UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 20182020
or
☐ 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.file number 000-55779
LIBERATED SYNDICATION INC.
(Exact(Exact name of registrant as specified in its charter)
| NEVADA | | 47-5224851 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
5001 Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (412) 621-0902
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒ No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ☒ 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 the definitions of ‘‘large“large accelerated filer”,filer,” “accelerated filer,’’” “smaller reporting company”company,” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | | | Accelerated filerFiler ☐ | | | |
Non-accelerated filer☐ | | | Smaller reporting companyFiler ☒
| | | Smaller Reporting Company☒ |
Emerging growth company ☒ | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐No☒
As of August 10, 2018,November 16, 2020, there were 29,776,97426,588,220 shares of common stock par value $0.001,(net of 1,590,004 shares treasury stock), of the registrant issued and outstanding.
Explanatory NoteLIBERATED SYNDICATION INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
This Quarterly Report on Form 10-Q/A (Amendment No. 1) amends the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) by Liberated Syndication Corp. (the “Company”) on August 14, 2018 (the “Original 10-Q”) to restate our unaudited consolidated financial statements for the quarterly period ended June 30, 2018 and to amend related disclosures.TABLE OF CONTENTS
Background of the RestatementPART I. FINANCIAL INFORMATION |
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| PART II. OTHER INFORMATION | 21 |
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On April 28, 2020, the Audit Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (the “Company”) determined that (a) the Consolidated Balance Sheet as of December 31, 2018, (b) the Consolidated Statement of Operations for the year ended December 31, 2018, (c) the Statement of Stockholders’ Equity for the year ended December 31, 2018, and (d) the Consolidated Statement of Cash Flows for the year December 31, 2018, all as presented in the Company’s Annual Report on Form 10-K for the Period Ended December 31, 2018, as previously filed with the U.S. Securities and Exchange Commission on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company reviewed the related interim financial statements and interim financial statements for the first three quarters of 2019 and 2018, and as a result of such review, on May 20, 2020, the Audit Committee determined that such interim financial statement should likewise no longer be relied upon.
Specifically, the amounts reported in the Consolidated Balance Sheet as of June 30, 2018 for total assets, current liabilities, and consequently total liabilities and total stockholders’ equity, were determined to be materially different. Additionally, the income tax (benefit) expense in the Consolidated Statement of Operations for the three and six months ended June 30, 2018 was changed. As a result, the net income and the basic and diluted income per common share were determined to be materially different. The Consolidated Statement of Cash Flows for the six months ended June 30, 2018 also changed as a result of the deferred income taxes and income tax payable for 2018.
During the 2019 audit process, it was discovered through an ongoing IRS examination that the Company owed Federal tax for 2018.PART I. FINANCIAL INFORMATION
The IRS examination uncovered an error in calculating the Net Operating Loss Carryforward (NOL) resulting from the spin-off of Libsyn in 2016. At December 31, 2017, the Company had recorded an NOL of approximately $14 million. The NOL was part of deferred tax asset which was valued at $0 on the balance sheet, as it had a full valuation allowance. Consequently, the Company was not recognizing tax expenses or the associated tax payable during 2018. However, as the IRS examination continued, it has become clear that the $14 million NOL was overestimated by approximately $12.5 million, and by March 31, 2018, that the NOL has been completely utilized. The result is that the Company ought to have begun recording income tax (benefit) expense in 2018.
This Federal Tax Balance will be paid with an amended return in 2020.
The Company has temporary tax differences which result in a deferred tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to be recognized for the potential future tax benefit from a loss carryforward. Full realization of the benefit, however, depends on the Company having income in future years.
Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax (benefits) will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.
Impact of the Restatement
As a result of the restatement, reported net income from continuing operations was decreased by $173,209, or $0.01 per basic and diluted share for the three months ended June 30, 2018.
As a result of the restatement, reported net income from continuing operations was increased by $1,097,850, or $0.03 per basic and diluted share for the six months ended June 30, 2018. Total assets increased by $1,380,251 at June 30, 2018. Current and total liabilities increased by $282,401 at June 30, 2018. Accumulated deficit decreased by $1,097,850 at June 30, 2018.
Items Amended in this Filing
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, in its entirety, as amended to reflect the restatement. No attempt has been made in this Form 10-Q/A to update other disclosures presented in the Original Filing, except as required to reflect the effects of the restatement. The following items have been amended as a result of the restatement:
Item 1. Financial Statements
Item 2. Management Discussion & Analysis
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. The Unaudited Condensed Consolidated Financial Statements of Liberated Syndication Inc., a Nevada corporation ( the “Company,” “Libsyn,” “Pair”, “we,” “our,” “us” and words of similar import), required to be filed with this 10-Q Quarterly Report were prepared by management and commence on the following page, together with related notes. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements fairly present the financial condition of the Company.
LIBERATED SYNDICATION INC. |
FINANCIAL STATEMENTS |
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CONTENTS |
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Unaudited Condensed Consolidated Balance Sheets | | 5
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Unaudited Condensed Consolidated Statements of Operations | | 6
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Unaudited Condensed Consolidated Statements of Cash Flows | | 7
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Notes to Unaudited Condensed Consolidated Financial Statements | | 8
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LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| | June 30, 2018 (Unaudited) (As Restated) | | | |
| CURRENT ASSETS: | | |
| Cash | $8,169,634 | $5,211,845 | $13,818,169 | $16,621,272 |
| Accounts receivable, net | 437,644 [1] | 660,139[1] | 377,053[1] | 549,044[1] |
| Related party receivables | | 918,852 | - |
| Prepaid expenses | 178,428 | 186,425 | 843,488 | 614,417 |
| Prepaid domains, net | 173,568 | - | |
| Total current assets | 8,959,274 | 6,058,409 | 15,957,562 | 17,784,733 |
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| Property and equipment, net | 2,552,145 | 3,007,025 | 1,120,903 | 1,536,930 |
| Goodwill | 16,388,171 | 16,352,069 | 16,388,171 |
| Definite life - intangible assets | 8,715,343 | 9,644,000 | |
| Prepaid domains, net of current portion | 115,965 | - | |
| Other | 3,582 | 7,076 | |
| Definite life - intangible assets, net | | 5,065,886 | 5,929,371 |
| Deferred tax assets | 1,380,251 | - | 938,904 | 1,847,979 |
| Prepaid expense | | 422,469 | 363,091 |
| Operating lease right-of-use assets | | 438,776 | 751,731 |
| | 422,469 | 363,091 |
| Total assets | $38,114,731 | $35,068,579 | $40,332,671 | $44,602,006 |
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| CURRENT LIABILITIES: | | |
| Accounts payable | $551,589 | $440,565 | $753,189 | $760,163 |
| Accrued expenses | | 975,476 | 1,087,271 |
| Income tax payable | 282,401 | - | 1,365,948 | 2,047,917 |
| Accrued expenses | 433,754 | 769,485 | |
| Deferred revenue, net | 2,142,795 | 1,247,686 | |
| Deferred revenue | | 2,563,687 | 2,511,682 |
| Current portion of capital lease obligation | 71,090 | 69,243 | - | 831 |
| Current portion of loans payable, net of $30,573 and $33,366 discount, respectively | 1,569,427 | 1,566,634 | |
| Current portion of loans payable, net | | 2,647,987 | 2,643,824 |
Current portion of operating lease liabilities | | 390,985 | 408,828 |
| Total current liabilities | 5,051,056 | 4,093,613 | 8,697,272 | 9,460,516 |
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| LONG TERM LIABILITIES: | | |
| Loans payable, net of $65,066 and $79,634 discount, respectively, less current portion | 7,534,933 | 8,320,366 | |
| Capital lease obligation, net of current portion | 37,804 | 73,817 | |
| Deferred revenue, net | 301,719 | 133,617 | |
| LONG-TERM LIABILITIES: | | |
| Loans payable, net of current portion | | 918,058 | 2,104,611 |
| Deferred revenue, net of current portion | | 701,555 | 601,234 |
| Operating lease liabilities, net of current portion | | 47,791 | 342,903 |
| | 2,000,000 |
| Total long-term liabilities | 7,874,456 | 8,527,800 | 3,667,404 | 5,048,748 |
| Total liabilities | 12,925,512 | 12,621,413 | 12,364,676 | 14,509,264 |
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| COMMITMENTS & CONTINGENCIES | - | - |
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| STOCKHOLDERS' EQUITY | | |
| Common stock | 29,778 | 29,596 | 26,825 | 29,272 |
| Additional paid-in capital | 35,092,997 | 34,804,457 | 37,768,819 | 35,243,171 |
| Accumulated deficit | (9,933,556) | (12,386,887) | (5,808,232) | (5,179,701) |
Common stock held in treasury (1,353,795 shares at September 30, 2020) | | (4,019,417) | - |
| Total stockholders' equity | 25,189,219 | 22,447,166 | 27,967,995 | 30,092,742 |
| Total liabilities and stockholders' equity | $38,114,731 | $35,068,579 | $40,332,671 | $44,602,006 |
Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical) | |
| Statement of Financial Position | June 30, 2018 (As Restated) | |
| 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 | 29,776,974 | 29,595,473 |
| Statement of Financial Position | | |
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| 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 | 26,824,429 | 29,271,974 |
The accompanying notes to the condensed consolidated financial statements are an integral part to the unauditedof this condensed consolidated financial statements.statement.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | | Three Months Ended September 30, | Nine Months Ended September 30, |
| | Three Months Ended June 30, | | | | | |
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| Revenue | $5,305,762 | $2,498,902 | $10,365,067 | $4,993,013 | $6,511,707 | $6,219,119 | $19,114,200 | $18,202,733 |
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| Costs and operating expenses | | |
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| Cost of revenue (excluding depreciation and amortization) | 704,515 | 580,724 | 1,411,885 | 1,197,778 | 937,863 | 881,171 | 2,367,400 | 2,581,659 |
