UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q/A
(Amendment No. 1)
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
 
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
     For the transition period from                        
to             
 
Commission File No. 000-55779
 
LIBERATED SYNDICATION INC.
 (Exact name of registrant as specified in its charter)
 
NEVADA
47-5224851
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
5001 Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
 (Address of Principal Executive Offices)
 
Registrant's Telephone Number: (412) 621-0902
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of ‘‘large accelerated filer”, “accelerated filer,’’ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
 
Accelerated filer
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
Emerging growth company
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo
 
As of August 10, 2018, there were 29,776,974 shares of common stock, par value $0.001, of the registrant issued and outstanding.
 

 
 
 
Explanatory Note
 
This Quarterly Report on Form 10-Q/A (Amendment No. 1) amends the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) by Liberated Syndication Corp. (the “Company”) on August 14, 2018 (the “Original 10-Q”) to restate our unaudited consolidated financial statements for the quarterly period ended June 30, 2018 and to amend related disclosures.
 
Background of the Restatement
 
On April 28, 2020, the Audit Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (the “Company”) determined that (a) the Consolidated Balance Sheet as of December 31, 2018, (b) the Consolidated Statement of Operations for the year ended December 31, 2018, (c) the Statement of Stockholders’ Equity for the year ended December 31, 2018, and (d) the Consolidated Statement of Cash Flows for the year December 31, 2018, all as presented in the Company’s Annual Report on Form 10-K for the Period Ended December 31, 2018, as previously filed with the U.S. Securities and Exchange Commission on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company reviewed the related interim financial statements and interim financial statements for the first three quarters of 2019 and 2018, and as a result of such review, on May 20, 2020, the Audit Committee determined that such interim financial statement should likewise no longer be relied upon.
 
Specifically, the amounts reported in the Consolidated Balance Sheet as of June 30, 2018 for total assets, current liabilities, and consequently total liabilities and total stockholders’ equity, were determined to be materially different. Additionally, the income tax (benefit) expense in the Consolidated Statement of Operations for the three and six months ended June 30, 2018 was changed. As a result, the net income and the basic and diluted income per common share were determined to be materially different. The Consolidated Statement of Cash Flows for the six months ended June 30, 2018 also changed as a result of the deferred income taxes and income tax payable for 2018.
 
During the 2019 audit process, it was discovered through an ongoing IRS examination that the Company owed Federal tax for 2018.
 
The IRS examination uncovered an error in calculating the Net Operating Loss Carryforward (NOL) resulting from the spin-off of Libsyn in 2016. At December 31, 2017, the Company had recorded an NOL of approximately $14 million. The NOL was part of deferred tax asset which was valued at $0 on the balance sheet, as it had a full valuation allowance. Consequently, the Company was not recognizing tax expenses or the associated tax payable during 2018. However, as the IRS examination continued, it has become clear that the $14 million NOL was overestimated by approximately $12.5 million, and by March 31, 2018, that the NOL has been completely utilized. The result is that the Company ought to have begun recording income tax (benefit) expense in 2018.
 
This Federal Tax Balance will be paid with an amended return in 2020.
 
The Company has temporary tax differences which result in a deferred tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to be recognized for the potential future tax benefit from a loss carryforward. Full realization of the benefit, however, depends on the Company having income in future years.
 
Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax (benefits) will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.
 
Impact of the Restatement
 
As a result of the restatement, reported net income from continuing operations was decreased by $173,209, or $0.01 per basic and diluted share for the three months ended June 30, 2018.
 
As a result of the restatement, reported net income from continuing operations was increased by $1,097,850, or $0.03 per basic and diluted share for the six months ended June 30, 2018. Total assets increased by $1,380,251 at June 30, 2018. Current and total liabilities increased by $282,401 at June 30, 2018. Accumulated deficit decreased by $1,097,850 at June 30, 2018.
 
Items Amended in this Filing
 
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, in its entirety, as amended to reflect the restatement. No attempt has been made in this Form 10-Q/A to update other disclosures presented in the Original Filing, except as required to reflect the effects of the restatement. The following items have been amended as a result of the restatement:
Item 1. Financial Statements
Item 2. Management Discussion & Analysis
 
 
 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
The Unaudited Condensed Consolidated Financial Statements of Liberated Syndication Inc., a Nevada corporation ( the “Company,” “Libsyn,” “Pair”, “we,” “our,” “us” and words of similar import), required to be filed with this 10-Q Quarterly Report were prepared by management and commence on the following page, together with related notes. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements fairly present the financial condition of the Company.
 
 
 
 
 
 
 
 
LIBERATED SYNDICATION INC.
FINANCIAL STATEMENTS
 
 
 
 
CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PAGE
Unaudited Condensed Consolidated Balance Sheets
 
5
 
 
 
Unaudited Condensed Consolidated Statements of Operations
 
6
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
7
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
8
 
 
 
 
 
 
 
 
 
 

4
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
June 30,
2018
(Unaudited)
(As Restated)
 
 
December 31,
2017
 
   CURRENT ASSETS:
 
 
 
 
 
 
     Cash
 $8,169,634 
 $5,211,845 
     Accounts receivable, net
  437,644 [1]
  660,139[1]
     Prepaid expenses
  178,428 
  186,425 
     Prepaid domains, net
  173,568 
  - 
   Total current assets
  8,959,274 
  6,058,409 
 
    
    
