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~~June 30, ~~2016~~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~~3,931,838 shares outstanding of the registrant’s common stock as of ~~November 9, 2016.~~August 11, 2017.

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PROFESSIONAL DIVERSITY NETWORK, INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2016~~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	2417
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3728
	ITEM 4.	CONTROLS AND PROCEDURES	3728
PART II			3828
	ITEM 1.	LEGAL PROCEEDINGS	3828
	ITEM 1A.	RISK FACTORS	3929
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3929
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3929
	ITEM 4.	MINE SAFETY DISCLOSURE	3929
	ITEM 5.	OTHER INFORMATION	4030
	ITEM 6.	EXHIBITS	4030

PART I

~~ITEM 1. FINANCIAL STATEMENTS~~

ITEM 1.

FINANCIAL STATEMENTS

Professional Diversity Network, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,			June 30,			December 31,
	2016			2015			2017			2016
	(Unaudited)			(Revised)			(Unaudited)
Current Assets:
Cash and cash equivalents	$	515,963		$	2,070,693		$	4,951,849		$	6,068,973
Accounts receivable, net		1,839,474			2,510,530			2,130,885			2,170,529
Short-term investments		-			500,000
Incremental direct costs		547,616			1,023,916			332,780			423,023
Prepaid license fee		-			112,500
Prepaid expenses and other current assets		229,689			411,592			712,427			957,140
Total current assets		3,132,742			6,629,231			8,127,941			9,619,665

Property and equipment, net		313,622			444,398			242,270			277,534
Capitalized technology, net		240,463			456,523			130,753			173,368
Goodwill		20,201,190			20,201,190			10,280,885			20,201,190
Intangible assets, net		9,900,539			12,051,839			7,749,239			9,183,439
Merchant reserve		1,426,927			1,260,849			780,849			1,426,927
Security deposits		189,375			383,786			213,931			220,754
Other assets		1,049,026			-			-			35,000
Total assets	$	36,453,884		$	41,427,816		$	27,525,868		$	41,137,877

Current Liabilities:
Accounts payable	$	5,359,151		$	4,465,941		$	1,520,274		$	2,172,332
Accrued expenses		1,519,491			837,712			1,245,827			962,172
Deferred revenue		6,406,542			9,966,893			4,849,619			5,485,599
Customer deposits		-			112,500			185,179			-
Promissory note		445,000			445,000
Total current liabilities		13,730,184			15,828,046			7,800,899			8,620,103

Deferred tax liability		3,724,816			4,942,908			2,662,927			3,653,274
Line of credit – Master Credit Facility, net of unamortized debt issuance costs		827,679			-
Deferred rent		55,434			45,155			50,318			55,718
Other liabilities		47,367			426,267			4,743			33,159
Total liabilities		18,385,480			21,242,376			10,518,887			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; 3,936,399 shares and 3,623,899 shares issued as of June 30, 2017 and December 31, 2016, respectively; and 3,931,838 shares and 3,619,338 shares outstanding as of June 30, 2017 and December 31, 2016, respectively								39,329			36,204
Additional paid in capital		64,956,199			63,554,194			79,637,909			76,234,772
Accumulated other comprehensive loss								1,621			-
Accumulated deficit		(46,868,775	)		(43,349,734	)		(62,634,761	)		(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 June 30, 2017 and December 31, 2016								(37,117	)		(37,117	)
Total stockholders' equity		18,068,404			20,185,440			17,006,981			28,775,623

Total liabilities and stockholders' equity	$	36,453,884		$	41,427,816		$	27,525,868		$	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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
				(Revised)						(Revised)
Revenues
Revenues:
Membership fees and related services	$	3,748,334		$	5,652,873		$	13,047,652		$	18,885,308		$	2,444,797		$	4,259,144		$	5,260,293		$	9,299,318
Lead generation		1,554,370			2,334,276			4,489,919			7,853,402			1,604,767			1,415,958			3,328,934			2,935,549
Recruitment services		954,887			830,250			2,295,556			2,432,951			624,103			717,360			1,282,647			1,340,669
Product sales and other		52,857			330,769			544,440			631,198			26,573			404,590			72,941			491,583
Education and training														505,490			-			829,694			-
Consumer advertising and marketing solutions		49,719			73,011			176,771			209,097			58,327			53,976			124,029			127,052
Total revenues		6,360,167			9,221,179			20,554,338			30,011,956			5,264,057			6,851,028			10,898,538			14,194,171

Costs and expenses:
Cost of revenues		745,159			1,464,214			2,433,550			4,647,520			834,281			803,646			1,534,927			1,688,391
Sales and marketing		3,064,454			5,132,077			10,314,145			17,226,640			2,584,426			3,428,115			5,839,323			7,249,691
General and administrative		3,010,862			3,748,138			9,428,493			11,593,955			3,551,163			2,749,214			8,085,665			5,917,631
Impairment expense		-			26,744,249			-			26,744,249
Litigation settlement														-			-			-			500,000
Goodwill impairment charge														9,920,305			-			9,920,305			-
Depreciation and amortization		819,894			925,684			2,498,136			2,730,880			800,783			811,232			1,636,613			1,678,242
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			17,690,958			7,792,207			27,016,833			17,033,955

Loss from operations		(1,280,202	)		(28,825,832	)		(4,119,986	)		(32,963,937	)		(12,426,901	)		(941,179	)		(16,118,295	)		(2,839,784	)

Other (expense) income
Interest expense		(215,781	)		(9,229	)		(216,948	)		(84,339	)		-			(778	)		(12,399	)		(1,167	)
Interest and other income		150			2,382			801			25,566			2,851			(481	)		5,101			651
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 income														4,088			-			1,764			-
Other (expense) income, net														6,939			(1,259	)		(5,534	)		(516	)

Loss before income tax benefit		(1,896,833	)		(28,830,455	)		(4,737,133	)		(32,928,926	)		(12,419,962	)		(942,438	)		(16,123,829	)		(2,840,300	)
Income tax expense (benefit)		(623,699	)		2,976,217			(1,218,092	)		1,509,395
Income tax benefit														(345,018	)		(136,169	)		(947,304	)		(594,393	)
Net loss	$	(1,273,134	)	$	(31,806,672	)	$	(3,519,041	)	$	(34,438,321	)		(12,074,944	)		(806,269	)		(15,176,525	)		(2,245,907	)

Other comprehensive loss:
Foreign currency translation adjustment														1,733			-			1,621			-
Comprehensive loss													$	(12,073,211	)	$	(806,269	)	$	(15,174,904	)	$	(2,245,907	)

Net loss per common share, basic and diluted	$	(0.70	)	$	(17.59	)	$	(1.94	)	$	(20.05	)	$	(3.07	)	$	(0.45	)	$	(3.89	)	$	(1.24	)

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			3,932,886			1,808,314			3,901,809			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,						Six Months Ended June 30,
	2016			2015			2017			2016
Cash flows from operating activities:				(Revised)
Net loss	$	(3,519,041	)	$	(34,438,321	)	$	(15,176,525	)	$	(2,245,907	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,498,136			2,730,880			1,636,613			1,678,242
Deferred tax benefit		(1,218,092	)		1,509,395
Deferred tax								(990,347	)		(594,393	)
Gain on lease cancellation		(423,998	)		-						(423,998	)
Impairment expense		-			26,744,249
Goodwill impairment charge								9,920,305			-
Stock-based compensation expense		217,547			350,667			585,262			99,830
Amortization of deferred financing costs		156,594			-
Provision for bad debt								154,875			-
Amortization of prepaid license fees		112,500			168,750			-			112,500
Amortization of premium on short-term investments, net		-			76,878
Amortization of customer deposits		(112,500	)		(168,750	)		-			(112,500	)
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			(114,697	)		737,670
Prepaid expenses and other current assets		181,903			(682,541	)		244,894			105,840
Incremental direct costs		476,300			(184,420	)		90,243			304,169
Accounts payable		893,210			(1,630,793	)		(653,690	)		(163,944	)
Accrued expenses		681,779			1,510,273			282,640			587,400
Deferred revenue		(3,560,351	)		(1,089,802	)		(635,980	)		(2,384,908	)
Deferred rent		10,279			63,267			(5,400	)		7,585
Customer deposits								182,883
Other liabilities		45,098			-			(28,416	)		59,306
Net cash used in operating activities		(2,488,580	)		(4,206,779	)		(4,507,340	)		(2,233,108	)

Cash flows from investing activities:
Proceeds from maturities of short-term investments		500,000			5,297,000			-			500,000
Purchases of short-term investments		-			(925,000	)
Costs incurred to develop technology		-			(393,385	)		(70,282	)		-
Purchases of property and equipment		-			(53,596	)		(53,838	)		-
Security deposit		194,411			(14,952	)		7,301			6,716
Net cash provided by investing activities		694,411			3,910,067
Net cash (used in) provided by investing activities								(116,819	)		506,716

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			-			-			1,572,576
Payment of debt issuance costs related to Master Credit Facility		(488,082	)		-
Payment of deferred offering costs related to CFL Transaction		(1,049,026	)		-
Payment of deferred financing costs								-			(458,555	)
Merchant reserve		(166,078	)		(400,000	)		646,078			(166,078	)
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			3,502,078			947,943

