UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

‬‬‬‬‬‬‬‬‬‬‬‬‬

 

 

 

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 Quarterly Report on Form 10-Q 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.

 

LIBERATED SYNDICATION INC. AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

 

 

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements.

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

The accompanying notes are an integral part to the unaudited condensed consolidated financial statements

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

On December 27, 2017, the Company purchased all the issued and outstanding shares of Pair Networks Inc., (“Pair”), a Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC (“Ryousha”) and 660837NB, Inc. (“NB”), in a transaction accounted for as a purchase.

 

Pair Networks Inc. provides web hosting services and domain name registrations. Services include shared web hosting, e-commerce, fully managed virtual private and dedicated servers, customer self-managed dedicated servers, domain-name registration, co-location and content-delivery networks. Pair began operations in August 1995. It incorporated in the state of Pennsylvania in August 1998. Pair’s principal operations are conducted on-site in Pittsburgh, PA. Pair also has an operating site in Denver, Colorado,CO, and a remote site back-up location in Pittsburgh, PA.

 

Ryousha Kokusai, LLC (dba Pair International), a wholly owned single-member limited liability company subsidiary of Pair, was formed on January 1, 2015. The Value Added Tax (VAT) foradded taxes (“VAT”) related to sales tooccurring in European Union countries, which are subject to the VAT, in Europe are paid through Ryousha Kokusai LLC.Ryousha. There are no operating activities conducted by Ryousha. NB, a Canadian Companycompany, 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.

 

 

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“2019 Form 10-K)10-K”).

 

 

Our more significant estimates include:

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

 

We periodically evaluate these estimates and adjust prospectively, if necessary. We believe our estimates and assumptions are reasonable; however, actual results may differ from our estimates.

 

 

 

 

 

 

 

 

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

 

The fair value of the equity-based awards during the firstsecond quarter of 2020 were determined based on market prices on the grant date.

 

The fair value of the Company’s equity-based awards recorded in the Company’s financial statements during the first quarter of 2019 was determined using a Monte Carlo simulation valuation methodology based upon a Geometric Brownian Motion stock path, a Level 3 measurement. Volatility was based on historical volatility of the Company’s common stock over commensurate periods. The expected life was based on the contractual term of the award, and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity similar to the awards’ expected life.

 

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, prepaid expenses, accounts payable, deferred revenue and accrued expenses approximates their recorded values due to their short-term maturities.

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

NOTE 2 - PROPERTY &AND EQUIPMENT

 

The following is a summary of property and equipment at:

 

 

Depreciation expense for the six months ended June 30, 2020 and 2019 was $448,673 and $558,533, respectively. Depreciation expense for the three months ended March 31,June 30, 2020 and 2019 was $226,176$222,497 and $277,769,$280,764, respectively.

 

 

 

 

 

 

 

 

Amortization expense for the six months ended June 30, 2020 and 2019 was $575,657 and $928,657, respectively. Amortization expense for the three months ended March 31,June 30, 2020 and 2019 was $ 287,828$287,829 and $464,329,$464,328, respectively.

 

 

 

NOTE 4 - LOANS

 

 

 

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 March 31,June 30, 2020, the Company had elected LIBOR plus 125 basis points or 2.19088%1.43363%.

 

 

 

 

 

 

Future maturities of the loans at March 31,June 30, 2020 are as follows:

 

 

NOTE 5 - CAPITAL STOCK

 

 

In prior periods, the Company issued stock-based awards to employees that contained a vesting performance condition related to the occurrence of an uplisting of the Company’s common stock to the Nasdaq stock exchange. Such awards were initially expensed in the period issued as the Company deemed it probable the performance condition would be met. During the first quarter of 2019, approximately $830,500 of previously recognized expense related to these awards was recaptured in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”) as a credit to general and administrative expense as it became less than probable that such performance conditions would occur within the time specified in the stock award agreements. Per the October 4, 2019 settlement agreement with Camac Fund, LP, and its affiliates Camac Partners,

LLC, Camac Capital, LLC, and Eric Shahinian, (collectively, “Camac”), 300,000 of these shares were to be returned to the Company. As of March 31,June 30, 2020, this hashad not yet been completed. The Company is taking the necessary steps to irrevocably cancel these equity awards previously granted to the Company’s Chief Executive Officer and Chief Financial Officer.

