SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D. C.D.C. 20549
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
[ ] March 31, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File No. 000-55779
LIBERATED SYNDICATION INC.
(Exact
(Exact name of registrant as specified in its charter)
NEVADA | | 47-5224851 |
NEVADA
| 47-5224851
|
(State (State or other jurisdiction of incorporation or organization)
| (I.R.S.
| (I.R.S. Employer Identification No.) |
5001 Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
(Address of Principal Executive Offices)
Registrant's Telephone Number: (412) 621-0902
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 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”,filer,” “accelerated filer,’’ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
| | |
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,July 6, 2020, there were
24,415,86029,309,474 shares of common stock, par value $0.001, of the registrant issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Unaudited Condensed Consolidated Financial Statements of Liberated Syndication Inc., a Nevada corporation
( the(the “Company,” “Libsyn,”
“Pair”, “we,” “our,” “us” and words of similar import), required to be filed with this
10-Q Quarterly Report
on Form 10-Q were prepared by management and commence on the following page, together with related notes. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements fairly present the financial condition of the Company.
LIBERATED SYNDICATION INC.
FINANCIAL STATEMENTS
CONTENTS
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LIBERATED SYNDICATION INC.
|
FINANCIAL STATEMENTS
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CONTENTS
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Unaudited Condensed Consolidated Balance Sheets | | 3 4 |
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Unaudited Condensed Consolidated Statements of Operations | | 4 5 |
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Unaudited Condensed Consolidated Statement of Stockholders’ Equity | | 6 |
| | |
Unaudited Condensed Consolidated Statements of Cash Flows | | 5 7 |
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Notes to Unaudited Condensed Consolidated Financial Statements | | 6 8 |
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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 |
| | |
CURRENT ASSETS: | | |
Cash | $17,886,587 | $16,621,272 |
Accounts receivable, net | 472,909(1) | 549,044(1) |
Prepaid expenses | 743,078 | 614,417 |
Total current assets | 19,102,574 | 17,784,733 |
| | |
Property and equipment, net | 1,469,199 | 1,536,930 |
Goodwill | 16,388,171 | 16,388,171 |
Definite life - intangible assets, net | 5,641,543 | 5,929,371 |
Prepaid expense | 393,391 | 363,091 |
Operating lease right-of-use assets | 640,088 | 751,731 |
Deferred tax assets | 1,974,797 | 1,847,979 |
Total assets | $45,609,763 | $44,602,006 |
| | |
CURRENT LIABILITIES: | | |
Accounts payable | $1,293,622 | $760,163 |
Accrued expenses | 185,818 | 1,087,271 |
Income tax payable | 2,479,246 | 2,047,917 |
Deferred revenue | 2,722,960 | 2,511,682 |
Current portion of capital lease obligation | - | 831 |
Current portion of loans payable, net | 2,645,229 | 2,643,824 |
Current portion of operating lease liabilities | 394,473 | 408,828 |
Total current liabilities | 9,721,348 | 9,460,516 |
| | |
LONG TERM LIABILITIES: | | |
Loans payable, net of current portion | 1,709,391 | 2,104,611 |
Capital lease obligation, net of current portion | - | - |
Deferred revenue, net of current portion | 650,243 | 601,234 |
Operating lease liabilities, net of current portion | 245,615 | 342,903 |
Line of credit | 2,000,000 | 2,000,000 |
Total long-term liabilities | 4,605,249 | 5,048,748 |
Total liabilities | 14,326,597 | 14,509,264 |
| | |
COMMITMENTS & CONTINGENCIES | - | - |
| | |
STOCKHOLDERS' EQUITY | | |
Common stock | 29,291 | 29,272 |
Additional paid-in capital | 35,313,465 | 35,243,171 |
Accumulated deficit | (4,059,590) | (5,179,701) |
Total stockholders' equity | 31,283,166 | 30,092,742 |
Total liabilities and stockholders' equity | $45,609,763 | $44,602,006 |
Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical)
Statement of Financial Position | | |
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 | 29,290,724 | 29,271,974 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | | | | | | | |
| | | | | | | |
| | | | | | | |
| Three months ended 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 March 31, |
| | |
| | |
| | |
Revenue | $6,252,751 | $6,282,979 |
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Costs and operating expenses | | |
| | |
Cost of revenue (excluding depreciation and amortization) | 807,236 | 839,640 |
General and administrative | 1,950,041 | 1,828,539 |
Technology | 581,070 | 454,638 |
Selling | 230,812 | 194,794 |
Customer support | 751,167 | 659,868 |
Depreciation and amortization | 514,004 | 742,097 |
Total costs and operating expenses | 4,834,330 | 4,719,576 |
Operating income | 1,418,421 | 1,563,403 |
| | |
Other Income (Expense) | | |
Interest expense | (62,342) | (86,842) |
Interest income | 58,434 | 51,951 |
Other income benefit (expense) | 10,134 | (879) |
