0001654954-19-002740.txt : 20190314 0001654954-19-002740.hdr.sgml : 20190314 20190314164453 ACCESSION NUMBER: 0001654954-19-002740 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20181231 FILED AS OF DATE: 20190314 DATE AS OF CHANGE: 20190314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Liberated Syndication Inc. CENTRAL INDEX KEY: 0001667489 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 475224851 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-55779 FILM NUMBER: 19681631 BUSINESS ADDRESS: STREET 1: 5001 BAUM BLVD., SUITE #770 CITY: PITTSBURGH STATE: PA ZIP: 15213 BUSINESS PHONE: 412-621-0902 MAIL ADDRESS: STREET 1: 5001 BAUM BLVD., SUITE #770 CITY: PITTSBURGH STATE: PA ZIP: 15213 10-K 1 lsyn_10k.htm ANNUAL REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-K
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2018
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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 Blvd, Suite 770
Pittsburgh, PA 15213
(Address of Principal Executive Offices)
 
Registrant's Telephone Number: (412) 621-0902
 
Securities Registered pursuant to Section 12(b) of the Act:
NONE
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
 
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
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). Yes No
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $37,782,893, based on the closing bid price of the registrant’s common stock on June 30, 2018.
 
As of March 12, 2019, there were 29,721,974 shares of common stock, par value $0.001, of the registrant issued and outstanding.
 

 
 
 
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Item 1A.
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DOCUMENTS INCORPORATED BY REFERENCE
 
PART I
 
Safe Harbor Statement.
 
Statements made in this Form 10-K 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, Pair and Libsyn, including, without limitation, (i) our ability to gain a larger share of the podcasting industry in our chosen markets, our ability to continue to develop products and services acceptable to that industry, our ability to retain our business relationships, and our ability to raise capital and the growth of podcast and web hosting and domains 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" 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 our reports on file with the SEC: 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 podcast industry, the development of services that may be superior to the services offered by the Company, demand for services, 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 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.
 
Item 1. Business.
 
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”). The Company’s consolidated financial statements include the financial statements of Libsyn and Pair. Libsyn’s focus is on our podcast hosting business, while Pair’s focus is on webhosting and domains.
 
Our corporate offices consist of approximately 3,100 square feet of office space located at 5001 Baum Blvd, Suite 770, Pittsburgh, PA 15213. Our telephone number is (412) 621-0902. We also maintain an office at 2403 Sidney St., Suite 210, Pittsburgh, PA consisting of approximately 34,700 square feet.
 
BUSINESS
 
Libsyn
 
Libsyn is a Podcast Service Provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, distribution, and statistics tracking. Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn offers a basic, getting started plan for $5 per month and more advanced plans that include more storage, advanced statistics, and podcast apps. Plans are designed to provide full-featured podcast tools with generous storage and bandwidth transfer. LibsynPRO service is an enterprise solution for professional media producers and corporate customers that require media network features and dedicated support.
 
Libsyn supports both audio and video podcasts, allowing producers to upload podcast episodes through the Libsyn interface or via FTP to manage publishing to online directories, web portals, content aggregators, App marketplaces and social media platforms for both download and streaming.
 
Approximately 70% of the shows that Libsyn distributes reach audiences using Apple’s iTunes platform which includes iTunes on the computer, iPods, iPads, iPhones, Apple Watch, Apple TV, and Apple’s Podcasts App on iOS devices. Libsyn also enables distribution to destinations like Google Play Music and aggregators such as Spotify, Pandora, and iHeartRadio. The OnPublish feature enables podcast episodes to be posted to social media sites such as Facebook, Twitter, YouTube, Linked-In and blogging platforms like WordPress and Blogger. Libsyn also provides a podcast player that can be embedded on websites or shared via social media.
 
Libsyn’s podcast platform architecture allows for expansion of distribution destinations and OnPublish capabilities. Using the Libsyn service, podcast producers can more broadly distribute and promote their shows to attract larger audiences.
 
Pair Networks, Inc. (“Pair”)
 
Pair Networks, founded in 1996, is one of the oldest and most experienced Internet hosting company providing a full range of fast, powerful and reliable Web hosting services. Pair offers a suite of Internet services from shared hosting to virtual private servers to customized solutions with world-class 24x7 on-site customer support. Based in Pittsburgh, Pair serves businesses, bloggers, artists, musicians, educational institutions and non-profit organizations around the world.
 
 
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Pair offers a variety of hosting plan levels, value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.
 
Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and optimized WordPress hosting as managed services. With over twenty years of experience in Internet hosting, Pair has the expertise to build and manage reliable and powerful hosting solutions. The managed service and 24x7 support allow customers to focus on their core business without having to worry about hardware, operating systems, network connectivity or uptime.
 
Shared web hosting is a great option for startup or smaller businesses as the website sits on the same server with other websites and shares resources such as memory and Central Processing Unit (CPU). Basic website applications such as email and file sharing are ideal for shared server offerings.
 
Virtual private servers
 
Virtual private servers (VPS) is a step up from a shared hosting solution in that specific server resources are allocated directly for your use, assuring performance levels. This is a more secure and reliable option that separates your site from others and is ideal for storage or database applications for businesses, developers, and fast-growing sites.
 
Dedicated servers
 
Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are built to customer specifications and tuned for performance, reliability and efficiency to meet the demand of more robust applications. Through Pair QuickServe (QS), a powerful hosting solution with tremendous capacity and speed, servers are ready for your use in no time and fully managed to keep them up to date.
 
Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their own hardware, collocation service in Pair’s data center allows for unmanaged service with the security and reliability of the diverse network, physically secure facilities, backup power and redundant climate control.
 
Optimized WordPress
 
WordPress (WP) is one of the fastest growing Content Management Systems (CMS) powering web sites today. Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service will ensure fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.
 
Pair Hosting customers sign-up online at www.pair.com, using their credit card to subscribe to a monthly or annual plan. Pair offers a basic, getting started plan with a custom domain for $5.95 per month with a basic drag and drop website builder and more advanced plans that include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for all levels including backups, Account Control and security and operating system maintenance and upgrades.
 
Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten-year domain name purchase or domain transfer. All domain names registered by Pair include enhanced services such as custom and dynamic Domain Name System (DNS) which controls your domain name’s website and email, WHOIS privacy, email forwarding, and a drag and drop website builder.
 
 
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Competition
 
We provide cloud-based solutions enabling individuals, businesses and organizations to establish an online presence, connect with customers and manage their ventures. The market for providing these solutions is highly fragmented and competitive. These solutions are also rapidly evolving, creating opportunity for new competitors to enter the market with point-solution products or address specific segments of the market. Our competitors include providers of:
 
domain registration services and web-hosting solutions such as GoDaddy;
website creation and management solutions such as Wix;
web hosting services such as LiquidWeb and SiteGround;
productivity tools such as business-class email, calendaring and messaging such as Google and Microsoft
podcast hosting and distribution providers such as Anchor, SoundCloud, and Blubrry
 
We expect continued competition from companies in the domain, web hosting and podcast hosting markets.
 
We believe the principal competitive factors include product capabilities, meeting customer requirements, a secure, reliable and integrated technology platform, brand awareness and reputation, customer service and support and overall customer satisfaction. We believe we compete favorably with respect to each of these factors.
  
Employees
 
The parent does not conduct any operations of its own. Our operations are conducted through our wholly-owned subsidiaries, Libsyn and Pair. We currently have a total of 89 employees, of which 87 are full-time employees. There are no employees that are represented by employee union(s).  The Company believes its relations with all its employees is good.
 
Item 1A. Risk Factors.
 
Risks Relating to Our Business
 
Our present and intended business operations are highly speculative and involve substantial risks. Only investors who can bear the risk of losing their entire investment should consider buying our shares. Among the risk factors that you should consider are the following:
 
The Company may pursue acquisitions, investments or other strategic relationships or alliances, which may consume significant resources, may be unsuccessful and could dilute holders of its common stock.
 
Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, operating losses, and expenses that could have a material adverse effect on the Company’s financial condition and operating results. Acquisitions involve numerous other risks, including:
 
Diversion of management time and attention from daily operations;
Difficulties integrating acquired businesses, technologies, and personnel into the Company;
Inability to obtain required regulatory approvals and/or required financing on favorable terms;
Entry into new markets in which the Company has little previous experience;
Potential loss of key employees, key contractual relationships, or key customers of acquired companies or of the Company; and
Assumption of the liabilities and exposure to unforeseen liabilities of acquired companies.
 
If these types of transactions are pursued, it may be difficult for the Company to complete these transactions quickly and to integrate these acquired operations efficiently into its current business operations. Any acquisitions, investments or other strategic relationships and alliances by the Company may ultimately harm our business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges.
 
The Company’s products and services compete in segments of the internet service industry that are highly competitive.
 
The principal competitive factors that affect the Company include technical innovation, marketing products and services, podcast monetization, managing costs to maintain competitive pricing, delivering superior customer service, and aggressively managing costs.  We cannot assure you that we will be able to successfully compete against current and future competitors and grow and maintain our market share.
 
We may be required to record a significant charge to earnings as we are required to re-assess our goodwill and other intangible assets.
 
We are required under U.S. GAAP to review our intangible assets, including goodwill for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment annually or more frequently if facts and circumstances warrant a review. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include a decline in stock price and market capitalization and slower or declining growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined.
 
 
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We face a higher risk of failure because of the competitiveness of companies in the internet, technology, domain, hosting and podcast industries.
 
We face the difficulties frequently encountered by internet, technology, and media companies in new and evolving markets. These potential difficulties include the following:
 
substantial delays and expenses related to testing and developing of our new products;
successfully establishing podcasting as a large-scale advertising medium;
marketing and distribution problems with new and existing products and technologies;
we rely on the internet, third-party providers, marketplaces and social media platforms who control distribution of information;
competition from larger and more established companies;
delays in reaching our marketing goals;
difficulty in recruiting qualified employees for management and other positions;
our lack of sufficient customers, revenue, and cash flow; and
our limited financial resources.
 
We may continue to face these and other difficulties in the future. Some of these problems may be beyond our control. If we are unable to successfully address them, our business will suffer.
 
We face significant competition for our products in the domain name registration and web-hosting markets and other markets in which we compete, which we expect will continue to intensify, and we may not be able to maintain or improve our competitive position or market share.
 
We provide Internet hosting solutions enabling individuals, businesses and organizations to establish an online presence, connect with consumers and manage their ventures. The market for these solutions is highly fragmented and competitive. These solutions are also rapidly evolving, creating opportunity for new competitors to enter the market with or address specific segments of the market. Our competitors include providers of domain registration services, web-hosting solutions, website creation and management solutions, e-commerce enablement providers, cloud computing service and online security providers, and providers of productivity tools such as business-class email.
 
We expect competition to increase in the future from competitors in the domain and hosting markets. Some of our current and potential competitors have greater resources, more brand recognition and consumer awareness, more diversified product offerings, greater international scope and larger customer bases than we do, and we may therefore not be able to effectively compete with them. In particular, the extension of the Cooperative Agreement between Verisign Inc. (Verisign), the registry for .com and .net, and the U.S. Department of Commerce in 2018 gave Verisign the right to become a registrar for any gTLD other than .com. If Verisign decides to become a registrar, it would become one of our competitors, which could have a negative impact on our business and the industry. In addition, we face competition in the website and e-commerce site building market from competitors. Our competitors have greater resources, more brand recognition and consumer awareness, more diversified product offerings, greater international scope and larger customer bases than we do, and we may therefore not be able to effectively compete with them. In addition, some of our competitors offer their services and products at low or no cost. If these competitors and potential competitors decide to devote greater resources to the development, promotion and sale of products in the markets in which we compete, or if the products offered by these companies are more attractive to or better meet the evolving needs of our customers, our market share, growth prospects and operating results may be adversely affected.
 
 
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In addition, in an attempt to gain market share, competitors may offer aggressive price discounts or alternative pricing models on the products they offer, such as so-called "freemium" pricing in which a basic offering is provided for free with advanced features provided for a fee, or increase commissions paid to their referral sources. As a result, increased competition could result in lower sales, price reductions, reduced margins and the loss of market share.
 
Furthermore, conditions in our market could change rapidly and significantly as a result of technological advancements, partnering by our competitors or continuing market consolidation. Innovative new start-up companies and large competitors making significant investments in technology and development may invent similar or superior products and technologies competing with our products and technology. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their ability to compete. The continued entry of competitors into the domain name registration and web-hosting markets, and the rapid growth of some competitors that have already entered each market, may make it difficult for us to maintain our market position. Our ability to compete will depend upon our ability to provide a better product than our competitors at a competitive price. To remain competitive, we may be required to make substantial additional investments in research, development, marketing and sales in order to respond to competition, and there can be no assurance that these investments will achieve any returns for us or that we will be able to compete successfully in the future.
 
We rely on search engines to attract a meaningful portion of our customers . If search engines change their search algorithms or policies regarding advertising, increase their pricing or suffer problems, our ability to attract new customers may be impaired.
 
Many of our customers locate our website and products through Internet search engines such as Google, Yahoo! and Bing. The prominence of our website in response to search inquiries is a critical factor in attracting potential customers to our websites. Search engines revise their algorithms from time to time in an attempt to optimize their search results. If search engines on which we rely for algorithmic listings modify their algorithms, our websites may appear less prominently or not at all in search results, which could result in reduced traffic to our websites that we may not be able to replace. Additionally, if the costs of search engine marketing services, such as Google AdWords, increase, we may incur additional marketing expenses or be required to allocate a larger portion of our marketing spend to this channel and our business and operating results could be adversely affected.
 
Furthermore, competitors may in the future bid on our brand names and other search terms we use to drive traffic to our websites. Such actions could increase our advertising costs and result in decreased traffic to our websites. In addition, search engines or social networking sites may change their advertising policies from time to time. Moreover, the use of voice recognition technology such as Alexa, Google Assistant, Cortana or Siri may drive traffic away from search engines, potentially resulting in reduced traffic to our website. If any change to these policies delays or prevents us from advertising through these channels, it could result in reduced traffic to our website and sales of our subscriptions.
 
We rely on online/digital marketing and lead generation to attract new customers and provide upsell opportunities to our existing customer base. Personal information protections and privacy laws may reduce the effectiveness of marketing effort and our ability to attract new customers may be impaired.
 
Many of our customers locate us through the Internet and our website. Online content, social media and opt-in marketing play a critical role in attracting potential customers and selling add-ons to existing customers. Privacy laws and protection of personal information may adversely affect our ability to reach and nurture leads for our products. Additionally, we may incur additional marketing expenses or be required to allocate a larger portion of our marketing budget to creating and optimizing new lead generation channels and our business and operating results could be adversely affected.
 
If the rate of growth of small and medium businesses is significantly lower than our estimates or if demand for our products does not meet expectations, our ability to generate revenue and meet our financial targets could be adversely affected.
 
Although we expect continued demand from small and medium businesses for our products, it is possible the rate of growth may not meet our expectations, or the market may not grow, either of which would adversely affect our business. Our expectations for future revenue growth are based in part on assumptions reflecting our industry knowledge and experience serving small and medium businesses, as well as our assumptions regarding demographic shifts, growth in the availability and capacity of Internet infrastructure and the general economic climate. If any of these assumptions proves to be inaccurate, our revenue growth could be significantly lower than expected. Our ability to compete successfully depends on our ability to offer an integrated and comprehensive suite of products enabling our diverse base of customers to start, grow and run their businesses. The success of our domains, hosting, and business applications offerings is predicated on the assumption that an online presence is, and will continue to be, an important factor in our customers' abilities to establish, expand and manage their businesses quickly, easily and affordably. If we are incorrect in this assumption, for example due to the introduction of a new technology or industry standard superseding the importance of an online presence or renders our existing or future products obsolete, then our ability to retain existing customers and attract new customers could be adversely affected, which could harm our ability to generate revenue and meet our financial targets.
 
 
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We may not be able to maintain and enhance our brands.
 
