UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549


FORM 10-Q


(Mark One)


[X]

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


For the quarterly period ended SeptemberJune 30, 2017


[ ] 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)


NEVADA47-5224851

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 classTrading SymbolName of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X]☒ No[  ]☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]☒ No [  ]


☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of ‘‘large accelerated filer”, “accelerated filer,’’ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Act:

Large accelerated filer  [  ]

☐

Accelerated filer [  ]

☐

Non-accelerated filer  [  ]

☒

Smaller reporting company  [ X ]

☒

Emerging growth company [X]

☒


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 [X]


☒

As of November 8, 2017,August 9, 2019, there were 24,415,86029,271,974 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(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.


















2

LIBERATED SYNDICATION INC.

FINANCIAL STATEMENTS

CONTENTS

PAGE

Unaudited Condensed Consolidated Balance Sheets

3

4

Unaudited Condensed Consolidated Statements of Operations

4

5

Unaudited Condensed Consolidated Statement of Stockholders’ Equity
6
Unaudited Condensed Consolidated Statements of Cash Flows

5

7

Notes to Unaudited Condensed Consolidated Financial Statements

6

8








3
LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED

CONDENSED CONSOLIDATED BALANCE SHEETS





 

September 30,  2017

 

December 31, 2016

 

   CURRENT ASSETS:

 

 

 

 

     Cash

$  7,369,569

 

$   4,875,458

 

     Accounts receivable, net

591,572

 

385,335

 

     Prepaid expenses

44,600

 

44,583

 

   Total current assets

8,005,741

 

5,305,376

 

 

 

 

 

 

   Security Deposit

3,582

 

-

 

   Property and equipment, net

88,948

 

33,982

 

   Goodwill

11,484,251

 

11,484,251

 

   Total assets

$  19,582,522

 

$   16,823,609

 

 

 

 

 

 

   CURRENT LIABILITIES:

 

 

 

 

     Accounts payable

429,377

 

536,295

 

     Accrued expenses

74,302

 

313,586

 

     Deferred revenue

101,025

 

110,167

 

   Total current liabilities

604,704

 

960,048

 

 

 

 

 

 

 

 

 

 

 

   Total liabilities

604,704

 

960,048

 

 

 

 

 

 

   STOCKHOLDERS' EQUITY

 

 

 

 

     Common stock

24,416

 

20,806

 

     Additional paid-in capital

26,787,637

 

25,047,247

 

     Retained Earnings (accumulated deficit)

(7,834,235)

 

(9,204,492)

 

   Total stockholders' equity

18,977,818

 

15,863,561

 

   Total liabilities and stockholders' equity

$   19,582,522

 

$   16,823,609

 




Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical)

 

 

 

Statement of Financial Position

 

September 30,   2017

 

 

December 31, 2016

   Allowance for doubtful accounts

 

$    14,000

 

 

$    14,000

   Common stock authorized

 

200,000,000

 

 

200,000,000

   Common stock par value

 

$      0.001

 

 

$      0.001

   Common stock outstanding

 

24,415,860

 

 

20,805,860















 
 
June 30,
2019
(Unaudited)
 
 
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 
  - 
Total assets
 $41,948,551 
 $38,606,845 
 
    
    
CURRENT LIABILITIES:
    
    
Accounts payable
 $724,298 
 $745,889 
Accrued expenses
  956,975 
  377,572 
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
  7,246,535 
  6,111,125 
 
    
    
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
  13,285,167 
  12,165,661 
 
    
    
COMMITMENTS & CONTINGENCIES
  - 
  - 
 
    
    
 STOCKHOLDERS' EQUITY
    
    
     Common stock
  29,272 
  29,722 
     Additional paid-in capital
  34,857,590 
  35,010,552 
     Accumulated deficit
  (6,223,478)
  (8,599,090)
 Total stockholders' equity
  28,663,384 
  26,441,184 
 Total liabilities and stockholders' equity
 $41,948,551 
 $38,606,845 
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.




