Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2020
☐ 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
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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 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
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Name of
each exchange on which registered
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|
|
|
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
|
☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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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 July 6, 2020, there were 29,309,474 shares of common stock,
par value $0.001, of the registrant issued and
outstanding.
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 Quarterly Report on Form 10-Q 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.
2
LIBERATED
SYNDICATION INC.
FINANCIAL STATEMENTS
CONTENTS
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PAGE
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Unaudited
Condensed Consolidated Balance Sheets
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4
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Unaudited
Condensed Consolidated Statements of Operations
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5
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Unaudited
Condensed Consolidated Statement of Stockholders’
Equity
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6
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Unaudited
Condensed Consolidated Statements of Cash Flows
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7
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Notes
to Unaudited Condensed Consolidated Financial
Statements
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8
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3
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
March
31,
2020
(Unaudited)
|
December
31,
2019
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CURRENT
ASSETS:
|
|
|
Cash
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$17,886,587
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$16,621,272
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Accounts
receivable, net
|
472,909(1)
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549,044(1)
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Prepaid
expenses
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743,078
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614,417
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Total current
assets
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19,102,574
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17,784,733
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|
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Property and
equipment, net
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1,469,199
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1,536,930
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Goodwill
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16,388,171
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16,388,171
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Definite life -
intangible assets, net
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5,641,543
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5,929,371
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Prepaid
expense
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393,391
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363,091
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640,088
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751,731
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Deferred tax
assets
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1,974,797
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1,847,979
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Total
assets
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$45,609,763
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$44,602,006
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CURRENT
LIABILITIES:
|
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Accounts
payable
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$1,293,622
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$760,163
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Accrued
expenses
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185,818
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1,087,271
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Income tax
payable
|
2,479,246
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2,047,917
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Deferred
revenue
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2,722,960
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2,511,682
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Current portion of
capital lease obligation
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-
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831
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Current portion of
loans payable, net
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2,645,229
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2,643,824
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Current portion of
operating lease liabilities
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394,473
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408,828
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Total current
liabilities
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9,721,348
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9,460,516
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LONG TERM
LIABILITIES:
|
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Loans payable, net
of current portion
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1,709,391
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2,104,611
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Capital lease
obligation, net of current portion
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-
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-
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Deferred revenue,
net of current portion
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650,243
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601,234
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Operating lease
liabilities, net of current portion
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245,615
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342,903
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Line of
credit
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2,000,000
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2,000,000
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Total long-term
liabilities
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4,605,249
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5,048,748
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Total
liabilities
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14,326,597
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14,509,264
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COMMITMENTS &
CONTINGENCIES
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-
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-
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STOCKHOLDERS'
EQUITY
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Common
stock
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29,291
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29,272
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Additional
paid-in capital
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35,313,465
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35,243,171
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Accumulated
deficit
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(4,059,590)
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(5,179,701)
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Total
stockholders' equity
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31,283,166
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30,092,742
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Total
liabilities and stockholders' equity
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$45,609,763
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$44,602,006
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Liberated Syndication Inc. and Subsidiaries Balance Sheet
(Parenthetical)
Statement of
Financial Position
|
March
31,
2020
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December
31,
2019
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Allowance
for doubtful accounts [1]
|
14,000
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14,000
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Common
stock authorized
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200,000,000
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200,000,000
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Common
stock par value
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0.001
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0.001
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Common
stock issued and outstanding
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29,290,724
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29,271,974
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The
accompanying notes are an integral part to the unaudited condensed
consolidated financial statements.
