Filing summary
Issuer and period: The filing identifies the registrant as Heatwurx, Inc., an asphalt-repair equipment and technology company, and covers the quarter ended March 31, 2016. This does not match the requested company, Processa Pharmaceuticals, Inc. The report was signed August 7, 2017.
Financial results and position
- Revenue: $5,000, down from $37,760 in Q1 2015. The company reported no cost of goods sold and $5,000 gross profit; this small reported gross profit should be considered in light of the very limited sales.
- Loss: Operating loss was $75,515, compared with $458,382 a year earlier. Interest expense was $56,106. Net loss was $133,625, versus $644,606; net loss applicable to common stockholders was $144,330, or $0.01 per share, versus $655,195, or $0.06 per share.
- Cash flow: Continuing-operations operating cash use was $43,900 and discontinued-operations operating cash use was $6,469. Investing activities provided $27,000 from asset sales, and financing provided $15,000 in secured-note proceeds. Cash at quarter-end was $2,439 from continuing operations and $3,632 from discontinued operations, approximately $6,000 combined.
- Liquidity and debt: Total assets were $47,340 and total liabilities were $2,165,415; stockholders’ deficit was $2,118,075. Continuing-operations senior secured and unsecured note principal totaled $1,382,361, with $212,506 interest payable. The filing also reports $229,980 of discontinued-operations revolving-line debt, in default. The secured notes bear 12% interest, with overdue interest subject to an 18% rate, and are secured by company assets, including intellectual property.
- Margins and other measures: The filing does not provide a clear conventional margin discussion. It reports no research and development expense in Q1 2016, compared with $11,738 in Q1 2015. SG&A declined to $80,515 from $459,438.
Changes and management outlook
- Management attributed lower SG&A and operating cash use to sharply reduced operations, headcount, and overhead. The company discontinued its Dr. Pave businesses and had one licensee; it sold equipment and inventory to that licensee during the quarter.
- Management said it expected no further equipment-sale revenue in 2016, had no revenue under contract or immediate sales prospects, and could not obtain financing it considered adequate. Operations had been reduced to supporting the licensee and seeking a merger candidate.
- The company stated that substantial doubt existed about its ability to continue as a going concern. It said it could not meet debt payments, was in default, and could face lender calls or foreclosure. If it could not merge with or be acquired by another company, it said it would have to cease operations.
- Subsequent events disclosed in the filing include $75,000 of secured notes issued in June 2017 and a July 2017 non-binding letter of intent for a reverse merger with Promet Therapeutics, LLC. These events occurred after the quarter being reported and are not Q1 2016 results.
- Management reported disclosure controls and procedures were ineffective, citing a material weakness related to insufficient accounting personnel and budget constraints. The filing also indicates the company had not filed all required reports during the preceding 12 months.
Key facts to verify
- Confirm the issuer: this document is for Heatwurx, Inc., not Processa Pharmaceuticals, Inc.
- Verify the status, balances, maturity terms, accrued interest, and default remedies for secured notes, unsecured notes, and the discontinued-operations credit line.
- Assess the company’s actual cash runway, obligations, and ability to continue operations, given its going-concern warning and very low cash balance.
- Check the status and outcome of the Promet reverse-merger proposal and the subsequent 2017 financing; neither establishes a completed transaction in this Q1 2016 report.
- Reconcile the filing’s liquidity figures: the cash-flow statement reports $43,900 of continuing-operations cash use, while the going-concern note gives an approximate operating-cash figure that is not fully consistent with that statement.