3


4
LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS






 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30

 

Nine months ended September 30

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

Revenue

$    2,730,237

 

$    2,228,482

 

7,723,250

 

$   6,419,298

Cost of Revenue

797,746

 

677,729

 

2,309,902

 

2,084,487

Gross Profit

1,932,491

 

1,550,753

 

5,413,348

 

4,334,811

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Selling expenses

75,649

 

85,576

 

235,583

 

221,781

     General and administrative

695,361

 

681,801

 

3,807,508

 

1,996,515

          Total Operating Expenses

771,010

 

767,377

 

4,043,091

 

2,218,296

   Income from operations

1,161,481

 

783,376

 

1,370,257

 

2,116,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Other income (expense)

-

 

-

 

-

 

-

          Total Other Income (expense)

-

 

-

 

-

 

-

   Income from operations before income taxes

1,161,481

 

783,376

 

1,370,257

 

2,116,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAXES

 

 

 

 

 

 

 

   Current Income Tax Expense (Benefit)

-

 

-

 

-

 

-

   Deferred Income Tax Expense (Benefit)

-

 

-

 

-

 

-

   Net Income

$   1,161,481

 

$      783,376

 

$    1,370,257

 

$  2,116,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED INCOME PER COMMON SHARE (Restated)

$       0.05

 

$       0.04

 

$    0.06

 

$    0.10

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Restated)

24,415,860

 

20,805,860

 

24,195,567

 

20,805,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
















 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
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 expense (benefit)
  - 
  - 
  - 
  - 
Net Income
 $847,979 
 $822,566 
 $2,375,612 
 $1,355,481 
 
    
    
    
    
 
    
    
    
    
BASIC AND DILUTED INCOME PER COMMON SHARE
 $0.03 
 $0.03 
 $0.08 
 $0.05 
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.




4


5
LIBERATED SYNDICATION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance at December 31, 2018
  29,721,974 
 $29,722 
 $35,010,552 
 $(8,599,090)
 $26,441,184 
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
  - 
  - 
  - 
  1,527,633 
  1,527,633 
Balance at March 31, 2019
  29,721,974 
 $29,722 
 $34,857,140 
 $(7,071,457)
 $27,815,405 
Stock forfeiture
  (450,000)
  (450)
  450 
  - 
  - 
Net income
  - 
  - 
  - 
  847,979 
  847,979 
Balance at June 30, 2019
  29,271,974 
 $29,272 
 $34,857,590 
 $(6,223,478)
 $28,663,384 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
Equity
 
Balance at December 31, 2017
  29,595,473 
 $29,596 
 $34,804,457 
 $(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)
  (19)
  (29,260)
  - 
  (29,279)
Net Income
  - 
  - 
  - 
  532,915 
  532,915 
Balance at March 31, 2018
  29,776,974 
 $29,777 
 $35,092,997 
 $(11,853,972)
 $23,268,802 
Net Income
    
    
    
  822,566 
  822,566 
Balance at June 30, 2018
  29,776,974 
 $29,777 
 $35,092,997 
 $(11,031,406)
 $24,091,368 
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



 

For the Nine Months

 

 

Ended September 30,

 

 

2017

 

2016

 

 

 

 

 

 

   Cash Flows from Operating Activities

 

 

 

 

     Net income

$      1,370,257

 

$    2,116,515

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

          Depreciation and amortization expense

14,098

 

19,807

 

          Issuance of common stock

1,752,000

 

-

 

          Change in assets and liabilities:

 

 

 

 

               Accounts receivable

 (206,236)

 

 (9,107)

 

               Prepaid expenses

 (3,599)

 

 (77,083)

 

               Accounts payable

 (106,918)

 

 (13,274)

 

               Accrued expense

 (239,285)

 

 (22,805)

 

               Deferred revenue

 (9,142)

 

(34,959)

 

                    Net Cash Provided by Operating Activities

2,571,175

 

1,979,094

 

 

 

 

 

 

   Cash Flows from Investing Activities:

 

 

 

 

   Purchase of equipment

 (69,064)

 

(18,436)

 

                    Net Cash Used in Investing Activities

 (69,064)

 

(18,436)

 

 

 

 

 

 

 

 

 

 

 

   Cash Flows from Financing Activities:

 

 

 

 

     Payments to FAB Universal Corp

-

 

(620,766)

 

     Re-purchase of common stock

 (8,000)

 

-

 

                    Net Cash Used in Financing Activities

 (8,000)

 

(620,766)

 

 

 

 

 

 

   Net Increase in Cash

2,494,111

 

1,339,892

 

   Cash at Beginning of Period

4,875,458

 