| General and administrative | 1,516,587 | 646,981 | 2,903,899 | 1,274,525 | 4,820,259 | 2,339,966 | 8,458,122 | 6,074,072 |
| Non-cash compensation | - | 318,000 | 1,752,000 | |
| Technology | 492,573 | 163,017 | 865,899 | 306,059 | 595,393 | 478,372 | 1,754,245 | 1,390,161 |
| Selling | 210,371 | 83,896 | 427,373 | 159,934 | 312,179 | 293,185 | 842,001 | 702,521 |
| Customer support | 707,065 | 53,099 | 1,375,295 | 85,622 | 833,315 | 686,876 | 2,310,430 | 1,995,309 |
| Depreciation and amortization | 769,365 | 4,015 | 1,536,265 | 8,319 | 428,241 | 712,024 | 1,452,571 | 2,199,214 |
| Total costs and operating expenses | 4,400,476 | 1,531,732 | 8,838,616 | 4,784,237 | 7,927,250 | 5,391,594 | 17,184,769 | 14,942,936 |
| Operating income | 905,286 | 967,170 | 1,526,451 | 208,776 | |
| Operating income (loss) | | (1,415,543) | 827,525 | 1,929,431 | 3,259,797 |
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| Other income (expense) | | |
| Gain on revaluation of put option | | 137,500 | - | 137,500 | - |
| Interest expense | (98,607) | - | (199,203) | - | (27,319) | (75,280) | (123,823) | (245,002) |
| Interest income | 13,401 | - | 23,066 | - | 7,387 | 66,862 | 74,772 | 178,551 |
| Other income | 2,486 | - | 5,167 | - | 1,238 | 277 | 12,587 | 1,650 |
| Income from operations before income taxes | 822,566 | 967,170 | 1,355,481 | 208,776 | |
| Total other income (expense) | | (118,806) | (8,141) | (101,036) | (64,801) |
| Income (loss) before income taxes | | (1,296,737) | 819,384 | 2,030,467 | 3,194,996 |
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| Income tax expense | | 727,269 | | 2,685,998 | 689,071 |
| Net Income (loss) | | $(2,024,006) | | | |
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| Income tax expense (benefit) | 173,209 | - | (1,097,850) | - | |
| Net Income | $649,357 | $967,170 | $2,453,331 | $208,776 | |
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| BASIC AND DILUTED INCOME PER COMMON SHARE | $0.02 | $0.04 | $0.08 | $0.01 | |
| BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE | | $(0.07) | $0.02 | $(0.02) | $0.09 |
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 29,776,974 | 24,446,578 | 29,711,034 | 24,083,595 | 27,453,697 | 29,271,974 | 28,667,685 | 29,441,754 |
The accompanying notes to the condensed consolidated financial statements are an integral part to the unauditedof this condensed consolidated financial statements.statement.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| | June 30, 2018 (As Restated) | |
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| Cash Flows from Operating Activities | | |
| Net income | $2,453,331 | $208,776 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization expense | 1,536,265 | 8,319 |
| Issuance of common stock for services | 318,000 | 1,752,000 |
| Deferred income taxes | 1,380,251 | - |
| Discount on loan fees | 17,361 | - |
| Change in assets and liabilities: | | |
| Accounts receivable | 157,115 | (506,269) |
| Prepaid expenses | (278,042) | (27,703) |
| Accounts payable | 111,024 | 163,380 |
| Accrued expense | (335,730) | (282,281) |
| Income taxes payable | 282,401 | - |
| Deferred revenue | 1,063,210 | (6,460) |
| Net Cash Provided by Operating Activities | 3,944,684 | 1,309,762 |
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| Cash Flows from Investing Activities: | | |
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| Purchase of property and equipment | (152,729) | - |
| Net Cash Used in Investing Activities | (152,729) | - |
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| Cash Flows from Financing Activities: | | |
| Repayment on term loan | (800,000) | - |
| Repayment on capital lease | (34,166) | - |
| Re-purchase of common stock | | (8,000) |
| Net Cash Used in Financing Activities | (834,166) | (8,000) |
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| Net Increase in Cash | 2,957,789 | 1,301,762 |
| Cash at Beginning of Period | 5,211,845 | 4,875,458 |
| Cash at End of Period | $8,169,634 | $6,177,220 |
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| Supplemental Disclosures of Cash Flow Information | | |
| Cash paid during the periods for: | | |
| Interest | $146,194 | $- |
| Income taxes | - | - |
| | | |
| Supplemental Non-Cash Investing and Financing Activities | | |
| Returned Common Stock | $29,278 | $- |
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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 |
| Common stock issued for services | 18,750 | 19 | - | 70,294 | - | 70,313 |
| Net income | - | - | - | - | | 275,364 |
| Balance at June 30, 2020 | 29,309,474 | $29,310 | - | $35,383,759 | $(3,784,226) | $31,628,843 |
| Cancelled shares – expired grants | (300,000) | (300) | - | 300 | - | - |
| Cancelled shares – CEO separation | (1,325,000) | (1,325) | - | 1,325 | - | - |
| Stock buyback –CEO Separation (treasury) | (1,353,795) | (1,354) | (4,019,417) | - | - | (4,020,771) |
| Cancelled shares - Camac | (300,000) | (300) | - | 300 | - | - |
| Stock grant | 775,000 | 775 | - | 2,300,975 | - | 2,301,750 |
| Common stock issued for services | 18,750 | 19 | - | 70,293 | - | 70,312 |
| Unvested Restricted Stock Accretion | - | - | - | 11,867 | - | 11,867 |
| Net loss | - | - | - | - | (2,024,006) | (2,024,006) |
| Balance at September 30, 2020 | 26,824,429 | $26,825 | (4,019,417) | $37,768,819 | $(5,808,232) | $27,967,995 |
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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 | - | - | - | 677,088 | - | 677,088 |
| Net income | - | - | - | - | 1,200,623 | 1,200,623 |
| Balance at March 31, 2019 | 29,721,974 | $29,722 | - | $34,857,140 | $(6,812,919) | $28,073,942 |
| Stock forfeiture | (45,000) | (450) | - | 450 | - | - |
| Net income | - | - | - | - | 664,047 | 664,047 |
| Balance at June 30, 2019 | 29,271,974 | $29,272 | - | $34,857,590 | $(6,148,872) | $28,737,990 |
| Net income | - | - | - | - | | |
| Balance at September 30, 2019 | 29,271,974 | $29,272 | - | $34,857,590 | $(5,507,617) | $ 29,379,245 |
The accompanying notes to the condensed consolidated financial statements are an integral part to the unauditedof this condensed consolidated financial statementsstatement.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statement of Cash Flows
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES| | Nine Months Ended September 30, |
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| Cash Flows from Operating Activities | | |
| Net income | $(628,531) | $2,505,925 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization expense | 1,452,571 | 2,199,214 |
| Deferred income taxes | 909,075 | (298,902) |
| Non-cash compensation expense, net of recapture | 2,524,555 | (153,412) |
| Amortization of right-of-use asset | 312,955 | 382,379 |
| Discount on loan fees | 17,611 | 21,483 |
| Change in assets and liabilities: | | |
| Accounts receivable | 171,991 | (66,974) |
| Other receivables | (918,852) | - |
| Prepaid expenses | (288,449) | (356,525) |
| Accounts payable | (6,974) | 360,845 |
| Income taxes payable | (681,970) | 987,973 |
| Accrued expense | (111,795) | 864,290 |
| Operating lease liabilities | (312,955) | (382,379) |
| Deferred revenue | 152,326 | 198,521 |
| Net Cash Provided by Operating Activities | 2,591,558 | 6,262,438 |
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| Cash Flows from Investing Activities: | | |
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| Purchase of property and equipment | (173,059) | (353,040) |
| Net Cash Used in Investing Activities | (173,059) | (353,040) |
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| Cash Flows from Financing Activities: | | |
| Treasury stock purchases | (4,020,771) | - |
| Repayment on term loan | (1,200,000) | (1,200,000) |
| Repayment on capital lease | (831) | (54,377) |
| Net Cash Used in Financing Activities | (5,221,602) | (1,254,377) |
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| Net Change in Cash | (2,803,103) | 4,655,021 |
| Cash at Beginning of Period | 16,621,272 | 11,079,941 |
| Cash at End of Period | $13,818,169 | $15,734,962 |
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| Supplemental Disclosures of Cash Flow Information | | |
| Cash paid during the periods for: | | |
| Interest | $106,212 | $223,519 |
| Income taxes | 2,431,846 | - |
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| 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 to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited)
1.
Organization – and Background
Organization
Liberated Syndication, Inc. (the “Company”, (“Company”, “parent”“we,” or “us”), a Nevada Corporation, was organized on September 30, 2015. Webmayhem, Inc. (“Libsyn”), a Pennsylvania corporation, currently a wholly owned subsidiary of the Company, was originally organized on January 1, 2001. Libsyn provides podcast hosting services for producers of content. Libsyn also offers ad insertion on certain of the producers’ content. Libsyn offers hosting and distribution tools, including storage, bandwidth, syndication creation, distribution, and statistics tracking. Libsyn offers an enterprise solution for professional media producers and corporate customers and a premium subscription service that provides producers a custom app and a podcast website where listeners can access their show, login to purchase a subscription, and get access to premium content.
On December 27, 2017, the Company purchased all the issued and outstanding shares of Pair Networks Inc., (“Pair”), a Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC (”(“Ryousha”) and 660837 N.B.,660837NB, Inc. (“NB”), in a transaction accounted for as a purchase.
Pair 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, CO, and a remote site back-up location in Pittsburgh, PA.
Prior Period Reclassifications - ReclassificationsRyousha (dba Pair International), a wholly owned single-member limited liability company subsidiary of certain immaterial prior period amountsPair, was formed on January 1, 2015. Value added taxes (“VAT”) related to sales occurring in European Union countries, which are subject to VAT, are paid through Ryousha. There are no operating activities conducted by Ryousha. NB, a Canadian company, was organized on December 2, 2011. NB is used solely for holding the Canadian tradenames and domain names of Pair. There are no operating activities conducted by NB.
Basis of Presentation
Our financial statements have been made to conform toprepared in accordance with generally accepted accounting principles in the current period presentation.
Consolidation - The financial statements presented reflectUnited States (“GAAP”) and include our accounts and the accounts of the parent, Libsyn, Ryousha, NBour subsidiaries. All material intercompany accounts and Pair. All inter-company transactions have been eliminated in consolidation.eliminated.
Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2020.
These financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
Accounting Estimates –
The preparation of financial statements in conformity with generally accepted accounting principlesGAAP 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 reserves, depreciation of fixed assets, deferred taxes 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 determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements;
●
the fair value of assets acquired, and liabilities assumed in business acquisitions;
●
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; and
●
the recognition, measurement, and valuation of current and deferred income taxes;taxes.
