Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
Organization and Background
Organization
Liberated
Syndication, Inc. (the “Company”, “we,” or
“us”) 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
provides web hosting services and domain name registrations.
Services include shared web hosting, e-commerce, fully managed
virtual private and dedicated servers, customer self-managed
dedicated servers, domain-name registration, co-location and
content-delivery networks. Pair began operations in August 1995. It
incorporated in the state of Pennsylvania in August 1998.
Pair’s principal operations are conducted on-site in
Pittsburgh, PA. Pair also has an operating site in Denver, CO, and
a remote site back-up location in Pittsburgh, PA.
Ryousha
(dba Pair International), a wholly owned single-member limited
liability company subsidiary of Pair, was formed on January 1,
2015. Value added taxes (“VAT”) related to sales
occurring in European Union countries, which are subject to VAT,
are paid through Ryousha. There are no operating activities
conducted by Ryousha. NB, a Canadian company, was organized on
December 2, 2011. NB is used solely for holding the Canadian
tradenames and domain names of Pair. There are no operating
activities conducted by NB.
Basis of Presentation
Our
financial statements have been 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, 2020.
These
financial statements should be read in conjunction with our audited
consolidated financial statements and related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2019
(the “2019 Form 10-K”).
Accounting Estimates
The
preparation of financial statements in conformity with GAAP
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 accounts receivable reserves,
depreciation of fixed assets, deferred taxes and in determining the
impairment of definite life intangible assets and goodwill. Actual
results could differ from those estimated by
management.
Our
more significant estimates include:
●
the assessment of
recoverability of long-lived assets, including property and
equipment, goodwill and intangible assets;
●
the estimated
reserve for refunds;
●
the estimated
useful lives of intangible and depreciable assets;
●
the grant date fair
value of equity-based awards; and
●
the recognition,
measurement, and valuation of current and deferred income
taxes.
We
periodically evaluate these estimates and adjust prospectively, if
necessary. We believe our estimates and assumptions are reasonable;
however, actual results may differ from our estimates.
2.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity date of three months or less when purchased to be cash
equivalents. At September 30, 2020, the Company had $13,494,298 of
cash balances in excess of federally insured limits.
Depreciation
Depreciation
of property and equipment is provided on the straight-line method
over the estimated useful lives.
Accounts Receivable
Accounts
receivable consist of trade receivables arising in the normal
course of business. At September 30, 2020 and December 31, 2019,
the Company had 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, 2020
and 2019, the Company did not adjust the allowance for bad
debt.
Definite-life intangible assets
The
Company evaluates its long-lived assets for impairment whenever
events or changes 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
expense during the nine months ended September 30, 2020 and 2019.
Technology costs totaled $1,754,245 and $1,390,161 for the nine
months ended September 30, 2020 and 2019, respectively. Technology
costs totaled $595,393 and $478,372 for the three months ended
September 30, 2020 and 2019, respectively.
Goodwill
Goodwill
is evaluated for impairment annually 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
quarter ended September 30, 2020.
Advertising Costs
Advertising
costs are expensed as incurred and amounted to $178,729 and $64,254
for the nine months ended September 30, 2020 and 2019,
respectively. Advertising costs totaled $77,331 and $21,746 for the
three months ended September 30, 2020 and 2019,
respectively.
Fair Value of Financial Instruments
The
Company accounts for fair value measurements for financial assets
and financial liabilities in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 820. The authoritative
guidance, which, among other things, defines fair value,
establishes a consistent framework for measuring fair value and
expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis.
Fair value is defined as the exit price, representing the amount
that would either be received to sell an asset or be paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis
for considering such assumptions, the guidance establishes a
three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows:
●
Level 1. Observable
inputs such as quoted prices in active markets for identical assets
or liabilities;
●
Level 2. Inputs,
other than the quoted prices in active markets, that are observable
either directly or indirectly; and
●
Level 3.
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions.