Management believes that the Libsyn and Pair brands have significantly contributed to the growth of the business. They are critical to expanding our product and service offerings. These brands are a key component in marketing products and services and attracting new customers. Maintaining and enhancing our brands depends largely on our ability to provide useful and reliable products and services, which we may not do successfully. Additionally, if we fail to provide superior customer service our brands may be adversely impacted. If events occur that damage our reputation and brands, we may not be able to compete.
 
If we do not respond effectively to technological change, our products and services could become obsolete.
 
The development of our products and services and other technology entails significant technical and business risks. To remain competitive, we must continue to improve our products' responsiveness, functionality, and features.
 
High technology industries are characterized by:
 
 rapid technological change;
 changes in user and customer requirements and preferences;
 frequent new product and services introductions embodying new technologies; and
 the emergence of new industry standards and practices.
 
The evolving nature of the Internet could render our existing technology and systems obsolete. Our success will depend, in part, on our ability to:
 
license or acquire leading technologies useful in our business;
develop new services and technologies that address our users' increasingly sophisticated and varied needs; and,
respond to technological advances and emerging industry and regulatory standards and practices in a cost-effective and timely way.
 
Future advances in technology may not be beneficial to, or compatible with, our business. Furthermore, we may not use new technologies effectively or adapt our technology and systems to user requirements or emerging industry standards in a timely way. To stay technologically competitive, we may have to spend large amounts of money and time. If we do not adapt to changing market conditions or user requirements in a timely way, our business, financial condition, and results of operations could be seriously harmed.
 
If we fail to develop new products, or if we incur unexpected expenses or delays in product development, we may lose our competitive position.
 
Although we currently have fully developed products available for sale, we are also developing various products and technologies that we will rely on to remain competitive. These new products and technologies are related to our operations, are ongoing and in various stages of their product lifecycle. New products and features are continuously developed to address customer and market requirements. Technology changes and advances are also constantly implemented to reduce costs, increase reliability, and improve our products. Due to the risks in developing new products and technologies, limited financing, competition, obsolescence, loss of key personnel and other factors, we may fail to develop these technologies and products, or we may experience lengthy and costly delays in doing so.
 
 
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Changes to podcast, app and social media platform policies and processes could have an adverse effect on the business plans of Libsyn, including revenues.
 
Podcasts and Podcast Apps are available in the most popular online platforms and directories. Podcasts are included in third party directories such as iTunes and Google Play Music. Podcast Apps are available in App Stores such as Apple and Amazon. Additionally, customers use Libsyn to distribute podcasts on social media platforms (Facebook, Twitter, YouTube) and other third-party content aggregators such as Spotify, Pandora and iHeartRadio. We rely on these third parties and must adhere to their rules for inclusion, which in some cases requires their approval for submission. Changes to these policies and requirements may prevent us from distributing podcasts on these platforms in the future.
 
Distribution, which cannot be guaranteed, depends on third-party review personnel, their management and the specific platform and company policies which are subject to change at any time. Changes in policy and rejection of Podcasts or Podcast Apps by any one or all the online platforms could have an adverse impact on future business plans of Libsyn, including revenue.
 
Additionally, these same policies may adversely affect monetization strategies. These platforms may seek to limit our ability to generate revenue from advertising, premium content, or the sale of apps. Our business, financial condition and results of operations could be seriously harmed as a result.
 
System and online security failures could harm our business and operating results.
 
The operation of our business depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our systems and operations are vulnerable to damage or interruption from many sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes, and similar events. Our servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Any substantial interruptions in the future could result in the loss of data and could destroy our ability to generate revenues from operations.
 
The secure transmission of confidential information over public networks is a significant barrier to electronic commerce and communications. Anyone who can circumvent our security measures could misappropriate confidential information or cause interruptions in our operations. We may have to spend large amounts of money and other resources to protect against potential security breaches or to alleviate problems caused by any breach.
 
A network attack, a security breach or other data security incident could delay or interrupt service to our customers, harm our reputation or subject us to significant liability. Our operations depend on our ability to protect our network and systems against interruption or damage from unauthorized entry, computer viruses, denial of service attacks and other security threats beyond our control. We may be subject to distributed denial of service (DDOS) attacks by hackers aimed at disrupting service to our customers and attempts to place illegal or abusive content on our or our customers' websites. Our response to such DDOS attacks may be insufficient to protect our network and systems. In addition, there has been a continuing increase in the number of malicious software attacks in the technology industry, including malware and ransomware. In addition, from time to time, activities of our customers or other parties may cause us to suspend or terminate customer accounts. We have suspended and terminated, and will in the future suspend or terminate, a customer's use of our products when their activities breach our terms of service, interfere with or harm other customers' information or use of our service or otherwise violate applicable law. We may also suspend or terminate a customer's account if it is repeatedly targeted by DDOS or other attacks disrupting other customers or otherwise impacts our infrastructure. We cannot guarantee our backup systems, regular data backups, security protocols, network protection mechanisms and other procedures currently in place, or that may be in place in the future, will be adequate to prevent or remedy network and service interruption, system failure, damage to one or more of our systems, data loss, security breaches or other data security incidents. Also, some of our products may be cloud-based, and the amount of data we store for our customers on our servers has been increasing as our business has grown. Despite the implementation of security measures, our infrastructure may be vulnerable to computer viruses, worms, other malicious software programs, illegal or abusive content or similar disruptive problems caused by our customers, employees, consultants or other Internet users who attempt to invade or disrupt public and private data networks or to improperly access, use or obtain data. Any actual or perceived breach of our security, or any other data security incident, could damage our reputation and brand, expose us to a risk of loss or litigation and possible liability, subject us to regulatory or other government inquiries or investigations, require us to expend significant capital and other resources to alleviate problems caused by the breach, and deter customers from using our products, any of which would harm our business, financial condition and operating results.
 
 
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If the security of the confidential information or personally identifiable information we maintain, including that of our customers and the visitors to our customers' websites stored in our systems, is breached or otherwise subjected to unauthorized access, our reputation may be harmed, and we may be exposed to liability.
 
Our business involves the storage and transmission of confidential information, including personally identifiable information. In addition, all of our products are cloud-based, the amount of data we store for our customers on our servers (including personally identifiable information and other potentially sensitive information) has been increasing. We take measures intended to protect the security, integrity and confidentiality of the personal information and other sensitive information, including payment card information, we collect, store or transmit, but cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If third parties succeed in penetrating our security measures or those of our vendors and partners, or in otherwise accessing or obtaining without authorization the payment card information or other sensitive or confidential information we or our vendors and partners maintain, we could be subject to liability, loss of business, litigation, government investigations or other losses. Hackers or individuals who attempt to breach our security measures or those of our vendors and partners could, if successful, cause the unauthorized disclosure, misuse, or loss of personally identifiable information or other confidential information, including payment card information, suspend our web-hosting operations or cause malfunctions or interruptions in our networks.
 
If we or our partners experience any breaches of our security measures or sabotage, or otherwise suffer unauthorized use or disclosure of, or access to, personally identifiable information or other confidential information, including payment card information, we might be required to expend significant capital and resources to protect against or address these problems. We may not be able to remedy any problems caused by hackers or other similar actors in a timely manner, or at all. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until after they are launched against a target, we and our vendors and partners may be unable to anticipate these techniques or to implement adequate preventative measures. Advances in computer capabilities, discoveries of new weaknesses and other developments with software generally used by the Internet community also increase the risk we, or our customers using our servers, will suffer a security breach. Our partners and we may also suffer security breaches or unauthorized access to personally identifiable information and other confidential information, including payment card information, due to employee error, rogue employee activity, unauthorized access by third parties acting with malicious intent or who commit an inadvertent mistake or social engineering. If a breach of our security or other data security incident occurs or is perceived to have occurred, the perception of the effectiveness of our security measures and our reputation could be harmed and we could lose current and potential customers.
 
Security breaches or other unauthorized access to personally identifiable information and other confidential information, including payment card information, could result in claims against us for unauthorized purchases with payment card information, identity theft or other similar fraud claims as well as for other misuses of personally identifiable information, including for unauthorized marketing purposes, which could result in a material adverse effect on our business or financial condition. Moreover, these claims could cause us to incur penalties from payment card associations (including those resulting from our failure to adhere to industry data security standards), termination by payment card associations of our ability to accept credit or debit card payments, litigation and adverse publicity, and regulatory or other government inquiries or investigations, any of which could have a material adverse effect on our business and financial condition. Although we maintain cyber liability insurance coverage that may cover certain liabilities in connection with a security breach or other security incident, we cannot be certain our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations and reputation.
 
 
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We expect to continue to expend significant resources to protect against security breaches and other data security incidents. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of cloud-based products we offer and operate in more countries.
 
Privacy concerns relating to our technology could damage our reputation and deter existing and new customers from using our products.
 
Concerns about our practices with regard to the collection, use, disclosure or security of personally identifiable information, including payment card information, or other privacy related matters, even if unfounded, could damage our reputation and adversely affect our operating results. In addition, as nearly all of our products are cloud-based, the amount of data we store for our customers on our servers (including personally identifiable information) has been increasing. Any systems failure or compromise of our security resulting in the release of our users' or customers' data could seriously limit the adoption of our product offerings, as well as harm our reputation and brand and, therefore, our business. We expect to continue to expend significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of cloud-based products we offer.
 
We are subject to privacy and data protection laws and regulations as well as contractual privacy and data protection obligations. Our failure to comply with these or any future laws, regulations or obligations could subject us to sanctions and damages and could harm our reputation and business.
 
We are subject to a variety of laws and regulations, including regulation by various federal government agencies, including the Federal Trade Commission (FTC), Federal Communications Commission (FCC), and state and local agencies. We collect personally identifiable information, including payment card information, and other data from our current and prospective customers, website users and employees. The U.S. federal and various state and foreign governments have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security and storage of personally identifiable information of individuals, including payment card information, and the FTC and many state attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of data. Self-regulatory obligations, other industry standards, policies, and other legal obligations may apply to our collection, distribution, use, security or storage of personally identifiable information or other data relating to individuals, including payment card information. These obligations may be interpreted and applied in an inconsistent manner from one jurisdiction to another and may conflict with one another, other regulatory requirements or our internal practices. Any failure or perceived failure by us to comply with U.S., E.U. or other foreign privacy or security laws, policies, industry standards or legal obligations or any security incident resulting in the unauthorized access to, or acquisition, release or transfer of, personally identifiable information or other data relating to our customers, employees and others, including payment card information, may result in governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
 
We expect there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the U.S., the European Union and other jurisdictions. We cannot yet determine the impact such future laws, regulations and standards may have on our business. Future laws, regulations, standards and other obligations could impair our ability to collect or use information we utilize to provide targeted advertising to our customers, thereby impairing our ability to maintain and grow our total customers and increase revenue. Future restrictions on the collection, use, sharing or disclosure of our users' data or additional requirements for express or implied consent of users for the use and disclosure of such information could require us to modify our products, possibly in a material manner, and could limit our ability to develop new products and features.
 
 
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In particular, with regard to transfers to the U.S. of personal data (as such term is used in the 1995 European Union Data Protection Directive and applicable E.U. member state legislation, and as similarly defined under the General Data Protection Regulation (GDPR) and the proposed ePrivacy Regulation) from our employees and European customers and users, we rely upon the U.S.-E.U. Privacy Shield, as well as E.U. Model Clauses in certain circumstances. Both the U.S.-E.U. Privacy Shield and E.U. Model Clauses have been subject to legal challenge and may be modified or invalidated, and we may be unsuccessful in maintaining legitimate means for our transfer and receipt of personal data from the European Economic Area (EEA). We may experience reluctance or refusal by current or prospective European customers to use our products, and we may find it necessary or desirable to make further changes to our handling of personal data of EEA residents. The regulatory environment applicable to the handling of EEA residents' personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs, and could result in our business, operating results and financial condition being harmed. Additionally, we and our customers may face a risk of enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA. Any such enforcement actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results and financial condition.
 
In addition, several foreign countries and governmental bodies, including the E.U., Brazil and Canada, have laws and regulations concerning the collection and use of personally identifiable information obtained from their residents, including payment card information, which are often more restrictive than those in the U.S. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personally identifiable information, including payment card information identifying, or which may be used to identify, an individual, such as names, email addresses and, in some jurisdictions, Internet Protocol (IP) addresses, device identifiers and other data. Although we are working to comply with those laws and regulations applicable to us, these and other obligations may be modified and interpreted in different ways by courts, and new laws and regulations may be enacted in the future. Within the EEA, the GDPR took full effect on May 25, 2018, superseding the 1995 European Union Data Protection Directive and becoming directly applicable across E.U. member states. The GDPR includes more stringent operational requirements for processors and controllers of personal data, for companies established in the EEA and those outside the EEA that collect and use personal data, including payment card information, imposes significant penalties for non-compliance and has broader extra-territorial effect. As the GDPR is a regulation rather than a directive, it applies throughout the EEA, but permits member states to enact supplemental requirements if they so choose. Noncompliance with the GDPR can trigger fines of up to the greater of €20 million or 4% of global annual revenues. Further, following a referendum in June 2016 in which voters in the U.K. approved an exit from the E.U. by April 2019, a Data Protection Act substantially implementing the GDPR was enacted in the U.K., effective in May 2018. It remains unclear, however, if the U.K.'s withdrawal from the E.U. will ultimately transpire and, if it does, how U.K. data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the U.K. will be regulated. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services.
 
Following the GDPR, a number of states in the U.S. have introduced bills, which, if passed, would impose operational requirements on U.S. companies similar to the requirements reflected in the GDPR. Last year, California passed a privacy law (the “CCPA”), which gives consumers significant rights over the use of their personal information, including the right to object to the “sale” of their personal information. These rights may restrict our ability to use personal information in connection with our business operations. The CCPA also provides a private right of action for security breaches. Washington and Massachusetts have introduced significant privacy bills and Congress is debating federal privacy legislation, which if passed, may restrict our business operations and require us to incur additional costs for compliance.
 
Any new laws, regulations, other legal obligations or industry standards, or any changed interpretation of existing laws, regulations or other standards may require us to incur additional costs and restrict our business operations. For example, many jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. These mandatory disclosures regarding a security breach could result in negative publicity to us, which may cause our customers to lose confidence in the effectiveness of our data security measures which could impact our operating results. In addition, we are required under the GDPR to respond to customers' SARs within a certain time period, which entails determining what personal data is being processed, the purpose of any such data processing, to whom such personal data has been disclosed and whether personal data is being disclosed for the purpose of making automated decisions relating to that customer. We may dedicate significant resources to responding to our customers' SARs, which could have a negative impact on our operating results. In addition, a failure to respond to SARs properly could result in fines, negative publicity and damage to our business.
 
 
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If our privacy or data security measures fail to comply with current or future laws, regulations, policies, legal obligations or industry standards, or are perceived to have done so, we may be subject to litigation, regulatory investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, other legal obligations or industry standards, or any changed interpretations of the foregoing, limit our customers' ability to use and share personally identifiable information, including payment card information, or our ability to store, process and share such personally identifiable information or other data, demand for our products could decrease, our costs could increase, and our business, operating results and financial condition could be harmed.
 
If we are unable to attract and retain customers and increase sales to new and existing customers, our business and operating results would be harmed.
 
Our success depends on our ability to attract and retain customers and increase sales to new and existing customers. We derive a substantial portion of our revenue from recurring hosting subscriptions, domains and add-on services. The rate at which new and existing customers purchase and renew subscriptions to our products depends on a number of factors, including those outside of our control. Although our total customers and revenue have grown rapidly in the past, we cannot be assured that we will achieve similar growth rates in future periods. In future periods, our total customers and revenue could decline or grow more slowly than we expect. Our sales could fluctuate or decline as a result of lower demand for podcast or web hosting services, domain names, and related products, declines in our customers' level of satisfaction with our products and our customer support, the timeliness and success of product enhancements and introductions by us and those of our competitors, the pricing offered by us and our competitors, the frequency and severity of any system outages, breaches and technological change. Our revenue has grown historically due in large part to customer growth and strong recurring hosting subscriptions. Our future success depends in part on maintaining a strong recurring subscription model. Any failure by us to continue to attract new customers or maintain a strong recurring hosting subscription model could have a material adverse effect on our business, growth prospects and operating results. If we are unable to increase sales of additional products to new and existing customers, our growth prospects may be harmed.
 
