Liberated Syndication Inc. - FORM 10-Q/A

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EX-32 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Liberated Syndication Inc.	lsyn_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Liberated Syndication Inc.	lsyn_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Liberated Syndication Inc.	lsyn_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-55779

LIBERATED SYNDICATION INC.

(Exact name of registrant as specified in its charter)

NEVADA	47-5224851
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5001 Baum Boulevard, Suite 770

Pittsburgh, Pennsylvania 15213

(Address of Principal Executive Offices)

Registrant's Telephone Number: (412) 621-0902

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered

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:

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

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

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

As of August 9, 2019, there were 29,271,974 shares of common stock, par value $0.001, of the registrant issued and outstanding.

Explanatory Note

This Quarterly Report on Form 10-Q/A (Amendment No. 1) amends the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) by Liberated Syndication Corp. (the “Company”) on August 14, 2019 (the “Original 10-Q”) to restate our unaudited consolidated financial statements for the quarterly period ended June 30, 2019 and to amend related disclosures.

Background of the Restatement

On April 28, 2020, the Audit Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (the “Company”) determined that (a) the Consolidated Balance Sheet as of December 31, 2018, (b) the Consolidated Statement of Operations for the year ended December 31, 2018, (c) the Statement of Stockholders’ Equity for the year ended December 31, 2018, and (d) the Consolidated Statement of Cash Flows for the year December 31, 2018, all as presented in the Company’s Annual Report on Form 10-K for the Period Ended December 31, 2018, as previously filed with the U.S. Securities and Exchange Commission on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company reviewed the related interim financial statements and interim financial statements for the first three quarters of 2019 and 2018, and as a result of such review, on May 20, 2020, the Audit Committee determined that such interim financial statement should likewise no longer be relied upon.

Specifically, the amounts reported in the Consolidated Balance Sheet as of June 30, 2019 for total assets, current liabilities, and consequently total liabilities and total stockholders’ equity, were determined to be materially different. Additionally, the income tax (benefit) expense in the Consolidated Statement of Operations for the three and six months ended June 30, 2019 was changed. As a result, the net income and the basic and diluted income per common share were determined to be materially different. The Statement of Stockholders’ Equity for the period ended June 30, 2019 with its net income and accumulated deficit are consequently affected. The Consolidated Statement of Cash Flows for the six months ended June 30, 2019 also changed as a result of the deferred income taxes and income tax payable for 2019.

During the 2019 audit process, it was discovered through an ongoing IRS examination that the Company owed Federal tax for 2018.

The IRS examination uncovered an error in calculating the Net Operating Loss Carryforward (NOL) resulting from the spin-off of Libsyn in 2016. At December 31, 2017, the Company had recorded an NOL of approximately $14 million. The NOL was part of deferred tax asset which was valued at $0 on the balance sheet, as it had a full valuation allowance. Consequently, the Company was not recognizing tax expenses or the associated tax payable during 2018. However, as the IRS examination continued, it has become clear that the $14 million NOL was overestimated by approximately $12.5 million, and by March 31, 2018, that the NOL has been completely utilized. The result is that the Company ought to have begun recording income tax (benefit) expense in 2018.

This Federal Tax Balance will be paid with an amended return in 2020.

The Company has temporary tax differences which result in a deferred tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to be recognized for the potential future tax benefit from a loss carryforward. Full realization of the benefit, however, depends on the Company having income in future years.

Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax (benefits) will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.

Impact of the Restatement

As a result of the restatement, reported net income was decreased by $183,932, or $0.01 per basic and diluted share for the three months ended June 30, 2019.

As a result of the restatement, reported net income was decreased by $510,942, or $0.02 per basic and diluted share for the six months ended June 30, 2019. Total assets increased by $1,657,765 at June 30, 2019. Current and total liabilities increased by $1,583,159 at June 30, 2019. Accumulated deficit decreased by $74,606 at June 30, 2019.

Items Amended in this Filing

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, in its entirety, as amended to reflect the restatement. No attempt has been made in this Form 10-Q/A to update other disclosures presented in the Original Filing, except as required to reflect the effects of the restatement. The following items have been amended as a result of the restatement:

Item 1. Financial Statements

Item 2. Management Discussion & Analysis

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The Unaudited Condensed Consolidated Financial Statements of Liberated Syndication Inc., a Nevada corporation (the “Company,” “Libsyn,” “Pair”, “we,” “our,” “us” and words of similar import), required to be filed with this 10-Q Quarterly Report were prepared by management and commence on the following page, together with related notes. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements fairly present the financial condition of the Company.

