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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2019
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File No. 000-55779
LIBERATED SYNDICATION INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
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47-5224851
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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5001
Baum Blvd, Suite 770
Pittsburgh, PA 15213
(Address of
Principal Executive Offices)
Registrant's
Telephone Number: (412) 621-0902
Securities
Registered pursuant to Section 12(b) of the Act:
NONE
Securities
Registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by checkmark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. ☐
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
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
every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of
‘‘large accelerated filer”, “accelerated
filer,’’ “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
☐
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Accelerated filer
☐
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Non-accelerated filer ☒
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Smaller reporting company
☒
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Emerging growth company ☒
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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 ☒
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter:
$60,914,352, based on the closing bid price of the
registrant’s common stock on June 30, 2019.
As of
May 14, 2020, there were 29,346,974 shares of common stock, par
value $0.001, of the registrant issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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2
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Safe Harbor Statement.
Statements
made in this Form 10-K which are not purely historical are
forward-looking statements with respect to the goals, plan
objectives, intentions, expectations, financial condition, results
of operations, future performance and business of the Company, Pair
and Libsyn, including, without limitation, (i) our ability to gain
a larger share of the podcasting industry in our chosen markets,
our ability to continue to develop products and services acceptable
to that industry, our ability to retain our business relationships,
and our ability to raise capital and the growth of podcast and web
hosting and domains industries, and (ii) statements preceded by,
followed by or that include the words "may", "would", "could",
"should", "expects", "projects", "anticipates", "believes",
"estimates", "plans", "intends", "targets" or similar
expressions.
Forward-looking
statements involve inherent risks and uncertainties, and important
factors (many of which are beyond the Company’s control) that
could cause actual results to differ materially from those set
forth in the forward-looking statements, including the following,
in addition to those contained in our reports on file with the SEC:
general economic or industry conditions, nationally and/or in the
communities in which the Company conducts business, changes in the
interest rate environment, legislation or regulatory requirements,
conditions of the securities markets, changes in the podcast
industry, the development of services that may be superior to the
services offered by the Company, demand for services, competition,
changes in the quality or composition of the Company’s
services, our ability to develop new services, our ability to raise
capital, changes in accounting principles, policies or guidelines,
financial or political instability, acts of war or terrorism, other
economic, competitive, governmental, regulatory and technical
factors affecting the Company’s operations, services and
prices.
Accordingly,
results achieved may differ materially from expected results in
these statements. Forward-looking statements speak only as of the
date they are made. The Company does not undertake, and
specifically disclaims, any obligation to update any
forward-looking statements to reflect events or circumstances
occurring after the date of such statements.
Item 1.
Business.
OVERVIEW
Founded
in 2015, Liberated Syndication Inc (“the
“Company,”, “parent”, “we,” or
“us” and words of similar import), a Nevada
corporation, provides podcast hosting services through its
wholly-owned subsidiary Webmayhem Inc., a Pennsylvania corporation
(“Libsyn”), and webhosting services through its
wholly-owned subsidiary Pair Networks, Inc., a Pennsylvania
corporation (“Pair” or “PNI”). The
Company’s consolidated financial statements include the
financial statements of Libsyn and Pair. Libsyn’s focus is on
our podcast hosting business, while Pair’s focus is on
webhosting and providing domains.
Our
corporate offices consist of approximately 3,100 square feet of
office space located at 5001 Baum Blvd, Suite 770, Pittsburgh, PA
15213. Our telephone number is (412) 621-0902. We also maintain an office at 2403 Sidney St.,
Suite 210, Pittsburgh, PA consisting of approximately 30,000 square
feet.
BUSINESS
Libsyn
Libsyn
is a Podcast Service Provider offering hosting and distribution
tools which include storage, bandwidth, RSS creation, distribution,
and statistics tracking. Podcast producers can choose from a
variety of hosting plan levels based on the requirements for their
podcast. Podcast producers’ sign-up online at www.libsyn.com, using their
credit card to subscribe to a monthly plan. Libsyn offers a basic,
getting started plan for $5 per month and more advanced plans that
include more storage, advanced statistics, and podcast apps at
higher price points. Plans are designed to provide full-featured
podcast tools with generous storage and bandwidth transfer.
LibsynPRO service is an enterprise solution for professional media
producers and corporate customers that require more sophisticated
media network features and dedicated support.
Libsyn
supports both audio and video podcasts, allowing producers to
upload podcast episodes through the Libsyn interface or via File
Transfer Protocol (“FTP”) to manage publishing to
online directories, web portals, content aggregators, App
marketplaces and social media platforms for both download and
streaming.
Approximately
60% of the shows that Libsyn distributes reach audiences using the
Apple Podcasts platform which includes iTunes on the computer and
the Apple Podcasts App on iOS devices which includes iPhones,
iPads, iPods, Apple Watch, and Apple TV. Libsyn also enables
distribution to aggregators such as Google Podcasts, Spotify,
Pandora, iHeartRadio, radio.com
and Deezer. The OnPublish feature enables podcast episodes to be
posted to social media sites such as Facebook, Twitter, YouTube,
Linked-In and blogging platforms like WordPress, Tumblr and
Blogger. Libsyn also provides a podcast player that can be embedded
on websites or shared via social media.
Libsyn’s
podcast platform architecture allows for expansion of distribution
destinations and OnPublish capabilities. Using the Libsyn service,
podcast producers can more broadly distribute and promote their
shows to attract larger audiences.
3
Pair Networks, Inc. (“Pair”)
Pair Networks, founded in 1996, is one of the oldest and most
experienced Internet hosting companies providing a full range of
fast, powerful and reliable Web hosting services. Pair offers a
suite of Internet services from shared hosting to virtual private
servers to customized solutions with world-class 24x7 on-site
customer support. Based in Pittsburgh, Pennsylvania Pair
serves businesses, bloggers,
artists, musicians, educational institutions and non-profit
organizations around the world.
Pair
offers a variety of hosting plan levels, value add Internet
services, security services and domain registration. Through the
Pair Account Control Center (ACC), customers can manage their
hosting accounts and domains from one place.
Customers
can choose from a variety of web hosting plan levels based on their
requirements and applications. Pair Hosting offers shared servers,
virtual private servers, dedicated servers and optimized WordPress
hosting as managed services. With over twenty years of experience
in Internet hosting, Pair has the expertise to build and manage
reliable and powerful hosting solutions. The managed service and
24x7 support allow customers to focus on their core business
without having to worry about hardware, operating systems, network
connectivity or uptime.
Shared
web hosting is a great option for startup or smaller businesses as
the website sits on the same server with other websites and shares
resources such as memory and Central Processing Unit (CPU). Basic
website applications such as email and file sharing are ideal for
shared server offerings.
Virtual
private servers
Virtual
private servers (VPS) is a step up from a shared hosting solution
in that specific server resources are allocated directly for your
use, assuring performance levels. This is a more secure and
reliable option that separates your site from others and is ideal
for storage or database applications for businesses, developers,
and fast-growing sites.
Dedicated
servers
Dedicated
servers provide yet another level of security and performance for
those who need more processing power or storage. Servers are built
to customer specifications and tuned for performance, reliability
and efficiency to meet the demand of more robust applications.
Through Pair QuickServe (QS), a powerful hosting solution with
tremendous capacity and speed, servers are ready for your use in no
time and fully managed to keep them up to date.
Pair
hosting also offers self-managed service through server
collocation, which delivers the advantages of the powerful
infrastructure that was built behind the fully managed offerings.
For those customers who want to purchase their own hardware,
collocation service in Pair’s data center allows for
unmanaged service with the security and reliability of the diverse
network, physically secure facilities, backup power and redundant
climate control.
Optimized
WordPress
WordPress
(WP) is one of the fastest growing Content Management Systems (CMS)
powering web sites today. Pair offers a managed WP product line
that is optimally configured for performance and security. This
managed WP service will ensure fast performance, high availability
and security by keeping sites up to date with the latest WP core
updates and patches and ensuring hardware and network speed and
uptime. The WP service offers a range of scalable solutions from
several to unlimited WP sites, ideal for single sites through
enterprise applications.
Pair
Hosting customers sign-up online at www.pair.com, using their
credit card to subscribe to a monthly or annual plan. Pair offers a
basic, getting started plan with a custom domain for $5.95 per
month with a basic drag and drop website builder and more advanced
plans that include additional storage, processing power and add-ons
like eCommerce and WordPress. Plans are designed to provide
full-featured web hosting tools for all levels including backups,
Account Control and security and operating system maintenance and
upgrades.
Pair
Domains offers custom domains for Top Level Domains (TLDs)
including dot-com, dot-org, and dot-net that vary in price from
$7.00 to $70 per year based on the TLD. Customers can search for
available domains and sign-up online at www.pairdomains.com using
their credit card for a one to ten-year domain name purchase or
domain transfer. All domain names registered by Pair include
enhanced services such as custom and dynamic Domain Name System
(DNS) which controls your domain name’s website and email,
WHOIS privacy, email forwarding, and a drag and drop website
builder.
4
Competition
We
provide cloud-based solutions enabling individuals, businesses and
organizations to establish an online presence, connect with
customers and manage their ventures. The market for providing these
solutions is highly fragmented and competitive. These solutions are
also rapidly evolving, creating opportunity for new competitors to
enter the market with point-solution products or address specific
segments of the market. Our competitors include providers
of:
●
domain registration
services and web-hosting solutions such as GoDaddy;
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website creation
and management solutions such as Wix;
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web hosting
services such as LiquidWeb and SiteGround;
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productivity tools
such as business-class email, calendaring and messaging such as
Google and Microsoft
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podcast hosting and
distribution providers such as Anchor (part of Spotify),
SoundCloud, and Blubrry
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podcast hosting
companies that offer free hosting
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media companies
that have their own internal hosting capabilities
We
expect continued competition from companies in the domain, web
hosting and podcast hosting markets.
We
believe the principal competitive factors include product
capabilities, meeting customer requirements, a secure, reliable and
integrated technology platform, brand awareness and reputation,
customer service and support and overall customer satisfaction. We
believe we compete favorably with competitors with respect to each
of these factors.
Employees
The
parent does not conduct any operations of its own. Our operations
are conducted through our wholly-owned subsidiaries, Libsyn and
Pair. We currently have a total of 89 employees, of which 87 are
full-time employees. There are no employees that are represented by
employee union(s). The Company believes its relations
with all its employees is good.
Item 1A.
Risk Factors.
Risks Relating to Our Business
Our
present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of
losing their entire investment should consider buying our shares.
Among the risk factors that you should consider are the
following:
The Company may pursue acquisitions, investments or other strategic
relationships or alliances, which may consume significant
resources, may be unsuccessful and could dilute holders of its
common stock.
Acquisitions,
investments and other strategic relationships and alliances, if
pursued, may involve significant cash expenditures, debt
incurrence, operating losses, and expenses that could have a
material adverse effect on the Company’s financial condition
and operating results. Acquisitions involve numerous other risks,
including:
●
Diversion of
management time and attention from daily operations;
●
Difficulties
integrating acquired businesses, technologies, and personnel into
the Company;
●
Inability to obtain
required regulatory approvals and/or required financing on
favorable terms;
●
Entry into new
markets in which the Company has little previous
experience;
●
Potential loss of
key employees, key contractual relationships, or key customers of
acquired companies or of the Company; and
●
Assumption of the
liabilities and exposure to unforeseen liabilities of acquired
companies.
●
Potential dilution
to existing shareholders
If
these types of transactions are pursued, it may be difficult for
the Company to complete these transactions quickly and to integrate
these acquired operations efficiently into its current business
operations. Any acquisitions, investments or other strategic
relationships and alliances by the Company may ultimately harm our
business and financial condition. In addition, future acquisitions
may not be as successful as originally anticipated and may result
in impairment charges.
5
The Company’s products and services compete in segments of
the internet service industry that are highly
competitive.
The
principal competitive factors that affect the Company include
technical innovation, marketing products and services, podcast
monetization, managing costs to maintain competitive pricing,
delivering superior customer service, and aggressively managing
costs. Some competitors are significantly larger than we
are and offer services for free. We cannot assure you that we will
be able to successfully compete against current and future
competitors and grow and maintain our market share.
We may be required to record a significant charge to earnings as we
are required to re-assess our goodwill and other intangible
assets.
We are
required under U.S. GAAP to review our intangible assets, including
goodwill for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is
required to be tested for impairment annually or more frequently if
facts and circumstances warrant a review. Factors that may be
considered a change in circumstances indicating that the carrying
value of our intangible assets may not be recoverable include a
decline in stock price and market capitalization and slower or
declining growth rates in our industry. We may be required to
record a significant charge to earnings in our financial statements
during the period in which any impairment of our goodwill or
amortizable intangible assets is determined.
We face a higher risk of failure because of the competitiveness of
companies in the internet, technology, domain, hosting and podcast
industries.
We face
the difficulties frequently encountered by internet, technology,
and media companies in new and evolving markets. These potential
difficulties include the following:
● substantial
delays and expenses related to testing and developing of our new
products;
● successfully
establishing podcasting as a large-scale advertising
medium;
● marketing
and distribution problems with new and existing products and
technologies;
●
we rely on the internet, third-party providers, marketplaces and
social media platforms who control distribution of
information;
● competition
from larger and more established companies that are better
capitalized;
● problems
or delays in reaching our marketing goals;
● difficulty
in recruiting qualified employees for management and other
positions;
● our
lack of sufficient customers, revenue, and cash flow;
and
● our
limited financial resources.
We may
continue to face these and other difficulties in the future. Some
of these problems may be beyond our control. If we are unable to
successfully address them, our business will suffer.
We face significant competition for our products in the domain name
registration and web-hosting markets and other markets in which we
compete, which we expect will continue to intensify, and we may not
be able to maintain or improve our competitive position or market
share.
We
provide Internet hosting solutions enabling individuals, businesses
and organizations to establish an online presence, connect with
consumers and manage their ventures. The market for these solutions
is highly fragmented and competitive. These solutions are also
rapidly evolving, creating opportunity for new competitors to enter
the market with or address specific segments of the market. Our
competitors include providers of domain registration services,
web-hosting solutions, website creation and management solutions,
e-commerce enablement providers, cloud computing service and online
security providers, and providers of productivity tools such as
business-class email. Many of these competitors are larger and
better capitalized than our company.
We
expect competition to increase in the future from competitors in
the domain and hosting markets. Some of our current and potential
competitors have greater resources, more brand recognition and
consumer awareness, more diversified product offerings, greater
international scope and larger customer bases than we do, and we
may therefore not be able to effectively compete with them. In
particular, the extension of the Cooperative Agreement between
Verisign Inc. (Verisign), the registry for .com and .net, and the
U.S. Department of Commerce in 2018 gave Verisign the right to
become a registrar for any gTLD other than .com. If Verisign
decides to become a registrar, it will become one of our
competitors, which could have a negative impact on our business and
the industry. In addition, we face competition in the website and
e-commerce site building market from competitors. Our competitors
have greater resources, more brand recognition and consumer
awareness, more diversified product offerings, greater
international scope and larger customer bases than we do, and we
may therefore not be able to effectively compete with them. In
addition, some of our competitors offer their services and products
at low or no cost. If these competitors and potential competitors
decide to devote greater resources to the development, promotion
and sale of products in the markets in which we compete, or if the
products offered by these companies are more attractive to or
better meet the evolving needs of our customers, our market share,
growth prospects and operating results may be adversely
affected.
6
In
addition, in an attempt to gain market share, competitors may offer
aggressive price discounts or alternative pricing models on the
products they offer, such as so-called "freemium" pricing in which
a basic offering is provided for free with advanced features
provided for a fee, or increase commissions paid to their referral
sources. As a result, increased competition could result in lower
sales, price reductions, reduced margins and the loss of market
share.
Furthermore,
conditions in our market could change rapidly and significantly as
a result of technological advancements, partnering by our
competitors or continuing market consolidation. Innovative new
start-up companies and large competitors making significant
investments in technology and development may invent similar or
superior products and technologies competing with our products and
technology. Our current and potential competitors may also
establish cooperative relationships among themselves or with third
parties that may further enhance their ability to compete. The
continued entry of competitors into the domain name registration
and web-hosting markets, and the rapid growth of some competitors
that have already entered each market, may make it difficult for us
to maintain our market position. Our ability to compete will depend
upon our ability to provide a better product than our competitors
at a competitive price. To remain competitive, we may be required
to make substantial additional investments in research,
development, marketing and sales in order to respond to
competition, and there can be no assurance that these investments
will achieve any returns for us or that we will be able to compete
successfully in the future.
We rely on search engines to attract a meaningful portion of our
customers. If search engines change their search algorithms or
policies regarding advertising, increase their pricing or suffer
problems, our ability to attract new customers may be
impaired.
Many of
our customers locate our website and products through Internet
search engines such as Google, Yahoo! and Bing. The prominence of
our website in response to search inquiries is a critical factor in
attracting potential customers to our websites. Search engines
revise their algorithms from time to time in an attempt to optimize
their search results. If search engines on which we rely for
algorithmic listings modify their algorithms, our websites may
appear less prominently or not at all in search results, which
could result in reduced traffic to our websites that we may not be
able to replace. Additionally, if the costs of search engine
marketing services, such as Google AdWords, increase, we may incur
additional marketing expenses or be required to allocate a larger
portion of our marketing spend to this channel and our business and
operating results could be adversely affected.
Furthermore,
competitors may in the future bid on our brand names and other
search terms we use to drive traffic to our websites. Such actions
could increase our advertising costs and result in decreased
traffic to our websites. In addition, search engines or social
networking sites may change their advertising policies from time to
time. Moreover, the use of voice recognition technology such as
Alexa, Google Assistant, Cortana or Siri may drive traffic away
from search engines, potentially resulting in reduced traffic to
our website. If any change to these policies delays or prevents us
from advertising through these channels, it could result in reduced
traffic to our website and sales of our subscriptions.
We rely on online/digital marketing and lead generation to attract
new customers and provide upsell opportunities to our existing
customer base. Personal information protections and privacy laws
may reduce the effectiveness of marketing effort and our ability to
attract new customers may be impaired.
Many of
our customers locate us through the Internet and our website.
Online content, social media and opt-in marketing play a critical
role in attracting potential customers and selling add-ons to
existing customers. Privacy laws and protection of personal
information may adversely affect our ability to reach and nurture
leads for our products. Additionally, we may incur additional
marketing expenses or be required to allocate a larger portion of
our marketing budget to creating and optimizing new lead generation
channels and our business and operating results could be adversely
affected.
If the rate of growth of small and medium businesses is
significantly lower than our estimates or if demand for our
products does not meet expectations, our ability to generate
revenue and meet our financial targets could be adversely
affected.
Although
we expect continued demand from small and medium businesses for our
products, it is possible the rate of growth may not meet our
expectations, or the market may not grow, either of which would
adversely affect our business. Our expectations for future revenue
growth are based in part on assumptions reflecting our industry
knowledge and experience serving small and medium businesses, as
well as our assumptions regarding demographic shifts, growth in the
availability and capacity of Internet infrastructure and the
general economic climate. If any of these assumptions proves to be
inaccurate, our revenue growth could be significantly lower than
expected. Our ability to compete successfully depends on our
ability to offer an integrated and comprehensive suite of products
enabling our diverse base of customers to start, grow and run their
businesses. The success of our domains, hosting, and business
applications offerings is predicated on the assumption that an
online presence is, and will continue to be, an important factor in
our customers' abilities to establish, expand and manage their
businesses quickly, easily and affordably. If we are incorrect in
this assumption, for example due to the introduction of a new
technology or industry standard superseding the importance of an
online presence or renders our existing or future products
obsolete, then our ability to retain existing customers and attract
new customers could be adversely affected, which could harm our
ability to generate revenue and meet our financial
targets.
We may not be able to maintain and enhance our brands.
Management
believes that the Libsyn and Pair brands have significantly
contributed to the growth of the business. They are critical to
expanding our product and service offerings. These brands are a key
component in marketing products and services and attracting new
customers. Maintaining and enhancing our brands depends largely on
our ability to provide useful and reliable products and services,
which we may not do successfully. Additionally, if we fail to
provide superior customer service our brands may be adversely
impacted. If events occur that damage our reputation and brands, we
may not be able to compete.
7
If we do not respond effectively to technological change, our
products and services could become obsolete.
The
development of our products and services and other technology
entails significant technical and business risks. To remain
competitive, we must continue to improve our products'
responsiveness, functionality, and features.
High
technology industries are characterized by:
● rapid
technological change;
● changes
in user and customer requirements and preferences;
● frequent
new product and services introductions embodying new technologies;
and
● the
emergence of new industry standards and practices.
The
evolving nature of the Internet and the podcasting and hosting
industries could render our existing technology and systems
obsolete. Our success will depend, in part, on our ability
to:
●
license or acquire
leading technologies useful in our business;
●
develop new
services and technologies that address our users' increasingly
sophisticated and varied needs; and,
●
respond to
technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely
way.
Future
advances in technology may not be beneficial to, or compatible
with, our business. Furthermore, we may not use new technologies
effectively or adapt our technology and systems to user
requirements or emerging industry standards in a timely way. To
stay technologically competitive, we may have to spend large
amounts of money and time. If we do not adapt to changing market
conditions or user requirements in a timely way, our business,
financial condition, and results of operations could be seriously
harmed.
If we fail to develop new products, or if we incur unexpected
expenses or delays in product development, we may lose our
competitive position.
Although
we currently have fully developed products available for sale, we
are also developing various products and technologies that we will
rely on to remain competitive. These new products and technologies
are related to our operations, are ongoing and in various stages of
their product lifecycle. New products and features are continuously
developed to address customer and market requirements. Technology
changes and advances are also constantly implemented to reduce
costs, increase reliability, and improve our products. Due to the
risks in developing new products and technologies, limited
financing, competition, obsolescence, loss of key personnel and
other factors, we may fail to develop these technologies and
products, or we may experience lengthy and costly delays in doing
so.
Changes to podcast, app and social media platform policies and
processes could have an adverse effect on the business plans of
Libsyn, including revenues.
Podcasts
and Podcast Apps are available in the most popular online platforms
and directories. Podcasts are available on the most popular music
streaming platforms and directories such as Spotify, Pandora, and
Deezer. Podcasts are included in dedicated podcast directories such
as Apple Podcasts, Google Podcasts and Overcast.. Many Podcast Apps
are available in Apple, Amazon, and Google Play App Stores.
Additionally, customers use Libsyn to distribute podcasts on social
media platforms (Facebook, Twitter, YouTube). We rely on these
third parties and must adhere to their rules for inclusion, which
in some cases requires their approval for submission. Changes to
these policies and requirements may prevent us from distributing
podcasts on these platforms in the future.
Distribution,
which cannot be guaranteed, depends on third-party review
personnel, their management and the specific platform and company
policies which are subject to change at any time. Changes in policy
and rejection of Podcasts or Podcast Apps by any one or all the
online platforms could have an adverse impact on future business
plans of Libsyn, including revenue.
Additionally,
these same policies may adversely affect monetization strategies.
These platforms may seek to limit our ability to generate revenue
from advertising, premium content, or the sale of apps. Our
business, financial condition and results of operations could be
seriously harmed as a result.
8
System and online security failures could harm our business and
operating results.
The
operation of our business depends on the efficient and
uninterrupted operation of our computer and communications hardware
systems. Our systems and operations are vulnerable to damage or
interruption from many sources, including fire, flood, power loss,
telecommunications failure, break-ins, earthquakes, and similar
events. Our servers are also vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Any
substantial interruptions in the future could result in the loss of
data and could destroy our ability to generate revenues from
operations.
The
secure transmission of confidential information over public
networks is a significant barrier to electronic commerce and
communications. Anyone who can circumvent our security measures
could misappropriate confidential information or cause
interruptions in our operations. We may have to spend large amounts
of money and other resources to protect against potential security
breaches or to alleviate problems caused by any
breach.
A
network attack, a security breach or other data security incident
could delay or interrupt service to our customers, harm our
reputation or subject us to significant liability. Our operations
depend on our ability to protect our network and systems against
interruption or damage from unauthorized entry, computer viruses,
denial of service attacks and other security threats beyond our
control. We may be subject to distributed denial of service (DDOS)
attacks by hackers aimed at disrupting service to our customers and
attempts to place illegal or abusive content on our or our
customers' websites. Our response to such DDOS attacks may be
insufficient to protect our network and systems. In addition, there
has been a continuing increase in the number of malicious software
attacks in the technology industry, including malware and
ransomware. In addition, from time to time, activities of our
customers or other parties may cause us to suspend or terminate
customer accounts. We have suspended and terminated, and will in
the future suspend or terminate, a customer's use of our products
when their activities breach our terms of service, interfere with
or harm other customers' information or use of our service or
otherwise violate applicable law. We may also suspend or terminate
a customer's account if it is repeatedly targeted by DDOS or other
attacks disrupting other customers or otherwise impacts our
infrastructure. We cannot guarantee our backup systems, regular
data backups, security protocols, network protection mechanisms and
other procedures currently in place, or that may be in place in the
future, will be adequate to prevent or remedy network and service
interruption, system failure, damage to one or more of our systems,
data loss, security breaches or other data security incidents.