If we do not successfully develop and market products that anticipate or respond promptly to the needs of our customers, our business and operating results may suffer.
 
The markets in which we compete are characterized by constant change and innovation, and we expect them to continue to evolve rapidly. Our historical success has been based on our ability to identify and anticipate customer needs and design products providing individuals, small and medium businesses, and enterprises with the tools they need to create, manage and augment their digital identity. To the extent we are not able to continue to identify challenges faced by our customers and provide products responding in a timely and effective manner to their evolving needs, our business, operating results and financial condition will be adversely affected.
 
The process of developing new technology is complex and uncertain. If we fail to accurately predict customers' changing needs or emerging technological trends, or if we fail to achieve the benefits expected from our investments in technology, our business could be harmed. We must continue to commit significant resources to develop our technology in order to maintain our competitive position, and these commitments will be made without knowing whether such investments will result in products our customers will accept. Our new products or product enhancements could fail to attain meaningful customer acceptance for many reasons, including:
 
delays in releasing new products or product enhancements;
our failure to accurately predict market demand or customer preferences;
defects, errors or failures in product design or performance;
negative publicity about product performance or effectiveness;
introduction of competing products (or the anticipation thereof) by other market participants;
 
 
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poor business conditions for our customers or poor general macroeconomic conditions;
the perceived value of our products or product enhancements relative to their cost; and
changing regulatory requirements adversely affecting the products we offer.
 
There is no assurance we will successfully identify new opportunities, develop and bring new products to market on a timely basis, or products and technologies developed by others will not render our products or technologies obsolete or noncompetitive, any of which could adversely affect our business and operating results. If our new products or enhancements do not achieve adequate acceptance by our customers, or if our new products do not result in increased sales or subscriptions, our competitive position will be impaired, our anticipated revenue growth may not be achieved and the negative impact on our operating results may be particularly acute because of the upfront technology and development, marketing and advertising and other expenses we may incur in connection with the new product or enhancement.
 
We are exposed to the risk of system failures and capacity constraints.
 
We may experience, system failures and outages disrupting the operation of our hosting services and web-based products. Our revenue depends in large part on the access and delivery of traffic for podcasts and websites. Accordingly, the performance, reliability and availability of our servers for our operations and infrastructure, as well as in the delivery of products to customers, are critical to our reputation and our ability to attract and retain customers.
 
We are continually working to expand and enhance our hosting features, technology and network infrastructure and other technologies to accommodate substantial increases in the volume of traffic on our network and our overall total customers. We may be unsuccessful in these efforts, or we may be unable to project accurately the rate or timing of these increases. In the future, we may be required to allocate resources, including spending substantial amounts, to build, purchase or lease data centers and equipment and upgrade our technology and network infrastructure in order to handle increased network or customer traffic. We cannot predict whether we will be able to add network capacity from third-party suppliers or otherwise as we require it. In addition, our network or our suppliers' networks might be unable to achieve or maintain data transmission capacity high enough to process orders or download data effectively in a timely manner. Our failure, or our suppliers' failure, to achieve or maintain high data transmission capacity could significantly reduce consumer demand for our products. Such reduced demand and resulting loss of traffic, cost increases, or failure to accommodate new technologies could harm our business, revenue and financial condition.
 
Our systems, including those of our data centers and operations, are also vulnerable to damage from fire, power loss, telecommunications failures, computer viruses, physical and electronic break-ins and similar events. The property and business interruption insurance coverage we carry may not be adequate to compensate us fully for losses that may occur.
 
Evolving technologies and resulting changes in customer behavior or customer practices may impact the value of and demand for our products.
 
Historically, Internet users would typically navigate to a website by directly typing its domain name into a web browser or navigation bar. The domain name serves as a branded, unique identifier not unlike a phone number or email address. People now use multiple methods in addition to direct navigation to access websites. People increasingly use search engines to find and access websites as an alternative to typing a website address directly into a web browser navigation bar. People are also using social networking and microblogging sites more frequently to find and access websites. Further, as people continue to access the Internet more frequently through applications on mobile devices, domain names may become less prominent and their value may decline. These evolving technologies and changes in customer behavior may have an adverse effect on our business and prospects.
 
The domain name registration market continues to develop and adapt to changing technology. This development may include changes in the administration or operation of the Internet, including the creation and institution of alternate systems for directing Internet traffic without using the existing domain name registration system. The widespread acceptance of any alternative system, such as mobile applications or closed networks, could eliminate the need to register a domain name to establish an online presence and could materially and adversely affect our business. The shift in consumer behavior to mobile devices, applications and social media platforms may impact how consumers find information and make purchases. The popularity of social media platforms has changed traditional communication and online presence due to the number of landing pages and ecommerce sites being hosted on Facebook and Etsy potentially impacting the number of websites in the future.
 
 
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Audio and Video sharing platforms, mobile applications and new technology may decrease the demand for podcasts. Mobile consumption through YouTube and Facebook Live for video and audio and future technologies may impact podcast consumption.
 
We rely on our marketing efforts and channels to promote our brand and acquire new customers. These efforts may require significant expense and may not be successful or cost-effective.
 
We use a variety of marketing channels to promote our brands, including online keyword search, advertising and email and social media marketing. If we lose access to one or more of these channels, such as online keyword search, because the costs of advertising become prohibitively expensive or for other reasons, we may become unable to promote our brand effectively, which could limit our ability to grow our business. Further, if our marketing activities fail to generate traffic to our website, attract customers and lead to new and recurring subscriptions at the levels we anticipate, our business and operating results would be adversely affected. There can be no assurance our marketing efforts will succeed or be cost-efficient, and if our customer acquisition costs increase, our business, operating results and financial performance could be adversely affected.
 
In addition, search engines or social networking sites may change their advertising policies from time to time. If any change to these policies delays or prevents us from advertising through these channels, it could result in reduced traffic to our website and sales of our subscriptions.
 
We may need additional equity, debt or other financing in the future, which we may not be able to obtain on acceptable terms, or at all, and any additional financing may result in restrictions on our operations or substantial dilution to our stockholders.
 
We may need to raise funds in the future, for example, to develop new technologies, expand our business, respond to competitive pressures and make acquisitions. We may try to raise additional funds through public or private financings, strategic relationships or other arrangements. Although our credit agreement limits our ability to incur additional indebtedness, these restrictions may be amended with the consent of our lenders. Accordingly, under certain circumstances, we may incur substantial additional debt.
 
Our ability to obtain debt or equity funding will depend on a number of factors, including market conditions, interest rates, our operating performance, our credit rating and investor interest. Additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available, we may be required to reduce expenditures, including curtailing our growth strategies, foregoing acquisitions or reducing our product development efforts. If we succeed in raising additional funds through the issuance of equity or equity-linked securities, then existing stockholders could experience substantial dilution. If we raise additional funds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences and privileges senior to those of the holders of our common stock. In addition, any such issuance could subject us to restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Further, to the extent we incur additional indebtedness or such other obligations, our possible inability to service our debt, would increase.
 
Changes in accounting principles, or interpretations thereof, may cause unexpected financial reporting fluctuations and adversely affect our operating results and financial statements going forward.
 
We prepare our consolidated financial statements and the related notes in accordance with generally accepted accounting principles in the U.S. (GAAP). These principles are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to create and interpret appropriate accounting principles. Accounting rules and regulations are continually changing in ways that could materially impact our financial statements, and a change in the current accounting principles could have a significant effect on our reported results or may retroactively affect previously reported transactions. Additionally, the adoption of new or revised accounting principles may require us to make significant changes to our systems, processes and controls.
 
See Note 1 to our consolidated financial statements for information regarding recent accounting pronouncements.
 
 
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Because we are generally required to recognize revenue for our products over the term of the applicable agreement, changes in our sales may not be immediately reflected in our operating results.
 
As described in Note 1 to our consolidated financial statements, we generally recognize revenue from our customers ratably over the respective terms of their subscriptions in accordance with GAAP. Our subscription terms are typically one year but can range from monthly terms to multi-annual terms of up to 10 years depending on the product. Accordingly, increases in sales during a particular period do not translate into immediate, proportional increases in revenue during such period, and a substantial portion of the revenue we recognize during a quarter is derived from deferred revenue from customer subscriptions we entered into during previous quarters. As a result, our margins may suffer despite substantial sales activity during a particular period, since GAAP does not permit us to recognize all of the revenue from our sales immediately. Conversely, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue for that quarter and the existence of substantial deferred revenue may prevent deteriorating sales activity from becoming immediately observable in our consolidated statement of operations.
 
Our failure to properly register or maintain our customers' domain names could subject us to additional expenses, claims of loss or negative publicity that could have a material adverse effect on our business.
 
System and process failures related to our domain name registration product may result in inaccurate and incomplete information in our domain name database. Despite testing, system and process failures may remain undetected or unknown, which could result in compromised customer data, loss of or delay in revenues, failure to achieve market acceptance, injury to our reputation or increased product costs, any of which could harm our business. Furthermore, the requirements for securing and renewing domain names vary from registry to registry and are subject to change. We cannot guarantee we will be able to readily adopt and comply with the various registry requirements. Our failure or inability to properly register or maintain our customers' domain names, even if we are not at fault, might result in significant expenses and subject us to claims of loss or to negative publicity, which could harm our business, brand and operating results.
 
We rely heavily on the reliability, security and performance of our internally developed systems and operations. Any difficulties in maintaining these systems may result in damage to our brand, service interruptions, decreased customer service or increased expenditures.
 
The reliability and continuous availability of the software, hardware and workflow processes underlying our internal systems, networks and infrastructure and the ability to deliver our products are critical to our business, and any interruptions resulting in our inability to timely deliver our products, or materially impacting the efficiency or cost with which we provide our products, would harm our brand, profitability and ability to conduct business. In addition, many of the software and other systems we currently use will need to be enhanced over time or replaced with equivalent commercial products or services, which may not be available on commercially reasonable terms or at all. Enhancing or replacing our systems, networks or infrastructure could entail considerable effort and expense. If we fail to develop and execute reliable policies, procedures and tools to operate our systems, networks or infrastructure, we could face a substantial decrease in workflow efficiency and increased costs, as well as a decline in our revenue.
 
Undetected or unknown defects in our products could harm our business and future operating results.
 
The products we offer or develop, including our proprietary technology and technology provided by third parties, could contain undetected defects or errors. The performance of our products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as, more broadly, on Internet users and consumers and third-party applications and services utilizing our solutions. These adverse effects, defects and errors, and other performance problems relating to our products could result in legal claims against us that harm our business and damage our reputation. The occurrence of any of the foregoing could result in compromised customer data, loss of or delay in revenues, an increase in our annual refund rate, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation or brand and increased costs.
 
 
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In addition, while our terms of service specifically disclaim certain warranties, and contain limitations on our liability, courts may still hold us liable for such claims if asserted against us.
 
Failure to adequately protect and enforce our intellectual property rights could substantially harm our business and operating results.
 
The success of our business depends in part on our ability to protect and enforce our trademarks, copyrights, trade secrets and other intellectual property rights. We attempt to protect our intellectual property under trademark, copyright and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection.
 
We rely on our proprietary technology and confidential proprietary information, including trade secrets and know-how. Despite our efforts to protect the proprietary and confidential nature of such technology and information, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. The contractual provisions in confidentiality agreements and other agreements we generally enter into with employees, consultants, partners, vendors and customers may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, products and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the U.S. and where mechanisms for enforcement of intellectual property rights may be weak. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase. We may be unable to determine the extent of any unauthorized use or infringement of our products, technologies or intellectual property rights.
 
From time to time, legal action by us may be necessary to enforce our trademarks and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results and financial condition. If we are unable to protect our intellectual property rights, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date. Any inability on our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results and financial condition.
 
Our business depends on our customers continued and unimpeded access to the Internet and the development and maintenance of Internet infrastructure. Internet access providers may be able to block, degrade or charge for access to certain of our products, which could lead to additional expenses and the loss of customers.
 
Our products depend on the ability of our customers to access the Internet. Currently, this access is provided by companies having significant market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers. The Federal Communications Commission passed Open Internet rules in February 2015, effective in June 2015, generally providing for Internet neutrality with respect to fixed and mobile broadband Internet service. Net Neutrality rules were intended to keep the internet open and fair. Internet providers were explicitly prohibited from speeding up or slowing down traffic from specific websites and apps. In December 2017, the FCC replaced net neutrality which did away with rules barring internet providers from blocking or slowing down access to online content. Additionally, the FCC has eliminated a rule barring providers’ from prioritizing their own content. These changes could adversely affect the growth, popularity or use of the Internet and could decrease the demand for our products and increase our operating costs causing harm to our business. Internationally, government regulation concerning the Internet, and in particular, network neutrality, may be developing or non-existent. Within such a regulatory environment, we could experience discriminatory or anti-competitive practices impeding both our and our customers' domestic and international growth, increasing our costs or adversely affecting our business.
 
 
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Our business is exposed to risks associated with credit card and other online payment chargebacks and fraud.
 
A majority of our revenue is processed through credit cards and other online payments. If our refunds or chargebacks increase, our processors could require us to create reserves, increase fees or terminate their contracts with us, which would have an adverse effect on our financial condition.
 
Our failure to limit fraudulent transactions conducted on our websites, such as through the use of stolen credit card numbers, could also subject us to liability and adversely impact our reputation. Under credit card association rules, penalties may be imposed at the discretion of the association for inadequate fraud protection. Any such potential penalties would be imposed on our credit card processor by the association. Under our contracts with our payment processors, we are required to reimburse them for such penalties. However, we face the risk that we may fail to maintain an adequate level of fraud protection and that one or more credit card associations or other processors may, at any time, assess penalties against us or terminate our ability to accept credit card payments or other form of online payments from customers, which would have a material adverse effect on our business, financial condition and operating results.
 
We could also incur significant fines or lose our ability to give customers the option of using credit cards to pay for our products if we fail to follow payment card industry data security standards, even if there is no compromise of customer information. Although we believe we are in compliance with payment card industry data security standards and do not believe there has been a compromise of customer information, it is possible that at times either we may not have been in full compliance with these standards. Accordingly, we could be fined, which could impact our financial condition, or certain of our products could be suspended, which would cause us to be unable to process payments using credit cards. If we are unable to accept credit card payments, our business, financial condition and operating results may be adversely affected.
 
In addition, we could be liable if there is a breach of the payment information. Online commerce and communications depend on the secure transmission of confidential information over public networks. We rely on encryption and authentication technology to authenticate and secure the transmission of confidential information, including cardholder information. However, we cannot ensure this technology will prevent breaches of the systems we use to protect cardholder information. Although we maintain network security insurance, we cannot be certain our coverage will be adequate for liabilities actually incurred or insurance will continue to be available to us on reasonable terms, or at all. In addition, some of our partners also collect or possess information about our customers, and we may be subject to litigation or our reputation may be harmed if our partners fail to protect our customers' information or if they use it in a manner inconsistent with our policies and practices. Data breaches can also occur as a result of non-technical issues. Under our contracts with our processors, if there is unauthorized access to, or disclosure of, credit card information we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses.
 
Activities of customers or the content of their websites could damage our reputation and brand or harm our business and financial results.
 
As a provider of domain name registration and podcast and web hosting, we may be subject to potential liability for the activities of our customers on or in connection with their domain names, podcast content, websites or for the data they store on our servers. Although our terms of service prohibit illegal use of our products by our customers and permit us to take down content or suspend accounts or take other appropriate actions for illegal use, customers may nonetheless engage in prohibited activities or upload or store content with us in violation of applicable law or the customer's own policies, which could subject us to liability. Furthermore, our reputation and brand may be negatively impacted by the actions of customers that are deemed to be hostile, offensive or inappropriate. We do not proactively monitor or review the appropriateness of the domain names our customers register or the content of their podcasts or websites, and we do not have control over customer activities. The safeguards we have in place may not be sufficient to avoid harm to our reputation and brand, especially if such hostile, offensive or inappropriate use is high profile.
 