We periodically evaluate these estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ from our estimates.
2.
Summary of Significant Accounting Policies
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 JuneSeptember 30, 2018,2020, the Company had $7,711,981$13,494,298 of 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 JuneSeptember 30, 20182020 and December 31, 2017,2019, 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 sixnine months ended JuneSeptember 30, 20182020 and 2017,2019, the Company adjusteddid not adjust the allowance for bad debt by $0.debt.
Depreciation – Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Long-lived intangible assets – The 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.
Software DevelopmentTechnology Costs-
Software development costs associated with software to be sold, leased, or for internal use are expensed as incurred until technological feasibility, defined as a working model or prototype, has been established. At that time, such costs are capitalized until the product is available for general release. To date, costs incurred between the completion of a working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has expensed all such costs to technology expense during the sixnine months ended JuneSeptember 30, 20182020 and 2017. Software development2019. Technology costs totaled $865,899$1,754,245 and $306,059$1,390,161 for the sixnine months ended JuneSeptember 30, 20182020 and 2017,2019, respectively. Technology costs totaled $595,393 and $478,372 for the three months ended September 30, 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 periodquarter ended JuneSeptember 30, 2018.2020.
Advertising Costs –
Advertising costs are expensed as incurred and amounted to $67,368$178,729 and $16,140$64,254 for the sixnine months ending Juneended September 30, 20182020 and 2017,2019, respectively. Advertising costs totaled $77,331 and $21,746 for the three months ended September 30, 2020 and 2019, respectively.
Fair Value of Financial Instruments –
The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with 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.
Unless otherwise disclosed, theThe fair value of the Company’s equity-based awards recorded in the Company’s financial instruments including cash, accounts receivable, prepaid expenses,statements are determined using a Monte Carlo simulation valuation methodology based upon a Geometric Brownian Motion stock path, a Level 3 measurement, or Black-Scholes modeling, as appropriate. Volatility is based on historical volatility of the Company’s common stock over commensurate periods. The expected life is based on the contractual term of the award, and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity similar to the awards’ expected life.
Assets and liabilities reported at fair value on a recurring basis:
| | |
| | | | | | |
| Liabilities: | | | | | | |
| Accounts payable and accrued liabilities: | | | | | | |
| Put option$ | - | $- | $181,500 | $- | $- | $- |
On July 31, 2020 the Company entered into a separation agreement with our former CEO. Included in this agreement was a right for our former CEO to put to the company up to 550,000 shares of common stock at a price of $2.50 per share between December 30, 2020 and December 29, 2021. The corresponding put option liability has been recorded as a short term liability and included in accounts payable deferred revenue and accrued expenses approximates their recorded values due to their short-term maturities.on the balance sheet. The put option was valued using a Black-Scholes put model. The company used the following inputs for the put option:
Revenue Recognition - On January 1, 2018, we adopted the Financial Accounting Standards Board's (FASB) new
The Company accounts for revenue recognition standard using the modified retrospective method applied to those contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new standard, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting.
The adoption of the new standard did not have a material impact to our financial statements.
ASC Topic 606. Revenue is recognized when control of the promised services is transferred to our customers, in an amount reflecting the consideration we expect to be entitled to in exchange for those services.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Certain products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds reduce deferred revenue at the time they are granted and resultedresult in a reduced amount of revenue recognized over the contract term of the applicable service compared to the amount originally expected.
Our revenue is categorized and disaggregated as follows:
Domains -– Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders, aftermarket domain sales and fee surcharges paid to ICANN.the Internet Corporation for Assigned Names and Numbers (“ICANN”). Domain registrations provide a customer with the exclusive use of a domain during the applicable contract term. After the contract term expires, unless renewed, the customer can no longer access the domain. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue, other than for aftermarket domain sales, is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term. Aftermarket domain revenue is recognized when ownership of the domain is transferred to the buyer.
Hosting Services -– Hosting services revenue primarily consists of website hosting products, website building products and services, website security products, an online shopping cart and online visibility products and email accounts. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
Podcast Hosting -– Podcast hosting publishing services are billed on a month to month basis, with the first month’s bill prorated to the end of the month so all performance obligations are satisfied at each month-end. Consideration is recorded as revenue as the services, the underlying performance obligation, are provided and or satisfied and collection is probable which is generally when received.
Media Subscription Services -– The Company facilitates the sale of producers’ premium content through the sale of subscriptions. The amount earned per transaction is fixed with the producers determinedetermining the price for the sale of each subscription, and the Company earns a percentage of what the customer pays. The performance obligation is providing the subscription hosting medium and billing services. Accordingly, the Company reports premium subscription revenue on a net basis over the subscription service period in which the performance obligation is satisfied.
Advertising – The Company recognizes revenue from the insertion of advertisements in digital media. The performance obligation is the download of the digital media with the advertisement inserted. The performance obligation to recognize advertising revenue is satisfied upon delivery of the media download and when collection is probable.
Equity-Based Compensation -
Our equity-based awards are comprised of options and stock and are accounted for using the fair value method. We grant options at exercise prices equal to the fair market value of our common stock as reported on the OTCQB on the date of grant. We measure and recognize compensation expense for equity-based awards made to employees and directors based on the grant date fair values of the awards. Stock is measured based on the fair market value of the underlying common stock on the date of grant. For options with service or performance-based vesting conditions, the grant date fair value is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions and apply judgment in determining the grant date fair value. Options and awardAwards 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. Key assumptions used in the determination of fair value for stock options are as follows:
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Expected term. The expected term represents the period the options are expected to be outstanding. Because of the lack of sufficient historical data necessary to calculate the expected term, we use the simple average of the vesting period and the contractual term to estimate the expected term.
Expected volatility. We determine the expected stock price volatility based on the historical volatilities of our common stock.
Expected dividend yield. We do not use a dividend rate due to our expectation of not paying dividends in the foreseeable future.
Risk-free interest rate. We base the risk-free interest rate on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date.
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, and all other leases are operating leases.
Earnings Per Share –
The Company computes earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share, which requires the Company to present basic earnings per share and diluted earnings per share when the effect is dilutive (see Note 9)10).
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 7)8).
Recently Enacted Accounting Standards - 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.
Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 2 - PROPERTY & EQUIPMENT3.
Property and Equipment
The following is a summary of property and equipment at:
| | | | | |
| | | | Life | | |
| Furniture, fixtures, and equipment | 3-10 yrs | $8,184,907 | $8,032,178 | 3-10 yrs | $8,262,929 |
| Leasehold improvements | 3 - 5 yrs | 2,646,400 | 3-5 yrs | 2,646,399 |
| Software | 3 yrs | 6,503 | 3 yrs | 688,040 | 514,981 |
| | | 10,837,810 | 10,685,081 | | 11,597,368 | 11,424,309 |
| Less: Accumulated depreciation | | (8,285,665) | (7,678,056) | | (10,476,465) | (9,887,379) |
| Property & equipment, net | | $2,552,145 | $3,007,025 | |
| Property and equipment, net | | | $1,120,903 | $1,536,930 |
Depreciation expense for the sixnine months ended JuneSeptember 30, 20182020 and 20172019 was $607,608$589,085 and $8,319,$806,229, respectively. Depreciation expense for the three months ended September 30, 2020 and 2019 was $140,412 and $247,696, respectively.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES4.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSGoodwill and Other Definite-Life Intangible Assets
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETSGoodwill
Impairment - During the fourth quarter of 2017, 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.
Goodwill - The following is a summary of goodwill:
| | | |
| | | |
| | | |
| Goodwill at beginning of period | $16,352,069 | $11,484,251 |
| Acquisition of Pair | 36,102 | 4,867,818 |
| Impairment | - | - |
| Goodwill at end of period | $16,388,171 | $16,352,069 |
| | | |
| 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 |
During the first quarter of 2018, the Company completed its net-working capital closing adjustment for the acquisition of Pair, resulting in an additional allocation of $36,102 of goodwill.
Other definite-life intangible assets-
Other intangible assets consist of customer relationships, intellectual property, and 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.name assets. These assets are being amortized on a straight-line basis over their estimated useful lives.
As of JuneSeptember 30, 2018,2020, identifiable intangible assets consistconsisted of the following:
| | | Weighted Average Useful Life (in Years) | | | | Weighted Average Useful Life (in Years) | | |
| Customer Relationships | $3,947,000 | 7 | $281,928 | $3,665,072 | $3,947,000 | 7 | $1,550,606 | $2,396,393 |
| Intellectual Property | 3,709,000 | 7 | 264,929 | 3,444,071 | 3,709,000 | 7 | 1,457,106 | 2,251,893 |
| Trade name | 576,000 | 10 | 28,800 | 547,200 | |
| Non-compete | 1,412,000 | 2 | 353,000 | 1,059,000 | |
| Trade Name | | 576,000 | 10 | 158,400 | 417,600 |
| Total | $9,644,000 | | $928,657 | $8,715,343 | $8,232,000 | | $3,166,114 | $5,065,886 |
As of December 31, 2019, identifiable intangible assets consisted of the following:
| | | Weighted Average Useful Life (in Years) | | |
| Customer Relationships | $3,947,000 | 7 | $1,127,714 | $2,819,286 |
| Intellectual Property | 3,709,000 | 7 | 1,059,714 | 2,649,285 |
| Trade Name | 576,000 | 10 | 115,200 | 460,800 |
| Non-compete | 1,412,000 | 2 | 1,412,000 | - |
| Total | $9,644,000 | | $3,714,628 | $5,929,371 |
Amortization expense for the sixnine months ended JuneSeptember 30, 20182020 and 20172019 was $928,657$863,485 and $0, respectively$1,392,986, respectively. Amortization expense for the three months ended September 30, 2020 and 2019 was $287,828 and $464,328, respectively.
The estimated future amortization expenses related to other intangible assets as of JuneSeptember 30, 20182020 are as follows:
| For twelve months ending June 30, | | |
| 2019 | $1,857,314 | |
| 2020 | 1,504,314 | |
| For twelve months ending September 30, | | |
| 2021 | 1,151,314 | $1,151,314 |
| 2022 | 1,151,314 | 1,151,314 |
| 2023 | 1,151,314 | 1,151,314 |
| Thereafter | 1,899,773 | |
| 2024 | | 1,151,315 |
| 2025 | | 460,629 |
| Total | $8,715,343 | $5,065,886 |
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”).