Also, some of our products may be cloud-based, and the amount of
data we store for our customers on our servers has been increasing
as our business has grown. Despite the implementation of security
measures, our infrastructure may be vulnerable to computer viruses,
worms, other malicious software programs, illegal or abusive
content or similar disruptive problems caused by our customers,
employees, consultants or other Internet users who attempt to
invade or disrupt public and private data networks or to improperly
access, use or obtain data. Any actual or perceived breach of our
security, or any other data security incident, could damage our
reputation and brand, expose us to a risk of loss or litigation and
possible liability, subject us to regulatory or other government
inquiries or investigations, require us to expend significant
capital and other resources to alleviate problems caused by the
breach, and deter customers from using our products, any of which
would harm our business, financial condition and operating
results.
If the security of the confidential information or personally
identifiable information we maintain, including that of our
customers and the visitors to our customers' websites stored in our
systems, is breached or otherwise subjected to unauthorized access,
our reputation may be harmed, and we may be exposed to
liability.
Our
business involves the storage and transmission of confidential
information, including personally identifiable information. In
addition, all of our products are cloud-based, the amount of data
we store for our customers on our servers (including personally
identifiable information and other potentially sensitive
information) has been increasing. We take measures intended to
protect the security, integrity and confidentiality of the personal
information and other sensitive information, including payment card
information, we collect, store or transmit, but cannot guarantee
that inadvertent or unauthorized use or disclosure will not occur
or that third parties will not gain unauthorized access to this
information despite our efforts. If third parties succeed in
penetrating our security measures or those of our vendors and
partners, or in otherwise accessing or obtaining without
authorization the payment card information or other sensitive or
confidential information we or our vendors and partners maintain,
we could be subject to liability, loss of business, litigation,
government investigations or other losses. Hackers or individuals
who attempt to breach our security measures or those of our vendors
and partners could, if successful, cause the unauthorized
disclosure, misuse, or loss of personally identifiable information
or other confidential information, including payment card
information, suspend our web-hosting operations or cause
malfunctions or interruptions in our networks.
If we
or our partners experience any breaches of our security measures or
sabotage, or otherwise suffer unauthorized use or disclosure of, or
access to, personally identifiable information or other
confidential information, including payment card information, we
might be required to expend significant capital and resources to
protect against or address these problems. We may not be able to
remedy any problems caused by hackers or other similar actors in a
timely manner, or at all. Because techniques used to obtain
unauthorized access or to sabotage systems change frequently and
generally are not recognized until after they are launched against
a target, we and our vendors and partners may be unable to
anticipate these techniques or to implement adequate preventative
measures. Advances in computer capabilities, discoveries of new
weaknesses and other developments with software generally used by
the Internet community also increase the risk we, or our customers
using our servers, will suffer a security breach. Our partners and
we may also suffer security breaches or unauthorized access to
personally identifiable information and other confidential
information, including payment card information, due to employee
error, rogue employee activity, unauthorized access by third
parties acting with malicious intent or who commit an inadvertent
mistake or social engineering. If a breach of our security or other
data security incident occurs or is perceived to have occurred, the
perception of the effectiveness of our security measures and our
reputation could be harmed and we could lose current and potential
customers.
Security
breaches or other unauthorized access to personally identifiable
information and other confidential information, including payment
card information, could result in claims against us for
unauthorized purchases with payment card information, identity
theft or other similar fraud claims as well as for other misuses of
personally identifiable information, including for unauthorized
marketing purposes, which could result in a material adverse effect
on our business or financial condition. Moreover, these claims
could cause us to incur penalties from payment card associations
(including those resulting from our failure to adhere to industry
data security standards), termination by payment card associations
of our ability to accept credit or debit card payments, litigation
and adverse publicity, and regulatory or other government inquiries
or investigations, any of which could have a material adverse
effect on our business and financial condition. Although we
maintain cyber liability insurance coverage that may cover certain
liabilities in connection with a security breach or other security
incident, we cannot be certain our insurance coverage will be
adequate for liabilities actually incurred, that insurance will
continue to be available to us on commercially reasonable terms, or
at all, or that any insurer will not deny coverage as to any future
claim. The successful assertion of one or more large claims against
us that exceed available insurance coverage, or the occurrence of
changes in our insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, including our
financial condition, results of operations and
reputation.
We
expect to continue to expend significant resources to protect
against security breaches and other data security incidents. The
risk that these types of events could seriously harm our business
is likely to increase as we expand the number of cloud-based
products we offer and operate in more countries.
9
Privacy concerns relating to our technology could damage our
reputation and deter existing and new customers from using our
products.
Concerns
about our practices with regard to the collection, use, disclosure
or security of personally identifiable information, including
payment card information, or other privacy related matters, even if
unfounded, could damage our reputation and adversely affect our
operating results. In addition, as nearly all of our products are
cloud-based, the amount of data we store for our customers on our
servers (including personally identifiable information) has been
increasing. Any systems failure or compromise of our security
resulting in the release of our users' or customers' data could
seriously limit the adoption of our product offerings, as well as
harm our reputation and brand and, therefore, our business. We
expect to continue to expend significant resources to protect
against security breaches. The risk that these types of events
could seriously harm our business is likely to increase as we
expand the number of cloud-based products we offer.
We are subject to privacy and data protection laws and regulations
as well as contractual privacy and data protection obligations. Our
failure to comply with these or any future laws, regulations or
obligations could subject us to sanctions and damages and could
harm our reputation and business.
We are
subject to a variety of laws and regulations, including regulation
by various federal government agencies, including the Federal Trade
Commission (FTC), Federal Communications Commission (FCC), and
state and local agencies. We may collect personally identifiable
information, including payment card information, and other data
from our current and prospective customers, website users and
employees. The U.S. federal and various state and foreign
governments have adopted or proposed limitations on, or
requirements regarding, the collection, distribution, use, security
and storage of personally identifiable information of individuals,
including payment card information, and the FTC and many state
attorneys general are applying federal and state consumer
protection laws to impose standards on the online collection, use
and dissemination of data. Self-regulatory obligations, other
industry standards, policies, and other legal obligations may apply
to our collection, distribution, use, security or storage of
personally identifiable information or other data relating to
individuals, including payment card information. These obligations
may be interpreted and applied in an inconsistent manner from one
jurisdiction to another and may conflict with one another, other
regulatory requirements or our internal practices. Any failure or
perceived failure by us to comply with U.S., E.U. or other foreign
privacy or security laws, policies, industry standards or legal
obligations or any security incident resulting in the unauthorized
access to, or acquisition, release or transfer of, personally
identifiable information or other data relating to our customers,
employees and others, including payment card information, may
result in governmental enforcement actions, litigation, fines and
penalties or adverse publicity and could cause our customers to
lose trust in us, which could have an adverse effect on our
reputation and business.
We
expect there will continue to be new proposed laws, regulations and
industry standards concerning privacy, data protection and
information security in the U.S., the European Union and other
jurisdictions. We cannot yet determine the impact such future laws,
regulations and standards may have on our business. Future laws,
regulations, standards and other obligations could impair our
ability to collect or use information we utilize to provide
advertising services, thereby impairing our ability to maintain and
grow our total customers and increase revenue. Future restrictions
on the collection, use, sharing or disclosure of our users' data or
additional requirements for express or implied consent of users for
the use and disclosure of such information could require us to
modify our products, possibly in a material manner, and could limit
our ability to develop new products and features.
In
particular, with regard to transfers to the U.S. of personal data
(as such term is used in the 1995 European Union Data Protection
Directive and applicable E.U. member state legislation, and as
similarly defined under the General Data Protection Regulation
(GDPR) and the proposed ePrivacy Regulation) from our employees and
European customers and users, we rely upon the U.S.-E.U. Privacy
Shield, as well as E.U. Model Clauses in certain circumstances.
Both the U.S.-E.U. Privacy Shield and E.U. Model Clauses have been
subject to legal challenge and may be modified or invalidated, and
we may be unsuccessful in maintaining legitimate means for our
transfer and receipt of personal data from the European Economic
Area (EEA). We may experience reluctance or refusal by current or
prospective European customers to use our products, and we may find
it necessary or desirable to make further changes to our handling
of personal data of EEA residents. The regulatory environment
applicable to the handling of EEA residents' personal data, and our
actions taken in response, may cause us to assume additional
liabilities or incur additional costs, and could result in our
business, operating results and financial condition being harmed.
Additionally, we and our customers may face a risk of enforcement
actions by data protection authorities in the EEA relating to
personal data transfers to us and by us from the EEA. Any such
enforcement actions could result in substantial costs and diversion
of resources, distract management and technical personnel and
negatively affect our business, operating results and financial
condition.
In
addition, several foreign countries and governmental bodies,
including the E.U., Brazil and Canada, have laws and regulations
concerning the collection and use of personally identifiable
information obtained from their residents, including payment card
information, which are often more restrictive than those in the
U.S. Laws and regulations in these jurisdictions apply broadly to
the collection, use, storage, disclosure and security of personally
identifiable information, including payment card information
identifying, or which may be used to identify, an individual, such
as names, email addresses and, in some jurisdictions, Internet
Protocol (IP) addresses, device identifiers and other data.
Although we are working to comply with those laws and regulations
applicable to us, these and other obligations may be modified and
interpreted in different ways by courts, and new laws and
regulations may be enacted in the future. Within the EEA, the GDPR
took full effect on May 25, 2018, superseding the 1995 European
Union Data Protection Directive and becoming directly applicable
across E.U. member states. The GDPR includes more stringent
operational requirements for processors and controllers of personal
data, for companies established in the EEA and those outside the
EEA that collect and use personal data, including payment card
information, imposes significant penalties for non-compliance and
has broader extra-territorial effect. As the GDPR is a regulation
rather than a directive, it applies throughout the EEA, but permits
member states to enact supplemental requirements if they so choose.
Noncompliance with the GDPR can trigger fines of up to the greater
of €20 million or 4% of global annual revenues. Further,
following a referendum in June 2016 in which voters in the U.K.
approved an exit from the E.U. by April 2019, a Data Protection Act
substantially implementing the GDPR was enacted in the U.K.,
effective in May 2018. It remains unclear, however, if the U.K.'s
withdrawal from the E.U. will ultimately transpire and, if it does,
how U.K. data protection laws or regulations will develop in the
medium to longer term and how data transfers to and from the U.K.
will be regulated. In addition, some countries are considering or
have enacted legislation requiring local storage and processing of
data that could increase the cost and complexity of delivering our
services.
Following
the GDPR, a number of states in the U.S. have introduced bills,
which, if passed, would impose operational requirements on U.S.
companies similar to the requirements reflected in the GDPR. Last
year, the State of California passed a privacy law (the
“CCPA”), which gives consumers significant rights over
the use of their personal information, including the right to
object to the “sale” of their personal information.
These rights may restrict our ability to use personal information
in connection with our business operations. The CCPA also provides
a private right of action for security breaches. Washington and
Massachusetts have introduced significant privacy bills and
Congress is debating federal privacy legislation, which if passed,
may restrict our business operations and require us to incur
additional costs for compliance.
10
Any new
laws, regulations, other legal obligations or industry standards,
or any changed interpretation of existing laws, regulations or
other standards may require us to incur additional costs and
restrict our business operations. For example, many jurisdictions
have enacted laws requiring companies to notify individuals of data
security breaches involving certain types of personal data. These
mandatory disclosures regarding a security breach or the disclosure
of an informant action could result in negative publicity to us,
which may cause our customers to lose confidence in the
effectiveness of our data security measures which could impact our
operating results. In addition, we are required under the GDPR to
respond to customers' SARs within a certain time period, which
entails determining what personal data is being processed, the
purpose of any such data processing, to whom such personal data has
been disclosed and whether personal data is being disclosed for the
purpose of making automated decisions relating to that customer. We
may dedicate significant resources to responding to our customers'
SARs, which could have a negative impact on our operating results.
In addition, a failure to respond to SARs properly could result in
fines, negative publicity and damage to our business.
If our
privacy or data security measures fail to comply with current or
future laws, regulations, policies, legal obligations or industry
standards, or are perceived to have done so, we may be subject to
litigation, regulatory investigations, fines or other liabilities,
as well as negative publicity and a potential loss of business.
Moreover, if future laws, regulations, other legal obligations or
industry standards, or any changed interpretations of the
foregoing, limit our customers' ability to use and share personally
identifiable information, including payment card information, or
our ability to store, process and share such personally
identifiable information or other data, demand for our products
could decrease, our costs could increase, and our business,
operating results and financial condition could be
harmed.
We face business disruption and related risks resulting from the
recent outbreak of the novel coronavirus 2019 (COVID-19), which
could have a material adverse effect on our business and results of
operations.
Our
operations and business could be disrupted and materially adversely
affected by the recent outbreak of COVID-19. The spread of COVID-19
from China to other countries has resulted in the World Health
Organization declaring the outbreak of COVID-19 as a
“pandemic,” or a worldwide spread of a new disease, on
March 11, 2020. Many countries around the world have imposed
quarantines and restrictions on travel and mass gatherings to slow
the spread of the virus. With respect to global financial markets,
the continuing and significant decline in the Dow Industrial
Average from the end of February through March 2020 has been
largely attributed to the effects of COVID-19. We are still
assessing our business operations and system supports and the
impact COVID-19 may have on our results and financial condition,
including requirements that we arrange for employees to work
remotely, but there can be no assurance that this analysis will
enable us to avoid part or all of any impact from the spread of
COVID-19 or its consequences, including downturns in business
sentiment generally or in our sector in particular.
If we are unable to attract and retain customers and increase sales
to new and existing customers, our business and operating results
would be harmed.
Our
success depends on our ability to attract and retain customers and
increase sales to new and existing customers. We derive a
substantial portion of our revenue from recurring hosting
subscriptions, domains and add-on services. The rate at which new
and existing customers purchase and renew subscriptions to our
products depends on a number of factors, including those outside of
our control. Although our total customers and revenue have grown
rapidly in the past, we cannot be assured that we will achieve
similar growth rates in future periods. In future periods, our
total customers and revenue could decline or grow more slowly than
we expect. Our sales could fluctuate or decline as a result of
lower demand for podcast or web hosting services, domain names, and
related products, declines in our customers' level of satisfaction
with our products and our customer support, the timeliness and
success of product enhancements and introductions by us and those
of our competitors, the pricing offered by us and our competitors,
the frequency and severity of any system outages, breaches and
technological change. Our revenue has grown historically due in
large part to customer growth and strong recurring hosting
subscriptions. Our future success depends in part on maintaining a
strong recurring subscription model. Any failure by us to continue
to attract new customers or maintain a strong recurring hosting
subscription model could have a material adverse effect on our
business, growth prospects and operating results. If we are unable
to increase sales of additional products to new and existing
customers, our growth prospects may be harmed.
If we do not successfully develop and market products that
anticipate or respond promptly to the needs of our customers, our
business and operating results may suffer.
The
markets in which we compete are characterized by constant change
and innovation, and we expect them to continue to evolve rapidly.
Our historical success has been based on our ability to identify
and anticipate customer needs and design products providing
individuals, small and medium businesses, and enterprises with the
tools they need to create, manage and augment their digital
identity. To the extent we are not able to continue to identify
challenges faced by our customers and provide products responding
in a timely and effective manner to their evolving needs, our
business, operating results and financial condition will be
adversely affected.
The
process of developing new technology is complex and uncertain. If
we fail to accurately predict customers' changing needs or emerging
technological trends, or if we fail to achieve the benefits
expected from our investments in technology, our business could be
harmed. We must continue to commit significant resources to develop
our technology in order to maintain our competitive position, and
these commitments will be made without knowing whether such
investments will result in products our customers will accept. Our
new products or product enhancements could fail to attain
meaningful customer acceptance for many reasons,
including:
●
delays in releasing
new products or product enhancements;
●
our failure to
accurately predict market demand or customer
preferences;
●
defects, errors or
failures in product design or performance;
●
negative publicity
about product performance or effectiveness;
●
introduction of
competing products (or the anticipation thereof) by other market
participants; poor business conditions for our customers or poor
general macroeconomic conditions;
●
the perceived value
of our products or product enhancements relative to their cost;
and
●
changing regulatory
requirements adversely affecting the products we
offer.
11
There
is no assurance we will successfully identify new opportunities,
develop and bring new products to market on a timely basis, or
products and technologies developed by others will not render our
products or technologies obsolete or noncompetitive, any of which
could adversely affect our business and operating results. If our
new products or enhancements do not achieve adequate acceptance by
our customers, or if our new products do not result in increased
sales or subscriptions, our competitive position will be impaired,
our anticipated revenue growth may not be achieved and the negative
impact on our operating results may be particularly acute because
of the upfront technology and development, marketing and
advertising and other expenses we may incur in connection with the
new product or enhancement.
We are exposed to the risk of system failures and capacity
constraints.
We may
experience, system failures and outages disrupting the operation of
our hosting services and web-based products. Our revenue depends in
large part on the access and delivery of traffic for podcasts and
websites. Accordingly, the performance, reliability and
availability of our servers for our operations and infrastructure,
as well as in the delivery of products to customers, are critical
to our reputation and our ability to attract and retain
customers.
We are
continually working to expand and enhance our hosting features,
technology and network infrastructure and other technologies to
accommodate substantial increases in the volume of traffic on our
network and our overall total customers. We may be unsuccessful in
these efforts, or we may be unable to project accurately the rate
or timing of these increases. In the future, we may be required to
allocate resources, including spending substantial amounts, to
build, purchase or lease data centers and equipment and upgrade our
technology and network infrastructure in order to handle increased
network or customer traffic. We cannot predict whether we will be
able to add network capacity from third-party suppliers or
otherwise as we require it. In addition, our network or our
suppliers' networks might be unable to achieve or maintain data
transmission capacity high enough to process orders or download
data effectively in a timely manner. Our failure, or our suppliers'
failure, to achieve or maintain high data transmission capacity
could significantly reduce consumer demand for our products. Such
reduced demand and resulting loss of traffic, cost increases, or
failure to accommodate new technologies could harm our business,
revenue and financial condition.
Our
systems, including those of our data centers and operations, are
also vulnerable to damage from fire, power loss, telecommunications
failures, computer viruses, physical and electronic break-ins and
similar events. The property and business interruption insurance
coverage we carry may not be adequate to compensate us fully for
losses that may occur.
Evolving technologies and resulting changes in customer behavior or
customer practices may impact the value of and demand for our
products.
Historically,
Internet users would typically navigate to a website by directly
typing its domain name into a web browser or navigation bar. The
domain name serves as a branded, unique identifier not unlike a
phone number or email address. People now use multiple methods in
addition to direct navigation to access websites. People
increasingly use search engines to find and access websites as an
alternative to typing a website address directly into a web browser
navigation bar. People are also using social networking and
microblogging sites more frequently to find and access websites.
Further, as people continue to access the Internet more frequently
through applications on mobile devices, domain names may become
less prominent and their value may decline. These evolving technologies and
changes in customer behavior may have an adverse effect on our
business and prospects.
The
domain name registration market continues to develop and adapt to
changing technology. This development may include changes in the
administration or operation of the Internet, including the creation
and institution of alternate systems for directing Internet traffic
without using the existing domain name registration system. The
widespread acceptance of any alternative system, such as mobile
applications or closed networks, could eliminate the need to
register a domain name to establish an online presence and could
materially and adversely affect our business. The shift in consumer
behavior to mobile devices, applications and social media platforms
may impact how consumers find information and make purchases. The
popularity of social media platforms has changed traditional
communication and online presence due to the number of landing
pages and ecommerce sites being hosted on Facebook and Etsy
potentially impacting the number of websites in the
future.
Audio
and Video sharing platforms, mobile applications and new technology
may decrease the demand for podcasts. Mobile consumption through
YouTube and Facebook Live for video and audio and future
technologies may impact podcast consumption.
We rely on our marketing efforts and channels to promote our brand
and acquire new customers. These efforts may require significant
expense and may not be successful or cost-effective.
We use
a variety of marketing channels to promote our brands, including
online keyword search, advertising and email and social media
marketing. If we lose access to one or more of these channels, such
as online keyword search, because the costs of advertising become
prohibitively expensive or for other reasons, we may become unable
to promote our brand effectively, which could limit our ability to
grow our business. Further, if our marketing activities fail to
generate traffic to our website, attract customers and lead to new
and recurring subscriptions at the levels we anticipate, our
business and operating results would be adversely affected. There
can be no assurance our marketing efforts will succeed or be
cost-efficient, and if our customer acquisition costs increase, our
business, operating results and financial performance could be
adversely affected.
In
addition, search engines or social networking sites may change
their advertising policies from time to time. If any change to
these policies delays or prevents us from advertising through these
channels, it could result in reduced traffic to our website and
sales of our subscriptions.
12
We may need additional equity, debt or other financing in the
future, which we may not be able to obtain on acceptable terms, or
at all, and any additional financing may result in restrictions on
our operations or substantial dilution to our
stockholders.
We may
need to raise funds in the future, for example, to develop new
technologies, expand our business, respond to competitive pressures
and make acquisitions. We may try to raise additional funds through
public or private financings, strategic relationships or other
arrangements. Although our credit agreement limits our ability to
incur additional indebtedness, these restrictions may be amended
with the consent of our lenders. Accordingly, under certain
circumstances, we may incur substantial additional
debt.
Our
ability to obtain debt or equity funding will depend on a number of
factors, including market conditions, interest rates, our operating
performance, our credit rating and investor interest. Additional
funding may not be available to us on acceptable terms or at all.
If adequate funds are not available, we may be required to reduce
expenditures, including curtailing our growth strategies, foregoing
acquisitions or reducing our product development efforts. If we
succeed in raising additional funds through the issuance of equity
or equity-linked securities, then existing stockholders could
experience substantial dilution. If we raise additional funds
through the issuance of debt securities or preferred stock, these
new securities would have rights, preferences and privileges senior
to those of the holders of our common stock. In addition, any such
issuance could subject us to restrictive covenants relating to our
capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including
potential acquisitions. Further, to the extent we incur additional
indebtedness or such other obligations, our possible inability to
service our debt, would increase.
Changes in accounting principles, or interpretations thereof, may
cause unexpected financial reporting fluctuations and adversely
affect our operating results and financial statements going
forward.
We
prepare our consolidated financial statements and the related notes
in accordance with generally accepted accounting principles in the
U.S. (GAAP). These principles are subject to interpretation by the
Financial Accounting Standards Board (FASB), the SEC and various
bodies formed to create and interpret appropriate accounting
principles. Accounting rules and regulations are continually
changing in ways that could materially impact our financial
statements, and a change in the current accounting principles could
have a significant effect on our reported results or may
retroactively affect previously reported transactions.
Additionally, the adoption of new or revised accounting principles
may require us to make significant changes to our systems,
processes and controls.
See
Note 1 to our consolidated financial statements for information
regarding recent accounting pronouncements.
Because we are generally required to recognize revenue for our
products over the term of the applicable agreement, changes in our
sales may not be immediately reflected in our operating
results.
As
described in Note 1 to our consolidated financial statements, we
generally recognize revenue from our customers ratably over the
respective terms of their subscriptions in accordance with GAAP.
Our subscription terms are typically one year but can range from
monthly terms to multi-annual terms of up to 10 years depending on
the product. Accordingly, increases in sales during a particular
period do not translate into immediate, proportional increases in
revenue during such period, and a substantial portion of the
revenue we recognize during a quarter is derived from deferred
revenue from customer subscriptions we entered into during previous
quarters. As a result, our margins may suffer despite substantial
sales activity during a particular period, since GAAP does not
permit us to recognize all of the revenue from our sales
immediately. Conversely, a decline in new or renewed subscriptions
in any one quarter may not be reflected in our revenue for that
quarter and the existence of substantial deferred revenue may
prevent deteriorating sales activity from becoming immediately
observable in our consolidated statement of
operations.
Our failure to properly register or maintain our customers' domain
names could subject us to additional expenses, claims of loss or
negative publicity that could have a material adverse effect on our
business.