Net (decrease) increase in cash and cash equivalents		(1,554,730	)		2,361,750
Effect of exchange rate fluctuations on cash and cash equivalents								4,957			-
Net decrease in cash and cash equivalents								(1,117,124	)		(778,449	)
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		$	4,951,849		$	1,292,244

Supplemental disclosures of other cash flow information:
Cash paid for income taxes	$	4,605		$	4,631		$	1,487		$	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		$	-		$	-		$	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 is a corporation organized under the laws of Delaware, originally formed as IH Acquisition, LLC under the laws of the State of Illinois on October 3, 2003. for:

NAPW, Inc., a Delaware corporation and wholly-owned subsidiary of the Company and the operator of the National Association of Professional Women (the “NAPW Network” or “NAPW”);

Noble Voice LLC and Compliant Lead LLC (collectively, “Noble Voice”), both Delaware limited liability companies, each of which is a wholly-owned subsidiary of the Company and together provide career consultation services;

AETSI, Inc. (“AETSI”), a Delaware corporation and wholly-owned subsidiary of the Company, which was created to facilitate the Company’s prospective U.S.-China education partnerships, expected to begin later in 2017;

PDN HK International Education Ltd. and PDN HK International Education Information Co. Ltd. (collectively, “PDN Hong Kong”), both Hong Kong limited companies and wholly-owned subsidiaries which were created during the first quarter of 2017 to support the Company’s China expansion; and

PDN (China) International Culture Development Ltd. Co. (“PDN China”), a China wholly-owned foreign enterprise company and wholly-owned subsidiary created during the first quarter of 2017 to operate the 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~~personal and professional development. The Company intends to cooperate with existing companies and organizations in China to efficiently and promptly deliver valuable products and services to its registered users. The Chinese operations focus on the following areas:

On September 27, 2016, the Company effected a 1-for-8 reverse stock split of its common stock (“Reverse Stock Split”) and proportionately reduced the number of shares of common stock the Company is authorized to issue. The par value of the Company’s common stock remained the same. As a result of 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.

Women’s Networking, which is the Chinese expansion of the NAPW segment, and is called “The International Association of Women” or “IAW,” the first marketing event for which was held near the end of the second quarter of 2017;

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 United States and other countries, with U.S. operations managed by AETSI and China operations managed by PDN China; and

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.

Education and Training for Accomplished Chinese Business People, through PDN China, which is providing education and training seminars in China, as reflected in the Company’s “China Operations / Education and Training” segment information below.

2. Liquidity, Financial Condition and Management’s Plans

At ~~September~~June 30, ~~2016,~~2017, the Company’s principal sources of liquidity were its cash and cash equivalents and 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~~closings 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~~$62,635,000 at ~~September~~June 30, ~~2016.~~2017. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company generated a net loss of approximately ~~$3,519,000,~~$15,177,000 (including a goodwill impairment charge of $9,920,000), used cash in operations of approximately ~~$2,489,000,~~$4,507,000, 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~~June 30, ~~2016,~~2017, the Company had a cash balance of approximately ~~$516,000.~~$4,952,000. Total revenues were approximately ~~$6,360,000~~$5,264,000 and ~~$9,221,000~~$6,851,000 for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and approximately ~~$20,554,000~~$10,899,000 and ~~$30,012,000~~$14,194,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The Company had a working capital ~~deficit~~ of approximately ~~$10,597,000~~$327,000 and ~~$9,199,000~~$1,000,000 at ~~September~~June 30, ~~2016~~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 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)

The Company had working capital of approximately $327,000 and $1,000,000 at June 30, 2017 and December 31, 2016, respectively.

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.~~at least through August 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.

NASDAQ Notification

On June 21, 2017, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Nasdaq staff determined that the Company was not in compliance with Listing Rule 5605 for the period from February 13, 2017 through June 2, 2017 because the Company’s Audit Committee was comprised of only two independent directors. The letter also stated that the Company regained compliance on June 2, 2017, within the cure period provided by Listing Rule 5605(c)(4), after it appointed independent directors Xiaojing Huang and Xianfang Liu to the Audit Committee. The independent directors Lee Hillman and David Schramm continue to serve on the Audit Committee with Ms. Huang and Mr. Liu. Nasdaq confirmed that the matter is now closed.

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 and six months ended ~~September~~June 30, ~~2016~~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.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

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~~Goodwill and Intangible Assets - The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of ~~Financial Statements~~ ~~– During~~an asset has decreased below its carrying value.

Goodwill is tested for impairment at the ~~preparation~~reporting unit level on an annual basis (December 31 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company considers its market capitalization and the carrying value of its assets and liabilities, including goodwill, when performing its goodwill impairment test.

Prior to January 1, 2017, when conducting its annual goodwill impairment assessment, the Company initially performed a qualitative evaluation of whether it is more likely than not that goodwill was impaired. If it was determined by a qualitative evaluation that it was more likely than not that goodwill was impaired, the Company then applied a two-step impairment test. The two-step impairment test first compared the fair value of the ~~Quarterly Report on Form 10-Q for~~Company’s reporting unit to its carrying or book value. If the ~~quarterly period ended September 30, 2016,~~fair value of the reporting unit exceeded its carrying value, goodwill was not impaired and the Company was not required to perform further testing. If the carrying value of the reporting unit exceeded its fair value, the Company determined ~~that it had incorrectly recorded a discount against certain deferred revenue acquired in~~ the ~~acquisition~~implied fair value of ~~NAPW on September 24, 2014~~the reporting unit's goodwill and ~~miscalculated amortization~~if the carrying value of ~~such deferred revenue during~~ the ~~quarter ended March 31, 2015. The error resulted in~~reporting unit's goodwill exceeded its implied fair value, then an ~~understatement of “Deferred revenue” and “Goodwill”~~impairment loss equal to the difference was recorded in the ~~acquisition~~consolidated statements of operations.

Effective January 1, 2017, the Company prospectively adopted the provisions of ASU 2017-04, ““Intangibles - Goodwill and ~~subsequently resulted in an overstatement of “Revenues” and an understatement of “Impairment expense” and “Net loss” during each~~Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates the second step of the ~~quarterly periods during~~goodwill impairment test. Therefore, for goodwill impairment tests occurring after January 1, 2017, if the ~~year ended December 31, 2015 and for~~carrying value of a reporting unit exceeds its fair value, the ~~year ended December 31, 2015.~~Company will measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

As a result of the recurring operating losses incurred in NAPW since its acquisition in September 2014, the Company undertook a review of the carrying amount of its goodwill as of June 30, 2017. The Company ~~assessed the materiality~~performed its review based on both qualitative and quantitative factors and determined that carrying value 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,NAPW’s goodwill exceeded its implied fair value. Accordingly, the Company ~~determined that the impact~~recorded a goodwill impairment charge of ~~the corrections would be too significant to record~~$9,920,305 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~~accompanying 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~~statement of operations and comprehensive loss for the three and ~~nine~~six months ended ~~September~~June 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 )

2017.

~~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.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

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

Professional Diversity Network provides career opportunities to our registered users. As part of our employment services we interact with over 30,000 job seekers via telephone on a weekly basis. Our Career Advisors suggest job opportunities for our registered users based on their location and profile. In certain circumstances our Career Advisers offer career support services to our registered users, including resume writing, education opportunities and economic consultations. In certain circumstances we receive compensation from various business partners resulting from our job seeker referrals. The Company derives lead generation revenues pursuant to arrangements with ~~for-profit educational centers.~~its business partners. Under these arrangements, the Company matches ~~educational centers~~its business partners 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 atin the ~~time~~month when the ~~educational centers~~leads are ~~invoiced.~~sent to its business partners.

The Company's business partners include educational institutions such as Keypath Education, QuinStreet and Education Dynamics in Noble Voice's traditional, core business, as well as a broad array of corporations such as Avon Products, American Airlines, Uber, among others.

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. Our recruitment services mainly consist of the following products –

• On-line job postings to our diversity sites and to our broader network of websites including the National Association for the Advancement of Colored People and the National Urban League

• OFCCP job promotion and recordation services

• Diversity job fairs, both in person and virtual fairs

• Diversity recruitment job advertising services

• Cost per application, a service that employers can purchase whereby PDN sources qualified candidates and charges only for those applicants who meet the employers’ minimum qualifications

• Diversity executive staffing services

The Company's customers in recruitment services include Starbucks, PNC Bank, US Dept. of Treasury, among others.

~~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.

Education and Training

The Company works with its business partners to provide education and training seminars to business people in China. Revenues are recognized in the month when the seminar takes place.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

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.

The Company's partner organizations include NAACP, National Urban League,VetJobs, among others.

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~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company incurred advertising and marketing expenses of approximately ~~$657,000~~$665,000 and ~~$1,506,000,~~$521,000, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company incurred advertising and marketing expenses of approximately ~~$1,842,000~~$1,588,000 and ~~$4,227,000,~~$1,185,000, respectively. These amounts are included in sales and marketing expenses in the accompanying condensed consolidated statements of comprehensive loss. At ~~September~~June 30, ~~2016~~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~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 excludes the potentially dilutive securities summarized in the table below because their inclusion would be anti-dilutive.