 

On March 15, 2019 (“Modification Date”), the Company modified certain stock awards previously issued which contained a market condition. The prior agreement required the Company’s adjusted market capitalization to exceed $75 million on five consecutive days by April 23, 2019, whereas the modified award increases the adjusted market capitalization threshold to $80 million on five consecutive days within 18 months of the Modification Date. In accordance with ASC 718, the Company recorded the incremental fair value of the newly modified award over the fair value of the original award, as compensation expense totaling $677,088.

 

On April 13, 2019, 450,000 shares of common stock were forfeited as certain milestones were not achieved.

 

On December 27, 2019, (“Modification Date”), the Company modified certain stock awards previously issued which contained a market condition. The prior agreement required the Company to obtain an average closing price of $5.00 per share (adjusted for stock splits) for any 10 consecutive trading days, in which case certain employees would retain 25% of the stock. The modification requires the Company to obtain an average closing price of $5.50 per share (adjusted for stock splits for any 10 consecutive trading days, in which case the award recipients will retain 100% of their stock. In accordance with ASC 718, the Company recorded the incremental fair value of the newly modified award over the fair value of the original award, as compensation expense totaling $385,582.

 

On February 18, 2020, of the Compensation Committee of the Board of Directors of Liberated Syndication Inc, a Nevada corporation (“Liberated Syndication” or the “Company”)Company approved (i) the extension and modification of stock agreements entered into with Laurie Sims (350,000 restricted shares of common stock, par value $0.001 per share or the “common stock”)stock), Rob Walch (100,000 restricted shares of common stock), Todd Kammerer (25,000 restricted shares of common stock) and Greg Buretz (25,000 restricted shares of common stock) so that the original vesting conditions regarding the third and fourth tranches of such awards shall bewere extended to December 28, 2020, and all unvested restricted shares shall be forfeited upon certain events of termination and vest immediately in the event of certain changes in control of the Company, (ii) the amendment of stock agreements entered into with Douglas Polinsky and Dennis Yevstifeyev each with respect to 200,000 shares of common stock, such that all such shares shall vest immediately in the event of certain changes in control of the Company, and (iii) the award of 25,000 restricted 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 February 28, 2020, the Board of Directors approved the termination of John Busshaus.Busshaus, the Company’s former Chief Financial Officer. The Company anticipates that the 1,212,500 shares of unvested shares held by Mr. Busshaus will be forfeited and cancelled. See Note 10 for additional information.

 

NOTE 6 – DEFERRED REVENUE

 

Deferred revenue consists of the following:

 

 

Our provision for income taxes for the three-month periods ended March 31,June 30, 2020 and 2019 was a tax expense of approximately $304,536$1,627,193 and $327,010,$183,932, respectively, which resulted in an effective tax rate of 21%86% and 21%22%, respectively.

 

NOTE 8 – LEASES

 

We lease two office spaces, a Denver data center, and three Xerox machines. These leases are all classified as operating leases. There is one finance lease for Emerson batteries which is immaterial to our condensed consolidated financial statements, which was paid off during the periodquarter 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 Sheet.

Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.

 

We have options to renew lease terms for the office spaces and other assets. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of March 31,June 30, 2020 was 1.631.42 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 March 31,June 30, 2020 was 4.42%.

 

For the first threesix months ended March 31,June 30, 2020, cash paid for amounts in the measurement of lease liabilities was $119,538.$232,687. Total operating lease costs during the same period were $119,611.