LIBERATED SYNDICATION INC.
FINANCIAL STATEMENTS

CONTENTS




		PAGE
Unaudited Condensed Consolidated Balance Sheets		5

Unaudited Condensed Consolidated Statements of Operations		6

Unaudited Condensed Consolidated Statement of Stockholders’ Equity		7

Unaudited Condensed Consolidated Statements of Cash Flows		9

Notes to Unaudited Condensed Consolidated Financial Statements		10

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2019 (Unaudited) (As Restated)	December 31, 2018
CURRENT ASSETS:
Cash	$14,205,455	$11,079,941
Accounts receivable, net	479,095[1]	481,921[1]
Prepaid expenses	595,675	449,223
Total current assets	15,280,225	12,011,085

Property and equipment, net	1,975,359	2,229,294
Goodwill	16,388,171	16,388,171
Definite life - intangible assets, net	6,858,028	7,786,686
Prepaid expense	304,187	191,609
Operating lease right-of-use assets	1,142,581	-
Deferred tax assets	1,657,765	1,454,077
Total assets	$43,606,316‬‬‬‬	$40,060,922

CURRENT LIABILITIES:
Accounts payable	$724,298	$745,889
Accrued expenses	956,975	377,572
Income tax payable	1,583,159‬‬‬‬	868,529
Deferred revenue	2,374,948	2,276,079
Current portion of capital lease obligation	37,804	72,986
Current portion of loans payable, net	2,641,130	2,638,599
Current portion of operating lease liabilities	511,380	-
Total current liabilities	8,829,694‬‬‬‬	6,979,654

LONG TERM LIABILITIES:
Loans payable, net	4,893,803	5,681,767
Capital lease obligation, net of current portion	-	831
Deferred revenue, net of current portion	513,628	371,938
Operating lease liabilities	631,201	-
Total long-term liabilities	6,038,632	6,054,536
Total liabilities	14,868,326‬‬‬‬	13,034,190

COMMITMENTS & CONTINGENCIES	-	-

STOCKHOLDERS' EQUITY
Common stock	29,272	29,722
Additional paid-in capital	34,857,590	35,010,552
Accumulated deficit	(6,148,872‬)‬‬‬	(8,013,542)
Total stockholders' equity	28,737,990‬‬‬‬	27,026,732
Total liabilities and stockholders' equity	$43,606,316	$40,060,922

Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical)

Statement of Financial Position	June 30, 2019	December 31, 2018
Allowance for doubtful accounts [1]	14,000	14,000
Common stock authorized	200,000,000	200,000,000
Common stock par value	0.001	0.001
Common stock issued and outstanding	29,271,974	29,721,974

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

	Three Months Ended June 30,		Six Months Ended June 30,
	2019 (As Restated)	2018	2019 (As Restated)	2018


Revenue	$5,700,635	$5,305,762	$11,983,614	$10,365,067

Costs and operating expenses

Cost of revenue (excluding depreciation and amortization)	860,848	704,515	1,700,488	1,411,885
General and administrative	1,905,567	1,516,587	3,734,106	3,221,899
Technology	457,151	492,573	911,789	865,899
Selling	214,542	210,371	409,336	427,373
Customer support	648,565	707,065	1,308,433	1,375,295
Depreciation and amortization	745,093	769,365	1,487,190	1,536,265
Total costs and operating expenses	4,831,766	4,400,476	9,551,342	8,838,616
Operating income	868,869	905,286	2,432,272	1,526,451


Interest expense	(82,880)	(98,607)	(169,722)	(199,203)
Interest income	59,738	13,401	111,689	23,066
Other income (expense)	2,252	2,486	1,373	5,167
Income from operations before income taxes	847,979	822,566	2,375,612	1,355,481

Income tax (benefit) expense	183,932‬‬‬‬	173,209	510,942	(1,097,850)
Net Income	$664,047‬‬‬‬	$649,357	$1,864,670‬‬‬‬	$2,453,331


BASIC AND DILUTED INCOME PER COMMON SHARE	$0.02	$0.02	$0.06	$0.08
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	29,336,260	29,776,974	29,528,051	29,711,034