4
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months
Ended
March
31,
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2020
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2019
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Revenue
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$6,252,751
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$6,282,979
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Costs and operating
expenses
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Cost of revenue
(excluding depreciation and amortization)
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807,236
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839,640
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General and
administrative
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1,950,041
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1,828,539
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Technology
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581,070
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454,638
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Selling
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230,812
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194,794
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Customer
support
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751,167
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659,868
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Depreciation and
amortization
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514,004
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742,097
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Total costs and
operating expenses
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4,834,330
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4,719,576
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Operating
income
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1,418,421
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1,563,403
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Other Income
(Expense)
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Interest
expense
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(62,342)
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(86,842)
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Interest
income
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58,434
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51,951
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Other income
benefit (expense)
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10,134
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(879)
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Total other income
(expense)
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6,226
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(35,770)
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Income from
operations before income taxes
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1,424,647
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1,527,633
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Income tax
expense
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304,536
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327,010
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Net
Income
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$1,120,111
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$1,200,623
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BASIC AND DILUTED
INCOME PER COMMON SHARE
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$0.04
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$0.04
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BASIC AND DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
29,271,983
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29,721,294
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The
accompanying notes are an integral part to the unaudited condensed
consolidated financial statements.
5
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY
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Common
Stock
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Additional
Paid-in
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Accumulated
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Total
Stockholders’
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|
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Shares
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Amount
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Capital
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Deficit
|
Equity
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Balance at December
31, 2019
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29,271,974
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$29,272
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$35,243,171
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$(5,179,701)
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$30,092,742
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Common Stock Issued
for Services
|
18,750
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19
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70,294
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-
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70,313
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Net
income
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-
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-
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-
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1,120,111
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1,120,111
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Balance at March
31, 2020
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29,290,724
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$29,291
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$35,313,465
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$(4,059,590)
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$31,283,166
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Common
Stock
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Additional
Paid-in
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Accumulated
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Total
Stockholders’
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Shares
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Amount
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Capital
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Deficit
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Equity
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Balance at January
1, 2019
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29,721,974
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$29,722
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$35,010,552
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$(8,013,542)
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$27,026,732
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Recapture of prior
period non-cash compensation charges in the current
period
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-
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-
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(830,500)
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-
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(830,500)
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Non-cash
compensation awards
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-
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-
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677,087
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-
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677,087
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Net
income
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-
|
-
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-
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1,200,623
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1,200,623
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Balance at March
31, 2019
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29,721,974
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$29,722
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$34,857,139
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$(6,812,919)
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$28,073,942
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The
accompanying notes are an integral part to the unaudited condensed
consolidated financial statements.
6
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months
Ended March 31,
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2020
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2019
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Cash Flows from
Operating Activities
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Net
income
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$1,120,111
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$1,200,623
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Adjustments to
reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization expense
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514,004
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742,097
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Issuance
of common stock for services
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70,313
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-
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Deferred
income taxes
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(126,818)
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(101,529)
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Non-cash
compensation expense, net of recapture
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-
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(153,413)
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Amortization
of right-of-use asset
|
111,643
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129,495
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Discount
on loan fees
|
6,185
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7,403
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Change
in assets and liabilities:
|
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Accounts
receivable
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76,135
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83,155
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Prepaid
expenses
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(158,961)
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(152,627)
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Accounts
payable
|
533,460
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(178,645)
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Income
taxes payable
|
431,328
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428,539
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Accrued
expense
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(901,453)
|
258,581
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Operating
lease liabilities
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(111,643)
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(129,495)
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Deferred
revenue
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260,287
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(136,664)
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Net Cash Provided
by Operating Activities
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1,824,591
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1,997,520
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Cash Flows from
Investing Activities:
|
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Purchase of
property and equipment
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(158,445)
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(143,304)
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Net Cash Used in
Investing Activities
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(158,445)
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(143,304)
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Cash Flows from
Financing Activities:
|
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Repayment on term
loan
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(400,000)
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(400,000)
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Repayment on
capital lease
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(831)
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(17,888)
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Net Cash Used in
Financing Activities
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(400,831)
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(417,888)
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Net
Increase in Cash
|
1,265,315
|
1,436,328
|
Cash
at Beginning of Period
|
16,621,272
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11,079,941
|
Cash
at End of Period
|
$17,886,587
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$12,516,269
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
Cash
paid during the periods for:
|
|
|
Interest
|
$56,571
|
$76,502
|
Income
taxes
|
-
|
-
|
|
|
|
Supplemental
Non-Cash 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 to the unaudited condensed
consolidated financial statements
7
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, 2020.