2,470,694

 

   Cash at End of Period

$    7,369,569

 

$    3,810,586

 

 

 

 

 

 

   Supplemental Disclosures of Cash Flow Information

 

 

 

 

     Cash paid during the periods for:

 

 

 

 

          Interest

-

 

-

 

          Income taxes

-

 

-

 

 

 

 

 

 

   Supplemental Non-Cash Investing and Financing Activities

 

 

 

 

Compensation for restricted stock awards issued to management and the board of directors

$   1,752,000

 

-

 










 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
   Cash Flows from Operating Activities
 
 
 
 
 
 
     Net income
 $2,375,612 
 $1,355,481 
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 
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 
               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 
  - 
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements



5



7
LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Organization – On September 30, 2015, FAB Universal Corp. (“FAB”) organized Liberated Syndication Inc., (“Libsyn” or the “Company”Company”, “parent”), a Nevada Corporation, and transferred all the shares ofwas organized on September 30, 2015. Webmayhem, Inc. (Webmayhem) to Libsyn. Libsyn is(“Libsyn”), a Pennsylvania corporation, currently a wholly owned subsidiary of FAB.  Webmayhem, Inc. (“Webmayhem”), a Pennsylvania corporation, a wholly owned subsidiary of Libsyn,the Company, was originally organized on January 1, 2001. WebmayhemLibsyn provides podcast hosting services for producers of podcasting content. WebmayhemLibsyn also offers ad insertion on certain of the producers’ content.


Restatement/Reverse Spin-off

The basic Libsyn offers hosting and diluted earnings per sharedistribution tools, including storage, bandwidth, syndication creation, distribution, and weighted average basicstatistics tracking. Libsyn offers an enterprise solution for professional media producers and diluted common shares outstanding for the nine months ended September 30, 2016 gives effectcorporate customers and a premium subscription service that provides producers a custom App and a podcast Website where listeners can access their show, login to the 20,805,860 common shares issued upon the spin-off ofpurchase a subscription, and get access to premium content.

On December 27, 2017, the Company from FABpurchased 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 reverse spin-off.


Consolidation -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 presented reflecthave been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include our accounts and the accounts of Libsynour subsidiaries. All material intercompany accounts and Webmayhem.  All inter-company transactions have been eliminatedeliminated.
Our interim financial statements are unaudited, and in consolidation.our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The Company allocated expenses incurred byresults for the FAB to Libsyn using a proportional cost allocation method.  Management believes thisinterim 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 reasonable methodNon-cash compensation item in the Statement of Operations. Per SAB 14, this has been reclassified and reflects all costs of doing business.


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;

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 SeptemberJune 30, 2017,2019, the Company had $7,204,003$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 SeptemberJune 30, 20172019 and 2016,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 ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the Company adjusted the allowance for bad debt by $0.


Depreciation

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


Long-lived intangible assets – LibsynThe 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.




6


LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1

Technology Costs- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued


Software Development Costs - We account for software development costs includingassociated 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 develop software products or the software component of products to be marketed to external users, as well as software programs to be used solely to meet our internal needs in accordance with ASC Topic 985 Software and ASC Topic 350 Intangibles – Goodwill and Other. We have determined that technological feasibility for our products to be marketed to external users was reached shortly before the release of those products. As a result, the development costs incurred after the establishment of technological feasibility and before the release of those products were not material, and accordingly, were expensed as incurred. In addition, costs incurredtechnology during the application development stagesix months ended June 30, 2019 and 2018. Technology costs totaled $911,789 and $865,899 for software programs to be used solely to meet our internal needs were not material.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 SeptemberJune 30, 2017.


2019.

Advertising Costs – Advertising costs are expensed as incurred and amounted to $25,344$42,508 and $21,721$67,368 for the ninesix months ending SeptemberJune 30, 20172019 and 2016,2018, 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.


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 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 earned. The Company'scontrol 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 recognition policiesto 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 compliance with FASB ASC Topic 985-605, Software — Revenue Recognition.  The Company'sa reduced amount of revenue recognition policies are also in compliancerecognized 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 Securitiesexclusive 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 Exchange Commission Staff Accounting Bulletin No. 101 and 104.


