UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-55779
LIBERATED SYNDICATION INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 47-5224851 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5001 Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
(Address of Principal Executive Offices)
Registrant's Telephone Number: (412) 621-0902
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of ‘‘large accelerated filer”, “accelerated filer,’’ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | | | Accelerated filer ☐ | | | |
Non-accelerated filer ☒ | | | Smaller reporting company ☒ | | | |
Emerging growth company ☒ | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐No☒
As of November 12, 2019, there were 29,271,974 shares of common stock, par value $0.001, of the registrant issued and outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Unaudited Condensed Consolidated Financial Statements of Liberated Syndication Inc., a Nevada corporation (the “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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LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | September 30, 2019 (Unaudited) | |
| CURRENT ASSETS: | | |
| Cash | $15,734,962 | $11,079,941 |
| Accounts receivable, net | 548,895[1] | 481,921[1] |
| Prepaid expenses | 659,497 | 449,223 |
| Total current assets | 16,943,354 | 12,011,085 |
| | | |
| Property and equipment, net | 1,776,105 | 2,229,294 |
| Goodwill | 16,388,171 | 16,388,171 |
| Definite life - intangible assets, net | 6,393,700 | 7,786,686 |
| Prepaid expense | 337,860 | 191,609 |
Operating lease right-of-use assets | 1,015,442 | - |
| Total assets | $42,854,632 | $38,606,845 |
| | | |
| CURRENT LIABILITIES: | | |
| Accounts payable | $1,106,734 | $745,889 |
| Accrued expenses | 1,241,863 | 377,572 |
| Deferred revenue | 2,289,883 | 2,276,079 |
| Current portion of capital lease obligation | 19,439 | 72,986 |
| Current portion of loans payable, net | 2,642,470 | 2,638,599 |
| Current portion of operating lease liabilities | 503,958 | - |
| Total current liabilities | 7,804,347 | 6,111,125 |
| | | |
| LONG TERM LIABILITIES: | | |
| Loans payable, net | 4,499,378 | 5,681,767 |
| Capital lease obligation, net of current portion | - | 831 |
| Deferred revenue, net of current portion | 556,655 | 371,938 |
| Operating lease liabilities | 511,484 | - |
| Total long-term liabilities | 5,567,517 | 6,054,536 |
| Total liabilities | 13,371,864 | 12,165,661 |
| | | |
| COMMITMENTS & CONTINGENCIES | - | - |
| | | |
| STOCKHOLDERS' EQUITY | | |
| Common stock | 29,272 | 29,722 |
| Additional paid-in capital | 34,857,590 | 35,010,552 |
| Accumulated deficit | (5,404,094) | (8,599,090) |
| Total stockholders' equity | 29,482,768 | 26,441,184 |
| Total liabilities and stockholders' equity | $42,854,632 | $38,606,845 |
| | | |
Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical) | |
| Statement of Financial Position | | |
| Allowance for doubtful accounts [1] | 14,000 | 14,000 |
| Common stock authorized | 200,000,000 | 200,000,000 |
| Common stock par value | 0.001 | 0.001 |
| Common stock issued and outstanding | 29,271,974 | 29,721,974 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | | |
| | | | | |
| | | | | |
| Revenue | $6,219,119 | $5,726,425 | $18,202,733 | $16,091,492 |
| | | | | |
| Costs and operating expenses | | | | |
| | | | | |
| Cost of revenue (excluding depreciation and amortization) | 881,171 | 962,817 | 2,581,659 | 2,374,702 |
| General and administrative | 2,339,966 | 1,348,731 | 6,074,072 | 4,570,630 |
| Technology | 478,372 | 426,339 | 1,390,161 | 1,292,238 |
| Selling | 293,185 | 220,460 | 702,521 | 647,833 |
| Customer support | 686,876 | 680,094 | 1,995,309 | 2,055,389 |
| Depreciation and amortization | 712,024 | 736,818 | 2,199,214 | 2,273,083 |
| Total costs and operating expenses | 5,391,594 | 4,375,259 | 14,942,936 | 13,213,875 |
| Operating income | 827,525 | 1,351,166 | 3,259,797 | 2,877,617 |
| | | | | |
| | | | | |
| Interest expense | (75,280) | (92,002) | (245,002) | (291,205) |
| Interest income | 66,862 | 21,904 | 178,551 | 44,970 |
| Other income (expense) | 277 | 3,690 | 1,650 | 8,857 |
| Income from operations before income taxes | 819,384 | 1,284,758 | 3,194,996 | 2,640,239 |
| | | | | |
| Income tax expense (benefit) | - | - | - | - |
| Net Income | $819,384 | $1,284,758 | $3,194,996 | $2,640,239 |
| | | | | |
| | | | | |
| BASIC AND DILUTED INCOME PER COMMON SHARE | $0.03 | $0.04 | $0.11 | $0.09 |
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 29,271,974 | 29,776,974 | 29,441,754 | 29,733,256 |
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The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| |
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| | | | | | |
| Balance at December 31, 2018 | 29,721,974 | $29,722 | $35,010,552 | $(8,599,090) | $26,441,184 |
| Recapture of prior period non-cash compensation charges in the current period | - | - | (830,500) | - | (830,500) |
| Non-cash compensation awards | - | - | 677,088 | - | 677,088 |
| Net income | - | - | - | 1,527,633 | 1,527,633 |
| Balance at March 31, 2019 | 29,721,974 | $29,722 | $34,857,140 | $(7,071,457) | $27,815,405 |
| Stock forfeiture | (450,000) | (450) | 450 | - | - |
| Net income | - | - | - | 847,979 | 847,979 |
| Balance at June 30, 2019 | 29,271,974 | $29,272 | $34,857,590 | $(6,223,478) | $28,663,384 |
| Net income | - | - | - | 819,384 | 819,384 |
| Balance at September 30, 2019 | 29,271,974 | $29,272 | $34,857,590 | $(5,404,094) | $29,482,768 |
| | | | | |
| | | | | | |
| Balance at December 31, 2017 | 29,595,473 | $29,596 | $34,804,457 | $(12,386,887) | $22,447,166 |
| Issuance of Common Stock for services | 200,000 | 200 | 317,800 | - | 318,000 |
| Return of Common Stock for final settlement of Pair Acquisition | (18,499) | (19) | (29,260) | - | (29,279) |
| Net Income | - | - | - | 532,915 | 532,915 |
| Balance at March 31, 2018 | 29,776,974 | $29,777 | $35,092,997 | $(11,853,972) | $23,268,802 |
| Net Income | - | - | - | 822,566 | 822,566 |
| Balance at June 30, 2018 | 29,776,974 | $29,777 | $35,092,997 | $(11,031,406) | $24,091,368 |
| Net Income | - | - | - | 1,284,758 | 1,284,758 |
| Balance at September 30, 2018 | 29,776,974 | $29,777 | $35,092,997 | $(9,746,648) | $25,376,126 |
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| | Nine Months Ended September 30, |
| | | |
| | | |
| Cash Flows from Operating Activities | | |
| Net income | $3,194,996 | $2,640,239 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization expense | 2,199,214 | 2,273,083 |
| Issuance of common stock for services | - | 318,000 |
| Non-cash compensation expense, net of recapture | (153,412) | - |
| Amortization of right-of-use asset | 382,379 | - |
