Filing identity and period
The supplied filing is Heatwurx, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016—not a filing by Processa Pharmaceuticals, Inc. It describes an asphalt-repair equipment and technology business. The report was signed August 30, 2017.
Financial performance and position
- Revenue: No revenue in Q2 2016 or Q2 2015. First-half 2016 revenue was $5,000, versus $37,760 in first-half 2015; 2016 sales were to the company’s licensee. Gross profit for first-half 2016 was $5,000.
- Profit and expenses: Q2 2016 net loss was $43,200, compared with $2.05 million in Q2 2015. First-half net loss was $176,825, versus $2.70 million in 2015. First-half 2016 loss from continuing operations was $178,081. SG&A fell to $83,799 from $821,472, reflecting sharply reduced operations. The 2015 comparison included a $1.52 million intangible-asset impairment.
- Cash flow and liquidity: Continuing-operations operating cash use was $44,176 in first-half 2016; discontinued operations used another $8,766. Cash from investing activities was $42,000, chiefly proceeds from asset sales, and financing provided $15,000. At June 30, continuing-operations cash was $14,914; including discontinued-operations cash, total cash was $18,498. Total current assets were $43,498 against current liabilities of $2.21 million.
- Debt and capital: The balance sheet reports $962,361 of related-party senior secured notes, $420,000 of unsecured notes, and $229,980 across revolving credit lines. Notes and lines were in default, and the secured notes were collateralized by all company assets, including intellectual property. Total stockholders’ deficit was $2.17 million. Common shares outstanding were 11,017,388 at June 30, 2016.
Changes versus the prior comparable period
Losses and cash use declined substantially as the company reduced staffing, overhead, research and development, and other activity; the comparison is also affected by the 2015 impairment charge. Revenue fell, and the company reported no Q2 sales in either year. The remaining held-for-sale equipment and inventory were sold to the licensee in first-half 2016. Dr. Pave and Dr. Pave Worldwide remained classified as discontinued operations.
Outlook, risks, and unusual matters
- Management stated it had no revenue under contract or immediate sales prospects, did not expect further equipment-sales revenue in 2016, and could not obtain adequate financing. Operations had been scaled back to support the licensee and seek a merger or acquisition; without a transaction, the company said it would have to cease operations.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management said it did not expect to meet mandatory debt payments and was seeking extensions or conversion arrangements, with no assurance lenders would agree. Lenders could call the notes or foreclose on assets.
- Disclosure controls and procedures were reported as ineffective. Management identified a material weakness related to insufficient accounting personnel and said it had not been remediated.
- Subsequent events disclosed in the report include $75,000 of secured notes issued June 9, 2017 and a July 17, 2017 non-binding letter of intent for a reverse merger with Promet Therapeutics, LLC. These occurred after the reporting period and are not reported as completed transactions.
Investor verification priorities
- Verify the issuer: the filing identifies Heatwurx, Inc., not Processa Pharmaceuticals, Inc.
- Confirm current liquidity, ability to continue as a going concern, and the status of any merger or acquisition proposal.
- Reconcile debt and accrued-interest balances, defaults, payment terms, and any lender extensions or enforcement actions.
- Check whether the reported material weakness in financial reporting controls was subsequently remediated.
- Confirm the status and outcome of the 2017 Promet letter of intent and the subsequent secured-note issuance.