Several U.S. federal statutes may apply to us with respect to various activities of our customers, including: the Digital Millennium Copyright Act of 1998 (the DMCA), which provides recourse for owners of copyrighted material who believe their rights under U.S. copyright law have been infringed on the Internet; the Communications Decency Act of 1996 (the CDA), which regulates content on the Internet unrelated to intellectual property; and the Anticybersquatting Consumer Protection Act (the ACPA), which provides recourse for trademark owners against cybersquatters. The DMCA and the CDA generally protect online service providers like us that do not own, or control podcast or website content posted by customers from liability for certain activities of customers, such as the posting of defamatory or obscene content, unless the online service provider is participating in the unlawful conduct. For example, the safe harbor provisions of the DMCA shield Internet service providers and other intermediaries from direct or indirect liability for copyright infringement. However, under the DMCA, we must follow the procedures for handling copyright infringement claims set forth in the DMCA including expeditiously removing or disabling access to the allegedly infringing material upon the receipt of a proper notice from, or on behalf of, a copyright owner alleging infringement of copyrighted material located on websites we host. Under the CDA, we are generally not responsible for the customer-created content hosted on our servers and thus are generally immunized from liability for torts committed by others. Consequently, we do not monitor hosted websites or prescreen the content placed by our customers. Under the safe harbor provisions of the ACPA, domain name registrars are shielded from liability in many circumstances, including cybersquatting, although the safe harbor provisions may not apply if our activities are deemed outside the scope of registrar functions.
 
 
18
 
 
Although these statutes and case law in the U.S. have generally shielded us from liability for customer activities to date, court rulings in pending or future litigation may narrow the scope of protection afforded us under these laws. Neither the DMCA nor the CDA generally apply to claims of trademark violations, and thus they may be inapplicable to many of the claims asserted against our company. Furthermore, notwithstanding the exculpatory language of these bodies of law, the activities of our customers may result in threatened or actual litigation against us. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.
 
In addition, laws governing these activities are unsettled in many international jurisdictions or may prove difficult or impossible for us to comply with in some international jurisdictions. Also, other existing bodies of law, including the criminal laws of various states, may be deemed to apply or new statutes or regulations may be adopted in the future, any of which could expose us to further liability and increase our costs of doing business.
 
We may face liability or become involved in disputes over registration and transfer of domain names and control over websites.
 
As a provider of web-based and cloud-based products, including as a registrar of domain names and related products, we from time to time become aware of disputes over ownership or control of customer accounts, websites or domain names. We could face potential claims of tort law liability for our failure to renew a customer's domain. We could also face potential tort law liability for our role in the wrongful transfer of control or ownership of accounts, websites or domain names. The safeguards and procedures we have adopted may not be successful in insulating us against liability from such claims in the future. In addition, we face potential liability for other forms of account, website or domain name "hijacking," including misappropriation by third parties of our network of customer accounts, websites or domain names and attempts by third parties to operate accounts, websites or domain names or to extort the customer whose accounts, websites or domain names were misappropriated. Furthermore, we are exposed to potential liability as a result of our domain privacy product, wherein the identity and contact details for the domain name registrant are masked.
 
Disputes involving registration or control of domain names are often resolved through the Uniform Domain Name Dispute Resolution Policy (the UDRP), ICANN's administrative process for domain name dispute resolution, or less frequently through litigation under the ACPA, or under general theories of trademark infringement or dilution. The UDRP generally does not impose liability on registrars, and the ACPA provides that registrars may not be held liable for registration or maintenance of a domain name absent a showing of the registrar's bad faith intent to profit. However, we may face liability if we act in bad faith or fail to comply in a timely manner with procedural requirements under these rules, including forfeiture of domain names in connection with UDRP actions. In addition, domain name registration disputes and compliance with the procedures under the ACPA and URDP typically require at least limited involvement by us and, therefore, increase our cost of doing business. The volume of domain name registration disputes may increase in the future as the overall number of registered domain names increases.
 
We are dependent on the continued services and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating results and financial condition.
 
Our future performance depends on the continued services and contributions of our senior management and other key employees to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. The loss of the services of our senior management or other key employees for any reason could adversely affect our business, financial condition and operating results.
 
If we are unable to hire, retain and motivate qualified personnel, our business would suffer.
 
Our future success and ability to innovate depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel or delays in hiring required personnel, may seriously harm our business, financial condition and operating results. Our ability to continue to attract and retain highly skilled personnel, specifically employees with technical and engineering skills and employees with language skills and cultural knowledge of the geographic markets we have recently expanded to or that we intend to expand to in the near future, will be critical to our future success. Competition for highly skilled personnel is frequently intense, particularly in U.S. tech hubs. As a public company, the ability of our employees to sell their stock received pursuant to equity awards in the public market may lead to a larger than normal turnover rate. We intend to issue stock options or other equity awards as key components of our overall compensation and employee attraction and retention efforts. In addition, we are required under GAAP to recognize compensation expense in our operating results for employee equity-based compensation under our equity grant programs, which may negatively impact our operating results and may increase the pressure to limit equity-based compensation. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs.
 
 
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The requirements of being a public company may strain our resources.
 
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). We expect the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources. Management's attention may be diverted from other business concerns, which could adversely affect our business and operating results.
 
The Sarbanes-Oxley Act requires us, among other things, to maintain effective disclosure controls and procedures and internal control over financial reporting. We continue to develop and refine our disclosure controls and other procedures designed to ensure that information required to be disclosed by us in the reports we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We also continue to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we anticipate we will continue to expend, significant resources, including legal and accounting-related costs and management oversight.
 
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events and to interruption by man-made problems such as terrorism.
 
A significant natural disaster, such as an earthquake, fire or flood could have a material adverse impact on our business, operating results and financial condition. Natural disasters could lead to significant power outages and otherwise affect our data centers as well as our infrastructure vendors' abilities to provide connectivity and perform services on a timely basis. In the event our or our service providers' IT systems' abilities are hindered by any of the events discussed above, we and our customers' websites could experience downtime, and our products could become unavailable. In addition, acts of terrorism and other geopolitical unrest could cause disruptions in our business or the business of our infrastructure vendors, partners or customers or the economy as a whole. Any disruption in the business or operations of our data center hosting providers or customers could have a significant adverse effect on our operating results and financial performance. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be ineffective in the event of such a disaster.
 
 
 
20
 
 
The Company may be responsible for certain obligations retained by FAB.
 
Although the Company does not expect to be liable for any obligations not expressly assumed by the Company in connection with its spin-off from its former parent company FAB Universal Corp. (“FAB”) in 2016, it is possible that the Company could be required to assume responsibility for certain obligations retained by FAB 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.
 
Risks Related to Our Industry
 
Governmental and regulatory policies or claims concerning the domain name registration system and the Internet in general, and industry reactions to those policies or claims, may cause instability in the industry and disrupt our business.
 
ICANN is a multi-stakeholder, private sector, not-for-profit corporation formed in 1998 for the express purposes of overseeing a number of Internet related tasks, including managing the DNS allocation of IP addresses, accreditation of domain name registrars and registries and the definition and coordination of policy development for all of these functions. We are accredited by ICANN as a domain name registrar and thus our ability to offer domain name registration products is subject to our ongoing relationship with, and accreditation by, ICANN.
 
ICANN has been subject to strict scrutiny by the public and governments around the world, as well as multi-governmental organizations such as the United Nations, with many of those bodies becoming increasingly interested in Internet governance. There is also uncertainty concerning the nature and significance of the recent transition from U.S. oversight of ICANN to oversight of ICANN by its members.
 
Additionally, we continue to face the possibility that:
 
the structure and accountability mechanisms contained in ICANN's new bylaws are untested, which may result in ICANN not being accountable to its stakeholders and unable to make, implement or enforce its policies;
the U.S. or another government or intergovernmental organization may reassess ICANN's role in overseeing the domain name registration market;
the Internet community, the U.S. government or other governments may (i) refuse to recognize ICANN's authority or support its policies, (ii) attempt to exert pressure on ICANN, or (iii) enact laws in conflict with ICANN's policies, each of which could create instability in the domain name registration system;
governments, via ICANN's Governmental Advisory Committee (GAC), may seek greater influence over ICANN policies and contracts with registrars and may advocate changes that may adversely affect our business;
some of ICANN's policies and practices, such as ICANN's position on privacy and proxy domain name registrations, and the policies and practices adopted by registries and registrars, could be found to conflict with the laws of one or more jurisdictions, including the GDPR, or could be materially changed in a way that negatively impacts the sale of our products;
the terms of the Registrar Accreditation Agreement (the RAA) under which we are accredited as a registrar, could change in ways that are disadvantageous to us or under certain circumstances could be terminated by ICANN, thereby preventing us from operating our registrar service, or ICANN could adopt unilateral changes to the RAA that are unfavorable to us, that are inconsistent with our current or future plans, or that affect our competitive position;
 
 
21
 
 
International regulatory or governing bodies, such as the International Telecommunications Union, a specialized agency of the United Nations, or the European Union, may gain increased influence over the management and regulation of the domain name registration system, leading to increased regulation in areas such as taxation, privacy and the monitoring of our customers' hosted content;
ICANN or any third-party registries may implement policy changes impacting our ability to run our current business practices throughout the various stages of the lifecycle of a domain name;
the U.S. Congress or other legislative bodies in the U.S. could take action unfavorable to us or influencing customers to move their business from our products to those located outside the U.S.;
the U.S. Congress or other legislative bodies in the U.S. or in other countries could adopt laws that erode the safe harbors from third-party liability in the CDA and DMCA;
ICANN could fail to maintain its role, potentially resulting in instability in DNS services administration;
some governments and governmental authorities outside the U.S. have in the past disagreed, and may in the future disagree, with the actions, policies or programs of ICANN and registries relating to the DNS, which could fragment the single, unitary Internet into a loosely-connected group of one or more networks, each with different rules, policies and operating protocols; and
multi-party review panels established by ICANN's new bylaws may take positions unfavorable to our business.
 
If any of these events occur, they could create instability in the domain name registration system and may make it difficult for us to continue to offer existing products and introduce new products or serve customers in certain markets. These events could also disrupt or suspend portions of our domain name registration product and subject us to additional restrictions on how the registrar and registry products businesses are conducted, which would result in reduced revenue.
 
In addition, the requirements of the privacy laws around the world, including the GDPR, are known to be in conflict with ICANN's policies and contracts related to how registrars collect, transmit and publish the personal information of domain name registrants in publicly accessible WHOIS directories. Although ICANN implemented a temporary policy to alleviate some of these conflicts, we are working with ICANN and our industry counterparts to reconcile these conflicts. If ICANN is unable or unwilling to harmonize these policies and contracts with applicable privacy laws, our efforts to comply with applicable laws may cause us to violate our existing ICANN contractual obligations. As a result, we could experience difficulties in selling domain names and keeping our existing customer domain names under management if we are unable to reach an amicable contractual solution with ICANN, which could have a material adverse effect on our operations and revenue.
 
ICANN periodically authorizes the introduction of new TLDs, and we may not have the right to register new domain names to our customers based on such TLDs, which could adversely impact our business and results of operations.
 
ICANN has periodically authorized the introduction of new TLDs and made domain names related to them available for registration. Our competitive position depends in part on our ability to secure access to these new TLDs. A significant portion of our business relies on our ability to sell domain name registrations to our customers, and any limitations on our access to newly-created TLDs could adversely impact our ability to sell domain name registrations to customers, and thus adversely impact our business.
 
In 2013, ICANN significantly expanded the number of gTLDs, which resulted in the delegation of new gTLDs commencing in 2014 (the “Expansion Program”). The Expansion Program could substantially change the domain name industry in unexpected ways and is expected to result in an increase in the number of domains registered by our competitors. In addition, if registries participating in the Expansion Program cease operations for any reason, we may have to dedicate Customer Support and development resources to transition our customers’ domains to a new gTLD registry. If a large number of such registries fail, it could diminish consumer confidence in our industry and reduce our future sales of domain names, either in legacy gTLDs or those gTLDs created as part of the Expansion Program. If we do not properly manage our response to the change in business environment, and accurately predict the market's preference for specific gTLDs, it could adversely impact our competitive position or market share.
 
 
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The relevant domain name registry and ICANN impose a charge upon each registrar for the administration of each domain name registration. If these fees increase, it would have a significant impact upon our operating results.
 
Each registry typically imposes a fee in association with the registration of each domain name. For example, VeriSign, the registry for .com and .net, has a current list price of $7.85 annually for each .com registration, and ICANN currently charges $0.18 annually for most domain names registered in the gTLDs falling within its purview. In 2016, VeriSign and ICANN agreed VeriSign will continue to be the exclusive registry for the .com gTLD through November 2024. In 2018, Verisign and the U.S. Department of Commerce agreed to extend their Cooperative Agreement through 2024. As part of that extension, Verisign will have the right to raise .com wholesale prices up to 7% (per registration year) each year starting in November 2020, subject to ICANN's approval. As a result, costs to our customers could be higher, which could have an adverse impact on our results of operations.
 
We have no control over ICANN, VeriSign or any other domain name registries and cannot predict their future fee structures. While we do not currently do so, we have the discretion to impose service fees on our customers in the future. In addition, pricing of new gTLDs is generally not set or controlled by ICANN, which in certain instances has resulted in aggressive price increases on certain particularly successful new gTLDs. The increase in these fees with respect to any new gTLD either must be included in the prices we charge to our customers, imposed as a surcharge or absorbed by us. If we absorb such cost increases or if surcharges result in decreases in domain registrations, our business, operating results and financial performance may be adversely affected.
 
Our business and financial condition could be harmed materially if small consumers and small businesses and ventures were no longer able to rely upon the existing domain name registration system.
 
The domain name registration market continues to develop and adapt to changing technology. This development may include changes in the administration or operation of the Internet, including the creation and institution of alternate systems for directing Internet traffic without using the existing domain name registration system. The widespread acceptance of any alternative system, such as mobile applications or closed networks, could eliminate the need to register a domain name to establish an online presence and could materially and adversely affect our business.
 
Changes in state taxation laws and regulations may discourage the registration or renewal of domain names for e-commerce.
 
Due to the global nature of the Internet, it is possible that any U.S. or foreign federal, state or local taxing authority might attempt to regulate our transmissions or levy transaction, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are regularly reviewing the appropriate treatment of companies engaged in e-commerce. New or revised international, federal, state or local tax regulations may subject either us or our customers to additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income or other taxes on e-commerce. New or revised taxes, in particular sales and other transaction taxes, would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture data and to collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.
 
Risks related to our Common Stock and management's percentage of ownership of our Common Stock
 
The market price and trading volume of our Common Stock may be volatile and may face negative pressure.
 
There may be significant fluctuations in the Company’s Common Stock price. Investors’ interest may not lead to a liquid trading market and the market price of our Common Stock may be volatile. This may result in short or long-term negative pressure on the trading price of shares of our Common Stock. The market price of our Common Stock may be volatile due to the risks and uncertainties described in this “Risk Factors” section, as well as other factors that may affect the market price, such as:
 
 
23
 
 
Conditions and publicity regarding the podcast hosting industries generally;
Price and volume fluctuations in the stock market at large which do not relate to the Company’s operating performance; and
Comments by securities analysts or government officials, including those with regard to the viability or profitability of the podcasting sector generally or with regard to our ability to meet market expectations.
The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies.
 
Future sales of our Common Stock could adversely affect our stock price and our ability to raise capital in the future.
 
Sales of substantial amounts of the Company’s common stock could harm the market price of its stock. This also could harm our ability to raise capital in the future. The Company’s shares are freely tradable without restriction under the Securities Act of 1933 (the “Securities Act”) by persons other than “affiliates,” as defined under the Securities Act. Any sales of substantial amounts of the Company’s common stock in the public market, or the perception that that sales might occur, could harm the market price of the Company’s common stock.
 
The Company will not solicit the approval of its stockholders for the issuance of authorized but unissued shares of the Company’s common stock unless this approval is deemed advisable by our board of directors or is required by applicable law, regulation or any applicable stock exchange listing requirements. The issuance of those shares could dilute the value of the Company’s outstanding shares of common stock.
 
Due to the instability in our common stock price, you may not be able to sell your shares at a profit.
 