| Discount on loan fees | 21,483 | 25,478 |
| Change in assets and liabilities: | | |
| Accounts receivable | (66,974) | 78,906 |
| Prepaid expenses | (356,525) | (419,633) |
| Accounts payable | 360,845 | 11,853 |
| Accrued expense | 864,290 | (462,152) |
| Operating lease liabilities | (382,379) | - |
| Deferred revenue | 198,521 | 1,192,715 |
| Net Cash Provided by Operating Activities | 6,262,438 | 5,658,489 |
| | | |
| Cash Flows from Investing Activities: | | |
| | | |
| Purchase of property and equipment | (353,040) | (254,527) |
| Net Cash Used in Investing Activities | (353,040) | (254,527) |
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| Cash Flows from Financing Activities: | | |
| Repayment on term loan | (1,200,000) | (1,200,000) |
| Repayment on capital lease | (54,377) | (51,589) |
| Net Cash Used in Financing Activities | (1,254,377) | (1,251,589) |
| | | |
| Net Increase in Cash | 4,655,021 | 4,152,373 |
| Cash at Beginning of Period | 11,079,941 | 5,211,845 |
| Cash at End of Period | $15,734,962 | $9,364,218 |
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| Supplemental Disclosures of Cash Flow Information | | |
| Cash paid during the periods for: | | |
| Interest | $223,519 | $263,981 |
| Income taxes | - | - |
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Supplemental Disclosures of Cash Flow Investing and Financing Activities | |
| Right-of-use operating lease assets obtained in exchange for operating lease liabilities | 1,397,821 | - |
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The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Liberated Syndication Inc., (“Company”, “parent”), a Nevada Corporation, was organized on September 30, 2015. Webmayhem, Inc. (“Libsyn”), a Pennsylvania corporation, currently a wholly owned subsidiary of the Company, was originally organized on January 1, 2001. Libsyn provides podcast hosting services for producers of content. Libsyn also offers ad insertion on certain of the producers’ content. Libsyn offers hosting and distribution tools, including storage, bandwidth, syndication creation, distribution, and statistics tracking. Libsyn offers an enterprise solution for professional media producers and corporate customers and a premium subscription service that provides producers a custom App and a podcast Website where listeners can access their show, login to purchase a subscription, and get access to premium content.
On December 27, 2017, the Company purchased all the issued and outstanding shares of Pair Networks Inc., (“Pair”), a Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC (“Ryousha”) and 660837NB, Inc. (“NB”), in a transaction accounted for as a purchase.
Pair Networks Inc. provides web hosting services and domain name registrations. Services include shared web hosting, e-commerce, fully managed virtual private and dedicated servers, customer self-managed dedicated servers, domain-name registration, co-location and content-delivery networks. Pair began operations in August 1995. It incorporated in the state of Pennsylvania in August 1998. Pair’s principal operations are conducted on-site in Pittsburgh, PA. Pair also has an operating site in Denver, Colorado, and a remote site back-up location in Pittsburgh, PA.
Ryousha Kokusai, LLC (dba Pair International), a wholly owned single-member limited liability company subsidiary of Pair, was formed on January 1, 2015. The Value Added Tax (VAT) for sales to European Union countries subject to the VAT in Europe are paid through Ryousha Kokusai LLC. There are no operating activities conducted by Ryousha. NB, a Canadian Company was organized on December 2, 2011. NB is used solely for holding the Canadian tradenames and domain names of Pair. There are no operating activities conducted by NB.
Basis of Presentation – Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include our accounts and the accounts of our subsidiaries. All material intercompany accounts and transactions have been eliminated.
Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2019.
These financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the 2018 Form 10-K).
Prior Period Reclassifications - Reclassification of $318,000 common stock in prior periods was recorded as a Non-cash compensation item in the Statement of Operations. Per SAB 14, this has been reclassified and included in General and administrative line item.
Accounting Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management made assumptions and estimates for determining reserve for accounts receivable, depreciation of fixed assets and in determining the impairment of definite life intangible assets and goodwill. Actual results could differ from those estimated by management.
Our more significant estimates include:
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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;
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the grant date fair value of equity-based awards;
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the recognition, measurement, and valuation of current and deferred income taxes;
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
We periodically evaluate these estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ from our estimates.
Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. At September 30, 2019, the Company had $15,301,198 cash balances in excess of federally insured limits.
Depreciation – Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. At September 30, 2019 and December 31, 2018, the Company has an allowance for doubtful accounts of $14,000 and $14,000, respectively, which reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the nine months ended September 30, 2019 and 2018, the Company adjusted the allowance for bad debt by $0.
Definite-life intangible assets – The Company evaluates its long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the asset.
Technology Costs - Software development costs associated with software to be sold, leased, or for internal use are expensed as incurred until technological feasibility, defined as a working model or prototype, has been established. At that time, such costs are capitalized until the product is available for general release. To date, costs incurred between the completion of a working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has expensed all such costs to technology during the nine months ended September 30, 2019 and 2018. Technology costs totaled $1,390,161 and $1,292,238 for the nine months ended September 30, 2019 and 2018, respectively.
Goodwill – Goodwill is evaluated for impairment annually on December 31, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. Management noted no triggering events during the period ended September 30, 2019.
