Business context and reporting period
Processa Pharmaceuticals, Inc. (formerly Heatwurx, Inc.) reports for the quarter and nine months ended September 30, 2017. The reported-period business was an asphalt repair equipment and technology company; its former Dr. Pave businesses were discontinued. On October 4, 2017, after quarter-end, the company closed an asset purchase of Promet Therapeutics’ assets and operations, which became its sole operating business. The company changed its name on October 23, 2017.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $5,000 |
| Operating loss | $(163,771) | $(4,969) | $(187,806) | $(89,465) |
| Net loss | $(204,413) | $(68,333) | $(322,891) | $(245,158) |
| Operating cash flow, continuing operations | Not presented quarterly | Not presented quarterly | $(249,975) | $(27,398) |
Gross profit was zero in Q3 and for the nine-month 2017 period; margins are not meaningful with no revenue. Q3 SG&A rose to $163,771 from $4,395, principally for consulting, legal and investor-relations costs associated with the Promet transaction. Nine-month SG&A was $187,640 versus $88,194. Nine-month interest expense was $169,513, partly offset by $36,359 in debt-forgiveness gains.
At September 30, cash was $80,262, total assets $80,262, current liabilities $115,314, and stockholders’ deficit $35,052. No notes payable remained after the September 29 conversion of $1,939,341 principal and $613,114 accrued interest into common shares. Nine-month financing provided $327,000 cash; cash increased by $77,025 from year-end 2016. The filing reports no cash interest paid during the nine-month 2017 period.
Changes, outlook and material items
- Loss widened versus the comparable periods, while revenue fell to zero. Management attributed higher operating cash use partly to efforts to reduce liabilities and pay accounts payable.
- Management said the legacy Heatwurx operations could not generate sufficient revenue to support costs, had no revenue under contract or immediate sales prospects, and expected no equipment-sales revenue during 2017. Operations had been scaled back while the company sought merger candidates.
- The October 4 Promet asset purchase consideration was approximately 222.217 million shares, about 90% of fully diluted shares at closing. A post-quarter $1.25 million bridge financing from affiliated entities involved senior convertible notes bearing 8% annual interest, payable in kind, with conversion and other investor protections.
- At September 30, 24,690,790 common shares were outstanding; by November 20, 246,907,902 were reported outstanding, reflecting post-quarter transaction issuances. A one-for-seven reverse split was authorized after quarter-end but was awaiting regulatory approval and is not reflected in these statements.
- Management disclosed substantial going-concern uncertainty: recurring losses, limited revenue, $80,262 cash, and reliance on financing. The filing also reports ineffective disclosure controls due to a material weakness in accounting staffing; it was not remediated during the period.
- Forward-looking risks include financing availability and terms, securities-market volatility, natural disasters, litigation, and risks cited in the 2016 Form 10-K. No operating guidance for the post-acquisition business is provided in this filing.
Investor verification points
- Review subsequent filings for the Promet asset purchase accounting, the acquired business’s operations and results, and the impact of the share issuance on ownership and dilution.
- Verify the status and terms of the $1.25 million senior notes, including conversion or repayment, accrued interest, and any subsequent financing.
- Confirm reverse-split implementation and the resulting share count, alongside the reported September and November share figures.
- Assess the company’s cash runway, funding needs, going-concern disclosures, and progress addressing the material weakness in financial reporting controls.