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

	Common Stock		Additional Paid-in	Accumulated	Total 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	-	-	677,088	-	677,088
Net income	-	-	-	1,200,623	1,200,623
Balance at March 31, 2019	29,721,974	$29,722	$34,857,140	$(6,812,919)	$28,073,943
Stock forfeiture	(450,000)	(450)	450	-	-
Net income	-	-	-	664,047	664,047
Balance at June 30, 2019 (As Restated)	29,271,974	$29,272	$34,857,590	$(6,148,872‬)‬‬‬	$28,737,990‬‬‬‬

	Common Stock		Additional Paid-in	Accumulated	Total Stockholders’
	Shares	Amount	Capital	Deficit	Equity
Balance at December 31, 2017	29,595,473	$29,596	$34,804,457	$(12,386,887)	$22,447,166
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)	(18)	(29,260)	-	(29,278)
Net Income	-	-	-	1,803,974	1,803,974
Balance at March 31, 2018	29,776,974	$29,778	$35,092,997	$(10,582,913)	$24,539,862
Net Income				649,357	649,357
Balance at June 30, 2018	29,776,974	$29,778	$35,092,997	$(9,933,556)	$25,189,219

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	Six Months Ended June 30,
	2019 (As Restated)	2018

Cash Flows from Operating Activities
Net income	$1,864,670	$2,453,331
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	1,487,190	1,536,265
Issuance of common stock for services	-	318,000
Deferred income taxes	(203,688)	(1,380,251)
Non-cash compensation expense, net of recapture	(153,413)	-
Amortization of right-of-use asset	255,240	-
Discount on loan fees	14,567	17,361
Change in assets and liabilities:
Accounts receivable	2,825	157,115
Prepaid expenses	(259,029)	(278,042)
Accounts payable	(21,590)	111,024
Income taxes payable	714,630	282,401
Accrued expense	579,403	(335,730)
Operating lease liabilities	(255,240)	-
Deferred revenue	240,558	1,063,210
Net Cash Provided by Operating Activities	4,266,123	3,944,684

Cash Flows from Investing Activities:

Purchase of property and equipment	(304,597)	(152,729)
Net Cash Used in Investing Activities	(304,597)	(152,729)


Cash Flows from Financing Activities:
Repayment on term loan	(800,000)	(800,000)
Repayment on capital lease	(36,012)	(34,166)
Net Cash Used in Financing Activities	(836,012)	(834,166)

Net Increase in Cash	3,125,514	2,957,789
Cash at Beginning of Period	11,079,941	5,211,845
Cash at End of Period	$14,205,455	$8,169,634

Supplemental Disclosures of Cash Flow Information
Cash paid during the periods for:
Interest	$153,612	$146,194
Income taxes	-	-

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	$-
Returned Common Stock	$-	$29,278

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 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, currently a wholly owned subsidiary of the Company, was originally 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.

Basis of Presentation – 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. All material intercompany accounts and transactions have been eliminated.

Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2019.

These financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Form 10-K).

Prior Period Reclassifications - Reclassification of $318,000 common stock in prior periods was recorded as a Non-cash compensation item in the Statement of Operations. Per SAB 14, this has been reclassified and included in General and administrative line item.

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. Management made assumptions and estimates for determining reserve for accounts receivable, depreciation of fixed assets and in determining the impairment of definite life intangible assets and goodwill. Actual results could differ from those estimated by management.

Our more significant estimates include:

●

the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;

●

the estimated reserve for refunds;

●

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;

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

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 June 30, 2019, the Company had $13,815,167 cash balances in excess of federally insured limits.

Depreciation – Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.

Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. At June 30, 2019 and December 31, 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 six months ended June 30, 2019 and 2018, the Company adjusted the allowance for bad debt by $0.

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.

Technology Costs - 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. To date, costs incurred between the completion of a working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has expensed all such costs to technology during the six months ended June 30, 2019 and 2018. Technology costs totaled $911,789 and $865,899 for the six months ended June 30, 2019 and 2018, respectively.

Goodwill – 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. Management noted no triggering events during the period ended June 30, 2019.

Advertising Costs – Advertising costs are expensed as incurred and amounted to $42,508 and $67,368 for the six months ending June 30, 2019 and 2018, respectively.

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.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

The fair value of the Company’s equity-based awards recorded in the Company’s financial statements during the first quarter of 2019 was determined using a Monte Carlo simulation valuation methodology based upon a Geometric Brownian Motion stock path, a Level 3 measurement. Volatility was based on historical volatility of the Company’s common stock over commensurate periods. The expected life was based on the contractual term of the award, and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity similar to the awards’ expected life.