The
fair value of the Company’s equity-based awards recorded in
the Company’s financial statements are determined using a
Monte Carlo simulation valuation methodology based upon a Geometric
Brownian Motion stock path, a Level 3 measurement, or Black-Scholes
modeling, as appropriate. Volatility is based on historical
volatility of the Company’s common stock over commensurate
periods. The expected life is based on the contractual term of the
award, and the risk-free interest rate is based on the implied
yield available on U.S. Treasury Securities with a maturity similar
to the awards’ expected life.
Assets
and liabilities reported at fair value on a recurring
basis:
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Liabilities:
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Accounts payable
and accrued liabilities:
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Put
option$
|
-
|
$-
|
$181,500
|
$-
|
$-
|
$-
|
On July
31, 2020 the Company entered into a separation agreement with our
former CEO. Included in this agreement was a right for our former
CEO to put to the company up to 550,000 shares of common stock at a
price of $2.50 per share between December 30, 2020 and December 29,
2021. The corresponding put option liability has been recorded as a
short term liability and included in accounts payable on the
balance sheet. The put option was valued using a Black-Scholes put
model. The company used the following inputs for the put
option:
●
Annual
volatility – 63%
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 result 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 the Internet Corporation
for Assigned Names and Numbers (“ICANN”). Domain
registrations provide a customer with the exclusive use of a domain
during the applicable contract term. After the contract term
expires, unless renewed, the customer can no longer access the
domain. Consideration is recorded as deferred revenue when
received, which is typically at the time of sale, and revenue,
other than for aftermarket domain sales, is recognized over the
period in which the performance obligations are satisfied, which is
generally over the contract term. Aftermarket domain revenue is
recognized when ownership of the domain is transferred to the
buyer.
Hosting Services – Hosting
services revenue primarily consists of website hosting products,
website building products and services, website security products,
an online shopping cart and online visibility products and email
accounts. Consideration is recorded as deferred revenue when
received, which is typically at the time of sale, and revenue is
recognized over the period in which the performance obligations are
satisfied, which is generally over the contract term.
Podcast Hosting – Podcast hosting
publishing services are billed on a month to month basis, with the
first month’s bill prorated to the end of the month so all
performance obligations are satisfied at each month-end.
Consideration is recorded as revenue as the services, the
underlying performance obligation, are provided 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 when collection is probable.
Equity-Based Compensation
Our
equity-based awards are comprised of stock and are accounted for
using the fair value method. Stock is measured based on the fair
market value of the underlying common stock on the date of grant.
Awards vest and compensation is recognized over the requisite
service period. The measurement date for performance vesting awards
is the date on which the applicable performance criteria are
approved by our board of directors.
Leases
The
Company accounts for leases in accordance with FASB ASC Topic 842.
Leases that meet one or more of the finance lease criteria are
recorded as a finance lease, and all other leases are operating
leases.
Earnings Per Share
The
Company computes earnings per share in accordance with FASB ASC
Topic 260, which requires the Company to present basic earnings per
share and diluted earnings per share when the effect is dilutive
(see Note 10).
Income Taxes
The
Company accounts for income taxes in accordance with FASB ASC Topic
740, Accounting for Income Taxes. This topic requires an asset and
liability approach for accounting for income taxes (see Note
8).
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.
3.
Property and Equipment
The
following is a summary of property and equipment at:
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Life
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Furniture,
fixtures, and equipment
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3-10
yrs
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$8,262,929
|
$8,262,929
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Leasehold
improvements
|
3-5
yrs
|
2,646,399
|
2,646,399
|
Software
|
3
yrs
|
688,040
|
514,981
|
|
11,597,368
|
11,424,309
|
Less:
Accumulated depreciation
|
|
(10,476,465)
|
(9,887,379)
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Property
and equipment, net
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$1,120,903
|
$1,536,930
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Depreciation
expense for the nine months ended September 30, 2020 and 2019 was
$589,085 and $806,229, respectively. Depreciation expense for the
three months ended September 30, 2020 and 2019 was $140,412 and
$247,696, respectively.
