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☐ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the
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Indicate by check mark whether the registrant is an emerging growth
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If an emerging growth company, indicate by check mark if the
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Item 4.02 Non-Reliance on Previously Issued Financial Statements or
a Related Audit Report or Completed Interim Review.
On March 12, 2021, the Board of Directors (the
“Board”)
of Liberated Syndication Inc., a Nevada corporation (the
“Company”),
determined that the following financial statements should no longer
be relied upon:
●
The
Consolidated Balance Sheet as of December 31, 2019, the
Consolidated Statement of Operations for the year ended December31, 2019, the Statement of Stockholders’ Equity for the year
ended December 31, 2019, and the Consolidated Statement of Cash
Flows for the year ended December 31, 2019, all as presented in the
Company’s Annual Report on Form 10-K for the period ended
December 31, 2019, as previously filed with the Securities and
Exchange Commission on May 15, 2020.
●
The
related interim financial statements and interim financial
statements for the first three quarters of 2019 and
2020.
Denis Yevstifeyev, the Chairman of the Audit Committee of the Board
of Directors, has discussed with the Company’s independent
accountant the matters disclosed in this Item 4.02.
The Company will correct the financial statements for 2019
and
the quarterly reports for 2020 in forthcoming amendments to the
relevant Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q.
Item 5.02 Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
On March 15, 2021, the Board appointed Douglas Woodrum to the
Company’s Board of Directors, effective immediately. Mr.
Woodrum will receive compensation for his services on the Board of
Directors as described under the capital “Director
Compensation” of the Company’s proxy statement that was
filed on October 15, 2020, or as otherwise determined by the
Board.
The information under Item 7.01 (including Exhibit 99.1) is
furnished pursuant to Item 7.01 and shall not be deemed filed for
purposes of Section 18 of the Exchange Act of 1934, as amended (the
“Exchange
Act”), or incorporated by
reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set
forth by specific reference in such
filing.
Item 8.01 Other Events.
The
Company is subject to indirect taxes and state income taxes it has
not paid, collected from our customers, or reserved for on its
financial statements, which could materially hurt our business,
financial condition, or operating results. The Company has also
underreported the personal income, and failed to withhold
sufficient Federal withholding taxes for certain employees,
officers, and directors, which has resulted, and will result in the
future, withholding tax liability that has not been reserved for in
our financial statements.
In the
second quarter of 2020, the Company established an uncertain tax
reserve of approximately $1.2 million related to an ongoing IRS
examination. That examination was completed in the fourth quarter
of 2020. As a result, the Company filed amended federal income tax
returns for 2017, 2018, and 2019. Those amended returns included
both the results of the examination and the favorable impact
through increased compensation deductions of amended quarterly
payroll returns discussed below. The company’s previously
reported tax liabilities were $0 for 2017, $868,529 for 2018, and
$1,179,388 for 2019. Those amended federal income tax returns had
tax liabilities, excluding interest, of $84,478 for 2017, $791,990
for 2018, and $807,544 for 2019. Resulting in a net reduction of
liabilities of $363,905 As a result of filing amended returns the
Company will remove its uncertain tax position reserve in the
fourth quarter of 2020.
In June
2018, the United States Supreme Court issued South Dakota v. Wayfair, Inc.
(Wayfair) holding that a state may require a remote seller
with no physical presence in the state to collect and remit sales
tax on goods and services provided to purchasers in the state,
overturning certain existing court precedent. This precedent also
impacted state income tax apportionment rules.