We evaluate whether itrevenue, other than for aftermarket domain sales, is appropriate to recordrecognized over the gross amount of product sales and related costs orperiod in which the net amount earned as commissions. Generally, when weperformance obligations are primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators,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 grosstime of sale, price. Weand revenue is recognized over the period in which the performance obligations are satisfied, which is generally recordover the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices. Such amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two.











7


LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1contract term.

Podcast Hosting - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued


PublishingPodcast hosting publishing services are billed on a month to month basis.  The Company recognizesbasis, 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 from providing digital media publishingas the services, when the servicesunderlying performance obligation, are provided and when collection is probable.  The Company recognizes revenue from the insertion of advertisements in digital media, as the digital media with the advertisement is downloadedor satisfied and collection is probable.  The Company recognizes revenue from the sale of apps and premium subscriptionsprobable which is generally when sold and collection is probable.


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 andwith the producers’ determineproducers determining the price for the sale of theeach 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 at net.


Leases –on a net basis over the subscription service period in which the performance obligation is satisfied.

Advertising - The Company accountsrecognizes 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 leases in accordance withusing 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”) Topic 840. Leases that meet one or more ofASC 842, Leases. ASC 842 was issued to increase transparency and comparability among entities by recognizing right-of-use assets and lease liabilities on the capitalbalance sheet and disclosing key information about lease criteria ofarrangements.
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 recordedincluded in Note 8 – Leases. There was not a material cumulative-effect adjustment to our beginning retained earnings as a capitalresult of adopting ASC 842. We have recognized additional operating lease all other leases are operating leases.


Researchassets and Development - Researchobligations of $1.4 million and development costs are expensed$1.1 million as incurredof January 1, 2019 and record in cost of revenue. ResearchJune 30, 2019, respectively. For additional disclosure and development costs totaling $463,386 and $389,575 for the nine months ended September 30, 2017 and 2016, respectively, were included in cost of revenue.


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 7)9). The basic and diluted earnings per share and weighted average basic and diluted common shares outstanding gives effect to the 20,804,860 additional common shares issued for the spin-off of the Company from FAB accounted for as a reverse spin-off.


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 6)7).


Recently Enacted Accounting Standards -In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, the FASB agreed to delay the effective date by one year; accordingly, the new standard is effective for us beginning in the first quarter of 2018 and we expect to adopt it at that time. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method, nor have we determined the impact of the new standard on our consolidated financial statements.


In February 2016, the FASB issued changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for us beginning in the first quarter of 2019. We have not yet determined the impact of the new standard on our consolidated financial statements.


Other recent 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.




8


LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - PROPERTY & EQUIPMENT


The following is a summary of property and equipment at:

 


Life

 

September 30,

2017

 

December 31,

2016

 

 

 

 

 

 

Furniture, fixtures and equipment

2-10 yrs

$

186,568

$

145,553

Leasehold Improvements

5 yrs

 

28,049

 

-

 

 

 

214,617

 

145,553

Less: Accumulated depreciation

 

 

(125,669)

 

(111,571)

Property & equipment, net

 

$

88,948

$

33,982


 
 
 
Life
 
 
June 30, 2019
 
 
December 31, 2018
 
  
 
 
 
 
 
 
Furniture, fixtures, and equipment3-10 yrs
 $8,262,927 
 $8,155,322 
Leasehold improvements3 - 5 yrs
  2,646,400 
  2,646,400 
Software3 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 ninesix months ended SeptemberJune 30, 20172019 and 20162018 was $14,098$558,533 and $19,807,$607,608, respectively.


NOTE 3 - GOODWILL


Impairment - During the fourth quarter of 2016, Libsyn management performed its annual test of impairment of goodwill by comparing the net carrying value of the intangible asset with the fair value of the reporting units. Based upon the results of this analysis, it was determined that the goodwill was not impaired.


AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS

Goodwill - The following is a summary of goodwill:

 

 

For the Periods Ended

 

 

September 30,    2017

 

December 31, 2016

 

 

 

 

 

Goodwill at beginning of period

$

11,484,251

$

11,484,251

Impairment

 

-

 

-

Goodwill at end of period

$

11,484,251

$

11,484,251

 
 
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 

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, 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.

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 (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 SeptemberJune 30, 2017, 24,415,8602019, 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.

13
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 3,650,000200,000 shares of common stock valued at $1,752,000$318,000 to officers and directors.


a consultant for services rendered.