Advertising Costs – Advertising costs are expensed as incurred and amounted to $64,254 and $95,075 for the nine months ending September 30, 2019 and 2018, respectively.
Fair Value of Financial Instruments – The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
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Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
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Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
The fair value of the Company’s equity-based awards recorded in the Company’s financial statements during the first quarter of 2019 was determined using a Monte Carlo simulation valuation methodology based upon a Geometric Brownian Motion stock path, a Level 3 measurement. Volatility was based on historical volatility of the Company’s common stock over commensurate periods. The expected life was based on the contractual term of the award, and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity similar to the awards’ expected life.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, and accounts payable, deferred revenue and accrued expenses approximates their recorded values due to their short-term maturities.
Revenue Recognition - The Company accounts for revenue in accordance with ASC Topic 606. Revenue is recognized when control of the promised services is transferred to our customers, in an amount reflecting the consideration we expect to be entitled to in exchange for those services.
Certain products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds reduce deferred revenue at the time they are granted and resulted in a reduced amount of revenue recognized over the contract term of the applicable service compared to the amount originally expected.
Our revenue is categorized and disaggregated as follows:
Domains - Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders, aftermarket domain sales and fee surcharges paid to ICANN. Domain registrations provide a customer with the exclusive use of a domain during the applicable contract term. After the contract term expires, unless renewed, the customer can no longer access the domain. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue, other than for aftermarket domain sales, is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term. Aftermarket domain revenue is recognized when ownership of the domain is transferred to the buyer.
Hosting Services - Hosting services revenue primarily consists of website hosting products, website building products and services, website security products, an online shopping cart and online visibility products and email accounts. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
Podcast Hosting - Podcast hosting publishing services are billed on a month to month basis, with first month’s bill prorated to the end of the month so all performance obligations are satisfied at each month-end. Consideration is recorded as revenue as the services, the underlying performance obligation, are provided and or satisfied and collection is probable which is generally when received.
Media Subscription Services - The Company facilitates the sale of producers’ premium content through the sale of subscriptions. The amount earned per transaction is fixed with the producers determining the price for the sale of each subscription, and the Company earns a percentage of what the customer pays. The performance obligation is providing the subscription hosting medium and billing services. Accordingly, the Company reports premium subscription revenue on a net basis over the subscription service period in which the performance obligation is satisfied.
Advertising - The Company recognizes revenue from the insertion of advertisements in digital media. The performance obligation is the download of the digital media with the advertisement inserted. The performance obligation to recognize advertising revenue is satisfied upon delivery of the media download and collection is probable.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Equity-Based Compensation - Our equity-based awards are comprised of stock and are accounted for using the fair value method. Stock is measured based on the fair market value of the underlying common stock on the date of grant. Awards vest and compensation is recognized over the requisite service period. The measurement date for performance vesting awards is the date on which the applicable performance criteria are approved by our board of directors.
Leases – On January 1, 2019, the Company adopted Accounting Standards Codification ASC 842, Leases. ASC 842 was issued to increase transparency and comparability among entities by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements.
We elected to transition to ASC 842 using the option to apply the standard on its effective date, January 1, 2019. The comparative periods presented reflect the former lease accounting guidance and the required comparative disclosures are included in Note 8 – Leases. There was not a material cumulative-effect adjustment to our beginning retained earnings as a result of adopting ASC 842. We have recognized additional operating lease assets and obligations of $1.4 million and $1.0 million as of January 1, 2019 and September 30, 2019, respectively. For additional disclosure and detail, see Note 8 – Leases.
Earnings Per Share – The Company computes earnings per share in accordance with FASB ASC Topic 260 Earnings Per Share, which requires the Company to present basic earnings per share and diluted earnings per share when the effect is dilutive (see Note 9).
Income Taxes – The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This topic requires an asset and liability approach for accounting for income taxes (See Note 7).
Recently Enacted Accounting Standards - Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 2 - PROPERTY & EQUIPMENT
The following is a summary of property and equipment at:
| | | | |
| | | | |
| Furniture, fixtures, and equipment | 3-10 yrs | $8,262,927 | $8,155,322 |
| Leasehold improvements | 3 - 5 yrs | 2,646,400 | 2,646,400 |
| Software | 3 yrs | 507,480 | 262,046 |
| | 11,416,807 | 11,063,768 |
| Less: Accumulated depreciation | | (9,640,702) | (8,834,474) |
| Property & equipment, net | | $1,776,105 | $2,229,294 |
Depreciation expense for the nine months ended September 30, 2019 and 2018 was $806,229 and $880,097, respectively.
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS
Goodwill - The following is a summary of goodwill:
| | | |
| | | |
| | | |
| Pair | $4,903,920 | $4,903,920 |
| Libsyn | 11,484,251 | 11,484,251 |
| Goodwill at end of period | $16,388,171 | $16,388,171 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS - Continued
Other definite-life intangible assets - Other intangible assets consist of customer relationships, intellectual property, trade name and non-compete, which were generated through the acquisition of Pair. Management considers these intangible assets to have finite-lives except trade name. These assets are being amortized on a straight-line basis over their estimated useful lives.
As of September 30, 2019, identifiable intangible assets consist of following:
| | | Weighted Average Useful Life (in Years) | | |
| Customer Relationships | $3,947,000 | 7 | $986,750 | $2,960,250 |
| Intellectual Property | 3,709,000 | 7 | 927,250 | 2,781,750 |
| Trade Name | 576,000 | 10 | 100,800 | 475,200 |
| Non-compete | 1,412,000 | 2 | 1,235,500 | 176,500 |
| Total | $9,644,000 | | $3,250,300 | $6,393,700 |
Amortization expense for the nine months ended September 30, 2019 and 2018 was $1,392,986 and $1,392,986, respectively.
The estimated future amortization expenses related to other intangible assets as of September 30, 2019 are as follows:
| For twelve months ending September 30, | |
| 2020 | $1,680,814 |
| 2021 | 1,151,315 |
| 2022 | 1,151,314 |
| 2023 | 1,151,314 |
| 2024 | 1,151,314 |
| Thereafter | 107,629 |
| Total | $6,393,700 |
NOTE 4 - LOANS
On December 27, 2017, the Company entered into a loan agreement (the “Loan Agreement”) among the Company, Libsyn, and Pair, together, and First Commonwealth Bank, a Pennsylvania bank and trust company (the “Bank”).