					As of June 30,
	2016		2015		2017		2016
Warrants to purchase common stock		514,064		45,314		170,314		514,064
Stock options		72,886		19,732		304,064		18,107
Restricted stock units						15,544
Unvested restricted stock		5,556		25,002		2,778		5,556
		592,506		90,048
Total dilutive securities						492,700		537,727

Recently Issued Accounting Pronouncements

In ~~October 2016,~~May 2014, 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” (“~~2014-09,”Revenue from Contracts with Customers,” which was subsequently modified in August 2015 by ASU ~~2016-17”).~~No. 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” As a result, the 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 2016-17No. 2014-09 is effective retrospectively for ~~public business entities in~~ fiscal years and interim periods within those years beginning after December 15, ~~2016, including interim periods within those fiscal years, with early adoption permitted.~~2017. The ~~Company does not anticipate that the adoption~~core principle of ASU ~~2016-17 will have a material effect on its financial position~~No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or ~~results~~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 ~~operations.~~

revenue and cash flows from contracts with customers. 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.

~~Professional Diversity Network, Inc.~~

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

In August 2016, the FASB issued 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 instruments with coupon interest ratesadditional ASUs that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from 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 is effective for annual 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 fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application of the guidance permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

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 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, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability 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. The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company will adopt the methodologies prescribed by ASU 2014-15 by the date required, and does not anticipate that the adoption of ASU 2014-15 will have a material effect on its 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, 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

108

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

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 adopted the methodologies prescribed by ASU 2014-15 as of January 1, 2017. The adoption of ASU 2016-09 did not have a material effect on the Company’s financial position or results of operations.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting “(“ASU 2017-09”). ASU 2017-09 provides clarity and reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.

4. Capitalized Technology

Capitalized technology, net is as follows:

	June 30, 2017		December 31, 2016
Capitalized cost:
Balance, beginning of period	$	1,888,791	$	1,888,791
Additional capitalized cost		70,282		-
Balance, end of period	$	1,959,073	$	1,888,791


Accumulated amortization:
Balance, beginning of period	$	1,715,423	$	1,432,268
Provision for amortization		112,897		283,155
Balance, end of period	$	1,828,320	$	1,715,423
Capitalized Technology, net	$	130,753	$	173,368

Amortization expense of ~~$62,495~~approximately $37,200 and ~~$153,984~~$45,200 for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~$216,060~~approximately $112,900 and ~~$335,585~~$153,600 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, 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

119

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

5. Intangible Assets

Intangible assets, net is as follows:

June 30, 2017	Useful Lives (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Long-lived intangible assets:
Sales Process		10	$	3,970,000	$	(1,097,264	)	$	2,872,736
Paid Member Relationships		5		890,000		(491,972	)		398,028
Member Lists		5		8,957,000		(4,951,231	)		4,005,769
Developed Technology		3		978,000		(881,166	)		96,834
Trade Name/Trademarks		4		480,000		(329,861	)		150,139
Customer Relationships		5		280,000		(144,667	)		135,333
			$	15,555,000	$	(7,896,161	)		7,658,839
Indefinite-lived intangible assets:
Trade Name									90,400

Intangible assets, net								$	7,749,239

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 (six months)	$	1,368,033
2018		2,563,872
2019		1,846,697
2020		397,000
2021		397,000
2022		397,000
Thereafter		689,237
	$	7,658,839

Amortization expense of $717,100 for the three months ended ~~September~~June 30, 2017 and 2016 and ~~2015 and $2,151,300 and $2,165,286~~$1,434,200 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015, respectively,~~2016 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.

~~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. 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.

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

Rent expense, amounting to approximately ~~$258,000~~$203,000 and ~~$383,000~~$241,000 for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and approximately ~~$808,000~~$407,000 and ~~$1,083,000~~$550,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, 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~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and approximately ~~$279,000~~$192,000 and ~~$255,000~~$180,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, 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 amountshas previously disclosed that 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~~On November 28, 2016, the Court approved the proposed settlement. In December of 2016 the Company paid the settlement amount ~~is recorded in accrued expenses~~ in the ~~accompanying condensed consolidated balance sheet~~Court’s fund and the third-party administrator began distributing payments to class members. On August 2, 2017, the Court notified the parties that the case is “reported as ~~of September 30, 2016. The parties’ agreement and its amount are subject to Court and state agency approval.~~complete without the need for a further status conference”. The Company ~~has been notified that~~expects a formal dismissal order in 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 2017.near future.

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~~NLRB to ~~comply with~~carry out the effects of its order. The NLRB ~~order.~~is expected to levy a make-whole remedy to the subject employee. The Company does not ~~anticipate that its outcome will~~expect the resolution of this matter to have a material negative impact on ~~the Company’s~~its financial ~~position.~~condition.

~~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 (“EEOC”) 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 not yet notified the Company that it has issued a ~~preliminary finding that~~right-to-sue letter, and the ~~Company discriminated against the complainant.~~ complainant has not yet filed a lawsuit.

The Company is ~~currently weighing its appellate options, but does not anticipate that this case will have~~ a ~~material impact~~party to a proceeding captioned Wei Aniton v. Professional Diversity Network, Inc., No. 440-2017-04717 (EEOC), filed with the Equal Employment Opportunity Commission (“EEOC”) on July 6, 2017 and alleging violations of Title VII and the ~~Company’s financial position.~~

~~On November 4, 2016,~~Equal Pay Act of 1963, where employee alleges she was discriminated by the Company ~~entered into a Confidential Settlement~~due to her race and ~~Mutual Release of All Claims (the “Release”) with Matthew B. Proman (“Proman”), pursuant to which the~~her sex and was paid less than similarly situated white males. 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 Noteis in the ~~principal amount~~process 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 pursuantproviding a response 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.

EEOC.

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.

1511

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 CFL ~~Shareholders~~shareholders. The Amendment increased the cap on the amount of common stock that CFL, the CFL shareholders and their respective 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,~~June 19, 2017, the Company entered into an employment agreement (the ~~“Employment~~“Song Employment Agreement”) effective as of January 12, 2017 (the “Effective Date”) with ~~Katherine Butkevich,~~Jingbo (James) Song, the Company’s ~~Chief~~ Executive ~~Officer.~~Co-Chairman. The Song Employment Agreement ~~provides for an initial term of two years, and is subject to extension upon agreement~~continues until the three (3) year anniversary of the ~~Company and Ms. Butkevich unless either party provides advance written notice of its or her intention not to extend.~~Effective Date. Under the Song Employment Agreement, ~~Ms. Butkevich~~Mr. Song will receive an annual base salary of ~~$300,000, subject to increase, but not decrease, in the sole discretion~~$325,000 (“Base Salary”). Mr. Song’s Base Salary shall be increased on each anniversary of the ~~Company’s Board~~Effective Date by the greater of ~~Directors (the “Board”~~(i) three percent (3%) multiplied by his then-current Base Salary, or (ii) the ~~Compensation Committee~~annual percentage increase in Consumer Price Index over the one-year period prior to the applicable anniversary of the ~~Board (the “Compensation Committee”). Ms. Butkevich~~Effective Date, as measured by the Bureau of Labor Statistics, multiplied by his then-current Base Salary. Mr. Song will be eligible ~~to receive~~for an annual ~~incentive~~ bonus ataccording to the terms and conditions of a ~~target amount of not less than her base salary,~~bonus plan that is 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 providedfinancial results achieved 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~~fiscal year or such other performance goals established by the ~~Company. The Employment Agreement also contains customary confidentiality, work product and return of Company property covenants.~~

Board (or the Compensation Committee), in its sole discretion. In addition, ~~Ms. Butkevich~~Mr. Song is entitled to severance pay if ~~she~~he is terminated without “cause” or resigns for “good reason,” each as defined in the Song Employment Agreement. Upon such termination, provided that ~~she~~he executes a release and waiver agreement, ~~Ms. Butkevich~~Mr. Song will be entitled to receive an amount equal to ~~the sum~~six months 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 Employment Agreement, Ms. Butkevich also received a non-qualified stock option to purchase 57,500 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.

~~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~~June 30, 2017 and 2016 was 2.8% and ~~2015 was 32.9% and (10.3)%~~14.5%, respectively, resulting in a ~~$624,000~~$345,000 and $136,000 income tax benefit, ~~and $2,976,000 income tax expense,~~ respectively. The effective income tax rate for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016 was 5.9% and ~~2015 was 25.7% and (4.6)%~~20.9%, respectively, resulting in a ~~$1,218,000~~$947,000 and $594,000 income tax benefit, ~~and $1,509,000~~respectively. The difference in the effective income tax ~~expense, respectively. During~~rate for the three and six months ended ~~September~~June 30, 2017, compared to the three and six months ended June 30, 2016, is mainly attributable to the impairment charge recognized on NAPW’s goodwill and ~~2015,~~ 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, the Company recorded a valuation allowance of $832,000 and $4,106,000, respectively.~~allowance. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management ~~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~~June 30, ~~2015. Management has again evaluated the deferred tax asset for the nine months ended September 30, 2016~~2017 and ~~has determined a full valuation allowance continues to be applicable.~~December 31, 2016.

The Company has not provided deferred income taxes on the 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 that might be payable on the undistributed earnings of its foreign subsidiaries.