During the secondfirst quarter of 2018, the Company repurchased 40,000seller of Pair Networks Inc., returned 18,499 shares valued at $29,278 to the company as per the terms of common stockthe acquisition agreement dated December 27, 2017 in connection with the closing adjustment for $8,000, and the stock was retired.


Reverse Spin-Off — The common shares outstanding, common stock and additional paid innet-working capital have been restated inprovision.

NOTE 6 – DEFERRED REVENUE
Deferred revenue consists of the December 31, 2016 financial statementsfollowing:
 
 
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 reflect the 20,805,860 common shares issued by Liberated Syndication Inc. to shareholdersbe 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 record of FAB Universal on July 20, 2016 to effectively spin-off the operations.

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 

14
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 57 - INCOME TAXES


The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and anyhas available at June 30, 2019 operating loss or tax credit carryforwards. At September 30, 2017carryforwards of approximately $5.9M which may be applied against future taxable income and 2016, the total of all deferred tax assets was $3,011,953 and $3,840,987, respectively, and the total of the deferred tax assets related to goodwill was $2,469,670 and $1,958,563, respectively.  which expires in various years through 2039.
The amount of and ultimate realization of the benefits from the deferred tax assetsoperating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings of the Company, and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss carryforwards and changes in the ownership of the Company, a valuation allowance has been established equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards. The net deferred tax assets the Company established aare approximately $1.9M as of June 30, 2019, with an offsetting valuation allowance equal toof the deferred tax asset.same amount. The change in the valuation allowance for the ninesix months ended SeptemberJune 30, 20172019 approximated $690,000.
NOTE 8 – LEASES
We lease two office spaces, a Denver data center, and 2016three 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 $557,5802.28 years.
The discount rate implicit within our leases is generally not determinable and $859,763, respectively.

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 


9


15
LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE 58 - INCOME TAXESLEASES – continued


The componentsContinued

As previously disclosed in our 2018 Form 10-K under the prior guidance of income tax expense (benefit) from continuing operations for the nine months ended September 30, 2017 and 2016 consistASC 840, minimum payments under operating lease agreements as of the following:


 

 

For the Nine Months Ended

 

 

September 30,

 

 

2017

 

2016

Current tax expense:

 

 

 

 

    Federal

$

-

$

-

    State

 

-

 

-

Current tax expense

 

-

 

-

 

 

 

 

 

Deferred tax expense (benefit):

 

 

 

 

    Goodwill

 

383,331

 

383,331

    Valuation Allowance

 

(557,580)

 

(859,763)

    Net operating loss carryforward

 

174,249

 

476,432

Subtotal deferred tax expense/(benefit)

 

-

 

-

Income tax expense/(benefit)

$

-

$

-


Deferred income tax expense/(benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income.


A reconciliation of income tax expense as the federal statutory rate to income tax expense at the Company’s effective rate isDecember 31, 2018 were as follows:


 

 

For the Nine Months Ended

September 30,

 

 

2017

 

2016

 

 

 

 

 

Computed tax at the expected statutory rate

$

465,893

$

719,616

  State and local income taxes, net of federal

 

90,565

 

139,647

  Other non-deductible expenses

 

1,122

 

500

  Valuation Allowance

 

(557,580)

 

(859,763)

Income tax expense/(benefit)

$

-

$

-


The temporary differences, tax credits and carryforwards gave rise to the following deferred tax asset at September 30, 2017 and December 31, 2016:

 

 

September 30,

 

December 31,

 

 

2017

 

2016

Net deferred tax assets (liabilities):

 

 

 

 

Goodwill - impaired

 

2,903,618

 

2,903,618

Goodwill – tax amortization

 

(5,373,289)

 

(4,862,181)

Net operating loss carryforward

 

5,481,624

 

5,799,550

    Valuation allowance

 

(3,011,953)

 

(3,840,987)

Net term deferred tax assets (liabilities)

$

-

$

-




10


LIBERATED SYNDICATION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE 6 - LEASES


Operating Lease - The Company leases office space in Pittsburgh, Pennsylvania for $4,737 a month through April 2022.