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 - 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 determining 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.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

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 – 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 $1.4 million and $1.1 million as of January 1, 2019 and June 30, 2019, respectively. For additional disclosure and detail, see Note 8 – Leases.

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 - 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.

NOTE 2 - PROPERTY & EQUIPMENT

The following is a summary of property and equipment at:

	Life	June 30, 2019	December 31, 2018

Furniture, fixtures, and equipment	3-10 yrs	$8,262,927	$8,155,322
Leasehold improvements	3 - 5 yrs	2,646,400	2,646,400
Software	3 yrs	459,038	262,046
		11,368,365	11,063,768
Less: Accumulated depreciation		(9,393,006)	(8,834,474)
Property & equipment, net		$1,975,359	$2,229,294

Depreciation expense for the six months ended June 30, 2019 and 2018 was $558,533 and $607,608, respectively.

NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS

Goodwill - The following is a summary of goodwill:

	June 30,	December 31,
	2019	2018

Pair	$4,903,920	$4,903,920
Libsyn	11,484,251	11,484,251
Goodwill at end of period	$16,388,171	$16,388,171

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS - Continued

Other definite-life intangible assets - Other intangible assets consist of customer relationships, intellectual property, trade name and non-compete, which were generated through the acquisition of Pair. Management considers these intangible assets to have finite-lives except trade name. These assets are being amortized on a straight-line basis over their estimated useful lives.

As of June 30, 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	$845,786	$3,101,214
Intellectual Property	3,709,000	7	794,786	2,914,214
Trade Name	576,000	10	86,400	489,600
Non-compete	1,412,000	2	1,059,000	353,000
Total	$9,644,000		$2,785,972	$6,858,028

Amortization expense for the six months ended June 30, 2019 and 2018 was $928,657 and $928,657, respectively.

The estimated future amortization expenses related to other intangible assets as of June 30, 2019 are as follows:

For twelve months ending June 30,
2020	$1,504,314
2021	1,151,315
2022	1,151,315
2023	1,151,314
2024	1,151,314
Thereafter	748,456
Total	$6,858,028

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 June 30, 2019, $2,000,000 was drawn down on the revolving line with $0 available.

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 June 30, 2019, the Company has elected LIBOR plus 125 basis points or 3.6524%.

The Term Loan is repayable in quarterly installments of $400,000 commencing on March 30, 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 a year 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 2018 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 June 30, 2019, the balance on the term loan was $5,600,000.

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 for the Purchase of Pair Networks, Inc. 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 June 30, 2019, the discount was $65,067.

Future maturities of the loans at June 30, 2019 are as follows:

Twelve months ending June 30,
2020	$2,666,667
2021	1,600,000
2022	1,600,000
2023	1,733,333
Thereafter	-
Total	$7,600,000

NOTE 5 - CAPITAL STOCK

Common Stock - The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of June 30, 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.

On March 15, 2019 (“Modification Date”), the Company modified certain stock awards previously issued which contained a market condition. The prior agreement required the Company’s adjusted market capitalization to exceed $75 million on five 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 approximately $677,087.

On April 13, 2019, 450,000 shares of common stock were forfeited as certain milestones were not achieved.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - CAPITAL STOCK – Continued

No additional stock was issued during the second quarter of 2019.

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.

NOTE 6 – DEFERRED REVENUE

Deferred revenue consists of the following:

	June 30, 2019	December 31, 2018
Current:
Hosting services	$1,528,445	$1,601,335
Domains	647,175	535,273
Media subscription	199,328	139,471
	$2,374,948	$2,276,079
Noncurrent:
Hosting services	23,085	39,071
Domains	490,543	332,867
	$2,888,576	$2,648,017

Deferred revenue as of June 30, 2019 is expected to be recognized as revenue as follows:

	Remainder of 2019	2020	2021	2022	2023	Thereafter	Total

Domains	$414,430	$344,799	$154,464	$118,925	$79,941	$25,159	$1,137,718
Hosting	1,226,610	319,072	5,848	-	-	-	1,551,530
Media Subscription	173,191	26,137	-	-	-	-	199,328
	$1,814,231	$690,008	$160,312	$118,925	$79,941	$25,159	$2,888,576

Disaggregated revenue consists of following:

	Three Months Ended June 30		Six Months Ended June 30
	2019	2018	2019	2018
Hosting services	$1,890,719	$2,132,140	$4,618,635	$4,193,635
Podcast hosting	3,326,710	2,649,525	6,464,527	5,150,632
Advertising	158,244	250,750	331,884	571,414
Domains	244,306	116,499	485,838	188,295
Other	80,656	156,848	82,730	261,091
	$5,700,635	$5,305,762	$11,983,614	$10,365,067

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - INCOME TAXES

Our provision for income taxes for the six-month periods ended June 30, 2019 and 2018 was a tax expense of approximately $510,942 and a tax benefit of approximately $1,097,850, respectively, which resulted in an effective tax rate of 22% and (81)%, respectively.