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LOANS - Continued
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 JuneSeptember 30, 2018,2020, $2,000,000 was drawn down on the revolving line with $0 available.and there was no additional availability under the Revolving Credit Facility.
The loanTerm Loan currently accrues interest at LIBOR (London Interbank Offered Rate) plus 150 base125 basis points or prime plus 75 basis points at the election of the Company. As of JuneSeptember 30, 2018,2020, the Company hashad elected LIBOR plus 150125 basis points or 3.599%1.4%.
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)(1)100% of the proceeds from the sale of any shares of the Company’s common shares 2)stock, (2) 100% of the proceeds from the sale of assets not immediately replaced, 3)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 audited financial statements in the 2019 Form 10-K, 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 September 30, 2020. As of JuneSeptember 30, 2018,2020, the balance on the term loanTerm Loan was $7,200,000.$3,600,000.
The Company, Libsyn and Pair have granted the bankBank a blanket security interest in their respective assets, and the Company has pledged the stock of Webmayhem Inc.Libsyn and Pair Networks Inc. to the bank,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 payable tofor the Seller pursuant to the Share Purchase Agreement.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 JuneSeptember 30, 2018,2020, the discount was $95,639.$33,955.
Future maturities of the loansTerm Loan at JuneSeptember 30, 20182020 are as follows:
| For the year ending June 30, | | |
| 2019 | $1,600,000 | |
| 2020 | 1,600,000 | |
| Twelve months ending September 30, | | |
| 2021 | 1,600,000 | $2,666,667 |
| 2022 | 1,600,000 | 800,000 |
| 2023 | 2,800,000 | 133,333 |
| Thereafter | - | |
| Total | $9,200,000 | $3,600,000 |
As a result of the Company’s tax normalization efforts, the Company has not been in compliance with the Fixed Charges Coverage Ratio (as defined in the Loan Agreement) required under the Loan Agreement since the quarter ended March 31, 2020 and has provided the required notice and explanation to the Bank. The Company has more than adequate available cash to pay off the remaining loan balance under the Facility if required by the Bank.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK
Common Stock - The Company has authorized 200,000,000
Outside of routine awards granted to directors and employees, the following transactions occurred during the nine months ended September 30, 2020:
On February 18, 2020, the Compensation Committee of the Board of Directors approved the award of 25,000 shares of restricted common stock to each of Eric Shahinian, Bradley Tirpak and Brian Kibby as members of the Board of Directors, which shares shall vest in four equal quarterly tranches at the end of each quarter of 2020 and all such shares shall vest immediately in the event of certain changes in control of the Company.
On July 1, 2020, 300,000 shares of common stock $0.001 par value. As of June 30, 2018, 29,776,974were forfeited by three directors as certain performance milestones were not achieved by the Company.
In connection with the Separation and Transition Services Agreement and General Release (the “Separation Agreement”) entered into on July 31, 2020 by the Company and Christopher Spencer, the Company’s former chief executive officer (“CEO”), (i) the Company purchased 1,353,795 shares from Mr. Spencer at market price, which shares were issued and outstanding.
During the first quarter of 2018, the Company issued 200,000retained as Treasury stock; (ii) Mr. Spencer forfeited 1,325,000 shares of common stock valued at $318,000due to a consultant for services rendered.certain performance milestones that the Company did not achieve; (iii) Mr. Spencer forfeited 150,000 shares in accordance with the settlement agreement, dated October 4, 2019, with Camac Fund, LP, and its affiliates Camac Partners, LLC, Camac Capital, LLC and Eric Shahinian (the “Camac Settlement Agreement”); and (iv) the Company granted 775,000 unrestricted shares of common stock to Mr. Spencer.
DuringOn September 30, 2020, 150,000 shares of the first quarter of 2018,Company’s common stock granted to John Busshaus, the seller of Pair Networks Inc., returned $18,499 shares valued at $29,278 to the company as perCompany’s former chief financial officer, were forfeited in accordance with the terms of the acquisition agreement dated December 27, 2017 in connection with the closing adjustment for the net-working capital provision.Camac Settlement Agreement.
During the first quarter of 2017, the Company issued 3,650,000 shares of common stock valued at $1,752,000 to officers and directors.
During the second quarter of 2017, the Company repurchased 40,000 shares of common stock for $8,000, and the stock was retired.7.
Deferred Revenue
NOTE 6 – DEFERRED REVENUE
Deferred revenue consists of the following:
| | | | | |
| Current: | | |
| Hosting services | $1,620,020 | $1,032,000 | $1,605,575 | $1,664,811 |
| Domains | 413,546 | 104,172 | 763,788 | 688,717 |
| Media subscription | 109,229 | 111,514 | 194,324 | 158,154 |
| | $2,142,795 | $1,247,686 | $2,563,687 | $2,511,682 |
| Noncurrent: | | |
| Hosting services | 63,993 | 50,351 | 45,375 | 29,309 |
| Domains | 237,726 | 83,266 | 656,181 | 571,925 |
| | $2,444,514 | $1.381.303 | 701,556 | 601,234 |
| Total Deferred Revenue | | $3,265,243 | $3,112,916 |
Deferred revenue as of JuneSeptember 30, 20182020 is expected to be recognized as revenue as follows:
| | | | | | | | |
| | | | | | | | |
| Domains | $251,672 | $217,351 | $76,061 | $50,972 | $40,367 | $14,849 | $651,272 |
| Hosting | 1,269,210 | 336,865 | 77,938 | - | - | - | 1,684,013 |
| Media Subscription | 90,617 | 18,612 | - | - | - | - | 109,229 |
| | $1,611,499 | $572,828 | $153,999 | $50,972 | $40,367 | $14,849 | $2,444,514 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – DEFERRED REVENUE - Continued| | | | | | | | |
| Domains | $266,762 | $580,782 | $255,509 | $175,907 | $101,235 | $39,845 | $1,420,040 |
| Hosting | 1,013,536 | 622,070 | 15,274 | - | - | - | 1,650,880 |
| Media Subscription | 194,323 | - | - | - | - | - | 194,323 |
| | $1,474,621 | $1,202,852 | $270,783 | $175,907 | $101,235 | $39,845 | $3,265,243 |
Disaggregated revenue consists of following:
| | Three Months Ended June 30 | |
| | | | | |
| Hosting services | $2,132,140 | $- | $4,193,635 | $- |
| Podcast hosting | 2,649,525 | 2,037,114 | 5,150,632 | 3,968,302 |
| Advertising | 250,750 | 361,077 | 571,414 | 841,968 |
| Domains | 116,499 | - | 188,295 | - |
| Other | 156,848 | 100,711 | 261,091 | 182,743 |
| | $5,305,762 | $2,498,902 | $10,365,067 | $4,993,013 |
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At June 30, 2018 and December 31, 2017, the total of all deferred tax assets was $1,380,251 and $3,458,667, respectively, and the total of the deferred tax assets related to goodwill was $0 and $2,341,894, respectively. The 2017 deferred tax asst was fully allowed for in the year. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Management has analyzed the health of the Company and it is now more likely than not that the company will likely have strong income from operations moving forward. Therefore, the valuation allowance has been relieved. The change in the valuation allowance for the six months ended June 30, 2018 and 2017 was $1,380,251 and $85,657, respectively.
The components of income tax (benefit) expense from continuing operations for the six months ended June 30, 2018 and 2017 consistconsisted of the following:
| | |
| | |
| | | |
| Current tax expense: | | |
| Federal | $282,401 | $- |
| State | - | - |
| Current tax expense | 282,401 | - |
| | | |
| Deferred tax (benefit) expense: | | |
| Deferred revenue | (14,030) | - |
| Depreciation and amortization | 28,126 | - |
| Non-cash compensation | (1,394,347) | - |
| Intangible Assets | - | 255,554 |
| Valuation Allowance | - | (85,657) |
| Net operating loss carryforward | - | (169,897) |
| Subtotal deferred tax (benefit) expense | (1,380,251) | - |
| Income tax (benefit) expense | $(1,097,850) | $- |
| | Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | | |
| Hosting services | $2,149,223 | $2,335,098 | $6,475,562 | $6,953,733 |
| Podcast hosting | 3,919,927 | 3,415,664 | 11,163,757 | 9,880,191 |
| Advertising | 82,945 | 105,999 | 302,677 | 437,884 |
| Domains | 294,236 | 260,764 | 861,097 | 746,601 |
| Other | 65,376 | 101,594 | 311,107 | 184,324 |
| | $6,511,707 | $6,219,119 | $19,114,200 | $18,202,733 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSIncome Taxes
NOTE 7 - INCOME TAXES – continuedOur provision for income taxes for the nine-month periods ended September 30, 2020 and 2019 was a tax expense of approximately $2,685,998 and $689,071, respectively, which resulted in an effective tax rate of 131% and 22%, respectively.
A reconciliation ofOur provision for income tax (benefit) expense astaxes for the federal statutory rate to incomethree-month periods ended September 30, 2020 and 2019 was a tax expense at the Company’sof approximately $727,269 and $178,129, respectively, which resulted in an effective tax rate is as follows:
| | For the Six Months Ended June 30, |
| | | |
| | | |
| Computed tax at the expected statutory rate | $282,401 | $70,984 |
| State and local income taxes, net of federal | - | 13,912 |
| Other non-deductible expenses | - | 761 |
| Valuation Allowance | (1,380,251) | (85,657) |
| Income tax (benefit) expense | $(1,097,850) | $- |
The temporary differences, tax creditsof (56)% and carryforwards gave rise to the following deferred tax asset at June 30, 2018 and 2017:
| | | |
| | | |
| Current deferred tax assets (liabilities): | | |
| Allowance for doubtful accounts | $- | $- |
| Vacation accrual | - | - |
| Total current deferred tax assets (liabilities) | - | - |
| | | |
| Long-term deferred tax assets (liabilities): | | |
| | | |
| Long-term deferred tax assets (liabilities): | | |
| Depreciation and amortization | 28,126 | - |
| Deferred revenue | 14,030 | - |
| Non-cash compensation | 1,394,347 | - |
| Goodwill - impaired | - | 2,903,618 |
| Intangible assets – tax amortization | - | (5,245,512) |
| Net operating loss carryforward | - | 5,825,770 |
| Valuation allowance | - | (3,483,876) |
| Net term deferred tax assets (liabilities) | $1,380,251 | $- |
At June 30, 2018, the company has loss carryforwards of $0.22%, respectively.