Total other income (expense) | 6,226 | (35,770) |
Income from operations before income taxes | 1,424,647 | 1,527,633 |
| | |
Income tax expense | 304,536 | 327,010 |
Net Income | $1,120,111 | $1,200,623 |
| | |
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BASIC AND DILUTED INCOME PER COMMON SHARE | $0.04 | $0.04 |
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 29,271,983 | 29,721,294 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| | | | |
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Balance at December 31, 2019 | 29,271,974 | $29,272 | $35,243,171 | $(5,179,701) | $30,092,742 |
Common Stock Issued for Services | 18,750 | 19 | 70,294 | - | 70,313 |
Net income | - | - | - | | |
Balance at March 31, 2020 | 29,290,724 | $29,291 | $35,313,465 | $(4,059,590) | $31,283,166 |
| | | | |
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Balance at January 1, 2019 | 29,721,974 | $29,722 | $35,010,552 | $(8,013,542) | $27,026,732 |
Recapture of prior period non-cash compensation charges in the current period | - | - | (830,500) | - | (830,500) |
Non-cash compensation awards | - | - | 677,087 | - | 677,087 |
Net income | - | - | - | 1,200,623 | 1,200,623 |
Balance at March 31, 2019 | 29,721,974 | $29,722 | $34,857,139 | $(6,812,919) | $28,073,942 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| | | | |
| 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 | | - | |
| Three Months Ended March 31, |
| | |
| | |
Cash Flows from Operating Activities | | |
Net income | $1,120,111 | $1,200,623 |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation and amortization expense | 514,004 | 742,097 |
Issuance of common stock for services | 70,313 | - |
Deferred income taxes | (126,818) | (101,529) |
Non-cash compensation expense, net of recapture | - | (153,413) |
Amortization of right-of-use asset | 111,643 | 129,495 |
Discount on loan fees | 6,185 | 7,403 |
Change in assets and liabilities: | | |
Accounts receivable | 76,135 | 83,155 |
Prepaid expenses | (158,961) | (152,627) |
Accounts payable | 533,460 | (178,645) |
Income taxes payable | 431,328 | 428,539 |
Accrued expense | (901,453) | 258,581 |
Operating lease liabilities | (111,643) | (129,495) |
Deferred revenue | 260,287 | (136,664) |
Net Cash Provided by Operating Activities | 1,824,591 | 1,997,520 |
| | |
Cash Flows from Investing Activities: | | |
| | |
Purchase of property and equipment | (158,445) | (143,304) |
Net Cash Used in Investing Activities | (158,445) | (143,304) |
| | |
Cash Flows from Financing Activities: | | |
Repayment on term loan | (400,000) | (400,000) |
Repayment on capital lease | (831) | (17,888) |
Net Cash Used in Financing Activities | (400,831) | (417,888) |
| | |
Net Increase in Cash | 1,265,315 | 1,436,328 |
Cash at Beginning of Period | 16,621,272 | 11,079,941 |
Cash at End of Period | $17,886,587 | $12,516,269 |
| | |
Supplemental Disclosures of Cash Flow Information | | |
Cash paid during the periods for: | | |
Interest | $56,571 | $76,502 |
Income taxes | - | - |
| | |
Supplemental Non-Cash Investing and Financing Activities | |
Right-of-use operating lease assets obtained in exchange for operating lease liabilities | $- | $1,397,821 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements
5
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 a reasonable methodexpected for any subsequent period or for the year ending December 31, 2020.
These financial statements should be read in conjunction with our audited consolidated financial statements and
reflects all costs of doing business.
related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K).
Accounting Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management made assumptions and estimates for determining reserve for accounts receivable, depreciation of fixed assets and in determining the impairment of definite life intangible assets and goodwill. Actual results could differ from those estimated by management. Our more significant estimates include:
●
the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;
●
the estimated reserve for refunds;
●
the estimated useful lives of intangible and depreciable assets;
●
the grant date fair value of equity-based awards;
●
the recognition, measurement, and valuation of current and deferred income taxes;
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 September 30, 2017,March 31, 2020, the Company had $7,204,003$17,449,014 cash balances in excess of federally insured limits.
Depreciation – Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. At September 30, 2017March 31, 2020 and 2016,December 31, 2019, the Company hashad 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 ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, the Company adjusteddid not adjust the allowance for bad debt by $0.
Depreciationdebt.
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 changechanges 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
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 stagethree months ended March 31, 2020 and 2019. Technology costs totaled $581,070 and $454,638 for software programs to be used solely to meet our internal needs were not material.the three months ended March 31, 2020 and 2019, respectively.
