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.
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
will be corrected in the Company's forthcoming Form 10-K/A for the period ended
December 31, 2018 which will be reviewed by the Company's independent registered
public accounting firm, and which the Company expects to file as soon as
practicable after the filing of this Current Report on Form 8-K.
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
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