Our provision for income taxes for the three-month periods ended June 30, 2019 and 2018 was a tax expense of approximately $183,932 and $173,209, respectively, which resulted in an effective tax rate of 22% and 21%, respectively.

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 capital lease for Emerson batteries which is immaterial to our condensed 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 Condensed 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 June 30, 2019 was 2.28 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 June 30, 2019 was 4.42%.

For the first six months ended, June 30, 2019, cash paid for amounts in the measurement of lease liabilities was $278,595. Total operating lease costs during the same period were $279,425.

Maturity of lease liabilities:

Twelve months ending June 30,	Operating Leases
2020	551,484
2021	482,581
2022	167,264
2023	2,150
2024	-
Thereafter	-
Total lease payments	1,203,479
Less amount of lease payment representing interest	(60,898)
Total present value of lease payments	1,142,581

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LEASES – Continued

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	365,562
2022	19,812
2023	-
Thereafter	-
Total lease payments	1,422,822

NOTE 9 –EARNINGS PER SHARE

Basic earnings 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 June 30, 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:

	For the Three Months		For the Six Months
	June 30		June 30
	2019	2018	2019	2018

Income from operations available to common stockholders (numerator)$	664,047	$649,357	$1,864,670	$2,453,331
Income available to common stockholders (numerator)	664,047	$649,357	$1,864,670	$2,453,31
Weighted average number of common shares outstanding during the period used in earnings per share (denominator)	29,336,260	29,776,974	29,528,051	29,711,034

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.

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 in the first six months of 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.

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – continued

verified complaint and alternative petition for a writ of mandamus/prohibition in Nevada District Court together with a motion for preliminary injunction, seeking to compel the Company to provide certain additional documents relating to the identity of beneficial owners of its common stock. The Company filed a response brief to the motion for preliminary injunction and a hearing was held on such motion on August 1. The Court’s decision denied the issuance of an injunction obligating the Company to generate or obtain those additional documents, but requires the Company to turn over any such documents should the Company use those documents in the future to engage in solicitation activity in connection with any special meeting of stockholders that may be held involving such stockholder.

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 June 30, 2019 which are podcast hosting services (Libsyn) and internet hosting services (Pair).

The following table presents summary information by segment for the six months ended June 30, 2019 and 2018, respectively:

	2019			2018
(in thousands)	Libsyn	Pair	Total	Libsyn	Pair	Total

Revenue	$6,925	$5,059	$11,984	$5,908	$4,457	$10,365
Cost of revenue	1,153	547	1,700	1,074	338	1,412

Total assets	$25,064	$18,542	$43,606	$21,946	$18,115	$40,061
Depreciation and amortization	$38	$1,449	$1,487	$18	$1,518	$1,536

The following table presents summary information by segment for the three months ended June 30, 2019 and 2018, respectively:

	2019			2018
(in thousands)	Libsyn	Pair	Total	Libsyn	Pair	Total

Revenue	$3,590	$2,110	$5,700	$3,025	$2,281	$5,306
Cost of revenue	586	275	861	539	166	705

Depreciation and amortization	$20	$725	$745	$10	$759	$769

NOTE 12 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of the filing of this report. No events have occurred that would require adjustments to or disclosure in the financial statements.

NOTE 13 – RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS

Background of the Restatement

During the 2019 audit process, it was discovered through an ongoing IRS examination it was discovered that the Company owed Federal tax for 2018.

This Federal Tax Balance will be paid with an amended return in 2020.

Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax benefits will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.

Impact of the Restatement

As a result of the restatement, reported net income was decreased by $183,932, or $0.01 per basic and diluted share for the three months ended June 30, 2019.

The financial statements included in this Form 10-Q/A have been restated to reflect the adjustments described. The table below summarizes the effects of the restatement on Libsyn’s Unaudited Consolidated Statements of Operation for the three and six months ended June 30, 2019, Unaudited Consolidated Balance Sheet at June 30, 2019, and Unaudited Statement of Stockholders’ Equity for the period ended June 30, 2019.