Goodwill–Goodwill is evaluated for impairment annually in the fourth quarter of the Company’s fiscal year,on December 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. Management noted no triggering events during the period ended September 30, 2017.
March 31, 2020.
Advertising Costs – Advertising costs are expensed as incurred and amounted to $25,344$39,265 and $21,721$21,443 for the ninethree months ending September 30, 2017March 31, 2020 and 2016,2019, respectively.
Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:•
●
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
•
●
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
•
●
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
The fair value of the equity-based awards during the first quarter of 2020 were determined based on market prices on the grant date.
The fair value of the Company’s equity-based awards recorded in the Company’s financial statements during the first quarter of 2019 was determined using a Monte Carlo simulation valuation methodology based upon a Geometric Brownian Motion stock path, a Level 3 measurement. Volatility was based on historical volatility of the Company’s common stock over commensurate periods. The expected life was based on the contractual term of the award, and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity similar to the awards’ expected life.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses,
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 result 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 the Internet Corporation for Assigned Names and Numbers (“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 the first month’s bill prorated to the end of the month so all performance obligations are satisfied at each month-end. Consideration is recorded as revenue from providing digital media publishing services whenas the services, the underlying 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.on a net basis over the subscription service period in which the performance obligation is satisfied.
Advertising - The Company recognizes revenue from the insertion of advertisements in digital media. The performance obligation is the download of the digital media with the advertisement inserted. The performance obligation to recognize advertising revenue is satisfied upon delivery of the media download and collection is probable.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Equity-Based Compensation - Our equity-based awards are comprised of stock and are accounted for using the fair value method. Stock is measured based on the fair market value of the underlying common stock on the date of grant. Awards vest and compensation is recognized over the requisite service period. The measurement date for performance vesting awards is the date on which the applicable performance criteria are approved by our board of directors.
Leases–The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”)FASB ASC Topic 840.842. Leases that meet one or more of the capitalfinance lease criteria of standard are recorded as a capitalfinance lease, all other leases are operating leases.
Research and Development - Research and development costs are expensed as incurred and record in cost of revenue. Research 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.
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(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 |
| | | |
| | | |
Furniture, fixtures, and equipment | 3-10 yrs | $8,262,927 | $8,262,929 |
Leasehold improvements | 3-5 yrs | 2,646,400 | 2,646,399 |
Software | 3 yrs | 673,426 | 514,981 |
| 11,582,753 | 11,424,309 |
Less: Accumulated depreciation | | (10,113,554) | (9,887,379) |
Property & equipment, net | | $1,469,199 | $1,536,930 |
Depreciation expense for the
ninethree months ended
September 30, 2017March 31, 2020 and
20162019 was
$14,098$226,176 and
$19,807,$277,769, 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 |
| | |
| | |
| | |
Pair | $4,903,920 | $4,903,920 |
Libsyn | 11,484,251 | 11,484,251 |
Goodwill at end of period | $16,388,171 | $16,388,171 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS - Continued
Other definite-life intangible assets-Other intangible assets consist of customer relationships, intellectual property, trade name and non-compete agreements, which were generated through the acquisition of Pair. Management considers these intangible assets to have finite-lives except trade name assets. These assets are being amortized on a straight-line basis over their estimated useful lives.
As of March 31, 2020, identifiable intangible assets consisted of the following:
| | Weighted Average Useful Life (in Years) | | |
Customer Relationships | $3,947,000 | 7 | $1,268,678 | $2,678,322 |
Intellectual Property | 3,709,000 | 7 | 1,192,179 | 2,516,821 |
Trade Name | 576,000 | 10 | 129,600 | 446,400 |
Total | $8,232,000 | | $2,590,457 | $5,641,543 |
Amortization expense for the three months ended March 31, 2020 and 2019 was $ 287,828 and $464,329, respectively.
The estimated future amortization expenses related to other intangible assets as of March 31, 2020 are as follows:
For twelve months ending March 31, | |
2021 | $1,151,314 |
2022 | 1,151,314 |
2023 | 1,151,314 |
2024 | 1,151,315 |
2025 | 1,036,286 |
Total | $5,641,543 |
NOTE 4 - LOANS
On December 27, 2017, the Company entered into a loan agreement (the “Loan Agreement”) among the Company, Libsyn, and Pair, together, and First Commonwealth Bank, a Pennsylvania bank and trust company (the “Bank”).
The Loan Agreement provides for: (i) a revolving credit facility pursuant to which the Company may borrow an aggregate principal amount not to exceed $2,000,000 (the “Revolving Credit Facility”); and (ii) a term loan in a principal amount equal to $8,000,000 (the “Term Loan” and, together with the Revolving Credit Facility, the “Facility”). A portion of the Revolving Credit Facility, up to $500,000, may be used for standby letters of credit for the account of the Company. As of March 31, 2020, $2,000,000 was drawn down on the revolving line and there was no additional availability under the Revolving Credit Facility.