4.
Goodwill and Other Definite-Life Intangible Assets
Goodwill
The
following is a summary of goodwill:
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|
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Pair
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$4,903,920
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$4,903,920
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Libsyn
|
11,484,251
|
11,484,251
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Goodwill
at end of period
|
$16,388,171
|
$16,388,171
|
Other definite-life intangible assets
Other
intangible assets consist of customer relationships, intellectual
property, and trade name, which were generated through the
acquisition of Pair. Management considers these intangible assets
to have finite-lives except trade name assets. These assets are
being amortized on a straight-line basis over their estimated
useful lives.
As of
September 30, 2020, identifiable intangible assets consisted of the
following:
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Weighted Average
Useful Life
(in Years)
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Customer
Relationships
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$3,947,000
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7
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$1,550,606
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$2,396,393
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Intellectual
Property
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3,709,000
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7
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1,457,106
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2,251,893
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Trade
Name
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576,000
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10
|
158,400
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417,600
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Total
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$8,232,000
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$3,166,114
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$5,065,886
|
As of
December 31, 2019, identifiable intangible assets consisted of the
following:
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|
Weighted Average
Useful Life
(in Years)
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|
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Customer
Relationships
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$3,947,000
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7
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$1,127,714
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$2,819,286
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Intellectual
Property
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3,709,000
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7
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1,059,714
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2,649,285
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Trade
Name
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576,000
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10
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115,200
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460,800
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Non-compete
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1,412,000
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2
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1,412,000
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-
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Total
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$9,644,000
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$3,714,628
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$5,929,371
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Amortization
expense for the nine months ended September 30, 2020 and 2019 was
$863,485 and $1,392,986, respectively. Amortization expense for the
three months ended September 30, 2020 and 2019 was $287,828 and
$464,328, respectively.
The
estimated future amortization expenses related to other intangible
assets as of September 30, 2020 are as follows:
For
twelve months ending September 30,
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2021
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$1,151,314
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2022
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1,151,314
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2023
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1,151,314
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2024
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1,151,315
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2025
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460,629
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Total
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$5,065,886
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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, 2020, $2,000,000 was drawn down on the revolving line
and there was no additional availability under the Revolving Credit
Facility.
The
Term Loan currently accrues interest at LIBOR (London Interbank
Offered Rate) plus 125 basis points or prime plus 75 basis points
at the election of the Company. As of September 30, 2020, the
Company had elected LIBOR plus 125 basis points or
1.4%.
The
Term Loan is repayable in quarterly installments of $400,000
commencing on March 30, 2018 and on the last day of each June,
September, December and March thereafter, through and including
September 30, 2022. Accrued interest is payable in arrears not less
frequently than quarterly. The remaining unpaid principal balance
of the Term Loan, together with accrued interest thereon, is due
and payable in full on December 27, 2022. The Term Loan also calls
for additional payment equal to the following: (1)100% of the
proceeds from the sale of any shares of the Company’s common
stock, (2) 100% of the proceeds from the sale of assets not
immediately replaced, and (3) excess liquidity in any given year up
to $1,066,667 a year and no more than $3,200,000 over the life of
the term loan. Excess liquidity is obtained when the audited
financial statements reflect a cash balance greater than
$4,600,000. Based upon the 2019 audited financial statements in the
2019 Form 10-K, the Company demonstrated excess liquidity per the
Loan Agreement. As such, the Company has included the expected
$1,066,667 payment to the Bank as a current liability as of
September 30, 2020. As of September 30, 2020, the balance on the
Term Loan was $3,600,000.
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 Libsyn and Pair to the Bank, as security for all
obligations under the Loan Agreement.
