFL and CFL shareholders, CFL, CFL shareholders and their respective controlled affiliates (collectively, the “CFL Group”) are subject to a one-year lock-up with respect to all shares of Common Stock owned by members of the CFL Group, subject to certain exceptions. However, after the one-year period, it may generally sell its shares in the public markets, subject to applicable securities laws. Furthermore, we have granted CFL and the CFL shareholders certain registration rights that provide them the ability to register for resale, from time to time and in accordance with the terms of the registration rights agreement, all shares of Common Stock owned by members of the CFL Group, subject to certain exceptions. Sales of a substantial number of shares of our Common Stock in the public market or the perception that these sales might occur, could depress the market price of our Common Stock and could have a material adverse effect on the trading price of our Common Stock.

Because we have a majority stockholder, our public float is more limited which could impact your ability to sell your shares and could result in increased volatility in our stock price.

CFL beneficially owns ~~51%~~54.64% of the outstanding shares of our Common Stock. As a result, the trading volume of our Common Stock could be more limited than if our shares were more-widely held. In addition, because we are a relatively small company, the range of investors willing to invest in our shares may be relatively limited. As a result of these factors, it may be more difficult for you to sell your shares of Common Stock at a time and price that you deem appropriate, and could increase the volatility of our stock price.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Other than as previously reported in our current report on Form 8-K filed on ~~August 15, 2016,~~January 19, 2017, we did not sell any equity securities in transactions that were not registered under the Securities Act of 1933 during the three months ended ~~September 30, 2016.~~March 31, 2017.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

~~2.2~~	Stock Purchase Agreement, dated as of August 12, 2016, by and between the Company and Cosmic Forward Limited, including as Exhibit A the form of Stockholders’ Agreement (incorporated herein by reference to Exhibit 2.1 to Current Report on Form 8-K filed on August 15, 2016).

~~3.1~~	~~Amended and Restated Certificate of Incorporation of the Company, as amended through October 17, 2016.~~

~~3.2~~	Second Amended and Restated Bylaws of Professional Diversity Network, Inc., dated November 7, 2016 (incorporated herein by reference to Exhibit 3.2 to Current Report on Form 8-K filed on November 8, 2016).

~~4.9~~	Stockholders’ Agreement, dated as of November 7, 2016, by and among the Company, CFL, Maoji (Michael) Wang, Jingbo Song, Yong Xiong Zheng and Nan Nan Kou (incorporated herein by reference to Exhibit 4.9 to Current Report on Form 8-K filed on November 8, 2016).

~~10.29~~	~~Employment Agreement between the Company and Katherine Butkevich, dated September 30, 2016 (incorporated herein by reference to Exhibit 10.29 to Current Report on Form 8-K filed on October 4, 2016).~~

~~10.30~~	~~Confidential Settlement and Mutual Release of All Claims, dated November 4, 2016 by and between the Company and Matthew B. Proman.~~

31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.	INS XBRL Instance Document
101.	SCH XBRL Taxonomy Extension Schema Document
101.	CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.	DEF XBRL Taxonomy Extension Definition Linkbase Document
101.	LAB XBRL Taxonomy Extension Labels Linkbase Document
101.	PRE XBRL Taxonomy Extension Presentation Linkbase Document

4024

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PROFESSIONAL DIVERSITY NETWORK, INC.



Date:~~November 14, 2016~~ May 12, 2017	By:		/s/ ~~David Mecklenburger~~Jiangping (Gary) Xiao
		Name:	~~David Mecklenburger~~Jiangping (Gary) Xiao
		Title:	Chief Financial Officer (On behalf of the Registrant and as principal financial officer and principal accounting officer)

4125

EXHIBIT INDEX

~~Exhibit~~ ~~Number~~	~~Description of Exhibit~~

~~3.1~~	~~Amended and Restated Certificate of Incorporation of the Company, as amended through October 17, 2016.~~

~~10.30~~	~~Confidential Settlement and Mutual Release of All Claims, dated November 4, 2016 by and between the Company and Matthew B. Proman.~~

31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or Rule 15d- 14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.	INS XBRL Instance Document
101.	SCH XBRL Taxonomy Extension Schema Document
101.	CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.	DEF XBRL Taxonomy Extension Definition Linkbase Document
101.	LAB XBRL Taxonomy Extension Labels Linkbase Document
101.	PRE XBRL Taxonomy Extension Presentation Linkbase Document

4226

	December 31, 2015
	As previously
	reported			Adjustment			As revised
Deferred revenue	$	7,507,176		$	2,459,717		$	9,966,893
Total current liabilities		13,368,329			2,459,717			15,828,046
Total liabilities		18,782,659			2,459,717			21,242,376
Accumulated deficit		(40,890,017	)		(2,459,717	)		(43,349,734	)
Stockholders’ equity	$	22,645,157		$	(2,459,717	)	$	20,185,440

	Three Months Ended
	September 30, 2015
	As previously
	reported			Adjustment			As revised
Revenues	$	9,343,312		$	(122,133	)	$	9,221,179
Impairment expense		24,717,157			2,027,092			26,744,249
Loss from operations		(26,676,607	)		(2,149,225	)		(28,825,832	)
Net loss	$	(29,657,447	)	$	(2,149,225	)	$	(31,806,672	)
Net loss per share:
Basic and Diluted (as adjusted for the Reverse Stock Split)	$	(16.40	)	$	(1.19	)	$	(17.59	)