The Term Loan currently accrues interest at LIBOR (London Interbank Offered Rate) plus 125 basis points or prime plus 75 basis points at the election of the Company. As of March 31, 2020, the Company had elected LIBOR plus 125 basis points or 2.19088%.
The Term Loan is repayable in quarterly installments of $400,000 commencing on March 30, 2018 and on the last day of each June, September, December and March thereafter, through and including September 30, 2022. Accrued interest is payable in arrears not less frequently than quarterly. The remaining unpaid principal balance of the Term Loan, together with accrued interest thereon, is due and payable in full on December 27, 2022. The Term Loan also calls for additional payment equal to the following: (1)100% of the proceeds from the sale of any shares of common stock, (2) 100% of the proceeds from the sale of assets not immediately replaced, and (3) excess liquidity in any given year up to $1,066,667 a year and no more than $3,200,000 over the life of the Term Loan. Excess liquidity is obtained when the audited financial statements reflect a cash balance greater than $4,600,000. Based upon the 2019 financial statements, the Company demonstrated excess liquidity per the Loan Agreement. As such, the company has included the expected $1,066,667 payment to the Bank as a current liability as of March 31, 2020. As of March 31, 2020, the balance on the Term Loan was $4,400,000.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LOANS – Continued
The Company, Libsyn and Pair have granted the Bank a blanket security interest in their respective assets, and the Company has pledged the stock of Webmayhem Inc. and Pair Networks Inc. to the Bank, as security for all obligations under the Loan Agreement.
Borrowings under the Facility are at variable rates which are, at the Company’s option, tied to LIBOR plus an applicable rate or a prime rate. Interest rates are subject to change based on the Company’s combined cash balances. The Facility contains covenants that may have the effect of limiting the ability of the Company to, among other things, merge with or acquire other entities, enter into a transaction resulting in a change in control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, engage in new lines of business or sell a substantial part of its assets. The Facility also requires the Company to maintain certain consolidated fixed charge coverage ratios and minimum liquidity balances.
The Facility also contains customary events of default, including (but not limited to) default in the payment of principal or, following an applicable grace period, interest, breaches of the Company’s covenants or warranties under the Facility, payment default or acceleration of certain indebtedness of the Company or any subsidiary, certain events of bankruptcy, insolvency or liquidation involving the Company or its subsidiaries, certain judgments or uninsured losses, changes in control and certain liabilities related to ERISA based plans.
On December 27, 2017, the Company drew $10,000,000 under the Facility to finance a portion of the cash consideration for the purchase of Pair. Debt issuance costs of $113,000 for the Facility were recorded as a discount and will be amortized over the life of the Facility. As of March 31, 2020, the discount was $45,380.
Future maturities of the loans at March 31, 2020 are as follows:
Twelve months ending March 31, | |
2021 | $2,666,667 |
2022 | 1,600,000 |
2023 | 133,333 |
Total | $4,400,000 |
Common Stock - The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of September 30, 2017, 24,415,860March 31, 2020, 29,290,724 shares were issued and outstanding.
In prior periods, the Company issued stock-based awards to employees that contained a vesting performance condition related to the occurrence of an uplisting of the Company’s common stock to the Nasdaq stock exchange. Such awards were initially expensed in the period issued as the Company deemed it probable the performance condition would be met. During the first quarter
the Company issued 3,650,000 shares of
common stock valued at $1,752,0002019, approximately $830,500 of previously recognized expense related to
officers and directors.
During the second quarter, the Company repurchased 40,000 shares of common stock for $8,000, and the stockthese awards was retired.
Reverse Spin-Off — The common shares outstanding, common stock and additional paid in capital have been restated in the December 31, 2016 financial statements to reflect the 20,805,860 common shares issued by Liberated Syndication Inc. to shareholders of record of FAB Universal on July 20, 2016 to effectively spin-off the operations.
NOTE 5 - INCOME TAXES
The Company accounts for income taxesrecaptured in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires718, Compensation – Stock Compensation (“ASC 718”) as a credit to general and administrative expense as it became less than probable that such performance conditions would occur within the time specified in the stock award agreements. Per the October 4, 2019 settlement agreement with Camac Fund, LP, and its affiliates Camac Partners, LLC, Camac Capital, LLC, and Eric Shahinian, (collectively, “Camac”), 300,000 of these shares were to be returned to the Company. As of March 31, 2020, this has not yet been completed. The Company is taking the necessary steps to irrevocably cancel these equity awards previously granted to the Company’s Chief Executive Officer and Chief Financial Officer.