 

Maturity of lease liabilities:

 

 

NOTE 9 –EARNINGS PER SHARE

 

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 March 31,June 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:

 

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Although the Company does not expect to be liable for any obligations not expressly assumed by the Company from the Spin-Off,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, Universal Corp. (“FAB”), the former parent company of the Company, should FAB fail to pay or perform its retained obligations. FAB may have obligations that at the present time are unknown or unforeseen. As the nature of such obligations are unknown, we are unable to provide an estimate of the potential obligation. However, should FAB incur such obligations, the Company may be financially obligated to pay any losses incurred.

 

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 has taken the position that it does not believecontends 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 in Section 9(c).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 Libsyn,the Company, including, inter alia, claims for wages, compensation and benefits, and claims prohibitingof unlawful discharge and wrongful termination. Mr. Busshaus claims that he resigned for “Good Reason” as defined in Section 8(c) of his Employment Agreement pursuant to which he claims to be entitled to the “Effect of Termination” under Section 9(c) of the Employment Agreement in Section 9(c).Agreement. The Company denies Mr. Busshaus’ claims in their entirety.entirety and intends to vigorously defend its position.

 

The Company has entered into employment agreements with its executive officers and management that provide for bonus payments to be paid at the end of the agreement,such agreements, and bonus payments to be paid upon an executive’s termination without cause or for good reason, or following a change of control by the Company or by the executive for good reason.Company. As of March 31,June 30, 2020, the bonus accrual totals $441,667.totaled $542,234.

 

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 March 31, 2019June 30, 2020 which are podcast hosting services (Libsyn) and internet hosting services (Pair).

 

 

The following table presents summary information by segment for the three months ended March 31,June 30, 2020 and 2019, respectively:

 

 

NOTE 12 - SUBSEQUENT EVENTS

 

 

 

 

Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to gain a larger share of the web hosting and podcasting industries, our ability to continue to develop services acceptable to our industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the web and podcasting hosting and domain industries, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.

 

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission: the outbreak of the coronavirus (“COVID-19”) and the global spread of the COVID-19 pandemic during 2020, general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the web hosting and podcasting industries, the development of services that may be superior to the services offered by the Company, competition, changes in the quality or composition of the Company's services, our ability to develop new services, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, services and prices.

 

Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

 

Company Overview

 

Founded in 2015, Liberated Syndication IncInc. (“the “Company,”“Company”, “parent”, “we,” or “us” and words of similar import), a Nevada corporation, provides podcast hosting services through its wholly-owned subsidiary Webmayhem Inc., a Pennsylvania corporation (“Libsyn”), and web hosting services through its wholly-owned subsidiary Pair Networks, Inc., a Pennsylvania corporation (“Pair” or “PNI”). The Company’s consolidated financial statements include the financial statements of Libsyn and Pair. Libsyn’s focus is on our podcasting business, while Pair’s focus is on web hosting and domains.

 

Our corporate offices consist of approximately 3,100 square feet of office space located at 5001 Baum Blvd, Suite 770, Pittsburgh, PA 15213. Our telephone number is (412) 621-0902. We also maintain an office at 2403 Sidney St., Suite 210, Pittsburgh, PA 15203 consisting of approximately 34,700 square feet.

 

BUSINESS

 

 

 

Approximately 62%Management estimates approximately 60% of the downloads from shows that Libsyn distributes reach audiences using Apple's iOS,the Apple Podcasts and Apple’s iTunes platform which includes iTunes on the computer iPads, iPhones,and the Apple Watch, Apple TV, and Apple’s Podcasts App on iOS devices.devices which includes iPhones, iPads, iPods, Apple Watch, and Apple TV. Libsyn also enables distribution to destinations like Google Play Music and aggregators such as Google Podcasts, Spotify, Pandora, iHeartRadio, radio.com and iHeartRadio.Deezer. The OnPublish feature enables podcast episodes to be posted to social media sites such as Facebook, Twitter, YouTube, Linked-In and blogging platforms like WordPress, Tumblr and Blogger. Libsyn also provides a podcast player that can be embedded on websites or shared via social media.