System
and process failures related to our domain name registration
product may result in inaccurate and incomplete information in our
domain name database. Despite testing, system and process failures
may remain undetected or unknown, which could result in compromised
customer data, loss of or delay in revenues, failure to achieve
market acceptance, injury to our reputation or increased product
costs, any of which could harm our business. Furthermore, the
requirements for securing and renewing domain names vary from
registry to registry and are subject to change. We cannot guarantee
we will be able to readily adopt and comply with the various
registry requirements. Our failure or inability to properly
register or maintain our customers' domain names, even if we are
not at fault, might result in significant expenses and subject us
to claims of loss or to negative publicity, which could harm our
business, brand and operating results.
We rely heavily on the reliability, security and performance of our
internally developed systems and operations. Any difficulties in
maintaining these systems may result in damage to our brand,
service interruptions, decreased customer service or increased
expenditures.
The
reliability and continuous availability of the software, hardware
and workflow processes underlying our internal systems, networks
and infrastructure and the ability to deliver our products are
critical to our business, and any interruptions resulting in our
inability to timely deliver our products, or materially impacting
the efficiency or cost with which we provide our products, would
harm our brand, profitability and ability to conduct business. In
addition, many of the software and other systems we currently use
will need to be enhanced over time or replaced with equivalent
commercial products or services, which may not be available on
commercially reasonable terms or at all. Enhancing or replacing our
systems, networks or infrastructure could entail considerable
effort and expense. If we fail to develop and execute reliable
policies, procedures and tools to operate our systems, networks or
infrastructure, we could face a substantial decrease in workflow
efficiency and increased costs, as well as a decline in our
revenue.
13
Undetected or unknown defects in our products could harm our
business and future operating results.
The
products we offer or develop, including our proprietary technology
and technology provided by third parties, could contain undetected
defects or errors. The performance of our products could have
unforeseen or unknown adverse effects on the networks over which
they are delivered as well as, more broadly, on Internet users and
consumers and third-party applications and services utilizing our
solutions. These adverse effects, defects and errors, and other
performance problems relating to our products could result in legal
claims against us that harm our business and damage our reputation.
The occurrence of any of the foregoing could result in compromised
customer data, loss of or delay in revenues, an increase in our
annual refund rate, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our
reputation or brand and increased costs. In addition, while our
terms of service specifically disclaim certain warranties, and
contain limitations on our liability, courts may still hold us
liable for such claims if asserted against us.
Failure to adequately protect and enforce our intellectual property
rights could substantially harm our business and operating
results.
The
success of our business depends in part on our ability to protect
and enforce our trademarks, copyrights, trade secrets and other
intellectual property rights. We attempt to protect our
intellectual property under trademark, copyright and trade secret
laws, and through a combination of confidentiality procedures,
contractual provisions and other methods, all of which offer only
limited protection.
We rely
on our proprietary technology and confidential proprietary
information, including trade secrets and know-how. Despite our
efforts to protect the proprietary and confidential nature of such
technology and information, unauthorized parties may attempt to
misappropriate, reverse engineer or otherwise obtain and use them.
The contractual provisions in confidentiality agreements and other
agreements we generally enter into with employees, consultants,
partners, vendors and customers may not prevent unauthorized use or
disclosure of our proprietary technology or intellectual property
rights and may not provide an adequate remedy in the event of
unauthorized use or disclosure of our proprietary technology or
intellectual property rights. Moreover, policing unauthorized use
of our technologies, products and intellectual property is
difficult, expensive and time-consuming, particularly in foreign
countries where the laws may not be as protective of intellectual
property rights as those in the U.S. and where mechanisms for
enforcement of intellectual property rights may be weak. To the
extent we expand our international activities, our exposure to
unauthorized copying and use of our products and proprietary
information may increase. We may be unable to determine the extent
of any unauthorized use or infringement of our products,
technologies or intellectual property rights.
From
time to time, legal action by us may be necessary to enforce our
trademarks and other intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the
intellectual property rights of others or to defend against claims
of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources, distract management
and technical personnel and negatively affect our business,
operating results and financial condition. If we are unable to
protect our intellectual property rights, we may find ourselves at
a competitive disadvantage to others who need not incur the
additional expense, time and effort required to create the
innovative products that have enabled us to be successful to date.
Any inability on our part to protect adequately our intellectual
property may have a material adverse effect on our business,
operating results and financial condition.
Our business depends on our customers continued and unimpeded
access to the Internet and the development and maintenance of
Internet infrastructure. Internet access providers may be able to
block, degrade or charge for access to certain of our products,
which could lead to additional expenses and the loss of
customers.
Our
products depend on the ability of our customers to access the
Internet. Currently, this access is provided by companies having
significant market power in the broadband and Internet access
marketplace, including incumbent telephone companies, cable
companies, mobile communications companies and government-owned
service providers. The Federal Communications Commission passed
Open Internet rules in February 2015, effective in June 2015,
generally providing for Internet neutrality with respect to fixed
and mobile broadband Internet service. Net Neutrality rules were
intended to keep the internet open and fair. Internet providers
were explicitly prohibited from speeding up or slowing down traffic
from specific websites and apps. In December 2017, the FCC replaced
net neutrality which did away with rules barring internet providers
from blocking or slowing down access to online content.
Additionally, the FCC has eliminated a rule barring
providers’ from prioritizing their own content. These changes
could adversely affect the growth, popularity or use of the
Internet and could decrease the demand for our products and
increase our operating costs causing harm to our business.
Internationally, government regulation concerning the Internet, and
in particular, network neutrality, may be developing or
non-existent. Within such a regulatory environment, we could
experience discriminatory or anti-competitive practices impeding
both our and our customers' domestic and international growth,
increasing our costs or adversely affecting our
business.
Our business is exposed to risks associated with credit card and
other online payment chargebacks and fraud.
A
majority of our revenue is processed through credit cards and other
online payments. If our refunds or chargebacks increase, our
processors could require us to create reserves, increase fees or
terminate their contracts with us, which would have an adverse
effect on our financial condition.
Our
failure, or our payment processors failure to limit fraudulent
transactions conducted on our websites, such as through the use of
stolen credit card numbers, could also subject us to liability and
adversely impact our reputation. Under credit card association
rules, penalties may be imposed at the discretion of the
association for inadequate fraud protection. Any such potential
penalties would be imposed on our credit card processor by the
association. Under our contracts with our payment processors, we
are required to reimburse them for such penalties. However, we face
the risk that we may fail to maintain an adequate level of fraud
protection and that one or more credit card associations or other
processors may, at any time, assess penalties against us or
terminate our ability to accept credit card payments or other form
of online payments from customers, which would have a material
adverse effect on our business, financial condition and operating
results.
We
could also incur significant fines or lose our ability to give
customers the option of using credit cards to pay for our products
if we fail to follow payment card industry data security standards,
even if there is no compromise of customer information. Although we
believe we are in compliance with payment card industry data
security standards and do not believe there has been a compromise
of customer information, it is possible that at times either we may
not have been in full compliance with these standards. Accordingly,
we could be fined, which could impact our financial condition, or
certain of our products could be suspended, which would cause us to
be unable to process payments using credit cards. If we are unable
to accept credit card payments, our business, financial condition
and operating results may be adversely affected.
In
addition, we could be liable if there is a breach of the payment
information. Online commerce and communications depend on the
secure transmission of confidential information over public
networks. We rely on encryption and authentication technology to
authenticate and secure the transmission of confidential
information, including cardholder information. However, we cannot
ensure this technology will prevent breaches of the systems we use
to protect cardholder information. Although we maintain network
security insurance, we cannot be certain our coverage will be
adequate for liabilities actually incurred or insurance will
continue to be available to us on reasonable terms, or at all. In
addition, some of our partners also collect or possess information
about our customers, and we may be subject to litigation or our
reputation may be harmed if our partners fail to protect our
customers' information or if they use it in a manner inconsistent
with our policies and practices. Data breaches can also occur as a
result of non-technical issues. Under our contracts with our
processors, if there is unauthorized access to, or disclosure of,
credit card information we store, we could be liable to the credit
card issuing banks for their cost of issuing new cards and related
expenses.
14
Activities of customers or the content of their websites could
damage our reputation and brand or harm our business and financial
results.
As a
provider of domain name registration and podcast and web hosting,
we may be subject to potential liability for the activities of our
customers on or in connection with their domain names, podcast
content, websites or for the data they store on our servers.
Although our terms of service prohibit illegal use of our products
by our customers and permit us to take down content or suspend
accounts or take other appropriate actions for illegal use,
customers may nonetheless engage in prohibited activities or upload
or store content with us in violation of applicable law or the
customer's own policies, which could subject us to liability.
Furthermore, our reputation and brand may be negatively impacted by
the actions of customers that are deemed to be hostile, offensive
or inappropriate. We do not proactively monitor or review the
appropriateness of the domain names our customers register or the
content of their podcasts or websites, and we do not have control
over customer activities. The safeguards we have in place may not
be sufficient to avoid harm to our reputation and brand, especially
if such hostile, offensive or inappropriate use is high
profile.
Several
U.S. federal statutes may apply to us with respect to various
activities of our customers, including: the Digital Millennium
Copyright Act of 1998 (the DMCA), which provides recourse for
owners of copyrighted material who believe their rights under U.S.
copyright law have been infringed on the Internet; the
Communications Decency Act of 1996 (the CDA), which regulates
content on the Internet unrelated to intellectual property; and the
Anticybersquatting Consumer Protection Act (the ACPA), which
provides recourse for trademark owners against cybersquatters. The
DMCA and the CDA generally protect online service providers like us
that do not own, or control podcast or website content posted by
customers from liability for certain activities of customers, such
as the posting of defamatory or obscene content, unless the online
service provider is participating in the unlawful conduct. For
example, the safe harbor provisions of the DMCA shield Internet
service providers and other intermediaries from direct or indirect
liability for copyright infringement. However, under the DMCA, we
must follow the procedures for handling copyright infringement
claims set forth in the DMCA including expeditiously removing or
disabling access to the allegedly infringing material upon the
receipt of a proper notice from, or on behalf of, a copyright owner
alleging infringement of copyrighted material located on websites
we host. Under the CDA, we are generally not responsible for the
customer-created content hosted on our servers and thus are
generally immunized from liability for torts committed by others.
Consequently, we do not monitor hosted websites or prescreen the
content placed by our customers. Under the safe harbor provisions
of the ACPA, domain name registrars are shielded from liability in
many circumstances, including cybersquatting, although the safe
harbor provisions may not apply if our activities are deemed
outside the scope of registrar functions.
Although
these statutes and case law in the U.S. have generally shielded us
from liability for customer activities to date, court rulings in
pending or future litigation may narrow the scope of protection
afforded us under these laws. Neither the DMCA nor the CDA
generally apply to claims of trademark violations, and thus they
may be inapplicable to many of the claims asserted against our
company. Furthermore, notwithstanding the exculpatory language of
these bodies of law, the activities of our customers may result in
threatened or actual litigation against us. If such claims are
successful, our business and operating results could be adversely
affected, and even if the claims do not result in litigation or are
resolved in our favor, these claims, and the time and resources
necessary to resolve them, could divert the resources of our
management and adversely affect our business and operating
results.
In
addition, laws governing these activities are unsettled in many
international jurisdictions or may prove difficult or impossible
for us to comply with in some international jurisdictions. Also,
other existing bodies of law, including the criminal laws of
various states, may be deemed to apply or new statutes or
regulations may be adopted in the future, any of which could expose
us to further liability and increase our costs of doing
business.
We may face liability or become involved in disputes over
registration and transfer of domain names and control over
websites.
As a
provider of web-based and cloud-based products, including as a
registrar of domain names and related products, we from time to
time become aware of disputes over ownership or control of customer
accounts, websites or domain names. We could face potential claims
of tort law liability for our failure to renew a customer's domain.
We could also face potential tort law liability for our role in the
wrongful transfer of control or ownership of accounts, websites or
domain names. The safeguards and procedures we have adopted may not
be successful in insulating us against liability from such claims
in the future. In addition, we face potential liability for other
forms of account, website or domain name "hijacking," including
misappropriation by third parties of our network of customer
accounts, websites or domain names and attempts by third parties to
operate accounts, websites or domain names or to extort the
customer whose accounts, websites or domain names were
misappropriated. Furthermore, we are exposed to potential liability
as a result of our domain privacy product, wherein the identity and
contact details for the domain name registrant are
masked.
Disputes
involving registration or control of domain names are often
resolved through the Uniform Domain Name Dispute Resolution Policy
(the UDRP), ICANN's administrative process for domain name dispute
resolution, or less frequently through litigation under the ACPA,
or under general theories of trademark infringement or dilution.
The UDRP generally does not impose liability on registrars, and the
ACPA provides that registrars may not be held liable for
registration or maintenance of a domain name absent a showing of
the registrar's bad faith intent to profit. However, we may face
liability if we act in bad faith or fail to comply in a timely
manner with procedural requirements under these rules, including
forfeiture of domain names in connection with UDRP actions. In
addition, domain name registration disputes and compliance with the
procedures under the ACPA and URDP typically require at least
limited involvement by us and, therefore, increase our cost of
doing business. The volume of domain name registration disputes may
increase in the future as the overall number of registered domain
names increases.
We are dependent on the continued services and performance of our
senior management and other key employees, the loss of any of whom
could adversely affect our business, operating results and
financial condition.
Our
future performance depends on the continued services and
contributions of our senior management and other key employees to
execute on our business plan and to identify and pursue new
opportunities and product innovations. The loss of services of
senior management or other key employees could significantly delay
or prevent the achievement of our development and strategic
objectives. The loss of the services of our senior management or
other key employees for any reason could adversely affect our
business, financial condition and operating results.
15
If we are unable to hire, retain and motivate qualified personnel,
our business would suffer.
Our
future success and ability to innovate depends, in part, on our
ability to continue to attract and retain highly skilled personnel.
The loss of the services of any of our key personnel, the inability
to attract or retain qualified personnel or delays in hiring
required personnel, may seriously harm our business, financial
condition and operating results. Our ability to continue to attract
and retain highly skilled personnel, specifically employees with
technical and engineering skills and employees with language skills
and cultural knowledge of the geographic markets we have recently
expanded to or that we intend to expand to in the near future, will
be critical to our future success. Competition for highly skilled
personnel is frequently intense, particularly in U.S. tech hubs. As
a public company, the ability of our employees to sell their stock
received pursuant to equity awards in the public market may lead to
a larger than normal turnover rate. We intend to issue stock
options or other equity awards as key components of our overall
compensation and employee attraction and retention efforts. In
addition, we are required under GAAP to recognize compensation
expense in our operating results for employee equity-based
compensation under our equity grant programs, which may negatively
impact our operating results and may increase the pressure to limit
equity-based compensation. We may not be successful in attracting,
assimilating or retaining qualified personnel to fulfill our
current or future needs.
The requirements of being a public company may strain our
resources.
As a
public company, we are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act), the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). We expect the
requirements of these rules and regulations will continue to
increase our legal, accounting and financial compliance costs, make
some activities more difficult, time-consuming and costly, and
place significant strain on our personnel, systems and resources.
Management's attention may be diverted from other business
concerns, which could adversely affect our business and operating
results.
The
Sarbanes-Oxley Act requires us, among other things, to maintain
effective disclosure controls and procedures and internal control
over financial reporting. We continue to develop and refine our
disclosure controls and other procedures designed to ensure that
information required to be disclosed by us in the reports we will
file with the SEC is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and that
information required to be disclosed in reports under the Exchange
Act is accumulated and communicated to our principal executive and
financial officers. We also continue to improve our internal
control over financial reporting. In order to maintain and improve
the effectiveness of our disclosure controls and procedures and
internal control over financial reporting, we anticipate we will
continue to expend, significant resources, including legal and
accounting-related costs and management oversight.
Our business is subject to the risks of earthquakes, fire, power
outages, floods and other catastrophic events and to interruption
by man-made problems such as terrorism.
A
significant natural disaster, such as an earthquake, fire or flood
could have a material adverse impact on our business, operating
results and financial condition. Natural disasters could lead to
significant power outages and otherwise affect our data centers as
well as our infrastructure vendors' abilities to provide
connectivity and perform services on a timely basis. In the event
our or our service providers' IT systems' abilities are hindered by
any of the events discussed above, we and our customers' websites
could experience downtime, and our products could become
unavailable. In addition, acts of terrorism and other geopolitical
unrest could cause disruptions in our business or the business of
our infrastructure vendors, partners or customers or the economy as
a whole. Any disruption in the business or operations of our data
center hosting providers or customers could have a significant
adverse effect on our operating results and financial performance.
All of the aforementioned risks may be further increased if our
disaster recovery plans prove to be ineffective in the event of
such a disaster.
The Company may be responsible for certain obligations retained by
FAB.
Although
the Company does not expect to be liable for any obligations not
expressly assumed by the Company in connection with its spin-off
from its former parent company FAB Universal Corp.
(“FAB”) in 2016, it is possible that the Company could
be required to assume responsibility for certain obligations
retained by FAB should FAB fail to pay or perform its retained
obligations. FAB may have obligations that at the present time are
unknown or unforeseen. As the nature of such obligations are
unknown, we are unable to provide an estimate of the potential
obligation. However, should FAB incur such obligations, the Company
may be financially obligated to pay any losses
incurred.
16
Risks Related to Our Industry
Governmental and regulatory policies or claims concerning the
domain name registration system and the Internet in general, and
industry reactions to those policies or claims, may cause
instability in the industry and disrupt our business.
ICANN
is a multi-stakeholder, private sector, not-for-profit corporation
formed in 1998 for the express purposes of overseeing a number of
Internet related tasks, including managing the DNS allocation of IP
addresses, accreditation of domain name registrars and registries
and the definition and coordination of policy development for all
of these functions. We are accredited by ICANN as a domain name
registrar and thus our ability to offer domain name registration
products is subject to our ongoing relationship with, and
accreditation by, ICANN.
ICANN
has been subject to strict scrutiny by the public and governments
around the world, as well as multi-governmental organizations such
as the United Nations, with many of those bodies becoming
increasingly interested in Internet governance. There is also
uncertainty concerning the nature and significance of the recent
transition from U.S. oversight of ICANN to oversight of ICANN by
its members.
Additionally, we
continue to face the possibility that:
●
the structure and
accountability mechanisms contained in ICANN's new bylaws are
untested, which may result in ICANN not being accountable to its
stakeholders and unable to make, implement or enforce its
policies;
●
the U.S. or another
government or intergovernmental organization may reassess ICANN's
role in overseeing the domain name registration
market;
●
the Internet
community, the U.S. government or other governments may
(i) refuse to recognize ICANN's authority or support its
policies, (ii) attempt to exert pressure on ICANN, or
(iii) enact laws in conflict with ICANN's policies, each of
which could create instability in the domain name registration
system;
●
governments, via
ICANN's Governmental Advisory Committee (GAC), may seek greater
influence over ICANN policies and contracts with registrars and may
advocate changes that may adversely affect our
business;
●
some of ICANN's
policies and practices, such as ICANN's position on privacy and
proxy domain name registrations, and the policies and practices
adopted by registries and registrars, could be found to conflict
with the laws of one or more jurisdictions, including the GDPR, or
could be materially changed in a way that negatively impacts the
sale of our products;
●
the terms of the
Registrar Accreditation Agreement (the RAA) under which we are
accredited as a registrar, could change in ways that are
disadvantageous to us or under certain circumstances could be
terminated by ICANN, thereby preventing us from operating our
registrar service, or ICANN could adopt unilateral changes to the
RAA that are unfavorable to us, that are inconsistent with our
current or future plans, or that affect our competitive
position;
●
International
regulatory or governing bodies, such as the International
Telecommunications Union, a specialized agency of the United
Nations, or the European Union, may gain increased influence over
the management and regulation of the domain name registration
system, leading to increased regulation in areas such as taxation,
privacy and the monitoring of our customers' hosted
content;
●
ICANN or any
third-party registries may implement policy changes impacting our
ability to run our current business practices throughout the
various stages of the lifecycle of a domain name;
●
the U.S. Congress
or other legislative bodies in the U.S. could take action
unfavorable to us or influencing customers to move their business
from our products to those located outside the U.S.;
●
the U.S. Congress
or other legislative bodies in the U.S. or in other countries could
adopt laws that erode the safe harbors from third-party liability
in the CDA and DMCA;
●
ICANN could fail to
maintain its role, potentially resulting in instability in DNS
services administration;
●
some governments
and governmental authorities outside the U.S. have in the past
disagreed, and may in the future disagree, with the actions,
policies or programs of ICANN and registries relating to the DNS,
which could fragment the single, unitary Internet into a
loosely-connected group of one or more networks, each with
different rules, policies and operating protocols; and
●
multi-party review
panels established by ICANN's new bylaws may take positions
unfavorable to our business.
If any
of these events occur, they could create instability in the domain
name registration system and may make it difficult for us to
continue to offer existing products and introduce new products or
serve customers in certain markets. These events could also disrupt
or suspend portions of our domain name registration product and
subject us to additional restrictions on how the registrar and
registry products businesses are conducted, which would result in
reduced revenue.
In
addition, the requirements of the privacy laws around the world,
including the GDPR, are known to be in conflict with ICANN's
policies and contracts related to how registrars collect, transmit
and publish the personal information of domain name registrants in
publicly accessible WHOIS directories. Although ICANN implemented a
temporary policy to alleviate some of these conflicts, we are
working with ICANN and our industry counterparts to reconcile these
conflicts. If ICANN is unable or unwilling to harmonize these
policies and contracts with applicable privacy laws, our efforts to
comply with applicable laws may cause us to violate our existing
ICANN contractual obligations. As a result, we could experience
difficulties in selling domain names and keeping our existing
customer domain names under management if we are unable to reach an
amicable contractual solution with ICANN, which could have a
material adverse effect on our operations and revenue.
17
ICANN periodically authorizes the introduction of new TLDs, and we
may not have the right to register new domain names to our
customers based on such TLDs, which could adversely impact our
business and results of operations.
ICANN
has periodically authorized the introduction of new TLDs and made
domain names related to them available for registration. Our
competitive position depends in part on our ability to secure
access to these new TLDs. A significant portion of our business
relies on our ability to sell domain name registrations to our
customers, and any limitations on our access to newly-created TLDs
could adversely impact our ability to sell domain name
registrations to customers, and thus adversely impact our
business.
In
2013, ICANN significantly expanded the number of gTLDs, which
resulted in the delegation of new gTLDs commencing in 2014 (the
“Expansion Program”). The Expansion Program could
substantially change the domain name industry in unexpected ways
and is expected to result in an increase in the number of domains
registered by our competitors. In addition, if registries
participating in the Expansion Program cease operations for any
reason, we may have to dedicate Customer Support and development
resources to transition our customers’ domains to a new gTLD
registry. If a large number of such registries fail, it could
diminish consumer confidence in our industry and reduce our future
sales of domain names, either in legacy gTLDs or those gTLDs
created as part of the Expansion Program. If we do not properly
manage our response to the change in business environment, and
accurately predict the market's preference for specific gTLDs, it
could adversely impact our competitive position or market
share.
The relevant domain name registry and ICANN impose a charge upon
each registrar for the administration of each domain name
registration. If these fees increase, it would have a significant
impact upon our operating results.
Each
registry typically imposes a fee in association with the
registration of each domain name. For example, VeriSign, the
registry for .com and .net, has a current list price of $7.85
annually for each .com registration, and ICANN currently charges
$0.18 annually for most domain names registered in the gTLDs
falling within its purview. In 2016, VeriSign and ICANN agreed
VeriSign will continue to be the exclusive registry for the .com
gTLD through November 2024. In 2018, Verisign and the U.S.
Department of Commerce agreed to extend their Cooperative Agreement
through 2024. As part of that extension, Verisign will have the
right to raise .com wholesale prices up to 7% (per registration
year) each year starting in November 2020, subject to ICANN's
approval. As a result, costs to our customers could be higher,
which could have an adverse impact on our results of
operations.
We have
no control over ICANN, VeriSign or any other domain name registries
and cannot predict their future fee structures. While we do not
currently do so, we have the discretion to impose service fees on
our customers in the future. In addition, pricing of new gTLDs is
generally not set or controlled by ICANN, which in certain
instances has resulted in aggressive price increases on certain
particularly successful new gTLDs. The increase in these fees with
respect to any new gTLD either must be included in the prices we
charge to our customers, imposed as a surcharge or absorbed by us.
If we absorb such cost increases or if surcharges result in
decreases in domain registrations, our business, operating results
and financial performance may be adversely affected.
Our business and financial condition could be harmed materially if
small consumers and small businesses and ventures were no longer
able to rely upon the existing domain name registration
system.
The
domain name registration market continues to develop and adapt to
changing technology. This development may include changes in the
administration or operation of the Internet, including the creation
and institution of alternate systems for directing Internet traffic
without using the existing domain name registration system. The
widespread acceptance of any alternative system, such as mobile
applications or closed networks, could eliminate the need to
register a domain name to establish an online presence and could
materially and adversely affect our business.