On March 15, 2019 (“Modification Date”), the Company
modified certain stock awards previously issued which contained a market condition. The prior agreement required the Company’s adjusted market capitalization to
provide a net deferred tax asset or liability equalexceed $75 million on five consecutive days by April 23, 2019, whereas the modified award increases the adjusted market capitalization threshold to
the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At September 30, 2017 and 2016, the total of all deferred tax assets was $3,011,953 and $3,840,987, respectively, and the total$80 million on five consecutive days within 18 months of the
deferred tax assets related to goodwill was $2,469,670 and $1,958,563, respectively. The amount of and ultimate realizationModification Date. In accordance with ASC 718, the Company recorded the incremental fair value of the
benefits fromnewly modified award over the
deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Becausefair value of the
uncertainty surrounding the realization of the deferred tax assets the Company established a valuation allowance equal to the deferred tax asset. The change in the valuation allowance for the nine months ended September 30, 2017 and 2016 was $557,580 and $859,763, respectively.
9
original award, as compensation expense totaling $677,088.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
INCOME TAXESCAPITAL STOCK –
continued
Continued
On April 13, 2019, 450,000 shares of common stock were forfeited as certain milestones were not achieved.
On December 27, 2019 (“Modification Date”), the Company modified certain stock awards previously issued which contained a market condition. The
componentsprior agreement required the Company to obtain an average closing price of
income tax expense (benefit) from continuing operations$5.00 per share (adjusted for
the nine months ended September 30, 2017 and 2016 consiststock splits) for any 10 consecutive trading days, in which case certain employees would retain 25% 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 fromstock. The modification requires the reversalCompany to obtain an average closing price of temporary timing differences between tax$5.50 per share (adjusted for stock splits for any 10 consecutive trading days, in which case the award recipients will retain 100% of their stock. In accordance with ASC 718, the Company recorded the incremental fair value of the newly modified award over the fair value of the original award, as compensation expense totaling $385,582.
On February 18, 2020, of the Compensation Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (“Liberated Syndication” or the “Company”) approved (i) the extension and
financial statement income.
A reconciliationmodification of income tax expensestock agreements entered into with Laurie Sims (350,000 restricted shares of common stock, par value $0.001 per share or the “common stock”), Rob Walch (100,000 restricted shares of common stock), Todd Kammerer (25,000 restricted shares of common stock) and Greg Buretz (25,000 restricted shares of common stock) so that the original vesting conditions regarding the third and fourth tranches of such awards shall be extended to December 28, 2020, all unvested restricted shares shall be forfeited upon certain events of termination and vest immediately in the event of certain changes in control of the Company, (ii) the amendment of stock agreements entered into with Douglas Polinsky and Dennis Yevstifeyev each with respect to 200,000 shares of common stock, such that all such shares shall vest immediately in the event of certain changes in control of the Company, and (iii) the award of 25,000 shares of restricted common stock to each of Eric Shahinian, Bradley Tirpak and Brian Kibby as members of the federal statutory rate to income tax expenseBoard of Directors, which shares shall vest in four equal quarterly tranches at the Company’s effective rate is 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) | $ | - | $ | - |
end of each quarter of 2020 and all such shares shall vest immediately in the event of certain changes in control of the Company.
On February 28, 2020, the Board of Directors approved the termination of John Busshaus. The temporary differences, tax creditsCompany anticipates that the 1,212,500 shares of unvested shares held by Mr. Busshaus will be forfeited and carryforwards gave rise tocancelled.
NOTE 6 – DEFERRED REVENUE
Deferred revenue consists of 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) | $ | - | $ | - |
following:
| | |
Current: | | |
Hosting services | $1,768,525 | $1,664,811 |
Domains | 737,787 | 688,717 |
Media subscription | 216,648 | 158,154 |
| $2,722,960 | $2,511,682 |
Noncurrent: | | |
Hosting services | 33,996 | 29,309 |
Domains | 616,247 | 571,925 |
| 650,243 | 601,234 |
Total Deferred Revenue | $3,373,203 | $3,112,916 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – DEFERRED REVENUE - Continued
Deferred revenue as of March 31, 2020 is expected to be recognized as revenue as follows:
| | | | | | | |
| | | | | | | |
Domains | $624,000 | $314,698 | $191,024 | $137,496 | $68,678 | $18,139 | $1,354,035 |
Hosting | 1,691,306 | 106,835 | 4,379 | - | - | - | 1,802,520 |
Media Subscription | 216,648 | - | - | - | - | - | 216,648 |
| $2,531,954 | $421,533 | $195,403 | $137,496 | $68,678 | $18,139 | $3,373,203 |
Disaggregated revenue consists of following:
| Three Months Ended March 31 |
| | |
Hosting services | $2,209,108 | $2,727,916 |
Podcast hosting | 3,564,623 | 3,137,817 |
Advertising | 125,856 | 173,641 |
Domains | 280,428 | 241,531 |
Other | 72,736 | 2,074 |
| $6,252,751 | $6,282,979 |
NOTE 7 – INCOME TAXES
Our provision for income taxes for the three-month periods ended March 31, 2020 and 2019 was a tax expense of approximately $304,536 and $327,010, respectively, which resulted in an effective tax rate of 21% and 21%, respectively.