   Property and equipment, net
  2,552,145 
  3,007,025 
   Goodwill
  16,388,171 
  16,352,069 
   Definite life - intangible assets
  8,715,343 
  9,644,000 
   Prepaid domains, net of current portion
  115,965 
  - 
   Other
  3,582 
  7,076 
   Deferred tax assets
  1,380,251 
  - 
   Total assets
 $38,114,731 
 $35,068,579 
 
    
    
   CURRENT LIABILITIES:
    
    
     Accounts payable
 $551,589 
 $440,565 
     Income tax payable
  282,401 
  - 
     Accrued expenses
  433,754 
  769,485 
     Deferred revenue, net
  2,142,795 
  1,247,686 
     Current portion of capital lease obligation
  71,090 
  69,243 
     Current portion of loans payable, net of $30,573 and $33,366 discount, respectively
  1,569,427 
  1,566,634 
   Total current liabilities
  5,051,056 
  4,093,613 
 
    
    
LONG TERM LIABILITIES:
    
    
     Loans payable, net of $65,066 and $79,634 discount, respectively, less current portion
  7,534,933 
  8,320,366 
Capital lease obligation, net of current portion
  37,804 
  73,817 
     Deferred revenue, net
  301,719 
  133,617 
   Total long-term liabilities
  7,874,456 
  8,527,800 
   Total liabilities
  12,925,512 
  12,621,413 
 
    
    
COMMITMENTS & CONTINGENCIES
  - 
  - 
 
    
    
   STOCKHOLDERS' EQUITY
    
    
     Common stock
  29,778 
  29,596 
     Additional paid-in capital
  35,092,997 
  34,804,457 
     Accumulated deficit
  (9,933,556)
  (12,386,887)
   Total stockholders' equity
  25,189,219 
  22,447,166 
   Total liabilities and stockholders' equity
 $38,114,731 
 $35,068,579 
 
 
Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical)
 
 
 
 
Statement of Financial Position
 
June 30,
2018
(As Restated)
 
 
December 31,
2017
 
   Allowance for doubtful accounts [1]
  14,000 
  14,000 
   Common stock authorized
  200,000,000 
  200,000,000 
   Common stock par value
  0.001 
  0.001 
   Common stock issued and outstanding
  29,776,974 
  29,595,473 
 
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
 
5
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
 
 
Three Months Ended
June 30,
 
 
Six months ended
June 30,
 
 
 
2018
(As Restated)
 
 
2017
 
 
2018
(As Restated)
 
 
2017
 
Revenue
 $5,305,762 
 $2,498,902 
 $10,365,067 
 $4,993,013 
 
    
    
    
    
Costs and operating expenses
    
    
    
    
 
    
    
    
    
Cost of revenue (excluding depreciation and amortization)
  704,515 
  580,724 
  1,411,885 
  1,197,778 
General and administrative
  1,516,587 
  646,981 
  2,903,899 
  1,274,525 
Non-cash compensation
  - 
  - 
  318,000 
  1,752,000 
Technology
  492,573 
  163,017 
  865,899 
  306,059 
Selling
  210,371 
  83,896 
  427,373 
  159,934 
Customer support
  707,065 
  53,099 
  1,375,295 
  85,622 
Depreciation and amortization
  769,365 
  4,015 
  1,536,265 
  8,319 
Total costs and operating expenses
  4,400,476 
  1,531,732 
  8,838,616 
  4,784,237 
Operating income
  905,286 
  967,170 
  1,526,451 
  208,776 
 
    
    
    
    
 
    
    
    
    
Interest expense
  (98,607)
  - 
  (199,203)
  - 
Interest income
  13,401 
  - 
  23,066 
  - 
Other income
  2,486 
  - 
  5,167 
  - 
Income from operations before income taxes
  822,566 
  967,170 
  1,355,481 
  208,776 
 
    
    
    
    
 
    
    
    
    
 
    
    
    
    
Income tax expense (benefit)
  173,209 
  - 
  (1,097,850)
  - 
Net Income
 $649,357 
 $967,170 
 $2,453,331 
 $208,776 
 
    
    
    
    
 
    
    
    
    
BASIC AND DILUTED INCOME PER COMMON SHARE
 $0.02 
 $0.04 
 $0.08 
 $0.01 
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  29,776,974 
  24,446,578 
  29,711,034 
  24,083,595 
 
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.
 
6
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
 
 
June 30,
2018
(As Restated)
 
 
June 30,
2017
 
 
 
 
 
 
 
 
   Cash Flows from Operating Activities
 
 
 
 
 
 
     Net income
 $2,453,331 
 $208,776 
Adjustments to reconcile net income to net cash provided by operating activities:
    
    
          Depreciation and amortization expense
  1,536,265 
  8,319 
          Issuance of common stock for services
  318,000 
  1,752,000 
          Deferred income taxes
  1,380,251 
  - 
          Discount on loan fees
  17,361 
  - 
          Change in assets and liabilities:
    
    
               Accounts receivable
  157,115 
  (506,269)
               Prepaid expenses
  (278,042)
  (27,703)
               Accounts payable
  111,024 
  163,380 
               Accrued expense
  (335,730)
  (282,281)
               Income taxes payable
  282,401 
  - 
               Deferred revenue
  1,063,210 
  (6,460)
                    Net Cash Provided by Operating Activities
  3,944,684 
  1,309,762 
 
    
    
   Cash Flows from Investing Activities:
    
    
 
    
    
Purchase of property and equipment
  (152,729)
  - 
                    Net Cash Used in Investing Activities
  (152,729)
  - 
 
    
    
 
    
    
   Cash Flows from Financing Activities:
    