In addition to the restatement of the financial statements, certain information within Note 7 – Income Taxes to the financial statements has been restated to reflect the corrections of misstatements discussed above as well as to add disclosure language as appropriate.

Unaudited Consolidated Balance Sheet
	June 30, 2019 As Reported	Corrections	June 30, 2019 As Restated
Deferred Tax Assets	-	1,657,765	1,657,765
Total Assets	41,948,551	1,657,765	43,606,316‬‬‬‬
Income Taxes Payable	-	1,583,159	1,583,159
Total Current Liabilities	7,246,535	1,583,159	8,829,694‬‬‬‬
Total Liabilities	13,285,167	1,583,159	14,868,326‬‬‬‬
Accumulated Deficit	(6,223,478)	74,606	(6,148,872‬)‬‬‬
Stockholder’s Equity	28,663,384	74,606	28,737,990‬‬‬‬‬‬‬‬

Unaudited Consolidated Statement of Operations
	Six months ended June 30, 2019 As Reported	Corrections	Six months ended June 30, 2019 As Restated
Income Tax (Benefit) Expense	-	510,942	510,942
Net Income	2,375,612	(510,942)	1,864,670‬‬‬‬
Basic and Diluted Income Per Common Share	0.08	(0.02)	0.06

Unaudited Consolidated Statement of Operations
	Three months ended June 30, 2019 As Reported	Corrections	Three months ended June 30, 2019 As Restated
Income Tax (Benefit) Expense	-	183,932	183,932
Net Income	847,979	(183,932)	664,047
Basic and Diluted Income Per Common Share	0.03	(0.01)	0.02

Unaudited Statement of Stockholders’ Equity
	June 30, 2019 As Reported	Corrections	June 30, 2019 As Restated
Net Income	2,375,612	(510,942)	1,864,670‬‬‬‬
Accumulated Deficit	(6,223,478)	74,606	(6,148,872‬)‬‬‬

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Safe Harbor Statement.

Statements made in this Form 10-Q 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, including, without limitation, (i) our ability to gain a larger share of the web hosting and podcasting industries, our ability to continue to develop services acceptable to our industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the web and podcasting hosting and domain 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", "tend" 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 the Company's reports on file with the Securities and Exchange Commission: 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 web hosting and podcasting industries, the development of services that may be superior to the services offered by the Company, 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 actually 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.

Company 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 web hosting 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 podcasting business, while Pair’s focus is on web hosting and 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 34,700 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. 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 62% of the downloads from shows that Libsyn distributes reach audiences using Apple's iOS, Apple Podcasts and Apple’s iTunes platform which includes iTunes on the computer, iPads, iPhones, Apple Watch, Apple TV, and Apple’s Podcasts App on iOS devices. Libsyn also enables distribution to destinations like Google Play Music and aggregators such as Spotify, Pandora, and iHeartRadio. 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 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.

Pair Networks, Inc. (“Pair”)

Pair Networks, founded in 1996, is one of the oldest and most experienced Internet hosting company 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 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.

Results of Operations

Six Months Ended June 30, 2019 and 2018.

During the six months ended June 30, 2019, the Company recorded revenues of $11,983,614, a 16% increase over revenues of $10,365,067 for the same period in 2018. The increase for 2019 reflects an increase in Libsyn4 hosting revenue as well as LibsynPro, offset by decreases in Advertising and Premium Subscription revenue. The increase also reflects an increase due to Pair’s hosting and domain offerings. Libsyn contributed $6,924,991 of revenue during the first six months of 2019 and $5,907,925 during 2018. Pair contributed $5,058,623 of revenue during the first six months of 2019 and $4,457,142 during 2018.

Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the first six months of 2019 versus 2018. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in the first six months of 2019 with increased bandwidth usage fees for delivery of podcasts contributing to the revenue gain. Advertising revenue decreased $239,530 during the first six months of 2019 versus the same period of 2018. The decrease resulted from decrease in the dollars being spent on ad campaigns during the first six months of 2019 with existing advertisers. Premium subscription revenue decreased $53,423.

The Company recorded total costs and operating expenses of $9,551,342 during the first six months of 2019, an 8% increase as compared to total costs and operating expenses of $8,838,616 during the same period of 2018. Libsyn contributed $4,300,704 to total costs and operating expenses during the first six months of 2019, and $3,498,012 during the same period in 2018. Pair contributed $ 5,250,638 to total costs and operating expenses during the first six months of 2019 and $5,340,604 during the same period in 2018.