Changes in state taxation laws and regulations may discourage the
registration or renewal of domain names for
e-commerce.
Due to
the global nature of the Internet, it is possible that any U.S. or
foreign federal, state or local taxing authority might attempt to
regulate our transmissions or levy transaction, income or other
taxes relating to our activities. Tax authorities at the
international, federal, state and local levels are regularly
reviewing the appropriate treatment of companies engaged in
e-commerce. New or revised international, federal, state or local
tax regulations may subject either us or our customers to
additional sales, income and other taxes. We cannot predict the
effect of current attempts to impose sales, income or other taxes
on e-commerce. New or revised taxes, in particular sales and other
transaction taxes, would likely increase the cost of doing business
online and decrease the attractiveness of advertising and selling
goods and services over the Internet. New taxes could also create
significant increases in internal costs necessary to capture data
and to collect and remit taxes. Any of these events could have an
adverse effect on our business and results of
operations.
Risks related to our Common Stock and management's percentage of
ownership of our Common Stock
The market price and trading volume of our Common Stock may be
volatile and may face negative pressure.
There
may be significant fluctuations in the Company’s Common Stock
price. Investors’ interest may not lead to a liquid trading
market and the market price of our Common Stock may be volatile.
This may result in short or long-term negative pressure on the
trading price of shares of our Common Stock. The market price of
our Common Stock may be volatile due to the risks and uncertainties
described in this “Risk Factors” section, as well as
other factors that may affect the market price, such
as:
●
Conditions and
publicity regarding the podcast hosting industries
generally;
●
Price and volume
fluctuations in the stock market at large which do not relate to
the Company’s operating performance; and
●
Comments by
securities analysts or government officials, including those with
regard to the viability or profitability of the podcasting sector
generally or with regard to our ability to meet market
expectations.
●
The stock market
has from time to time experienced extreme price and volume
fluctuations that are unrelated to the operating performance of
particular companies.
18
Future sales of our Common Stock could adversely affect our stock
price and our ability to raise capital in the future.
Sales
of substantial amounts of the Company’s common stock could
harm the market price of its stock. This also could harm our
ability to raise capital in the future. The Company’s shares
are freely tradable without restriction under the Securities Act of
1933 (the “Securities Act”) by persons other than
“affiliates,” as defined under the Securities Act. Any
sales of substantial amounts of the Company’s common stock in
the public market, or the perception that that sales might occur,
could harm the market price of the Company’s common
stock.
The
Company will not solicit the approval of its stockholders for the
issuance of authorized but unissued shares of the Company’s
common stock unless this approval is deemed advisable by our board
of directors or is required by applicable law, regulation or any
applicable stock exchange listing requirements. The issuance of
those shares could dilute the value of the Company’s
outstanding shares of common stock.
Due to the instability in our common stock price, you may not be
able to sell your shares at a profit.
The
public market for our common stock is limited and volatile. As with
many other companies, any market price for our shares is likely to
continue to be very volatile. In addition, the other risk factors
disclosed in this Form 10-K may significantly affect our stock
price. The volatility and limited volume of our stock price may
make it more difficult for you to resell shares when you want at
prices you find attractive.
In
addition, the stock market in general and the market for small
podcast and Web hosting companies, in particular, have experienced
extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may reduce our
stock price, regardless of our operating performance.
The sale of already outstanding shares of our common stock could
hurt our common stock market price.
The
number of our shares available for resale in the public market may
exceed the number of shares that purchasers wish to buy. This
imbalance may place downward pressure on our stock
price.
Sales
of substantial amounts of the Company’s common stock could
harm the market price of its stock. This also could harm the
Company’s ability to raise capital in the future. Any sales
of substantial amounts of the Company’s common stock in the
public market, or the perception that that sales might occur, could
harm the market price of the Company’s common
stock.
Failure to meet financial expectations could have an adverse impact
on the market price of the Company’s common
stock.
The
Company’s ability to achieve its financial targets is subject
to a number of risks, uncertainties and other factors affecting its
business and the podcasting and hosting industries generally, many
of which are beyond the Company’s control. These factors may
cause actual results to differ materially. We describe a number of
these factors throughout this document, including in these Risk
Factors. The Company cannot assure you that it will meet
these targets. If the Company is not able to meet these targets, it
could harm the market price of its common stock.
Item 1B.
Unresolved Staff Comments.
Not
applicable to smaller reporting companies.
Item 2.
Properties.
The
Company’s principal executive offices consist of
approximately 3,100 square feet of office space located at 5001
Baum Boulevard, Suite 770, Pittsburgh, Pennsylvania 15213. Our
telephone number is (412) 621-0902. The Pittsburgh office is rented
for $4,953 per month and the lease ends April 30, 2022.
We also maintain an office at 2403
Sidney St., Suite 210, Pittsburgh, PA for the Pair operations. The
office consists of approximately 30,000 square feet of space and is
rented for $27,314 per month and the lease ends on September 30,
2021. Pair utilizes a colocation data center facility in Denver,
Colorado. The colocation provides Pair with redundant, 24/7 power
circuits. This space is leased for $6,390 and the lease ends on May
3, 2020.
19
Item 3.
Legal Proceedings.
The
Company is involved in routine legal and administrative proceedings
and claims of various types. We have no material pending legal or
administrative proceedings, other than ordinary routine litigation
incidental to our business, to which we or any of our subsidiaries
are a party or of which any property is the subject, other than as
described below.
On
April 24, 2020 John Busshaus, the Company’s former Chief
Financial Officer, filed a complaint against the Company with the
American Arbitration Association (AAA) asserting claims arising
from his employment relationship with Libsyn, including, inter
alia, claims for wages, compensation and benefits, and claims
prohibiting unlawful discharge and wrongful termination. Busshaus
claims that he resigned for “Good Reason” as defined in
Section 8(c) of his Employment Agreement pursuant to which he
claims to be entitled to the “Effect of Termination”
under the Employment Agreement in Section 9(c). The Company denies
Busshaus’ claims in their entirety.
Item 4. Mine Safety Disclosures
Not
applicable
Item 5.
Market for Registrant’s Common
Equity; Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities.
We have not issued any unregistered or restricted shares of common
stock during the calendar years ended December 31, 2019 and 2018,
that have not already been disclosed in our Quarterly Reports on
Form 10-Q and/or Current Reports on Form 8-K.
Item 6.
Selected Financial Data
Not
applicable to smaller reporting companies.
Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The
following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes
included in this Form 10-K.
Company Overview
Libsyn
Libsyn
was on the forefront of the podcast trend when it was founded in
2004, launching the first Podcast Service Provider (Host), offering
storage, bandwidth, and RSS (Really Simple Syndication) creation
tools. Today, Libsyn is a worldwide leader of podcast hosting,
distribution, and monetization. Hosting over 69,000 podcast shows,
Libsyn delivered 6.2 billion industry standard unique podcast
downloads to audiences worldwide in 2019. The Libsyn brand has
built a reputation for reliable service, world class podcast
statistics and exceptional customer service. This has allowed
Libsyn to grow into one of the market leaders in the
industry.
20
Podcast Hosting and Distribution
Libsyn is a Podcast Service Provider offering hosting and
distribution tools which include storage, bandwidth, RSS creation,
distribution, and statistics tracking. Podcast producers can choose
from a variety of hosting plan levels based on the requirements for
their podcast. Podcast producers’ sign-up online at
www.libsyn.com, using their credit card to subscribe to a monthly
plan. Libsyn offers a basic, getting started plan for $5 per month
and more advanced plans that include more storage, advanced stats,
and podcast apps. Plans are designed to provide full-featured
podcast tools with generous storage and bandwidth transfer.
LibsynPRO service is an enterprise solution for professional media
producers and corporate customers that require media network
features and dedicated support.
Libsyn supports both audio and video podcasts, allowing producers
to upload podcast episodes through the Libsyn interface or via FTP
to manage publishing to online directories, web portals, content
aggregators, App marketplaces and social media platforms for both
download and streaming.
Approximately 60% of the shows that Libsyn distributes reach
audiences using the Apple Podcasts platform which includes iTunes
on the computer and the Apple Podcasts App on iOS devices which
includes iPhones, iPads, iPods, Apple Watch, and Apple TV. Libsyn
also enables distribution to aggregators such as Google Podcasts,
Spotify, Pandora, iHeartRadio, radio.com
and Deezer. The OnPublish feature
enables podcast episodes to be posted to social media sites such as
Facebook, Twitter, YouTube, Linked-In and blogging platforms like
WordPress, Tumblr and Blogger. Libsyn also provides a podcast
player that can be embedded on websites or shared via social
media.
Libsyn’s podcast platform architecture allows for expansion
of distribution destinations and OnPublish capabilities. Using the
Libsyn service, podcast producers can more broadly distribute and
promote their shows to attract larger audiences.
The Libsyn business has also experienced upward trends in the areas
of podcast creation, consumption, and audience growth. Podcast
shows on the Libsyn platform increased to over 69,000 in 2019, from
57,000 in 2018, 44,000 in 2017 from 35,000 in 2016 and from 28,000
in 2015. This resulted in 5,844,017 active episodes in 2019 verus
4,906,636 in 2018 versus 3,968,275 in 2017 versus 3,193,997 in 2016
and 2,572,295 in 2015. The industry standard unique podcast
downloads for 2019 reached 6.2 billion versus over 5.1 billion in
2018. Additionally, the Libsyn network now reaches 130 million
audience members monthly as of December 2019 an increase from 111
million as of December 2018, 92 million in December 2017 and 62
million in December 2016.
In 2018, Libsyn generated 70% of its $12.6 million in revenue from
Podcast hosting fees paid by Libsyn4 producers. Advertising revenue
was 10% of overall revenues, and LibsynPro, which includes hosting,
along with bandwidth charges and other professional level add-ons,
made up 17% of revenues. App subscriptions made up 3% of total
Libsyn revenues.
In 2019, Libsyn generated 76% of its $14.4 million in revenue from
Podcast hosting fees paid by Libsyn4 producers. Advertising revenue
was 4% of overall revenues, and LibsynPro, which includes hosting,
along with bandwidth charges and other professional level add-ons,
made up 17% of revenues. App subscriptions made up 3% of total
Libsyn revenues.
Mobile Podcast Apps
To grow audience for a podcast, producers seek to distribute their
shows everywhere and that can include directly as a stand alone app
for a single show or a network of shows in the App stores. Each
month, more than 2 billion people globally-download apps from the
Apps stores versus the approximately 172 million who download
podcasts. After the Apple Podcasts platform, the next largest and
most readily used method is via Aggregator apps from the App stores
where combined third party apps (not from Apple or Spotify) and
stand-alone apps for shows traditionally represent around 16% of
downloads. Libsyn provides the ability for producers to have their
own customized apps and also be included in the Libsyn PodSource
app, across most major App Stores. This includes Apple, Amazon, and
Google Play App Stores.
Multiple apps destinations allow podcasts to be discovered by those
new to podcasts but familiar with Apps and more importantly,
enables a simple way to consume podcasts and share them with
friends. Additionally, podcast apps open podcast consumption to
users who are not Apple-centric and do not require listeners to
subscribe or download podcasts. Once the App has been downloaded to
a mobile device, the podcast episodes can be played directly from
the App.
21
Advertising
The Libsyn Ad Sales team has ongoing relationships with agencies
and advertisers and works directly with podcast producers on
advertising and sponsorship opportunities. Producers’ shows
can earn revenue share from advertising campaigns. Additionally,
Campaign Management services, which include automated ad insertion
tools, are integrated into the Libsyn platform. The Libsyn Ad
Operations team and enterprise customers can use these tools to
schedule and track ad impressions that are dynamically inserted
into podcasts.
Podcast advertising is segmented in to “host read”
advertisements and “programmatic” or “dynamically
inserted” advertisements. Traditionally host read
advertisements have carried a higher cost per million (CPM) than
dynamically inserted advertisements.
Libsyn statistics show that over 50% of podcast downloads come from
the back catalog of content, which is content that was published in
months prior to the month they were downloaded. With dynamic ad
insertion, ads can be included during the campaign, which then
allow the entire show catalog to be available for future campaigns.
Host-read ads may be permanently included in the episode, which may
limit future advertising opportunities across a show’s entire
back catalog of content. Both the host read and programmatic
advertising segments of the podcasting market are rapidly
changing.
We believe advertisers and agencies run new advertising campaigns
and renew advertising campaigns with us based on the performance of
the advertisement and the working experience with Libsyn’s Ad
Operations team. We believe we are able to provide a valuable
service to our producers by simplifying the coordination of
advertising buys and campaign tracking. Management believes that
the targeted audiences may continue to drive higher-value CPMs and
sponsorship rates based on successful results.
Premium Podcast Content
Premium podcast content is a monetization strategy for producers to
offer shows to their audience on a paid subscription basis. Through
MyLibsyn, podcast producers get a custom App and a podcast website
where listeners can access their show, login to purchase a
subscription and get access to premium content. Subscriptions are
offered on a one month, six month or annual basis and revenue is
shared with the show’s producer. With over 50% of podcast
downloads coming from the back catalog of content, the Premium
offering enables shows to make their most recent episodes available
for free in order to continue to build audiences but charge for
their back catalog to generate revenue from the
subscriptions.
The Premium offering is also available to LibsynPro customers to
create private podcasts. Private Premium is ideal for large
organizations and companies that want to distribute audio and video
information internally through mobile apps. Access to Private
Premium content is controlled and managed by an access list through
the LibsynPro interface or by utilizing single sign-on (SSO)
authentication. The
organizations pay monthly for the private subscribers, so users are
only required to download the App from one of the App stores and
login. This provides an easy solution for organization to
distribute information to employees, partners, and affiliates by
utilizing smartphone apps.
Pair Networks, Inc. (“Pair”)
Pair Networks, founded in 1996, is one of the oldest and most
experienced Internet hosting companies providing a full range of
fast, powerful and reliable Web hosting services. Pair offers a
suite of Internet services from shared hosting to virtual private
servers to customized solutions with world-class 24x7 on-site
customer support. Based in Pittsburgh, Pair serves
businesses, bloggers, artists,
musicians, educational institutions and non-profit organizations
around the world.
Pair
offers a variety of hosting plan levels, value add Internet
services, security services and domain registration. Through the
Pair Account Control Center (ACC), customers can manage their
hosting accounts and domains from one place.
Customers
can choose from a variety of web hosting plan levels based on their
requirements and applications. Pair Hosting offers shared servers,
virtual private servers, dedicated servers and optimized WordPress
hosting as managed services. With over twenty years of experience
in Internet hosting, Pair has the expertise to build and manage
reliable and powerful hosting solutions. The managed service and
24x7 support allow customers to focus on their core business
without having to worry about hardware, operating systems, network
connectivity or uptime.
Share
web hosting is a great option for startup or smaller businesses as
the website sits on the same server with other websites and shares
resources such as memory and Central Processing Unit (CPU). Basic
website applications such as email and file sharing are ideal for
shared server offerings.
Virtual
private servers
Virtual
private servers (VPS) is a step up from a shared hosting solution
in that specific serve resources are allocated directly for your
use, assuring performance levels. This is a more secure and
reliable option that separates your site from others and is ideal
for storage or database applications for businesses, developers and
fast-growing sites.
22
Dedicated
servers
Dedicated
servers provide yet another level of security and performance for
those who need more processing power or storage. Servers are custom
built to customer specification and tuned for performance,
reliability and efficiency to meet the demand of more robust
applications. Through Pair QuickServe (QS), a powerful hosting
solution with tremendous capacity and speed are ready for your use
in no time and fully managed to keep them up to date.
Pair
hosting also offers self-managed service through server
collocation, which delivers the advantages of the powerful
infrastructure that was built behind the fully managed offerings.
For those customers who want to purchase their own hardware,
collocation service in Pair’s data center allows for
unmanaged service with the security and reliability of the diverse
network, physically secure facilities, backup power and redundant
climate control.
Pair
offers a managed WP product line that is optimally configured for
performance and security. This managed WP service will ensure fast
performance, high availability and security by keeping sites up to
date with the latest WP core updates and patches and ensuring
hardware and network speed and uptime. The WP service offers a
range of scalable solutions from several to unlimited WP sites,
ideal for single sites through enterprise
applications.
Pair
Hosting customers sign-up online at www.pair.com, using their
credit card to subscribe to a monthly or annual plan. Pair offers a
basic, getting started plan with a custom domain for $5.95 per
month with a basic drag and drop website builder and more advanced
plans that include additional storage, processing power and add-ons
like eCommerce and WordPress. Plans are designed to provide
full-featured web hosting tools for all levels including backups,
Account Control and security and operating system maintenance and
upgrades.
Pair
Domains offers custom domains for Top Level Domains (TLDs)
including dot-com, dot-org, and dot-net that vary in price from
$4.00 to $70 per year based on the TLD. Customers can search for
available domains and sign-up online at www.pairdomains.com using
their credit card for a one to ten years domain purchase or domain
transfer. All domain names registered by Pair include enhanced
services such as custom and dynamic Domain Name System (DNS) which
controls your domain name’s website and email, WHOIS privacy,
email forwarding, and a drag and drop website builder.
Critical Accounting Policies
Our
discussion and analysis of our financial condition and the results
of our operations are based upon our financial statements and the
data used to prepare them. Our financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. On an ongoing basis, we re-evaluate
our judgments and estimates including those related to bad debts,
investments, long-lived intangible assets, and income
taxes.
We base
our estimates and judgments on our historical experience, knowledge
of current conditions and our beliefs of what could occur in the
future considering available information. Actual results may differ
from these estimates under different assumptions or conditions. Our
estimates are guided by observing the following critical accounting
policies.
Goodwill
In
January 2017, the FASB issued ASU 2017-04, Intangibles, Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which
simplifies the manner in which an entity should perform its annual,
or interim, goodwill impairment test.
In accordance with ASC 350, Intangibles-Goodwill and Other, we
first assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more
likely than not (a likelihood of more than 50%) that the fair value
of our reporting unit is less than its carrying amount. If after
assessing the qualitative factors we determine that it is not more
likely than not that the fair value of the reporting unit is less
than the carrying value, then we conclude that we have no goodwill
impairment and no further testing is performed; otherwise, we
proceed to the two-step process. The first step under the two-step
process is to compare the fair value of the reporting unit to its
carrying value. If the fair value exceeds the carrying value,
goodwill is not impaired, and no further testing is
performed.
Under
the new guidance, if a reporting unit’s carrying amount
exceeds its fair value, an entity will record an impairment charge
based on that difference. The impairment charge will be limited to
the amount of goodwill allocated to that reporting unit. The
standard eliminates the previous requirement to calculate a
goodwill impairment charge by comparing the implied fair value of
goodwill with its carrying amount.
The new
standard became effective for us on January 1, 2020. We early
adopted the proposed guidance under ASU 2017-04 for the year end
December 31, 2019 on a prospective basis. The implementation of ASU
2017-04 did not have a material impact on our consolidated
financial statements and related disclosures.
23
Leases
On
January 1, 2019, the Company adopted Accounting Standards
Codification ASC 842, Leases. ASC 842 was issued to increase
transparency and comparability among entities by recognizing
right-of-use assets and lease liabilities on the balance sheet and
disclosing key information about lease arrangements.
We
elected to transition to ASC 842 using the option to apply the
standard on its effective date, January 1, 2019. The comparative
periods presented reflect the former lease accounting guidance and
the required comparative disclosures are included in Note 8 –
Leases. There was not a material cumulative-effect adjustment to
our beginning retained earnings as a result of adopting ASC 842. We
have recognized additional operating lease assets and obligations
of approximately $1.4 million and $800,000 as of January 1, 2019
and December 31, 2019, respectively. For additional disclosure and
detail, see Note 8 – Leases.
Revenue
The
Company accounts for revenue in accordance with ASC Topic 606.
Revenue is recognized when control of the promised services is
transferred to our customers, in an amount reflecting the
consideration we expect to be entitled to in exchange for those
services.
Certain
products are generally sold with a right of return within our
policy, which are accounted for as variable consideration when
estimating the amount of revenue to recognize. Refunds are
estimated at contract inception using the expected value method
based on historical refund experience and updated each reporting
period as additional information becomes available and only to the
extent it is probable a significant reversal of any incremental
revenue will not occur. Refunds reduce deferred revenue at the time
they are granted and resulted in a reduced amount of revenue
recognized over the contract term of the applicable service
compared to the amount originally expected.
Our
revenue is categorized and disaggregated as follows:
Domains - Domains revenue primarily
consists of domain registrations and renewals, domain privacy,
domain application fees, domain back-orders, aftermarket domain
sales and fee surcharges paid to ICANN. Domain registrations
provide a customer with the exclusive use of a domain during the
applicable contract term. After the contract term expires, unless
renewed, the customer can no longer access the domain.
Consideration is recorded as deferred revenue when received, which
is typically at the time of sale, and revenue, other than for
aftermarket domain sales, is recognized over the period in which
the performance obligations are satisfied, which is generally over
the contract term. Aftermarket domain revenue is recognized when
ownership of the domain is transferred to the buyer.
Hosting Services - Hosting services
revenue primarily consists of website hosting products, website
building products and services, website security products, an
online shopping cart and online visibility products and email
accounts. Consideration is recorded as deferred revenue when
received, which is typically at the time of sale, and revenue is
recognized over the period in which the performance obligations are
satisfied, which is generally over the contract term.
Podcast Hosting - Podcast hosting
publishing services are billed on a month to month basis, with
first month’s bill prorated to the end of the month so all
performance obligations are satisfied at each month-end.
Consideration is recorded as revenue as the services, the
underlying performance obligation, are provided and or satisfied
and collection is probable which is generally when
received.
Media Subscription Services - The
Company facilitates the sale of producers’ premium content
through the sale of subscriptions. The amount earned per
transaction is fixed with the producers determine the price for the
sale of each subscription, and the Company earns a percentage of
what the customer pays. The performance obligation is providing the
subscription hosting medium and billing services. Accordingly, the
Company reports premium subscription revenue on a net basis over
the subscription service period in which the performance obligation
is satisfied.
Advertising - The Company recognizes
revenue from the insertion of advertisements in digital media. The
performance obligation is the download of the digital media with
the advertisement inserted. The performance obligation to recognize
advertising revenue is satisfied upon delivery of the media
download and collection is probable.
Equity-Based Compensation
Our
equity-based awards are comprised of stock and are accounted for
using the fair value method. Stock is measured based on the fair
market value of the underlying common stock on the date of grant.
Awards vest and compensation is recognized over the requisite
service period. The measurement date for performance vesting awards
is the date on which the applicable performance criteria are
approved by our board of directors.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill
is evaluated for impairment annually in the fourth quarter of the
Company’s fiscal year, and whenever events or changes in
circumstances indicate the carrying value of goodwill may not be
recoverable. Triggering events that may indicate impairment
include, but are not limited to, a significant adverse change in
customer demand or business climate that could affect the value of
goodwill or a significant decrease in expected cash flows. The
company recorded no impairment charge for goodwill, during the
years ended December 31, 2019 and 2018.
24
Results of Operations
The Libsyn business has experienced upward trends in the areas of
podcast creation, consumption, and audience growth. Podcast shows
on the Libsyn platform increased to over 69,000 in 2019 from 57,000
in 2018 and from 44,000 in 2017. This resulted in 5,844,017 active
episodes in 2019 versus 4,906,636 in 2018 versus 3,968,275 in 2017.
Using the industry standards, Libsyn’s unique podcast
downloads for 2019 reached 6.2 billion. Additionally, the Libsyn
network reached approximately 130 million audience members monthly
in December 2019, an increase from 111 million in December 2018 and
92 million in December 2017.
The Libsyn4 product offering is a podcast hosting and distribution
service which includes storage, bandwidth, RSS creation,
distribution, and statistics tracking. Podcast producers can choose
from a variety of hosting plan levels based on the requirements for
their podcast. Podcast producers’ sign-up online at
www.libsyn.com, using their credit card to subscribe to a monthly
plan. Libsyn’s standard plans range for $5 to $150 per month.
LibsynPRO service is an enterprise solution for professional media
producers and corporate customers that require media network
features and dedicated support. LibsynPro revenue consists
primarily of monthly hosting fees and bandwidth usage charges.
Other professional level add-ons, such as set-up fees and custom
features, represent a small portion of LibsynPro
revenue.
Trends in the number of podcast shows on the Libsyn network and
podcast consumption affect our revenue and financial results as
they are directly related to cash flow and cost of revenue.
