| Item 4.02. | Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. |
As previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 of Logan Ridge Finance Corporation (the “Company”), in March 2024, the Company determined that information received from a portfolio company, held in prior fiscal years and sold in 2022, was inaccurate, and as a result, the Company did not satisfy the income source requirement under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and thus, did not qualify as a regulated investment company (“RIC”) under the Code for the fiscal years ended December 31, 2022, 2021 and 2020. The Company determined that the fact that it did not qualify as a RIC for such years had no quantitative impact to the consolidated statements of assets and liabilities, the consolidated statements of operations, the consolidated statements of changes in net assets, or the consolidated statements of cash flows as of and for the years ended December 31, 2022, 2021 and 2020, because the Company determined that no income tax or capital gains taxes would be due or payable for those periods had the Company claimed status and filed returns as a C-Corporation, given the operations of the Company for such periods. The Company did not have a net unrealized gain on its portfolio as of the first day of the fiscal year the Company requalified as a RIC that would be subject to tax if recognized within the subsequent five years. Accordingly, the Company elected to include disclosure in its financial statements for these periods in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 to reflect the Company’s tax status as a corporation under subchapter C of the Code during the years ended 2022, 2021 and 2020.
Subsequent to filing the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which disclosed this change in tax status as well as its impact on the prior year financial statements for the relevant years, and following discussions with the accounting staff in the Division of Investment Management of the Securities and Exchange Commission (“SEC”), management made a recommendation to the Company’s Board of Directors to restate and reissue the Company’s 2022 and 2021 audited financial statements, to incorporate the disclosures included in the Company’s 2023 audited financial statements regarding the Company not satisfying the requirements to qualify as a RIC under the Code in 2022, 2021 and 2020 and to include related revisions to the Company’s Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021.
On June 10, 2024, the Board of Directors of the Company, upon recommendation of the Audit Committee and based on discussion with management, determined that the Company’s audited financial statements as of and for the fiscal years ended December 31, 2022 and 2021 should no longer be relied upon due to the Company not qualifying as a RIC during these periods, and that such financial statements should be restated to include disclosure regarding the Company’s loss of RIC status during such periods, substantially similar to the disclosure previously included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
In connection with the foregoing, and upon the approval of the Board of Directors, the Company is concurrently filing amendments to its Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021. Because all material restatement information was included in our Annual Report for the year ended December 31, 2023, and will also be included in the amendments to the Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021 (collectively, the “Corrected Filings”), the Company does not intend to amend its Annual Report on Form 10-K for the year ended December 31, 2020 or any of its previously filed Quarterly Reports on Form 10-Q. Therefore, with respect to RIC status and the material weakness previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, investors and others should rely only on the financial information and other disclosures regarding the periods described above in the Corrected Filings and in future filings with the SEC, as applicable, and should not rely on any previously issued or filed reports, press releases, corporate presentations or similar communications relating to the affected periods.
With respect to the material weakness in the Company’s internal control over financial reporting identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, related to the Company not satisfying the requirements to maintain its special tax status as a RIC for the years ended December 31, 2020, December 31, 2021 and December 31, 2022, the Company has continued the process of, and is focused on, further enhancing effective internal control measures to improve its internal control over financial reporting and to remediate the identified material weakness in connection with the foregoing. Management continues to undertake certain corrective actions to remediate its control deficiencies, including incorporation of additional controls over the data used regarding the calculation of the gross income test for purposes of evaluating the Company’s qualification as a RIC. The Company believes its planned actions to enhance its processes and controls will address this material weakness, but these actions are subject to ongoing management evaluation, and we will need a period of execution to demonstrate remediation. The Company is committed to the continuous improvement of its internal control over financial reporting and will continue to diligently review its internal control over financial reporting.