	September 30, 2016		December 31, 2015
Capitalized cost:
Balance, beginning of period	$	1,888,791	$	1,469,432
Additional capitalized cost		-		419,359
Balance, end of period	$	1,888,791	$	1,888,791


Accumulated amortization:
Balance, beginning of period	$	1,432,268	$	943,362
Provision for amortization		216,060		488,906
Balance, end of period	$	1,648,328	$	1,432,268
Capitalized Technology, net	$	240,463	$	456,523

September 30, 2016	Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Long-lived intangible assets:
Sales Process		10	$	3,970,000	$	(799,514	)	$	3,170,486
Paid Member Relationships		5		890,000		(358,472	)		531,528
Member Lists		5		8,957,000		(3,607,681	)		5,349,319
Developed Technology		3		978,000		(636,666	)		341,334
Trade Name/Trademarks		4		480,000		(239,861	)		240,139
Customer Relationships		5		280,000		(102,667	)		177,333
				15,555,000		(5,744,861	)		9,810,139
Indefinite-lived intangible assets:
Trade Name									90,400

Intangible assets, net								$	9,900,539

Years ending December 31,
2016 (three months)	$	717,100
2017		2,802,233
2018		2,563,872
2019		1,846,697
2020		397,000
2021		397,000
Thereafter		1,086,237
	$	9,810,139

Total Master Credit Facility	$	1,942,625
Less: Unamortized debt issuance costs		(1,114,946	)
Total Master Credit Facility, net of unamortized debt issuance costs		827,679
Less: Current portion of Master Credit Facility		-
Long-term portion	$	827,679

	Number of Options			Weighted Average Grant Date Fair Value
Unvested - December 31, 2015		13,571		$	13.76
Granted		57,500			4.01
Vested		(27,552	)		(7.07	)
Forfeited/Canceled/Expired		(917	)		(13.83	)
Unvested – September 30, 2016		42,602		$	4.93

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2015		45,314	$	66.72		3.5	$	-
Granted		468,750		6.80
Exercised		-		-
Forfeited/Canceled/Expired		-		-
Outstanding – September 30, 2016		514,064	$	12.09		4.7	$	2,127,813

Exercisable – September 30, 2016		389,064	$	9.54		4.5	$	2,127,813

	Number of Warrants			Weighted Average Grant Date Fair Value
Unvested – December 31, 2015		-		$	-
Granted		468,750			1.67
Vested		(468,750	)		(1.67	)
Forfeited/Canceled/Expired		-			-
Unvested – September 30, 2016		-		$	-

	August 10,			June 30,
	2016			2016
Strike price	$	2.00		$	2.00
Market price	$	6.08		$	3.20
Expected life	5 years			5 years
Risk-free interest rate		1.07	%		1.01	%
Dividend yield		0.00	%		0.00	%
Volatility		100	%		100	%

	Three Months Ended September 30, 2016
	PDN Network			NAPW Network			Noble Voice			Consolidated

Membership fees and related services	$	-		$	3,748,334		$	-		$	3,748,334
Lead generation		-			-			1,554,370			1,554,370
Recruitment services		954,887			-			-			954,887
Products sales and other		-			52,857			-			52,857
Consumer advertising and marketing solutions		49,719			-			-			49,719
Total revenues		1,004,606			3,801,191			1,554,370			6,360,167
Loss from operations		(118,948	)		(894,361	)		(266,893	)		(1,280,202	)
Depreciation and amortization		33,471			738,473			47,950			819,894
Income tax expense (benefit)		(222,808	)		(289,767	)		(111,124	)		(623,699	)
Capital expenditures		-			-			-			-
Net loss		(512,771	)		(604,594	)		(155,769	)		(1,273,134	)

	Nine Months Ended September 30, 2016
	PDN Network			NAPW Network			Noble Voice			Consolidated

Membership fees and related services	$	-		$	13,047,652		$	-		$	13,047,652
Lead generation		-			-			4,489,919			4,489,919
Recruitment services		2,295,556			-			-			2,295,556
Products sales and other		-			544,440			-			544,440
Consumer advertising and marketing solutions		176,771			-			-			176,771
Total revenues		2,472,327			13,592,092			4,489,919			20,554,338
Loss from operations		(839,840	)		(2,173,251	)		(1,106,895	)		(4,119,986	)
Depreciation and amortization		130,121			2,207,703			160,312			2,498,136
Income benefit		(373,717	)		(557,439	)		(286,936	)		(1,218,092	)
Capital expenditures		-			-			-			-
Net loss		(1,083,270	)		(1,615,812	)		(819,959	)		(3,519,041	)

	At September 30, 2016
Goodwill	$	339,451	$	19,861,739	$	-	$	20,201,190
Intangible assets, net		90,400		9,482,806		327,333		9,900,539
Total assets		2,151,870		32,410,397		1,891,617		36,453,884

	At December 31, 2015
Goodwill	$	339,451	$	19,861,739	$	-	$	20,201,190
Intangible assets, net		90,400		11,502,106		459,333		12,051,839
Total assets		4,167,229		34,985,831		2,274,756		41,427,816

	As of September 30,				Change
	2016		2015		(Percent)
	(in thousands)
PDN Network Registered Users (1)		8,951		6,837		30.9	%
NAPW Network Total Membership (2)		880		831		5.9	%