    
     Repayment on term loan
  (800,000)
  - 
     Repayment on capital lease
  (34,166)
  - 
     Re-purchase of common stock
    
  (8,000)
                    Net Cash Used in Financing Activities
  (834,166)
  (8,000)
 
    
    
   Net Increase in Cash
  2,957,789 
  1,301,762 
   Cash at Beginning of Period
  5,211,845 
  4,875,458 
   Cash at End of Period
 $8,169,634 
 $6,177,220 
 
    
    
   Supplemental Disclosures of Cash Flow Information
    
    
     Cash paid during the periods for:
    
    
          Interest
 $146,194 
 $- 
          Income taxes
  - 
  - 
 
    
    
   Supplemental Non-Cash Investing and Financing Activities
    
    
Returned Common Stock
 $29,278 
 $- 
 
The accompanying notes are an integral part to the unaudited condensed consolidated financial statements
 
7
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. On December 27, 2017, the Company purchased all the issued and outstanding shares of Pair Networks Inc., (“Pair”), a Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC (”Ryousha”) and 660837 N.B., Inc. (“NB”), in a transaction accounted for as a purchase. Pair provides web hosting services and domain name registrations.
 
Prior Period Reclassifications - Reclassifications of certain immaterial prior period amounts have been made to conform to the current period presentation.
 
Consolidation - The financial statements presented reflect the accounts of the parent, Libsyn, Ryousha, NB and Pair. All inter-company transactions have been eliminated in consolidation.
 
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 determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements;
the fair value of assets acquired, and liabilities assumed in business acquisitions;
the assessment of recoverability of long-lived assets, including property and equipment, goodwill and intangible assets;
the estimated reserve for refunds;
the estimated useful lives of intangible and depreciable assets;
the grant date fair value of equity-based awards;
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.
 
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 June 30, 2018, the Company had $7,711,981 cash balances in excess of federally insured limits.
 
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. At June 30, 2018 and December 31, 2017, 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 six months ended June 30, 2018 and 2017, the Company adjusted the allowance for bad debt by $0.
 
Depreciation – Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.
 
8
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
Long-lived intangible assets – The Company evaluates its long-lived assets for impairment whenever events or 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.
 
Software Development 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 six months ended June 30, 2018 and 2017. Software development costs totaled $865,899 and $306,059 for the six months ended June 30, 2018 and 2017, respectively.
 
Goodwill Goodwill is evaluated for impairment annually in the fourth quarter of the Company’s fiscal year, 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 June 30, 2018.
 
Advertising Costs – Advertising costs are expensed as incurred and amounted to $67,368 and $16,140 for the six months ending June 30, 2018 and 2017, 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.
 
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 - On January 1, 2018, we adopted the Financial Accounting Standards Board's (FASB) new revenue recognition standard using the modified retrospective method applied to those contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new standard, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting.
 
The adoption of the new standard did not have a material impact to our financial statements.
 
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.
 
9
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
Certain products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds reduce deferred revenue at the time they are granted and 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 determine 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.
 
Equity-Based Compensation - Our equity-based awards are comprised of options and stock and are accounted for using the fair value method. We grant options at exercise prices equal to the fair market value of our common stock as reported on the OTCQB on the date of grant. We measure and recognize compensation expense for equity-based awards made to employees and directors based on the grant date fair values of the awards. Stock is measured based on the fair market value of the underlying common stock on the date of grant. For options with service or performance-based vesting conditions, the grant date fair value is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions and apply judgment in determining the grant date fair value. Options and award vest and compensation is recognized over the requisite service period. The measurement date for performance vesting awards is the date on which the applicable performance criteria are approved by our board of directors. Key assumptions used in the determination of fair value for stock options are as follows:
 
10
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
Expected term. The expected term represents the period the options are expected to be outstanding. Because of the lack of sufficient historical data necessary to calculate the expected term, we use the simple average of the vesting period and the contractual term to estimate the expected term.
 
Expected volatility. We determine the expected stock price volatility based on the historical volatilities of our common stock.
 
Expected dividend yield. We do not use a dividend rate due to our expectation of not paying dividends in the foreseeable future.
 
Risk-free interest rate. We base the risk-free interest rate on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date.
 
Leases The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”) Topic 840. Leases that meet one or more of the capital lease criteria of standard are recorded as a capital lease, all other leases are operating leases.
 
Earnings Per Share – The Company computes earnings per share in accordance with FASB ASC Topic 260 Earnings Per Share, which requires the Company to present basic earnings per share and diluted earnings per share when the effect is dilutive (see Note 9).
 
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 - In February 2016, the FASB issued changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for us beginning in the first quarter of 2019. We have not yet determined the impact of the new standard on our consolidated financial statements.
 
Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
 
NOTE 2 - PROPERTY & EQUIPMENT
 
The following is a summary of property and equipment at:
 
 
 
Life
 
June 30,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
 
Furniture, fixtures, and equipment
3-10 yrs
 $8,184,907 
 $8,032,178 
Leasehold improvements
3 - 5 yrs
  2,646,400 
  2,646,400 
Software
3 yrs
  6,503 
  6,503 
 
  10,837,810 
  10,685,081 
Less: Accumulated depreciation
 
  (8,285,665)
  (7,678,056)
Property & equipment, net
 
 $2,552,145 
 $3,007,025 
 
Depreciation expense for the six months ended June 30, 2018 and 2017 was $607,608 and $8,319, respectively.
 
11
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 3 - GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS
 
Impairment - During the fourth quarter of 2017, management performed its annual test of impairment of goodwill by comparing the net carrying value of the intangible asset with the fair value of the reporting units. Based upon the results of this analysis, it was determined that the goodwill was not impaired.
 
