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.
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LIBERATED
SYNDICATION INC.
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FINANCIAL
STATEMENTS
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CONTENTS
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PAGE
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4
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5
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6
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7
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8
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LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
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September
30,
2019
(Unaudited)
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CURRENT
ASSETS:
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Cash
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$15,734,962
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$11,079,941
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Accounts
receivable, net
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548,895[1]
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481,921[1]
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Prepaid
expenses
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659,497
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449,223
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Total current
assets
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16,943,354
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12,011,085
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Property and
equipment, net
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1,776,105
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2,229,294
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Goodwill
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16,388,171
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16,388,171
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Definite life -
intangible assets, net
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6,393,700
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7,786,686
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Prepaid
expense
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337,860
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191,609
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Operating lease
right-of-use assets
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1,015,442
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-
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Total
assets
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$42,854,632
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$38,606,845
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CURRENT
LIABILITIES:
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Accounts
payable
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$1,106,734
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$745,889
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Accrued
expenses
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1,241,863
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377,572
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Deferred
revenue
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2,289,883
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2,276,079
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Current portion of
capital lease obligation
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19,439
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72,986
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Current portion of
loans payable, net
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2,642,470
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2,638,599
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Current portion of
operating lease liabilities
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503,958
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-
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Total current
liabilities
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7,804,347
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6,111,125
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LONG TERM
LIABILITIES:
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Loans payable,
net
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4,499,378
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5,681,767
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Capital lease
obligation, net of current portion
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-
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831
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Deferred revenue,
net of current portion
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556,655
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371,938
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Operating lease
liabilities
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511,484
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-
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Total long-term
liabilities
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5,567,517
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6,054,536
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Total
liabilities
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13,371,864
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12,165,661
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COMMITMENTS &
CONTINGENCIES
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-
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-
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STOCKHOLDERS'
EQUITY
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Common
stock
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29,272
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29,722
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Additional
paid-in capital
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34,857,590
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35,010,552
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Accumulated
deficit
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(5,404,094)
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(8,599,090)
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Total
stockholders' equity
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29,482,768
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26,441,184
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Total
liabilities and stockholders' equity
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$42,854,632
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$38,606,845
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Liberated Syndication Inc. and Subsidiaries Balance Sheet
(Parenthetical)
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Statement of
Financial Position
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Allowance
for doubtful accounts [1]
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14,000
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14,000
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Common
stock authorized
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200,000,000
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200,000,000
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Common
stock par value
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0.001
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0.001
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Common
stock issued and outstanding
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29,271,974
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29,721,974
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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
OPERATIONS
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Three Months
Ended
September
30,
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Nine Months
Ended
September
30,
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Revenue
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$6,219,119
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$5,726,425
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$18,202,733
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$16,091,492
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Costs and operating
expenses
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Cost of revenue
(excluding depreciation and amortization)
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881,171
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962,817
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2,581,659
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2,374,702
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General and
administrative
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2,339,966
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1,348,731
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6,074,072
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4,570,630
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Technology
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478,372
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426,339
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1,390,161
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1,292,238
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Selling
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293,185
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220,460
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702,521
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647,833
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Customer
support
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686,876
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680,094
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1,995,309
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2,055,389
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Depreciation and
amortization
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712,024
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736,818
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2,199,214
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2,273,083
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Total costs and
operating expenses
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5,391,594
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4,375,259
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14,942,936
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13,213,875
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Operating
income
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827,525
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1,351,166
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3,259,797
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2,877,617
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Interest
expense
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(75,280)
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(92,002)
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(245,002)
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(291,205)
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Interest
income
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66,862
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21,904
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178,551
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44,970
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Other income
(expense)
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277
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3,690
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1,650
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8,857
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Income from
operations before income taxes
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819,384
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1,284,758
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3,194,996
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2,640,239
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Income tax expense
(benefit)
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-
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-
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-
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-
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Net
Income
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$819,384
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$1,284,758
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$3,194,996
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$2,640,239
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BASIC AND DILUTED
INCOME PER COMMON SHARE
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$0.03
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$0.04
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$0.11
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$0.09
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BASIC AND DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
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29,271,974
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29,776,974
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29,441,754