Management believes that over the next 12 months growth in the
podcasting industry and Libsyn’s market leadership will
continue to fuel expansion of the Libsyn network and revenue. The
company expects to see year-over-year cost of revenue continue to
grow in 2020. With the level of bandwidth usage currently incurred,
the company has Content Delivery Network (CDN) and storage solution
contracts that leverage economies of scale over the next 12 months
to continue to help manage cost of revenue.
In 2018, Libsyn generated 70% of its $12.6 million in revenue from
Podcast hosting fees paid by Libsyn4 producers. Advertising revenue
was 10% of overall revenues, and LibsynPro, which includes hosting,
along with bandwidth charges and other professional level add-ons,
made up 17% of revenues. App subscriptions made up 3% of total
Libsyn revenues.
In 2019, Libsyn generated 76% of its $14.4 million in revenue from
Podcast hosting fees paid by Libsyn4 producers. Advertising revenue
was 4% of overall revenues, and LibsynPro, which includes hosting,
along with bandwidth charges and other professional level add-ons,
made up 17% of revenues. App subscriptions made up 3% of total
Libsyn revenues.
Pair
offers a variety of hosting plan levels, value add Internet
services, security services and domain registration. Through the
Pair Account Control Center (ACC), customers can manage their
hosting accounts and domains from one place. Pair’s hosting
subscriptions provided as a service as of December 2019 totaled
over 25,000.
Customers
can choose from a variety of web hosting plan levels based on their
requirements and applications. Pair Hosting offers shared servers,
virtual private servers, dedicated servers and optimized WordPress
hosting as managed services. Pair Hosting customers sign-up online
at www.pair.com,
using their credit card to subscribe to a monthly or annual plan.
Pair offers a basic, getting started plan with a custom domain for
$5.95 per month with a basic drag and drop website builder and more
advanced plans that include additional storage, processing power
and add-ons like eCommerce and WordPress. Plans are designed to
provide full-featured web hosting tools for all levels including
backups, Account Control and security and operating system
maintenance and upgrades.
Pair Domains offers custom domains for Top Level Domains (TLDs)
including dot-com, dot-org, and dot-net that vary in price from
$4.00 to $70 per year based on the TLD. Customers can search for
available domains and sign-up online at www.pairdomains.com using
their credit card for a one to ten-year domain name purchase or
domain transfer. Pair’s Domain name registrations totaled
over 88,621 as of December 2019.
Fiscal year ended December 31, 2019 compared to fiscal year ended
December 31, 2018
In
2019, the Company recorded revenues of $24,201,629, a 10% increase
over revenues of $22,010,132 for the same period in 2018. This
increase reflects an increase in Libsyn4 hosting revenue as well as
LibsynPro, offset by a decrease in advertising revenue. This also
reflects an increase in Pair’s hosting and domain offerings.
Libsyn contributed $14,486,211 of revenue while Pair contributed
$9,715,418.
Libsyn4
hosting revenue increased due to the growth in the number of
podcasts on the network in 2019 when comparing to 2018. LibsynPro
revenue increased as a result of additional LibsynPro networks
using our platform in 2019 with increased bandwidth usage fees for
delivery of podcasts contributing to the revenue gain. Advertising
revenue decreased $674,929 during 2019 versus 2018. The decrease
resulted from decrease in the dollars being spent on ad campaigns
by advertisers. Premium subscription revenue remained relatively
constant in 2019 versus 2018.
The
Company recorded total costs and operating expenses of $20,520,756
during, 2019, a 14% increase as compared to total costs and
operating expenses of $17,930,512 during the same period of 2018.
Libsyn contributed $9,885,735 to total costs and operating expenses
during 2019, and $7,114,849 during the same period in 2018. Pair
contributed $10,635,021 to total costs and operating expenses
during 2019 and $10,815,662 during the same period in
2018.
25
In
2019, cost of revenue totaled $3,491,545, a 5% increase as compared
to $3,331,876 for the same period in 2018. Libsyn contributed
$2,367,975 while Pair contributed $1,123,570 to the cost of revenue
during 2019. Libsyn recorded an increase in bandwidth costs, credit
card processing fees, and colocation fees, offset by a decrease in
ad sharing that was paid to producers during 2019 versus 2018. Pair
recorded an increase in domain name fees and internet fees, offset
by a decrease in processing fees and colocation fees. Cost of
revenue as a percentage of revenue for Libsyn decreased to 16% in
2019 from 20% during the same period in 2018. This is a reflection
of the reduction in the bandwidth rate to deliver the podcasts,
off-set by an increase in bandwidth usage during 2019 due to the
growth in the number of podcasts and increased podcast consumption
on the Libsyn Platform. Cost of revenue as a percentage of revenue
for Pair increased to 12% in 2019 from 9% during the same period in
2018. This is due primarily to the increase in domain name purchase
fees and internet connectivity fees.
General
and administrative expenses totaled $8,487,462 in 2019
versus $6,065,661 during 2018, an increase of 40%. The increase was
driven primarily due to an increase in legal and advisory fees and
accrual of bonuses, offset by a decrease in employment health
benefits. The increase includes $1,299,584 of legal and advisory
fees incurred by the Company which was associated with the Camac
proxy campaign and subsequent settlement reached following the end
of the third quarter in 2019. Included in General and
administrative expenses was $940,000 due to the accrual of bonuses
for senior management. Since the 10-Q filing, ended September 30,
2019, the Company has taken the position that it does not believe
that the bonus for John Busshaus should be accrued (See Item 3.
Legal Proceedings) General and administrative expense for Pair
during 2019 was $2,710,720 and $2,875,120 for the same period in
2018. General and administrative expense for Libsyn for the same
periods was $5,776,742 and $3,190,541, respectively.
Technology
expenses represented $1,971,338 in 2019 versus $1,842,020 in 2018,
driven by an increase in wages. Selling expenses during 2019 were
$981,940 versus $846,434 during the same period in 2018 driven by
an increase in travel and entertainment expense. Customer support
expenses in 2019 were $2,678,252 versus $2,830,789 during the same
period in 2018 driven by the decrease of support staff and decrease
in overtime pay.
Depreciation
and amortization expenses consist of charges relating to the
depreciation of the property and equipment used in our operations
and the amortization of intangible assets. Depreciation and
amortization expense for 2019 was $2,910,219 and $3,013,732 during
the same period in 2018. During 2019, Libsyn contributed $81,724
and Pair contributed $2,828,495 to depreciation and amortization
expense.
Interest
expense for 2019 was $308,732 compared to $387,064 in 2018.
Interest expense for 2019 was offset with interest income of
$251,510, resulting in net cash expenditure of
$57,222.
The
Company’s net income was $2,833,841 for 2019. This represents
a $1,539,504 decrease from $4,373,345for 2018. Earnings per share
decreased $0.05 per share for 2019 when compared to
2018.
Inflation and seasonality:
The
Company does not believe that inflation or seasonality will
significantly affect its results of operation.
Liquidity and Capital Resources
2019 compared to 2018
Cash on
hand was $16,621,272 at December 31, 2019, an increase of
$5,541,331 over the $11,079,941 on hand at December 31, 2018. Cash
provided by operations for 2019, was $7,574,857, as compared to
cash provided by operations of $7,998,526 for 2018. This is a
result of the recognition of expenses related to deferred tax
assets and an increase in expenses during 2019.
During
2019, cash used in investing activities was $360,540 which was for
the purchase of equipment and capitalization of software
development costs. Cash used in investing activities was $378,687
during 2018.
In
2019, net cash used in financing activities was $1,672,986. During
2019, we made principal loan payments totaling $1,600,000, as well
as $72,986 of payments on a capital lease. In 2018, net cash used
in financing activities was $1,751,743.
26
Debt and Contractual Obligations
On December 27, 2017, the Company entered into a loan agreement
(the “Loan Agreement”) among the Company, Webmayhem,
Inc., a Pennsylvania corporation and a wholly-owned subsidiary of
the Company (“Libsyn”), and Pair Networks (Pair
Networks, together with Libsyn and the “Company”), and
First Commonwealth Bank, a Pennsylvania bank and trust company (the
“Bank”).
The Loan Agreement provides for: (i) a revolving credit facility
pursuant to which the Company may borrow up an aggregate principal
amount not to exceed $2,000,000 (the “Revolving Credit
Facility”); and (ii) a term loan in a principal amount equal
to $8,000,000 (the “Term Loan” and, together with the
Revolving Credit Facility, the “Facility”). A portion
of the Revolving Credit Facility, up to $500,000, may be used for
standby letters of credit for the account of the
Company.
The Term Loan is repayable in quarterly installments of $400,000
payable on the last day of each March, June, September, December
and March thereafter, through and including September 30, 2022.
Accrued interest is payable in arrears not less frequently than
quarterly. The remaining unpaid principal balance of the Term Loan,
together with accrued interest thereon, is due and payable in full
on December 27, 2022. The Term Loan also calls for additional
payment equal to the following: 1)100% of the proceeds from the
sale of any common shares 2) 100% of the proceeds from the sale of
assets not immediately replaced 3) excess liquidity in any given
year up to $1,066,667 and no more than $3,200,000 over the life of
the term loan.
Off-Balance Sheet Arrangements
We have
operating leases for certain facilities, but otherwise do not have
any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our
financial condition, results of operations, liquidity, or capital
resources.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not
applicable to smaller reporting companies.
27
Liberated Syndication Inc.
Index to
Financial Statements
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firms
|
36
|
|
|
|
|
Consolidated
Balance Sheets
|
38
|
|
|
|
|
Consolidated
Statements of Operations
|
39
|
|
|
|
|
Consolidated
Statements of Changes in Stockholder’s Equity
|
40
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
41
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
42
|
|
|
|
28
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of Liberated Syndication
Inc.:
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Liberated
Syndication Inc. (“the Company”) as of December 31,
2019 and 2018, the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the years in
the two-year period ended December 31, 2019 and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2019, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our
opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since
2018.
Salt Lake City, UT
May 14, 2020
29
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
2019
|
December
31,
2018
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
$16,621,272
|
$11,079,941
|
|
Accounts
receivable, net
|
549,044 [1]
|
481,921[1]
|
|
Prepaid
expenses
|
614,417
|
449,223
|
|
Total current
assets
|
17,784,733
|
12,011,085
|
|
|
|
|
|
Property and
equipment, net
|
1,536,930
|
2,229,294
|
|
Definite life -
intangible assets, net
|
5,929,371
|
7,786,686
|
|
Prepaid
expense
|
363,091
|
191,609
|
|
Operating lease
right-of-use assets
|
751,731
|
-
|
|
Deferred Tax
Asset
|
1,847,979
|
1,454,077
|
|
Goodwill
|
16,388,171
|
16,388,171
|
|
Total
assets
|
$44,602,006
|
$40,060,922
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Accounts
payable
|
$760,163
|
$745,889
|
|
Income taxes
payable
|
2,047,917
|
868,529
|
|
Accrued
expenses
|
1,087,271
|
377,572
|
|
Deferred
revenue
|
2,511,682
|
2,276,079
|
|
Current portion of
finance lease obligation
|
831
|
72,986
|
|
Current portion of
loans payable, net
|
2,643,824
|
2,638,599
|
|
408,828
|
-
|
|
|
Total current
liabilities
|
9,460,516
|
6,979,654
|
|
|
|
|
|
LONG TERM
LIABILITIES:
|
|
|
|
Loans payable,
net
|
2,104,611
|
3,681,767
|
|
Finance lease
obligation, net of current portion
|
-
|
831
|
|
Deferred revenue,
net of current portion
|
601,234
|
371,938
|
|
Operating lease
liabilities, net of current portion
|
342,903
|
-
|
|
Line of
credit
|
2,000,000
|
2,000,000
|
|
Total long-term
liabilities
|
5,048,748
|
6,054,536
|
|
Total
liabilities
|
14,509,264
|
13,034,190
|
|
|
|
|
|
COMMITMENTS &
CONTINGENCIES
|
-
|
-
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
Common
stock
|
29,272
|
29,722
|
|
Additional
paid-in capital
|
35,243,171
|
35,010,552
|
|
Accumulated
deficit
|
(5,179,701)
|
(8,013,542)
|
|
Total
stockholders' equity
|
30,092,472
|
27,026,732
|
|
Total
liabilities and stockholders' equity
|
$44,602,006
|
$40,060,922
|
|
Liberated Syndication Inc. and Subsidiaries
Balance Sheet (Parenthetical)
|
|
|
|
Statement of
Financial Position
|
December
31,
2019
|
December
31,
2018
|
|
Allowance
for doubtful accounts
|
$14,000
|
$14,000
|
|
Common
stock authorized
|
200,000,000
|
200,000,000
|
|
Common
stock par value
|
$0.001
|
$0.001
|
|
Common
stock outstanding
|
29,271,974
|
29,721,974
|
The
accompanying notes are an integral part of these consolidated
financial statements.
30
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years
ended
|
|
|
|
December
31,
2019
|
December
31,
2018
|
|
|
|
|
|
|
|
|
|
Revenue
|
$24,201,629
|
$22,010,132
|
|
|
|
|
|
Costs and operating
expenses
|
|
|
|
|
|
|
|
Cost of revenue
(excluding depreciation and amortization)
|
3,491,545
|
3,331,876
|
|
General and
administrative
|
8,487,462
|
6,065,661
|
|
Technology
|
1,971,338
|
1,842,020
|
|
Selling
|
981,940
|
846,434
|
|
Customer
support
|
2,678,252
|
2,830,789
|
|
Depreciation and
amortization
|
2,910,219
|
3,013,732
|
|
Total costs and
operating expenses
|
20,520,756
|
17,930,512
|
|
Operating
income
|
3,680,873
|
4,079,620
|
|
|
|
|
|
Other Income
(Expense)
|
|
|
|
Interest
expense
|
(308,732)
|
(387,064)
|
|
Interest
income
|
251,510
|
84,992
|
|
Other income
(expense)
|
-
|
10,249
|
|
Total other income
(expense)
|
57,222
|
(291,823)
|
|
Income from
operations before income taxes
|
3,263,651
|
3,787,797
|
|
|
|
|
|
Income tax benefit
(expense)
|
(789,810)
|
585,548
|
|
Net
Income
|
$2,833,841
|
$4,373,345
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED
EARNINGS PER COMMON SHARE
|
$0.10
|
$0.15
|
|
BASIC AND DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
29,398,960
|
29,740,207
|
The
accompanying notes are an integral part of these consolidated
financial statements.
31
LIBERATED
SYNDICATION INC.
STATEMENT
OF STOCKHOLDERS’ EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2019 AND 2018
|
|
|
|
Additional
|
|
Total
|
|
|
Common
Stock
|
Paid-in
|
Accumulated
|
Stockholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance at December 31,
2018
|
29,721,974
|
$29,722
|
$35,010,552
|
$(8,013,542)
|
$27,026,732
|
|
Recapture of prior period non-cash
compensation charges in the current period
|
-
|
-
|
(830,500)
|
-
|
(830,500)
|
|
Non-cash compensation
awards
|
-
|
-
|
1,062,669
|
-
|
1,062,669
|
|
Stock
forfeiture
|
(450,000)
|
(450)
|
450
|
-
|
-
|
|
Net income
|
-
|
-
|
-
|
2,833,841
|
2,833,841
|
|
Balance at December 31,
2019
|
29,271,974
|
$29,272
|
$35,243,171
|
$(5,179,701)
|
$30,092,472
|
|
|
|
|
Additional
|
|
Total
|
|
|
Common
Stock
|
Paid-in
|
Accumulated
|
Stockholders’
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance at December 31,
2017
|
29,595,473
|
$29,596
|
$34,804,458
|
$(12,386,887)
|
$22,447,167
|
|
Issuance of Common Stock for
services
|
200,000
|
200
|
317,800
|
-
|
318,000
|
|
Return of Common Stock for final
settlement of Pair Acquisition
|
(18,499)
|
(19)
|
(29,260)
|
-
|
(29,280)
|
|
Repurchase of Common
Stock
|
(55,000)
|
(55)
|
(82,445)
|
-
|
(82,500)
|
|
Net Income
|
-
|
-
|
-
|
4,373,345
|
4,373,345
|
|
Balance at December 31,
2018
|
29,721,974
|
$29,722
|
$35,010,552
|
$(8,013,542)
|
$27,026,732
|
The
accompanying notes are an integral part of these consolidated
financial statements.
32
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
December
31,
2019
|
December
31,
2018
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
Net
income
|
$2,833,841
|
$4,373,345
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
2,910,219
|
3,013,732
|
|
Issuance
of common stock for services
|
-
|
318,000
|
|
Non-cash
compensation expense, net of recapture
|
232,169
|
-
|
|
Deferred
income taxes
|
(393,902)
|
(1,454,077)
|
|
Amortization
of right-of-use asset
|
646,090
|
-
|
|
Discount
on loan fees
|
28,068
|
33,366
|
|
Change
in assets and liabilities:
|
|
|
|
Accounts
receivable
|
(67,123)
|
112,838
|
|
Prepaid
expenses
|
(336,675)
|
(447,332)
|
|
Accounts
payable
|
14,274
|
305,324
|
|
Income
taxes payable
|
1,179,389
|
868,529
|
|
Accrued
expense
|
709,698
|
(391,913)
|
|
Operating
lease liabilities
|
(646,090)
|
-
|
|
Deferred
revenue
|
464,899
|
1,266,714
|
|
Net Cash Provided
by Operating Activities
|
7,574,857
|
7,998,526
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Purchase
of property and equipment and software development
costs
|
(360,540)
|
(378,687)
|
|
Net Cash Used in
Investing Activities
|
(360,540)
|
(378,687)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
Repurchase
of common stock
|
-
|
(82,500)
|
|
Repayment
on term loan
|
(1,600,000)
|
(1,600,000)
|
|
Repayment
on capital lease
|
(72,986)
|
(69,243)
|
|
Net Cash Used in
Financing Activities
|
(1,672,986)
|
(1,751,743)
|
|
|
|
|
|
Net
Increase in Cash
|
5,541,331
|
5,868,096
|
|
Cash
at Beginning of Period
|
11,079,941
|
5,211,845
|
|
Cash
at End of Period
|
$16,621,272
|
$11,079,941
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
Cash
paid during the periods for:
|
|
|
|
Interest
|
$335,294
|
$350,761
|
|
Income
taxes
|
$4,323
|
$-
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Investing and Financing
Activities
|
|
|
|
Right-of-use
operating lease assets obtained in exchange for operating lease
liabilities
|
$1,397,821
|
$-
|
The
accompanying notes are an integral part of these consolidated
financial statements.
33
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 1
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Liberated Syndication Inc.,
(“Company”, “parent”), a Nevada
Corporation, was organized on September 30, 2015. Webmayhem, Inc.
(“Libsyn”), a Pennsylvania corporation, a wholly owned
subsidiary of the Company, was organized on January 1, 2001. Libsyn
provides podcast hosting services for producers of content. Libsyn
also offers ad insertion on certain of the producers’
content. Libsyn offers hosting and distribution tools, including
storage, bandwidth, syndication creation, distribution, and
statistics tracking. Libsyn offers an enterprise solution for
professional media producers and corporate customers and a premium
subscription service that provides producers a custom App and a
podcast Website where listeners can access their show, login to
purchase a subscription, and get access to premium
content.
On
December 27, 2017, the Company purchased all the issued and
outstanding shares of Pair Networks Inc., (“Pair”), a
Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC
(Ryousha) and 660837NB, Inc. (NB), in a transaction accounted for
as a purchase.
Pair
Networks Inc. provides web hosting services and domain name
registrations. Services include shared web hosting, e-commerce,
fully managed virtual private and dedicated servers, customer
self-managed dedicated servers, domain-name registration,
co-location and content-delivery networks. Pair began operations in
August 1995. It incorporated in the state of Pennsylvania in August
1998. Pair’s principal operations are conducted on-site in
Pittsburgh, PA. Pair also has an operating site in Denver,
Colorado, and a remote site back-up location in Pittsburgh,
PA.
Ryousha
Kokusai, LLC (dba Pair International), a wholly owned single-member
limited liability company subsidiary of Pair, was formed on January
1, 2015. The Value Added Tax (VAT) for sales to European Union
countries subject to the VAT in Europe are paid through Ryousha
Kokusai LLC. There are no operating activities conducted by
Ryousha. NB, a Canadian Company was organized on December 2, 2011.
NB is used solely for holding the Canadian tradenames and domain
names of Pair. There are no operating activities conducted by
NB.
Principles of Consolidation - Our financial statements have
been prepared in accordance with generally accepted accounting
principles in the United States (GAAP) and include our accounts and
the accounts of our subsidiaries. The financial statements
presented reflect the accounts of parent, Libsyn, Ryousha, NB and
Pair. All material intercompany accounts and transactions have been
eliminated.
Accounting Estimates – The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period.
Our
more significant estimates include:
●
the assessment of
recoverability of long-lived assets, including property and
equipment, goodwill and intangible assets;
●
the estimated
useful lives of intangible and depreciable assets;
●
the grant date fair
value of equity-based awards;
●
the recognition,
measurement, and valuation of current and deferred income
taxes;
We
periodically evaluate these estimates and adjust prospectively, if
necessary. We believe our estimates and assumptions are reasonable;
however, actual results may differ from our estimates.
Cash and Cash Equivalents – The Company considers all
highly liquid investments with an original maturity date of three
months or less when purchased to be cash equivalents. At December
31, 2019, the Company had $16,621,272 in cash which included
$16,145,362 cash balances in excess of federally insured
limits.
34
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
continued
Concentration of Credit Risk - Financial instruments that
potentially subject the Company to a concentration of credit risk
consist primarily of cash, cash equivalents and account receivable.
Management’s assessment of the Company’s credit risk
for cash and cash equivalents is low as cash and cash equivalents
are held in financial institutions believed to be credit worthy. No
single customer represented over 10% of our total revenue for any
period presented. As of December 31, 2019, two customers
individually accounted for 13% and 5%, respectively, of our total
accounts receivable. In 2018, the same two customers individually
accounted for 18% and 12%, respectively.
Accounts Receivable – Accounts receivable consist of
trade receivables arising in the normal course of business. At
December 31, 2019 and 2018, the Company has an allowance for
doubtful accounts of $14,000 and $14,000, respectively, which
reflects the Company’s best estimate of probable losses
inherent in the accounts receivable balance. The Company determines
the allowance based on known troubled accounts, historical
experience, and other currently available evidence. During the
years ended December 31, 2019 and 2018, the Company adjusted the
allowance for bad debt by $0.
Registry Deposits - Registry deposits represent amounts on
deposit with, or receivable from, various domain name registries to
be used by us to make payments for future domain registrations or
renewals.
Prepaid Domain Name Registry Fees - Prepaid domain name
registry fees represent amounts charged by a registry at the time a
domain is registered or renewed. These amounts are amortized to
cost of revenue over the same period revenue is recognized for the
related domain registration contracts.
Property and Equipment –Property and equipment is
stated at cost. Depreciation is recorded over the shorter of the
estimated useful life or the lease term of the applicable asset
using the straight-line method beginning on the date an asset is
placed in service. Maintenance and repairs are charged to expense
as incurred.
Definite-Life Intangible Assets – The Company
evaluates its long-lived assets for impairment whenever events or
change in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the
asset to the future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is the excess of the
carrying amount over the fair value of the asset.
Software Development Costs - We
account for software development costs, including costs to develop
software products or the software component of products to be
marketed to external users, as well as software programs to be used
solely to meet our internal needs in accordance with ASC Topic 985
Software. Software development costs associated with software to be
sold, leased, or for internal use are expensed as incurred until
technological feasibility, defined as a working model or prototype,
has been established. At that time, such costs are capitalized
until the product is available for general release and amortized
over its useful life.
Debt Issuance Costs - We defer and amortize issuance costs,
underwriting fees and related expenses incurred in connection with
the issuance of debt instruments using the effective interest
method over the terms of the respective instruments. Debt issuance
costs, other than those associated with our revolving credit loan,
are reflected as a direct reduction (discount) of the carrying
amount of the related debt liability.
Goodwill – Goodwill is evaluated for
impairment annually and whenever events or changes in circumstances
indicate the carrying value of goodwill may not be recoverable.
The Company performed the annual
impairment test of goodwill as of December 31, 2019.
Triggering events that may indicate impairment include, but are not
limited to, a significant adverse change in customer demand or
business climate that could affect the value of goodwill or a
significant decrease in expected cash flows. The company recorded
no impairment charge for goodwill during the years ended December
31, 2019 and 2018.
Advertising Costs – Advertising costs are expensed as
incurred and amounted to $83,209 and $122,424 for the periods
ending December 31, 2019 and 2018, respectively.