We lease two office spaces, a Denver data center, and three Xerox machines. These leases are all classified as operating leases. There is one finance lease for Emerson batteries which is immaterial to our condensed consolidated financial statements, which was paid off during the period ended March 31, 2020. Operating lease assets and obligations are reflected within Operating lease right-of-use assets, Current portion of operating lease liabilities, and Operating lease liabilities, respectively, on the Condensed Consolidated Balance Sheet.
Lease
- The Company expense for these leases
office space in Pittsburgh, Pennsylvania for $4,737is recognized on a
month through April 2022.
The future minimumstraight-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 non-cancelablethe 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 having remaining terms in excess of one year as of September 30, 2017 areMarch 31, 2020 was 1.63 years.
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate for purposes of classifying the lease and measuring the right-of-use asset and lease liability. The incremental borrowing rate for our leases is determined based on lease term in a similar economic environment, adjusted for impacts of collateral. The weighted average discount rate used to measure our operating lease liabilities as
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 operationsof March 31, 2020 was $153,252 and $168,786 for4.42%.
For the ninefirst three months ended September 30, 2017 and 2016, respectively.March 31, 2020, cash paid for amounts in the measurement of lease liabilities was $119,538. Total operating lease costs during the same period were $119,611.
For the first three months ended, March 31, 2019, cash paid for amounts in the measurement of lease liabilities was $139,298. Total operating lease costs during the same period were $139,712.
Maturity of lease liabilities:
Twelve months ending March 31, | |
2021 | 414,607 |
2022 | 239,352 |
2023 | 10,680 |
Total lease payments | 664,639 |
Less amount of lease payment representing interest | (24,551) |
Total present value of lease payments | 640,088 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
79 –EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to the Company by the weighted-average number of shares of common stock outstanding during the period. As of March 31, 2020, there were no common stock equivalents outstanding.
The following data shows the amounts used in computing earnings per share and the weighted average number of shares of common stock outstanding for the periods
presented for the 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 |
presented: | For the Three Months ended |
| |
| | |
| | |
Income from operations available to common stockholders (numerator) | $1,120,111 | $1,200,623 |
Income available to common stockholders (numerator) | $1,120,111 | $1,200,623 |
Weighted average number of common shares outstanding during the period used in earnings per share (denominator) | 29,271,983 | 29,721,974 |
NOTE
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.
On October 2, 2019, the Company formally accepted the resignation of John Busshaus, the former Chief Financial Officer of the Company. The Company received a letter from Mr. Busshaus, providing notice of his intent to resign for “Good Reason” as defined in Section 8(c) of the Employment Agreement pursuant to which he claimed to be entitled to the “Effect of Termination” under the Employment Agreement in Section 9(c). The Company has taken the position that it does not believe that there was “Good Reason” for his resignation and therefore is not entitled to the “Effect of Termination” under the Employment Agreement in Section 9(c).
On April 24, 2020 Mr. Busshaus filed a 401(k) plancomplaint against the Company with the American Arbitration Association (AAA) asserting claims arising from his employment relationship with Libsyn, including, inter alia, claims for wages, compensation and Profit sharing planbenefits, and claims prohibiting unlawful discharge and wrongful termination. Mr. Busshaus claims that he resigned for “Good Reason” as defined in Section 8(c) of his Employment Agreement pursuant to which he claims to be entitled to the “Effect of Termination” under the Employment Agreement in Section 9(c). The Company denies Mr. Busshaus’ claims in their entirety.
The Company entered into employment agreements with its executive officers and management that provide for bonus payments at the end of the agreement, and bonus upon termination without cause, or following a change of control by the Company or by the executive for good reason. As of March 31, 2020, the bonus accrual totals $441,667.
NOTE 11 - SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.
The Company is engaged in providing hosting services. The Company's chief operating decision maker (“CODM”) has been identified as the CEO who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has two operating segments as of March 31, 2019 which are podcast hosting services (Libsyn) and internet hosting services (Pair).
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SEGMENT REPORTING – Continued
The following table presents summary information by segment for the benefit of the employees of the Company. Employees are eligible to participate in the plan the first of the month following their hire datethree months ended March 31, 2020 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 profit sharing contribution to the plan in 2016.2019, respectively:
| | |
(in thousands) | | | | | | |
| | | | | | |
Revenue | $3,780 | $2,473 | $6,253 | $3,335 | $2,948 | $6,283 |
Cost of revenue | 503 | 304 | 807 | 567 | 273 | 840 |
| | | | | | |
Total assets | $27,982 | $17,628 | $45,610 | $23,555 | $18,783 | $42,338 |
Depreciation and amortization | $21 | $493 | $514 | $17 | $725 | $742 |
NOTE
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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:
the outbreak of the coronavirus (“COVID-19”) and the global spread of the COVID-19 pandemic during 2020, general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the
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.