Goodwill - The following is a summary of goodwill:
 
 
 
June 30,
 
 
December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Goodwill at beginning of period
 $16,352,069 
 $11,484,251 
Acquisition of Pair
  36,102 
  4,867,818 
Impairment
  - 
  - 
Goodwill at end of period
 $16,388,171 
 $16,352,069 
 
During the first quarter of 2018, the Company completed its net-working capital closing adjustment for the acquisition of Pair, resulting in an additional allocation of $36,102 of goodwill.
 
Other definite-life intangible assets - Other intangible assets consist of customer relationships, intellectual property, 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 June 30, 2018, identifiable intangible assets consist of following:
 
  
 
Preliminary
Fair Value
 
 
Weighted Average
Useful Life
(in Years)
 
 
 
Accumulated
Amortization
 
 
 
Net Carrying
Amount
 
Customer Relationships
 $3,947,000 
  7 
 $281,928 
 $3,665,072 
Intellectual Property
  3,709,000 
  7 
  264,929 
  3,444,071 
Trade name
  576,000 
  10 
  28,800 
  547,200 
Non-compete
  1,412,000 
  2 
  353,000 
  1,059,000 
Total
 $9,644,000 
    
 $928,657 
 $8,715,343 
 
Amortization expense for the six months ended June 30, 2018 and 2017 was $928,657 and $0, respectively
 
The estimated future amortization expenses related to other intangible assets as of June 30, 2018 are as follows:
 
For twelve months ending June 30,
 
 
 
2019
 $1,857,314 
2020
  1,504,314 
2021
  1,151,314 
2022
  1,151,314 
2023
  1,151,314 
Thereafter
  1,899,773 
Total   
 $8,715,343 
 
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”).
 
12
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 4 – LOANS - Continued
 
The Loan Agreement provides for: (i) a revolving credit facility pursuant to which the Company may borrow an aggregate principal amount not to exceed $2,000,000 (the “Revolving Credit Facility”); and (ii) a term loan in a principal amount equal to $8,000,000 (the “Term Loan” and, together with the Revolving Credit Facility, the “Facility”). A portion of the Revolving Credit Facility, up to $500,000, may be used for standby letters of credit for the account of the Company. As of June 30, 2018, $2,000,000 was drawn down on the revolving line with $0 available.
 
The loan currently accrues interest at LIBOR plus 150 base points or prime plus 75 basis points at the election of the Company. As of June 30, 2018, the Company has elected LIBOR plus 150 basis points or 3.599%.
 
 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. As of June 30, 2018, the balance on the term loan was $7,200,000.
 
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 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 payable to the Seller pursuant to the Share Purchase Agreement. 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 June 30, 2018, the discount was $95,639.
 
Future maturities of the loans at June 30, 2018 are as follows:
 
For the year ending June 30,
 
 
 
2019
 $1,600,000 
2020
  1,600,000 
2021
  1,600,000 
2022
  1,600,000 
2023
  2,800,000 
Thereafter
  - 
Total   
 $9,200,000 
 
13
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 5 - CAPITAL STOCK
 
Common Stock - The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of June 30, 2018, 29,776,974 shares were issued and outstanding.
 
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.
 
During the first quarter of 2017, the Company issued 3,650,000 shares of common stock valued at $1,752,000 to officers and directors.
 
During the second quarter of 2017, the Company repurchased 40,000 shares of common stock for $8,000, and the stock was retired.
 
NOTE 6 – DEFERRED REVENUE
 
Deferred revenue consists of the following:
 
 
June 30,
2018
 
 
December 31,
2017
 
Current:
 
 
 
 
 
 
Hosting services
 $1,620,020 
 $1,032,000 
Domains
  413,546 
  104,172 
Media subscription
  109,229 
  111,514 
 
 $2,142,795 
 $1,247,686 
Noncurrent:
    
    
Hosting services
  63,993 
  50,351 
Domains
  237,726 
  83,266 
 
 $2,444,514 
 $1.381.303 
 
Deferred revenue as of June 30, 2018 is expected to be recognized as revenue as follows:
 
 
 
Remainder of 2018
 
 
2019
 
 
2020
 
 
2021
 
 
2022
 
 
Thereafter
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domains
 $251,672 
 $217,351 
 $76,061 
 $50,972 
 $40,367 
 $14,849 
 $651,272 
Hosting
  1,269,210 
  336,865 
  77,938 
  - 
  - 
  - 
  1,684,013 
Media Subscription
  90,617 
  18,612 
  - 
  - 
  - 
  - 
  109,229 
 
 $1,611,499 
 $572,828 
 $153,999 
 $50,972 
 $40,367 
 $14,849 
 $2,444,514 
 
14
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 6 – DEFERRED REVENUE - Continued
 
Disaggregated revenue consists of following:
 
 
 
Three Months Ended
June 30
 
 
Six Months Ended
June 30
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Hosting services
 $2,132,140 
 $- 
 $4,193,635 
 $- 
Podcast hosting
  2,649,525 
  2,037,114 
  5,150,632 
  3,968,302 
Advertising
  250,750 
  361,077 
  571,414 
  841,968 
Domains
  116,499 
  - 
  188,295 
  - 
Other
  156,848 
  100,711 
  261,091 
  182,743 
 
 $5,305,762 
 $2,498,902 
 $10,365,067 
 $4,993,013 
 
NOTE 7 - INCOME TAXES
 
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. At June 30, 2018 and December 31, 2017, the total of all deferred tax assets was $1,380,251 and $3,458,667, respectively, and the total of the deferred tax assets related to goodwill was $0 and $2,341,894, respectively. The 2017 deferred tax asst was fully allowed for in the year. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined. Management has analyzed the health of the Company and it is now more likely than not that the company will likely have strong income from operations moving forward. Therefore, the valuation allowance has been relieved. The change in the valuation allowance for the six months ended June 30, 2018 and 2017 was $1,380,251 and $85,657, respectively.
 