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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
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29,721,974
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$29,722
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$35,010,552
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$(8,599,090)
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$26,441,184
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Recapture of prior period non-cash
compensation charges in the current period
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-
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-
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(830,500)
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-
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(830,500)
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Non-cash compensation
awards
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-
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-
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677,088
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-
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677,088
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Net income
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-
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-
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-
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1,527,633
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1,527,633
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Balance at March 31,
2019
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29,721,974
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$29,722
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$34,857,140
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$(7,071,457)
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$27,815,405
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Stock forfeiture
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(450,000)
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(450)
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450
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-
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-
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Net income
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-
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-
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-
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847,979
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847,979
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Balance at June 30,
2019
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29,271,974
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$29,272
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$34,857,590
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$(6,223,478)
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$28,663,384
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Net income
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-
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-
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-
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819,384
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819,384
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Balance at September 30,
2019
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29,271,974
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$29,272
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$34,857,590
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$(5,404,094)
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$29,482,768
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Balance at December 31,
2017
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29,595,473
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$29,596
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$34,804,457
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$(12,386,887)
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$22,447,166
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Issuance of Common Stock for
services
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200,000
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200
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317,800
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-
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318,000
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Return of Common Stock for final
settlement of Pair Acquisition
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(18,499)
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(19)
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(29,260)
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-
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(29,279)
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Net Income
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-
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-
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-
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532,915
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532,915
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Balance at March 31,
2018
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29,776,974
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$29,777
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$35,092,997
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$(11,853,972)
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$23,268,802
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Net Income
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-
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-
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-
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822,566
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822,566
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Balance at June 30,
2018
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29,776,974
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$29,777
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$35,092,997
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$(11,031,406)
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$24,091,368
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Net Income
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-
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-
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-
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1,284,758
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1,284,758
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Balance at September 30,
2018
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29,776,974
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$29,777
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$35,092,997
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$(9,746,648)
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$25,376,126
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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
CASH FLOWS
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Nine Months Ended
September 30,
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Cash Flows from
Operating Activities
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Net
income
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$3,194,996
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$2,640,239
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Adjustments to
reconcile net income to net cash provided by operating
activities:
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Depreciation
and amortization expense
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2,199,214
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2,273,083
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Issuance
of common stock for services
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-
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318,000
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Non-cash
compensation expense, net of recapture
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(153,412)
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-
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Amortization
of right-of-use asset
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382,379
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-
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Discount
on loan fees
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21,483
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25,478
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Change
in assets and liabilities:
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Accounts
receivable
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(66,974)
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78,906
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Prepaid
expenses
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(356,525)
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(419,633)
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Accounts
payable
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360,845
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11,853
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Accrued
expense
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864,290
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(462,152)
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Operating
lease liabilities
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(382,379)
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-
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Deferred
revenue
|
198,521
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1,192,715
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Net Cash Provided
by Operating Activities
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6,262,438
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5,658,489
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Cash Flows from
Investing Activities:
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Purchase of
property and equipment
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(353,040)
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(254,527)
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Net Cash Used in
Investing Activities
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(353,040)
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(254,527)
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Cash Flows from
Financing Activities:
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Repayment on term
loan
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(1,200,000)
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(1,200,000)
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Repayment on
capital lease
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(54,377)
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(51,589)
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Net Cash Used in
Financing Activities
|
(1,254,377)
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(1,251,589)
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Net Increase in
Cash
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4,655,021
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4,152,373
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Cash at Beginning
of Period
|
11,079,941
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5,211,845
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Cash at End of
Period
|
$15,734,962
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$9,364,218
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Supplemental
Disclosures of Cash Flow Information
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Cash
paid during the periods for:
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Interest
|
$223,519
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$263,981
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Income
taxes
|
-
|
-
|
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Supplemental
Disclosures of Cash Flow Investing and Financing
Activities
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Right-of-use
operating lease assets obtained in exchange for operating lease
liabilities
|
1,397,821
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-
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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:
●
the assessment of
recoverability of long-lived assets, including property and
equipment, goodwill and intangible assets;
●
the estimated
reserve for refunds;
●
the estimated
useful lives of intangible and depreciable assets;
●
the grant date fair
value of equity-based awards;
●
the recognition,
measurement, and valuation of current and deferred income
taxes;
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:
●
Level 1. Observable
inputs such as quoted prices in active markets for identical assets
or liabilities;
●
Level 2. Inputs,
other than the quoted prices in active markets, that are observable
either directly or indirectly; and
●
Level 3.
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
LIBERATED
SYNDICATION INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –
continued
The
fair value of the 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.