The Loan Agreement provides for: (i) a revolving credit facility pursuant to which the Company may borrow an aggregate principal amount not to exceed $2,000,000 (the “Revolving Credit Facility”); and (ii) a term loan in a principal amount equal to $8,000,000 (the “Term Loan” and, together with the Revolving Credit Facility, the “Facility”). A portion of the Revolving Credit Facility, up to $500,000, may be used for standby letters of credit for the account of the Company. As of September 30, 2019, $2,000,000 was drawn down on the revolving line with $0 available.
The loan currently accrues interest at LIBOR plus 125 base points or prime plus 75 basis points at the election of the Company. As of September 30, 2019, the Company has elected LIBOR plus 125 basis points or 3.2935%.
The Term Loan is repayable in quarterly installments of $400,000 commencing on March 30, 2018 and on the last day of each June, September, December and March thereafter, through and including September 30, 2022. Accrued interest is payable in arrears not less frequently than quarterly. The remaining unpaid principal balance of the Term Loan, together with accrued interest thereon, is due and payable in full on December 27, 2022. The Term Loan also calls for additional payment equal to the following: 1)100% of the proceeds from the sale of any common shares 2) 100% of the proceeds from the sale of assets not immediately replaced 3) excess liquidity in any given year up to $1,066,667 a year and no more than $3,200,000 over the life of the term loan. Excess liquidity is obtained when the audited financial statements reflect a cash balance greater than $4,600,000. Based upon the 2018 financial statements, the company demonstrates excess liquidity per the Term Loan agreement. As such, the company has included the expected $1,066,667 payment to the bank as a current liability as of September 30, 2019. As of September 30, 2019, the balance on the term loan was $5,200,000.
NOTE 4 – LOANS – Continued
The Company, Libsyn and Pair have granted the bank a blanket security interest in their respective assets, and the Company has pledged the stock of Webmayhem Inc. and Pair Networks Inc. to the bank, as security for all obligations under the Loan Agreement.
Borrowings under the Facility are at variable rates which are, at the Company’s option, tied to LIBOR (London Interbank Offered Rate) plus an applicable rate or a prime rate. Interest rates are subject to change based on the Company’s combined cash balances. The Facility contains covenants that may have the effect of limiting the ability of the Company to, among other things, merge with or acquire other entities, enter into a transaction resulting in a change in control, create certain new liens, incur certain additional indebtedness, engage in certain transactions with affiliates, engage in new lines of business or sell a substantial part of its assets. The Facility also requires the Company to maintain certain consolidated fixed charge coverage ratios and minimum liquidity balances.
The Facility also contains customary events of default, including (but not limited to) default in the payment of principal or, following an applicable grace period, interest, breaches of the Company’s covenants or warranties under the Facility, payment default or acceleration of certain indebtedness of the Company or any subsidiary, certain events of bankruptcy, insolvency or liquidation involving the Company or its subsidiaries, certain judgments or uninsured losses, changes in control and certain liabilities related to ERISA based plans.
On December 27, 2017, the Company drew $10,000,000 under the Facility to finance a portion of the cash consideration for the Purchase of Pair Networks, Inc. Debt issuance costs of $113,000 for the Facility were recorded as a discount and will be amortized over the life of the Facility. As of September 30, 2019, the discount was $58,151.
Future maturities of the loans at September 30, 2019 are as follows:
| Twelve months ending September 30, | |
| 2020 | $2,666,667 |
| 2021 | 1,600,000 |
| 2022 | 1,600,000 |
| 2023 | 1,333,333 |
| Thereafter | - |
| Total | $7,200,000 |
NOTE 5 - CAPITAL STOCK
Common Stock - The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of September 30, 2019, 29,271,974 shares were issued and outstanding.
In prior periods, the Company issued stock-based awards to employees that contained a vesting performance condition related to the occurrence of an uplisting of the Company’s common stock to the NASDAQ stock exchange. Such awards were initially expensed in the period issued as the Company deemed it probable the performance condition would be met. During the first quarter of 2019, approximately $830,500 of previously recognized expense related to these awards was recaptured in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”) as a credit to general and administrative expense as it became less than probable that such performance conditions would occur within the time specified in the stock award agreements. Per the settlement agreement, 300,000 of these shares will be returned after the period ending September 30, 2019 (See Note 12).
On March 15, 2019 (“Modification Date”), the Company modified certain stock awards previously issued which contained a market condition. The prior agreement required the Company’s adjusted market capitalization to exceed $75 million on five consecutive days by April 23, 2019, whereas the modified award increases the adjusted market capitalization threshold to $80 million on five consecutive days within 18 months of the Modification Date. In accordance with ASC 718, the Company recorded the incremental fair value of the newly modified award over the fair value of the original award, as compensation expense totaling $677,088.
On April 13, 2019, 450,000 shares of common stock were forfeited as certain milestones were not achieved.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK – Continued
No additional stock was issued during the third quarter of 2019.
During the first quarter of 2018, the Company issued 200,000 shares of common stock valued at $318,000 to a consultant for services rendered.
During the first quarter of 2018, the seller of Pair Networks Inc., returned 18,499 shares valued at $29,278 to the company as per the terms of the acquisition agreement dated December 27, 2017 in connection with the closing adjustment for the net-working capital provision.
NOTE 6 – DEFERRED REVENUE
Deferred revenue consists of the following:
| | | |
| Current: | | |
| Hosting services | $1,424,888 | $1,601,335 |
| Domains | 676,479 | 535,273 |
| Media subscription | 188,516 | 139,471 |
| | $2,289,883 | $2,276,079 |
| Noncurrent: | | |
| Hosting services | 19,930 | 39,071 |
| Domains | 536,725 | 332,867 |
| Total Deferred Revenue | $2,846,538 | $2,648,017 |
Deferred revenue as of September 30, 2019 is expected to be recognized as revenue as follows:
| | | | | | | | |
| | | | | | | | |
| Domains | $239,504 | $503,349 | $190,656 | $140,737 | $98,944 | $40,014 | $1,213,204 |
| Hosting | 716,671 | 717,259 | 10,888 | - | - | - | 1,444,818 |
| Media Subscription | 164,263 | 24,253 | - | - | - | - | 188,516 |
| | $1,120,438 | $1,244,861 | $201,544 | $140,737 | $98,944 | $40,014 | $2,846,538 |
Disaggregated revenue consists of following:
| | Three Months Ended September 30 | Nine Months Ended September 30 |
| | | | | |
| Hosting services | $2,335,098 | $2,246,071 | $6,953,733 | $6,439,706 |
| Podcast hosting | 3,415,664 | 2,794,994 | 9,880,191 | 7,945,625 |
| Advertising | 105,999 | 449,467 | 437,884 | 1,020,881 |
| Domains | 260,764 | 159,128 | 746,601 | 347,423 |
| Other | 101,594 | 76,765 | 184,324 | 337,857 |
| | $6,219,119 | $5,726,425 | $18,202,733 | $16,091,492 |
| | | | | |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company has available at September 30, 2019 operating loss carryforwards of approximately $4.3M which may be applied against future taxable income and which expires in various years through 2039.