The public market for our common stock is limited and volatile. As with many other companies, any market price for our shares is likely to continue to be very volatile. In addition, the other risk factors disclosed in this Form 10-K may significantly affect our stock price. The volatility and limited volume of our stock price may make it more difficult for you to resell shares when you want at prices you find attractive.
 
In addition, the stock market in general and the market for small podcast and Web hosting companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may reduce our stock price, regardless of our operating performance.
 
The sale of already outstanding shares of our common stock could hurt our common stock market price.
 
The number of our shares available for resale in the public market may exceed the number of shares that purchasers wish to buy. This imbalance may place downward pressure on our stock price.
 
Sales of substantial amounts of the Company’s common stock could harm the market price of its stock. This also could harm the Company’s ability to raise capital in the future. Any sales of substantial amounts of the Company’s common stock in the public market, or the perception that that sales might occur, could harm the market price of the Company’s common stock.
 
Failure to meet financial expectations could have an adverse impact on the market price of the Company’s common stock.
 
The Company’s ability to achieve its financial targets is subject to a number of risks, uncertainties and other factors affecting its business and the podcasting and hosting industries generally, many of which are beyond the Company’s control. These factors may cause actual results to differ materially. We describe a number of these factors throughout this document, including in these Risk Factors.  The Company cannot assure you that it will meet these targets. If the Company is not able to meet these targets, it could harm the market price of its common stock.
 
Item 1B. Unresolved Staff Comments.
 
 Not applicable to smaller reporting companies.
 
 
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Item 2. Properties.
 
The Company’s principal executive offices consist of approximately 3,100 square feet of office space located at 5001 Baum Boulevard, Suite 770, Pittsburgh, Pennsylvania 15213. Our telephone number is (412) 621-0902. The Pittsburgh office is rented for $4,953 per month and the lease ends April 30, 2022. We also maintain an office at 2403 Sidney St., Suite 210, Pittsburgh, PA for the Pair operations. The office consists of approximately 34,700 square feet of space and is rented for $34,014 per month and the lease ends on September 30, 2021. Pair utilizes a colocation data center facility in Denver, Colorado. The colocation provides Pair with redundant, 24/7 power circuits. This space is leased for $6,390 and the lease ends on May 3, 2020.
 
Item 3. Legal Proceedings.
 
The Company 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. While any proceeding or claim contains an element of uncertainty, management does not expect that any such proceeding or claim will have a material adverse effect on our results of operations or financial position.
 
Item 4. Mine Safety Disclosures
 
Not applicable
 
Item 5. Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
As of March 12, 2019, 29,721,974 shares of our common stock were outstanding. Our common stock is traded in the over-the-counter market on the OTCQB under the symbol “LSYN”, and the last reported sales price for our common stock on the OTCQB on March 12, 2019 was $1.69 per share. We have approximately 7,000 stockholders. This figure includes an indeterminate number of stockholders who hold their shares in “street name”. We cannot guarantee that the present market for our common stock will continue or be maintained.
 
We have not declared any cash dividends on our common stock, and do not intend to declare dividends in the foreseeable future. Management intends to use all available funds for the development of our plan of operation. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.
 
Equity Compensation Plan Information
 
The following information is provided as of December 31, 2018:
 
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
 
Weighted average exercise price of outstanding options, warrants and rights
 
 
Number of securities remaining available for future issuance under equity compensation plans excluded securities reflected in column (a)
 
 
 
(a)
 
 
(b)
 
 
(c)
 
Equity compensation plans approved by stockholders
  - 
 $0.00 
  3,000,000 
 
    
    
    
Equity compensation plans not approved by stockholders
  - 
 $0.00 
  - 
 
    
    
    
Total
  - 
 $0.00 
  3,000,000 
 
 
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Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
 
We have not issued any unregistered or restricted shares of common stock during the calendar years ended December 31, 2018 and 2017, that have not already been disclosed in our Quarterly Reports on Form 10-Q and/or Current Reports on Form 8-K.
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
 
Period
 
(a)Total number of shares (or units) purchased
 
 
(b)Average price paid per share (or unit)
 
 
(c)Total number of shares (or units) purchased as part of publicly announced plans or programs
 
 
(d)Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
 
December 2018
  55,000(1)
 $1.50 
  - 
  - 
Total
  55,000 
 $1.50 
  - 
  - 
 
 (1) Such shares were repurchased and canceled in a privately negotiated transaction.
 
Item 6. Selected Financial Data
 
Not applicable to smaller reporting companies.
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-K.
  
 
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Company Overview
 
Libsyn
 
Libsyn was on the forefront of the podcast trend when it was founded in 2004, launching the first Podcast Service Provider (Host), offering storage, bandwidth, and RSS (Really Simple Syndication) creation tools. Today, Libsyn is a worldwide leader of podcast hosting, distribution, and monetization. Hosting over 57,000 podcast shows, Libsyn delivered 5.1 billion industry standard unique podcast downloads to audiences worldwide in 2018. The Libsyn brand has built a reputation for reliable service, world class podcast statistics and exceptional customer service. This has allowed Libsyn to grow into one of the market leaders in the industry.
 
Podcast Hosting and Distribution
 
Libsyn is a Podcast Service Provider offering hosting and distribution tools which include storage, bandwidth, RSS creation, distribution, and statistics tracking. Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn offers a basic, getting started plan for $5 per month and more advanced plans that include more storage, advanced stats, and podcast apps. Plans are designed to provide full-featured podcast tools with generous storage and bandwidth transfer. LibsynPRO service is an enterprise solution for professional media producers and corporate customers that require media network features and dedicated support.
 
Libsyn supports both audio and video podcasts, allowing producers to upload podcast episodes through the Libsyn interface or via FTP to manage publishing to online directories, web portals, content aggregators, App marketplaces and social media platforms for both download and streaming.
 
Approximately 70% of the shows that Libsyn distributes reach audiences using Apple’s iTunes platform which includes iTunes on the computer, iPods, iPads, iPhones, iPad, Apple Watch, Apple TV, and Apple’s Podcasts App on iOS devices. Libsyn also enables distribution to destinations like Google Play Music and aggregators such as Spotify and iHeartRadio. The OnPublish feature enables podcast episodes to be posted to social media sites such as Facebook, Twitter, YouTube, Linked-In and blogging platforms like WordPress and Blogger. Libsyn offers 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.
 
The Libsyn business has also experienced upward trends in the areas of podcast creation, consumption, and audience growth. Podcast shows on the Libsyn platform increased to over 57,000 in 2018 from 44,000 in 2017 from 35,000 in 2016 from 28,000 and in 2015. This resulted in 4,906,636 active episodes in 2018 versus 3,968,275 in 2017 versus 3,193,997 in 2016 and 2,572,295 in 2015. The industry standard unique podcast downloads for 2018 exceeded 5.1 billion. Additionally, the Libsyn network now reaches 111 million audience members monthly as of December 2018, an increase from 92 million in December 2017 and 62 million in December 2016.
 
In 2017, Libsyn generated 64% of its $10.5 million in revenue from Podcast hosting fees paid by Libsyn4 producers. Advertising revenue is 15% of overall revenues, and LibsynPro, which includes hosting, along with bandwidth charges and other professional level add-ons, makes up 17% of revenues. App subscriptions make up 4% of total Libsyn revenues.
 
In 2018, Libsyn generated 70% of its $12.6 million in revenue from Podcast hosting fees paid by Libsyn4 producers. Advertising revenue is 10% of overall revenues, and LibsynPro, which includes hosting, along with bandwidth charges and other professional level add-ons, makes up 17% of revenues. App subscriptions make up 3% of total Libsyn revenues.
 
 
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Mobile Podcast Apps
 
Each month, more than 2 billion people download apps for the Apps stores versus approximately 100 million who download podcasts. To grow audience for a podcast, producers seek to distribute the show everywhere. After the iTunes podcast directory, the next largest and most readily used marketplaces are App stores. Libsyn provides the ability for producers to have their own customized apps or be included in the Libsyn PodSource app, across most major App Stores. This includes Apple, Amazon, and Windows Phone App Stores. Libsyn recently partnered with Amazon to include podcast apps for the Amazon Echo via Alexa Skills.
 
Multiple apps destinations allows podcasts to be discovered by those new to podcasts but familiar with Apps and more importantly, enables a simple way to consume podcasts and share them with friends. Additionally, podcast apps open podcast consumption to users who are not Apple-centric and do not require listeners to subscribe or download podcasts. Once the App has been downloaded to a mobile device, the podcast episodes can be played directly from the App.
 
Advertising
 
The Libsyn Ad Sales team has ongoing relationships with agencies and advertisers and works directly with podcast producers on advertising and sponsorship opportunities. Producers’ shows earn revenue share from advertising campaigns. Additionally, Campaign Management services, which include automated ad insertion tools, are integrated into the Libsyn platform. The Libsyn Ad Operations team and enterprise customers use these tools to schedule and track ad impressions that are dynamically inserted into podcasts. Libsyn statistics show that over 50% of podcast downloads come from the back catalog of content. With dynamic ad insertion, ads are included only during the campaign which allows the entire show catalog to be available for future campaigns. Host-read ads are permanently included in the episode limiting future advertising opportunities across a show’s entire inventory but benefiting advertisers with episodic lifetime advertising.
 
Advertisers and agencies run renewal campaigns and add new campaigns based on the ROI performance and working experience with Libsyn’s Ad Operations team. Based on management’s experience, advertisers prefer to deal with a company like Libsyn when it comes to podcast advertising, which has a larger audience reach. We are able to leverage our relationship with our producers and simplify the coordination of advertising buys and campaign tracking. Management believes that the value of targeted audiences will continue to drive higher-value CPMs (cost per million advertising rates) and sponsorship rates based on successful results, positive ROIs, and relationships with the producers.
 
Premium Podcast Content
 
Premium podcast content is a monetization strategy for producers to lock down show episodes and offer them to their audience on a paid subscription basis. Through MyLibsyn, podcast shows get a custom App and a podcast website where listeners can access their show, login to purchase a subscription and get access to premium content. Subscriptions are offered on a one month, six month or annual basis and revenue is shared with the show’s producer. With over 50% of podcast downloads coming from the back catalog of content, the Premium offering enables shows to make their most recent episodes available for free in order to continue to build audiences but charge for their back catalog to generate revenue from the subscriptions.
 
The Premium offering is also available to LibsynPro customers to create private podcasts. Private Premium is ideal for large organizations and companies that want to distribute audio and video information internally through mobile apps. Access to Private Premium content is controlled and managed by an access list through the LibsynPro interface. The organizations pay monthly for the private subscribers, so users are only required to download the App from one of the App stores and login. This provides an easy solution for organization to distribute information to employees, partners, and affiliates by utilizing smartphone apps.
 
 
28
 
 
Pair Networks, Inc. (“Pair”)
 
Pair Networks, founded in 1996, is one of the oldest and most experienced Internet hosting company providing a full range of fast, powerful and reliable Web hosting services. Pair offers a suite of Internet services from shared hosting to virtual private servers to customized solutions with world-class 24x7 on-site customer support. Based in Pittsburgh, Pair serves businesses, bloggers, artists, musicians, educational institutions and non-profit organizations around the world.
 
Pair offers a variety of hosting plan levels, value add Internet services and domain registration. Through the Pair Account Control Center (ACC), customers can manage their hosting accounts and domains from one place.
 
Customers can choose from a variety of web hosting plan levels based on their requirements and applications. Pair Hosting offers shared servers, virtual private servers, dedicated servers and optimized WordPress hosting 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.
 
Virtual private servers
 
Virtual private servers (VPS) is a step up from a shared hosting solution in that specific serve resources are allocated directly for your use, assuring performance levels. This is a more secure and reliable option that separates your site from others and is ideal for storage or database applications for businesses, developers and fast-growing sites.
 
Dedicated servers
 
Dedicated servers provide yet another level of security and performance for those who need more processing power or storage. Servers are custom built to customer specification 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 are ready for your use in no time and fully managed to keep them up to date.
 
Pair hosting also offers self-managed service through server collocation, which delivers the advantages of the powerful infrastructure that was built behind the fully managed offerings. For those customers who want to purchase their own hardware, collocation service in Pair’s data center allows for unmanaged service with the security and reliability of the diverse network, physically secure facilities, backup power and redundant climate control.
 
Pair offers a managed WP product line that is optimally configured for performance and security. This managed WP service will ensure fast performance, high availability and security by keeping sites up to date with the latest WP core updates and patches and ensuring hardware and network speed and uptime. The WP service offers a range of scalable solutions from several to unlimited WP sites, ideal for single sites through enterprise applications.
 
Pair Hosting customers sign-up online at www.pair.com, using their credit card to subscribe to a monthly or annual plan. Pair offers a basic, getting started plan with a custom domain for $5.95 per month with a basic drag and drop website builder and more advanced plans that include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for all levels including backups, Account Control and security and operating system maintenance and upgrades.
 
Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten years domain 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.
 
 
29
 
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and the results of our operations are based upon our financial statements and the data used to prepare them. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. On an ongoing basis, we re-evaluate our judgments and estimates including those related to bad debts, investments, long-lived intangible assets, and income taxes.
 
We base our estimates and judgments on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies.
 
Goodwill
 
In January 2017, the FASB issued ASU 2017-04, Intangibles, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the manner in which an entity should perform its annual, or interim, goodwill impairment test.
 
In accordance with ASC 350, Intangibles-Goodwill and Other, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (a likelihood of more than 50%) that the fair value of our reporting unit is less than its carrying amount. If after assessing the qualitative factors we determine that it is not more likely than not that the fair value of the reporting unit is less than the carrying value, then we conclude that we have no goodwill impairment and no further testing is performed; otherwise, we proceed to the two-step process. The first step under the two-step process is to compare the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired, and no further testing is performed.
 
Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the previous requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount.
 
The new standard becomes effective for us on January 1, 2020. We early adopted the proposed guidance under ASU 2017-04 for the year end December 31, 2018 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.
 
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.
 
Revenue
  
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.
 
 
30
 
 
Revenue is recognized when control of the promised services is transferred to our customers, in an amount reflecting the consideration we expect to be entitled to in exchange for those services.
 
Certain products are generally sold with a right of return within our policy, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Refunds are estimated at contract inception using the expected value method based on historical refund experience and updated each reporting period as additional information becomes available and only to the extent it is probable a significant reversal of any incremental revenue will not occur. Refunds reduce deferred revenue at the time they are granted and resulted in a reduced amount of revenue recognized over the contract term of the applicable service compared to the amount originally expected.
 
Our revenue is categorized and disaggregated as follows:
 
Domains - Domains revenue primarily consists of domain registrations and renewals, domain privacy, domain application fees, domain back-orders, aftermarket domain sales and fee surcharges paid to ICANN. Domain registrations provide a customer with the exclusive use of a domain during the applicable contract term. After the contract term expires, unless renewed, the customer can no longer access the domain. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue, other than for aftermarket domain sales, is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term. Aftermarket domain revenue is recognized when ownership of the domain is transferred to the buyer.
 
Hosting Services - Hosting services revenue primarily consists of website hosting products, website building products and services, website security products, an online shopping cart and online visibility products and email accounts. Consideration is recorded as deferred revenue when received, which is typically at the time of sale, and revenue is recognized over the period in which the performance obligations are satisfied, which is generally over the contract term.
 
Podcast Hosting - Podcast hosting publishing services are billed on a month to month basis, with first month’s bill prorated to the end of the month so all performance obligations are satisfied at each month-end. Consideration is recorded as revenue as the services, the underlying performance obligation, are provided and or satisfied and collection is probable which is generally when received.
 
Media Subscription Services - The Company facilitates the sale of producers’ premium content through the sale of subscriptions. The amount earned per transaction is fixed with the producers 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.
 
 
31
 
  
Equity-Based Compensation
 
Our equity-based awards are comprised of stock and are accounted for using the fair value method. Stock is measured based on the fair market value of the underlying common stock on the date of grant. Awards vest and compensation is recognized over the requisite service period. The measurement date for performance vesting awards is the date on which the applicable performance criteria are approved by our board of directors.
  
