Hudson Labs Red Flags - Dirty Laundry
Welcome to our weekly reports featuring impactful and UNusual disclosures as extracted by Hudson Labs' algorithms.
Filings from the week of June 28 - July 2,2021.
AMMO INC (POWW)
10-K | Market cap: $1B
Ammo dismissed their auditors, Marcum LLP on April 8, 2021, after the end of their fiscal year on March 31, 2021, but before Marcum had completed their audit. They were replaced by Pannell Kerr Forster of Texas, P.C. [1]
New for fiscal 2021, Ammo has disclosed going concern issues, citing the need to raise additional funds to continue operations. [2]
Ammo has financed operations through equity issuances for the past two years, with the sale of common stock generating $138M and $4.5M of cash inflows for fiscal 2021 and fiscal 2020 respectively. [3]
- “As of the date of the dismissal, Marcum did not complete its audit of the Company’s consolidated financial statements for the fiscal year ended March 31, 2021.”... “Effective April 8, 2021, the Company engaged Pannell Kerr Forster of Texas, P.C. (“PKF”) as the Company’s new independent registered public accounting firm.”
- “As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. ”
- “We financed our operations primarily from the issuance of equity instruments. During the year ended March 31, 2021, net cash provided by financing activities was $139,276,235. This was the net effect of $138,612,619 generated from the sale of Common Stock, net of cash payments of $13,895,069 in conjunction with Common Stock offerings.”... “During the year ended March 31, 2020, net cash provided by financing activities was $4,524,848. This was the net effect of $2,465,540 generated from the sale of Common Stock, net of cash payments of $285,981 in conjunction with the Unit offerings. We issued $2,500,000 in Convertible Promissory Notes, net of $329,000 of issuance costs.”
VISTAGEN THERAPEUTICS INC (VTGN)
10-K | Market cap: $600M
The company’s President and Chief Scientific Officer, Dr. Snodgrass, resigned from the Board of Directors as of June 24, 2021. He remains an employee. [1]
Vistagen voluntarily cancelled their stock purchase agreement with Lincoln Park Capital Fund. The original agreement allowed for the purchase of up to $10.25M of common stock. $2.91M had previously been issued under the arrangement. [2]
Management has identified material weaknesses in internal controls in areas including lack of segregation of duties, lack of review controls, and deficient IT controls to prevent backdated changes. [3]
- “On June 24, 2021, Dr. H. Ralph Snodgrass notified the Company’s Board of Directors of his intention to step down from his position as a member of the Company’s Board of Directors, effective June 30, 2021. Dr. Snodgrass will continue to serve as the Company’s President and Chief Scientific Officer.”
- “To satisfy our obligations under the common stock purchase and registration rights agreements that we entered into with Lincoln Park Capital Fund (Lincoln Park) in March 2020, we filed a Registration Statement on Form S-1 (the LPC Registration Statement) with the SEC on March 31, 2020 (Registration No. 333-237514), which the SEC declared effective on April 14, 2020 (the Commencement Date). Subsequent to the Commencement Date and through July 2020, we sold 6,301,995 registered shares of our common stock to Lincoln Park and received aggregate cash proceeds of $2,891,200. We have not sold any additional shares to Lincoln Park under these agreements since July 2020.”... ““On June 25, 2021, in accordance with its provisions, the Company voluntarily terminated the Purchase Agreement dated March 24, 2020 between the Company and LPC Capital Fund, LLC prior to its March 2022 contractual expiration and will sell no additional shares of its common stock under such agreement.”
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