We file U.S. federal,account for uncertain tax positions pursuant to the recognition and U.S. states returns, and we are generally no longer subjectmeasurement criteria under ASC Topic 740. It is reasonably possible that $1.2 million of uncertain tax positions will be recognized within the next 12 months due to tax examinations for years priorour inability to 2015 for U.S. federal and U.S. states tax returns.respond to IRS requests related to an ongoing IRS examination.
Operating Lease - The Company leasesWe lease two office spaces, in Pittsburgh, Pennsylvania. The corporate headquarters’a Denver data center, and three Xerox machines. These leases are all classified as operating leases. There is one finance lease for Emerson batteries that is for $4,841 a month through April 2022. The office space for Pair is $34,014 a month through September 2021.
The future minimumimmaterial to our condensed consolidated financial statements, which was paid off during the quarter ended March 31, 2020. Operating lease payments for non-cancelableassets and obligations are reflected within Operating lease right-of-use assets, Current portion of operating leases having remaining terms in excess of one year as of June 30, 2018 are as follows:
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – LEASES – continued
| Year ending June 30: | |
| 2019 | 466,260 |
| 2020 | 466,260 |
| 2021 | 466,260 |
| 2022 | 150,452 |
| Total Minimum Lease Payment | $1,549,232 |
Lease expense chargedfor 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 operations was $306,071 and $139,041renew lease terms for the sixoffice 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 September 30, 2020 was 1.18 years.
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate for purposes of classifying the lease and measuring the right-of-use asset and lease liability. The incremental borrowing rate for our leases is determined based on lease term in a similar economic environment, adjusted for impacts of collateral. The weighted average discount rate used to measure our operating lease liabilities as of September 30, 2020 was 4.42%.
For the nine months ended JuneSeptember 30, 20182020 and 2017,2019, cash paid for amounts in the measurement of lease liabilities was $333,057 and $417,893, respectively. Total operating lease costs during the same periods were $333,276 and $419,137, respectively.
NOTE 9 –EARNINGS PER SHAREMaturity of lease liabilities:
| Twelve months ending September 30, | |
| 2021 | $402,527 |
| 2022 | 47,950 |
| 2023 | 644 |
| Total lease payments | $451,121 |
| Less amount of lease payment representing interest | (12,345) |
| Total present value of lease payments | $438,776 |
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 September 30, 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:presented:
| | | | |
| | | |
| | | | | | For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
| | | | | | |
| Income from operations available to common stockholders (numerator) | $649,357 | $967,170 | $2,453,331 | $208,776 | $(2,024,006) | $641,255 | $(628,531) | $2,505,925 |
| Income available to common stockholders (numerator) | 649,357 | 967,170 | 2,453,331 | 208,776 | $(2,024,006) | $641,255 | $(628,531) | $2,505,925 |
| Restated Weighted average number of common shares outstanding during the period used in earnings per share (denominator) | 29,776,974 | 24,446,578 | 29,711,034 | 24,083,595 | |
| Weighted average number of common shares outstanding during the period used in earnings per share (denominator) | | 27,453,697 | 29,271,974 | 28,667,685 | 29,441,754 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES11.
Commitments and Contingencies
AfterAlthough the Spin-Off,Company does not expect to be liable for any obligations not expressly assumed by the Company from the distribution by FAB Universal Corp. (“FAB”) to its stockholders of the Company’s common stock (the “Spin-Off”), it is possible that the Company could be required to assume responsibility for certain obligations retained by 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. For example, FAB is currently undergoing both domestic and international audits by the Internal Revenue Service (“IRS”). As the nature of such obligations are unknown, we are unable to provide an estimate of the potential obligation. However, should FAB incur such obligations, the Company may be financially obligated to pay any losses incurred.
On October 2, 2019, the Company formally accepted the resignation of John Busshaus, the former Chief Financial Officer of the Company. The Company received a letter from Mr. Busshaus, providing notice of his intent to resign for “Good Reason” as defined in Section 8(c) of the Employment Agreement pursuant to which he claimed to be entitled to the “Effect of Termination” under the Employment Agreement in Section 9(c). The Company contends that there was not “Good Reason” for his resignation and therefore he is not entitled to the “Effect of Termination” under Section 9(c) of the Employment Agreement.
On April 24, 2020, Mr. Busshaus filed a complaint against the Company with the American Arbitration Association (“AAA”) asserting claims arising from his employment relationship with the Company, including, inter alia, claims for wages, compensation and benefits, and claims of unlawful discharge and wrongful termination. The Company denies Mr. Busshaus’ claims in their entirety and intends to vigorously defend its position.
As of September 30, 2020, there has been no further update to the complaint filed against the Company.
The Company has entered into employment agreements with its current and former executive officers that provide for a 401 (k) planbonus payment to be paid at the end of such agreement, and profit sharing plana bonus payment to be paid upon an executive’s termination without cause or for the benefitgood reason, or following a change of the employees ofcontrol by the Company. Employees are eligible to participate inAs of September 30, 2020, 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 profit sharing contribution to the plan in 2018.bonus accrual totaled $805,110.
NOTE 11 - SEGMENT REPORTING
ASC Topic 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 reporting information about geographical areas, business segments and major customers in the Company’s financial statements for details on the Company's business segments.statements.
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 JuneSeptember 30, 20182020 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 sixnine months ended JuneSeptember 30, 20182020 and 2017,2019, respectively:
| | | | | |
| (in thousands) | | | | | | | | | | | | |
| | | |
| Revenue | $5,908 | $4,457 | $10,365 | $4,993 | $- | $4,993 | $11,828 | $7,286 | $19,114 | $10,563 | $7,640 | $18,203 |
| Cost of revenue | 1,074 | 338 | 1,412 | 1,198 | - | 1,198 | 1,450 | 917 | 2,367 | 1,738 | 844 | 2,582 |
| | | |
| Total assets | $19,999 | $18,115 | $38,114 | $18,651 | $- | $18,651 | $24,190 | $17,256 | $41,446 | $26,357 | $18,251 | $44,608 |
| Depreciation and amortization | $18 | $1,518 | $1,536 | $8 | $- | $8 | $62 | $527 | $589 | $60 | $2,139 | $2,199 |
The following table presents summary information by segment for the three months ended JuneSeptember 30, 20182020 and 2017,2019, respectively:
| | | |
| (in thousands) | | | | | | |
| | | | | | | |
| Revenue | $3,025 | $2,280 | $5,305 | $2,126 | $- | $2,126 |
| Cost of revenue | 539 | 165 | 704 | 752 | - | 752 |
| | | | | | | |
| Depreciation and amortization | $10 | $759 | $769 | $4 | $- | $4 |
NOTE 12 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of the filing of this report.
NOTE 13 – RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
Background of the Restatement
On April 28, 2020, the Audit Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (the “Company”) determined that (a) the Consolidated Balance Sheet as of December 31, 2018, (b) the Consolidated Statement of Operations for the year ended December 31, 2018, (c) the Statement of Stockholders’ Equity for the year ended December 31, 2018, and (d) the Consolidated Statement of Cash Flows for the year December 31, 2018, all as presented in the Company’s Annual Report on Form 10-K for the Period Ended December 31, 2018, as previously filed with the U.S. Securities and Exchange Commission on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company reviewed the related interim financial statements and interim financial statements for the first three quarters of 2019 and 2018, and as a result of such review, on May 20, 2020, the Audit Committee determined that such interim financial statement should likewise no longer be relied upon.
Specifically, the amounts reported in the Consolidated Balance Sheet as of June 30, 2018 for total assets, current liabilities, and consequently total liabilities and total stockholders’ equity, were determined to be materially different. Additionally, the income tax (benefit) expense in the Consolidated Statement of Operations for the three and six months ended June 30, 2018 was changed. As a result, the net income and the basic and diluted income per common share were determined to be materially different. The Consolidated Statement of Cash Flows for the six months ended June 30, 2018 also changed as a result of the deferred income taxes and income tax payable for 2018.
During the 2019 audit process, it was discovered through an ongoing IRS examination it was discovered that the Company owed Federal tax for 2018.| | | |
| (in thousands) | | | | | | |
| Revenue | $4,078 | $2,434 | $6,512 | $3,638 | $2,581 | $6,219 |
| Cost of revenue | 490 | 448 | 938 | 585 | 296 | 881 |
| | | | | | | |
| Depreciation and amortization | $7,750 | $4,852 | $12,602 | $23 | $689 | $712 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSubsequent Events
The IRS examination uncovered an error in calculatingOn October 8, 2020, Mr. Spencer, the Net Operating Loss Carryforward (NOL) resulting from the spin-offCompany’s former chief executive officer, satisfied his withholding tax liability, related to his separation agreement, of Libsyn in 2016. At December 31, 2017, the Company had recorded an NOL$918,852 by tendering 236,209 shares of approximately $14 million. The NOL was partstock, with a stock price of deferred tax asset which was valued at $0 on the balance sheet, as it had a full valuation allowance. Consequently, the Company was not recognizing tax expenses or the associated tax payable during 2018. However, as the IRS examination continued, it has become clear that the $14 million NOL was overestimated by approximately $12.5 million, and by March 31, 2018, that the NOL has been completely utilized. The result is that the Company ought to have begun recording tax expenses in 2018.
This Federal Tax Balance will be paid with an amended return in 2020.
The Company has temporary tax differences which result in a deferred tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to be recognized for the potential future tax benefit from a loss carryforward. Full realization of the benefit, however, depends on the Company having income in future years.
Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax benefits will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.
Impact of the Restatement
As a result of the restatement, reported net income from continuing operations was decreased by $173,209, or $0.01$3.89 per basic and diluted share, for the three months ended June 30, 2018.
As a result of the restatement, reported net income from continuing operations was increased by $1,097,850, or $0.03 per basic and diluted share for the six months ended June 30, 2018. Total assets increased by $1,380,251 at June 30, 2018. Current and total liabilities increased by $282,401 at June 30, 2018. Accumulated deficit decreased by $1,097,850 at June 30, 2018.