Borrowings
under the Facility are at variable rates which are, at the
Company’s option, tied to LIBOR plus an applicable rate or a
prime rate. Interest rates are subject to change based on the
Company’s combined cash balances. The Facility contains
covenants that may have the effect of limiting the ability of the
Company to, among other things, merge with or acquire other
entities, enter into a transaction resulting in a change in
control, create certain new liens, incur certain additional
indebtedness, engage in certain transactions with affiliates,
engage in new lines of business or sell a substantial part of its
assets. The Facility also requires the Company to maintain certain
consolidated fixed charge coverage ratios and minimum liquidity
balances.
The
Facility also contains customary events of default, including (but
not limited to) default in the payment of principal or, following
an applicable grace period, interest, breaches of the
Company’s covenants or warranties under the Facility, payment
default or acceleration of certain indebtedness of the Company or
any subsidiary, certain events of bankruptcy, insolvency or
liquidation involving the Company or its subsidiaries, certain
judgments or uninsured losses, changes in control and certain
liabilities related to ERISA based plans.
On
December 27, 2017, the Company drew $10,000,000 under the Facility
to finance a portion of the cash consideration for the purchase of
Pair. Debt issuance costs of $113,000 for the Facility were
recorded as a discount and will be amortized over the life of the
Facility. As of September 30, 2020, the discount was
$33,955.
Future
maturities of the Term Loan at September 30, 2020 are as
follows:
Twelve
months ending September 30,
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2021
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$2,666,667
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2022
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800,000
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2023
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133,333
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Total
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$3,600,000
|
As a
result of the Company’s tax normalization efforts, the
Company has not been in compliance with the Fixed Charges Coverage
Ratio (as defined in the Loan Agreement) required under the Loan
Agreement since the quarter ended March 31, 2020 and has provided
the required notice and explanation to the Bank. The Company has
more than adequate available cash to pay off the remaining loan
balance under the Facility if required by the Bank.
Common Stock
Outside
of routine awards granted to directors and employees, the following
transactions occurred during the nine months ended September 30,
2020:
On
February 18, 2020, the Compensation Committee of the Board of
Directors approved the award of 25,000 shares of restricted common
stock to each of Eric Shahinian, Bradley Tirpak and Brian Kibby as
members of the Board of Directors, which shares shall vest in four
equal quarterly tranches at the end of each quarter of 2020 and all
such shares shall vest immediately in the event of certain changes
in control of the Company.
On July
1, 2020, 300,000 shares of common stock were forfeited by three
directors as certain performance milestones were not achieved by
the Company.
In
connection with the Separation and Transition Services Agreement
and General Release (the “Separation Agreement”)
entered into on July 31, 2020 by the Company and Christopher
Spencer, the Company’s former chief executive officer
(“CEO”), (i) the Company purchased 1,353,795 shares
from Mr. Spencer at market price, which shares were retained as
Treasury stock; (ii) Mr. Spencer forfeited 1,325,000 shares of
common stock due to certain performance milestones that the Company
did not achieve; (iii) Mr. Spencer forfeited 150,000 shares in
accordance with the settlement agreement, dated October 4, 2019,
with Camac Fund, LP, and its affiliates Camac Partners, LLC, Camac
Capital, LLC and Eric Shahinian (the “Camac Settlement
Agreement”); and (iv) the Company granted 775,000
unrestricted shares of common stock to Mr. Spencer.
On
September 30, 2020, 150,000 shares of the Company’s common
stock granted to John Busshaus, the Company’s former chief
financial officer, were forfeited in accordance with the terms of
the Camac Settlement Agreement.
