Processa Pharmaceuticals, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisition Disclosure

Acquisition Disclosure

3 Months Ended

Sep. 30, 2014

5. ACQUISITION:

On January 7, 2014, the Company entered into an Agreement and Plan of Reorganization (the Acquisition Agreement) dated January 8, 2014 with Dr. Pave, LLC, a California limited liability company (Dr. Pave). Dr. Pave was controlled by David Dworsky, the Chief Executive Officer of the Company. The acquisition of Dr. Pave gave the Company the immediate ability to provide service work to municipalities and other end purchasers of Heatwurx equipment. The Company acquired all of the outstanding membership interests in Dr. Pave for 58,333 shares of common stock of the Company at a value of $3.00 per share for consideration in the amount of $175,000. The consideration included the issuance of 41,668 shares to Dworsky Partners, LLC, an entity in which David Dworsky owned 80% of the ownership interest, and 3,333 shares to Reginald Greenslade, one of the Companys directors. As a result of the acquisition, which closed on January 8, 2014, Dr. Pave became a wholly owned subsidiary of the Company. Dr. Pave is managed by David Dworsky and Justin Yorke, a shareholder of the Company. The parties to the Acquisition Agreement established the effective date of the closing of the transaction for tax and accounting purposes as 8:00 a.m. on January 1, 2014.

As of January 1, 2014, Dr. Pave had net liabilities of $215,659 assumed by the Company; in addition to the consideration of 58,333 shares of common stock valued at $175,000. The total consideration paid in the acquisition of Dr. Pave resulted in goodwill in the amount of $390,659. The Company determined that the goodwill was immediately impaired as of the acquisition date based on the lack of service revenue for the prior year. An impairment of goodwill from the acquisition in the amount of $390,659, was recorded as an operating expense in the income statement for the nine months ended September 30, 2014.

Below are the results of operations of Heatwurx, Inc., the consolidated entity, as though the acquisition had occurred as of the beginning of the 2013 reporting period.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
REVENUES
Equipment sales	$	16,624	$	118,728	$	101,069	$	233,928
Service revenue		35,997		-		79,872		-
Other revenue		-		7,182		4,860		8,462
Total revenues		52,621		125,910		185,801		242,390

COST OF GOODS SOLD		25,289		80,450		104,621		154,100
GROSS PROFIT		27,332		45,460		81,180		88,290

EXPENSES:
Selling, general and administrative		677,398		762,321		2,194,809		2,164,492
Impairment of goodwill		-		-		390,659		-
Research and development		11,729		55,465		179,993		190,451
Total expenses		689,127		817,786		2,765,461		2,354,943
LOSS FROM OPERATIONS		(661,795)		(772,326)		(2,684,281)		(2,266,653)

OTHER INCOME AND EXPENSE:
Interest income		1		989		75		2,023
Interest expense		(130,135)		(50,462)		(303,167)		(100,105)
Total other income and expense		(130,134)		(49,473)		(303,092)		(98,082)

LOSS BEFORE INCOME TAXES		(791,929)		(821,799)		(2,987,373)		(2,364,735)
Income taxes		(25)		-		(75)		-
NET LOSS	$	(791,954)	$	(821,799)	$	(2,987,448)	$	(2,364,735)

Preferred stock cumulative dividend		53,054		213,760		112,208		238,596
Deemed dividend		26,832		-		26,832		-

Net loss attributable to common stockholders	$	(871,840)	$	(1,035,559)	$	(3,126,488)	$	(2,603,331)

Net loss per common share basic and diluted	$	(0.10)	$	(0.13)		$ (0.37)		$ (0.65)

Weighted average shares outstanding used in calculating net loss per common share		8,433,752		7,837,262		8,366,014		4,011,974