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 August 30 - September 3, 2021
F45 TRAINING HOLDINGS INC (FXLV)
10-Q | Market cap: $3.6B
This Mark Wahlberg backed fitness franchise just filed their first 10-Q since going public.
Bad debt expense from terminated studios has increased by $1.8M for the three-months ended June 30 compared to the same period in the prior year, due to continuing impacts of COVID-19. [1]
Despite continued COVID terminations, the company is focusing on expansion, increasing SG&A expenses by $10.9M and 143% in the quarter, $4.6M of which relates to expansion, professional fees and marketing costs. [1]
The company has material weaknesses in internal controls including failure to staff and design key processes, lack of segregation of duties, and lack of documentation for procedures related to risk assessment and fraud prevention. [2]
The lack of controls over the reporting processes are apparent: In their MD&A the company references forgiveness of Loans to Directors in Note 2 of the financial statements, however this note does not mention any such loan forgiveness. [3]
“The $10.9 million, or 143%, increase in selling, general, and administrative expenses during the three months ended June 30, 2021 as compared to the same period in 2020 was primarily attributable to a $3.4 million increase in marketing, $2.0 million increase in salaries, $1.2 million increase in professional service fees from the continued expansion of our business, our ongoing brand awareness campaigns, and overhead incidental to day-to-day operations across our expanding global footprint, and $0.9 million increase in depreciation and amortization. In addition, an increase of $1.8 million to bad debt from terminated studios affected by the ongoing effects of the COVID-19 pandemic”.
“Material Weakness in Internal Control Over Financial Reporting The material weaknesses related to a failure to properly staff and design our financial closing and reporting team and processes, a lack of segregation of duties in certain key financial reporting processes and a lack of formal documentation of policies and internal controls being followed by us, including, but not limited to, controls involving risk assessment procedures, tools to prevent a cybersecurity breach and controls designed to prevent or detect fraud.“
“As described in “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements included elsewhere in this filing, in connection with the MWIG Transaction that closed on March 15, 2019, we forgave loans that were previously extended to certain of our existing stockholders who are executive officers and directors.”
BIOVIE INC (BIVI)
10-K | Market cap: $200M
The company acquired biopharmaceutical assets under development from affiliates NeurMedix and Acuita for $131M (for 8,261,308 shares of common stock $2.3M cash paid). [1]
Acuitas is controlled by Biovie’s Chairman and CEO, Terren Peizer. [2]
Biovie has no formal policies governing insider transactions. [3]
The company continues to have substantial doubt over their ability to continue as a going concern, despite a $15.6M inflow of cash from the issuance of common stock. [4]
“During the fiscal year ended June 30, 2021, the Company acquired biopharmaceutical assets under development from Neurmedix and Acuitas, which are related party affiliates. The assets acquired include, among others, those related to certain drug candidates being developed by NeurMedix, including NE3107, a small molecule orally administered inhibitor of insulin resistance and the pathological inflammatory cascade, with a novel mechanism of action that has potential applications for treatment against Alzheimers Disease and Parkinsons Disease. The total cost of the asset purchase was approximately $130.6 million and comprised of the issuance of 8,361,308 shares of the Companys common stock, valued at $14.87 per share, the closing price on the date of the close and a cash payment of approximately $2.3 million to Acuitas and other expenses totaling approximately $4.0 million for due diligence, legal fees, transaction fees and the fairness opinion. “
“Acuitas is controlled by our Chairman and Chief Executive Officer, Terren Peizer and the Purchasers included Jonathan Adams, James Lang, Cuong Do and Michael Sherman, who are members of our Board.”
“Although we have established an audit committee comprised solely of independent directors to oversee transactions between us and our insiders, we do not have any formal policies in place to deal with such conflicting fiduciary duties should such a conflict arise.”
“Since inception, we have not established any revenues or operations that would provide financial stability in the long term, and there can be no assurance that we will realize our plans on our projected timetable in order to reach sustainable or profitable operations.”... “We have not emerged from the development stage, and may be unable to raise further equity. These factors raise substantial doubt about our ability to continue as a going concern.”
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