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 Providerpodcast 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.
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, founded in 1996, is one of the oldest and most experienced Internet hosting companies 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 a customer’s use, assuring performance levels. This is a more secure and reliable option that separates a customer’s site from others and is ideal for storage or database applications for businesses, developers, and fast-growing sites.
Dedicated servers
Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are built to customer specifications and tuned for performance, reliability and efficiency to meet the demand of more robust applications. Through Pair QuickServe (QS), a powerful hosting solution with tremendous capacity and speed, servers are ready for a customer’s use quickly and fully managed to keep them up to date.
Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their 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.
Optimized WordPress
WordPress (WP) is one of the fastest growing Content Management Systems (CMS) powering web sites today. Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service provides fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.
Pair Hosting customers sign-up online at www.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 Months
Three months Ended
September 30, 2017March 31, 2020 and
2016.
2019.
During the ninethree months ended September 30, 2017, LibsynMarch 31, 2020, the Company recorded revenues of $7,723,250,$6,252,751, a 20% increase over0.5% decrease from revenues of $6,419,298$6,282,979 for the same period in 2016.2019. The increasedecrease for 20172020 reflects a decrease due to Pair’s hosting and domain offerings and a slight decrease to LibsynPro revenue, offset by an increase in Libsyn4 hosting revenue. Libsyn 4 hostingcontributed $3,779,264 and $3,334,635 of revenue as well as LibsynProduring the first three months of 2020 and Advertising revenue. 2019, respectively. Pair contributed $ 2,473,487 and $2,948,344 of revenue during the first three months of 2020 and 2019, respectively.
Libsyn4 hosting revenue increased $450,552, or 17% during the first three months ended March 31, 2020 when compared to the same period in 2019 due to the growth in the number of podcasts on the network when comparing the first nine months of 2017 versus 2016.network. LibsynPro revenue increaseddecreased slightly by 4% as a result of additionalrelatively flat revenue from producers using the LibsynPro networks and using our platform in 2017 with increased bandwidth usage fees for delivery of podcasts contributing to the majority of the revenue gain.platform. Advertising revenue increased 9%decreased $48,891 during the first three months of 2020 versus the same period of 2018. The decrease resulted from decrease in the dollars being spent on ad campaigns during the first ninethree months of 2017 versus 2016. The increase resulted from an uptick in the campaign budgets from2020 with existing advertisers, show sponsorships from new and existing advertisers and the addition of new advertising campaigns.advertisers. Premium subscription revenue decreased dueincreased $66,228.
The Company recorded total costs and operating expenses of $4,834,330 during the first three months of 2020, a 2% increase as compared to
fewer purchasestotal costs and operating expenses of
subscriptions.
$4,719,576 during the same period of 2019. Libsyn contributed $2,165,048 to total costs and operating expenses during the first three months of 2020, and $2,066,782 during the same period in 2019. Pair contributed $2,669,282 to total costs and operating expenses during the first three months of 2019 and $2,652,794 during the same period in 2018.
During the
ninefirst three months
ended September 30, 2017,of 2020, cost of revenue totaled
$2,309,902,$807,236, a
11%3.9% increase as compared to
$2,084,487$839,640 for the same period in
2016.2019. Libsyn contributed $503,482 while Pair contributed $303,754 to the cost of revenue during the first three months of 2020. Libsyn recorded a decrease in bandwidth costs and ad sharing paid to producers offset by an increase in credit card processing fees, and colocation fees during the first three months of 2020 versus 2019. Pair recorded a decrease in domain name fees and internet fees. Cost of revenue as a percentage of revenue for Libsyn decreased to 13% during the first three months of 2020 from 21% during the same period in 2019. This is a reflection of the
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 three months of 2020 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform. Cost of revenue as a percentage of revenue for Pair increased to 12% during the first three months of 2020 from 9% during the same period in 2019. This is 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 wages for the Researchinternet connectivity fees.
General and
Development team. Libsyn posted gross profit of $1,932,491administrative expenses totaled $1,950,041 during the
first three months
ended September 30, 2017,of 2020 versus
gross profit$1,828,539 during the same period in 2019, an increase of
$1,550,7537%. The increase was driven primarily due to an increase in legal and advisory fees, wage expense, and insurance costs, offset by a decrease in professional fees as well as a reduction of non-cash expense for Libsyn. General and administrative expense for Pair during the first three months of 2020 was $842,422 and $686,643 for the same period in
2016, an increase of 25%.