The financial statements included in this Form 10-Q/A have been restated to reflect the adjustments described. The table below summarizes the effects of the restatement on Libsyn’s Unaudited Consolidated Statements of Operation for the six months ended June 30, 2018 and, Unaudited Consolidated Balance Sheet at June 30, 2018.
In addition to the restatement of the financial statements, certain information within Note 7 – Income Taxes to the financial statements has been restated to reflect the corrections of misstatements discussed above as well as to add disclosure language as appropriate.
Unaudited Consolidated Balance Sheet |
| | | | |
| Deferred Tax Assets | - | 1,380,251 | 1,380,251 |
| Total Assets | 36,734,480 | 1,380,251 | 38,114,731 |
| Income Taxes Payable | - | 282,401 | 282,401 |
| Total Current Liabilities | 4,768,655 | 282,401 | 5,051,056 |
| Total Liabilities | 12,643,111 | 282,401 | 12,925,512 |
| Accumulated Deficit | (11,031,406) | 1,097,850 | (9,933,556) |
| Stockholder’s Equity | 24,091,369 | 1,097,850 | 25,189,219 |
Unaudited Consolidated Statement of Operations |
| | Six months ended June 30, 2018 As Reported | | Six months ended June 30, 2018 As Restated |
| Income Tax (Benefit) expense | - | (1,097,850) | (1,097,850) |
| Net Income | 1,355,481 | (1,097,850) | 2,453,331 |
| Basic and Diluted Income Per Common Share | 0.05 | 0.03 | 0.08 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS – continued
Unaudited Consolidated Statement of Operations |
| | Three months ended June 30, 2018 As Reported | | Three months ended June 30, 2018 As Restated |
| Income Tax (Benefit) expense | - | 173,209 | 173,209 |
| Net Income | 822,566 | 173,209 | 649,357 |
| Basic and Diluted Income Per Common Share | 0.03 | (0.01) | 0.02 |
Company.
ItemItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Safe Harbor Statement.Forward-Looking Statements
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 home healthcare industry,web hosting and podcasting industries, our ability to continue to develop services acceptable to our industry,industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the home healthcare industry,web and podcasting hosting and domain industries, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission: the outbreak of the coronavirus (“COVID-19”) and the global spread of the COVID-19 pandemic during 2020; general economic or industry conditions, nationally and/or in the communities in which the Company conducts business,business; changes in the interest rate environment,environment; legislation or regulatory requirements,requirements; conditions of the securities markets,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,Company; competition; changes in the quality or composition of the Company's services,services; our ability to develop new services,services; our ability to raise capital,capital; changes in accounting principles, policies or guidelines,guidelines; financial or political instability,instability; acts of war or terrorism,terrorism; and other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, services and prices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Company Overview
Founded in 2015, Liberated Syndication Inc (“theInc. (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 webhostingweb 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 webhostingour web hosting and domains.domains business.
Podcast Hosting and DistributionOur corporate offices consist of approximately 3,100 square feet of office space located at 5001 Baum Blvd, Suite 770, Pittsburgh, PA 15213. Our telephone number is (412) 621-0902. We also maintain an office at 2403 Sidney St., Suite 210, Pittsburgh, PA 15203 consisting of approximately 34,700 square feet.
Business
Libsyn
Libsyn is a Podcast Service Providerpodcast service provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, destination distribution, and audience statistics and analytics. Podcast producers can chose from a variety of hosting plan levels based on the requirements for their podcast. Plans are designed to provide full-featured podcast tools with generous storage and bandwidth transfer.
tracking. Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn’s standard plans rangeLibsyn offers a basic, getting started plan for $5 per month and more advanced plans that include more storage, advanced statistics, and podcast apps. Plans are designed to $75 per month. LibsynPROprovide 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. LibsynPro revenue consists primarily
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.
Management estimates approximately 60% of monthly hosting feesthe shows that Libsyn distributes reach audiences using the Apple Podcasts platform which includes iTunes on the computer and bandwidth usage charges. Other professional level add-ons,the Apple Podcasts App on iOS devices which includes iPhones, iPads, iPods, Apple Watch, and Apple TV. Libsyn also enables distribution to aggregators such as set-up feesGoogle Podcasts, Spotify, Pandora, iHeartRadio, radio.com and custom features, representDeezer. The OnPublish feature enables podcast episodes to be posted to social media sites such as Facebook, Twitter, YouTube, Linked-In and blogging platforms like WordPress, Tumblr and Blogger. Libsyn also provides a small portion of LibsynPro revenue.podcast player that can be embedded on websites or shared via social media.
During the first six monthsLibsyn’s podcast platform architecture allows for expansion of 2018, Libsyn generated 70% of its revenue from Podcast hosting fees paid by Libsyn4 Producers. LibsynPro revenue is 18% of overall revenues,distribution destinations and Advertising revenue makes up 9% revenues. App subscriptions make up 5% of total Libsyn revenues. During the first six months of 2017, those revenues contributions were 63% for Libsyn4, 17%, for LibsynPro, 17% for Advertising and 3% for App subscriptions.
Trends in the number of podcast shows onOnPublish capabilities. Using the Libsyn networkservice, podcast producers can more broadly distribute and podcast consumption affect our revenue and financial results as they are directly relatedpromote their shows 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 2018.attract larger audiences.
Pair Networks, Inc. (“Pair”)
Pair, founded in 1996, is one of the oldest and most experienced Internet hosting companies providing a full range of fast, powerful and reliable web hosting services. Pair offers a suite of Internet services from shared hosting to virtual private servers to customized solutions with world-class 24x7 on-site customer support. Based in Pittsburgh, Pair serves businesses, bloggers, artists, musicians, educational institutions and non-profit organizations around the world.
Pair offers a variety of hosting plan levels, value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.
Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and Pair cloud technologyoptimized WordPress hosting as managed services. With over twenty years of experience in Internet hosting, Pair has the expertise to build and manage reliable and powerful hosting solutions. The managed service and 24x7 support allow customers to focus on their core business without having to worry about hardware, operating systems, network connectivity or uptime.
ShareShared web hosting is a great option for startup or smaller businesses as the website sits on the same server with other websites and shares resources such as memory and Central Processing Unit (CPU). Basic website applications such as email and file sharing are ideal for shared server offerings.
Virtual private servers
Virtual private servers (VPS) is a step up from a shared hosting solution in that specific server resources are allocated directly for a customer’s use, assuring performance levels. This is a more secure and reliable option that separates a customer’s site from others and is ideal for storage or database applications for businesses, developers, and fast-growing sites.
Dedicated servers
Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are built to customer specifications and tuned for performance, reliability and efficiency to meet the demand of more robust applications. Through Pair QuickServe (QS), a powerful hosting solution with tremendous capacity and speed, servers are ready for a customer’s use quickly and fully managed to keep them up to date.
Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their own hardware, collocation service in Pair’s data center allows for unmanaged service with the security and reliability of the diverse network, physically secure facilities, backup power and redundant climate control.
Optimized WordPress
WordPress (WP) is one of the fastest growing Content Management Systems (CMS) powering web sites today. Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service provides fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.
Pair Hosting customers sign-up online at www.pair.com, using their credit card to subscribe to a monthly or annual plan. Pair offers a basic, getting started plan with a custom domain for $5.95 per month with a basic drag and drop website builder and more advanced plans that include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for all levels including backups, account control and security and operating system maintenance and upgrades.
Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten-year domain name purchase or domain transfer. All domain names registered by Pair include enhanced services such as custom and dynamic Domain Name System (DNS) which controls your domain name’s website and email, WHOIS privacy, email forwarding, and a drag and drop website builder.
Results of Operations
Six MonthsNine months Ended JuneSeptember 30, 20182020 and 2017.2019
During the sixnine months ended JuneSeptember 30, 2018,2020, the Company recorded revenues of $10,365,067,$19,114,200, a 108%5% increase overfrom revenues of $4,993,013$18,202,733 for the same period in 2017.2019. The increase for 20182020 reflects an increase in Libsyn4 hosting revenue as well as LibsynPro and Premium Subscription,Subscriptions, offset by decreasesa decrease in Advertising and LibsynPro revenue. PairLibsyn contributed $4,457,142$11,828,145 and $10,562,580 of revenue during the first sixnine months of 2018,2020 and $02019, respectively. Pair contributed $7,286,055 and $7,640,153 of revenue during 2017 due to the acquisition in December 2017. first nine months of 2020 and 2019, respectively.
Libsyn4 hosting revenue increased $ 1,379,214, or 17%, during the nine months ended September 30, 2020 when compared to the same period in 2019 due to the growth in the number of podcasts on the networknetwork. LibsynPro decreased by 5% during the nine months ended September 30, 2020 when comparing the first six months of 2018 versus 2017. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in 2018 with increased bandwidth usage fees for delivery of podcasts contributingcompared to the majority of the revenue gain.same period in 2019. Advertising revenue decreased 39% in$151,197 during the first sixnine months of 20182020 versus 2017.the same period of 2019. The decrease resulted from a decrease in the dollars being spent on ad campaigns during the first sixnine months of 20182020 with existing advertisers. Premium subscription revenue increased $3,785.$117,290 in the first nine months of 2020 versus the same period of 2019.
The Company recorded total costs and operating expenses of $8,838,616$17,184,769 during the sixfirst nine months ended June 30, 2018, an 85%of 2020, a 15% increase as compared to total costs and operating expenses of $4,784,237 in$14,942,936 during the same period of 2017. Pair2019. Libsyn contributed $5,340,605$9,196,311 to total costs and operating expenses during the first sixnine months of 2018,2020, and $0$7,037,309 during 2017 duethe same period in 2019. Pair contributed $7,988,458 to total costs and operating expenses during the acquisitionfirst nine months of 2020 and $7,905,627 during the same period in December 2017.2019.