The components of income tax (benefit) expense from continuing operations for the six months ended June 30, 2018 and 2017 consist of the following:
 
 
 
For the Six Months Ended
 
 
 
June 30,
 
 
 
2018
 
 
2017
 
Current tax expense:
 
 
 
 
 
 
Federal
 $282,401 
 $- 
State
  - 
  - 
Current tax expense
  282,401 
  - 
 
    
    
Deferred tax (benefit) expense:
    
    
    Deferred revenue
  (14,030)
  - 
    Depreciation and amortization
  28,126 
  - 
    Non-cash compensation
  (1,394,347)
  - 
Intangible Assets
  - 
  255,554 
    Valuation Allowance
  - 
  (85,657)
Net operating loss carryforward
  - 
  (169,897)
Subtotal deferred tax (benefit) expense
  (1,380,251)
  - 
Income tax (benefit) expense
 $(1,097,850)
 $- 
 
  15
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 - INCOME TAXES – continued
 
A reconciliation of income tax (benefit) expense as the federal statutory rate to income tax expense at the Company’s effective rate is as follows:
 
 
 
For the Six Months Ended
June 30,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Computed tax at the expected statutory rate
 $282,401 
 $70,984 
  State and local income taxes, net of federal
  - 
  13,912 
  Other non-deductible expenses
  - 
  761 
  Valuation Allowance
  (1,380,251)
  (85,657)
Income tax (benefit) expense
 $(1,097,850)
 $- 
 
The temporary differences, tax credits and carryforwards gave rise to the following deferred tax asset at June 30, 2018 and 2017:
 
 
June 30,
 
 
June 30,
 
 
 
2018
 
 
2017
 
Current deferred tax assets (liabilities):
 
 
 
 
 
 
Allowance for doubtful accounts
 $- 
 $- 
Vacation accrual
  - 
  - 
Total current deferred tax assets (liabilities)
  - 
  - 
 
    
    
Long-term deferred tax assets (liabilities):
    
    
 
    
    
Long-term deferred tax assets (liabilities):
    
    
    Depreciation and amortization
  28,126 
  - 
    Deferred revenue
  14,030 
  - 
    Non-cash compensation
  1,394,347 
  - 
Goodwill - impaired
  - 
  2,903,618 
Intangible assets – tax amortization
  - 
  (5,245,512)
Net operating loss carryforward
  - 
  5,825,770 
    Valuation allowance
  - 
  (3,483,876)
Net term deferred tax assets (liabilities)
 $1,380,251 
 $- 
 
At June 30, 2018, the company has loss carryforwards of $0.
 
We file U.S. federal, and U.S. states returns, and we are generally no longer subject to tax examinations for years prior to 2015 for U.S. federal and U.S. states tax returns.
 
NOTE 8 - LEASES
 
Operating Lease - The Company leases two office spaces in Pittsburgh, Pennsylvania. The corporate headquarters’ lease is for $4,841 a month through April 2022. The office space for Pair is $34,014 a month through September 2021.
 
The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of June 30, 2018 are as follows:
  
16
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 8 – LEASES – continued
 
Year ending June 30:
 
Lease Payments
 
2019
  466,260 
2020
  466,260 
2021
  466,260 
2022
  150,452 
Total Minimum Lease Payment
 $1,549,232 
 
Lease expense charged to operations was $306,071 and $139,041 for the six months ended June 30, 2018 and 2017, respectively.
 
NOTE 9 –EARNINGS PER SHARE
 
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 Six Months
 
 
 
June 30
 
 
June 30
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from operations available to common stockholders (numerator)
 $649,357 
 $967,170 
 $2,453,331 
 $208,776 
Income available to common stockholders (numerator)
  649,357 
  967,170 
  2,453,331 
  208,776 
Restated Weighted average number of common shares outstanding during the period used in earnings per share (denominator)
  29,776,974 
  24,446,578 
  29,711,034 
  24,083,595 
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES
 
After the Spin-Off, FAB Universal Corp. (“FAB”), the former parent company of the Company, 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 $100,000 profit sharing contribution to the plan in 2018.
 
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 June 30, 2018 which are podcast hosting services (Libsyn) and internet hosting services (Pair).
 
 
17
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 11 - SEGMENT REPORTING – continued
 
The following table presents summary information by segment for the six months ended June 30, 2018 and 2017, respectively:
 
 
 
2018
 
 
2017
 
(in thousands)
 
Libsyn
 
 
Pair
 
 
Total
 
 
Libsyn
 
 
Pair
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $5,908 
 $4,457 
 $10,365 
 $4,993 
 $- 
 $4,993 
Cost of revenue
  1,074 
  338 
  1,412 
  1,198 
  - 
  1,198 
 
    
    
    
    
    
    
Total assets
 $19,999 
 $18,115 
 $38,114 
 $18,651 
 $- 
 $18,651 
Depreciation and amortization
 $18 
 $1,518 
 $1,536 
 $8 
 $- 
 $8 
 
The following table presents summary information by segment for the three months ended June 30, 2018 and 2017, respectively:
 
 
 
2018
 
 
2017
 
(in thousands)
 
Libsyn
 
 
Pair
 
 
Total
 
 
Libsyn
 
 
Pair
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $3,025 
 $2,280 
 $5,305 
 $2,126 
 $- 
 $2,126 
Cost of revenue
  539 
  165 
  704 
  752 
  - 
  752 
 
    
    
    
    
    
    
Depreciation and amortization
 $10 
 $759 
 $769 
 $4 
 $- 
 $4 
 
NOTE 12 - SUBSEQUENT EVENTS
 
Management has evaluated subsequent events through the date of the filing of this report.
 