Libsyn recorded total operating expenses of $771,010 during the three months ended September 30, 2017, essentially flat as compared to operating expenses of $767,377 in the same period of 2016.2019. General and administrative for Libsyn for the same periods was $1,141,896 and consulting$781,888, respectively.
Technology expenses
totaled $695,361represented $581,070 during the first three months of 2020 versus $454,638 in
2017 versus $681,801 in 2016, an increase of 2%. The increase is2019, driven by an increase in
office supplies and wages paidwage expense during the
third quarterfirst three months of
2017.2020. Selling expenses
during the first three months of 2020 were $230,812 versus $194,794 during the same period in
20172019 driven by an increase in advertising expense. Customer support expenses in the first three months of 2020 were
$75,649$751,167 versus
$85,576$659,868 during the same period in
2016.
Libsyn’s2019 driven by the increase in support staff costs.
Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of intangible assets. Depreciation and amortization expense for the first three months of 2020 was $514,004 and $742,097 during the same period in 2019. During the first three months of 2020, Libsyn contributed $20,040 and Pair contributed $492,964 to depreciation and amortization expense.
Interest expense for the first three months of 2020 was $62,342 compared to $86,842 in the three months of 2019, which represents interest on the loan facility obtained in connection with the acquisition of Pair. Interest expense for the three months of 2020 was offset with interest income of $58,434, resulting in net income was $1,161,481cash expenditure of $3,908.
Income tax expense for the three months ended
September 30, 2017. ThisMarch 31, 2020 was $304,536, which represents a
$378,105 increase from our net income of $783,376change in the deferred tax assets and the expected federal balance due for the three month period ended March 31, 2020. Income tax expense for the three months ended
September 30, 2016.
Liquidity and Capital Resources.
Cash on handMarch 31, 2019 was $7,369,569 at September 30, 2017, an increase of $2,494,111 over the $4,875,458 on hand at December 31, 2016. Cash provided by operations$327,010.
The Company’s net income was $1,120,111 for the
ninethree months ended
September 30, 2017, was $2,571,175, an increase of $592,081 over the $1,979,094 cash provided by operationsMarch 31, 2020. This represents a $80,512 decrease from $1,200,623 for the
ninethree months ended
September 30, 2016. This increase was from our operating results driven by an increase in revenue offset byMarch 31, 2019. Earnings per share remained the
cost of revenue and increased wages paid duringsame at $0.04 per share for the first
ninethree months of
2017.
Cash used in investing activities in 2017 was $69,064 for the purchase of equipment and renovations to office space versus $18,436 in 2016 for the purchase of equipment.
Cash used in financing activities was $8,000 for the re-purchase of 40,000 shares of common stock during the nine months ended September 30, 2017. For the same period in 2016, cash used in financing was $620,766 for the transfer of funds2020 when compared to the parent company at the time.
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 excessfirst three months of one year as of September 30, 2017 are as follows:
2019.
| | | |
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 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the
Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
As of
September 30, 2017,March 31, 2020, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the
Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the Chief Executive Officer and the
Interim Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were
not effective to accomplish their objectives at the reasonable assurance
level.
level due to limited accounting and reporting personnel and a lack of segregation of duties due to limited financial resources and the size of our company. On an on-going basis we will evaluate the adequacy of our controls and procedures.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), occurred during the fiscal quarter ended
September 30, 2017March 31, 2020 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, other than as described below.
On April 24, 2020 John Busshaus, the Company’s former Chief Financial Officer, filed a complaint against the Company with the American Arbitration Association (AAA) asserting claims arising from his employment relationship with Libsyn, including, inter alia, claims for wages, compensation and benefits, and claims prohibiting unlawful discharge and wrongful termination. Busshaus claims that he resigned for “Good Reason” as defined in Section 8(c) of his Employment Agreement pursuant to which he claims to be entitled to the “Effect of Termination” under the Employment Agreement in Section 9(c). The Company denies Busshaus’ claims in their entirety.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
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 .
(ii)
Exhibit No.
Description
31.1
302 Certification of Christopher J. Spencer
31.2
302 Certification of John Busshaus
32
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.
Exhibits.(ii) | Exhibit No. | Description |
| | |
| | 302 Certification of Christopher J. Spencer |
| | |
| | 302 Certification of Gabriel Mosey |
| | |
| | 906 Certification. |
| | |
| 101.1 | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | 7/10/2020 | | By: | |
Date:
| 11/9/17
| | By:
| /s/ Christopher J. Spencer |
| | | | Christopher J. Spencer |
| | | | Chief Executive Officer and President |
Date: | 7/10/2020 | | | /s/ Gabriel J. Mosey |
Date:
| 11/9/17
| | | /s/ John Busshaus Gabriel J. Mosey |
| | | | John Busshaus
|
| | | | Interim Chief Financial Officer |
17