The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss carryforwards and changes in the ownership of the Company, a valuation allowance has been established equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards. The net deferred tax assets are approximately $1.9M as of September 30, 2019, with an offsetting valuation allowance of the same amount. The change in the valuation allowance for the nine months ended September 30, 2019 approximated $925,000.
NOTE 8 – LEASES
We lease two office spaces, a Denver data center, and three Xerox machines. These leases are all classified as operating leases. There is one capital lease for Emerson batteries which is immaterial to our condensed consolidated financial statements. Operating lease assets and obligations are reflected within Operating lease right-of-use assets, Current portion of operating lease liabilities, and Operating lease liabilities, respectively, on the Condensed Consolidated Balance Sheet.
Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
We have options to renew lease terms for the office spaces and other assets. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of September 30, 2019 was 2.05 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, 2019 was 4.42%.
For the first nine months ended, September 30, 2019, cash paid for amounts in the measurement of lease liabilities was $417,893. Total operating lease costs during the same period were $419,137.
Maturity of lease liabilities:
| Twelve months ending September 30, | |
| 2020 | 532,657 |
| 2021 | 482,931 |
| 2022 | 47,950 |
| 2023 | 644 |
| 2024 | - |
| Thereafter | - |
| Total lease payments | 1,064,182 |
| Less amount of lease payment representing interest | (48,740) |
| Total present value of lease payments | 1,015,442 |
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES – Continued
As previously disclosed in our 2018 Form 10-K under the prior guidance of ASC 840, minimum payments under operating lease agreements as of December 31, 2018 were as follows:
| Twelve months ending December 31, | |
| 2019 | 557,190 |
| 2020 | 513,830 |
| 2021 | 381,239 |
| 2022 | 29,816 |
| 2023 | - |
| Thereafter | - |
| Total lease payments | 1,482,075 |
NOTE 9 –EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to Liberated Syndication Inc. by the weighted-average number of shares of common stock outstanding during the period. As of September 30, 2019, there were no common stock equivalents outstanding.
The following data shows the amounts used in computing earnings per share and the weighted average number of shares of common stock outstanding for the periods presented for the periods ended:
| | | For the Three Months | | For the Nine Months |
| | | September 30 | | September 30 |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Income from operations available to common stockholders (numerator) | $ | 819,384 | $ | 1,284,758 | $ | 3,194,996 | $ | 2,640,239 |
| Income available to common stockholders (numerator) | | 819,384 | $ | 1,284,758 | $ | 3,194,996 | $ | 2,640,239 |
| Weighted average number of common shares outstanding during the period used in earnings per share (denominator) | | 29,271,974 | | 29,776,974 | | 29,441,754 | | 29,733,256 |
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Although the Company does not expect to be liable for any obligations not expressly assumed by the Company from the Spin-Off, it is possible that the Company could be required to assume responsibility for certain obligations retained by FAB Universal Corp. (“FAB”), the former parent company of the Company, should FAB fail to pay or perform its retained obligations. FAB may have obligations that at the present time are unknown or unforeseen. As the nature of such obligations are unknown, we are unable to provide an estimate of the potential obligation. However, should FAB incur such obligations, the Company may be financially obligated to pay any losses incurred.
The Company has a 401(k) plan and profit-sharing plan for the benefit of the employees of the Company. Employees are eligible to participate in the plan the first of the month following their hire date and attaining the age of 21. Profit sharing contributions are made at the discretion of the Board of Directors and vest 100% after the second year of service. The Company made a $111,431 profit sharing contribution to the plan in the first nine months of 2019.
The Company entered into employment agreements with its executive officers and management that provide for bonus payments at the end of the agreement, and bonus upon termination without cause, or following a change of control by the Company or by the executive for good reason. As of September 30, 2019, the bonus accrual totals $1,125,000.
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.
The Company is engaged in providing hosting services. The Company's chief operating decision maker (“CODM”) has been identified as the CEO who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has two operating segments as of September 30, 2019 which are podcast hosting services (Libsyn) and internet hosting services (Pair).
The following table presents summary information by segment for the nine months ended September 30, 2019 and 2018, respectively:
| | 2019 | 2018 |
| (in thousands) | | | | | | |
| | | | | | | |
| Revenue | $10,563 | $7,640 | $18,203 | $9,260 | $6,831 | $16,091 |
| Cost of revenue | 1,738 | 844 | 2,582 | 1,818 | 557 | 2,375 |
| | | | | | | |
| Total assets | $24,604 | $18,251 | $42,855 | $19,675 | $17,839 | $37,514 |
| Depreciation and amortization | $60 | $2,139 | $2,199 | $30 | $2,243 | $2,273 |
The following table presents summary information by segment for the three months ended September 30, 2019 and 2018, respectively:
| | | |
| (in thousands) | | | | | | |
| | | | | | | |
| Revenue | $3,638 | $2,581 | $6,219 | $3,352 | $2,374 | $5,726 |
| Cost of revenue | 585 | 296 | 881 | 745 | 218 | 963 |
| | | | | | | |
| Depreciation and amortization | $23 | $689 | $712 | $12 | $725 | $737 |
NOTE 12 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of the filing of this report. No events have occurred that would require adjustments to or disclosure in the financial statements other than:
On April 24, 2019, Camac Fund, LP, and its affiliates Camac Partners, LLC, Camac Capital, LLC, and Eric Shahinian, (collectively, “Camac”) made a demand to inspect the Company’s books and records, purportedly in connection with Camac’s efforts to compel the Company to call a special meeting of its stockholders. On May 8, 2019, the Company provided the materials required by relevant Nevada law. On July 15, 2019, Camac filed a verified complaint and alternative petition for a writ of mandamus/prohibition in Nevada District Court together with a motion for preliminary injunction, seeking to compel the Company to provide certain additional documents relating to the identity of beneficial owners of its common stock. The Company filed a response brief to the motion for preliminary injunction and a hearing was held on such motion on August 1. The Court’s decision denied the issuance of an injunction obligating the Company to generate or obtain those additional documents, but requires the Company to turn over any such documents should the Company use those documents in the future to engage in solicitation activity in connection with any special meeting of stockholders that may be held involving Camac.