The
Company has failed to apportion revenue and file 2019 and 2020
state and local sales and income tax returns in the manner required
by Wayfair. We have
evaluated our state tax filings with
respect to the Wayfair decision and are in the process of
normalizing our related tax practices. The Company has engaged a
state sales tax compliance firm and is conducting an effort to
accomplish apportionment and normalize its state filings for sales,
use, and, income taxes. The Company has completed a detailed
estimate of taxes owed and has begun the process of filing the
required tax returns. The Company estimates its state income tax
liability at $159,970 for 2020 and $120,358 for 2019. The Company
estimates its state sales tax liability at $130,008 for 2020 and
$119,102 for 2019. The Company has not yet completed estimates for
local or regional sales taxes. Pair Network’s and
Webmayhem’s transaction systems lack the capability to handle
invoicing of sales taxes and so those taxes will be self-assessed
and remitted until such capability is put in place. The company has
just begun evaluating the systems improvements needed to collect
sales taxes, but does not have a timeline for that system
improvement.
During
the third quarter of 2020, the Company determined that it had
incorrectly reported the personal income related to its restricted
stock vesting events in 2017, 2018, and 2019. The Company
underreported such personal income, failed to report the income
in a timely fashion and failed
to withhold Federal withholding taxes at an appropriate level. As a
result, the Company has amended its local, state and federal
quarterly payroll tax filings for the third quarter of 2017, the
second quarter of 2018, the fourth quarter of 2018, the second
quarter of 2019, and the fourth quarter of 2019 and issued amended
reports of income to the impacted employees, officers, and
directors. The total amount of underreported personal income across
the three years is $3,807,500 million. The Company estimates the
net tax liability related to this error at $1,418,055 of which
$493,358 was remitted in
conjunction with its quarterly payroll tax filing
amendments. The Company is in the process of estimating the
anticipated penalties and interest liability assessments related to
this error.
Effective
January 1, 2015, the European Union (EU) began applying Value Added Taxes (VAT) to
digital goods and services. Several additional countries where the
Company has customers, such as Australia, have followed with
indirect taxation of digital goods and services. These rules
require a remote seller with no physical presence in the country to
collect and remit VAT or General Sales Taxes (GST) on goods and
services provided to purchasers in that country. Effective January1, 2021 the EU has added additional regulations that require
payment processors to effectively cease handling transactions for
non-compliant firms.
The
Company has determined that its Webmayhem subsidiary (dba Libsyn
Podcasting) erroneously
has
failed to apportion revenue and file VAT and GST tax returns for
the years 2015-2020 in the manner required by the EU and at least 3
non-EU jurisdictions. The Company has determined that its Pair
subsidiary is VAT compliant in the EU, but needs to evaluate two
non-EU jurisdictions which have implemented VAT/GST on digital
goods. The Company has engaged an international indirect tax
compliance firm and is currently conducting an effort to accomplish
appropriate apportionment and normalize its filings for
international indirect taxes. The Company cannot estimate when this
normalization effort will be completed. It estimates tax
liabilities of $323,770 for 2020 and $267,972 for 2019. The Company
has not completed its estimates for 2015-2018 tax liability, nor
for penalty and interest liability for 2015 through 2020.
Webmayhem’s transaction systems are not enabled to handle
invoicing of VAT or GST taxes. Therefore, Webmayhem’s VAT and
GST taxes will be self-assessed and remitted until such capability
is put in place. The company has just begun evaluating the
Webmayhem systems improvements needed to collect VAT and GST, but
does not have a timeline for that system
improvement.
One or
more jurisdictions might assert that we have liability for periods
for which we have not collected VAT, GST, or other similar taxes,
and if such an assertion or assertions succeeded it could
materially hurt our business, financial condition, and operating
results. In addition, one or more jurisdictions may change their
laws or policies to apply their sales, use or other similar taxes
to our operations, and if such changes were made it could
materially hurt our business, financial condition, and operating
results.
The
Company has performed a materiality assessment concerning the tax errors as they relate to
2019 financial statements and determined those errors, in total
were material. The Company is unable to complete assessments for
prior years until it completes its estimates of taxes, penalties,
and interest liabilities for those years.
As a result of this materiality assessment and determination
concerning the tax accounting errors, the Company also is reviewing
and evaluating related internal controls and its recording and
reporting of other personal income and payroll related
information.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