The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of September 30, 2017 are as follows:


Year ending September 30:

 

 

Lease Payments

2018

 

 

56,844

2019

 

 

56,844

2020

 

 

56,844

2021

 

 

56,844

Thereafter

 

 

33,159

Total Minimum Lease Payment

 

$

260,535


Lease expense charged to operations was $153,252 and $168,786 for the nine months ended September 30, 2017 and 2016, respectively.

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 79 –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 Nine Months

 

 

September 30

 

September 30

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Income from operations available to common stockholders (numerator)

$

1,161,481

$

783,376

$

1,370,257

$

2,116,515

Income available to common stockholders (numerator)

 

1,161,481

 

783,376

 

1,370,257

 

2,116,515

Restated Weighted average number of common shares outstanding during the period used in earnings per share (denominator)

 

24,446,578

 

20,805,860

 

24,083,595

 

20,805,860

 
 
For the Three Months
 
 
For the Six Months
 
 
 
June 30
 
 
June 30
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from operations available to common stockholders (numerator)$
  847,979 
 $822,566 
 $2,375,612 
 $1,355,481 
Income available to common stockholders (numerator)
  847,979 
 $822,566 
 $2,375,612 
 $1,355,481 
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 810 – COMMITMENTS AND CONTINGENCIES


Although Libsynthe Company does not expect to be liable for any obligations not expressly assumed by Libsynthe Company from the Spin-Off, it is possible that Libsynthe 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, Libsynthe Company may be financially obligated to pay any losses incurred.


The Company has a 401(k) plan and Profit sharingprofit-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 $100,000$111,431 profit sharing contribution to the plan in 2016.

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.
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

16
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
 $23,407 
 $18,542 
 $41,949 
 $18,620 
 $18,115 
 $36,735 
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 912 - 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 industry,industries, our ability to continue to develop productsservices acceptable to our industry,industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the web and podcasting industry,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 home healthcare industry,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


Below

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 updateoffice at 2403 Sidney St., Suite 210, Pittsburgh, PA consisting of our media business of podcast services, apps, advertising, and premium subscriptions.  Expansion of the number of podcast shows on the approximately 34,700 square feet.
BUSINESS
Libsyn network, along with increases in requests for podcast episodes demonstrates the evolution of the industry and opportunities for revenue generation. Management believes that opportunity remains for podcasting growth and revenue generation.


Podcast Hosting and Distribution


Libsyn is a Podcast Service Provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, distribution, and statistics tracking. Podcast producers can chosechoose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producersproducers’ 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 statsstatistics, 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.

18
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 Libsyn4 product offering isOnPublish 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 distribution service which includes storage, bandwidth, RSS creation, distributionreliable 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 servesbusinesses, bloggers, artists, musicians, educational institutions and statistics tracking. Podcast producersnon-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 requirementsexpertise 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 podcast. Podcast producers’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.

19
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.libsyn.com,www.pair.com, using their credit card to subscribe to a monthly or annual plan. Libsyn’s standardPair 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 rangethat include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for $5all 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 $75$70 per month. LibsynPRO service is an enterprise solutionyear based on the TLD. Customers can search for professional media producersavailable domains and corporate customers that require media network features and dedicated support. LibsynPro revenue consists primarily of monthly hosting fees and bandwidth usage charges. Other professional level add-ons,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 set-up feescustom and custom features, representdynamic Domain Name System (DNS) which controls your domain name’s website and email, WHOIS privacy, email forwarding, and a small portion of LibsynPro revenue.


During the first nine months of 2017, Libsyn generated 64% of its revenue from Podcast hosting fees paid by Libsyn4 Producers. LibsynPro revenue is 17% of overall revenues,drag and Advertising revenue makes up 16% of revenues.  App



drop website builder.


subscriptions make up 3% of total Libsyn revenues. During the first nine months of 2016, those revenues contributions were 61% for Libsyn4, 16%, for LibsynPro, 18% for Advertising and 4% for App subscriptions.


Trends in the number of podcast shows on the Libsyn network and podcast consumption affect our revenue and financial results as they are directly related to cash flow and cost of revenue. Management believes that over the next 3 months, growth in the podcasting industry and Libsyn’s market leadership will continue to fuel expansion of the Libsyn network and revenue. The Company expects to see year-over-year bandwidth usage continue to grow in the fourth quarter of 2017.