NOTE 13 – RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
 
Background of the Restatement
 
On April 28, 2020, the Audit Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (the “Company”) determined that (a) the Consolidated Balance Sheet as of December 31, 2018, (b) the Consolidated Statement of Operations for the year ended December 31, 2018, (c) the Statement of Stockholders’ Equity for the year ended December 31, 2018, and (d) the Consolidated Statement of Cash Flows for the year December 31, 2018, all as presented in the Company’s Annual Report on Form 10-K for the Period Ended December 31, 2018, as previously filed with the U.S. Securities and Exchange Commission on March 14, 2019, should not be relied upon. Subsequent to such determination, the Company reviewed the related interim financial statements and interim financial statements for the first three quarters of 2019 and 2018, and as a result of such review, on May 20, 2020, the Audit Committee determined that such interim financial statement should likewise no longer be relied upon.
 
Specifically, the amounts reported in the Consolidated Balance Sheet as of June 30, 2018 for total assets, current liabilities, and consequently total liabilities and total stockholders’ equity, were determined to be materially different. Additionally, the income tax (benefit) expense in the Consolidated Statement of Operations for the three and six months ended June 30, 2018 was changed. As a result, the net income and the basic and diluted income per common share were determined to be materially different. The Consolidated Statement of Cash Flows for the six months ended June 30, 2018 also changed as a result of the deferred income taxes and income tax payable for 2018.
 
During the 2019 audit process, it was discovered through an ongoing IRS examination it was discovered that the Company owed Federal tax for 2018.
 
 
18
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The IRS examination uncovered an error in calculating the Net Operating Loss Carryforward (NOL) resulting from the spin-off of Libsyn in 2016. At December 31, 2017, the Company had recorded an NOL of approximately $14 million. The NOL was part of deferred tax asset which was valued at $0 on the balance sheet, as it had a full valuation allowance. Consequently, the Company was not recognizing tax expenses or the associated tax payable during 2018. However, as the IRS examination continued, it has become clear that the $14 million NOL was overestimated by approximately $12.5 million, and by March 31, 2018, that the NOL has been completely utilized. The result is that the Company ought to have begun recording tax expenses in 2018.
 
This Federal Tax Balance will be paid with an amended return in 2020.
 
The Company has temporary tax differences which result in a deferred tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to be recognized for the potential future tax benefit from a loss carryforward. Full realization of the benefit, however, depends on the Company having income in future years.
 
Because the NOL has been completely utilized and the Company is now consistently recording profits, a DTA with the associated payable should have been recorded in 2018. DTAs represent future income tax benefits. But the tax benefits will be realized only if there is sufficient taxable income from which the deductible amount can be deducted.
 
Impact of the Restatement
 
As a result of the restatement, reported net income from continuing operations was decreased by $173,209, or $0.01 per basic and diluted share for the three months ended June 30, 2018.
 
As a result of the restatement, reported net income from continuing operations was increased by $1,097,850, or $0.03 per basic and diluted share for the six months ended June 30, 2018. Total assets increased by $1,380,251 at June 30, 2018. Current and total liabilities increased by $282,401 at June 30, 2018. Accumulated deficit decreased by $1,097,850 at June 30, 2018.
 
The financial statements included in this Form 10-Q/A have been restated to reflect the adjustments described. The table below summarizes the effects of the restatement on Libsyn’s Unaudited Consolidated Statements of Operation for the six months ended June 30, 2018 and, Unaudited Consolidated Balance Sheet at June 30, 2018.
 
In addition to the restatement of the financial statements, certain information within Note 7 – Income Taxes to the financial statements has been restated to reflect the corrections of misstatements discussed above as well as to add disclosure language as appropriate.
 
Unaudited Consolidated Balance Sheet
 
 
 
June 30, 2018
As Reported
 
 
Corrections
 
 
June 30, 2018
As Restated
 
Deferred Tax Assets
  - 
  1,380,251 
  1,380,251 
Total Assets
  36,734,480 
  1,380,251 
  38,114,731 
Income Taxes Payable
  - 
  282,401 
  282,401 
Total Current Liabilities
  4,768,655 
  282,401 
  5,051,056 
Total Liabilities
  12,643,111 
  282,401 
  12,925,512 
Accumulated Deficit
  (11,031,406)
  1,097,850 
  (9,933,556)
Stockholder’s Equity
  24,091,369 
  1,097,850 
  25,189,219 
 
 
Unaudited Consolidated Statement of Operations
 
 
 
Six months ended
June 30, 2018
As Reported
 
 
Corrections
 
 
Six months ended
June 30, 2018
As Restated
 
Income Tax (Benefit) expense
  - 
  (1,097,850)
  (1,097,850)
Net Income
  1,355,481 
  (1,097,850)
  2,453,331 
Basic and Diluted Income Per Common Share
  0.05 
  0.03 
  0.08 
 
 
19
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 13 – RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS – continued
 