 

Libsyn’s podcast platform architecture allows for expansion of distribution destinations and OnPublish capabilities. Using the Libsyn service, podcast producers can more broadly distribute and promote their shows to attract larger audiences.

 

 

 

Pair offers a variety of hosting plan levels;levels, value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.

 

Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and optimized WordPress hosting as managed services. With over twenty years of experience in Internet hosting, Pair has the expertise to build and manage reliable and powerful hosting solutions. The managed service and 24x7 support allow customers to focus on their core business without having to worry about hardware, operating systems, network connectivity or uptime.

 

Shared web hosting is a great option for startup or smaller businesses as the website sits on the same server with other websites and shares resources such as memory and Central Processing Unit (CPU). Basic website applications such as email and file sharing are ideal for shared server offerings.

 

Virtual private servers

 

Virtual private servers (VPS) is a step up from a shared hosting solution in that specific server resources are allocated directly for a customer’s use, assuring performance levels. This is a more secure and reliable option that separates a customer’s site from others and is ideal for storage or database applications for businesses, developers, and fast-growing sites.

 

Dedicated servers

 

Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are built to customer specifications and tuned for performance, reliability and efficiency to meet the demand of more robust applications. Through Pair QuickServe (QS), a powerful hosting solution with tremendous capacity and speed, servers are ready for a customer’s use quickly and fully managed to keep them up to date.

 

Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their own hardware, collocation service in Pair’s data center allows for unmanaged service with the security and reliability of the diverse network, physically secure facilities, backup power and redundant climate control.

 

 

Optimized WordPress

 

WordPress (WP) is one of the fastest growing Content Management Systems (CMS) powering web sites today. Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service provides fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.

 

 

Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten-year domain name purchase or domain transfer. All domain names registered by Pair include enhanced services such as custom and dynamic Domain Name System (DNS) which controls your domain name’s website and email, WHOIS privacy, email forwarding, and a drag and drop website builder.

 

 

 

During the threesix months ended March 31,June 30, 2020, the Company recorded revenues of $6,252,751,$12,602,493, a 0.5% decrease5% increase from revenues of $6,282,979$11,983,614 for the same period in 2019. The decreaseincrease for 2020 reflects a decrease due to Pair’s hosting and domain offerings and a slight decrease to LibsynPro revenue, offset by an increase in Libsyn4 hosting revenue and Premium Subscriptions, offset by a decrease in Advertising and LibsynPro revenue. Libsyn contributed $3,779,264$7,749,842 and $3,334,635$6,924,991 of revenue during the first threesix months of 2020 and 2019, respectively. Pair contributed $ 2,473,487$4,852,651 and $2,948,344$5,058,623 of revenue during the first threesix months of 2020 and 2019, respectively.

 

Libsyn4 hosting revenue increased $450,552,$913,912, or 17% during the first threesix months ended March 31,June 30, 2020 when compared to the same period in 2019 due to the growth in the number of podcasts on the network. LibsynPro revenueLibsyn decreased slightly by 4%11% as a result of relatively flat revenue from producers using the LibsynPro networks and using our platform.lower bandwidth transfer revenue. Advertising revenue decreased $48,891$121,928 during the first threesix months of 2020 versus the same period of 2018.2019. The decrease resulted from a decrease in the dollars being spent on ad campaigns during the first threesix months of 2020 with existing advertisers. Premium subscription revenue increased $66,228.$157,905 in the first six months of 2020.

 

The Company recorded total costs and operating expenses of $4,834,330$9,257,519 during the first threesix months of 2020, a 2% increase3% decrease as compared to total costs and operating expenses of $4,719,576$9,551,342 during the same period of 2019. Libsyn contributed $2,165,048$4,428,706 to total costs and operating expenses during the first threesix months of 2020, and $2,066,782$4,300,704 during the same period in 2019. Pair contributed $2,669,282$4,828,813 to total costs and operating expenses during the first threesix months of 20192020 and $2,652,794$5,250,638 during the same period in 2018.2019.

