7. Commitments and Contingencies

Lease Obligations – The Company leases office space and equipment under various operating lease agreements, including an office for its headquarters, 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.

The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 842, effective January 1, 2019. Under the new guidance, at the commencement date, lessees are 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. ASC 842 was previously required to be adopted using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented.

As of September 30, 2019, right of use assets were $180,000, current lease obligations were $190,000, and non-current lease obligations were $1,000.

Short-term Loan

On July 24, 2019, our China Operations entered into an enterprise loan agreement with Guangzhou Zhongtianshengxiang Technology in amount of RMB 2,000,000 (approximately $280,000), payable by July 16, 2020. Interest at a rate of 5% per annum is payable at the end of the loan term.

During the quarter ended September 30, 2019, The Company recorded lease amortization expense of $85,000 which is continued to be classified in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Total lease expense, including lease amortization, of approximately $136,000 and $87,000 for the three months ended September 30, 2019 and 2018, respectively, and $351,000 and $495,000 for the nine months ended September 30, 2019 and 2018, respectively, is included in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Legal Proceedings

In a letter dated October 12, 2017, White Winston Select Asset Funds (“White Winston”) ‎threatened to assert claims against the Company in excess of $2 million based on White ‎Winston’s contention that the Company’s conduct delayed White Winston’s ability to sell ‎shares in the Company during a period when the Company’s stock price was generally ‎falling. On April 30, 2018, White Winston filed a lawsuit, entitled White Winston Select ‎Asset Funds, LLC, No. 18-cv-10844, (the “Federal Action”) in the United States District ‎Court for the District of Massachusetts, asserting federal jurisdiction based on diversity ‎of citizenship. The four-count complaint in the Federal Action alleged that White ‎Winston is entitled to recover compensatory damages of $1,708,233, plus attorneys’ fees, ‎treble damages and other amounts. White Winston served the complaint on July 12, 2018, ‎and the Company moved to dismiss the entire action for failure to state a claim. On ‎October 15, 2018, prior to addressing the motion to dismiss, the Court issued an order ‎noting that White Winston (which is a limited liability company) had failed to allege the ‎citizenship of its members and ordered White Winston to show cause that complete diversity exists between the parties and that the Court had jurisdiction. On ‎October 23, 2018, White Winston dismissed the Federal Action without prejudice. On ‎December 18, 2018, White Winston filed a complaint in Massachusetts Superior Court in ‎Suffolk County in Boston alleging the same claims and rights to relief as in the Federal ‎Action. The Company again moved to dismiss the complaint in its entirety for failure to ‎state a claim. The Court heard the motion on May 29, 2019 issued a written order on May ‎‎30, 2019 denying the motion. On July 10, 2019, the Court held a Rule 16 conference, ‎following which it set a case management schedule. Fact discovery has now commenced. ‎The Company denies liability for all claims.‎

NAPW is a defendant in a Nassau County (NY) Supreme Court case, whereby TL Franklin Avenue Plaza LLC has sued NAPW with respect to NAPW’s former Garden City NY Premises. NAPW had surrendered the Premises to the Landlord, and the Landlord is suing NAPW for the balance of the rent due under the Lease Term – which term is less than one year remaining. The case is currently being litigated, summary judgment was rendered for the plaintiff and only the calculation of damages remains in this litigation.

The Company and its wholly-owned subsidiary, NAPW, Inc., are parties to a proceeding captioned Deborah Bayne, et al. vs. NAPW, Inc. and Professional Diversity Network, Inc., No. 18-cv-3591 (E.D.N.Y.), filed in June of 2018 and alleging violations of the Fair Labor Standards Act and certain provisions of the New York Labor Law. The Company disputes that it or its subsidiary violated the applicable laws or that either entity has any liability and intends to vigorously defend against these claims. The matter is in the final stages of discovery. The potential financial impact on the Company is inherently uncertain at this point.

The Company was named in a state court action in Miami-Dade County, No. 2019-014773-CA-01 by Local Staffing, LLC (“Local Staffing”) vs. Professional Diversity Network, Inc. on alleged breach of contract and account stated claims. The Company disputes liability, but has entered into a confidential settlement agreement and parties agreed to dismiss the case. The order dismissing this case has now been entered.

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.