On October 4, 2019, the Company reached a resolution with Camac. The settlement agreement provides for, among other things, the Company reimbursing Camac for up to $600,000 in out-of-pocket expenses and the cancellation of certain equity awards by the Company.
Immediately following the execution of the settlement agreement, the Company shall take all action necessary to irrevocably cancel those equity awards previously granted to the Company’s Chief Executive Officer and Chief Financial Officer representing an aggregate of 300,000 restricted shares (150,000 held by each of them), the vesting conditions with respect to which relate to the achievement of a Nasdaq uplisting. Promptly following such cancellation, the Company shall provide to the Stockholders evidence from its transfer agent regarding the return of such shares and their cancellation by the Company. The Company will obtain appropriate written confirmations from the affected individuals regarding such cancellation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Safe Harbor Statement.
Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to gain a larger share of the web hosting and podcasting industries, our ability to continue to develop services acceptable to our industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the web and podcasting hosting and domain industries, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission: general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the web hosting and podcasting industries, the development of services that may be superior to the services offered by the Company, competition, changes in the quality or composition of the Company's services, our ability to develop new services, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, services and prices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Company Overview
Founded in 2015, Liberated Syndication Inc (“the “Company,”, “parent”, “we,” or “us” and words of similar import), a Nevada corporation, provides podcast hosting services through its wholly-owned subsidiary Webmayhem Inc., a Pennsylvania corporation (“Libsyn”), and web hosting services through its wholly-owned subsidiary Pair Networks, Inc., a Pennsylvania corporation (“Pair” or “PNI”). The Company’s consolidated financial statements include the financial statements of Libsyn and Pair. Libsyn’s focus is on our podcasting business, while Pair’s focus is on web hosting and domains.
Our corporate offices consist of approximately 3,100 square feet of office space located at 5001 Baum Blvd, Suite 770, Pittsburgh, PA 15213. Our telephone number is (412) 621-0902. We also maintain an office at 2403 Sidney St., Suite 210, Pittsburgh, PA consisting of approximately 34,700 square feet.
BUSINESS
Libsyn
Libsyn is a Podcast Service Provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, distribution, and statistics tracking. Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn offers a basic, getting started plan for $5 per month and more advanced plans that include more storage, advanced statistics, and podcast apps. Plans are designed to provide full-featured podcast tools with generous storage and bandwidth transfer. LibsynPro service is an enterprise solution for professional media producers and corporate customers that require media network features and dedicated support.
Libsyn supports both audio and video podcasts, allowing producers to upload podcast episodes through the Libsyn interface or via FTP to manage publishing to online directories, web portals, content aggregators, App marketplaces and social media platforms for both download and streaming.
Approximately 62% of the downloads from shows that Libsyn distributes reach audiences using Apple's iOS, Apple Podcasts and Apple’s iTunes platform which includes iTunes on the computer, iPads, iPhones, Apple Watch, Apple TV, and Apple’s Podcasts App on iOS devices. Libsyn also enables distribution to destinations like Google Play Music and aggregators such as Spotify, Pandora, and iHeartRadio. The OnPublish feature enables podcast episodes to be posted to social media sites such as Facebook, Twitter, YouTube, Linked-In and blogging platforms like WordPress and Blogger. Libsyn also provides a podcast player that can be embedded on websites or shared via social media.
Libsyn’s podcast platform architecture allows for expansion of distribution destinations and OnPublish capabilities. Using the Libsyn service, podcast producers can more broadly distribute and promote their shows to attract larger audiences.
Pair Networks, Inc. (“Pair”)
Pair Networks, founded in 1996, is one of the oldest and most experienced Internet hosting company providing a full range of fast, powerful and reliable web hosting services. Pair offers a suite of Internet services from shared hosting to virtual private servers to customized solutions with world-class 24x7 on-site customer support. Based in Pittsburgh, Pair serves businesses, bloggers, artists, musicians, educational institutions and non-profit organizations around the world.
Pair offers a variety of hosting plan levels; value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.
Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and optimized WordPress hosting as managed services. With over twenty years of experience in Internet hosting, Pair has the expertise to build and manage reliable and powerful hosting solutions. The managed service and 24x7 support allow customers to focus on their core business without having to worry about hardware, operating systems, network connectivity or uptime.
Shared web hosting is a great option for startup or smaller businesses as the website sits on the same server with other websites and shares resources such as memory and Central Processing Unit (CPU). Basic website applications such as email and file sharing are ideal for shared server offerings.
Virtual private servers
Virtual private servers (VPS) is a step up from a shared hosting solution in that specific server resources are allocated directly for your use, assuring performance levels. This is a more secure and reliable option that separates your site from others and is ideal for storage or database applications for businesses, developers, and fast-growing sites.
Dedicated servers
Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are built to customer specifications and tuned for performance, reliability and efficiency to meet the demand of more robust applications. Through Pair QuickServe (QS), a powerful hosting solution with tremendous capacity and speed, servers are ready for your use in no time and fully managed to keep them up to date.
Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their own hardware, collocation service in Pair’s data center allows for unmanaged service with the security and reliability of the diverse network, physically secure facilities, backup power and redundant climate control.
Optimized WordPress
WordPress (WP) is one of the fastest growing Content Management Systems (CMS) powering web sites today. Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service will ensure fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.
Pair Hosting customers sign-up online at www.pair.com, using their credit card to subscribe to a monthly or annual plan. Pair offers a basic, getting started plan with a custom domain for $5.95 per month with a basic drag and drop website builder and more advanced plans that include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for all levels including backups, Account Control and security and operating system maintenance and upgrades.
Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten-year domain name purchase or domain transfer. All domain names registered by Pair include enhanced services such as custom and dynamic Domain Name System (DNS) which controls your domain name’s website and email, WHOIS privacy, email forwarding, and a drag and drop website builder.
Results of Operations
Nine Months Ended September 30, 2019 and 2018.
During the nine months ended September 30, 2019, the Company recorded revenues of $18,202,733, a 13% increase over revenues of $16,091,492 for the same period in 2018. The increase for 2019 reflects an increase in Libsyn4 hosting revenue as well as LibsynPro, offset by decreases in Advertising and Premium Subscription revenue. The increase also reflects an increase due to Pair’s hosting and domain offerings. Libsyn contributed $10,562,580 and $9,260,528 of revenue during the first nine months of 2019 and 2018, respectively. Pair contributed $7,640,153 and $6,830,964 of revenue during the first nine months of 2019 and 2018, respectively.
Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the first nine months of 2019 versus 2018. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in the first nine months of 2019 with increased bandwidth usage fees for delivery of podcasts contributing to the revenue gain. Advertising revenue decreased $538,253 during the first nine months of 2019 versus the same period of 2018. The decrease resulted from decrease in the dollars being spent on ad campaigns during the first nine months of 2019 with existing advertisers. Premium subscription revenue decreased $45,282.
The Company recorded total costs and operating expenses of $14,942,936 during the first nine months of 2019, an 13% increase as compared to total costs and operating expenses of $13,213,875 during the same period of 2018. Libsyn contributed $7,037,308 to total costs and operating expenses during the first nine months of 2019, and $5,259,665 during the same period in 2018. Pair contributed $7,905,628 to total costs and operating expenses during the first nine months of 2019 and $7,954,210 during the same period in 2018.
During the first nine months of 2019, cost of revenue totaled $2,581,659, a 9% increase as compared to $2,374,702 for the same period in 2018. Libsyn contributed $1,737,553 while Pair contributed $844,106 to the cost of revenue during the first nine months of 2019. Libsyn recorded an increase in bandwidth costs, credit card processing fees, and colocation fees, offset by a decrease in ad sharing paid to producers during the first nine months of 2019 versus 2018. Pair recorded an increase in domain name fees and internet fees. Cost of revenue as a percentage of revenue for Libsyn decreased to 16% during the first nine months of 2019 from 20% during the same period in 2018. This is a reflection of the reduction in the bandwidth rate to deliver the podcasts, off-set by an increase in bandwidth usage during the first nine months of 2019 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform. Cost of revenue as a percentage of revenue for Pair increased to 11% during the first nine months of 2019 from 8% during the same period in 2018. This is due primarily to the increase in domain name purchase fees and internet connectivity fees.
General and administrative expenses totaled $6,074,072 during the first nine months of 2019 versus $4,570,630 during the same period in 2018, an increase of 33%. The increase was driven primarily due to an increase in legal and advisory fees, wage expense, and insurance costs, offset by a decrease in professional fees as well as a reduction of non-cash expense for Libsyn. The increase includes $610,179 of legal and advisory fees incurred by the Company associated with its settlement with Camac reached following the end of the quarter and $1,125,000 due to the accrual of bonuses for senior management. The increase was further driven by the increase in employment benefits. General and administrative expense for Pair during the first nine months of 2019 was $2,030,374 and $2,161,977 for the same period in 2018. General and administrative for Libsyn for the same periods was $4,043,698 and $2,408,653, respectively.
Technology expenses represented $1,390,161 during the first nine months of 2019 versus $1,292,238 in 2018, driven by an increase in wage expense during the first nine months of 2019. Selling expenses during the first nine months of 2019 were $702,521 versus $647,833 during the same period in 2018 driven by a reduction in advertising expense. Customer support expenses in the first nine months of 2019 were $1,995,309 versus $2,055,389 during the same period in 2018 driven by the decrease in support staff costs.
Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of intangible assets. Depreciation and amortization expense for the first nine months of 2019 was $2,199,214 and $2,273,083 during the same period in 2018. During the first nine months of 2019, Libsyn contributed $60,175 and Pair contributed $2,139,039 to depreciation and amortization expense.
Interest expense for the first nine months of 2019 was $245,002 compared to $291,205 in the nine months of 2018, which represents interest on the loan facility obtained in connection with the acquisition of Pair. Interest expense for the nine months of 2019 was offset with interest income of $178,551, resulting in net cash expenditure of $66,451 on the note.
The Company’s net income was $3,194,996 for the nine months ended September 30, 2019. This represents a $554,757 increase from $2,640,239 for the nine months ended September 30, 2018. Earnings per share increased to $0.11 per share for the first nine months of 2019 from $0.09 per share for the first nine months of 2018.
Three Months Ended September 30, 2019 and 2018.
During the three months ended September 30, 2019, the Company recorded revenues of $6,219,119, a 9% increase over revenues of $5,726,425 for the same period in 2018. This increase reflects an increase in Libsyn4 hosting revenue as well as LibsynPro, offset by a decrease in advertising revenue. This also reflects an increase in Pair’s hosting and domain offerings. Libsyn contributed $3,637,589 of revenue while Pair contributed $2,581,530.
Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the three months ended September 30, 2019 versus the same period in 2018. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in the three months ended September 30, 2019 with increased bandwidth usage fees for delivery of podcasts contributing to the revenue gain. Advertising revenue decreased $338,986.04 during the three months ended September 30, 2019 versus the same period of 2018. The decrease resulted from decrease in the dollars being spent on ad campaigns by advertisers. Premium subscription revenue increased by $8,141.
The Company recorded total costs and operating expenses of $5,391,594 during the three months ended September 30, 2019, a 23% increase as compared to total costs and operating expenses of $4,375,259 during the same period of 2018. Libsyn contributed $2,736,604 to total costs and operating expenses during the three months ended September 30, 2019, and $1,761,654 during the same period in 2018. Pair contributed $2,654,990 to total costs and operating expenses during the three months ended September 30, 2019 and $2,613,605 during the same period in 2018.