During the first six months of 2019, cost of revenue totaled $1,700,488, a 20% increase as compared to $1,411,885 for the same period in 2018. Libsyn contributed $1,152,704 while Pair contributed $547,784 to the cost of revenue during the first six months of 2019. Libsyn recorded an increase in bandwidth costs, credit card processing fees, and colocation fees, offset by a decrease in ad sharing paid to producers during the first six months of 2019 versus 2018. Pair recorded an increase in domain name fees and internet fees. Cost of revenue as a percentage of revenue for Libsyn decreased to 17% during the first six months of 2019 from 18% 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 the first six months of 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 11% during the first six months of 2019 from 8% 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 $3,734,106 during the first six months of 2019 versus $3,221,899 during the same period in 2018, an increase of 16%. The increase was driven primarily due to an increase in consulting fees, wage expense, and insurance costs, offset by a decrease in professional fees as well as a reduction of non-cash expense for Libsyn. The increase was further driven by the increase in employment benefits. General and administrative expense for Pair during the first six months of 2019 was $1,363,424 and $1,474,299 for the same period in 2018. General and administrative for Libsyn for the same periods was $2,370,682 and $1,747,600, respectively.

Technology expenses represented $911,789 during the first six months of 2019 versus $865,899 in 2018, driven by an increase in wage expense during the first six months of 2019. Selling expenses during the first six months of 2019 were $409,336 versus $427,373 during the same period in 2018 driven by a reduction in advertising expense. Customer support expenses in the first six months of 2019 were $1,308,433 versus $1,375,295 during the same period in 2018 driven by the decrease in support staff costs.

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 the first six months of 2019 was $1,487,190 and $1,536,265 during the same period in 2018. During the first six months of 2019, Libsyn contributed $37,606 and Pair contributed $1,449,584 to depreciation and amortization expense.

Interest expense for the first six months of 2019 was $169,722 compared to $199,203 in the six months of 2018, which represents interest on the loan facility obtained in connection with the acquisition of Pair. Interest expense for the six months of 2019 was offset with interest income of $111,689, resulting in net cash expenditure of $58,033 on the note.

Income tax expense for the six months ended June 30, 2019 was $510,942, which represents the change in deferred tax assets and the expected federal balance due for the six months ended June 30, 2019. The income tax payable will be payable with the amended return in 2020. Income tax benefit for the six months ended June 30, 2018 was $1,097,850.

The Company’s net income was $1,864,670 for the six months ended June 30, 2019. This represents a $588,661‬ decrease from $2,453,331 for the six months ended June 30, 2018. Earnings per share decreased to $0.06 per share for the first six months of 2019 from $0.08 per share for the first six months of 2018.‬‬‬

Three Months Ended June 30, 2019 and 2018.

During the three months ended June 30, 2019, the Company recorded revenues of $5,700,635, a 7% increase over revenues of $5,305,762 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 domain offerings, offset by a decrease in hosting revenue. Libsyn contributed $3,590,356 of revenue while Pair contributed $2,110,279.

Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the three months ended June 30, 2019 versus the same period in 2018. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in the three months ended June 30, 2019 with increased bandwidth usage fees for delivery of podcasts contributing to the revenue gain. Advertising revenue decreased $92,506 during the three months ended June 30, 2019 versus the same period of 2018. The decrease resulted from decrease in the dollars being spent on ad campaigns by advertisers. Premium subscription revenue decreased $18,820.

The Company recorded total costs and operating expenses of $4,831,766 during the three months ended June 30, 2019, a 10% increase as compared to total costs and operating expenses of $4,400,476 during the same period of 2018. Libsyn contributed $2,233,922 to total costs and operating expenses during the three months ended June 30, 2019, and $1,679,633 during the same period in 2018. Pair contributed $2,597,844 to total costs and operating expenses during the three months ended June 30, 2019 and $2,720,843 during the same period in 2018.

During the three months ended June 30, 2019, cost of revenue totaled $860,848, a 22% increase as compared to $704,515 for the same period in 2018. Libsyn contributed $585,664 while Pair contributed $275,184 to the cost of revenue during the three months ended June 30, 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 the three months ended June 30, 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 the three months ended June 30, 2019 from 18% 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 the three months ended June 30, 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 13% in the three months ended June 30, 2019 from 7% 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 $1,905,567 in the three months ended June 30, 2019 versus $1,516,587 during the same period in 2018, an increase of 26%. The increase was driven primarily due to an increase in consulting fees and accrual of bonuses, offset by a decrease in employment benefits. General and administrative expense for Pair during the three months ended June 30, 2019 was $676,781 and $748,777 for the same period in 2018. General and administrative expense for Libsyn for the same periods was $1,228,786 and $767,810, respectively.

