Filing identity and period
Important: The supplied filing is Heatwurx, Inc.’s Form 10-Q for the quarter ended March 31, 2017—not a filing for Processa Pharmaceuticals, Inc. The summary below reflects the filing as provided. Financial statement amounts are in U.S. dollars.
Business context
Heatwurx described itself as an asphalt repair equipment and technology company. It had sharply reduced operations, retaining only minimal activity to support one licensee, warehouse equipment, and seek a merger candidate. Its Dr. Pave businesses were discontinued in 2015.
Financial results and liquidity
- Revenue: $0 in Q1 2017, versus $5,000 in Q1 2016. Management did not anticipate equipment-sale revenue in 2017.
- Operating expenses and loss: Expenses were $13,682, down from $80,515. Operating loss was $13,682, compared with $75,515.
- Net loss: $75,627, versus $133,625, including a $2,004 discontinued-operations loss in 2016. Net loss applicable to common stockholders was $86,215 versus $144,330; basic and diluted loss per share was $0.01 in both periods.
- Cash flow: Continuing-operations operating cash use was $1,598, compared with $43,900 in Q1 2016. There were no investing or financing cash flows in Q1 2017. Cash declined from $3,237 at year-end 2016 to $1,639 at March 31, 2017.
- Balance sheet: Total assets were $1,639; current liabilities were $2,439,010; and stockholders’ deficit was $2,437,371. The filing reports no revenue under contract or immediate sales prospects.
- Debt and obligations: Notes and revolving credit principal totaled $1,612,341, with $503,120 accrued interest shown in the notes table. The filing separately cites $2,115,461 of debt and accrued interest and $323,349 of accounts payable and accrued expenses. Most listed obligations were current.
Changes versus prior year and management commentary
The lower net loss and operating cash use primarily reflected substantial cuts to employees and overhead, rather than revenue growth. SG&A fell from approximately $81,000 to $14,000. Interest expense rose to $61,945 from $56,106, while revenue fell to zero.
Management stated it could not obtain adequate financing or generate sufficient revenue to support its cost structure. The company was in default on interest payments under secured debt, believed it could not meet mandatory principal payments, and warned lenders could call the notes and foreclose on assets, including intellectual property. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern; continued operations depended on finding a merger or acquisition candidate, otherwise it could cease operations.
Outlook, subsequent events, and other notable items
- No operating guidance was provided. Management said it did not expect equipment-sale revenue during 2017.
- After quarter-end, the company entered into additional secured notes of $75,000 on June 9, $15,000 on July 26, and $105,000 on August 7, 2017.
- A July 17 press release announced a non-binding letter of intent for a reverse merger with Promet Therapeutics, LLC; completion was not assured.
- Management reported disclosure controls were ineffective and identified a material weakness: insufficient accounting personnel due to budget constraints. It said the weakness had not been remediated.
- The cover page states the company had not filed all required reports during the preceding 12 months. The filing also says reporting obligations had been automatically suspended because it had fewer than 300 record holders, and it could choose to stop filing voluntarily.
Key facts for investors to verify
- Confirm the issuer identity: this document names Heatwurx, Inc., not Processa Pharmaceuticals, Inc.
- Verify the status, balances, maturity terms, defaults, and any lender actions relating to secured notes, revolving credit, and accrued interest.
- Check current cash, vendor obligations, and whether the company obtained financing sufficient to continue operations.
- Confirm whether the proposed Promet reverse merger progressed beyond the non-binding letter of intent and whether it closed.
- Review subsequent filings for changes in going-concern status, operations, reporting obligations, and remediation of the material weakness.