At the request of the Board of Directors, the Company is currently exploring acquisitions in the internet hosting and content storage and delivery business sectors and is planning to file an application to up-list to The NASDAQ stock exchange in the next 2-3 quarters.  


Results of Operations


Nine

Six Months Ended SeptemberJune 30, 20172019 and 2016.


2018.

During the ninesix months ended SeptemberJune 30, 2017, Libsyn2019, the Company recorded revenues of $7,723,250,$11,983,614, a 20%16% increase over revenues of $6,419,298$10,365,067 for the same period in 2016.2018. The increase for 20172019 reflects an increase in Libsyn 4Libsyn4 hosting revenue as well as LibsynPro, offset by decreases in Advertising and AdvertisingPremium 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 ninesix months of 20172019 versus 2016.2018. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in 2017the first six months of 2019 with increased bandwidth usage fees for delivery of podcasts contributing to the majority of the revenue gain. Advertising revenue increased 9%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 ninesix months of 2017 versus 2016. The increase resulted from an uptick in the campaign budgets from2019 with existing advertisers, show sponsorships from new and existing advertisers and the addition of new advertising campaigns.advertisers. Premium subscription revenue decreased due$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 fewer purchasestotal costs and operating expenses of subscriptions.


$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 ninefirst six months ended September 30, 2017,of 2019, cost of revenue totaled $2,309,902,$1,700,488, a 11%20% increase as compared to $2,084,487$1,411,885 for the same period in 2016.2018. 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 increase in bandwidth usage, collocation fees and wages during 2017 due to the growthreduction in the number ofbandwidth rate to deliver the podcasts, and increased podcast consumption on the Libsyn Platform. These costs were off-set by measures taken to reduce the unit costs paid for bandwith. Cost of revenue is made up of Advertising and App sharing, bandwidth transfer charges from Libsyn’s CDNs, server collocation fees, and wages for our Research and Development team.   Libsyn posted gross profit of $5,413,348 during the nine months ended September 30, 2017, versus gross profit of $4,334,811 for the same period in 2016, an increase of 25%.


Libsyn recorded total operating expenses of $4,043,091 during the nine months ended September 30, 2017, a 82% increase as compared to operating expenses of $2,218,296 in the same period of 2016. The increase is principally due to stock issued to officers and directors during the first quarter of 2017.  General and administrative and consulting expenses totaled $3,807,508 in 2017 versus $1,996,515 in 2016, an increase of 91%.  Selling expenses in 2017 were $235,583 versus $221,781 in 2016.


Libsyn’s net income was $1,370,257 for the nine months ended September 30, 2017.  This represents a $746,258 decrease from our net income of $2,116,515 for the nine months ended September 30, 2016.


Three Months Ended September 30, 2017 and 2016.


During the three months ended September 30, 2017, Libsyn recorded revenues of $2,730,237, a 23% increase over revenues of $2,228,482 for the same period in 2016.  The increase for 2017 reflects an increase in Libsyn 4 hosting revenue as well as LibsynPro, Advertising and Premium Subscription revenue. Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the third quarter of 2017 versus 2016.  LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in 2017 with increased bandwidth usage fees for delivery of podcasts contributing to the majority of the revenue gain.  Advertising revenue increased 15% in the third quarter of 2017 versus 2016. The increase resulted from an uptick in the campaign spending from existing advertisers, show sponsorships from new and existing advertisers and the addition of new advertising campaigns. Premium subscription revenue decreased during the third quarter as fewer participants purchased premium subscriptions.







During the three months ended September 30, 2017, cost of revenue totaled $797,746, a 18% increase as compared to $677,729 for the same period in 2016. This is a reflection of the increase in bandwidth usage during 2017the 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 made up of Advertising and App sharing, bandwidth transfer charges from Libsyn’s CDNs, server collocationdue primarily to the increase in domain name purchase fees and wagesinternet connectivity fees.


20
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 Researchsame period in 2018. General and Development team.administrative for Libsyn posted gross profitfor the same periods was $2,370,682 and $1,747,600, respectively.
Technology expenses represented $911,789 during the first six months of $1,932,4912019 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.
The Company’s net income was $2,375,612 for the six months ended June 30, 2019. This represents a $1,020,131 increase from $1,355,481 for the six months ended June 30, 2018. Earnings per share increased to $0.08 per share for the first six months of 2019 from $0.05 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 SeptemberJune 30, 2017,2019 versus gross profitthe same period of $1,550,7532018. 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 2016, an increase2018. Libsyn contributed $585,664 while Pair contributed $275,184 to the cost of 25%.


