Filing identity and period
Important identity mismatch: The supplied filing is Heatwurx, Inc.’s Form 10-Q for the quarter ended June 30, 2017, not a Processa Pharmaceuticals, Inc. filing. The summary below describes Heatwurx.
Business context
Heatwurx develops asphalt repair equipment and technology. It had discontinued its Dr. Pave businesses and scaled operations back to a minimal level to support one licensee and seek a merger or acquisition. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2017 and 2016 | $0 in 2017; $5,000 in 2016 |
| Operating loss | $10,353 in 2017; $8,981 in 2016 | $24,035 in 2017; $84,496 in 2016 |
| Net loss | $42,851 in 2017; $43,200 in 2016 | $118,478 in 2017; $176,825 in 2016 |
| Cash used in continuing operations | $76,288 for the first six months of 2017; $44,176 in the comparable 2016 period |
Gross profit and margins were zero in 2017 because there was no revenue. Six-month 2017 SG&A was $23,869, down from $83,799; research and development was $166, down from $5,697. Interest expense was $125,355 for the first half of 2017, compared with $118,740 in 2016.
At June 30, cash was $1,949 and total current liabilities were $2,492,877. Total assets were $1,949, with a stockholders’ deficit of $2,490,928. Notes payable principal totaled $1,687,341; the notes table reports accrued interest of $566,530. The filing also cites $2,253,871 in debt and accrued interest from continuing operations.
Material changes and unusual items
- Six-month net loss improved year over year, primarily alongside sharply lower operating expenses; revenue remained negligible.
- The company received $75,000 under its senior secured debt offering during the first half. After quarter-end, it reported additional secured notes of $15,000, $105,000 and $132,000, issued July 26, August 7 and September 21, respectively.
- Quarterly net loss included a $30,912 gain on debt forgiveness; interest expense was $125,355 for the six-month period.
- A non-binding letter of intent for a reverse merger with Promet Therapeutics, LLC was announced July 17, 2017. The filing does not indicate that a merger was completed.
Outlook, risks and controls
Management said it did not anticipate equipment-sale revenue in 2017 and had no revenue under contract or immediate sales prospects. It stated that financing adequate to support commercialization was unavailable and that the company could not meet mandatory 2017 principal payments. The secured notes were in default for unpaid interest, and lenders could call the debt and foreclose on company assets, including intellectual property. Management concluded that these conditions raised substantial doubt about the company’s ability to continue as a going concern; absent a merger or acquisition, it might cease operations.
Disclosure controls were reported ineffective, and a material weakness related to insufficient accounting personnel remained unremediated. The filing also states that the company had fewer than 300 record holders and its reporting obligations were automatically suspended, while it continued filing voluntarily.
Investor facts to verify
- Confirm the intended issuer: the supplied filing identifies Heatwurx, Inc., not Processa Pharmaceuticals, Inc.
- Check the status and terms of the Promet reverse-merger proposal and any subsequent transaction developments.
- Verify current debt balances, default status, lender extensions or conversions, and whether any collateral enforcement occurred.
- Assess the company’s available liquidity and ability to fund ongoing obligations, given $1,949 of reported cash at quarter-end.
- Review remediation of the disclosed internal-control weakness and the implications of the company’s stated reporting status.