During the three months ended September 30, 2019, cost of revenue totaled $881,171, a 8% decrease as compared to $962,817 for the same period in 2018. Libsyn contributed $584,850 while Pair contributed $296,321 to the cost of revenue during the three months ended September 30, 2019. Libsyn recorded an increase in bandwidth costs, credit card processing fees, and colocation fees, offset by a decrease in ad sharing that was paid to producers during the three months ended September 30, 2019 versus 2018. Pair recorded an increase in domain name fees and internet fees, offset by a decrease in processing fees and colocation fees. Cost of revenue as a percentage of revenue for Libsyn decreased to 16% in the three months ended September 30, 2019 from 22% during the same period in 2018. This is a reflection of the reduction in the bandwidth rate to deliver the podcasts, off-set by an increase in bandwidth usage during the three months ended September 30, 2019 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform. Cost of revenue as a percentage of revenue for Pair increased to 11% in the three months ended September 30, 2019 from 9% during the same period in 2018. This is due primarily to the increase in domain name purchase fees and internet connectivity fees.
General and administrative expenses totaled $2,339,966 in the three months ended September 30, 2019 versus $1,348,731 during the same period in 2018, an increase of 73%. The increase was driven primarily due to an increase in legal and advisory fees and accrual of bonuses, offset by a decrease in employment benefits. The increase includes $444,620 of legal and advisory fees incurred by the Company associated with Camac reached following the end of the quarter and $375,000 due to the accrual of bonuses for senior management. General and administrative expense for Pair during the three months ended September 30, 2019 was $666,950 and $687,677 for the same period in 2018. General and administrative expense for Libsyn for the same periods was $1,673,016 and $661,053, respectively.
Technology expenses represented $478,372 in the three months ended September 30, 2019 versus $426,339 in 2018, driven by a decrease in wages. Selling expenses during the three months ended September 30, 2019 were $293,185 versus $220,460 during the same period in 2018 driven by an increase in travel and entertainment expense. Customer support expenses in the three months ended September 30, 2019 were $686,876 versus $680,094 during the same period in 2018 driven by the increase of support staff wages.
Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of intangible assets. Depreciation and amortization expense for the three months ended September 30, 2019 was $712,024 and $736,818 during the same period in 2018. During the three months ended September 30, 2019, Libsyn contributed $22,569 and Pair contributed $689,455 to depreciation and amortization expense.
Interest expense for the three months ended September 30, 2019 was $75,280 compared to $92,002 in the third quarter of 2018. Interest expense for the three months ended September 30, 2019 was offset with interest income of $66,862, resulting in net cash expenditure of $8,418 on the note.
The Company’s net income was $819,384 for the three months ended September 30, 2019. This represents a $465,374 decrease from $1,284,758 for the three months ended September 30, 2018. Earnings per share decreased $.01 per share for the three months ended September 30, 2019 and 2018.
Liquidity and Capital Resources
Cash on hand was $15,734,962 at September 30, 2019, an increase of $4,655,021 over the $11,079,941 on hand at December 31, 2018. Cash provided by operations for the nine months ended September 30, 2019, was $6,262,438, an increase of $603,949 over the $5,658,489 cash provided by operations for the nine months ended September 30, 2018. The contribution from Libsyn of this cash generation totaled $4,766,948, and Pair added $1,495,490. This increase is driven from our operating results of both segments of our business.
Cash used in investing activities of $353,040 for the nine months ended September 30, 2019 was for the purchase of equipment and capitalization of software development costs. Cash used in investing activities was $254,527 during the same period in 2018.
Cash used in financing activities was $1,254,377 for the nine months ended September 30, 2019 and $1,251,589 in 2018. During the first nine months of 2019, the Company made $1,200,000 of payments on the loan facility, as well as $54,377 of payments on the capital lease.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
As of September 30, 2019, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the Chief Executive Officer and the Interim Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), occurred during the fiscal quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Liberated Syndication Inc. is involved in routine legal and administrative proceedings and claims of various types. We have no material pending legal or administrative proceedings, other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any property is the subject, except as follows:
On April 24, 2019, Camac Fund, LP, and its affiliates Camac Partners, LLC, Camac Capital, LLC, and Eric Shahinian, (collectively, “Camac”) made a demand to inspect the Company’s books and records, purportedly in connection with such stockholder’s efforts to compel the Company to call a special meeting of its stockholders. On May 8, 2019, the Company provided the materials required by relevant Nevada law. On July 15, 2019, Camac filed a verified complaint and alternative petition for a writ of mandamus/prohibition in Nevada District Court together with a motion for preliminary injunction, seeking to compel the Company to provide certain additional documents relating to the identity of beneficial owners of its common stock. The Company filed a response brief to the motion for preliminary injunction and a hearing was held on such motion on August 1. The Court’s decision denied the issuance of an injunction obligating the Company to generate or obtain those additional documents, but requires the Company to turn over any such documents should the Company use those documents in the future to engage in solicitation activity in connection with any special meeting of stockholders that may be held involving Camac.
On October 4, 2019, the Company reached a resolution with Camac. The settlement agreement provides for, among other things, Libsyn reimbursing Camac for up to $600,000 in out-of-pocket expenses, the appointment of certain individuals identified by Camac to the Company’s board of directors (the “Board”), the formation of a strategic review committee of the Board and the cancellation of certain equity awards by the Company.
Immediately following the execution of the settlement agreement, the Company shall take all action necessary to irrevocably cancel those equity awards previously granted to the Company’s Chief Executive Officer and Chief Financial Officer representing an aggregate of 300,000 restricted shares (150,000 held by each of them), the vesting conditions with respect to which relate to the achievement of a Nasdaq uplisting. Promptly following such cancellation, the Company shall provide to the Stockholders evidence from its transfer agent regarding the return of such shares and their cancellation by the Company. The Company will obtain appropriate written confirmations from the affected individuals regarding such cancellation.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Mine Safety Disclosures.
None; not applicable.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits.
(ii) Exhibit No. | Description |
| 302 Certification of Christopher J. Spencer |
| 302 Certification of Gabriel Mosey |
| 906 Certification. |
| 101.1 | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: 11/14/2019 | By: | /s/ Christopher J. Spencer |
| | | Christopher J. Spencer |
| | | Chief Executive Officer and President |
| Date: 11/14/2019 | | /s/ Gabriel Mosey |
| | | Gabriel Mosey |
| | | Interim Chief Financial Officer |