During the sixfirst nine months ended June 30, 2018,of 2020, cost of revenue totaled $1,411,885,$2,367,400, an 18% increase8% decrease as compared to $1,197,778$2,581,659 for the same period in 2017.2019. Libsyn contributed $1,449,868 while Pair contributed $338,276$917,532 to the cost of revenue during the first sixnine months of 2018, offset by2020. Libsyn recorded a decrease in bandwidth costs and ad sharing that is being paid to producers offset by an increase in 2018credit card processing fees and colocation fees during the first nine months of 2020 versus 2017, driven bythe same period of 2019. Pair recorded a decrease in revenue. Asdomain name fees and internet fees for the first nine months of 2020 versus the same period of 2019. Cost of revenue as a percentage of revenue costfor Libsyn increased to 12% during the first nine months of 2020 from 16% during the same period in 2019. This is a reflection of the increase in bandwidth usage during the first nine months of 2020 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform, offset by a reduction in the bandwidth rate to deliver the podcasts. Cost of revenue decreaseas a percentage of revenue for Pair increased to 13% during the first nine months of 2020 from 24%11% during the same period in 2019. This is due primarily to 14% for the six months ended June 30, 2018 versus 2017, which was driven by Pair’s at 8% for the six months ended June 30, 2018.increase in domain name purchase fees and internet connectivity fees.
The increase in general and administrative was primarily driven by the addition of the Pair business consisting primarily of wages, rent, utilities, and health insurance costs. General and administrative expenses totaled $2,903,899$8,458,122 during the first nine months of 2020 versus $6,074,072 during the same period in 2018 versus $1,274,525 in 2017,2019, an increase of 128%,39%. The increase was driven primarily due to the $2,926,439 related to our former CEO’s Separation Agreement expense and expenses related to legal support costs. 2019 expenses included $610,179 of legal and advisory fees incurred by the Company in associated with its settlement with Camac. General and administrative expense for Pair during the first nine months of 2020 was $1,959,902 and $2,030,374 for the same period in 2019. General and administrative expense for Libsyn for the same periods was $6,498,220 and $4,043,698, respectively.
During the third quarter of 2020, the Company, and Christopher Spencer, the Company’s former CEO, entered into a Separation and Transition Services Agreement and General Release (the “Separation Agreement”). As a result of the Separation Agreement, the Company booked $2,926,439 of compensation expense in the third quarter of 2020. This compensation expense related to a stock grant of 775,000 shares of common stock with an associated $2.50 put option on up to 550,000 of those shares through December 30, 2021, cash bonuses and salaries. In addition, the Company purchased 1,353,795 shares from Mr. Spencer at the market closing price of the Company’s common stock on July 31, 2020. As a result of these transactions, the Company was required to pay $918,852 in withholding taxes, for which Mr. Spencer was required to reimburse the Company under the Separation Agreement. As of September 30, 2020, that balance was reflected in the Company’s related party receivables.
Technology expenses represented $1,754,245 during the first nine months of 2020 versus $1,390,161 in the same period of 2019, driven by an increase in wages fromwage expense during the additionfirst nine months of Pair2020. Selling expenses during 2018. Technology expenses represented $865,899the first nine months of 2020 were $842,001 versus $702,521 during the same period in 2018 versus $306,059 in 2017,2019 driven by an increase in wages from the addition of Pair during 2018. Selling expenses in 2018 were $427,373 versus $159,934 in 2017 with the addition of the selling team for Pair.advertising expense. Customer support expenses in 2018the first nine months of 2020 were $1,375,295$2,310,430 versus $85,622$1,995,309 during the same period in 20172019 driven by an increase in support staff costs.
Depreciation and amortization expenses consist of charges relating to the 24/7 support provided by Pair.depreciation of the property and equipment used in our operations and the amortization of intangible assets. Depreciation and amortization expense for the first nine months of 2020 was $1,452,571 and $2,199,214 during the same period in 2019. During the first nine months of 2020, Libsyn contributed $62,488 and Pair contributed $1,390,083 to depreciation and amortization expense.
Interest expense for the first sixnine months of 20182020 was $199,203,$123,823 compared to $245,002 for the first nine months of 2019, which represents interest on the loan facilityFacility obtained in connection with the acquisition of Pair. Interest expense for the nine months of 2020 was offset by interest income of $74,772, resulting in net cash expenditure of $49,051.
Income tax benefitexpense for the sixnine months ended JuneSeptember 30, 20182020 was $1,097,850,$2,658,998, which represents a change in the deferred tax asset from the 2018 tax provisionassets and the expected federal balance due for 2018.the nine months ended September 30, 2020. There has been no change to the Company’s NOL carryforward uncertain tax position. Income tax expense for the nine months ended September 30, 2019 was $689,071.
In connection with an ongoing IRS examination, the Company has been asked to provide certain financial records supporting tax returns previously filed by Fab Universal Corp. (“FAB”) prior to the spin-off of the Company. The incomeIRS request is related to a failure by FAB to include certain financial information related to certain of its subsidiaries in its consolidated tax payablereturns. We believe it is unlikely that we will be payableable to provide the IRS with the amended returnrequested financial records due to FAB’s record retention policies. As a result, we believe we have an uncertain tax position related to the utilization in our 2016, 2017, and 2018 tax returns of the net operating loss carryforwards associated with the Webmayhem subsidiary operations for 2007-2015. Accordingly, we have recorded an uncertain tax provision reserve of approximately $1.2 million for the quarter ended September 30, 2020.
The Company’s net incomeloss was $2,453,331$628,531 for the sixnine months ended JuneSeptember 30, 2018.2020. This represents a $2,244,555 increase$3,134,456 decrease from $208,776$2,505,925 for the sixnine months ended JuneSeptember 30, 2017.
2019. Earnings per share decreased by $0.11 per share for the first nine months of 2020 when compared to the first nine months of 2019.
Three Months Ended JuneSeptember 30, 20182020 and 2017.2019
During the three months ended JuneSeptember 30, 2018,2020, the Company recorded revenues of $5,305,762,$6,511,707, a 112%5% increase overfrom revenues of $2,498,902$6,219,119 for the same period in 2017.2019. The increase for 20182020 reflects an increase in Libsyn 4Libsyn4 hosting revenue, as well as LibsynPro revenue, and Premium Subscription,Subscriptions, offset by a decrease in advertising. PairAdvertising revenue. Libsyn contributed $2,280,027$4,078,303 and $3,637,589 of revenue during the second quarterthree months ended September 30, 2020 and 2019, respectively. Pair contributed $2,433,404 and $2,581,530 of 2018,revenue during the three months ended September 30, 2020 and $0 during 2017 due to the acquisition in December 2017. 2019, respectively.
Libsyn4 hosting revenue increased $467,566, or 17%, during the three months ended September 30, 2020 when compared to the same period in 2019 due to the growth in the number of podcasts on the network when comparing the second quarter of 2018 versus 2017.network. LibsynPro revenue increasedgrew by 8% as a result of additional LibsynPro networks using our platforman increase in 2018LibysnPro customers with increased listening habits and higher bandwidth usage fees for delivery of podcasts contributing to the majority of thetransfer revenue gain.resulting from a rise in podcast consumption. Advertising revenue decreased due to$29,269 during the three months ended September 30, 2020 versus the same period of 2019. The decrease resulted from a decrease in spendingthe dollars being spent on campaignadvertising campaigns during the second quarter of 2018.three months ended September 30, 2020 with existing advertisers. Premium subscription revenue increased due an increasedecreased $40,615 in the number producers offering subscription.three months ended September 30, 2020 versus the same period of 2019.
The Company recorded total costs and operating expenses of $4,400,476$7,927,250 during the three months ended JuneSeptember 30, 2018,2020, a 187%47% increase as compared to total costs and operating expenses of $1,531,732 in$5,391,594 during the same period of 2017. Pair2019. Libsyn contributed $2,720,842$5,168,942 to total costs and operating expenses during the second quarter of 2018,three months ended September 30, 2020, and $0$2,233,922 during 2017 duethe same period in 2019. Pair contributed $3,019,019 to total costs and operating expenses during the acquisitionthree months ended September 30, 2020 and $2,654,990 during the same period in December 2017.2019.
During the three months ended JuneSeptember 30, 2018,2020, cost of revenue totaled $704,515,$937,863, a 21%6% increase as compared to $580,724$881,171 for the same period in 2017.2019. Libsyn contributed $490,068 while Pair contributed $165,475$447,795 to the cost of revenue during the second quarter of 2018,three months ended September 30, 2020. Libsyn recorded an increase in credit card processing fees and colocation fees, offset by a decrease in bandwidth costs and ad sharing that is being paid to producers during the three months ended September 30, 2020 versus the same period in 2018 versus 2017, driven by2019. Pair recorded a decrease in revenue. As a percentage of revenue, cost of revenue decrease from 23% to 13%domain name fees and internet fees for the three months ended JuneSeptember 30, 2018 versus 2017, which was driven by Pair’s at 7%2020. Cost of revenue as a percentage of revenue for Libsyn increased to 18% during the three months ended JuneSeptember 30, 2018.2020 from 11% during the same period in 2019. This is a reflection of an increase in bandwidth usage during the three months ended September 30, 2020 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform offset by a reduction in the bandwidth rate to deliver the podcasts. Additionally, Libsyn’s revenue increased by 58% during the three months ended September 30, 2020. Cost of revenue as a percentage of revenue for Pair increased to 18% during the three months ended September 30, 2020 from 11% during the same period in 2019. This is due primarily to the increase in domain name purchase fees and internet connectivity fees. Additionally, Pair’s revenue increased by 13% during the three months ended September 30, 2020.
General and administrative expenses totaled $1,516,587$4,820,259 during the three months ended September 30, 2020 versus $2,339,966 during the same period in 2018 versus $646,981 in 2017,2019, an increase of 134%,106%. The increase was driven primarily due to the $2,926,439 related to our former CEO’s Separation Agreement and expenses related to legal support costs. 2019 expenses included $444,620 of legal and advisory fees incurred by the Company in associated with its settlement with Camac. General and administrative expense for Pair during the three months ended September 30, 2020 was $649,683 and $666,950 for the same period in 2019. General and administrative expense for Libsyn for the same periods was $4,170,576 and $1,673,016, respectively.
During the third quarter of 2020, the Company and Mr. Spencer, the Company’s former CEO, entered into the Separation Agreement. As a result of the Separation Agreement, the Company booked $2,926,439 of compensation expense in the third quarter of 2020. This compensation expense related to a stock grant of 775,000 shares of common stock with an associated $2.50 put option on up to 550,000 of those shares through December 30, 2021, cash bonuses and salaries. In addition, the Company purchased 1,353,795 shares from Mr. Spencer at the market closing price of the Company’s common stock on July 31, 2020. As a result of these transactions, the Company was required to pay $918,852 in withholding taxes, for which Mr. Spencer was required to reimburse the Company under the Separation Agreement. As of September 30, 2020, that balance was reflected in the Company’s related party receivables.