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, 2019
(the 2019 Form 10-K).
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;
8
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 March 31,
2020, the Company had $17,449,014 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
March 31, 2020 and December 31, 2019, the Company had 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
three months ended March 31, 2020 and 2019, the Company did not
adjust the allowance for bad debt.
Definite-life intangible assets – The Company
evaluates its long-lived assets for impairment whenever events or
changes 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 three months ended March 31, 2020 and 2019.
Technology costs totaled $581,070 and $454,638 for the three months
ended March 31, 2020 and 2019, respectively.
Goodwill – Goodwill is evaluated for
impairment annually on December 31, 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 March
31, 2020.
Advertising Costs – Advertising costs are expensed as
incurred and amounted to $39,265 and $21,443 for the three months
ending March 31, 2020 and 2019, respectively.
Fair Value of Financial Instruments – The Company
accounts for fair value measurements for financial assets and
financial liabilities in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“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.
9
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 equity-based awards during the first quarter of
2020 were determined based on market prices on the grant
date.
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, 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 result 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 the Internet Corporation for
Assigned Names and Numbers (“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 the
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 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.
10
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 – The Company accounts for leases in
accordance with FASB 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.
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
|
March
31,
2020
|
December
31,
2019
|
|
|
|
|
Furniture,
fixtures, and equipment
|
3-10
yrs
|
$8,262,927
|
$8,262,929
|
Leasehold
improvements
|
3-5
yrs
|
2,646,400
|
2,646,399
|
Software
|
3 yrs
|
673,426
|
514,981
|
|
11,582,753
|
11,424,309
|
|
Less: Accumulated
depreciation
|
|
(10,113,554)
|
(9,887,379)
|
Property &
equipment, net
|
|
$1,469,199
|
$1,536,930
|
Depreciation
expense for the three months ended March 31, 2020 and 2019 was
$226,176 and $277,769, respectively.
NOTE 3
- GOODWILL AND OTHER DEFINITE-LIFE
INTANGIBLE ASSETS
Goodwill - The following is a summary of
goodwill:
|
March
31,
|
December
31,
|
|
2020
|
2019
|
|
|
|
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
|
11
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
agreements, which were generated through the acquisition of Pair.
Management considers these intangible assets to have finite-lives
except trade name assets. These assets are being amortized on a
straight-line basis over their estimated useful
lives.
As of March 31, 2020, identifiable intangible assets consisted of the
following:
|
Preliminary
Fair Value
|
Weighted Average
Useful Life
(in Years)
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Customer
Relationships
|
$3,947,000
|
7
|
$1,268,678
|
$2,678,322
|
Intellectual
Property
|
3,709,000
|
7
|
1,192,179
|
2,516,821
|
Trade
Name
|
576,000
|
10
|
129,600
|
446,400
|
Total
|
$8,232,000
|
|
$2,590,457
|
$5,641,543
|
Amortization
expense for the three months ended March 31, 2020 and 2019 was $
287,828 and $464,329, respectively.
The estimated future amortization expenses related to other
intangible assets as of March 31, 2020 are as follows:
For twelve months
ending March 31,
|
|
2021
|
$1,151,314
|
2022
|
1,151,314
|
2023
|
1,151,314
|
2024
|
1,151,315
|
2025
|
1,036,286
|
Total
|
$5,641,543
|
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
March 31, 2020, $2,000,000 was drawn down on the revolving line and
there was no additional availability under the Revolving Credit
Facility.
The
Term Loan currently accrues interest at LIBOR (London Interbank
Offered Rate) plus 125 basis points or prime plus 75 basis points
at the election of the Company. As of March 31, 2020, the Company
had elected LIBOR plus 125 basis points or 2.19088%.
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 shares of common stock, (2) 100% of
the proceeds from the sale of assets not immediately replaced, and
(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 2019
financial statements, the Company demonstrated excess liquidity per
the Loan Agreement. As such, the company has included the expected
$1,066,667 payment to the Bank as a current liability as of March
31, 2020. As of March 31, 2020, the balance on the Term Loan was
$4,400,000.
