Filing identity and period
The supplied filing is Heatwurx, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. It does not identify Processa Pharmaceuticals, Inc.; confirm that this is the intended filing before relying on the figures. Heatwurx describes itself as a development-stage asphalt repair equipment and technology company.
Financial performance and condition
| Metric | Three months ended September 30, 2013 | Nine months ended September 30, 2013 |
|---|---|---|
| Revenue | $125,910 | $242,390 |
| Gross profit / margin | $45,460 / 36.1% | $88,290 / 36.4% |
| Operating loss | $674,430 | $2,168,757 |
| Net loss | $718,840 | $2,261,776 |
| Net loss attributable to common stockholders | $932,600 | $2,500,372 |
Nine-month operating cash use was $2,076,231; investing cash use was $111,180, primarily equipment purchases; financing provided $2,161,873. Cash declined by $25,538 from year-end 2012 to $1,001,937 at September 30. The company reported monthly spending of about $250,000.
At quarter-end, current assets were $1,313,429 and current liabilities $1,309,822, leaving working capital of approximately $3,600. Total liabilities were $1,466,020. Debt included a $1,000,000 current senior subordinated note and $196,537 in equipment loans. The $1,000,000 senior secured notes issued in May were repaid or converted into Series D preferred stock by September 15.
Changes versus comparable periods
For the first nine months, revenue rose about 51% from $160,694 in 2012, while net loss increased about 36% from $1,657,598. Gross profit increased from $60,545, but operating expenses rose to $2,257,047 from $1,565,761. SG&A increased by about $857,000, mainly from higher depreciation and amortization, promotion, employee, legal and accounting costs; R&D fell by about $166,000, primarily due to lower intellectual-property consulting fees.
Third-quarter revenue increased to $125,910 from $49,058, while net loss widened to $718,840 from $601,882. The quarter’s gross margin was approximately 36.1%, compared with 30.9% a year earlier.
Outlook, risks and notable items
Management stated that losses, accumulated deficit of $5,958,742 and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It said additional financing is needed and estimated a need for up to approximately $3 million over the next 12 months, including repayment of subordinated debt. The note required four $250,000 principal payments from October 2013 through April 2014; the October 15 payment was subsequently made, leaving $750,000 outstanding as of November 6.
In October, the company launched a follow-on Series D offering for up to $2,317,056 gross proceeds, plus an over-allotment of up to $3 million. Management expected proceeds, if raised, to fund operations through at least June 2014, or for at least 12 months if all over-allotment units were sold. No post-quarter Series D sales had occurred as of November 6. Funding availability and terms were uncertain; failure to raise capital could require reduced operations, a merger or acquisition, or cessation of operations.
Other notable items include $127,000 of equipment purchase commitments, related-party consulting fees of $142,200 paid to founder and former director Richard Giles in the first nine months, and Series D preferred shares carrying a $2.384 million liquidation preference at quarter-end. The company cited industry competition, financing access, regulatory and environmental compliance, market conditions, litigation and other risks. Management reported disclosure controls as effective and no material quarter-end changes to internal control over financial reporting.
Important facts to verify
- Confirm the filing entity: the document is for Heatwurx, Inc., not Processa Pharmaceuticals, Inc.
- Verify whether and how much of the follow-on Series D offering was ultimately raised, including any over-allotment.
- Assess cash runway against the stated monthly spending and scheduled subordinated-note repayments.
- Review the going-concern disclosure, financing dependence, preferred-stock liquidation rights and potential dilution from warrants and conversions.
- Check whether equipment sales and gross margins developed sufficiently to support the company’s cost structure.