 
Unaudited Consolidated Statement of Operations
 
 
 
Three months ended
June 30, 2018
As Reported
 
 
Corrections
 
 
Three months ended
June 30, 2018
As Restated
 
Income Tax (Benefit) expense
  - 
  173,209 
  173,209 
Net Income
  822,566 
  173,209 
  649,357 
Basic and Diluted Income Per Common Share
  0.03 
  (0.01)
  0.02 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
 
 
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 home healthcare industry, our ability to continue to develop services acceptable to our industry, our ability to retain our business relationships, and our ability to raise capital and the growth of the home healthcare industry, 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 home healthcare industry, 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 webhosting services through its wholly-owned subsidiary Pair Networks, Inc., a Pennsylvania corporation (“Pair” or “PNI”). Libsyn’s focus is on our podcasting business, while Pair’s focus is on webhosting and domains.
 
Podcast Hosting and Distribution
 
Libsyn is a Podcast Service Provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, destination distribution and audience statistics and analytics. Podcast producers can chose from a variety of hosting plan levels based on the requirements for their podcast. Plans are designed to provide full-featured podcast tools with generous storage and bandwidth transfer.
 
Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn’s standard plans range for $5 to $75 per month. LibsynPRO service is an enterprise solution for professional media producers and corporate customers that require media network features and dedicated support. LibsynPro revenue consists primarily of monthly hosting fees and bandwidth usage charges. Other professional level add-ons, such as set-up fees and custom features, represent a small portion of LibsynPro revenue.
 
During the first six months of 2018, Libsyn generated 70% of its revenue from Podcast hosting fees paid by Libsyn4 Producers. LibsynPro revenue is 18% of overall revenues, and Advertising revenue makes up 9% revenues. App subscriptions make up 5% of total Libsyn revenues. During the first six months of 2017, those revenues contributions were 63% for Libsyn4, 17%, for LibsynPro, 17% for Advertising and 3% for App subscriptions.
 
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Trends in the number of podcast shows on the Libsyn network and podcast consumption affect our revenue and financial results as they are directly related to cash flow and cost of revenue. Management believes that over the next 3 months, growth in the podcasting industry and Libsyn’s market leadership will continue to fuel expansion of the Libsyn network and revenue. The Company expects to see year-over-year bandwidth usage continue to grow in 2018.
 
Pair Networks, Inc. (“Pair”)
 
Pair offers a variety of hosting plan levels, value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.
 
Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and Pair cloud technology 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.
 
Share 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.
 
Results of Operations
 
Six Months Ended June 30, 2018 and 2017.
 
During the six months ended June 30, 2018, the Company recorded revenues of $10,365,067, a 108% increase over revenues of $4,993,013 for the same period in 2017. The increase for 2018 reflects an increase in Libsyn4 hosting revenue as well as LibsynPro and Premium Subscription, offset by decreases in Advertising revenue. Pair contributed $4,457,142 of revenue during the first six months of 2018, and $0 during 2017 due to the acquisition in December 2017. Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the first six months of 2018 versus 2017. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in 2018 with increased bandwidth usage fees for delivery of podcasts contributing to the majority of the revenue gain. Advertising revenue decreased 39% in the first six months of 2018 versus 2017. The decrease resulted from decrease in the dollars being spent on ad campaigns during the first six months of 2018 with existing advertisers. Premium subscription revenue increased $3,785.
 
The Company recorded total costs and operating expenses of $8,838,616 during the six months ended June 30, 2018, an 85% increase as compared to operating expenses of $4,784,237 in the same period of 2017. Pair contributed $5,340,605 to total costs and operating expenses during the first six months of 2018, and $0 during 2017 due to the acquisition in December 2017.
 
During the six months ended June 30, 2018, cost of revenue totaled $1,411,885, an 18% increase as compared to $1,197,778 for the same period in 2017. Pair contributed $338,276 to cost of revenue during the first six months of 2018, offset by a decrease ad sharing that is being paid to producers in 2018 versus 2017, driven by a decrease in revenue. As a percentage of revenue, cost of revenue decrease from 24% to 14% for the six months ended June 30, 2018 versus 2017, which was driven by Pair’s at 8% for the six months ended June 30, 2018.
 
The increase in general and administrative was primarily driven by the addition of the Pair business consisting primarily of wages, rent, utilities, and health insurance costs. General and administrative expenses totaled $2,903,899 in 2018 versus $1,274,525 in 2017, an increase of 128%, driven by an increase in wages from the addition of Pair during 2018. Technology expenses represented $865,899 in 2018 versus $306,059 in 2017, driven by an increase in wages from the addition of Pair during 2018. Selling expenses in 2018 were $427,373 versus $159,934 in 2017 with the addition of the selling team for Pair. Customer support expenses in 2018 were $1,375,295 versus $85,622 in 2017 driven by the 24/7 support provided by Pair.
 
Interest expense for the first six months of 2018 was $199,203, which represents interest on the loan facility obtained in connection with the acquisition of Pair.
 
Income tax benefit for the six months ended June 30, 2018 was $1,097,850, which represents the deferred tax asset from the 2018 tax provision and the expected federal balance due for 2018. The income tax payable will be payable with the amended return in 2020.
 
The Company’s net income was $2,453,331 for the six months ended June 30, 2018. This represents a $2,244,555 increase from $208,776 for the six months ended June 30, 2017.
 
 
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Three Months Ended June 30, 2018 and 2017.
 