Goodwill and Indefinite-Lived Intangible Assets
 
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. The company recorded no impairment charge for goodwill, during the years ended December 31, 2018 and 2017.
 
Results of Operations.
 
The Libsyn business has experienced upward trends in the areas of podcast creation, consumption, and audience growth. Podcast shows on the Libsyn platform increased to over 57,000 in 2018 from 44,000 in 2017 from 35,000 in 2016 from 28,000 and in 2015. This resulted in 4,906,636 active episodes in 2018 versus 3,968,275 in 2017 versus 3,193,997 in 2016 and 2,572,295 in 2015. The industry standard unique podcast downloads for 2018 exceeded 5.1 billion. Additionally, the Libsyn network reached 111 million audience members monthly in December 2018, an increase from 92 million in December 2017 and 62 million in December 2016.
 
 
32
 
 
The Libsyn4 product offering is a podcast hosting and distribution service which includes storage, bandwidth, RSS creation, distribution, and statistics tracking. Podcast producers can choose from a variety of hosting plan levels based on the requirements for their podcast. Podcast producers’ sign-up online at www.libsyn.com, using their credit card to subscribe to a monthly plan. Libsyn’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.
 
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 12 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 cost of revenue continue to grow in 2019. With the level of bandwidth usage currently incurred, the company has Content Delivery Network (CDN) and storage solution contracts that leverage economies of scale over the next 12 months to continue to help manage cost of revenue.
 
In 2017, Libsyn generated 64% of its $10.5 million in revenue from Podcast hosting fees paid by Libsyn4 producers. Advertising revenue is 15% of overall revenues, and LibsynPro, which includes hosting, along with bandwidth charges and other professional level add-ons, makes up 17% of revenues. App subscriptions make up 4% of total Libsyn revenues.
 
In 2018, Libsyn generated 70% of its $12.6 million in revenue from Podcast hosting fees paid by Libsyn4 producers. Advertising revenue is 10% of overall revenues, and LibsynPro, which includes hosting, along with bandwidth charges and other professional level add-ons, makes up 17% of revenues. App subscriptions make up 3% of total Libsyn revenues.
 
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. Pair’s hosting subscriptions provided as a service as of December 2018 totaled over 26,000.
 
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. Pair Hosting customers sign-up online at www.pair.com, using their credit card to subscribe to a monthly or annual plan. Pair offers a basic, getting started plan with a custom domain for $5.95 per month with a basic drag and drop website builder and more advanced plans that include additional storage, processing power and add-ons like eCommerce and WordPress. Plans are designed to provide full-featured web hosting tools for all levels including backups, Account Control and security and operating system maintenance and upgrades.
 
Pair Domains offers custom domains for Top Level Domains (TLDs) including dot-com, dot-org, and dot-net that vary in price from $7.00 to $70 per year based on the TLD. Customers can search for available domains and sign-up online at www.pairdomains.com using their credit card for a one to ten-year domain name purchase or domain transfer. Pair’s Domain name registrations totaled over 92,000 as of December 2018.
 
Fiscal year ended December 31, 2018 compared to fiscal year ended December 31, 2017
 
In 2018 the Company recorded revenues of $ 22,010,132, a 108% increase over revenues of $10,584,219 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 a decrease in Advertising revenue. Pair contributed $9,379,826 of revenue during 2018, and $47,563 during 2017. Libsyn4 hosting revenue increased 30% due to the growth in the number of podcasts on the network when comparing to 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 22% during 2018 versus 2017. The decrease resulted from decrease in the dollars being spent on ad campaigns during 2018 with existing advertisers. Premium subscription revenue increased $ 26,169.
 
 
33
 
 
The Company recorded total costs and operating expenses of $17,930,512 during 2018, a 30% increase as compared to operating expenses of $13,766,647 in the same period of 2017. Pair contributed $10,815,662 to total costs and operating expenses during 2018, and $0 during 2017 due to the acquisition in December 2017.
 
During 2018, cost of revenue totaled $3,331,876, a 40% increase as compared to $2,379,151 for the same period in 2017. Pair contributed $815,667 to cost of revenue during 2018. There was also an increase in bandwidth costs, credit card processing fees, and colocation fees, offset by a decrease in ad sharing that is being paid to producers in 2018 versus 2017, driven by a decrease in ad revenue. Cost of revenue as a percentage of revenue for Libsyn decreased to 20% in 2018 from 23% in 2017. This is a reflection of the increase in bandwidth usage during 2018 due to the growth in the number of podcasts and increased podcast consumption on the Libsyn Platform off-set by a reduction in the bandwidth rate to deliver the podcasts.
 
General and administrative expenses totaled $6,065,661 in 2018 versus $10,263,775 in 2017, a decrease of 41%. The decrease was driven primarily due to the decrease in non-cash compensation expense in 2018 versus 2017. In 2017, the Company incurred $7,274,000 of non-cash compensation expense due to the issuance of common stock to officers, directors and employees. Excluding non-cash compensation, General and administrative expenses increased by $3,075,886. This is due to the Pair acquisition. General and administrative for Pair of $2,875,120 consisted primarily of wages, rent, utilities, and health insurance costs. Technology expenses represented $1,842,020 in 2018 versus $610,794 in 2017, driven by an increase in wages from the addition of Pair during 2018. Selling expenses in 2018 were $846,434 versus $299,074 in 2017 driven by the addition of the selling team for Pair. Customer support expenses in 2018 were $2,830,789 versus $191,820 in 2017 driven by the addition of 24/7 support provided by Pair.
 
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 2018 was $3,013,732 in 2018 and $22,033 in 2017. During 2018, Pair contributed $2,968,022 to depreciation and amortization expense.
 
Interest expense for 2018 was $387,064, which represents interest on the loan facility obtained in connection with the acquisition of Pair. Interest income for 2018 totaled $84,992 from investments in Money Market accounts made during the year.
 
The Company’s net income was $3,787,797 for 2018. This represents a $6,970,192 increase from the net loss of $3,182,395 during 2017.
 
Inflation and seasonality:
 
The Company does not believe that inflation or seasonality will significantly affect its results of operation.
 
Liquidity and Capital Resources
 
2018 compared to 2017
 
Cash on hand was $11,079,941 at December 31, 2018, an increase of $5,868,096 over the $5,211,845 on hand at December 31, 2017. Cash provided by operations for 2018, was $7,998,526, as compared to cash provided by operations of $3,587,404 for 2017. This is a result of increased net income during 2018 offset by an increase in expenses.
 
During 2018, cash used in investing activities was $378,687 which was for the purchase of equipment and capitalization of software development costs. During 2017, cash used for investing was $13,130,017 of which $13,060,953 was for the purchase of Pair Networks Inc.
 
In 2018, net cash used in financing activities was $1,751,743. During 2018, we made principal loan payments totaling $1,600,000, as well as $69,243 of payments on our capital lease. Additionally, the Company repurchased 55,000 shares of common stock for $82,500. In 2017, net cash provided by financing activities was $9,879,000. The decrease in net cash provided by financing activities was driven by the two credit facilities totaling $10,000,000 in 2017.
 
Debt and Contractual Obligations
 
On December 27, 2017, the Company entered into a loan agreement (the “Loan Agreement”) among the Company, Webmayhem, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of the Company (“Libsyn”), and Pair Networks (Pair Networks, together with Libsyn and the “Company”), and First Commonwealth Bank, a Pennsylvania bank and trust company (the “Bank”).
 
 
34
 
 
The Loan Agreement provides for: (i) a revolving credit facility pursuant to which the Company may borrow up 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.
 
The Term Loan is repayable in quarterly installments of $400,000 payable on the last day of each March, 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 and no more than $3,200,000 over the life of the term loan.
 
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.
 
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
 
Not applicable to smaller reporting companies.
 
  
 
35
 
 
Liberated Syndication Inc.
 
Index to Financial Statements
 
 
 
 
 
36
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of Liberated Syndication Inc.:
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheet Liberated Syndication Inc. (“the Company”) as of December 31, 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2018 and the related consolidated notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal security laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
 
/s/ Sadler, Gibb & Associates, LLC
 
We have serviced as the Company’s auditor since 2018
 
Salt Lake City, Utah
March 14, 2019
 
 
 
37
 
 
 
4397 South Albright Drive, Salt Lake City, UT 84124
(801) 277-2763 Phone
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Shareholders
Liberated Syndication Inc.
Pittsburgh, Pennsylvania 15213
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheet Liberated Syndication Inc. and subsidiaries (“the Company”) as of December 31, 2017 and the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2017 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal security laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our Audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
 
 
/s/ Gregory & Associates, LLC
 
We served as the Company’s auditor from 2015 to June 2018
Salt Lake City, Utah
March 26, 2018
  
 
38
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
 
December 31,
2018
 
 
December 31,
2017
 
   CURRENT ASSETS:
 
 
 
 
 
 
     Cash
 $11,079,941 
 $5,211,845 
     Accounts receivable, net
  481,921[1]
  660,139[1]
     Prepaid expenses
  449,223 
  186,425 
   Total current assets
  12,011,085 
  6,058,409 
 
    
    
   Property and equipment, net
  2,229,294 
  3,007,025 
   Goodwill
  16,388,171 
  16,352,069 
   Definite life - intangible assets, net
  7,786,686 
  9,644,000 
   Prepaid expense
  191,609 
  7,076 
   Total assets
 $38,606,845 
 $35,068,579 
 
    
    
   CURRENT LIABILITIES:
    
    
     Accounts payable
 $745,889 
 $440,565 
     Accrued expenses
  377,572 
  769,485 
     Deferred revenue, net of current portion
  2,276,079 
  1,247,686 
     Current portion of capital lease obligation
  72,986 
  69,243 
Current portion of loans payable, net of $28,068 and $33,366 discount, respectively
  2,638,599 
  1,566,634 
   Total current liabilities
  6,111,125 
  4,093,613 
 
    
    
LONG TERM LIABILITIES:
    
    
Loans payable, net of $51,566 and $79,634 discount, less current portion
  5,681,767 
  8,320,366 
Capital lease obligation, net of current portion
  831 
  73,817 
     Deferred revenue, net
  371,938 
  133,617 
   Total long-term liabilities
  6,054,536 
  8,527,800 
   Total liabilities
  12,165,661 
  12,621,413 
 
    
    
COMMITMENTS & CONTINGENCIES
  - 
  - 
 
    
    
   STOCKHOLDERS' EQUITY
    
    
     Common stock
  29,722 
  29,596 
     Additional paid-in capital
  35,010,552 
  34,804,457 
     Accumulated deficit
  (8,599,090)
  (12,386,887)
   Total stockholders' equity
  26,441,184 
  22,447,166 
   Total liabilities and stockholders' equity
 $38,606,845 
 $35,068,579 
 
 
Liberated Syndication Inc. and Subsidiaries Balance Sheet (Parenthetical)
 
 
 
Statement of Financial Position
 
December 31,
2018
 
 
December 31,
2017
 
   Allowance for doubtful accounts
 $14,000 
 $14,000 
   Common stock authorized
  200,000,000 
  200,000,000 
   Common stock par value
 $0.001 
 $0.001 
   Common stock outstanding
  29,721,974 
  29,595,473 
 
The accompanying notes are an integral part of these consolidated financial statements. 
 
 
39
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Years ended
 
 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $22,010,132 
 $10,584,219 
 
    
    
Costs and operating expenses
    
    
 
    
    
Cost of revenue (excluding depreciation and amortization)
  3,331,876 
  2,379,151 
General and administrative
  6,065,661 
  10,263,775 
Technology
  1,842,020 
  610,794 
Selling
  846,434 
  299,074 
Customer support
  2,830,789 
  191,820 
Depreciation and amortization
  3,013,732 
  22,033 
Total costs and operating expenses
  17,930,512 
  13,766,647 
Operating income (loss)
  4,079,620 
  (3,182,428)
 
    
    
 
    
    
Interest expense
  (387,064)
  - 
Interest income
  84,992 
  - 
Other income
  10,249 
  33 
Income (loss) from operations before income taxes
  3,787,797 
  (3,182,395)
 
    
    
Income tax expense (benefit)
  - 
  - 
Net Income (loss)
 $3,787,797 
 $(3,182,395)
 
    
    
 
    
    
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
 $0.13 
 $(0.13)
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  29,740,207 
  24,390,595 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
40
 
 
LIBERATED SYNDICATION INC.
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
Common Stock
 
 
Paid In
 
 
Accumulated
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
  20,805,860 
 $20,806 
 $25,047,247 
 $(9,204,492)
 
    
    
    
    
Issuance of Common Stock for services
  7,250,000 
  7,250 
  7,266,750 
  - 
 
    
    
    
    
Repurchase of Common Stock
  (40,000)
  (40)
  (7,960)
  - 
 
    
    
    
    
Issuance of Common Stock to acquire Pair Networks Inc.
  1,579,613 
  1,580 
  2,498,420 
  - 
 
    
    
    
    
Net loss
  - 
  - 
  - 
  (3,182,395)
 
    
    
    
    
Balance at December 31, 2017
  29,595,473 
 $29,596 
 $34,804,457 
 $(12,386,887)
 
    
    
    
    
Issuance of Common Stock for services
  200,000 
  200 
  317,800 
  - 
 
    
    
    
    
Return of Common Stock for final settlement of Pair Acquisition
  (18,499)
  (19)
  (29,260)
  - 
 
    
    
    
    
Repurchase of Common Stock
  (55,000)
  (55)
  (82,445)
  - 
 
    
    
    
    
Net Income
  - 
  - 
  - 
  3,787,797 
 
    
    
    
    
Balance at December 31, 2018
  29,721,974 
 $29,722 
 $35,010,552 
 $(8,599,090)
 
The accompanying notes are an integral part of these consolidated financial statements. 
 
 
41
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
   Cash Flows from Operating Activities
 
 
 
 
 
 
     Net income (loss)
 $3,787,797 
 $(3,182,395)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
    
    
          Depreciation and amortization
  3,013,732 
  22,033 
          Issuance of common stock for services
  318,000 
  7,274,000 
          Amortization of discount on loan fees
  33,366 
  - 
          Change in assets and liabilities:
    
    
               Accounts receivable
  112,838 
  (184,874)
               Prepaid expenses
  (447,332)
  (70,289)
               Accounts payable
  305,324 
  (319,483)
               Accrued expense
  (391,913)
  66,586 
               Deferred revenue
  1,266,714 
  (18,174)
                    Net Cash Provided by Operating Activities
  7,998,526 
  3,587,404 
 
    
    
   Cash Flows from Investing Activities:
    
    
     Purchase of property & equipment
  (378,687)
  (69,064)
     Acquisition of Pair Networks Inc., net of cash acquired
  - 
  (13,060,953)
                    Net Cash Used in Investing Activities
  (378,687)
  (13,130,017)
 
    
    
 
    
    
   Cash Flows from Financing Activities:
    
    
     Repurchase of common stock
  (82,500)
  (8,000)
     Proceeds from loans
  - 
  10,000,000 
     Payment of debt issuance costs
  - 
  (113,000)
     Repayment on term loan
  (1,600,000)
  - 
     Repayment on capital lease
  (69,243)
  - 
                    Net Cash Provided by (Used in) Financing Activities
  (1,751,743)
  9,879,000 
 
    
    
   Net Increase in Cash and Cash Equivalents
  5,868,096 
  336,387 
   Cash and Cash Equivalents at Beginning of Period
  5,211,845 
  4,875,458 
   Cash and Cash Equivalents at End of Period
 $11,079,941 
 $5,211,845 
 
    
    
   Supplemental Disclosures of Cash Flow Information
    
    
     Cash paid during the periods for:
    
    
          Interest
  350,761 
  - 
          Income taxes
  - 
  - 
 
The accompanying notes are an integral part of these consolidated financial statements. 
 
 
42
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO 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, a wholly owned subsidiary of the Company, was organized on January 1, 2001. Libsyn provides podcast hosting services for producers of content. Libsyn also offers ad insertion on certain of the producers’ content. Libsyn offers hosting and distribution tools, including storage, bandwidth, syndication creation, distribution, and statistics tracking. Libsyn offers an enterprise solution for professional media producers and corporate customers and a premium subscription service that provides producers a custom App and a podcast Website where listeners can access their show, login to purchase a subscription, and get access to premium content.
 