~~11.~~

10. Stock-Based Compensation

Equity Incentive Plans – The ~~Company adopted the~~Company’s 2013 Equity Compensation Plan ~~under which the Company reserved 62,500 shares of common stock~~(the “2013 Plan”) was adopted 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 to 225,000~~Plan by 390,000 shares, which the Company’s stockholders approved on June ~~3, 2015.~~26, 2017. The Company is now authorized to issue 615,000 shares under the amended 2013 Plan.

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~~six months ended ~~September~~June 30, ~~2016:~~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 – June 30, 2017												304,064		$	10.61			9.5	$	-

Exercisable – September 30, 2016		30,264		$	16.29			9.2	$	-
Exercisable – June 30, 2017												124,897		$	10.83			9.4	$	-

~~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,~~$1,060,800, 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~~41.78	%
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.~~two years, with one-third vested upon grant. The Company recorded ~~$77,000~~$88,000 and $471,000 as compensation expense during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, respectively, pertaining to ~~this grant.~~these grants.

~~The Company recorded~~ Total non-cash compensation expense offor grants recorded by the Company amounted to approximately ~~$90,000~~$114,000 and ~~$31,000~~$15,000 for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and ~~approximately $135,000~~$530,000 and ~~$74,000~~$44,000 for the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, respectively, as a component of general and ~~2015, respectively,~~administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss pertaining to stock options.

Total unrecognized compensation expense related to unvested stock options at ~~September~~June 30, ~~2016~~2017 amounts to approximately ~~$182,000~~$666,000 and is expected to be recognized over a remaining weighted average period of ~~1.4~~1.6 years.

Warrants

~~The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2016:~~

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~~of June 30, 2017, there were 170,314 warrants outstanding and exercisable, with a weighted average exercise price of $32.44 per share. The weighted average remaining contractual life of the warrants at June 30, 2017 and December 31, 2016 was 3.8 and 4.3 years, respectively, and the aggregate intrinsic value was $0.

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~~six months ended June 30, 2017.

No compensation cost was recognized for the ~~carrying amount of Master Credit Facility.~~three and six months ended June 30, 2017 and 2016 pertaining to warrants.

1813

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

Restricted Stock and Restricted Stock Units

On June 26, 2017, the Company granted 15,544 restricted stock units (“RSUs”) to certain Board members. The RSUs vest 100% on June 28, 2018, subject to continued service on the vesting date. The RSUs have no voting or dividend rights. The fair value of the common stock on the date of grant was $7.72 per share, based upon the closing market price on the grant date. The aggregate grant date fair value of the combined awards amounted to $120,000.

A summary of the ~~changes in~~restricted stock award activity for the ~~Company’s unvested warrants~~six months ended June 30, 2017 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.~~

	Number of Shares

Unvested Outstanding at December 31, 2016		2,778
Granted		15,544
Forfeited		-
Vested		-
Unvested Outstanding at June 30, 2017		18,322

~~Restricted Stock~~

~~As of September 30, 2016 and December 31, 2015, there were 5,556 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~~June 30, 2017 and 2016, and ~~2015, respectively, and~~ approximately ~~$83,000 and $277,000~~$55,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015, respectively, pertaining to restricted stock.~~2016.

Total unrecognized compensation expense related to unvested restricted stock and unvested restricted stock units at ~~September~~June 30, ~~2016~~2017 amounts to approximately ~~$129,000~~$166,000 and is expected to be recognized over a weighted average period of ~~1.2~~0.9 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~~six months ended ~~September~~June 30, ~~2016~~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 June 30, 2017
	Three Months Ended September 30, 2015 (Revised)												United States
	PDN Network			NAPW Network			Noble Voice			Consolidated			PDN Network			NAPW Network			Noble Voice			China Operations			Consolidated

Membership fees and related services	$	-		$	5,652,873		$	-		$	5,652,873		$	-		$	2,444,797		$	-		$	-		$	2,444,797
Lead generation		-			-			2,334,276			2,334,276			-			-			1,604,767			-			1,604,767
Recruitment services		830,250			-			-			830,250			624,103			-			-			-			624,103
Products sales and other		-			330,769			-			330,769			-			26,573			-			-			26,573
Education and training														-			-			-			505,490			505,490
Consumer advertising and marketing solutions		73,011			-			-			73,011			58,327			-			-			-			58,327
Total revenues		903,261			5,983,642			2,334,276			9,221,179			682,430			2,471,370			1,604,767			505,490			5,264,057
Loss from operations		(491,126	)		(27,995,556	)		(339,150	)		(28,825,832	)		(526,632	)		(11,251,687	)		(555,471	)		(93,111	)		(12,426,901	)
Depreciation and amortization		93,922			786,148			45,614			925,684			7,057			741,191			49,870			2,665			800,783
Income tax benefit		2,362,220			543,018			70,979			2,976,217
Income tax expense (benefit)														107,852			(459,597	)		16,153			(9,426	)		(345,018	)
Net loss														(626,546	)		(10,792,090	)		(571,624	)		(84,684	)		(12,074,944	)
Capital expenditures		-			-			-			-			1,593			6,832			-			3,850			12,275
Net loss		(2,857,969	)		(28,538,574	)		(410,129	)		(31,806,672	)

2114

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

	Six Months Ended June 30, 2017
	United States
	PDN Network			NAPW Network			Noble Voice			China Operations			Consolidated

Membership fees and related services	$	-		$	5,260,293		$	-		$	-		$	5,260,293
Lead generation		-			-			3,328,934			-			3,328,934
Recruitment services		1,282,647			-			-			-			1,282,647
Products sales and other		-			72,941			-			-			72,941
Education and training		-			-			-			829,694			829,694
Consumer advertising and marketing solutions		124,029			-			-			-			124,029
Total revenues		1,406,676			5,333,234			3,328,934			829,694			10,898,538
Loss from operations		(1,752,853	)		(13,317,855	)		(1,000,969	)		(46,618	)		(16,118,295	)
Depreciation and amortization		53,886			1,480,317			99,745			2,665			1,636,613
Income tax expense (benefit)		(108,133	)		(820,542	)		(61,672	)		43,043			(947,304	)
Net loss		(1,646,931	)		(12,497,313	)		(939,297	)		(92,984	)		(15,176,525	)
Capital expenditures		7,147			10,646			341			35,704			53,838

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 )

	At December 31, 2015								June 30, 2017
Goodwill	$	339,451	$	19,861,739	$	-	$	20,201,190	$	339,451	$	9,941,434	$	-	$	-	$	10,280,885
Intangible assets, net		90,400		11,502,106		459,333		12,051,839		90,400		7,463,506		195,333		-		7,749,239
Total assets		4,167,229		34,985,831		2,274,756		41,427,816		3,361,676		19,352,949		1,928,366		2,882,877		27,525,868

~~14.~~

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

Membership fees and related services	$	-		$	4,259,144		$	-		$	4,259,144
Lead generation		-			-			1,415,958			1,415,958
Recruitment services		717,360			-			-			717,360
Products sales and other		-			404,590			-			404,590
Consumer advertising and marketing solutions		53,976			-			-			53,976
Total revenues		771,336			4,663,734			1,415,958			6,851,028
Loss from operations		(289,066	)		(232,145	)		(419,968	)		(941,179	)
Depreciation and amortization		47,318			697,166			66,748			811,232
Income tax expense (benefit)		2,630			18,059			(156,858	)		(136,169	)
Net loss		(292,955	)		(250,204	)		(263,110	)		(806,269	)

	Six Months Ended June 30, 2016
	PDN Network			NAPW Network			Noble Voice			Consolidated

Membership fees and related services	$	-		$	9,299,318		$	-		$	9,299,318
Lead generation		-			-			2,935,549			2,935,549
Recruitment services		1,340,669			-			-			1,340,669
Products sales and other		-			491,583			-			491,583
Consumer advertising and marketing solutions		127,052			-			-			127,052
Total revenues		1,467,721			9,790,901			2,935,549			14,194,171
Loss from operations		(720,892	)		(1,278,890	)		(840,002	)		(2,839,784	)
Depreciation and amortization		96,650			1,469,230			112,362			1,678,242
Income benefit		(150,909	)		(267,672	)		(175,812	)		(594,393	)
Net loss		(570,499	)		(1,011,218	)		(664,190	)		(2,245,907	)

	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

Professional Diversity Network, Inc.

Condensed Consolidated Notes to Financial Statements (Unaudited)

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.

2316

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~~an operator of professional networks with a focus on ~~diversity.~~diversity, employment, education and training. We use the term “diversity” (or “diverse”) to describe communities, or “affinities,” that are distinct based on a wide array of criteria, including ethnic, national, cultural, racial, religious or gender classification. We serve a variety of such communities, including Women, Hispanic-Americans, African-Americans, Asian-Americans, Disabled, Military Professionals, and Lesbian, Gay, Bisexual and Transgender ~~(LGBT)~~(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.

Our value proposition is simple: (i) we provide a robust online and in-person network for our women members to make professional and personal connections for our diverse audience of women: African Americans, Hispanics, Asians, Veterans, individuals with disabilities and members of the Gay community (with the ability to roll out to our other affinities); (ii) we assist our registered users, or members, in their efforts to connect with like-minded individuals and identify career opportunities within the network; (iii) we help employers address their workforce diversity needs by connecting them with the right candidates; and (iv) we leverage our U.S. expertise and China connections to deliver these values to China, the world’s fastest-growing market.