12
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED 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 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. 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 March 31, 2020, the discount was
$45,380.
Future
maturities of the loans at March 31, 2020 are as
follows:
Twelve months
ending March 31,
|
|
2021
|
$2,666,667
|
2022
|
1,600,000
|
2023
|
133,333
|
Total
|
$4,400,000
|
NOTE 5
- CAPITAL STOCK
Common Stock - The Company has authorized 200,000,000 shares
of common stock, $0.001 par value. As of March 31, 2020, 29,290,724
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 March 31, 2020,
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
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
$677,088.
13
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 5
- CAPITAL STOCK – Continued
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 award recipients 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.
On
February 18, 2020, of the Compensation Committee of the Board of
Directors of Liberated Syndication Inc, a Nevada corporation
(“Liberated Syndication” or the “Company”)
approved (i) the extension and modification of stock agreements
entered into with Laurie Sims (350,000 restricted shares of common
stock, par value $0.001 per share or the “common
stock”), Rob Walch (100,000 restricted shares of common
stock), Todd Kammerer (25,000 restricted shares of common stock)
and Greg Buretz (25,000 restricted shares of common stock) so that
the original vesting conditions regarding the third and fourth
tranches of such awards shall be extended to December 28, 2020, all
unvested restricted shares shall be forfeited upon certain events
of termination and vest immediately in the event of certain changes
in control of the Company, (ii) the amendment of stock agreements
entered into with Douglas Polinsky and Dennis Yevstifeyev each with
respect to 200,000 shares of common stock, such that all such
shares shall vest immediately in the event of certain changes in
control of the Company, and (iii) the award of 25,000 shares of
restricted common stock to each of Eric Shahinian, Bradley Tirpak
and Brian Kibby as 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. The Company anticipates that the 1,212,500 shares
of unvested shares held by Mr. Busshaus will be forfeited and
cancelled.
NOTE 6
– DEFERRED REVENUE
Deferred
revenue consists of the following:
|
March
31,
2020
|
December
31,
2019
|
Current:
|
|
|
Hosting
services
|
$1,768,525
|
$1,664,811
|
Domains
|
737,787
|
688,717
|
Media
subscription
|
216,648
|
158,154
|
|
$2,722,960
|
$2,511,682
|
Noncurrent:
|
|
|
Hosting
services
|
33,996
|
29,309
|
Domains
|
616,247
|
571,925
|
|
650,243
|
601,234
|
Total Deferred
Revenue
|
$3,373,203
|
$3,112,916
|
14
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 – DEFERRED REVENUE -
Continued
Deferred
revenue as of March 31, 2020 is expected to be recognized as
revenue as follows:
|
Remainder of
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
Total
|
|
|
|
|
|
|
|
|
Domains
|
$624,000
|
$314,698
|
$191,024
|
$137,496
|
$68,678
|
$18,139
|
$1,354,035
|
Hosting
|
1,691,306
|
106,835
|
4,379
|
-
|
-
|
-
|
1,802,520
|
Media
Subscription
|
216,648
|
-
|
-
|
-
|
-
|
-
|
216,648
|
|
$2,531,954
|
$421,533
|
$195,403
|
$137,496
|
$68,678
|
$18,139
|
$3,373,203
|
Disaggregated
revenue consists of following:
|
Three Months
Ended March 31
|
|
|
2020
|
2019
|
Hosting
services
|
$2,209,108
|
$2,727,916
|
Podcast
hosting
|
3,564,623
|
3,137,817
|
Advertising
|
125,856
|
173,641
|
Domains
|
280,428
|
241,531
|
Other
|
72,736
|
2,074
|
|
$6,252,751
|
$6,282,979
|
NOTE 7 – INCOME TAXES
Our
provision for income taxes for the three-month periods ended March
31, 2020 and 2019 was a tax expense of approximately $304,536 and
$327,010, respectively, which resulted in an effective tax rate of
21% 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 finance lease for Emerson batteries which is
immaterial to our condensed consolidated financial statements,
which was paid off during the period ended March 31, 2020.