Deferred
revenue consists of the following:
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Current:
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Hosting
services
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$1,605,575
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$1,664,811
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Domains
|
763,788
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688,717
|
Media
subscription
|
194,324
|
158,154
|
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$2,563,687
|
$2,511,682
|
Noncurrent:
|
|
|
Hosting
services
|
45,375
|
29,309
|
Domains
|
656,181
|
571,925
|
|
701,556
|
601,234
|
Total
Deferred Revenue
|
$3,265,243
|
$3,112,916
|
Deferred
revenue as of September 30, 2020 is expected to be recognized as
revenue as follows:
|
|
|
|
|
|
|
|
Domains
|
$266,762
|
$580,782
|
$255,509
|
$175,907
|
$101,235
|
$39,845
|
$1,420,040
|
Hosting
|
1,013,536
|
622,070
|
15,274
|
-
|
-
|
-
|
1,650,880
|
Media
Subscription
|
194,323
|
-
|
-
|
-
|
-
|
-
|
194,323
|
|
$1,474,621
|
$1,202,852
|
$270,783
|
$175,907
|
$101,235
|
$39,845
|
$3,265,243
|
Disaggregated
revenue consisted of the following:
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|
|
|
|
|
Hosting
services
|
$2,149,223
|
$2,335,098
|
$6,475,562
|
$6,953,733
|
Podcast
hosting
|
3,919,927
|
3,415,664
|
11,163,757
|
9,880,191
|
Advertising
|
82,945
|
105,999
|
302,677
|
437,884
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Domains
|
294,236
|
260,764
|
861,097
|
746,601
|
Other
|
65,376
|
101,594
|
311,107
|
184,324
|
|
$6,511,707
|
$6,219,119
|
$19,114,200
|
$18,202,733
|
Our
provision for income taxes for the nine-month periods ended
September 30, 2020 and 2019 was a tax expense of approximately
$2,685,998 and $689,071, respectively, which resulted in an
effective tax rate of 131% and 22%, respectively.
Our
provision for income taxes for the three-month periods ended
September 30, 2020 and 2019 was a tax expense of approximately
$727,269 and $178,129, respectively, which resulted in an effective
tax rate of (56)% and 22%, respectively.
We
account for uncertain tax positions pursuant to the recognition and
measurement criteria under ASC Topic 740. It is reasonably possible
that $1.2 million of uncertain tax positions will be recognized
within the next 12 months due to our inability to respond to IRS
requests related to an ongoing IRS examination.
We
lease two office spaces, a Denver data center, and three Xerox
machines. These leases are all classified as operating leases.
There is one finance lease for Emerson batteries that is immaterial
to our condensed consolidated financial statements, which was paid
off during the quarter ended March 31, 2020. Operating lease assets
and obligations are reflected within Operating lease right-of-use
assets, Current portion of operating lease liabilities, and
Operating lease liabilities, respectively, on the Condensed
Consolidated Balance Sheets.
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, 2020 was 1.18 years.
The
discount rate implicit within our leases is generally not
determinable and therefore the Company determines the discount rate
based on its incremental borrowing rate for purposes of classifying
the lease and measuring the right-of-use asset and lease liability.
The incremental borrowing rate for our leases is determined based
on lease term in a similar economic environment, adjusted for
impacts of collateral. The weighted average discount rate used to
measure our operating lease liabilities as of September 30, 2020
was 4.42%.
For the
nine months ended September 30, 2020 and 2019, cash paid for
amounts in the measurement of lease liabilities was $333,057 and
$417,893, respectively. Total operating lease costs during the same
periods were $333,276 and $419,137, respectively.
Maturity of lease liabilities:
Twelve months ending September 30,
|
|
2021
|
$402,527
|
2022
|
47,950
|
2023
|
644
|
Total
lease payments
|
$451,121
|
Less
amount of lease payment representing interest
|
(12,345)
|
Total
present value of lease payments
|
$438,776
|
Basic
earnings per share is computed by dividing net income attributable
to the Company by the weighted-average number of shares of common
stock outstanding during the period. As of September 30, 2020,
there were no common stock equivalents outstanding.
The
following data shows the amounts used in computing earnings per
share and the weighted average number of shares of common stock
outstanding for the periods presented:
|
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|
|
|
|
|
Income
from operations available to common stockholders
(numerator)
|
$(2,024,006)
|
$641,255
|
$(628,531)
|
$2,505,925
|
Income
available to common stockholders (numerator)
|
$(2,024,006)
|
$641,255
|
$(628,531)
|
$2,505,925
|
Weighted
average number of common shares outstanding during the period used
in earnings per share (denominator)
|
27,453,697
|
29,271,974
|
28,667,685
|
29,441,754
|
11.