We operate in 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, (iii) Noble Voice operations (“ Noble Voice ”), a career consultation and lead generation 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 PDN Hong Kong through its two wholly-owned subsidiaries there and in March of 2017 the Company established PDN China through its subsidiary there. 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 the first two quarters of 2017, we held seven events as part of our education and training business line’s “Shared Economy” summit series, attracting over 7,800 paid attendees. Additionally, during the second quarter of 2017, we held a selective marketing event to introduce IAW, the PDN China women’s networking business.

Through the ~~third~~second quarter of ~~2016,~~2017, our PDN Network, NAPW Network, ~~and~~ Noble Voice and China Operations businesses represented ~~12.0%~~12.9%, ~~66.1%~~48.9%, 30.6% and ~~21.9%~~7.6% of our revenues, respectively. As of ~~September~~June 30, ~~2016,~~2017, we had approximately ~~9.0~~9.7 million registered users in our PDN Network; approximately ~~880,000~~945,000 registered users, or members, in the NAPW Network; and over ~~580~~1,000 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 September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015			2017			2016			2017			2016
Percentage of revenue by product:
Membership fees and related services		58.9	%		61.3	%		63.5	%		62.9	%		46.4	%		62.2	%		48.3	%		65.5	%
Lead generation		24.4	%		25.3	%		21.8	%		26.2	%		30.5	%		20.7	%		30.5	%		20.7	%
Recruitment services		15.0	%		9.0	%		11.2	%		8.1	%		11.9	%		10.5	%		11.8	%		9.4	%
Products sales and other		0.8	%		3.6	%		2.6	%		2.1	%		0.5	%		5.9	%		0.7	%		3.5	%
Education and training														9.6	%		0.0	%		7.6	%		0.0	%
Consumer advertising and consumer marketing solutions		0.8	%		0.8	%		0.9	%		0.7	%		1.1	%		0.7	%		1.1	%		0.9	%

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, and “virtual” eChapter events which occur in a webcast setting as well as through in-person networking at ~~nearly 200~~approximately 150 local chapters nationwide, additional career and networking events such as the National Networking Summit Series, Power Networking Events and the PDN Network ~~events, as well as~~events. NAPW members also receive 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%~~98.9% and ~~94.5%~~91.3%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended ~~September~~June 30, 2017 and 2016, and ~~2015~~98.6% and ~~96.0% and 96.8%~~95.0%, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~

242016.

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~~six months ended ~~September~~June 30, ~~2016~~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%~~91.5% and ~~91.9%~~93.0%, respectively, of ~~the~~ revenue attributable to the PDN Network business ~~segment.~~segment for the three months ended June 30, 2017 and 2016. For the ~~nine~~six months ended ~~September~~June 30, 2017 and 2016, ~~and 2015,~~ recruitment ~~services~~advertising revenue constituted approximately ~~92.8%~~91.2% and ~~92.1%~~91.3%, respectively, of the revenue attributable to the PDN Network business segment.

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%~~1.1% and ~~5.5%~~8.7%, respectively, of revenue attributable to the NAPW Network business segment for the three months ended ~~September~~June 30, 2017 and 2016, and ~~2015~~1.4% and ~~4.0% and 3.2%~~5.0%, respectively, of revenue attributable to the NAPW Network business segment for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016.

Education and Training. In March of 2017 we began our China Operations by creating a Shared Economy summit series designed to provide education and training to Chinese business people. Our initial event was a paid event which generated revenue through paid event admission fees. Through the end of the second quarter, we have delivered seven Shared Economy summit series events, cumulatively drawing over 7,800 paid attendees. Education and training represented 100% of the revenue attributable to China Operations for the three months ended June 30, 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%~~8.5% and ~~8.1%~~7.0%, respectively, of the revenue attributable to the PDN Network business ~~segment.~~segment for the three months ended June 30, 2017 and 2106. For the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, consumer advertising and consumer marketing ~~represented~~solutions revenue constituted approximately ~~7.2%~~8.8% and ~~7.9%~~8.7%, respectively, of the revenue attributable to the PDN Network business segment.

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, costs of producing education and training events, 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~~six months ended ~~September~~June 30, ~~2016,~~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~~six months ended ~~September~~June 30, ~~2016,~~2017, we realized a net loss of approximately ~~$3,519,000,~~$15,177,000, a ~~$30,919,000, or 89.8%, decrease~~$12,931,000 increase from the comparable prior year period. This ~~decrease~~increase in ~~the~~ net loss for the quarter is primarily related to agoodwill impairment charge ~~taken for~~ of $9,920,000, 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 operating expenses, partially offset by the declinedecrease in ~~revenue. Costs of~~membership fees and related services revenue, ~~declined 47.6% during the nine months ended September 30, 2016 on a year-over-year basis due to significant reductions~~an increase in ~~expenditures~~stock-based compensation, and ~~improved buying efficiencies of data used~~an increase 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 with significant reductions of sales staff at both the NAPW Network 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.

25legal expenses.

~~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.

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 offer free memberships and in our NAPW segment we also offer a paid membership, one that provides a greater level of services and networking potential. The vast majority of our registered users are non-paid 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				As of June 30,				Change
	2016		2015		(Percent)				2017		2016		(Percent)
	(in thousands)							(in thousands)
PDN Network Registered Users (1)		8,951		6,837		30.9	%			9,745		8,552		13.9	%
NAPW Network Total Membership (2)		880		831		5.9	%			945		872		8.4	%

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

(Amount in thousands)
													Three Months Ended						Six Months Ended
	Three Months Ended						Nine Months Ended						June 30,						June 30,
	September 30,						September 30,						2017			2016			2017			2016
	2016			2015			2016			2015			(in thousands)
Net loss	$	(1,273	)	$	(31,807	)	$	(3,519	)	$	(34,438	)	$	(12,075	)	$	(806	)	$	(15,177	)	$	(2,246	)
Impairment expense		-			26,744			-			26,744
Stock-based compensation expense		118			114			218			351			70			43			585			100
Depreciation and amortization		820			926			2,498			2,731			801			811			1,637			1,678
Litigation settlement		-			-			500			-			-			-			-			500
Gain on lease cancellation		-			-			(424	)		-			-			(424	)		-			(424	)
Change in fair value of warrant liability		401			(2	)		401			(94	)
Goodwill impairment charge														9,920			-			9,920			-
Interest expense		216			9			217			84			-			1			12			1
Interest and other income		-			(2	)		(1	)		(26	)		(3	)		-			(5	)		(1	)
Income tax expense (benefit)		(624	)		2,976			(1,218	)		1,509
Income tax benefit														(345	)		(136	)		(947	)		(594	)
Adjusted EBITDA	$	(342	)	$	(1,042	)	$	(1,328	)	$	(3,139	)	$	(1,632	)	$	(511	)	$	(3,975	)	$	(986	)

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										Three Months Ended
	September 30,				Change			Change			June 30,						Change				Change
	2016		2015		(Dollars)			(Percent)			2017			2016			(Dollars)				(Percent)
	(in thousands)										(in thousands)
Revenues
Membership fees and related services	$	3,748	$	5,653	$	(1,905	)		(33.7	%)		$	2,445		$	4,259		$	(1,814	)		(42.6	)%
Lead generation		1,554		2,334		(780	)		(33.4	%)			1,605			1,416			189			13.3	%
Recruitment services		955		830		125			15.1	%			624			717			(93	)		(13.0	)%
Products sales and other		53		331		(278	)		(84.0	%)			27			405			(378	)		(93.3	)%
Education and training													505			-			505			100.0	%
Consumer advertising and marketing solutions		50		73		(23	)		(31.5	%)			58			54			4			7.4	%
Total revenues	$	6,360	$	9,221	$	(2,861	)		(31.0	%)		$	5,264		$	6,851		$	(1,587	)		(23.2	)%

Nine Months Ended
September 30, Change Change
2016 2015 (Dollars) (Percent)
(in thousands)
Revenues
Membership fees and related services $ 13,048 $ 18,885 $ (5,837 ) (30.9 %)
Lead generation 4,490 7,853 (3,363 ) (42.8 %)
Recruitment services 2,295 2,433 (138 ) (5.7 %)
Products sales and other 544 631 (87 ) (13.8 %)
Consumer advertising and marketing solutions 177 209 (32 ) (15.3 %)
Total revenues $ 20,554 $ 30,011 $ (9,457 ) (31.5 %)

	Six Months Ended
	June 30,				Change			Change
	2017		2016		(Dollars)			(Percent)
	(in thousands)
Revenues
Membership fees and related services	$	5,260		9,299		(4,039	)		(43.4	)%
Lead generation		3,329		2,936		393			13.4	%
Recruitment services		1,283		1,341		(58	)		(4.3	)%
Products sales and other		73		492		(419	)		(85.2	)%
Education and training		830		-		830			100.0	%
Consumer advertising and marketing solutions		124		126		(2	)		(1.6	)%
Total revenues	$	10,899		14,194		(3,295	)		(23.2	)%

Total revenues decreased ~~$2.9 million,~~$1,587,000, or ~~31.0%~~23.2% for the three months ended ~~September~~June 30, ~~2016,~~2017, compared to the same prior year period, and ~~$9.5 million,~~$3,295,000, or ~~31.5%~~23.2%, for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared to the same prior year period, due primarily to decrease in membership fees and products sales as the management ~~focus~~focuses 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.

salesforce.