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 March
31, 2020 was 1.63 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 March 31, 2020 was
4.42%.
For the
first three months ended March 31, 2020, cash paid for amounts in
the measurement of lease liabilities was $119,538. Total operating
lease costs during the same period were $119,611.
For the
first three months ended, March 31, 2019, cash paid for amounts in
the measurement of lease liabilities was $139,298. Total operating
lease costs during the same period were $139,712.
Maturity of lease liabilities:
Twelve
months ending March 31,
|
Operating Leases
|
2021
|
414,607
|
2022
|
239,352
|
2023
|
10,680
|
Total lease
payments
|
664,639
|
Less amount of
lease payment representing interest
|
(24,551)
|
Total present value
of lease payments
|
640,088
|
15
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 9
–EARNINGS PER SHARE
Basic
earnings per share is computed by dividing net income attributable
to the Company by the weighted-average number of shares of common
stock outstanding during the period. As of March 31, 2020, 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 Three
Months ended
|
|
|
March
31
|
|
|
2020
|
2019
|
|
|
|
Income from
operations available to common stockholders
(numerator)
|
$1,120,111
|
$1,200,623
|
Income available to
common stockholders (numerator)
|
$1,120,111
|
$1,200,623
|
Weighted average
number of common shares outstanding during the period used in
earnings per share (denominator)
|
29,271,983
|
29,721,974
|
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.
On
October 2, 2019, the Company formally accepted the resignation of
John Busshaus, the former Chief Financial Officer of the Company.
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 Mr. 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. Mr.
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 Mr. Busshaus’ claims in their
entirety.
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 March 31, 2020, the bonus accrual totals
$441,667.
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 March 31, 2019 which are podcast hosting
services (Libsyn) and internet hosting services
(Pair).
16
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 11
- SEGMENT REPORTING – Continued
The
following table presents summary information by segment for the
three months ended March 31, 2020 and 2019,
respectively:
|
2020
|
2019
|
||||
(in
thousands)
|
Libsyn
|
Pair
|
Total
|
Libsyn
|
Pair
|
Total
|
|
|
|
|
|
|
|
Revenue
|
$3,780
|
$2,473
|
$6,253
|
$3,335
|
$2,948
|
$6,283
|
Cost of
revenue
|
503
|
304
|
807
|
567
|
273
|
840
|
|
|
|
|
|
|
|
Total
assets
|
$27,982
|
$17,628
|
$45,610
|
$23,555
|
$18,783
|
$42,338
|
Depreciation and
amortization
|
$21
|
$493
|
$514
|
$17
|
$725
|
$742
|
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.
17
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: the outbreak of the
coronavirus (“COVID-19”) and the global spread of the
COVID-19 pandemic during 2020, 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.
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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, 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 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 a
customer’s use, assuring performance levels. This is a more
secure and reliable option that separates a customer’s 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 a
customer’s use quickly 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.
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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 provides 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
Three months Ended March 31, 2020 and 2019.
During
the three months ended March 31, 2020, the Company recorded
revenues of $6,252,751, a 0.5% decrease from revenues of $6,282,979
for the same period in 2019. The decrease for 2020 reflects a
decrease due to Pair’s hosting and domain offerings and a
slight decrease to LibsynPro revenue, offset by an increase in
Libsyn4 hosting revenue. Libsyn contributed $3,779,264 and
$3,334,635 of revenue during the first three months of 2020 and
2019, respectively. Pair contributed $ 2,473,487 and $2,948,344 of
revenue during the first three months of 2020 and 2019,
respectively.
Libsyn4
hosting revenue increased $450,552, or 17% during the first three
months ended March 31, 2020 when compared to the same period in
2019 due to the growth in the number of podcasts on the network.
LibsynPro revenue decreased slightly by 4% as a result of
relatively flat revenue from producers using the LibsynPro networks
and using our platform. Advertising revenue decreased $48,891
during the first three months of 2020 versus the same period of
2018. The decrease resulted from decrease in the dollars being
spent on ad campaigns during the first three months of 2020 with
existing advertisers. Premium subscription revenue increased
$66,228.