Libsyn recorded total operating expenses of $771,010revenue during the three months ended SeptemberJune 30, 2017, essentially flat2019. 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 compareda percentage of revenue for Libsyn decreased to operating expenses of $767,37716% in the three months ended June 30, 2019 from 18% during the same period in 2018. This is a reflection of 2016.  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.


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General and administrative and consulting expenses totaled $695,361$1,905,567 in 2017the three months ended June 30, 2019 versus $681,801$1,516,587 during the same period in 2016,2018, an increase of 2%26%. The increase iswas 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 office suppliestravel and wages paidentertainment expense. Customer support expenses in the three months ended June 30, 2019 were $648,565 versus $707,065 during the third quartersame period in 2018 driven by the reduction of 2017.  Sellingsupport staff wages.
Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in 2017 were $75,649 versus $85,576 in 2016.


Libsyn’s net income was $1,161,481our operations and the amortization of intangible assets. Depreciation and amortization expense for the three months ended SeptemberJune 30, 2017.  This represents a $378,105 increase from our net income of $783,3762019 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 SeptemberJune 30, 2016.


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.

The Company’s net income was $847,979 for the three months ended June 30, 2019. This represents a $25,413 increase from $822,566 for the three months ended June 30, 2018. Earnings per share remained the same at $.03 per share for the three months ended June 30, 2019 and 2018.
Liquidity and Capital Resources.


Resources.

Cash on hand was $7,369,569$14,205,455 at SeptemberJune 30, 2017,2019, an increase of $2,494,111$3,125,514 over the $4,875,458$11,079,941 on hand at December 31, 2016.2018. Cash provided by operations for the ninesix months ended SeptemberJune 30, 2017,2019, was $2,571,175,$4,266,123, an increase of $592,081$321,439 over the $1,979,094$3,944,684 cash provided by operations for the ninesix months ended SeptemberJune 30, 2016.2018. The contribution from Libsyn of this cash generation totaled $3,142,353, and Pair added $1,123,770. This increase wasis driven from our operating results driven by an increase in revenue offset by the cost of revenue and increased wages paid during the first nine monthsboth segments of 2017.


our business.

Cash used in investing activities in 2017of $304,597 for the six months ended June 30, 2019 was $69,064 for the purchase of equipment and renovations to office space versus $18,436capitalization of software development costs. Cash used in 2016 forinvesting activities was $152,729 during the purchase of equipment.


same period in 2018.

Cash used in financing activities was $8,000$836,012 for the re-purchase of 40,000 shares of common stock during the ninesix months ended SeptemberJune 30, 2017. For2019 and $834,166 in 2018. During the same period in 2016, cash used in financing was $620,766 forfirst six months of 2019, the transferCompany made $800,000 of funds topayments on the parent company atloan facility, as well as $36,012 of payments on the time.

capital lease.


Off-balance sheet arrangements


The Company leases office space in Pittsburgh, Pennsylvania for $4,737 a month through April 2022.


The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of September 30, 2017 are as follows:


Year ending September 30:

 

 

Lease Payments

2018

 

$

56,844

2019

 

 

56,844

2020

 

 

56,844

2021

 

 

56,844

Thereafter

 

 

33,159

Total Minimum Lease Payment

 

$

260,535



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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 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 SeptemberJune 30, 2017,2019, 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 SeptemberJune 30, 20172019 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.


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.


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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.


(a)  During the quarterly period ended September 30, 2017, there were no changes to the procedures by which shareholders’ may recommend nominees to the Company’s board of directors.


Item 6. Exhibits .


Exhibits.

(ii)

Exhibit No.

Description


31.1

302 Certification of Christopher J. Spencer


31.2

302 Certification of John Busshaus


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 906 Certification.

101.1

The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 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.




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 John Busshaus
32
 906 Certification.
101.1The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 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.



24
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:8/14/2019By:

Date:

11/9/17

By:

/s/ Christopher J. Spencer

Christopher J. Spencer

Chief Executive Officer and President



Date:8/14/2019

Date:

11/9/17

/s/ John Busshaus

John Busshaus

Chief Financial Officer





















17


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