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			June 30,				Change			Change
	2016		2015		(Dollars)			(Percent)			2017		2016		(Dollars)			(Percent)
	(in thousands)										(in thousands)
NAPW Network	$	3,801	$	5,984	$	(2,183	)		(36.5	%)	$	2,472		4,664		(2,192	)		(47.0	)%
PDN Network		1,005		903		102			11.3	%		682		771		(89	)		(11.5	)%
Noble Voice		1,554		2,334		(780	)		(33.4	%)		1,605		1,416		189			13.3	%
China												505		-		505			100.0	%
Total revenues	$	6,360	$	9,221	$	(2,861	)		(31.0	%)	$	5,264		6,851		(1,587	)		(23.2	)%

	Nine Months Ended										Six Months Ended
	September 30,				Change			Change			June 30,				Change			Change
	2016		2015		(Dollars)			(Percent)			2017		2016		(Dollars)			(Percent)
	(in thousands)										(in thousands)
NAPW Network	$	13,592	$	19,516	$	(5,924	)		(30.4	%)	$	5,333		9,791		(4,458	)		(45.5	)%
PDN Network		2,472		2,642		(170	)		(6.4	%)		1,407		1,467		(60	)		(4.1	)%
Noble Voice		4,490		7,853		(3,363	)		(42.8	%)		3,329		2,936		393			13.4	%
China												830		-		830			100.0	%
Total revenues	$	20,554	$	30,011	$	(9,457	)		(31.5	%)	$	10,899		14,194		(3,295	)		(23.2	)%

~~Membership~~During the three months ended June 30, 2017, our NAPW Network generated $2,472,000 in revenue from membership fees and related services and ~~products~~product sales, ~~of $3,801,000~~compared to $4,664,000 for the ~~three~~same period in the prior year, a decrease of $2,192,000, or 47.0%. During the six months ended June 30, 2017, our NAPW Network generated $5,333,000 in revenue from membership fees and ~~$13,592,000~~related services and product sales and other, compared to $9,791,000 for the ~~nine months ended September 30, 2016,~~same period in the prior year, a decrease of $4,458,000, or 45.5%. The decrease was mainly attributable to ~~the NAPW Network, represent a reduction of $2,183,000 and $5,924,000, respectively, from the comparable periods in 2015, or 36.5% and 30.4% respectively. The decrease is primarily the result of~~ 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~~other marketing activities and replaced and re-trained sales staff on new sales practices we expect to ~~increase the salesforce in future periods.~~lead to improved long-term productivity. We also expect the NAPW Network to continue restructuring and cost-cutting efforts during the remainder of 2017 and 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~~the attendant efficiencies we expect to create through our recent restructuring efforts.

During the ~~Company’s financial condition~~three months ended June 30, 2017, our PDN Network generated $682,000 in revenue, compared to $771,000 for the same period in the prior year, a decrease of $89,000, or 11.5%. During the six months ended June 30, 2017, our PDN Network generated $1,407,000 in revenue, compared to $1,467,000 for the same period in the prior year, a decrease of $60,000, or 4.1%. While Q1 2017 saw a modest uptick in sales and ~~results of operations.~~revenue generation over the prior year’s performance, Q2 experienced a slight decline. The sales team experienced a reduction in staff with a corresponding drop in revenue generation. Additionally, sales strategy and operational changes implemented in Q2 are expected to result in an increase in Q3 revenue.

During the three months ended ~~September~~June 30, ~~2016,~~2017, our ~~PDN Network~~Noble Voice business generated ~~$1,005,000 in~~$1,605,000 of lead generation revenue, compared to ~~$903,000~~$1,416,000 for the same period in the prior year, an increase of ~~$102,000,~~$189,000 or ~~11.3%~~13.3%. During the six months ended June 30, 2017, our Noble Voice business generated $3,329,000 of lead generation revenue, compared to $2,936,000 for the same period in the prior year, an increase of $393,000 or 13.4%. The increase was mainly attributable to the PDN Recruits product that was added to our product line in December 2015 which targets a broader audience and shorter sales cycle that can generate recurring revenue on a monthly basis and resulted in approximately $92,000 in revenue for the quarter. During the nine months ended September 30, 2016, our PDN Network generated $2,472,000 in revenue compared to $2,642,000 generatedan improvement in the ~~prior year period,~~private education marketplace, coupled with strategic internal initiatives to increase volume and better lead quality. Staffing levels are heightened thus far in 2017 as operations continue to be optimized and efficiencies improved and managed. There has also been a ~~decrease of $170,000 or 6.4%. For~~focused commitment to improved customer relations with quality and growth the ~~three and nine months ended September 30, 2016, we had an increase of $102,000 and a decrease of $170,000 respectively due to the PDN Recruits revenue previously mentioned and strong activity~~chief goals.

We started our operations in ~~the third quarter of 2016 for the direct sales of our recruitment services. Included~~China in this change was (i) a $37,000 increase and $182,000 period-over-period reduction in direct sales of our recruitment services, for the three and nine months ended September 30, 2016, respectively, 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 Division 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.

~~Noble Voice generated $1,554,000 and $4,490,000 of lead generation revenue for~~Q1 2017. During the three months ~~and nine~~ended June 30, 2017, China Operations generated $505,000 of revenue. During the six months ended ~~September~~June 30, ~~2016, respectively, compared to $2,334,000 and $7,853,000, respectively, for the same periods in 2015, representing a decrease~~2017, China Operations generated $830,000 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.revenue.

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			June 30,				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	%)
Cost of revenue											$	834		804		30			3.7	%
Sales and marketing		3,064		5,132		(2,068	)		(40.3	%)		2,584		3,428		(844	)		(24.6	)%
General and administrative		3,011		3,748		(737	)		(19.7	%)		3,551		2,749		802			29.2	%
Impairment expense		-		26,744		(26,744	)		(100.0	%)
Goodwill impairment charge												9,920		-		9,920			100.0	%
Depreciation and amortization		820		926		(106	)		(11.4	%)		801		811		(10	)		(1.2	)%
Loss on sale of property and equipment		-		33		(33	)		(100.0	%)
Total costs and expenses	$	7,640	$	38,047	$	(30,407	)		(79.9	%)	$	17,690		7,792		9,898			127.0	%

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~~During the three months ended June 30, 2017, total costs and expenses ~~decreased significantly~~were $17,690,000, compared to $7,792,000 for same period in the ~~three~~prior year, an increase of $9,898,000 or 127.0%. The increase is primarily a result of goodwill impairment charge of $9,920,000, an increase of $802,000 or 29.2% in general and ~~nine~~administrative expense and an increase of $30,000 or 3.7% in cost of revenue. The primary drivers of our G&A increases are increased legal services, compensation to independent board directors and new staff in China and in the United States to support our expansion into the Chinese markets and beyond. The increase in expenses was partially offset by a decrease of $844,000 or 24.6% in sales and marketing mostly due to reduction of salesforce, and a decrease of $10,000 or 1.2% in depreciation and amortization..

	Six Months Ended
	June 30,					Change			Change
	2017			2016		(Dollars)			(Percent)
	(in thousands)
Costs and expenses:
Cost of revenue		$	1,535		1,688		(153	)		(9.1	)%
Sales and marketing			5,839		7,250		(1,411	)		(19.5	)%
General and administrative			8,086		5,918		2,168			36.6	%
Litigation settlement			-		500		(500	)		(100.0	)%
Goodwill impairment charge			9,920		-		9,920			100.0	%
Depreciation and amortization			1,637		1,678		(41	)		(2.4	)%
Total costs and expenses		$	27,017		17,034		9,983			58.6	%

During the six months ended ~~September~~June 30, ~~2016 to $7,640,000~~2017, total costs and ~~$24,674,000, respectively,~~expenses were $27,017,000, compared to ~~$38,047,000 and $62,976,000~~$17,034,000 for the ~~three~~same period in the prior year, and ~~nine months ended September 30, 2015, respectively. This~~increase of $9,983,000, or 58.6%. The increase is primarily a result of goodwill impairment charge of $9,920,000, an increase of $2,168,000 or 36.6% in general and administrative expense, partially offset by a decrease of ~~79.9%~~$1,411,000 or 19.5% in sales and ~~60.8%, respectively, is primarily~~marketing, a $500,000 litigation settlement in the ~~result~~first quarter of ~~an impairment expense~~2016, a decrease of ~~$26,744,000 taken~~$153,000 or 9.1% decrease in ~~September 2015 that was not necessary for the nine months ended September 30, 2016, combined with management focus on~~ cost ~~reduction including the closure~~ of ~~operating facilities at NAPW~~revenue and ~~Noble Voice, reduced spending on digital advertising~~a decrease of $41,000 or 2.4% in depreciation and ~~direct mail and reductions in force across all divisions.~~

~~Operating Expenses~~amortization.