35
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
continued
Fair Value of Financial Instruments – The Company
accounts for fair value measurements for financial assets and
financial liabilities in accordance with FASB ASC Topic 820. The
authoritative guidance, which, among other things, defines fair
value, establishes a consistent framework for measuring fair value
and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis.
Fair value is defined as the exit price, representing the amount
that would either be received to sell an asset or be paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis
for considering such assumptions, the guidance establishes a
three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows:
●
Level 1. Observable
inputs such as quoted prices in active markets for identical assets
or liabilities;
●
Level 2. Inputs,
other than the quoted prices in active markets, that are observable
either directly or indirectly; and
●
Level 3.
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
Unless
otherwise disclosed, the fair value of the Company’s
financial instruments including cash, accounts receivable, prepaid
expenses, and accounts payable, deferred revenue and accrued
expenses approximates their recorded values due to their short-term
maturities.
Revenue Recognition - On January 1, 2018, we adopted the
Financial Accounting Standards Board's (FASB) new revenue
recognition standard using the modified retrospective method
applied to those contracts not completed as of January 1, 2018.
Results for reporting periods beginning after January 1, 2018 are
presented under the new standard.
The
adoption of the new standard did not have a material impact to our
financial statements.
Revenue
is recognized when control of the promised services is transferred
to our customers, in an amount reflecting the consideration we
expect to be entitled to in exchange for those
services.
Certain
products are generally sold with a right of return within our
policy, which are accounted for as variable consideration when
estimating the amount of revenue to recognize. Refunds are
estimated at contract inception using the expected value method
based on historical refund experience and updated each reporting
period as additional information becomes available and only to the
extent it is probable a significant reversal of any incremental
revenue will not occur. Refunds reduce deferred revenue at the time
they are granted and resulted in a reduced amount of revenue
recognized over the contract term of the applicable service
compared to the amount originally expected.
Our
revenue is categorized and disaggregated as follows:
Domains - Domains revenue primarily
consists of domain registrations and renewals, domain privacy,
domain application fees, domain back-orders, aftermarket domain
sales and fee surcharges paid to ICANN. Domain registrations
provide a customer with the exclusive use of a domain during the
applicable contract term. After the contract term expires, unless
renewed, the customer can no longer access the domain.
Consideration is recorded as deferred revenue when received, which
is typically at the time of sale, and revenue, other than for
aftermarket domain sales, is recognized over the period in which
the performance obligations are satisfied, which is generally over
the contract term. Aftermarket domain revenue is recognized when
ownership of the domain is transferred to the buyer.
Hosting Services - Hosting services
revenue primarily consists of website hosting products, website
building products and services, website security products, an
online shopping cart and online visibility products and email
accounts. Consideration is recorded as deferred revenue when
received, which is typically at the time of sale, and revenue is
recognized over the period in which the performance obligations are
satisfied, which is generally over the contract term.
36
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
continued
Podcast Hosting - Podcast hosting
publishing services are billed on a month to month basis, with
first month’s bill prorated to the end of the month so all
performance obligations are satisfied at each month-end.
Consideration is recorded as revenue as the services, the
underlying performance obligation, are provided and or satisfied
and collection is probable which is generally when
received.
Media Subscription Services - The
Company facilitates the sale of producers’ premium content
through the sale of subscriptions. The amount earned per
transaction is fixed with the producers determine the price for the
sale of each subscription, and the Company earns a percentage of
what the customer pays. The performance obligation is providing the
subscription hosting medium and billing services. Accordingly, the
Company reports premium subscription revenue on a net basis over
the subscription service period in which the performance obligation
is satisfied.
Advertising – The Company
recognizes revenue from the insertion of advertisements in digital
media. The performance obligation is the download of the digital
media with the advertisement inserted. The performance obligation
to recognize advertising revenue is satisfied upon delivery of the
media download and collection is probable.
Equity-Based Compensation - Our equity-based awards are
comprised of stock and are accounted for using the fair value
method. Stock is measured based on the fair market value of the
underlying common stock on the date of grant. Awards vest and
compensation is recognized over the requisite service period. The
measurement date for performance vesting awards is the date on
which the applicable performance criteria are approved by our board
of directors.
Leases – The Company accounts for leases in
accordance with Accounting Standards Codification
(“ASC”) Topic 842. Leases that meet one or more of the
finance lease criteria of standard are recorded as a finance lease,
all other leases are operating leases.
Other Definite-life Intangible Assets - Other intangible assets consist of customer
relationships, intellectual property, trade name and non-compete
agreement, which were generated through the acquisition of Pair.
Management considers these intangible assets to have finite-lives.
These assets are being amortized on a straight-line basis over
their estimated useful lives.
Business Combinations - We include the results of operations
of acquired businesses in our consolidated financial statements as
of the respective dates of acquisition. Accounting for business
combinations requires us to make significant estimates and
assumptions, especially at the acquisition date, with respect to
tangible and intangible assets acquired and liabilities assumed and
pre-acquisition contingencies. The purchase price of acquisitions,
including estimates of the fair value of contingent consideration
when applicable, is allocated to the tangible and intangible assets
acquired and the liabilities assumed based on their estimated fair
values on the respective acquisition dates, with the excess
recorded as goodwill. We use our best estimates and assumptions to
accurately assign fair value to the tangible and intangible assets
acquired and liabilities assumed at the acquisition date. The
estimates are inherently uncertain and subject to refinement. We
continue to collect information and reevaluate these estimates and
assumptions quarterly and record any adjustments to the preliminary
estimates to goodwill provided we are within the measurement
period.
Contingent
consideration is adjusted to fair value in subsequent periods as an
increase or decrease in general and administrative expenses.
Acquisition-related costs are expensed as incurred. See Note 3 to
our consolidated financial statements for additional information
regarding business combinations.
Income Taxes - The Company accounts for income taxes using
the liability method, which requires the determination of deferred
tax assets and liabilities based on the differences between the
financial and tax basis of assets and liabilities, using enacted
tax rates in effect for the year in which differences are expected
to reverse. Deferred tax assets are adjusted by a valuation
allowance, if based on the weight of available evidence it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. The Company anticipates earnings
in the near future and the realization of the benefit of the
deferred tax assets.
37
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
continued
Earnings Per Share – The Company computes earnings per
share in accordance with FASB ASC Topic 260 Earnings Per Share,
which requires the Company to present basic earnings per share and
diluted earnings per share when the effect is dilutive (see Note
9).
Income Taxes – The Company accounts for income taxes
in accordance with FASB ASC Topic 740 Accounting for Income Taxes.
This topic requires an asset and liability approach for accounting
for income taxes (see Note 7).
Recently Enacted Accounting Standards - On January 1, 2019,
the Company adopted Accounting Standards Codification ASC 842,
Leases (ASC 842). ASC 842 was issued to increase transparency and
comparability among entities by recognizing right-of-use assets and
lease liabilities on the balance sheet and disclosing key
information about lease arrangements. We elected to transition to
ASC 842 using the option to apply the standard on its effective
date, January 1, 2019. The comparative periods presented reflect
the former lease accounting guidance and the required comparative
disclosures are included in Note 4 – Leases. There was not a
material cumulative-effect adjustment to our beginning retained
earnings as a result of adopting ASC 842.
In
January 2017, the FASB issued ASU 2017-04, Intangibles, Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which
simplifies the manner in which an entity should perform its annual,
or interim, goodwill impairment test.
Under
the new guidance, if a reporting unit’s carrying amount
exceeds its fair value, an entity will record an impairment charge
based on that difference. The impairment charge will be limited to
the amount of goodwill allocated to that reporting unit. The
standard eliminates the previous requirement to calculate a
goodwill impairment charge by comparing the implied fair value of
goodwill with its carrying amount.
The new
standard becomes effective for us on January 1, 2020. We early
adopted the proposed guidance under ASU 2017-04 for the year end
December 31, 2018 on a prospective basis. The implementation of ASU
2017-04 did not have a material impact on our consolidated
financial statements and related disclosures.
Other
recent accounting pronouncements issued by the FASB did not or are
not believed by management to have a material impact on the
Company’s present or future financial
statements.
Reclassifications to Prior Period Financial Statements and
Adjustments
Certain
reclassifications have been made in the Company’s financial
statements of the prior year to conform to the current year
presentation. $2,000,000 for the line of credit as of December 31,
2018 was reclassified from loans
payable, net. These reclassifications have no impact on
previously reported net income.
NOTE 2
- PROPERTY & EQUIPMENT
The
following is a summary of property and equipment at:
|
|
Life
|
December
31,
2019
|
December
31,
2018
|
|
|
|
|
|
|
Furniture,
fixtures, and equipment
|
3-10
yrs
|
$8,262,929
|
$8,155,322
|
|
Leasehold
improvements
|
3 - 5
yrs
|
2,646,399
|
2,646,400
|
|
Software
|
3
yrs
|
514,981
|
262,046
|
|
|
|
11,424,309
|
11,063,768
|
|
Less: Accumulated
depreciation
|
|
$(9,887,379)
|
(8,834,474)
|
|
Property &
equipment, net
|
|
$1,536,930
|
$2,229,294
|
Depreciation
expense for the periods ended December 31, 2019 and 2018 was
$1,052,905 and $1,156,418, respectively.
38
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 3 – GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE
ASSETS
Goodwill - Goodwill is tested for impairment annually, as
well as when an event, or change in circumstances, indicates
impairment may have occurred. In accordance with ASC 350,
Intangibles-Goodwill and Other, we first assess qualitative factors
to determine whether the existence of events or circumstances leads
to a determination that it is more likely than not (a likelihood of
more than 50%) that the fair value of our reporting unit is less
than its carrying amount. If after assessing the qualitative
factors we determine that it is not more likely than not that the
fair value of the reporting unit is less than the carrying value,
then we conclude that we have no goodwill impairment and no further
testing is performed; otherwise, we proceed to the two-step
process. The first step under the two-step process is to compare
the fair value of the reporting unit to its carrying value. If the
fair value exceeds the carrying value, goodwill is not impaired,
and no further testing is performed.
The Company followed the guidance in ASC 350-20-35-3 and performed
the annual impairment test of goodwill. Using qualitative factors
to determine whether it is necessary to perform the goodwill
impairment test discussed in paragraphs ASC 350-20-35-4 through
35-13, management concluded that it is more likely than not that
the fair value of the Liberated Syndication and Pair reporting
units is more than its carrying amount. Therefore, no further
testing is performed.
Goodwill consists of:
|
|
December
31,
|
December
31,
|
|
|
2019
|
2018
|
|
Pair
|
$4,903,920
|
$4,903,920
|
|
Libsyn
|
11,484,251
|
11,484,251
|
|
Total
Goodwill
|
$16,388,171
|
$16,388,171
|
The following is a summary of goodwill for the Year
Ended:
|
|
December
31,
|
December
31,
|
|
|
2019
|
2018
|
|
|
|
|
|
Goodwill at
beginning of period
|
$16,388,171
|
$16,352,069
|
|
Acquisition of
Pair
|
-
|
36,102
|
|
Impairment
|
-
|
-
|
|
Goodwill at end of
period
|
$16,388,171
|
$16,388,171
|
39
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 3 – GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE
ASSETS – continued
As of December 31, 2019, identifiable intangible assets consist of
following:
|
|
Preliminary
Fair
Value
|
Weighted Average
Useful
Life
(in
Years)
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|
Customer
Relationships
|
$3,947,000
|
7 |
$1,127,714
|
$2,819,286
|
|
Intellectual
Property
|
3,709,000
|
7
|
1,059,714
|
2,649,285
|
|
Trade
name
|
576,000
|
10
|
115,200
|
460,800
|
|
Non-compete
|
1,412,000
|
2
|
1,412,000
|
-
|
|
Total
|
$9,644,000
|
|
$3,714,628
|
$5,929,371
|
The estimated future amortization expenses related to other
intangible assets as of December 31, 2018 are as
follows:
|
For
twelve months ending December 31,
|
|
|
2020
|
$1,151,314
|
|
2021
|
1,151,314
|
|
2022
|
1,151,314
|
|
2023
|
1,151,314
|
|
2024
|
1,151,315
|
|
Thereafter
|
172,800
|
|
Total
|
$5,929,371
|
NOTE 4
- LOANS
On December 27, 2017, the Company entered into a loan agreement
(the “Loan Agreement”) among the Company, Libsyn, and
Pair, together, and First Commonwealth Bank, a Pennsylvania bank
and trust company (the “Bank”).
The Loan Agreement provides for: (i) a revolving credit facility
pursuant to which the Company may borrow an aggregate principal
amount not to exceed $2,000,000 (the “Revolving Credit
Facility”); and (ii) a term loan in a principal amount equal
to $8,000,000 (the “Term Loan” and, together with the
Revolving Credit Facility, the “Facility”). A portion
of the Revolving Credit Facility, up to $500,000, may be used for
standby letters of credit for the account of the Company. As of
December 31, 2019, $2,000,000 was drawn down on the revolving line
with $0 available. The due date for the revolving line of credit is
December 27, 2022.
The
loan currently accrues interest at LIBOR plus 125 base points or
prime plus 75 basis points at the election of the Company. As of
December 31, 2019, the Company has elected LIBOR plus 125 basis
points or 3.055%.
The Term Loan is repayable in quarterly installments of $400,000
commencing on March 31, 2018 and on the last day of each June,
September, December and March thereafter, through and including
September 30, 2022. Accrued interest is payable in arrears not less
frequently than quarterly. The remaining unpaid principal balance
of the Term Loan, together with accrued interest thereon, is due
and payable in full on December 27, 2022. The Term Loan also calls
for additional payment equal to the following: 1)100% of the
proceeds from the sale of any common shares 2) 100% of the proceeds
from the sale of assets not immediately replaced 3) excess
liquidity in any given year up to $1,066,667 and no more than
$3,200,000 over the life of the term loan. Excess liquidity is
obtained when the audited financial statements reflect a cash
balance greater than $4,600,000. Based upon the 2019 financial
statements, the company demonstrates excess liquidity per the Term
Loan agreement. As such, the company has included the expected
$1,066,667 payment to the bank as a current liability. As of
December 31, 2019, the balance on the term loan was
$4,800,000.
40
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 4
– LOANS - continued
The Company, Libsyn and Pair have granted the bank a blanket
security interest in their respective assets, and the Company has
pledged the stock of Webmayhem Inc. and Pair Networks Inc. to the
bank, as security for all obligations under the Loan
Agreement.
Borrowings under the Facility are at variable rates which are, at
the Company’s option,
tied to LIBOR (London Interbank Offered Rate) plus an applicable
rate or a prime rate. Interest rates are subject to change based on
the Company’s combined cash balances. The Facility contains
covenants that may have the effect of limiting the ability of the
Company to, among other things, merge with or acquire other
entities, enter into a transaction resulting in a change in
control, create certain new liens, incur certain additional
indebtedness, engage in certain transactions with affiliates,
engage in new lines of business or sell a substantial part of its
assets. The Facility also requires the Company to maintain certain
consolidated fixed charge coverage ratios and minimum liquidity
balances.
The Facility also contains customary events of default, including
(but not limited to) default in the payment of principal or,
following an applicable grace period, interest, breaches of the
Company’s covenants or warranties under the Facility, payment
default or acceleration of certain indebtedness of the Company or
any subsidiary, certain events of bankruptcy, insolvency or
liquidation involving the Company or its subsidiaries, certain
judgments or uninsured losses, changes in control and certain
liabilities related to ERISA based plans.
On December 27, 2017, the Company drew $10,000,000 under the
Facility to finance a portion of the cash consideration pursuant to
the Share Purchase Agreement. Debt issuance costs of $113,000 for
the Facility were recorded as a discount and will be amortized over
the life of the Facility. As of December 31, 2019, the discount was
$51,566.
Future
Maturities of the loans at December 31, 2019 are as
follows:
|
For the year ending
December 31,
|
|
|
2020
|
$2,666,667
|
|
2021
|
1,600,000
|
|
2022
|
533,333
|
|
Thereafter
|
-
|
|
Total
|
$4,800,000
|
NOTE 5
- CAPITAL STOCK
Common Stock - The Company has authorized 200,000,000 shares
of common stock, $0.001 par value. As of December 31, 2019,
29,271,974 shares were issued and outstanding.
In
prior periods, the Company issued stock-based awards to employees
that contained a vesting performance condition related to the
occurrence of an uplisting of the Company’s common stock to
the NASDAQ stock exchange. Such awards were initially expensed in
the period issued as the Company deemed it probable the performance
condition would be met. During the first quarter of 2019,
approximately $830,500 of previously recognized expense related to
these awards was recaptured in accordance with ASC 718,
Compensation – Stock Compensation (“ASC 718”) as
a credit to general and administrative expense as it became less
than probable that such performance conditions would occur within
the time specified in the stock award agreements. Per the October
4, 2019 settlement agreement with Camac Fund, LP, and its
affiliates Camac Partners, LLC, Camac Capital, LLC, and Eric
Shahinian, (collectively, “Camac”), 300,000 of these
shares were to be returned to the Company. As of December 31, 2019,
this has not yet been completed. The Company is taking the
necessary steps to irrevocably cancel these equity awards
previously granted to the Company’s Chief Executive Officer
and Chief Financial Officer.
On
February 28, 2020, the Board of Directors approved the termination
of John Busshaus. The Company anticipates that the 1,212,500 shares
of unvested shares held by Mr. Busshaus will be forfeited and
cancelled.
41
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 5
- CAPITAL STOCK – Continued
consecutive
days by April 23, 2019, whereas the modified award increases the
adjusted market capitalization threshold to $80 million on five
consecutive days within 18 months of the Modification Date. In
accordance with ASC 718, the Company
recorded
the incremental fair value of the newly modified award over the
fair value of the original award, as compensation expense totaling
$677,088.
On
April 13, 2019, 450,000 shares of common stock were forfeited as
certain milestones were not achieved.
On
December 27, 2019 (“Modification Date”), the Company
modified certain stock awards previously issued which contained a
market condition. The prior agreement required the Company to
obtain an average closing price of $5.00 per share (adjusted for
stock splits) for any 10 consecutive trading days, in which case
certain employees would retain 25% of the stock. The modification
requires the Company to obtain an average closing price of $5.50
per share (adjusted for stock splits for any 10 consecutive trading
days, in which case the Employees will retain 100% of their stock.
In accordance with ASC 718, the Company recorded the incremental
fair value of the newly modified award over the fair value of the
original award, as compensation expense totaling
$385,582.
During
the first quarter of 2018, the Company issued 200,000 shares of
common stock valued at $318,000 to a consultant for services
rendered.
During
the first quarter of 2018, the seller of Pair Networks Inc.,
returned 18,499 shares valued at $29,278 to the company as per the
terms of the acquisition agreement dated December 27, 2017 in
connection with the closing adjustment for the net-working capital
provision.
Information
regarding vested stock awards for the year ended December 31, 2019
is summarized in the table below:
|
|
Shares
|
Weighted
Average
Grant Date
FairValue
|
Average
Remaining
Life
|
|
Issued
and outstanding unvested shares subject to forfeiture at beginning
of period
|
5,175,000
|
$1.00
|
0.70
|
|
Stock
Awards Issued
|
-
|
$-
|
-
|
|
Awards
no-longer subject to forfeiture
|
937,500
|
$0.66
|
N/A
|
|
Cancelled
/ Forfeited Awards
|
450,000
|
-
|
-
|
|
Issued
and outstanding unvested shares subject to forfeiture at end of
period
|
3,787,500
|
$1.66
|
0.70
|
Per the
settlement agreement in the proxy contest with Camac, 300,000 of
these shares will be returned to the Company.
On
February 28, 2020, the Board of Directors approved the termination
of John Busshaus. The Company anticipates that the 1,212,500 shares
of unvested shares held by Mr. Busshaus will be forfeited and
cancelled.
42
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 6
– DEFERRED REVENUE
Deferred
revenue consists of the following:
|
|
December
31,
2019
|
December 31,
2018
|
|
Current:
|
|
|
|
Hosting
services
|
$1,664,811
|
$1,601,335
|
|
Domains
|
688,717
|
104,172
|
|
Media
subscription
|
158,154
|
111,514
|
|
|
$2,511,682
|
$2,276,079
|
|
Noncurrent:
|
|
|
|
Hosting
services
|
29,309
|
39,071
|
|
Domains
|
571,925
|
83,266
|
|
|
$3,112,916
|
$2,648,017
|
Deferred
revenue as of December 31, 2019 is expected to be recognized as
revenue as follows:
|
|
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
Total
|
|
|
|
|
|
|
|
|
|
|
Domains
|
$688,717
|
$232,133
|
$162,659
|
$116,480
|
$49,782
|
$10,870
|
$1,260,641
|
|
Hosting
|
1,664,811
|
27,246
|
2,064
|
-
|
-
|
-
|
1,694,121
|
|
Media
Subscription
|
158,154
|
-
|
-
|
-
|
-
|
-
|
158,154
|
|
|
$2,511,682
|
$259,379
|
$164,723
|
$116,480
|
$49,782
|
$10,891
|
$3,112,916
|
Disaggregated
revenue consists of following:
|
|
Twelve months
ended December 31
|
|
|
|
2019
|
2018
|
|
Hosting
services
|
$8,813,547
|
$8,896,966
|
|
Podcast
hosting
|
13,511,188
|
10,915,771
|
|
Advertising
|
594,289
|
1,323,776
|
|
Domains
|
1,018,419
|
547,770
|
|
Other
|
264,186
|
325,849
|
|
|
$24,201,629
|
$22,010,132
|
43
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 7
- INCOME TAXES
The
Company accounts for income taxes in accordance with FASB ASC Topic
740, Accounting for Income Taxes which requires the Company to
provide a net deferred tax asset or liability equal to the expected
future tax benefit or expense of temporary reporting differences
between book and tax accounting and any available operating loss or
tax credit carryforwards. At December 31, 2019 and 2018, the total
of all deferred tax assets was $1,847,979 and $1,454,077,
respectively. The amount of and ultimate realization of the
benefits from the deferred tax assets for income tax purposes is
dependent, in part, upon the tax laws in effect, the
Company’s future earnings, and other future events, the
effects of which cannot be determined. The change in the valuation
allowance for the years ended December 31, 2019 and 2018 was $0 and
$1,454,077, respectively.
The
components of income tax expense (benefit) from continuing
operations for the Years ended December 31, 2019 and 2018 consist
of the following:
|
|
For the Years
Ended
|
|
|
|
December
31,
|
|
|
Current tax
expense:
|
2019
|
2018
|
|
Federal
|
$1,162,480
|
$868,529
|
|
State
|
25,555
|
-
|
|
Current tax
expense
|
$1,183,712
|
868,529
|
|
Deferred tax
(benefit)
expense:
|
|
|
|
Depreciation and
amortization
|
(611,146)
|
(164,862)
|
|
Tax Depreciation
and Amortization
|
30,467
|
-
|
|
Bonus
Accrual
|
(63,000)
|
-
|
|
Intangible
Assets – Tax Amortization
|
229,071
|
-
|
|
Non-cash
compensation
|
70,753
|
(1,261,155)
|
|
Deferred
Revenue
|
(50,047)
|
(28,060)
|
|
Total deferred tax
benefit
|
(393,902)
|
(1,454,077)
|
|
Total income tax
(benefit) expense
|
$789,810
|
$(585,548)
|
A
reconciliation of income tax expense at the federal statutory rate
to income tax expense at the company’s effective rate is as
follows:
|
|
For the Years
Ended
|
|
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
Computed tax at the
expected statutory rate
|
$1,162,480
|
$868,529
|
|
State and local
income taxes, net of federal
|
21,232
|
-
|
|
Valuation
Allowance
|
(393,902)
|
(1,454,077)
|
|
Total income tax
(benefit) expense
|
$789,810
|
$(585,548)
|
44
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 7
– INCOME TAXES – continued
The
temporary differences, tax credits and carryforwards gave rise to
the following deferred tax asset at December 31, 2019 and
2018:
|
|
December
31,
|
December
31,
|
|
|
2019
|
2018
|
|
Current deferred
tax assets (liabilities):
|
|
|
|
Bonus
accrual
|
$63,000
|
$-
|
|
Total current
deferred tax assets
|
63,000
|
-
|
|
|
|
|
|
Long-term deferred
tax assets (liabilities):
|
|
|
|
Intangible assets
– tax amortization
|
(229,071)
|
-
|
|
Depreciation and
amortization
|
745,541
|
164,862
|
|
Non-cash
compensation
|
1,190,402
|
1,261,155
|
|
Deferred
revenue
|
78,107
|
28,060
|
|
Total long-term
deferred tax assets
|
$1,784,979
|
$1,454,077
|
|
Net term deferred
tax assets
|
$1,847,979
|
$1,454,077
|
At
December 31, 2019, the company has loss carryforwards of
$0.