Technology expenses represented $595,393 during the three months ended September 30, 2020 versus $478,372 for the same period in 2019, driven by an increase in wages fromwage expense during the addition of Pairthree months ended September 30, 2020. Selling expenses during 2018, and increasesthe three months ended September 30, 2020 were $312,179 versus $293,185 during the same period in personnel and wages within Libsyn, and the contribution to the profit sharing plan. Technology expenses represented $492,573 in the second quarter of 2018 versus $163,017 in 2017,2019 driven by an increase in personnel from the addition of Pair during 2018. Sellingadvertising expense. Customer support expenses in the second quarter of 2018three months ended September 30, 2020 were $210,371$833,315 versus $83,896$686,876 during the same period in 2017,2019 driven by an increase in wages and advertising from the addition of Pair during 2018.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 three months ended September 30, 2020 was $428,241 and $712,024 during the same period in 2019. During the three months ended September 30, 2020, Libsyn contributed $20,409 and Pair contributed $407,832 to depreciation and amortization expense.
Interest expense for the three months ended September 30, 2020 was $27,319 compared to $75,280 in the three months ended September 30, 2019, which represents interest on the Facility obtained in connection with the acquisition of Pair. Interest expense for the three months ended September 30, 2020 was offset by interest income of $7,387, resulting in net cash expenditure of $19,932.
Income tax expense for the three months ended JuneSeptember 30, 20182020 was $173,209,$727,269, which represents a change in the deferred tax asset from the 2018 tax provisionassets and the expected federal balance due for 2018. The incomethe three months ended September 30, 2020. There has been no change to the Company’s NOL carryforward uncertain tax payable will be payable withposition. Income tax expense for the amended return in 2020.three months ended September 30, 2019 was $178,129.
The Company’s net incomeloss was $649,357$2,024,006 for the three months ended JuneSeptember 30, 2018.2020. This represents a $317,813$2,665,261 decrease from our net income of $967,170$641,255 for the three months ended JuneSeptember 30, 2017.2019. Earnings per share decreased by $0.09 for the three months ended September 30, 2020 when compared to the three months ended September 30, 2019.
Liquidity and Capital Resources.
Cash on hand was $8,169,634$13,818,169 at JuneSeptember 30, 2018, an increase2020, a decrease of $ 2,957,789$2,803,103 over the $5,211,845$16,621,272 on hand at December 31, 2017.2019. Cash provided by operations for the sixnine months ended JuneSeptember 30, 2018,2020, was $ 3,944,684, an increase$2,591,558, a decrease of $2,634,922$3,670,880 over the $1,309,762$6,262,438 of cash provided by operations for the sixnine months ended JuneSeptember 30, 2017.2019. The contribution from PairLibsyn of this cash generationusage for the nine months ended September 30, 2020 totaled $1,234,781,$1,560,023, and Libsyn added $2,709,903. ThisPair used $1,031,535. The decrease in cash provided by operations was due to fluctuations in working capital, including an increase is driven from our operating results of both segments of our business.in taxes paid.
Cash used in investing activities of $152,729 during$173,059 for the second quarter of 2018nine months ended September 30, 2020 was for the purchase of equipment and capitalization of software development costs. Cash used in investing activities for the purchase of equipment and capitalization of software development costs was $353,040 during the same period in 2019.
Cash used in financing activities was $834,166$5,221,602 for the sixnine months ended JuneSeptember 30, 20182020 and $8,000$1,254,377 in 2017.the same period of 2019. During the first sixnine months of 2018, we2020, the Company made our$1,200,000 of payments on the loan used to acquire Pair, a total of $800,000,Facility, as well as $34,166$831 of payments on ourthe capital lease. In addition the company acquired 1,353,795 shares of stock for $4,020,771 on July 31, 2020. During the first nine months of 2019, the Company made $1,200,000 of payments on the Facility, as well as $36,012 of payments on the capital lease.
The increaseOur operations and business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. While the Company has taken mitigating actions in cashassessing our business operations and system supports including for employees to work remotely, there can be no assurance that these actions will enable us to avoid part or all of $2,957,789 duringany impact from the first six monthsspread of 2018 is a reflection of the strength of the overallCOVID-19 or its consequences, including downturns in business through the first six months of 2018.
Off-balance sheet arrangements
We have operating leases for certain facilities, but otherwise do not have any off-balance sheet arrangements that have,conditions generally or are reasonably likely to have, a current or future material effect onin our financial condition, results of operations, liquidity, or capital resources.
The future minimum lease payments for non-cancelable operating leases having remaining termssector in excess of one year as of June 30, 2018 are as follows:
| Year ending June 30: | |
| 2019 | 466,260 |
| 2020 | 466,260 |
| 2021 | 466,260 |
| 2022 | 150,452 |
| Total Minimum Lease Payment | $1,549,232 |
ItemItem 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
ItemItem 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 ChiefPrincipal 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 companyCompany have been detected.
As of June 30, 2018, anAn evaluation was carried out under the supervision and with the participation of our management, including the ChiefPrincipal Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the ChiefPrincipal Executive Officer and the Chief Financial Officer concluded that, as of such date,September 30, 2020, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level due to limited accounting and reporting personnel and a lack of segregation of duties due to limited financial resources and the identification of errors which led to certainsize of our financial statements being restated.Company. On an on-going basis we will evaluate the adequacy of our controls and procedures.
The Company anticipates management attestation related to compliance with Section 404 of the Sarbanes-Oxley Act as of either the third quarter of 2021 or the first quarter of 2022. We are in the process of engaging a project partner to support the implementation of a compliant internal control regime and anticipate starting an implementation project for Section 404 compliance in the first quarter of 2021.
(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 JuneSeptember 30, 20182020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
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 the Company, including, inter alia, claims for wages, compensation and benefits, and claims of 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 Section 9(c) of the Employment Agreement. The Company denies Mr. Busshaus’ claims in their entirety and intends to vigorously defend its position.
Item 1A. Risk Factors.Factors
NotThe COVID-19 pandemic may adversely impact our business, results of operations and financial position.
Our operations and business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. While the Company has taken mitigating actions in our business operations and system supports, including arranging for employees to work remotely, there can be no assurance that these actions will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business conditions generally or in our sector in particular.
The Company may be subject to state income taxes it has not paid, collected from our customers or reserved for on our financial statements, which could materially adversely affect our business, financial condition or operating results. The Company has also underreported the personal income and failed to withhold sufficient Federal withholding taxes for certain employees, officers and directors which will result in a future Federal income tax liability.
On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent.
The Company has failed to apportion revenue and file 2019 and 2020 state and local sales and income tax returns in the manner required by the Wayfair decision. We have evaluated our state tax filings with respect to the Wayfair decision and are in the process normalizing our related tax practices. The Company has engaged a state sales tax compliance firm and is currently conducting an effort to accomplish appropriate apportionment and normalize its state and federal filings for smaller reporting companies.sales, use, and income taxes. The Company does not anticipate having a detailed estimation of the taxes owed and associated normalization costs until the early 2021. The tax liability is therefore currently not estimable. The company anticipates completing the estimation and booking a reserve as part of its fourth quarter results.
It is possible that one or more jurisdictions may assert that we have liability for periods for which we have not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could materially and adversely affect our business, financial condition and operating results. In addition, one or more jurisdictions may change their laws or policies to apply their sales, use or other similar taxes to our operations, and if such changes were made it could materially and adversely affect our business, financial condition, and operating results.
During the third quarter of 2020, the Company determined that it had incorrectly reported the personal income related to its restricted stock vesting events in 2017, 2018, and 2019. The Company underreported such personal income, failed to report the income in a timely fashion and failed to withhold Federal withholding taxes at an appropriate level. As a result, the Company has begun to amend its quarterly payroll tax filings and to issue amended reports of income to the impacted employees, officers and directors. The total amount of underreported personal income across the three years is $3.8 million. The Company expects to complete its normalization efforts, including amending its annual Federal and state income tax returns, by the first quarter of 2021. The Company is unable estimate the total tax liability related to this error until it receives assessment calculations from the IRS.
ItemItem 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)Item 3. Defaults Upon Senior Securities
During the quarterly period ended June 30, 2018, there were no changes to the procedures by which shareholders’ may recommend nominees to the Company’s board of directors.
None; not applicable.
Item 4. Mine Safety Disclosures
None; not applicable.
Item 5. Other Information
None; not applicable.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
Index to Exhibits
(ii)
Exhibit No.
Description
302 Certification of Christopher J. Spencer
302 Certification of Gabriel J. Mosey
101.1
The following materials from the Registrant’s Quarterly Report onexhibits are filed as part of, or incorporated by reference into, this Form 10-Q for the quarter ended June 30, 2018 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.10-Q.
| Exhibit Number | | Exhibit Description |
| | Bylaws of the Company, amended as of September 24, 2020, incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2020. |
| | Employment Agreement, dated as of July 29, 2020, between the Company and Richard P. Heyse, incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 4, 2020. |
| | Separation and Transition Services Agreement and General Release, dated July 31, 2020, between the Company and Christopher Spencer, incorporated by reference to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 5, 2020. |
| | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.1 | | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 are formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) the Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2020 and 2019, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (v) Notes to Condensed Consolidated Financial Statements for the nine months ended September 30, 2020. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: | 7/10/2020 | | By: | /s/ Christopher J. Spencer | LIBERATED SYNDICATION INC. |
| | | | | Christopher J. Spencer(Registrant) |
| | | | | Chief Executive Officer and President |
Date: | 7/10/2020 | | | /s/ Gabriel J. Mosey |
| | | | | Gabriel J. Mosey |
| | | | | Interim |
| Date: November 16, 2020 | | By: | | /s/ Laurie A. Sims |
| | | | Laurie A. Sims |
| | | | President, Chief Operating Officer and Principal Executive Officer |
| | | | |
| | | | |
| | | | |
| Date: November 16, 2020 | | By: | | /s/ Richard P. Heyse |
| | | | Richard P. Heyse |
| | | | Chief Financial Officer |