On December 27, 2017, the Company purchased all the issued and outstanding shares of Pair Networks Inc., (“Pair”), a Pennsylvania corporation, and subsidiaries Ryousha Kokusai, LLC (Ryousha) and 660837NB, Inc. (NB), in a transaction accounted for as a purchase.
 
Pair Networks Inc. provides web hosting services and domain name registrations. Services include shared web hosting, e-commerce, fully-managed virtual private and dedicated servers, customer self-managed dedicated servers, domain-name registration, co-location and content-delivery networks. Pair began operations in August 1995. It incorporated in the state of Pennsylvania in August 1998. Pair’s principal operations are conducted on-site in Pittsburgh, PA. Pair also has an operating site in Denver, Colorado, and a remote site back-up location in Pittsburgh, PA.
 
Ryousha Kokusai, LLC (dba Pair International), a wholly owned single-member limited liability company subsidiary of Pair, was formed on January 1, 2015. The Value Added Tax(VAT) for sales to European Union countries subject to the VAT in Europe are paid through Ryousha Kokusai LLC. There are no operating activities conducted by Ryousha. NB, a Canadian Company was organized on December 2, 2011. NB is used solely for holding the Canadian tradenames and domain names of Pair. There are no operating activities conducted by NB.
 
Principles of Consolidation - Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include our accounts and the accounts of our subsidiaries. The financial statements presented reflect the accounts of parent, Libsyn, Ryousha, NB and Pair. All material intercompany accounts and transactions have been eliminated.
 
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.
 
Our more significant estimates include:
 
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.
 
 
43
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
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 December 31, 2018, the Company had $10,641,198 cash balances in excess of federally insured limits.
 
Concentration of Credit Risk - Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents and account receivable. Management’s assessment of the Company’s credit risk for cash and cash equivalents is low as cash and cash equivalents are held in financial institutions believed to be credit worthy. No single customer represented over 10% of our total revenue for any period presented. As of December 31, 2018, two customers individually accounted for 18% and 12%, respectively, of our total accounts receivable. In 2017, the same two customers individually accounted for 10% and 8%, respectively.
 
Accounts Receivable – Accounts receivable consist of trade receivables arising in the normal course of business. At December 31, 2018 and 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 years ended December 31, 2018 and 2017, the Company adjusted the allowance for bad debt by $0.
 
Registry Deposits - Registry deposits represent amounts on deposit with, or receivable from, various domain name registries to be used by us to make payments for future domain registrations or renewals.
 
Prepaid Domain Name Registry Fees - Prepaid domain name registry fees represent amounts charged by a registry at the time a domain is registered or renewed. These amounts are amortized to cost of revenue over the same period revenue is recognized for the related domain registration contracts.
 
Property and Equipment – Property and equipment is stated at cost. Depreciation is recorded over the shorter of the estimated useful life or the lease term of the applicable asset using the straight-line method beginning on the date an asset is placed in service. Maintenance and repairs are charged to expense as incurred.
 
Definite-Life Intangible Assets – The Company evaluates its long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the asset.
 
Software Development Costs - We account for software development costs, including costs to develop software products or the software component of products to be marketed to external users, as well as software programs to be used solely to meet our internal needs in accordance with ASC Topic 985 Software. 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 and amortized over its useful life.
 
Debt Issuance Costs - We defer and amortize issuance costs, underwriting fees and related expenses incurred in connection with the issuance of debt instruments using the effective interest method over the terms of the respective instruments. Debt issuance costs, other than those associated with our revolving credit loan, are reflected as a direct reduction (discount) of the carrying amount of the related debt liability.
 
Goodwill Goodwill is evaluated for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company performed the annual impairment test of goodwill as of December 31, 2018. 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. The company recorded no impairment charge for goodwill during the years ended December 31, 2018 and 2017.
 
Advertising Costs – Advertising costs are expensed as incurred and amounted to $122,424 and $34,623 for the periods ending December 31, 2018 and 2017, respectively.
 
 
44
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
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.
 
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.
 
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.
 
 
45
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
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 stock and are accounted for using the fair value method. Stock is measured based on the fair market value of the underlying common stock on the date of grant. Awards vest and compensation is recognized over the requisite service period. The measurement date for performance vesting awards is the date on which the applicable performance criteria are approved by our board of directors.
 
Leases The Company accounts for leases in accordance with 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.
 
Other Definite-life Intangible Assets - Other intangible assets consist of customer relationships, intellectual property, trade name and non-compete agreement, which were generated through the acquisition of Pair. Management considers these intangible assets to have finite-lives. These assets are being amortized on a straight-line basis over their estimated useful lives.
 
Business Combinations - We include the results of operations of acquired businesses in our consolidated financial statements as of the respective dates of acquisition. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. The purchase price of acquisitions, including estimates of the fair value of contingent consideration when applicable, is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the respective acquisition dates, with the excess recorded as goodwill. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The estimates are inherently uncertain and subject to refinement. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to the preliminary estimates to goodwill provided we are within the measurement period.
 
Contingent consideration is adjusted to fair value in subsequent periods as an increase or decrease in general and administrative expenses. Acquisition-related costs are expensed as incurred. See Note 3 to our consolidated financial statements for additional information regarding business combinations.
 
Income Taxes - The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are adjusted by a valuation allowance, if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company anticipates earnings in the near future and the realization of the benefit of the deferred tax assets.  
  
Earnings (Loss) 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.
 
In January 2017, the FASB issued ASU 2017-04, Intangibles, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the manner in which an entity should perform its annual, or interim, goodwill impairment test.
 
Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the previous requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount.
 
 
46
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
 
The new standard becomes effective for us on January 1, 2020. We early adopted the proposed guidance under ASU 2017-04 for the year end December 31, 2018 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.
 
Other 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
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
 
Furniture, fixtures, and equipment
3-10 yrs
 $8,155,322 
 $8,032,178 
Leasehold improvements
3 - 5 yrs
  2,646,400 
  2,646,400 
Software
3 yrs
  262,046 
  6,503 
 
  11,063,768 
  10,685,081 
Less: Accumulated depreciation
 
  (8,834,474)
  (7,678,056)
Property & equipment, net
 
 $2,229,294 
 $3,007,025 
 
Depreciation expense for the periods ended December 31, 2018 and 2017 was $1,156,418 and $22,033, respectively.
 
NOTE 3 – GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS
 
Goodwill - Goodwill is tested for impairment annually, as well as when an event, or change in circumstances, indicates impairment may have occurred. In accordance with ASC 350, Intangibles-Goodwill and Other, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (a likelihood of more than 50%) that the fair value of our reporting unit is less than its carrying amount. If after assessing the qualitative factors we determine that it is not more likely than not that the fair value of the reporting unit is less than the carrying value, then we conclude that we have no goodwill impairment and no further testing is performed; otherwise, we proceed to the two-step process. The first step under the two-step process is to compare the fair value of the reporting unit to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired, and no further testing is performed.
 
The Company followed the guidance in ASC 350-20-35-3 and performed the annual impairment test of goodwill. Using qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test discussed in paragraphs ASC 350-20-35-4 through 35-19, management concluded that it is more likely than not that the fair value of the Webmayhem reporting unit is more than its carrying amount. Therefore, no further testing is performed.
 
Since 2018 was the first full reporting year for the Pair reporting unit, management decided it necessary to perform the quantitative impairment test as described in ASC 350-30-35-19. Using the valuation technique based on multiples of earnings or revenue, it was concluded that the goodwill of Pair had a fair market value which exceeded the carrying value of goodwill. Therefore, goodwill of Pair is considered not to be impaired.
 
Goodwill consists of:
 
 
 
December 31,
 
 
December 31,
 
 
 
2018
 
 
2017
 
Pair
 $4,903,920 
 $4,867,818 
Libsyn
  11,484,251 
  11,484,251 
Total Goodwill
 $16,388,171 
 $16,352,069 
 
 
47
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 3 – GOODWILL AND OTHER DEFINITE-LIFE INTANGIBLE ASSETS – continued
 
The following is a summary of goodwill for the Year Ended:
 
 
 
December 31,
 
 
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 
  
As of December 31, 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 
 $563,857 
 $3,383,143 
Intellectual Property
  3,709,000 
  7 
  529,857 
  3,179,143 
Trade name
  576,000 
  10 
  57,600 
  518,400 
Non-compete
  1,412,000 
  2 
  706,000 
  706,000 
Total
 $9,644,000 
    
 $1,857,314 
 $7,786,686 
 
The estimated future amortization expenses related to other intangible assets as of December 31, 2018 are as follows:
 
For twelve months ending December 31,
 
 
 
2019
 $1,857,314 
2020
  1,151,315 
2021
  1,151,315 
2022
  1,151,314 
2023
  1,151,314 
Thereafter
  1,324,114 
Total   
 $7,786,686 
 
NOTE 4 - LOANS
 
On December 27, 2017, the Company entered into a loan agreement (the “Loan Agreement”) among the Company, Libsyn, and Pair, together, and First Commonwealth Bank, a Pennsylvania bank and trust company (the “Bank”).
 
The Loan Agreement provides for: (i) a revolving credit facility pursuant to which the Company may borrow an aggregate principal amount not to exceed $2,000,000 (the “Revolving Credit Facility”); and (ii) a term loan in a principal amount equal to $8,000,000 (the “Term Loan” and, together with the Revolving Credit Facility, the “Facility”). A portion of the Revolving Credit Facility, up to $500,000, may be used for standby letters of credit for the account of the Company. As of December 31, 2018, $2,000,000 was drawn down on the revolving line with $0 available.
 
The loan currently accrues interest at LIBOR plus 125 base points or prime plus 75 basis points at the election of the Company. As of December 31, 2018, the Company has elected LIBOR plus 125 basis points or 3.756%.
 
 
48
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 4 – LOANS - continued
 
The Term Loan is repayable in quarterly installments of $400,000 commencing on March 31, 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 and no more than $3,200,000 over the life of the term loan. Excess liquidity is obtained when the audited financial statements reflect a cash balance greater than $4,600,000. Based upon the 2018 financial statements, the company demonstrates excess liquidity per the Term Loan agreement. As such, the company has included the expected $1,066,667 payment to the bank as a current liability. As of December 31, 2018, the balance on the term loan was $6,400,000.
 
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 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 December 31, 2018, the discount was $79,634.
 
Future Maturities of the loans at December 31, 2018 are as follows:
 
For the year ending December 31,
 
 
 
2019
 $2,666,667 
2020
  1,600,000 
2021
  1,600,000 
2022
  1,600,000 
2023
  933,333 
Thereafter
  - 
Total   
 $8,400,000 
 
NOTE 5 - CAPITAL STOCK
 
Common Stock - The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of December 31, 2018, 29,721,974 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.
 
 
49
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 5 – CAPITAL STOCK – continued
 
During the first quarter of 2018, the seller of Pair Networks Inc., returned 18,499 shares valued at $29,279 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 fourth quarter of 2018, the Company repurchased 55,000 shares of common stock for $82,500, and the stock was retired.
 
During January 2017, the Company issued 3,650,000 stock awards comprising of shares of common stock valued at $1,752,000 to officers and directors and recorded non-compensation of $1,752,000. These shares are subject to forfeiture based on market conditions, including the market cap of the Company and up-listing to NASDAQ. These market conditions expire through April 2019. The shares are unable to be traded until these market conditions have been achieved.
 
During the second quarter of 2017, the Company repurchased 40,000 restricted stock awards comprising of shares of common stock for $8,000, and the stock was retired.
 
During December 2017, the Company issued 3,600,000 stock awards comprising of shares of common stock valued at $5,522,000 to officers, directors and employees, and recorded non-compensation of $5,522,000. These shares are subject to forfeiture based on market conditions, including the market cap of the Company, the trading price of the common stock of the Company and up-listing to NASDAQ. These market conditions expire through December 2020. The shares are unable to be traded until these market conditions have been achieved.
 
On December 27, 2017, the Company completed the acquisition of all the issued and outstanding shares of capital stock of Pair. As part of the consideration, the Company issued 1,579,613 “unregistered” shares of the Company’s common stock valued at $2,500,000.
 
Information regarding vested stock awards for the year ended December 31, 2018 is summarized in the table below:
 
 
 
Shares
 
 
Weighted Average Grant Date Fair Value
 
 
Average Remaining Life
 
Issued and outstanding awards subject to forfeiture at beginning of period
  7,250,000 
 $1.00 
  1.68 
Stock Awards Issued
  - 
 $- 
  - 
Awards no-longer subject to forfeiture
  2,075,000 
 $0.61 
  N/A 
Cancelled / Forfeited Awards
  - 
  - 
  - 
Issued and outstanding awards subject to forfeture at end of period
  5,175,000 
 $1.16 
  1.45 
 
 
50
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 6 – DEFERRED REVENUE
 
Deferred revenue consists of the following:
 
 
 
December 31,
2018
 
 
December 31,
2017
 
Current:
 
 
 
 
 
 
Hosting services
 $1,601,335 
 $1,032,000 
Domains
  535,273 
  104,172 
Media subscription
  139,471 
  111,514 
 
 $2,276,079 
 $1,247,686 
Noncurrent:
    
    
Hosting services
  39,071 
  50,351 
Domains
  332,867 
  83,266 
 
 $2,648,017 
 $1,381,303 
 
Deferred revenue as of December 31, 2018 is expected to be recognized as revenue as follows:
 
 
 
2019
 
 
2020
 
 
2021
 
 
2022
 
 
2023
 
 
Thereafter
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Domains
 $535,273 
 $132,278 
 $87,726 
 $70,796 
 $36,957 
 $5,110 
 $868,140 
Hosting
  1,601,335 
  35,340 
  3,731 
  - 
  - 
  - 
  1,640,406 
Media Subscription
  139,471 
  - 
  - 
  - 
  - 
  - 
  139,471 
 
 $2,276,079 
 $167,618 
 $91,457 
 $70,796 
 $36,957 
 $5,110 
 $2,648,017 
 
Disaggregated revenue consists of following:
 
 
 
Twelve months ended December 31
 
 
 
2018
 
 
2017
 
Hosting services
 $8,896,966 
 $47,563 
Podcast hosting
  10,915,771 
  8,504,883 
Advertising
  1,323,776 
  1,662,788 
Domains
  547,770 
  - 
Other
  325,849 
  368,985 
 
 $22,010,132 
 $10,584,219 
 
 
51
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
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 December 31, 2018 and 2017, the total of all deferred tax assets was $2,548,929 and $3,458,667, respectively, and the total of the deferred tax assets related to goodwill was $2,341,897 and $1,848,717, respectively. 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. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established a valuation allowance of $2,548,929 and $3,458,667 for the years ended December 31, 2018 and 2017. The change in the valuation allowance for the years ended December 31, 2018 and 2017 was $909,738 and $110,866, respectively.
 
The components of income tax expense (benefit) from continuing operations for the Years ended December 31, 2018 and 2017 consist of the following:
 
 
 
For the Years Ended
 
 
 
December 31,
 
Current tax expense:
 
2018
 
 
2017
 
    Federal
 $- 
 $- 
    State
  - 
  - 
Current tax expense
  - 
  - 
Deferred tax expense (benefit):
    
    
Revaluation of deferred tax asset change in Federal Tax Rate
  - 
  1,400,760 
Depreciation and amortization
  (668,673)
  - 
    Goodwill
  493,180 
  511,108 
    Non-cash compensation
  366,496 
  - 
    Return to accrual
  (188,106)
  - 
    Valuation Allowance
  (909,738)
  (110,866)
    Net operating loss carryforward
  906,841 
  (1,801,002)
Subtotal deferred tax expense/(benefit)
  - 
  - 
Income tax expense/(benefit)
 $- 
 $- 
 
Deferred income tax expense/(benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income.
 