The
Internal Revenue Service (the “IRS”) is performing its
field audit of the Company’s federal income tax returns and
is currently examining the years 2016 through 2018. Management
believes that adequate provisions have been made for any
adjustments that may result from tax examinations. However, the
outcome of tax audits cannot be predicted with certainty. If any
issues addressed in the Company’s tax audits are resolved in
a manner not consistent with management’s expectations, the
Company could be required to adjust its provision for income taxes
in the period such resolution occurs.
We file
U.S. federal, and U.S. states returns, and we are generally no
longer subject to tax examinations for years prior to 2015 for U.S.
federal and U.S. states tax returns.
NOTE 8
– LEASES
We
lease two office spaces, a Denver data center, and three Xerox
machines. These leases are all classified as operating leases.
There is one finance lease for Emerson batteries which is
immaterial to our consolidated financial statements. Operating
lease assets and obligations are reflected within Operating lease
right-of-use assets, Current portion of operating lease
liabilities, and Operating lease liabilities, respectively, on the
Consolidated Balance Sheet. Lease expense for these leases is
recognized on a straight-line basis over the lease term, with
variable lease payments recognized in the period those payments are
incurred.
We have
options to renew lease terms for the office spaces and other
assets. We evaluate renewal and termination options at the lease
commencement date to determine if we are reasonably certain to
exercise the option on the basis of economic factors. The weighted
average remaining lease term for our operating leases as of
December 31, 2019 was 1.84 years. The discount rate implicit within
our leases is generally not determinable and therefore the Company
determines the discount rate based on its incremental borrowing
rate for purposes of classifying the lease and measuring the
right-of-use asset and lease liability. The incremental borrowing
rate for our leases is determined based on lease term in a similar
economic environment, adjusted for impacts of collateral. The
weighted average discount rate used to measure our operating lease
liabilities as of December 31, 2019 was 4.42%.
As of,
December 31, 2019, cash paid for amounts in the measurement of
lease liabilities was $557,190. Total operating lease costs during
the same period were $558,849.
45
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 8
– Leases – continued
Maturity of lease liabilities:
|
Twelve months
ending December 31,
|
Operating
Leases
|
|
2020
|
$433,426
|
|
2021
|
320,936
|
|
2022
|
29,816
|
|
Total lease
payments
|
784,178
|
|
Less amount of
lease payment representing interest
|
(32,448)
|
|
Total present value
of lease payments
|
$751,730
|
As
previously disclosed in our 2018 Form 10-K under the prior guidance
of ASC 840, minimum payments under operating lease agreements as of
December 31, 2018 were as follows:
|
Twelve months
ending December 31,
|
Operating
Leases
|
|
2019
|
$544,284
|
|
2020
|
493,164
|
|
2021
|
365,582
|
|
2022
|
19,812
|
|
Total lease
payments
|
$ 1,422,822
|
NOTE 9
–EARNINGS PER SHARE
Basic
income per share is computed by dividing net income attributable to
Liberated Syndication Inc. by the weighted-average number of shares
of common stock outstanding during the period. As of December 31,
2019, there were no common stock equivalents
outstanding.
The
following data shows the amounts used in computing earnings per
share and the weighted average number of shares of common stock
outstanding for the periods presented for the periods
ended:
|
|
December
31,
2019
|
December
31,
2018
|
|
Income from
operations available to common stockholders
(numerator)$
|
$2,833,841
|
4,373,345
|
|
Income available to
common stockholders (numerator)
|
2,833,841
|
4,373,345
|
|
Weighted average
number of common shares outstanding during the period used in
earnings per share (denominator)
|
29,398,960
|
29,740,207
|
NOTE 10
– COMMITMENTS AND CONTINGENCIES
Although
the Company does not expect to be liable for any obligations not
expressly assumed by the Company from the Spin-Off, it is possible
that the Company could be required to assume responsibility for
certain obligations retained by FAB Universal Corp.
(“FAB”), the former parent company of the Company,
should FAB fail to pay or perform its retained obligations. FAB may
have obligations that at the present time are unknown or
unforeseen. As the nature of such obligations are unknown, we are
unable to provide an estimate of the potential obligation. However,
should FAB incur such obligations, the Company may be financially
obligated to pay any losses incurred.
46
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO FINANCIAL STATEMENTS
NOTE 10
– COMMITMENTS AND CONTINGENCIES –
continued
The
Company has a 401(k) plan and profit-sharing plan for the benefit
of the employees of the Company. Employees are eligible to
participate in the plan the first of the month following their hire
date and attaining the age of 21. Profit sharing contributions are
made at the discretion of the Board of Directors and vest 100%
after the second year of service. The Company made a $111,431
profit sharing contribution to the plan during 2019.
The
Company entered into employment agreements with its executive
officers and management that provide for bonus payments at the end
of the agreement, and bonus upon termination without cause, or
following a change of control by the Company or by the executive
for good reason. As of December 31, 2019, the bonus accrual totals
$940,000.
On
September 30, 2019, the Securities and Exchange Commission
(“SEC”) filed a complaint in the Southern District of
New York regarding certain actions by Christopher Spencer and John
Busshaus involving the Company’s previous parent company, FAB
Universal Corp. (“FAB”). According to the SEC’s
complaint, between 2012 and 2013, Mr. Spencer and Mr. Busshaus the
former Chief Executive Officer and former Chief Financial Officer
of FAB, respectively, negligently used a series of
misrepresentations about the capabilities and growth prospects of a
central component of FAB’s business in China, namely
FAB’s multi-media kiosk business. Mr. Spencer and Mr.
Busshaus have accepted the SEC’s offer of settlement without
admitting or denying the allegations or findings contained in the
complaint.
The
SEC's complaint charged Spencer and Busshaus with violations of the
antifraud provisions of Sections 17(a)(2) and (3) of the Securities
Act of 1933. Without admitting or denying the allegations, Spencer
and Busshaus have agreed to bifurcated settlements where they will
be permanently enjoined from violating these provisions. The
settlements, which received court approval, reserve the issues of
disgorgement, prejudgment interest, and civil penalties for further
determination by the court upon motion of the SEC.
On
October 2, 2019, the Company formally accepted the resignation John
Busshaus, the former Chief Financial Officer of the Company
(“Busshaus”). The Company received a letter from Mr.
Busshaus, providing notice of his intent to resign for “Good
Reason” as defined in Section 8(c) of the Employment
Agreement pursuant to which he claimed to be entitled to the
“Effect of Termination” under the Employment Agreement
in Section 9(c). The Company has taken the position that it does
not believe that there was “Good Reason” for his
resignation and therefore is not entitled to the “Effect of
Termination” under the Employment Agreement in Section
9(c).
On
April 24, 2020 Busshaus filed a complaint against the Company with
the American Arbitration Association (AAA) asserting claims arising
from his employment relationship with Libsyn, including,
inter alia, claims for
wages, compensation and benefits, and claims prohibiting unlawful
discharge and wrongful termination. Busshaus claims that he
resigned for “Good Reason” as defined in Section 8(c)
of his Employment Agreement pursuant to which he claims to be
entitled to the “Effect of Termination” under the
Employment Agreement in Section 9(c). The Company denies
Busshaus’ claims in their entirety.
NOTE 11
- SEGMENT REPORTING
ASC
280, “Segment Reporting”, establishes standards for
reporting information about operating segments on a basis
consistent with the Company's internal organizational structure as
well as information about geographical areas, business segments and
major customers in financial statements for details on the
Company's business segments.
The
Company is engaged in providing hosting services. The Company's
chief operating decision maker (“CODM”) has been
identified as the CEO who reviews the financial information of
separate operating segments when making decisions about allocating
resources and assessing performance of the group. Based on
management's assessment, the Company has determined that it has two
operating segments as of December 31, 2019 which are podcast
hosting services (Libsyn) and internet hosting services
(Pair).
The
following table presents summary information by segment for the
twelve months ended December 31, 2019 and 2018,
respectively:
|
|
2019
|
2018
|
||||
|
(in
thousands)
|
Libsyn
|
Pair
|
Total
|
Libsyn
|
Pair
|
Total
|
|
|
|
|
|
|
|
|
|
Revenue
|
$14,486
|
$9,716
|
$24,202
|
$12,630
|
$9,380
|
$22,010
|
|
Cost of
revenue
|
2,368
|
1,123
|
3,491
|
2,516
|
816
|
3,332
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$27,637
|
$17,667
|
$45,304
|
$20,329
|
$17,732
|
$40,061
|
|
Depreciation and
amortization
|
$82
|
$2,828
|
$2,910
|
$46
|
$2,968
|
$3,014
|
NOTE 12
- SUBSEQUENT EVENTS
On
February 18, 2020 the Company modified and extended the Stock
Agreements dated December 28, 2017 (Original Agreement) for four
key employees. The Company modified and extended certain milestones
which include the up-listing of the common stock to the Nasdaq or
NYSE and increasing the average closing price per share for any 10
consecutive trading days to $5.50 per share. A total of 500,000
restricted shares of common stock are eligible for vesting based on
the amended agreement.
On
February 18, 2020, the Company amended stock agreements entered
into with two Board members, each with respect to 200,000 shares of
common stock. The Company modified the stock agreements for the
stock to vest immediately in the event of certain changes in
control of the Company. A total of 400,000 restricted shares of
common stock were covered by the amended agreement.
On
February 18, 2020, the Company awarded 25,000 shares of restricted
common stock to three members of the Board of Directors, which
shares shall vest in four equal quarterly tranches at the end of
each quarter of 2020 and all such shares shall vest immediately in
the event of certain changes in control of the
Company.
On
February 28, 2020, the Board of Directors approved the termination
of John Busshaus. As of December 31, 2019, the Company has reversed
the $560,000 bonus which was accruing during 2019.
On
April 24, 2020 Busshaus filed a complaint against the Company with
the American Arbitration Association (AAA) asserting claims arising
from his employment relationship with Libsyn, including,
inter alia, claims for
wages, compensation and benefits, and claims prohibiting unlawful
discharge and wrongful termination. Busshaus claims that he
resigned for “Good Reason” as defined in Section 8(c)
of his Employment Agreement pursuant to which he claims to be
entitled to the “Effect of Termination” under the
Employment Agreement in Section 9(c). The Company denies
Busshaus’ claims in their entirety.
47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures—We maintain
disclosure controls and procedures that are designed to ensure that
information we are required to disclose in the reports that we file
or submit under the Securities Exchange Act of 1934 (the
“Exchange Act”), such as this Annual Report on Form
10-K, is recorded, processed, summarized, and reported within the
time periods specified by SEC rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures
designed to ensure that information we are required to disclose in
the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including the Chief
Executive Officer (“CEO”) and the Chief Financial
Officer (“CFO”), to allow timely decisions regarding
required disclosure.
Our
management evaluated, with the participation of our CEO and CFO,
the effectiveness of our disclosure controls and procedures as of
December 31, 2019, pursuant to paragraph (b) of Rules 13a-15 and
15d-15 under the Exchange Act. This evaluation included a review of
the controls’ objectives and design, the operation of the
controls, and the effect of the controls on the information
presented in this Annual Report. Our management, including the CEO
and CFO, do not expect that disclosure controls can or will prevent
or detect all errors and all fraud, if any. A control system, no
matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system
are met. Our disclosure controls and procedures are designed to
provide such reasonable assurance of achieving their objectives.
Also, the projection of any evaluation of the disclosure controls
and procedures to future periods is subject to the risk that the
disclosure controls and procedures may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Based
on their review and evaluation, and subject to the inherent
limitations described above, our CEO and CFO have evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and
concluded that our disclosure controls and procedures were not
effective as of December 31, 2019 at the above-described reasonable
assurance level due to limited accounting and reporting personnel
and a lack of segregation of duties due to limited financial
resources and the size of our company. On an on-going basis we will
evaluate the adequacy of our controls and procedures.
Internal Control over Financial Reporting—Management
is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Our internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America.
Because
of inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even internal
controls determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. The effectiveness of our internal control over
financial reporting is subject to various inherent limitations,
including cost limitations, judgments used in decision making,
assumptions about the likelihood of future events, the possibility
of human error, and the risk of fraud. The projection of any
evaluation of effectiveness to future periods is subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies may
deteriorate. Because of these limitations, there can be no
assurance that any system of internal control over financial
reporting will be successful in preventing all errors or fraud or
in making all material information known in a timely manner to the
appropriate levels of management.
This
annual report does not include an attestation report of the
company’s registered public accounting firm regarding
internal control over financial reporting. Management’s
report was not subject to attestation by the company’s
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that exempt from this
requirement issuers that are neither accelerated filers nor large
accelerated filers.
There
has been no change in our internal control over financial reporting
during the quarter ended December 31, 2019 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
48
Management’s Report on Internal Control over Financial
Reporting
Management
assessed the effectiveness of our internal control over financial
reporting as of December 31, 2019. In making this assessment,
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework (2013 framework).
Based on this assessment, management has determined that the
Company’s internal control over financial reporting as of
December 31, 2019, was not effective. On an on-going basis we will
evaluate the adequacy of our controls and procedures.
Item 9B.
Other Information
None;
not applicable.
PART III
Item 10.
Directors, Executive Officers, and Corporate Governance.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth:
●
the names of our
current directors and executive officers,
●
their ages as of
May 14, 2020, which is the date for filing of this 10-K;
and
●
the capacities in
which they currently serve The Company:
|
Name
|
|
Age
|
|
Position(s)
|
|
Served in
Position Since
|
|
Christopher
J. Spencer
|
|
51
|
|
Chief
Executive Officer
|
|
2015
|
|
Gabriel
Mosey
|
|
35
|
|
Interim
Chief Financial Officer
|
|
2019
|
|
Denis
Yevstifeyev
|
|
38
|
|
Director
|
|
2015
|
|
Douglas
Polinsky
|
|
59
|
|
Director
|
|
2015
|
|
Eric
Shahinian
|
|
31
|
|
Director
|
|
2019
|
|
Bradley
Tirpak
|
|
50
|
|
Director
|
|
2019
|
|
Brian
Kibby
|
|
53
|
|
Director
|
|
2019
|
49
Christopher Spencer has served as our Chief Executive
Officer, President and as a director of the Company since its
inception on September 29, 2015. Mr. Spencer has served as a
Director of Future Healthcare of America since June 22, 2012. Mr.
Spencer has served as Chief Executive Officer, President, and a
director of FAB Universal Corp. since February 7, 2001. From 1994
until 1996, Mr. Spencer founded and worked for ChinaWire, Inc., a
high-technology company engaged in financial remittance between
international locations and China. Mr. Spencer worked for Lotto
USA, Inc. from 1992-1994, where he was founder and Chief Executive
Officer for the Pennsylvania computer networking company. From 1990
until 1992, Mr. Spencer worked for John Valiant, Inc., and was
responsible for business concept development and obtaining
financing.
Gabriel Mosey has served as Interim Chief Financial Officer
of the Company since October 2, 2019. Mr. Mosey previously served
as the Company’s Controller since joining the company on May
21, 2018. Mr. Mosey was previously an auditor at PPG Industries,
Inc. and Ernst & Young. Mr. Mosey earned his Bachelor of
Accounting degree from Utah Valley University and a Master of
Accounting degree from Duquesne University.
Brian Kibby has served as a Director of the Company since
November 19, 2019. Mr. Kibby currently serves as CEO of N2Ventures,
a provider of value-added advisory services that help private
equity and venture capital portfolio companies accelerate and
operationalize success at scale, and Senior Partner of N2Growth, a
global leader in human and organizational performance. He
previously served as CEO at Knewton, a global EdTech leader, and MV
Transportation, the largest privately held transportation and
logistics company in the United States. Mr. Kibby has more than 20
years of experience in Edtech, including as President of Higher
Education at McGraw Hill and Senior Vice President of Pearson
Education. Mr. Kibby holds a bachelor's degree in finance from
Western Illinois University and is a U.S Army Veteran.
Douglas Polinsky has served as a Director of the Company
since its inception on September 29, 2015. Mr. Polinsky has served
as a Director of FAB Universal Corp. since October 2007. Mr.
Polinsky serves as the President of Great North Capital Corp., a
Minnesota-based financial services company he founded in 1995.
Great North advises corporate clients on capital formation and
other transaction-related financial matters. Mr. Polinsky earned a
Bachelor of Science degree in Hotel Administration at the
University of Nevada at Las Vegas.
Eric Shahinian has served as a Director of the Company since
October 4, 2019. Mr. Shahinian is the
managing member of Camac Partners LLC, which he founded in 2011.
Prior to founding Camac, he was an analyst at Kingstown Capital
Management L.P., an investment firm, from 2009 to 2011. Mr.
Shahinian was a director of Khan Resources, Inc. from 2015 to 2017,
during which time the company reached a settlement with the
government of Mongolia in regards to an arbitration award entered
in the company’s favor and paid out a large return of
capital. Mr. Shahinian has a B.S. from Babson
College.
Bradley Tirpak has served as a Director of the Company since
October 4, 2019. Mr. Tirpak has been a
managing director at Palm Active Partners LLC since 2016. From 2009
to 2016, Mr. Tirpak was founder and Chief Executive Officer of
Locke Partners and managed various investment partnerships that
focused on engaging public companies to improve corporate
governance and improve stockholder returns. Mr. Tirpak is the
Chairman of the Board of Full House Resorts, Inc., a casino
developer and operator, and has been a director since December
2014, Mr. Tirpak is the Chairman of the Board of TSR Inc, a
provider of contract computer programming services, and has been a
director since October 2019. Mr. Tirpak has been a director of
Barnwell Industries, Inc., since April 2020. Mr. Tirpak was a
director of Flowgroup plc, an independent energy supplier in the
UK, from July 2017 until October 2018, and was a director of Birner
Dental Management Services, Inc., a manager of dental practices in
Colorado, Arizona and New Mexico, from December 2017 to January
2019. From April 2015 to February 2017, he was a director of
Applied Minerals, Inc., a leading producer of halloysite clay and
advanced natural iron oxide solutions, and from January 2010 to
February 2012, he was a director of USA Technologies, Inc., a
payments company focused on the vending industry. Mr. Tirpak is a
trustee of the HALO Trust USA, the world’s largest
humanitarian mine clearance organization which clears the debris of
war in over 20 countries. Mr. Tirpak received a B.S.M.E. from Tufts
University and an M.B.A from Georgetown
University.
Denis Yevstifeyev has served as a Director of the Company
since its inception on September 29, 2015. Mr Yevstifeyev has been
serving as Chief Financial Officer for The Art Institutes, a system
of private, non-profit schools throughout the United States, from
January 2019. From December 2017 to December 2018, Mr. Yevstifeyev
served as Vice President of Financial Planning & Analysis and
Procurement for Dream Center Education Holdings. From 2009 to 2012,
and from 2015 to 2017, Mr. Yevstifeyev served in various roles with
the latest as the Director of Financial Planning & Analysis for
Education Management Corporation. From 2012 to 2015, Mr. Yevstifeyev owned and operated his commercial
printing company. From 2007 to 2008, Mr. Yevstifeyev served as Sr.
Financial Reporting Analyst for American Eagle Outfitters, Inc., in
Pittsburgh. His duties included: preparing and analyzing
various internal and external financial reports; researching new
accounting pronouncements and evaluating any impact on the
financial statements. He also reviewed accounting workpapers and
prepared the company’s SEC filings for forms 8-K, 10-Q and
10-K. From 2005 to 2007, Mr. Yevstifeyev worked for Schneider
Downs, Inc., where he worked on Sarbanes-Oxley compliance
engagements. In 2005, Mr. Yevstifeyev graduated with a Bachelor of
Science degree in Business from Washington and Jefferson
College. He also graduated with honors from the Moscow Bank
College of the Central Bank of Russia in Moscow with a degree in
Finance in 2000.
There are no non-officer employees who are expected to make a
significant contribution to the business.
Additional Board Information
On October 8, 2019, the U.S. District Court for the Southern
District of New York entered a final judgment approving the terms
of a settlement filed with the court in connection with the actions
taken by the SEC relating to Christopher Spencer’s activities
with the Company’s previous parent company, FAB Universal
Corp., and enjoining future violations of the federal securities
laws. Mr. Spencer accepted the SEC’s offer of settlement
without admitting or denying the allegations or findings contained
in the complaint and there is no restriction on Mr. Spencer’s
ability to serve as an officer or director on the
Board.
Family Relationships.
There
are no family relationships between any of our directors or
executive officers.
50
Involvement in Certain Legal Proceedings.
Other
than described above, during the past ten years, none of our
present or former directors, executive officers or persons
nominated to become directors or executive officers:
(1) A
petition under the Federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of
such person, or any partnership in which he was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which he was an executive
officer at or within two years before the time of such
filing;
(2)
Such person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) Such person was the
subject of any order, judgment, or decree, not subsequently
reversed, suspended, or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:
(i)
Acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(ii)
Engaging in any
type of business practice; or
(iii)
Engaging in any
activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of Federal or State
securities laws or Federal commodities
laws;
(4)
Such person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or
State authority barring, suspending or otherwise limiting for more
than 60 days the right of such person to engage in any activity
described in paragraph (f)(3)(i) of this section, or to be
associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a
civil action or by the Commission to have violated any Federal or
State securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed,
suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have
violated any Federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or
vacated;
(7)
Such person was the subject of, or a party to, any Federal or State
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of:
(i)
Any Federal or
State securities or commodities law or regulation;
or
(ii)
Any law or
regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or
prohibition order; or
(iii)
Any law or
regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or
persons associated with a member.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORT COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who own more than 10% of a registered class
of our equity securities, to file reports of ownership and changes
in ownership with the SEC. Officers, directors, and greater
than 10% stockholders are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to us with
respect to fiscal 2019 and on representations that no other reports
were required, we believe that during the 2019 fiscal year all
applicable Section 16(a) filing requirements were
met.
51
CORPORATE GOVERNANCE
Code of Ethics
We
uphold a set of basic values to guide our actions and are committed
to maintaining the highest standards of business conduct and
corporate governance. We have adopted a Code of Business Conduct
and Ethics for directors, officers (including our principal
executive officer and principal financial officer) and employees,
which, in conjunction with our Certificate of Incorporation, Bylaws
and Board of Directors committee charters, form the framework for
governance of the Company. The Code of Ethics and Business Conduct,
Board of Directors committee charters, Bylaws and Article of
Incorporation are available at our corporate offices. Stockholders
may request free printed copies of these documents
from:
Liberated
Syndication Inc
Attn:
CFO
5001
Baum Blvd., Suite 770
Pittsburgh,
PA 15213
Board of Directors Independence
The
Board of Directors has determined that each of Eric Shahinian,
Bradley Tirpak, Brian Kibby, Denis Yevstifeyev and Douglas Polinsky
has no material relationship with us (either directly or as a
partner, stockholder or officer of an organization that has a
relationship with us) and satisfies the independence requirements
required by the SEC. The non-management independent directors meet
in executive session, without management, at least
annually.
Committees
of the Board of Directors
The
Board of Directors has adopted written charters for two standing
committees: The Nominating Committee and the Audit Committee. The
Board has determined that all members of the Nominating and Audit
Committees are independent and satisfy the relevant SEC
independence requirements for members of such
committees.
Nominating Committee. The Nominating
Committee currently consists of Mr. Polinsky as chair,
Mr. Yevstifeyev, and Mr. Shahinian. This committee
provides assistance to the Board in identifies individuals
qualified to become members of the Board of Directors consistent
with Board criteria. The committee also oversees the
evaluation of the Board of Directors and management. There
have not been any material changes to the procedures by which
stockholders recommend nominees to the Board of
Directors.
Audit Committee. The Audit Committee
currently consists of Mr. Yevstifeyev, as chair,
Mr. Polinsky and Mr. Tirpak. Mr. Yevstifeyev, the Board
of Directors has determined, is an “audit committee financial
expert” as defined under SEC rules. This committee
oversees the integrity of our financial statements, disclosure
controls and procedures, the systems of internal accounting and
financial controls, compliance with legal and regulatory
requirements, the qualifications and independence of the
independent auditors and the performance of our internal audit
function and independent auditors, and the quarterly reviews and
annual independent audit of our financial statements. Sadler,
Gibb & Associates LLC, our independent auditors, reports
directly to the Audit Committee.
We will
provide a free printed copy of any of the charters of any Board
committee to any stockholder on request.
Compensation Committee. The
Compensation Committee currently consists of Mr. Shahinian as
chair, Mr. Kibby, and Mr. Polinsky. The Compensation
Committee evaluates all executive compensation arrangements and
makes all executive compensation determinations. This committee
provides assistance to the Board of Directors in overseeing our
compensation policies and practices. It reviews and approves
the compensation levels and policies for the Board of Directors;
reviews and approves corporate goals and objectives with respect to
executive compensation and, based upon these evaluations,
determines and approves the CEO’s compensation; makes
recommendations to the Board of Directors with respect to non-CEO
executive officer compensation. The Compensation Committee also has
the responsibility to provide the report to stockholders on
executive officer compensation, which appears below.