The
Company recorded total costs and operating expenses of $4,834,330
during the first three months of 2020, a 2% increase as compared to
total costs and operating expenses of $4,719,576 during the same
period of 2019. Libsyn contributed $2,165,048 to total costs and
operating expenses during the first three months of 2020, and
$2,066,782 during the same period in 2019. Pair contributed
$2,669,282 to total costs and operating expenses during the first
three months of 2019 and $2,652,794 during the same period in
2018.
During
the first three months of 2020, cost of revenue totaled $807,236, a
3.9% increase as compared to $839,640 for the same period in 2019.
Libsyn contributed $503,482 while Pair contributed $303,754 to the
cost of revenue during the first three months of 2020. Libsyn
recorded a decrease in bandwidth costs and ad sharing paid to
producers offset by an increase in credit card processing fees, and
colocation fees during the first three months of 2020 versus 2019.
Pair recorded a decrease in domain name fees and internet fees.
Cost of revenue as a percentage of revenue for Libsyn decreased to
13% during the first three months of 2020 from 21% during the same
period in 2019. 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 three months of 2020 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% during the first three months of 2020
from 9% during the same period in 2019. This is due primarily to
the increase in domain name purchase fees and internet connectivity
fees.
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General
and administrative expenses totaled $1,950,041 during the first
three months of 2020 versus $1,828,539 during the same period in
2019, an increase of 7%. The increase was driven primarily due to
an increase in legal and advisory fees, wage expense, and insurance
costs, offset by a decrease in professional fees as well as a
reduction of non-cash expense for Libsyn. General and
administrative expense for Pair during the first three months of
2020 was $842,422 and $686,643 for the same period in 2019. General
and administrative for Libsyn for the same periods was $1,141,896
and $781,888, respectively.
Technology
expenses represented $581,070 during the first three months of 2020
versus $454,638 in 2019, driven by an increase in wage expense
during the first three months of 2020. Selling expenses during the
first three months of 2020 were $230,812 versus $194,794 during the
same period in 2019 driven by an increase in advertising expense.
Customer support expenses in the first three months of 2020 were
$751,167 versus $659,868 during the same period in 2019 driven by
the increase 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 three months of 2020 was
$514,004 and $742,097 during the same period in 2019. During the
first three months of 2020, Libsyn contributed $20,040 and Pair
contributed $492,964 to depreciation and amortization
expense.
Interest
expense for the first three months of 2020 was $62,342 compared to
$86,842 in the three months of 2019, which represents interest on
the loan facility obtained in connection with the acquisition of
Pair. Interest expense for the three months of 2020 was offset with
interest income of $58,434, resulting in net cash expenditure of
$3,908.
Income
tax expense for the three months ended March 31, 2020 was $304,536,
which represents a change in the deferred tax assets and the
expected federal balance due for the three month period ended March
31, 2020. Income tax expense for the three months ended March 31,
2019 was $327,010.
The
Company’s net income was $1,120,111 for the three months
ended March 31, 2020. This represents a $80,512 decrease from
$1,200,623 for the three months ended March 31, 2019. Earnings per
share remained the same at $0.04 per share for the first three
months of 2020 when compared to the first three months of
2019.
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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 Interim 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
March 31, 2020, an evaluation was carried out under the supervision
and with the participation of our management, including the Chief
Executive Officer and the Interim 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 Interim 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 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.
(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 March 31, 2020 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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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, 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 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.
(ii)
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Exhibit No.
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Description
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302
Certification of Christopher J. Spencer
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302
Certification of Gabriel Mosey
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906
Certification.
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101.1
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The
following materials from the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020 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 Statement of Stockholders’ Equity, (iv) the
Condensed Consolidated Statements of Cash Flows, and (v) Notes
to Condensed Consolidated Financial Statements.
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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:
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7/10/2020
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By:
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/s/ Christopher J. Spencer
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Christopher J. Spencer
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Chief Executive Officer and President
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Date:
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7/10/2020
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/s/ Gabriel J. Mosey
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Gabriel J. Mosey
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Interim Chief Financial Officer
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