Technology expenses represented $457,151 in the three months ended June 30, 2019 versus $492,573 in 2018, driven by a decrease in wages. Selling expenses during the three months ended June 30, 2019 were $214,542 versus $210,371 during the same period in 2018 driven by an increase in travel and entertainment expense. Customer support expenses in the three months ended June 30, 2019 were $648,565 versus $707,065 during the same period in 2018 driven by the reduction of support staff wages.

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 the three months ended June 30, 2019 was $745,093 and $769,365 during the same period in 2018. During the three months ended June 30, 2019, Libsyn contributed $20,302 and Pair contributed $724,791 to depreciation and amortization expense.

Interest expense for the three months ended June 30, 2019 was $82,880 compared to $98,607 in the second quarter of 2018. Interest expense for the three months ended June 30, 2019 was offset with interest income of $59,738, resulting in net cash expenditure of $23,142 on the note.

Income tax expense for the three months ended June 30, 2019 was $183,932, which represents the change in deferred tax assets and the expected federal balance due for the three months ended June 30, 2019. The income tax payable will be payable with the amended return in 2020. Income tax expense for the three months ended June 30, 2018 was $173,209.

The Company’s net income was $664,047 for the three months ended June 30, 2019. This represents a $14,690 increase from $649,357 for the three months ended June 30, 2018. Earnings per share remained the same at $0.02 per share for the three months ended June 30, 2019 when compared to the three months ended June 30, 2018.

Liquidity and Capital Resources.

Cash on hand was $14,205,455 at June 30, 2019, an increase of $3,125,514 over the $11,079,941 on hand at December 31, 2018. Cash provided by operations for the six months ended June 30, 2019, was $4,266,123, an increase of $321,439 over the $3,944,684 cash provided by operations for the six months ended June 30, 2018. The contribution from Libsyn of this cash generation totaled $3,142,353, and Pair added $1,123,770. This increase is driven from our operating results of both segments of our business.

Cash used in investing activities of $304,597 for the six months ended June 30, 2019 was for the purchase of equipment and capitalization of software development costs. Cash used in investing activities was $152,729 during the same period in 2018.

Cash used in financing activities was $836,012 for the six months ended June 30, 2019 and $834,166 in 2018. During the first six months of 2019, the Company made $800,000 of payments on the loan facility, as well as $36,012 of payments on the capital lease.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

As of June 30, 2019, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), occurred during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Liberated Syndication Inc. 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, except as follows:

On April 24, 2019, a stockholder made a demand to inspect the Company’s books and records, purportedly in connection with such stockholder’s efforts to compel the Company to call a special meeting of its stockholders. On May 8, 2019, the Company provided the materials required by relevant Nevada law. On July 15, 2019, the purported stockholder filed a verified complaint and alternative petition for a writ of mandamus/prohibition in Nevada District Court together with a motion for preliminary injunction, seeking to compel the Company to provide certain additional documents relating to the identity of beneficial owners of its common stock. The Company filed a response brief to the motion for preliminary injunction and a hearing was held on such motion on August 1. The Court’s decision denied the issuance of an injunction obligating the Company to generate or obtain those additional documents, but requires the Company to turn over any such documents should the Company use those documents in the future to engage in solicitation activity in connection with any special meeting of stockholders that may be held involving such stockholder.

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None; not applicable.

Item 3. Defaults Upon Senior Securities.

None; not applicable.

Item 4. Mine Safety Disclosures.

None; not applicable.

Item 5. Other Information.

None; not applicable.

Item 6. Exhibits.

Exhibit No.	Description
3.2	Bylaws of the Registrant, as amended and restated June 24, 2019. Incorporated herein by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed on June 24, 2019.
31.1	302 Certification of Christopher J. Spencer
31.2	302 Certification of Gabriel J. Mosey
32	906 Certification.
101.1	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

SIGNATURES

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

Date:	7/10/2020	By:	/s/ Christopher J. Spencer
			Christopher J. Spencer
			Chief Executive Officer and President

Date:	7/10/2020	/s/ Gabriel J. Mosey
		Gabriel J. Mosey
		Interim Chief Financial Officer

Liberated Syndication Inc. - FORM 10-Q/A - July 10, 2020

Attached files

Liberated Syndication Inc. Reports