Cost of ~~revenues~~revenue: Cost of revenues during the three ~~and nine~~ months ended ~~September~~June 30, ~~2016~~2017 were ~~$745,000 and $2,434,000, respectively,~~$834,000, compared to $804,000 for the same period in the prior year, an increase of $30,000, or 3.7%, mainly attributable to an increase of $231,000 related to our China Operations that was launched in March 2017, partially offset by a decrease of ~~$719,000, or 49.1%, and $2,213,000, or 47.6%, respectively, from $1,464,000 and $4,647,000, respectively, for~~$112,000 in the three and nine months ended September 30, 2015. The decrease was mainly due to (i) a period-over-period reduction of $533,000 and $1,678,000 during the three and nine months ended September 30, 2016, respectively, of expenditures on data to generate call traffic at our Noble Voice divisionPDN segment as a result of ~~reduced volume and increased~~improved efficiencies in ~~purchasing data, (ii) a $40,000~~spending, 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~~$73,000 in the Noble Voice segment due to improved efficiencies in lead data sourcing and ~~$73,000~~spending. Cost of ~~direct costs incurred in connection with our Events Division~~revenues during the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, respectively,~~2017 were $1,535,000, compared to $1,688,000 for the same period in the prior year, a decrease of $153,000, or 9.1%, mainly attributable to a decrease of $186,000 in the PDN segment as a result of ~~differences~~improved efficiencies in ~~scheduling~~spending, and ~~operating~~a decrease of $177,000 in the ~~events. Cost~~Noble Voice segment as a result of ~~revenues~~improved efficiencies in lead data sourcing and spending, partially offset by an increase of $268,000 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~~China Operations that was launched in ~~our consumer advertising revenues for the same quarterly and year to date periods.~~March 2017.

Sales and marketing expense: Sales and marketing expense during the three months ended June 30, 2017 were $2,584,000, compared to $3,428,000 for the same period in the prior year, a decrease of $844,000, or 24.6%. Sales and marketing during the six months ended June 30, 2017 were $5,839,000, compared to $7,250,000 for the same period in the prior year, a decrease of $1,411,000, or 19.5%. The decreases for the three and ~~nine~~six months ended ~~September~~June 30, 2016 was $3,064,000 and $10,314,000, respectively, a decrease of 2,068,000, 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. The decrease was2017 are primarily ~~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~~due to ~~improve efficiency and a~~ reduction in the ~~volume~~NAPW segment sales force from 73 sales representatives as of ~~digital advertising and direct mail~~June 30, 2016 to ~~match the capacity~~50 as of ~~the reduced salesforce. We expect our sales and marketing costs to increase in the future, particularly in NAPW Network, as we reinvest in our business.~~June 30, 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~~expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2016, respectively.~~2017 was $3,551,000, compared to $2,749,000 for the same period in the prior year, an increase of $802,000 or 29.2%. The ~~decrease~~increase was ~~primarily~~mainly attributable to a $325,000 increase in rent expense due to ~~(i) a $510,000 and $1,301,000 decrease in wages and benefits during the three and nine month ended September 30, 2016, respectively, due to decreases in the number~~gain on lease cancellation 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,~~$424,000 related to the closing ~~the~~of its Los Angeles, CA office ~~which includes a gain on the lease cancellation of $424,000 recognized~~that was recorded during the three months ended ~~September~~June 30, 2016, ~~partially offset by~~ an increase of $270,000 related to our China Operations that were launched in ~~costs~~March 2017, and a $250,000 increase in legal fees. General and administrative expense for the six months ended June 30, 2017 was $8,086,000, compared to $5,918,000 for the same period in the prior year, an increase of $2,168,000 or 36.6%. The increase was mainly attributable to a $715,000 increase in legal fees, a $508,000 increase related to our China Operations that was launched in March 2017, a $486,000 increase in stock based compensation, a $221,000 increase in rent due to gain on lease cancellation of $424,000 related to the closing of its Los Angeles, CA office that was recorded during the three months ended June 30, 2016 and a $249,000 increase in compensation to independent board directors.

Litigation settlement: Litigation settlement for the six months ended June 30, 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~~ that was recorded 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 fourthfirst quarter of ~~2016, mainly as a result of transaction expenses related to the Purchase Agreement with CFL discussed above.~~2016.

~~Impairment expense:~~Goodwill impairment charge: As a result of the recurring operating losses incurred in NAPW ~~Network~~ since its acquisition in September 2014, ~~management~~the Company undertook a review of the carrying amount of its goodwill as of ~~September~~June 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.~~2017. Accordingly, wethe Company recorded a goodwill impairment charge of ~~$26,744,000~~$9,920,000 the three and six months ended June 30, 2017. No goodwill impairment charge was recorded during the three and ~~nine~~six months ended ~~September~~June 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 for the three months ended June 30, 2017 was $801,000, compared to $811,000 for the same period in the prior year, a decrease of $10,000 or 1.2%. Depreciation and amortization expense for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016~~2017 was ~~$820,000 and $2,498,000, respectively,~~$1,637,000, compared to ~~$926,000 and $2,731,000~~$1,678,000 for the same period in the prior year, a decrease of $41,000 or 2.4%. The decrease for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2017 was mainly attributable to a ~~decrease of $106,000, or 11.4%, and $233,000, or 8.5%, respectively. The decrease included (i) 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)~~Tax Benefit

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

		Three Months Ended
		June 30,						Change			Change
		2017			2016			(Dollars)			(Percent)
	(in thousands)
Total		$	(345	)	$	(136	)	$	(209	)		153.7	%

3123

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

		Six Months Ended
		June 30,						Change			Change
		2017			2016			(Dollars)			(Percent)
	(in thousands)
Total		$	(947	)	$	(594	)	$	(353	)		59.4	%

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

The effective income tax rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2015~~2017 and 2016 was ~~$9,000~~2.8% and ~~$84,000,~~14.5%, respectively, resulting in a $345,000 and $136,000 income tax benefit, respectively. The effective income tax rate for the six months ended June 30, 2017 and 2016 was 5.9% and 20.9%, respectively, resulting in a $947,000 and $594,000 income tax benefit, respectively. The difference in the ~~result of the amortization of accrued interest on purchased investment securities. In addition,~~effective income tax rate for the three and six months ended June 30, ~~2015, we~~2017, compared to the three and six months ended June 30, 2016, is mainly attributable to the impairment charge recognized ~~interest income of $2,000~~on NAPW’s goodwill 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)~~

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 )%

The effective income tax rate for the three and nine months ended September 30, 2016 was 32.9% and 25.7%, respectively, resulting in income tax benefits of $624,000 and $1,218,000, respectively. 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 2016 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, 2016 and 2015, the Company recorded a valuation allowance of $458,000 and $4,106,000, respectively, and during the nine months ended September 30, 2016 and 2015, the Company recorded a valuation allowance of $832,000 and $4,106,000, respectively. 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 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 a valuation allowance as of September 30, 2015. Management has again evaluated the deferred tax asset for the nine months ended September 30, 2016 and has determined a full valuation allowance continues to be applicable. allowance.

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			June 30,						Change			Change
	2016			2015			(Dollars)		(Percent)			2017			2016			(Dollars)			(Percent)
	(in thousands)											(in thousands)
NAPW Network	$	(604	)	$	(28,539	)	$	27,935		(97.9	%)	$	(10,792	)		(250	)		(10,542	)		4,216.8	%
PDN Network		(513	)		(2,858	)		2,345		(82.1	%)		(627	)		(293	)		(334	)		114.0	%
Noble Voice		(156	)		(410	)		254		(62.0	%)		(572	)		(263	)		(309)			117.4	%
China													(85	)		-			(85	)		100.0	%
Consolidated Net Loss	$	(1,273	)	$	(31,807	)	$	30,534		(96.0	%)	$	(12,076	)		(806	)		(11,270	)		1,398.3	%

	Nine Months Ended												Six Months Ended
	September 30,						Change			Change			June 30,						Change			Change
	2016			2015			(Dollars)			(Percent)			2017			2016			(Dollars)			(Percent)
	(in thousands)												(in thousands)
NAPW Network	$	(1,616	)	$	(30,146	)	$	28,530			(94.6	%)	$	(12,497	)		(1,011	)		(11,486	)		1,136.1	%
PDN Network		(1,083	)		(3,588	)		2,505			(69.8	%)		(1,647	)		(570	)		(1,077	)		188.9	%
Noble Voice		(820	)		(704	)		(116	)		16.5	%		(939	)		(664	)		(275	)		41.4	%
China														(93	)		-			(93	)		100	%
Consolidated Net Loss	$	(3,519	)	$	(34,438	)	$	30,919			(89.8	%)	$	(15,176	)		(2,245	)		(12,931	)		576.0	%

As the result of the factors discussed above, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 we incurred ~~$1,273,000~~$12,076,000 and ~~$3,519,000~~$15,176,000 respectively, of net losses, ~~respectively,~~an increase (decrease) of 1,397.8% and 576.0% from net loss of $806,000 and $2,245,000 during the three and six months ended June 30, 2016. The $11,270,000 increase in net loss for the three months ended June 30, 2017 was primarily driven by a decrease of ~~96.0%~~$2,192,000 in NAPW segment revenues from membership fees, related services and ~~89.8% from net losses for the three and nine months ended September 30, 2015. The changes were primarily attributable to a~~product sales period-over-period, along with NAPW segment goodwill impairment charge of ~~$26,744,000 taken on September 30, 2015 against NAPW~~$9,920,000, and ~~reduced operating losses at NAPW Network, PDN Network~~increase of $802,000 in overall general and ~~Noble Voice.~~administrative expenses. The $12,931,000 increase in net loss ~~at NAPW Network~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2016 included a non-recurring expense of $500,000 related to the settlement of a lawsuit, offset~~2017 was primarily driven by a ~~$424,000 gain on the lease cancellation~~decrease of ~~our former Los Angeles, California~~$4,458,000 in NAPW ~~office. The Company also recorded $624,000~~segment revenues from membership fees, related services and ~~$1,218,000~~product sales period-over-period, along with NAPW segment goodwill impairment charge of ~~income tax benefits for the three~~$9,920,000, an increase of $2,168,000 in overall general 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~~six months ended ~~September~~June 30, ~~2016,~~2017, we incurred a net loss of ~~$604,000~~$10,792,000 and ~~$1,616,000,~~$12,497,000, respectively, attributable to the NAPW Network segment, compared to ~~$28,539,000~~net loss of $250,000 and ~~$30,146,000~~$1,011,000 for the ~~prior year periods. This~~for the three and six months ended June 30, 2016, respectively. The increase in net loss was primarily attributable to a year-over-year decrease in NAPW segment revenues from membership fees, related services and product sales, goodwill impairment charge of $9,920,000 and increased corporate overhead.