 

During the first threesix months of 2020, cost of revenue totaled $807,236,$1,429,537, a 3.9% increase16% decrease as compared to $839,640$1,700,488 for the same period in 2019. Libsyn contributed $503,482$959,800 while Pair contributed $303,754$469,737 to the cost of revenue during the first threesix months of 2020. Libsyn recorded a decrease in bandwidth costs and ad sharing paid to producers offset by an increase in credit card processing fees, and colocation fees during the first threesix months of 2020 versus 2019. Pair recorded a decrease in domain name fees and internet fees. Cost of revenue as a percentage of revenue for Libsyn decreased to 13%12% during the first threesix months of 2020 from 21%17% during the same period in 2019. This is a reflection of the reduction in the bandwidth rate to deliver the podcasts, off-set by an increase in bandwidth usage during the first threesix months of 2020 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform. Cost of revenue as a percentage of revenue for Pair decreased to 10% during the first six months of 2020 from 11% during the same period in 2019. This is due primarily to the decrease in domain name purchase fees and internet connectivity fees.

Libsyn4 hosting revenue increased $463,359, or 17% during the three months ended June 30, 2020 when compared to 12%the same period in 2019 due to the growth in the number of podcasts on the network. LibsynPro decreased by 17% as a result of lower bandwidth transfer revenue. Advertising revenue decreased $73,036 during the three months ended June 30, 2020 versus the same period of 2019. The decrease resulted from a decrease in the dollars being spent on ad campaigns during the three months ended June 30, 2020 with existing advertisers. Premium subscription revenue increased $91,677 in the first three months of 2020.

During the three months ended June 30, 2020, cost of revenue totaled $622,301, a 28% decrease as compared to $860,848 for the same period in 2019. Libsyn contributed $456,318 while Pair contributed $165,983 to the cost of revenue during the three months ended June 30, 2020. Libsyn recorded a decrease in bandwidth costs and ad sharing paid to producers offset by an increase in credit card processing fees, and colocation fees during the three months ended June 30, 2020 versus the same period in 2019. Pair recorded a decrease in domain name fees and internet fees. Cost of revenue as a percentage of revenue for Libsyn increased to 11% during the three months ended June 30, 2020 from 9%11% during the same period in 2019. This is a reflection of the reduction in the bandwidth rate to deliver the podcasts, off-set by an increase in bandwidth usage during the three months ended June 30, 2020 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform. Additionally, Libsyn’s revenue increased by 11% during the three months ended June 30, 2020. Cost of revenue as a percentage of revenue for Pair increased to 7% during the three months ended June 30, 2020 from 13% during the same period in 2019. This is due primarily to the increase in domain name purchase fees and internet connectivity fees.

 

General and administrative expenses totaled $1,950,041$1,687,822 during the first three months ofended June 30, 2020 versus $1,828,539$1,905,567 during the same period in 2019, an increasea decrease of 7%11%. The increasedecrease was driven primarily due to an increase in legal and advisory fees,decreased wage expense and insurance costs, offset by a decrease indecreased professional fees as well as a reduction of non-cash expense for Libsyn.fees. General and administrative expense for Pair during the first three months ofended June 30, 2020 was $842,422$467,797 and $686,643$676,781 for the same period in 2019. General and administrative expense for Libsyn for the same periods was $1,141,896$1,220,025 and $781,888,$1,228,786, respectively.

 

Technology expenses represented $581,070$577,782 during the first three months ofended June 30, 2020 versus $454,638$457,151 for the same period in 2019, driven by an increase in wage expense during the first three months ofended June 30, 2020. Selling expenses during the first three months ofended June 30, 2020 were $230,812$299,010 versus $194,794$214,542 during the same period in 2019 driven by an increase in advertising expense. Customer support expenses in the first three months ofended June 30, 2020 were $751,167$725,948 versus $659,868$648,565 during the same period in 2019 driven by thean increase in support staff costs.