During the three months ended June 30, 2018, the Company recorded revenues of $5,305,762, a 112% increase over revenues of $2,498,902 for the same period in 2017. The increase for 2018 reflects an increase in Libsyn 4 hosting revenue as well as LibsynPro and Premium Subscription, offset by a decrease in advertising. Pair contributed $2,280,027 of revenue during the second quarter of 2018, and $0 during 2017 due to the acquisition in December 2017. Libsyn4 hosting revenue increased due to the growth in the number of podcasts on the network when comparing the second quarter of 2018 versus 2017. LibsynPro revenue increased as a result of additional LibsynPro networks using our platform in 2018 with increased bandwidth usage fees for delivery of podcasts contributing to the majority of the revenue gain. Advertising revenue decreased due to a decrease in spending on campaign during the second quarter of 2018. Premium subscription revenue increased due an increase in the number producers offering subscription.
 
The Company recorded total costs and operating expenses of $4,400,476 during the three months ended June 30, 2018, a 187% increase as compared to operating expenses of $1,531,732 in the same period of 2017. Pair contributed $2,720,842 to total costs and operating expenses during the second quarter of 2018, and $0 during 2017 due to the acquisition in December 2017.
 
During the three months ended June 30, 2018, cost of revenue totaled $704,515, a 21% increase as compared to $580,724 for the same period in 2017. Pair contributed $165,475 to cost of revenue during the second quarter of 2018, offset by a decrease in ad sharing that is being paid to producers in 2018 versus 2017, driven by a decrease in revenue. As a percentage of revenue, cost of revenue decrease from 23% to 13% for the three months ended June 30, 2018 versus 2017, which was driven by Pair’s at 7% for the three months ended June 30, 2018.
 
General and administrative expenses totaled $1,516,587 in 2018 versus $646,981 in 2017, an increase of 134%, driven by an increase in wages from the addition of Pair during 2018, and increases in personnel and wages within Libsyn, and the contribution to the profit sharing plan. Technology expenses represented $492,573 in the second quarter of 2018 versus $163,017 in 2017, driven by an increase in personnel from the addition of Pair during 2018. Selling expenses in the second quarter of 2018 were $210,371 versus $83,896 in 2017, driven by an increase in wages and advertising from the addition of Pair during 2018.
 
Income tax expense for the three months ended June 30, 2018 was $173,209, which represents the deferred tax asset from the 2018 tax provision and the expected federal balance due for 2018. The income tax payable will be payable with the amended return in 2020.
 
The Company’s net income was $649,357 for the three months ended June 30, 2018. This represents a $317,813 decrease from our net income of $967,170 for the three months ended June 30, 2017.
 
Liquidity and Capital Resources.
 
Cash on hand was $8,169,634 at June 30, 2018, an increase of $ 2,957,789 over the $5,211,845 on hand at December 31, 2017. Cash provided by operations for the six months ended June 30, 2018, was $ 3,944,684, an increase of $2,634,922 over the $1,309,762 cash provided by operations for the six months ended June 30, 2017. The contribution from Pair of this cash generation totaled $1,234,781, and Libsyn added $2,709,903. This increase is driven from our operating results of both segments of our business.
 
Cash used in investing activities of $152,729 during the second quarter of 2018 was for the purchase of equipment and capitalization of software development costs.
 
Cash used in financing activities was $834,166 for the six months ended June 30, 2018 and $8,000 in 2017. During the first six months of 2018, we made our payments on the loan used to acquire Pair, a total of $800,000, as well as $34,166 of payments on our capital lease.
 
The increase in cash of $2,957,789 during the first six months of 2018 is a reflection of the strength of the overall business through the first six months of 2018.
 
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Off-balance sheet arrangements
 
We have operating leases for certain facilities, but otherwise do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, or capital resources.
The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of June 30, 2018 are as follows:
 
Year ending June 30:
 
Lease Payments
 
2019
  466,260 
2020
  466,260 
2021
  466,260 
2022
  150,452 
Total Minimum Lease Payment
 $1,549,232 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
Not required for smaller reporting companies.
 
Item 4. Controls and Procedures.
 
(a) Evaluation of Disclosure Controls and Procedures
 
Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
 
As of June 30, 2018, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level due to the identification of errors which led to certain of our financial statements being restated. On an on-going basis we will evaluate the adequacy of our controls and procedures.
 
(b) Changes in Internal Control over Financial Reporting
 
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), occurred during the fiscal quarter ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  
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PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
Liberated Syndication Inc. is involved in routine legal and administrative proceedings and claims of various types. We have no material pending legal or administrative proceedings, other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any property is the subject.
 
Item 1A. Risk Factors.
 
Not required for smaller reporting companies.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
     None; not applicable.
 
Item 3. Defaults Upon Senior Securities.
 
     None; not applicable.
 
Item 4. Mine Safety Disclosures.
 
     None; not applicable.
 
Item 5. Other Information.
 
None; not applicable.
 
(a)
During the quarterly period ended June 30, 2018, there were no changes to the procedures by which shareholders’ may recommend nominees to the Company’s board of directors.
 
Item 6. Exhibits.
 
(ii)       
Exhibit No.                                
Description
 
302 Certification of Christopher J. Spencer
 
302 Certification of Gabriel J. Mosey
 
906 Certification.
 
101.1
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.
 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Date:
7/10/2020
 
By:
/s/ Christopher J. Spencer
 
 
 
 
Christopher J. Spencer
 
 
 
 
Chief Executive Officer and President
 
 
Date:
7/10/2020
 
 
/s/ Gabriel J. Mosey
 
 
 
 
Gabriel J. Mosey
 
 
 
 
Interim Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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