During the three and six months ended June 30, 2017, we incurred a net loss of $627,000 and $1,647,000, respectively, attributable to the PDN Network segment, compared to net loss of $293,000 and $570,000 for the three and six months ended June 30, 2016, respectively. The increase in net loss was primarily attributable to $486,000 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 and six months ended June 30, 2017, we incurred a net loss of $572,000 and $939,000, respectively, attributable to the Noble Voice segment, compared to $263,000 and $664,000 for the three and six months ended June 30, 2016, respectively. The decrease in net loss was primarily attributable to a goodwill impairment charge of $-0- for 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 of NAPW Network office facilities during the year ended December 31, 2015 and the reductions in force and reduced spending on digital advertising, partially offset by ~~a decrease in recognized revenue and the $500,000 of lawsuit settlements.~~higher corporate overhead.

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~~June 30, ~~2016~~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 )

		June 30,		December 31,
		2017		2016
	(in thousands)
Cash and cash equivalents		$	4,952	$	6,069
Working capital		$	327	$	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~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, we had working capital ~~deficiencies~~ of approximately ~~$10,597,000~~$327,000 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~~six months ended ~~September~~June 30, ~~2016,~~2017, we generated a net loss of approximately ~~$3,519,000,~~$15,177,000 (including a non-cash impairment charge of $9,920,000), used cash in operations of approximately ~~$2,489,000,~~$4,507,000, 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 August 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							Six Months Ended
	September 30,							June 30,
	2016			2015				2017			2016
	(in thousands)						(in thousands)
Cash provided by (used in):
Operating activities	$	(2,489	)	$	(4,207	)		$	(4,507	)	$	(2,233	)
Investing activities		694			3,910				(117	)		507
Financing activities		239			2,658				3,502			948
Net increase (decrease) in cash and cash equivalents	$	(1,556	)	$	2,361
Effect of exchange rate fluctuations on cash and cash equivalents									5			-
Net decrease in cash and cash equivalents								$	(1,117	)	$	(778	)

Net Cash Used in Operating Activities

~~Net~~For the six months ended June 30, 2017, net cash used in operating activities ~~for the nine months ended September 30, 2016~~ was ~~$2,489,000.~~$4,507,000. We had a net loss of ~~$3,519,000 during the nine months ended September 30, 2016,~~$15,177,000, a deferred income tax benefit of ~~$1,218,000 and a gain on lease cancellation of $424,000,~~$990,000, which ~~were partially~~was offset by non-cash NAPW goodwill impairment charge of $9,920,000, depreciation and amortization of ~~$2,498,000, an increase in the fair value of warrant liabilities of $401,000,~~$1,637,000 and stock-based compensation expense of ~~$218,000 and deferred financing cost amortization of $157,000.~~$585,000. Changes in operating assets and liabilities used ~~$601,000~~$638,000 of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, consisting primarily of decreases in deferred revenue and ~~increased prepaid expenses~~accounts payable and slight increases in accounts receivable, partially offset by increases in accrued ~~expenses.~~expenses and decreases in prepayments.

Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 was ~~$4,207,000.~~$2,233,000. We had a net loss of ~~$34,438,000~~$2,246,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, which was offset by non-cash depreciation and amortization of ~~$2,731,000, impairment expense of $26,744,000,~~$1,678,000, 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$100,000 and a deferred tax benefit of ~~$1,509,000.~~$594,000. Changes in operating assets and liabilities used ~~$1,127,000~~$747,000 of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016, consisting primarily of decreases in deferred revenue partially offset by increases in accrued expenses.

Net Cash (Used in) Provided by Investing Activities

Net cash ~~provided by~~used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 was ~~$694,000,~~$117,000, consisting of ~~$500,000~~$70,000 invested to develop technology, $54,000 in purchases of ~~proceeds from the maturities of short-term investments~~property and ~~$194,000~~equipment, partially offset by $7,000 of returned security deposits.

Net cash provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 was ~~$3,910,000,~~$507,000, consisting of ~~$5,297,000~~$500,000 of proceeds from the maturities of short-term investments ~~offset by $925,000 from the purchase~~and $7,000 of ~~short-term investments, $393,000 invested to develop technology, $54,000 in purchases of property and equipment and $15,000 of new~~returned security deposits.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, 2017 was $3,502,000, consisting of the $3,000,000 in gross proceeds from the January 18, 2017 issuance, $646,000 refund of merchant reserve, partially offset by the $144,000 payment of offering costs to third-party professionals.

Net cash provided by financing activities during the six months ended June 30, 2016 was ~~$239,000,~~$948,000, consisting of ~~$1,943,000~~$1,573,000 of proceeds drawn on our Master Credit Facility , partially offset by ~~$488,000~~$459,000 of costs related to securing that facility ~~payment of $1,049,000 of costs related to the CFL Transaction~~ and $166,000 due to the increase in the 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~~June 30, ~~2016,~~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~~We recognize that ~~evaluation and because of the~~there are material weaknesses related to our internal controls as described below. Therefore, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, as of the end of the period covered by this Quarterly Report in. This includes 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~~. Furthermore, 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~~second 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. Specifically, we~~2016. We continued making necessary changes and implementing new policies to ~~more fully segregate incompatible duties and~~ enhance the overall internal control ~~structure.~~structure, including requiring pre-approval for certain purchases, more controls in creating new vendors in the system, creating various levels of approval authority, streamlining and establishing monthly closing procedures and reorganizing accounting department to improve segregation of duties. There have been no other changes in our internal control over financial reporting during the ~~third~~second 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.~~weaknesses. 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~~weaknesses have been remediated.

PART II

ITEM 1.

LEGAL PROCEEDINGS

The Company has previously disclosed that it 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. During the first quarter of 2016, the Company 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 Company also recorded a litigation settlement expense in the amount of $500,000. On November 28, 2016, the Court approved the proposed settlement. In December of 2016 the Company paid the settlement amount in the Court’s fund and the third-party administrator began distributing payments to class members. On August 2, 2017, the Court notified the parties that the case is “reported as complete without the need for a further status conference”. The Company expects a formal dismissal order in the near future.

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to ~~an action~~a proceeding captioned ~~LinkedIn Corp. v. NAPW, Inc. and~~In re Professional Diversity Network, ~~Inc.~~Cases 31-CA-159810 and 31-CA-162904, ~~No. 16-CV-299784 (Santa Clara Superior Ct.). The lawsuit was~~ filed ~~on September 12, 2016. LinkedIn Corp.~~with the National Labor Relations Board (“~~LinkedIn”~~NLRB”), in June 2015 and alleging violations of 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 postponeNational Labor Relations Act against 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 alleging violations of various California Labor Code (wage & hour) sections. The plaintiffs seek unspecified damages. The complaint was filed in December 2015 and the Company has answered. On April 28, 2016, the parties entered into a mutual settlement agreement and release, on behalf of all putative class participants, in the amount of $500,000. Such amount is recorded in accrued expenses in the accompanying condensed consolidated balance sheet as of September 30, 2016. The parties’ agreement and its amount are subject to Court and state agency approval. The Company has been notified that 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 2017.

~~The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to an administrative action before the National Labor Relations Board captioned as~~ ~~In re Professional Diversity Network, Cases 31-CA-159810 and 31-CA-162904 (NLRB), alleging violations of the National Labor Relations Act,~~ 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~~NLRB to ~~comply with~~carry out the effects of its order. The NLRB ~~order.~~is expected to levy a make-whole remedy to the subject employee. The Company does not ~~anticipate that its outcome will~~expect the resolution of this matter to have a material negative impact on ~~the Company’s~~its financial ~~position.~~condition.

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 not yet notified the Company that it has issued a ~~preliminary finding, that~~right-to-sue letter, and the ~~Company discriminated against the complainant.~~ complainant has not yet filed a lawsuit.

~~On November 4, 2016, we entered into a Confidential Settlement~~Equal Pay Act of 1963, where employee alleges she was discriminated by the Company due to her race 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~~her sex 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~~was paid less than similarly situated white males. The Company is in the ~~principal amount~~process 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~~providing a response 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.

EEOC.

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, we~~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~~June 30, ~~2016.~~2017.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

3929

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

4030

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: August ~~Date:~~14~~November 14, 2016~~ , 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)

4131

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

4232

	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