A reconciliation of income tax expense at the federal statutory rate to income tax expense at the company’s effective rate is as follows:
 
 
 
For the Years Ended
 
 
 
December 31,
 
 
 
2018
 
 
2017
 
Computed tax at the expected statutory rate
 $795,437 
 $(1,082,014)
State and local income taxes, net of federal
  299,885 
  173,117 
Other non-deductible expenses
  2,522 
  1,632 
Revaluation of deferred tax assets for change in Federal Tax Rate
  - 
  1,400,760 
Other items
  (188,106)
  (382,629)
Valuation Allowance
  (909,738)
  (110,866)
Income tax expense/(benefit)
 $- 
 $- 
 
 
52
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 7 – INCOME TAXES – continued
 
The temporary differences, tax credits and carryforwards gave rise to the following deferred tax asset at December 31, 2018 and 2017
 
 
 
December 31,
 
 
December 31,
 
 
 
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):
    
    
Goodwill - impaired
  2,066,632 
  2,066,632 
Goodwill – tax amortization
  (4,408,529)
  (3,915,349)
Depreciation and amortization
  347,471 
  - 
Non-cash compensation
  1,735,115 
  - 
Net operating loss carryforward
  2,808,240 
  5,307,384 
    Valuation allowance
  (2,548,929)
  (3,458,667)
Total long-term deferred tax assets (liabilities)
 $- 
 $- 
Net term deferred tax assets (liabilities)
 $- 
 $- 
 
At December 31, 2018, the company has loss carryforwards of approximately $9.7 million that expire in various years through 2038.
 
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 Leases - The Company leases office two spaces in Pittsburgh, Pennsylvania. The corporate headquarter lease is for $4,953 a month through April 2022. The office space for Pair is $34,014 a month through September 2021. Pair leases a colocation data center facility in Denver, Colorado for $6,390 through May 3, 2020.
 
The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of December 31, 2018 are as follows:
 
Year ending December 31:
 
Lease Payments
 
2019
  544,284 
2020
  493,164 
2021
  365,562 
2022
  19,812 
Thereafter
  - 
Total Minimum Lease Payment
 $1,422,822 
 
Lease expense charged to operations was $611,538 and $167,945 for the periods ended December 31, 2018 and 2017, respectively.
 
Capital Leases  In connection with the acquisition of Pair, the Company acquired a lease of equipment on a capital leases currently calling for monthly payments of approximately $6,261 through January of 2020. Included in property and equipment, at December 31, 2018, the Company had recorded equipment on capital lease at $332,324, with related accumulated depreciation of $116,313. 
 
 
53
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 8 – LEASES - continued
 
During the year ended December 31, 2018, depreciation expense for equipment on capital lease amounted to $33,232 and has been included in depreciation expense.
 
Future minimum capital lease payments are as follows for the years ended December 31:
 
Year ending December 31,
 
Lease
Payments
 
2019
  75,132 
2020
  835 
Total minimum lease payments
  75,967 
Less amount representing interest
  (2,150)
Present value of minimum lease payments
  73,817 
Less Current Portion
  (72,986)
 
 $831 
 
NOTE 9 –EARNINGS PER SHARE
 
Basic income (loss) per share is computed by dividing net income (loss) attributable to Liberated Syndication Inc. by the weighted-average number of shares of common stock outstanding during the period. As of December 31, 2018, there were no common stock equivalents outstanding.
 
The following data shows the amounts used in computing earnings per share and the weighted average number of shares of common stock outstanding for the periods presented for the periods ended:
 
 
 
December 31,
2017
 
 
December 31,
2017
 
Income (loss) from operations available to common stockholders (numerator)$
 $3,787,797 
  (3,182,395)
Income (loss) available to common stockholders (numerator)
  3,787,797 
  (3,182,395)
Weighted average number of common shares outstanding during the period used in earnings per share (denominator)
  29,740,207 
  24,390,595 
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES
 
Although the Company does not expect to be liable for any obligations not expressly assumed by the Company from the Spin-Off, it is possible that the Company could be required to assume responsibility for certain obligations retained by FAB should FAB fail to pay or perform its retained obligations. FAB may have obligations that at the present time are unknown or unforeseen. As the nature of such obligations are unknown, we are unable to provide an estimate of the potential obligation. However, should FAB incur such obligations, the Company may be financially obligated to pay any losses incurred.
 
The Company has a 401 (k) plan and profit-sharing plan for the benefit of the employees of the Company. Employees are eligible to participate in the plan the first of the month following their hire date and attaining the age of 21. Profit sharing contributions are made at the discretion of the Board of Directors and vest 100% after the second year of service. The Company made a $100,000 profit sharing contribution to the plan in 2018.
 
 
54
 
 
LIBERATED SYNDICATION INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
 
NOTE 11 - SEGMENT REPORTING
 
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.
 
The Company is engaged in providing hosting services. The Company's chief operating decision maker (“CODM”) has been identified as the CEO who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that it has two operating segments as of December 31, 2018 which are podcast hosting services (Libsyn) and internet hosting services (Pair).
 
The following table presents summary information by segment for the twelve months ended December 31, 2018 and 2017, respectively:
 
 
 
    2018    
 
 
    2017    
 
(in thousands)
 
Libsyn
 
 
Pair
 
 
Total
 
 
Libsyn
 
 
Pair
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 $12,630 
 $9,380 
 $22,010 
 $10,536 
 $48 
 $10,584 
Cost of revenue
  2,516 
  816 
  3,332 
  2,379 
  - 
  2,379 
 
    
    
    
    
    
    
Total assets
 $20,875 
 $17,732 
 $38,607 
 $16,965 
 $18,104 
 $35,069 
Depreciation and amortization
 $46 
 $2,968 
 $3,014 
 $22 
 $- 
 $22 
 
NOTE 12 - SUBSEQUENT EVENTS
 
Management has evaluated subsequent events through the date of the filing of this report. No events were identified that would require adjustment to or disclosure in the financial statements.
 
 
55
 
 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A. Controls and Procedures
 
Disclosure Controls and Procedures—We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this Annual Report on Form 10-K, is recorded, processed, summarized, and reported within the time periods specified by SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure.
 
Our management evaluated, with the participation of our CEO and CFO, the effectiveness of our disclosure controls and procedures as of December 31, 2018, pursuant to paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. This evaluation included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Annual Report. Our management, including the CEO and CFO, do not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurance of achieving their objectives. Also, the projection of any evaluation of the disclosure controls and procedures to future periods is subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Based on their review and evaluation, and subject to the inherent limitations described above, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2018 at the above-described reasonable assurance level.
 
Internal Control over Financial Reporting—Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
 
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even internal controls determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error, and the risk of fraud. The projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies may deteriorate. Because of these limitations, there can be no assurance that any system of internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
 
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that exempt from this requirement issuers that are neither accelerated filers nor large accelerated filers.
 
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting
 
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013 framework). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2018, was effective.
 
Item 9B. Other Information
 
None; not applicable.
 
 
56
 
 
PART III
 
Item 10. Directors, Executive Officers, and Corporate Governance.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
The following table sets forth:
 
the names of our current directors and executive officers,
their ages as of March 12, 2019, which is the date for filing of this 10-K; and
the capacities in which they currently serve The Company:
 
Name
  
Age
  
Position(s)
  
Served in Position Since
Christopher J. Spencer
 
50
 
Chief Executive Officer and Chairman of the Board
 
2015
John Busshaus
  
55
  
Chief Financial Officer
  
2015
Denis Yevstifeyev
 
38
 
Director
 
2015
Douglas Polinsky
 
59
 
Director
 
2015
J. Gregory Smith
 
49
 
Director
 
2015
 
 
 
 
 
 
 
 
Christopher Spencer has served as our Chief Executive Officer, President and as a director of the Company since its inception on September 29, 2015. Mr. Spencer has served as a Director of Future Healthcare of America since June 22, 2012. Mr. Spencer has served as Chief Executive Officer, President, and a director of FAB Universal Corp. since February 7, 2001. From 1994 until 1996, Mr. Spencer founded and worked for ChinaWire, Inc., a high-technology company engaged in financial remittance between international locations and China. Mr. Spencer worked for Lotto USA, Inc. from 1992-1994, where he was founder and Chief Executive Officer for the Pennsylvania computer networking company. From 1990 until 1992, Mr. Spencer worked for John Valiant, Inc., and was responsible for business concept development and obtaining financing.
 
John Busshaus has served Chief Financial Officer of the Company since its inception on September 29, 2015. Mr. Busshaus has served as the Chief Financial Officer of FAB Universal Corp. since January 29, 2007. From 2004 to 2006, Mr. Busshaus was an independent business consultant. Mr. Busshaus’ efforts were assisting organizations with the implementation of Sarbanes Oxley, filing of SEC reports, and taking a company through an IPO. Mr. Busshaus worked for Talanga International from 2001 to 2004, where he was the Chief Financial Officer for the company. From 1999 to 2000, Mr. Busshaus worked for Mellon Bank as Controller and Vice President and was responsible for strategic planning and managing the annual and monthly budgeting within Global Security Services. From 1994 to 1998, Mr. Busshaus worked for PepsiCo as Senior Business Planner, and was responsible for annual and quarterly budgets planning, as well as weekly, monthly, and quarterly reporting of results. As a member of management, Mr. Busshaus' efforts contributed to the revenue growth and market share increases in a market that was categorized as saturated.
 
Douglas Polinsky has served as a Director of the Company since its inception on September 29, 2015. Mr. Polinsky has served as a Director of FAB Universal Corp. since October 2007. Mr. Polinsky serves as the President of Great North Capital Corp., a Minnesota-based financial services company he founded in 1995. Great North advises corporate clients on capital formation and other transaction-related financial matters. Mr. Polinsky earned a Bachelor of Science degree in Hotel Administration at the University of Nevada at Las Vegas.
 
Greg Smith has as a Director of the Company since its inception on September 29, 2015. Mr. Smith has served as a Director of FAB Universal Corp. since October 2007. Mr. Smith is an award-winning producer and entrepreneur with over 10 years of experience in Non-Fiction Television.  In 2000, Mr. Smith established The Solution Film Group, LLC and acts as the Company’s President.  Mr. Smith provides professional production and editorial support for various forms of non-fiction television entertainment, including the direction of media projects from development through production and post-production.  His clients include Discovery Channel, Science Channel, Discovery HD Theater, Animal Planet, The Military Channel, PBS, and Discovery Networks International.  Mr. Smith most recently won an Emmy in 2006 for the Discovery Channel’s animated special Before the Dinosaurs.  His other awards for excellence in production and editing include Emmys for the Discovery Channel’s Walking with Prehistoric Beasts and Allosaurus:  A Walking with Dinosaurs Special.  From 1997 to 2000, Mr. Smith worked for Discovery Communications, Inc. in the capacity of Supervising Producer from January 1998 to November 2000, and Producer/Editor from October 1997 to January 1998. From 1995 to 1996, Mr. Smith worked for Discovery Channel Pictures serving as Assistant Editor from March 1996 to October 1997, and Production Assistant from September 1995 to March 1996. From 1994 to 1995, Mr. Smith worked for Crawford Communications in Atlanta, Georgia as a Manager of Satellite Services for The Learning Channel.
 
 
57
 
 
Denis Yevstifeyev has served as a Director of the Company since its inception on September 29, 2015. Mr. Yevstifeyev has served as a Director of FAB Universal Corp since October 2007. From December 2017 to present, Mr. Yevstifeyev served as Vice President of Financial Planning & Analysis and Procurement for Dream Center Education Holdings. From 2009 to 2012, and from 2015 to 2017, Mr. Yevstifeyev served as the Director of Financial Planning & Analysis for Education Management Corporation – Online Higher Education. From 2012 to 2015, Mr. Yevstifeyev owned and operated his commercial printing company. From 2007 to 2008, Mr. Yevstifeyev served as Sr. Financial Reporting Analyst for American Eagle Outfitters, Inc., in Pittsburgh.  His duties included: preparing and analyzing various internal and external financial reports; researching new accounting pronouncements and evaluating any impact on the financial statements. He also reviewed accounting workpapers and prepared the company’s SEC filings for forms 8-K, 10-Q and 10-K. From 2005 to 2007, Mr. Yevstifeyev worked for Schneider Downs, Inc., where he worked on Sarbanes-Oxley compliance engagements. In 2005, Mr. Yevstifeyev graduated with a Bachelor of Science degree in Business from Washington and Jefferson College.  He also graduated with honors from the Moscow Bank College of the Central Bank of Russia in Moscow with a degree in Finance in 2000. From 2002 to 2003, Mr. Yevstifeyev served as the Settlement Department Manager for SDM BANK in Moscow, where he dealt with domestic and international corresponding banks, among other responsibilities. 
 
There are no non-officer employees who are expected to make a significant contribution to the business.
 
Family Relationships.
 
There are no family relationships between any of our directors or executive officers.
 
Involvement in Certain Legal Proceedings.
 
During the past ten years, none of our present or former directors, executive officers or persons nominated to become directors or executive officers:
 
(1) A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
 
(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
 
58
 
 
(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
 
(i) 
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
 
(ii) Engaging in any type of business practice; or
 
(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
 
(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
 
(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
 
(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
 
(7) Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
 
(i) Any Federal or State securities or commodities law or regulation; or
 
(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
 
(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
 
(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORT COMPLIANCE
 
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us with respect to fiscal 2018 and on representations that no other reports were required, we believe that during the 2018 fiscal year all applicable Section 16(a) filing requirements were met.
  
 
59
 
 
CORPORATE GOVERNANCE
 
Code of Ethics
 
We uphold a set of basic values to guide our actions and are committed to maintaining the highest standards of business conduct and corporate governance. We have adopted a Code of Business Conduct and Ethics for directors, officers (including our principal executive officer and principal financial officer) and employees, which, in conjunction with our Certificate of Incorporation, Bylaws and Board of Directors committee charters, form the framework for governance of the Company. The Code of Ethics and Business Conduct, Board of Directors committee charters, Bylaws and Article of Incorporation are available at our corporate offices. Stockholders may request free printed copies of these documents from:
 
Liberated Syndication Inc
Attn: CFO
5001 Baum Blvd., Suite 770
Pittsburgh, PA 15213
 
Board of Directors Independence
 
The Board of Directors has determined that each of J. Gregory Smith, Denis Yevstifeyev and Douglas Polinsky has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) and satisfies the independence requirements required by the SEC. The non-management independent directors meet in executive session, without management, at least annually.
 
Committees of the Board of Directors
 
The Board of Directors has adopted written charters for two standing committees: The Nominating Committee and the Audit Committee. The Board has determined that all members of the Nominating and Audit Committees are independent and satisfy the relevant SEC independence requirements for members of such committees.
 
Nominating Committee.    The Nominating Committee currently consists of Mr. Polinsky as chair, Mr. Yevstifeyev, and Mr. Smith. This committee provides assistance to the Board in identifies individuals qualified to become members of the Board of Directors consistent with Board criteria. The committee also oversees the evaluation of the Board of Directors and management.  There have not been any material changes to the procedures by which stockholders recommend nominees to the Board of Directors.
 
Audit Committee.    The Audit Committee currently consists of Mr. Yevstifeyev, as chair, Mr. Polinsky and Mr. Smith. Mr. Yevstifeyev, the Board of Directors has determined, is an “audit committee financial expert” as defined under SEC rules. This committee oversees the integrity of our financial statements, disclosure controls and procedures, the systems of internal accounting and financial controls, compliance with legal and regulatory requirements, the qualifications and independence of the independent auditors and the performance of our internal audit function and independent auditors, and the quarterly reviews and annual independent audit of our financial statements. Sadler, Gibb & Associates LLC, our independent auditors, reports directly to the Audit Committee.
 
We will provide a free printed copy of any of the charters of any Board committee to any stockholder on request.
 
Compensation Committee.    The Compensation Committee currently consists of Mr. Smith as chair, Mr. Yevstifeyev, and Mr. Polinsky. This committee provides assistance to the Board of Directors in overseeing our compensation policies and practices. It reviews and approves the compensation levels and policies for the Board of Directors; reviews and approves corporate goals and objectives with respect to CEO compensation and, based upon these evaluations, determines and approves the CEO’s compensation; makes recommendations to the Board of Directors with respect to non-CEO executive officer compensation. The Compensation Committee also has the responsibility to provide the report to stockholders on executive officer compensation, which appears below.
 
 
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