Item 4.02 Non-Reliance on
Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review.
On
April 28, 2020, the Audit Committee of the Board of Directors of
Liberated Syndication Inc, a Nevada corporation (the
“Company”) determined that (a) the Consolidated Balance
Sheet as of December 31, 2018, (b) the Consolidated Statement of
Operations for the year ended December 31, 2018, (c) the Statement
of Stockholders’ Equity for the year ended December 31, 2018,
and (d) the Consolidated Statement of Cash Flows for the year ended
December 31, 2018, all as presented in the Company’s Annual
Report on Form 10-K for the Period Ended December 31, 2018, as
previously filed with the U.S. Securities and Exchange Commission,
on March 14, 2019, should not be relied upon. Subsequent to such
determination, the Company reviewed the related interim financial
statements and interim financial statements for the first three
quarters of 2019 and 2018, and as a result of such review, on May
20, 2020, the Audit Committee determined that such interim
financial statement should likewise no longer be relied
upon.
Specifically,
the amounts reported in the Consolidated Balance Sheet as of
December 31, 2018 for total assets, current liabilities, and
consequently total liabilities and total stockholders’
equity, were determined to be materially different. Additionally,
the Income Tax benefit for 2018 in the Consolidated Statement of
Operations for December 31, 2018 was changed. As a result, the net
income and the basic and diluted income per common share were
determined to be materially different. The Statement of
Stockholders’ Equity for the years ended December 31, 2018
with its Net Income and Accumulated Deficit are consequently
affected. The Consolidated Statement of Cash Flows for the year
ended December 31, 2018 was also changed as a result of the
Deferred Tax Asset and Income Tax Payable for 2018.
During
an ongoing IRS examination it was discovered that the Company owed
Federal tax for 2018.
The IRS
examination uncovered an error in calculating the Net Operating
Loss Carryforward (NOL) resulting from the spin-off of Libsyn in
2016. At December 31, 2017, the Company had recorded an NOL of
approximately $14 million. The NOL was part of deferred tax asset
which was valued at $0 on the balance sheet due to it having a full
valuation allowance. Consequently, the Company was not recognizing
tax expenses or the associated tax payable during 2018. However, as
the IRS examination continued, it has become clear that the $14
million NOL was overestimated by approximately $12.5 million, and
by December 31, 2018, that the NOL has been completely utilized.
The result is that the Company ought to have begun recording tax
expenses in 2018.
This
Federal Tax Balance will be paid with an amended return in
2020.
The
Company has temporary tax differences which result in a deferred
tax asset (DTA). Under the provisions of ASC Topic 740, a DTA is to
be recognized for the potential future tax benefit from a loss
carryforward. Full realization of the benefit, however, depends on
the Company having income in future years.
Because
the NOL has been completely utilized and the Company is now
consistently recording profits, a DTA with the associated payable
should have been recorded in 2018. DTAs represent future income tax
benefits, but the tax benefits will be realized only if there is
sufficient taxable income from which the deductible amount can be
deducted.
The
corrections to the aforementioned balance sheet and statements of
operations as of and for the year ended December 31, 2018 have been
corrected in the Company’s Form 10-K/A for the period ended
December 31, 2018 which was reviewed by the Company’s
independent registered public accounting firm and filed with the
SEC on May 5, 2020. The Company will correct the interim financial
statements for 2018 and 2019 in forthcoming amendments to the
relevant Quarterly Reports on Form 10-Q.
As a
result of the forthcoming restatement, reported net income will be
increased by approximately $586,000, or $0.02 per basic and diluted
share for the year ended December 31, 2018. Total assets will be
increased by approximately $1.5 million at December 31, 2018.
Current and total liabilities will be increased by approximately
$868,000 at December 31, 2018. Accumulated deficit decreased by
approximately $586,000 at December 31, 2018