Commitments and Contingencies
Although
the Company does not expect to be liable for any obligations not
expressly assumed by the Company from the distribution by FAB
Universal Corp. (“FAB”) to its stockholders of the
Company’s common stock (the “Spin-Off”), it is
possible that the Company could be required to assume
responsibility for certain obligations retained by FAB, the former
parent company of the Company, should FAB fail to pay or perform
its retained obligations. FAB may have obligations that at the
present time are unknown or unforeseen. For example, FAB is
currently undergoing both domestic and international audits by the
Internal Revenue Service (“IRS”). As the nature of such
obligations are unknown, we are unable to provide an estimate of
the potential obligation. However, should FAB incur such
obligations, the Company may be financially obligated to pay any
losses incurred.
On
October 2, 2019, the Company formally accepted the resignation of
John Busshaus, the former Chief Financial Officer of the Company.
The Company received a letter from Mr. Busshaus, providing notice
of his intent to resign for “Good Reason” as defined in
Section 8(c) of the Employment Agreement pursuant to which he
claimed to be entitled to the “Effect of Termination”
under the Employment Agreement in Section 9(c). The Company
contends that there was not “Good Reason” for his
resignation and therefore he is not entitled to the “Effect
of Termination” under Section 9(c) of the Employment
Agreement.
On
April 24, 2020, Mr. Busshaus filed a complaint against the Company
with the American Arbitration Association (“AAA”)
asserting claims arising from his employment relationship with the
Company, including, inter alia, claims for wages, compensation and
benefits, and claims of unlawful discharge and wrongful
termination. The Company denies Mr. Busshaus’ claims in their
entirety and intends to vigorously defend its
position.
As of
September 30, 2020, there has been no further update to the
complaint filed against the Company.
The
Company has entered into employment agreements with its current and
former executive officers that provide for a bonus payment to be
paid at the end of such agreement, and a bonus payment to be paid
upon an executive’s termination without cause or for good
reason, or following a change of control by the Company. As of
September 30, 2020, the bonus accrual totaled
$805,110.
ASC
Topic 280, “Segment Reporting”, establishes standards
for reporting information about operating segments on a basis
consistent with the Company's internal organizational structure as
well as reporting information about geographical areas, business
segments and major customers in the Company’s financial
statements.
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, 2020 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, 2020 and 2019,
respectively:
|
|
|
(in
thousands)
|
|
|
|
|
|
|
Revenue
|
$11,828
|
$7,286
|
$19,114
|
$10,563
|
$7,640
|
$18,203
|
Cost
of revenue
|
1,450
|
917
|
2,367
|
1,738
|
844
|
2,582
|
|
|
|
|
|
|
|
Total
assets
|
$24,190
|
$17,256
|
$41,446
|
$26,357
|
$18,251
|
$44,608
|
Depreciation
and amortization
|
$62
|
$527
|
$589
|
$60
|
$2,139
|
$2,199
|
The
following table presents summary information by segment for the
three months ended September 30, 2020 and 2019,
respectively:
|
|
|
(in
thousands)
|
|
|
|
|
|
|
Revenue
|
$4,078
|
$2,434
|
$6,512
|
$3,638
|
$2,581
|
$6,219
|
Cost
of revenue
|
490
|
448
|
938
|
585
|
296
|
881
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
$7,750
|
$4,852
|
$12,602
|
$23
|
$689
|
$712
|
On
October 8, 2020, Mr. Spencer, the Company’s former chief
executive officer, satisfied his withholding tax liability, related
to his separation agreement, of $918,852 by tendering 236,209
shares of stock, with a stock price of $3.89 per share, to the
Company.