 

Depreciation and amortization expenses consist of charges relating to the depreciation of the property and equipment used in our operations and the amortization of intangible assets. Depreciation and amortization expense for the first three months ofended June 30, 2020 was $514,004$510,326 and $742,097$745,093 during the same period in 2019. During the first three months ofended June 30, 2020, Libsyn contributed $20,040$21,040 and Pair contributed $492,964$489,286 to depreciation and amortization expense.

 

Interest expense for the first three months ofended June 30, 2020 was $62,342$34,162 compared to $86,842$82,880 in the three months ofended June 30, 2019, which represents interest on the loan facility obtained in connection with the acquisition of Pair. Interest expense for the three months ofended June 30, 2020 was offset with interest income of $58,434,$8,951, resulting in net cash expenditure of $3,908.$25,211.

 

Income tax expense for the three months ended March 31,June 30, 2020 was $304,536,$1,627,193, which represents a change in the deferred tax assets and the expected federal balance due for the three monththree-month period ended March 31,June 30, 2020. This also reflects the uncertain tax position the Company has recorded. Income tax expense for the three months ended March 31,June 30, 2019 was $327,010.$183,932.

 

The Company’s net income was $1,120,111$275,364 for the three months ended March 31,June 30, 2020. This represents a $80,512$388,683 decrease from $1,200,623$664,047 for the three months ended March 31,June 30, 2019. Earnings per share remained the same at $0.04 per sharedecreased by $0.01 for the first three months ofended June 30, 2020 when compared to the first three months ended June 30, 2019.

Cash on hand was $19,432,706 at June 30, 2020, an increase of $2,811,434 over the $16,621,272 on hand at December 31, 2019. Cash provided by operations for the six months ended June 30, 2020, was $3,776,903, a decrease of $489,220 over the $4,266,123 of cash provided by operations for the six months ended June 30, 2019. The contribution from Libsyn of this cash generation for the six months ended June 30, 2020 totaled $3,117,721, and Pair added $659,182. The decrease in cash provided by operations is driven by the decrease in management bonus accrual for the second quarter of 2020 compared to the management bonus accrual for the second quarter of 2019.

 

 

 

Not required for smaller reporting companies.

 

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the ChiefPrincipal Executive Officer and the Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

As of March 31, 2020, anAn evaluation was carried out under the supervision and with the participation of our management, including the ChiefPrincipal Executive Officer and the Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the ChiefPrincipal Executive Officer and the Interim Chief Financial Officer concluded that, as of such date,June 30, 2020, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level due to limited accounting and reporting personnel and a lack of segregation of duties due to limited financial resources and the size of our company.Company. 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 March 31,June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

 

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, other than as described below.

 

On April 24, 2020 John Busshaus, the Company’s former Chief Financial Officer, filed a complaint against the Company with the American Arbitration Association (AAA) asserting claims arising from his employment relationship with Libsyn,the Company, including, inter alia, claims for wages, compensation and benefits, and claims prohibitingof unlawful discharge and wrongful termination. Mr. Busshaus claims that he resigned for “Good Reason” as defined in Section 8(c) of his Employment Agreement pursuant to which he claims to be entitled to the “Effect of Termination” under Section 9(c) of the Employment Agreement in Section 9(c).Agreement. The Company denies Busshaus’ claims in their entirety.entirety and intends to vigorously defend its position.

 

 

Our operations and business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. With respect to global financial markets, the continuing and significant decline in the Dow Industrial Average from the end of February through March 2020 has been largely attributed to the effects of COVID-19. We are still assessing our business operations and system supports and the impact COVID-19 may have on our results and financial condition, including requirements that we arrange for smaller reporting companies.employees to work remotely, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business conditions generally or in our sector in particular.

 

 

None; not applicable.

 

 

None; not applicable.

 

 

None; not applicable.

 

 

None; not applicable.

 

 

 

 

 

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.