Strategic Review Committee. The Strategic Review Committee
currently consists of Mr. Shahinian as Chair, and Mr. Kibby. This
committee is to conduct a strategic review of the business of the
Company and make recommendations to the Board with respect to the
strategic direction of the Company, its businesses and its
opportunities (including with respect to potential strategic
transactions involving the Company), in order to enhance
shareholder value.
52
Item 11.
Executive Compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
No
member of the compensation committee (i) was an officer or employee
of the Company or a subsidiary of the Company during 2019, (ii) was
formerly an officer of the Company or a subsidiary of the Company,
or (iii) had any relationship required to be disclosed pursuant to
Item 404 of Regulation S-K.
During
fiscal 2019, none of the Company’s executive officers served
as (i) a member of a compensation committee of another company, one
of whose executive officers served on the Company’s
compensation committee; (ii) a director of another company, one of
whose executive officers served on the Company’s compensation
committee; or (iii) a member of a compensation committee of another
company, one of whose executive officers served as one of the
Company’s directors.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
and General Philosophy
At
Liberated Syndication, our focus is to create value through
expanding the products and services that can utilize the services
we offer. We are also focused on growing our business through new
product offerings and services for our clients. The intent of our
executive compensation program is to support the goal of value
creation by:
● rewarding
executives for obtaining performance milestones;
● aligning the
interests of executives with the interests of stockholders;
and
● attracting and
retaining highly motivated and talented executives.
Our
compensation elements simultaneously fulfill one or more of these
three objectives. The elements include:
● base
salary;
● discretionary
bonuses (in the form of cash and restricted stock);
● benefits
programs.
The
type and amount of compensation is determined considering current
pay, competitive pay data from the external talent market and the
opportunity for future pay. We combine compensation elements for
each executive in a manner that will meet the performance,
alignment and retention goals listed above as well as eliciting the
best possible contribution from the executive.
Compensation
Objectives
Our
executive compensation philosophy is built around two objectives:
supporting stockholder value creation through, aligning the
interests of executives with the interests of stockholders, and
attracting and retaining highly motivated and talented
executives.
We use
general industry data of companies which are a similar size to us
based on market capitalization to assist with pay
levels.
Obtained
Performance Milestones:
●
We construct our
annual bonus opportunities to have appropriately aggressive targets
that require significant achievement against performance
milestones.
Aligned
Interests:
Our
base pay practices reduce fixed costs and emphasize
performance-based incentive programs, which we believe are in the
best interests of stockholders.
53
●
We base our annual
bonus opportunities on performance milestones and value to the
stockholder that focus executives on performance results that are
of common interest to stockholders.
●
We award long-term
equity incentive opportunities using restricted stock, so that
appreciating stock value is a significant potential factor in
executive compensation.
Executive
Retention:
●
We believe our use
of base salary accompanied by an emphasis on incentive programs
attracts executives that are appropriately aggressive, innovative,
and are focused on the performance of the Company.
●
Discretionary
bonuses allow us to adjust to unique market conditions in a timely
fashion in order to retain key executives.
Compensation
Administration
General Process. Executive
compensation decisions at Liberated Syndication are the product of
several factors, modified by judgment and discretion as necessary.
The predominant factors include:
●
key performance
measurements such as revenue, and key business
developments;
●
strategic
initiatives such as new product launches, acquisitions, and
implementation of process improvements;
●
achievement of
specific operational goals relating to the sphere of influence led
by the executive;
●
compensation of
other executives within the Company (to ensure internal equity);
and
For the
CEO, these factors are judged, and compensation is recommended by
the Compensation Committee of the Board of Directors and approved
by the Board. For the other executive officers (including all the
named executives in the Summary Compensation Table), the factors
are considered by the CEO, who recommends compensation levels.
These judgments and recommendations are then reviewed and approved
or revised by the Compensation Committee.
Generally,
the Compensation Committee reviews and makes adjustments to base
compensation once per year, effective at the beginning of each
fiscal year (January 1). Annual incentives are typically paid
within two months of the fiscal year end.
Role of Compensation Committee. The
Compensation Committee evaluates all executive compensation
arrangements, and makes all executive compensation determinations.
The Compensation Committee oversees the design, development and
implementation of our compensation program. The Committee evaluates
the performance of the CEO and determines CEO compensation
consistent with the objectives of the compensation program. The
Committee also approves all incentive compensation plans and
approves or revises recommendations made by the CEO for
compensation decisions affecting other executives. The Committee
also approves all bonuses, awards and grants under all incentive
plans.
Role of CEO. Our CEO is responsible
for the implementation and administration of our compensation
program throughout the organization. The CEO evaluates the
performance of executives and, consistent with the objectives of
the compensation program, meets with the Compensation Committee to
consider and recommend compensation programs, set and evaluate
performance milestone, and make specific recommendations on the
form and amount of compensation for named
executives.
Compensation
Components
Short-Term
Compensation. Consistent with our
stated compensation philosophy, our key metric for executive
short-term compensation is annual total cash compensation.
Discretionary bonuses provide significant upside potential which
results in targeted annual total cash
compensation.
Base Salary. We consider base salary
a tool to provide executives with a base level of income relative
to the scope of the positions they hold. Base salaries are
established based on the level of responsibility for the position.
With the exception of the CEO and named executives all base
salaries are reviewed annually and are adjusted from time to time
to reflect changes in responsibility level.
In
2019, our named executives’ salaries ranged from $350,000 to
$400,000. There was no increase in base salary for named executives
during 2019.
2019 Annual Bonus. Currently, there
is not an established annual incentive bonus plan.
54
Discretionary Bonuses. Because there
is not an annual incentive plan, the Compensation Committee may
determine a discretionary bonus is to be awarded to appropriately
reward senior executives. In these cases, discretionary bonuses are
used to assure that executives are appropriately rewarded. The
Committee determines discretionary bonuses for the CEO. The CEO
recommends discretionary bonuses for all other named executives,
which are then approved or adjusted by the Committee.
In
fiscal year 2019, no discretionary bonuses were awarded to the
executive officers.
Long-Term Incentive Compensation. In 2019,
we did not have any such compensation plan.
In
fiscal 2020, we anticipate to implement a long-term incentive plan
that may utilize stock options or restricted stock. For senior
management, including named executives, the primary emphasis will
be on stock awards. The intent of the plan is focus senior
management focus on return on invested capital, free cash flow
generation, and total shareholders return, directly aligning the
interests of executives with the interests of
stockholders.
All
stock granted to the named executives by the Company must have
Compensation Committee approval. The exercise price for all
stock-based awards coincides with the date the Committee approves
the award grant. It is against Company policy to back-date
stock-based awards or to time stock-based awards for any
reason.
Award Adjustment or Recovery. We do
not have a policy to recover or otherwise adjust payments made or
awards earned as a result of changes in subsequent periods relating
to performance measures upon which such payments or awards are
based, sometimes referred to as a “clawback” policy. We
have not required any named executive to return any award or repay
any payment received in any fiscal year. We may implement a
clawback policy in the future.
Tax Deductibility of
Compensation. Section 162(m) of
the Internal Revenue Code of 1986, as amended, imposes a $1,000,000
limit on the amount that a public company may deduct for
compensation paid to named executives unless compensation is based
on an individual’s meeting pre-established performance goals
determined by a compensation committee and approved by
stockholders.
We
currently offer 401(k) retirement savings plan to all employees of
the Company.
Perquisites. Eligible employees,
including named executives, participate in various other employee
benefit plans, including medical and dental care plans; flexible
spending accounts for health care; life, accidental death and
dismemberment and disability insurance; and vacation plans. The
primary purpose of providing these plans and perquisites to senior
executives is to attract and retain talented executives to manage
the Company.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis set forth in this Annual Report with our
management. Based on such review and discussions, the Compensation
Committee recommended to our Board of Directors that the
Compensation Discussion and Analysis be included in this Annual
Report on Form 10-K.
Compensation
Committee
Eric
Shahinian, Chairman
Brian
Kibby
Douglas
Polinsky
55
EXECUTIVE COMPENSATION
Summary Compensation Table
The
following sets forth the compensation of Liberated
Syndication’s Chief Executive Officer during fiscal 2018, and
the other persons who served as executive officers during fiscal
2019. Unless otherwise noted, the amounts shown represent what was
earned in fiscal 2019.
SUMMARY
COMPENSATION TABLE – FISCAL 2019
|
Name and
principal position
|
Salary
($)
|
Bonus
($)
|
Stock awards
($)
|
Non-equity
incentive plan compensation ($)
|
All other
compensation ($)
|
Total
($)
|
|
Christopher Spencer – Chief
Executive Officer
|
|
|
|
|
|
|
|
2019
|
400,000
|
60,000
|
-
|
-
|
-
|
400,000
|
|
2018
|
400,000
|
-
|
-
|
-
|
-
|
460,000
|
|
John Busshaus – Chief
Financial Officer1
|
|
|
|
|
|
|
|
2019
|
262,500
|
700,000
|
-
|
-
|
-
|
262,000
|
|
2018
|
350,000
|
45,000
|
-
|
-
|
-
|
395,000
|
The
bonuses to Chris Spencer represent discretionary awards during the
respective year by the compensation committee and the Board of
Directors .
1Mr. Busshaus ceased being our Chief Financial Officer on
October 2, 2019. On February 28, 2020, the Board of Directors
approved the termination of John Busshaus.
Outstanding Equity Awards at Fiscal Year End
The
following table sets forth information concerning outstanding
equity awards for the named executives as of December 31,
2019.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019
|
|
Option
awards
|
Stock
awards
|
||||||
|
Name
|
Number
of securities
underlying
unexercised
options (#)
exercisable
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
Equity incentive
plan
awards: number
of
securities
underlying
unexercised
unearned
options
(#)
|
Optionexerciseprice
($)Optionexpirationdate
|
Number
of sharesor units
of stock
that have
not vested
(#)
|
Market value
of shares
or units of
stock that have
not vested
($)
|
Equity incentive
plan
awards: number
of
unearned shares,
units or
other rights
that have not
vested
(#)
|
Equity incentive
plan
awards: market
or payout
value of
unearned shares,
units or other
rights that
have not vested
($)
|
|
Chris Spencer
|
-
|
-
|
-
|
-
|
1,475,000
|
4,867,500
|
-
|
-
|
|
John L.
Busshaus
|
-
|
-
|
-
|
-
|
1,212,000
|
4,001,250
|
-
|
-
|
On
February 28, 2020, the Board of Directors approved the termination
of John Busshaus. The company anticipates that the 1,212,500 shares
of unvested shares held by Mr. Busshaus will be forfeited and
cancelled.
Grants of Plan-Based Awards for 2019
There
were no plan-based equity awards made to our executive officers
during fiscal 2019.
56
Option Exercises and Stock Vested
The
following table sets forth information concerning fiscal 2019
option exercises and restricted stock that vested during fiscal
2019 for the named executives.
OPTION
EXERCISES AND STOCK VESTED DURING FISCAL 2019
|
|
Option
awards
|
Stock
awards
|
||
|
Name
|
Number
of
shares
acquired
on exercise
(#)
|
Value
realized on
exercise
($)
|
Number
of shares
acquiredon vesting
(#)
|
Value
realized
on vesting
($)
|
|
Christopher
Spencer
|
-
|
-
|
375,000
|
180,000
|
|
John L.
Busshaus
|
-
|
-
|
312,500
|
150,000
|
Pension Benefits
Liberated
Syndication does not have any plans that provide for payments or
other benefits at, following, or in connection with
retirement.
Nonqualified Deferred Compensation
Liberated
Syndication does not have a Deferred Compensation Plan for its
executive officers.
Other Potential Post-Employment Payments
As of
December 31, 2019, one executive with an employment contract
that requires severance pay of an amount equal to the Salary which
would have been payable over the remaining term of their Agreement
or, if such remaining term is less than twelve (12) months, then
for a period of twelve (12) months immediately following the
termination. As of December 31, 2019, there are no current
severance payments payable.
Summary Information about Equity Compensation Plans
As of
December 31, 2019, Liberated Syndication does not have any
Stock Option Compensation Plans.
Stockholder Approval of Equity Compensation
Plans. The following table presents
information as of December 31, 2019, about Liberated
Syndication’s common stock that may be issued upon the
exercise of options granted to employees, consultants or members of
the Board of Directors under all of our existing equity
compensation plans and individual arrangements. As described above,
Liberated Syndication does not have any stock option plans under
which options have been granted.
|
Plan
Category
|
Maximum sharesto
be issued uponexercise of options
|
Weighted-averageexercise
price ofoutstanding options
|
Shares remaining
available for future
issuance
under existing
equity
compensation plans
(excluding shares
reflected in
first column)
|
|
Plans approved by
stockholders
|
3,000,000
|
$-
|
3,000,000
|
|
Plans not approved
by stockholders
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
|
3,000,000
|
$-
|
3,000,000
|
57
DIRECTOR COMPENSATION
In
2020, the Board of Directors will consider stock options or other
appropriate equity incentive grants to the outside directors.
Liberated Syndication reimburses directors for out-of-pocket
expenses they incur when attending meetings of the Board. Salaried
executives who serve as directors are not paid for their services
as directors and accordingly, Christopher Spencer is not included
in the director compensation table below.
The
following table sets forth the compensation Liberated Syndication
paid its non-employee directors in 2019. Unless otherwise noted,
the amounts shown represent what was earned in fiscal
2019.
DIRECTOR COMPENSATION TABLE – FISCAL 2019
|
Name
|
Fees earnedor
paidin cash ($)
|
Stock awards ($)
|
Option awards ($)
|
Non-equity
incentive plan compensation ($)
|
Nonqualified
deferred compensation earnings ($)
|
All other
compensation ($)
|
Total
($)
|
|
Brian
Kibby
|
4,500
|
|
|
|
|
|
4,500
|
|
Doug
Polinsky
|
36,000
|
-
|
-
|
-
|
-
|
-
|
36,000
|
|
Eric
Shahinian
|
9,000
|
|
|
|
|
|
9,000
|
|
J. Gregory
Smith
|
27,000
|
-
|
-
|
-
|
-
|
-
|
27,000
|
|
Bradley
Tirpak
|
9,000
|
|
|
|
|
|
9,000
|
|
Denis
Yevstifeyev
|
36,000
|
-
|
-
|
-
|
-
|
-
|
36,000
|
All
outside directors will receive a base annual cash compensation of
$36,000, which will be paid quarterly.
Item 12.
Security Ownership of Certain Beneficial Owners
The
following table sets forth certain information as of May 14, 2020
regarding the beneficial ownership of our common stock,
for:
●
each person (or
group of affiliated persons) who, insofar as we have been able to
ascertain, beneficially owned more than 5% of the outstanding
shares of our common stock:
●
each
director;
●
each named
executive; and
●
all directors and
executive officers as a group.
58
We
relied on information received from each stockholder as to
beneficial ownership, including information contained on Schedules
13D and 13G and Forms 3, 4 and 5. As of May 14, 2020 there
were 29,346,974 shares of common stock
outstanding.
|
Name of
Beneficial Owner (1)
|
Amount and Nature of
Beneficial Ownership
|
Owner
%
|
|
5%
Stockholders:
|
|
|
|
Zhang
Hongcheng
|
2,332,200
|
7.9%
|
|
John
Busshaus(2)
|
2,207,524
|
7.5%
|
|
Directors:
|
|
|
|
Brian
Kibby
|
25,000
|
0%
|
|
Douglas
Polinsky
|
504,241
|
1.7%
|
|
Eric
Shahinian
|
2,078,124
|
7.0%
|
|
Brad
Tirpak
|
125,000
|
0.4%
|
|
Denis
Yevstifeyev
|
500,000
|
1.7%
|
|
Executive
Officers:
|
|
|
|
Christopher
Spencer, Chief Executive Officer
|
2,834,392
|
9.6%
|
|
All directors and
executive officers as a group (6 persons)
|
6,066,757
|
20.7%
|
* Less
than 1%
(1) The
address of each director and officer is c/o Liberated Syndication,
5001 Baum Blvd. Suite 770, Pittsburgh, Pennsylvania
15213.
(2) On
February 28, 2020, the Board of Directors approved the termination
of John Busshaus. The company anticipates that the 1,212,500 shares
of unvested shares held by Mr. Busshaus will be forfeited and
cancelled.
59
Changes in Control
There
are no known arrangements known to the Company, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
Company.
Item 13.
Certain Relationships and Related Transactions, and Director
Independence.
Transactions with Related Persons.
During
the fiscal years ended December 31, 2019 and 2018, there were no
transactions, and there are no currently proposed transactions, in
which the Company was or is to be a participant and the amount
involved exceeds the lesser of $120,000 or one percent of the
average of the Company’s total assets at year end for the
last two completed fiscal years, and in which any related person
had or will have a direct or indirect material
interest.
Director independence.
The
Board of Directors has determined that each of Brian Kibby, Eric
Shahinian, Douglas Polinksy, Bradley Tirpak and Denis Yevstifeyev
has no material relationship with us (either directly or as a
partner, stockholder or officer of an organization that has a
relationship with us) and satisfies the independence requirements.
The non-management independent directors meet in executive session,
without management, at least quarterly. Mr. Kibby, an independent
non-management director, chairs all executive session meetings of
directors.
Item 14.
Principal Accountant Fees and Services.
The
following is a summary of the fees billed to Liberated Syndication
by its principal auditor during the calendar years ended December
31, 2019 and 2018:
|
Fee
category
|
2019
|
2018
|
|
Audit Fees
(1)
|
$108,898
|
$82,000
|
|
Audit –
related fees
|
-
|
-
|
|
Tax
fees
|
-
|
-
|
|
All other
fees
|
-
|
-
|
|
Total
fees
|
$108,898
|
$82,000
|
|
(1)
|
Consists
of fees for audit of the Company's annual financial statements,
audit of the financial statements of acquired subsidiaries, the
review of interim financial statements included in the Company's
quarterly reports, and the review of other documents filed with the
Securities and Exchange Commission.
|
|||||
Audit
fees - Consists of fees for professional services rendered by our
principal auditor for the audit of our annual financial statements
and the review of financial statements included in our Forms 10-Q
or services that are normally provided by our principal accountants
in connection with statutory and regulatory filings or
engagements.
Audit-related
fees - Consists of fees for assurance and related services by our
principal accountants that are reasonably related to the
performance of the audit or review of Liberated Syndication’s
financial statements and are not reported under "Audit
fees."
Tax
fees - Consists of fees for professional services rendered by our
principal accountants for tax compliance, tax advice and tax
planning.
All
other fees - Consists of fees for products and services provided by
our principal accountants, other than the services reported under
"Audit fees," "Audit-related fees" and "Tax fees"
above.
The
Audit Committee is informed of and approves all services Sadler,
Gibb & Associates provides. The Audit Committee
pre-approves the annual audit fee, tax services, and non-routine
SEC filing reviews, as well as the fees for all large projects that
are expected to cost more than $35,000. In addition, it has
pre-approved $15,000 for items that relate to routine accounting
services related to items such as new, routine SEC filings
requiring consents, and routine tax
consultations.
Upon performance of such services, the Audit Committee is informed
of and approves the matters to which such consultations
relate. Upon approval by the Audit Committee, the amount is
added back to the pre-approved
$15,000.
60
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
(a)
Financial Statements.
Consolidated
Balance Sheets of Liberated Syndication Inc. and subsidiaries as of
December 31, 2019 and 2018
Consolidated
Statements of Operations of Liberated Syndication Inc. and
subsidiaries for the years ended December 31, 2019 and
2018
Consolidated
Statements of Stockholders' Equity of Liberated Syndication Inc.
and subsidiaries for the years ended December 31, 2019 and
2018
Consolidated
Statements of Cash Flows of Liberated Syndication Inc. and
subsidiaries for the years ended December 31, 2019 and
2018
Notes
to Consolidated Financial Statements
(b)
Exhibits. (1)
|
Exhibit Number
|
|
Description
|
|
|
Articles
of Incorporation (3)
|
|
|
|
Bylaws
(3)
|
|
|
|
Description of
Securities |
|
|
|
Tax
Matters Agreement (3)
|
|
|
|
Stock
Agreement of Christopher J. Spencer dated April 13,
2017(4)*
|
|
|
|
Stock
Agreement of John Busshaus dated April 13, 2017(4)*
|
|
|
|
Stock
Agreement of Douglas Polinsky dated April 13, 2017(4)*
|
|
|
|
Stock
Agreement of Denis Yevstifeyev dated April 13,
2017(4)*
|
|
|
|
Stock
Agreement of John G. Smith dated April 13, 2017(4)*
|
|
|
|
Stock
Agreement of Christopher J. Spencer dated December 15,
2017(5)*
|
|
|
|
Stock
Agreement of John Busshaus dated December 15, 2017(5)*
|
|
|
|
Stock
Agreement of Douglas Polinsky dated December 15,
2017(5)*
|
|
|
|
Stock
Agreement of Denis Yevstifeyev dated December 15,
2017(5)*
|
|
|
|
Stock
Agreement of John G. Smith dated December 15, 2017(5)*
|
|
|
|
Loan
Agreement among Liberated Syndication, Webmayhem, Inc., Pair
Networks, Inc. and First Commonwealth Bank dated December 27, 2017
(2)
|
|
|
|
2018
Omnibus Equity Incentive Plan(6)
|
|
|
|
Settlement
Agreement between and among the Company, Camac Fund, L.P., Eric
Shahinian dated as of October 4, 2019(7)
|
|
|
|
Subsidiaries
of Registrant
|
|
|
|
Consent
of Sadler, Gibbs & Associates, LLC
|
|
|
|
302
Certification of Christopher J. Spencer
|
|
|
|
302
Certification of Gabriel J. Mosey
|
|
|
|
906
Certification of of Christopher J. Spencer
|
|
|
|
906
Certification of Gabriel J. Mosey
|
|
101.INS
|
|
XBRL
Instance Document
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
101.PRE XBRL
|
|
Taxonomy
Extension Presentation Linkbase Document
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
*
Indicates a management contract or compensatory plan or
arrangement.
(1)
Summaries of all
exhibits contained within this Report are modified in their
entirety by reference to these Exhibits.
(2)
Incorporated by
reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 3, 2018.
(3)
Incorporated by
reference to our Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on February 19,
2016.
(4)
Incorporated by
reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 13, 2017.
(5)
Incorporated by
reference to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 21,
2017.
(6)
Incorporated by
reference to Exhibit 10.1 to our Registration Statement on Form S-8
(File No. 333-225963) filed with the Securities and Exchange
Commission on June 28, 2018.
(7)
Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 7,
2019.
(c)
Financial Statement Schedules.
All
financial statement schedules have been omitted because they are
not applicable or the required information is presented in the
financial statements or the notes to the consolidated financial
statements.
Item 16.
Form 10-K Summary.
None.
61
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
LIBERATED
SYNDICATION INC.
|
Date:
|
5/14/2020
|
|
By:
|
/s/ Christopher J. Spencer
|
|
|
|
|
|
Christopher J. Spencer
|
|
|
|
|
|
Chief Executive Officer and President
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Date:
|
5/14/2020
|
|
By:
|
/s/ Christopher J. Spencer
|
|
|
|
|
|
Christopher J. Spencer
|
|
|
|
|
|
Chief Executive Officer and President
|
|
Date:
|
5/14/2020
|
|
|
/s/ Gabriel J. Mosey
|
|
|
|
|
|
Gabriel J. Mosey
|
|
|
|
|
|
Interim Chief Financial Officer
|
|
Date:
|
5/14/2020
|
|
|
/s/ Denis Yevstifeyev
|
|
|
|
|
|
Denis Yevstifeyev
|
|
|
|
|
|
Director
|
|
Date:
|
5/14/2020
|
|
|
/s/ Douglas Polinsky
|
|
|
|
|
|
Douglas Polinsky
|
|
|
|
|
|
Director
|
|
Date:
|
5/14/2020
|
|
|
/s/ Eric Shahinian
|
|
|
|
|
|
Eric Shahinian
|
|
|
|
|
|
Director
|
|
Date:
|
5/14/2020
|
|
|
/s/ Bradley Tirpak
|
|
|
|
|
|
Bradley Tirpak
|
|
|
|
|
|
Director
|
|
Date:
|
5/14/2020
|
|
|
/s/ Brian Kibby
|
|
|
|
|
|
Brian Kibby
|
|
|
|
|
|
Director
|
62