Processa Pharmaceuticals, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Subsequent Events

Subsequent Events	12 Months Ended
Dec. 31, 2013
Notes
Subsequent Events	13. SUBSEQUENT EVENTS: *Debt offerings* On January 6, 2014, the Company commenced a non-public offering of notes and warrants up to $1,000,000. The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016. As additional consideration for a lender to enter into the Loan Agreement, the Company has agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to the Company. The Warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without the consent of the Company. The three-year warrants will be exercisable immediately at $3.00 per share. On February 28, 2014, Heatwurx, Inc. completed its $1,000,000 debt financing through the sale of notes and warrants under the Loan Agreement. The notes were in the aggregate principal amount of $850,000 and were issued with an aggregate of 283,329 warrants to the investors. The aggregate loan amount includes a loan of $250,000 from Mr. Blass, the father of Gus Blass III, one of the directors of the Company. Mr. Blass was issued 83,333 warrants in connection with the loan. On March 1, 2014, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the option of the Company before all of the notes are sold. The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016. Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering. Each lender in the offering will receive one warrant for each $3.00 loaned. The three-year warrants will be exercisable immediately at $3.00 per share. These securities are being offered and will be sold solely to accredited investors without selling commissions. The proceeds of this offering will be used to satisfy outstanding debt and provide working capital for the Company. As of March 27, 2014 we have received $150,000 under the debt offering and issued warrants to purchase 50,000 shares of our common stock. The securities offered in both of these offerings have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements *Dr. Pave Acquisition Agreement* 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, LLC was controlled by David Dworsky, the Chief Executive Officer of the Company. 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 total 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 Reg 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. The securities offered and sold in the above transactions have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. During 2013, the Company entered into a transaction to sell equipment, equipment parts and consumables to Dr. Pave, LLC totaling approximately $155,000. In light of the January 2014 transaction the Company determined the earnings process was not complete and did not recognize the sale in revenue and corresponding cost of goods sold for the year ended 2013. The Company determined it was most appropriate to reflect the equipment, equipment parts and consumables as consigned inventory to Dr. Pave, and are therefore included in the Companys inventory as of December 31, 2013. In December 2013 Dr. Pave, LLC entered into a short-term loan agreement for approximately $160,000 to raise the cash for payment to Heatwurx. The Company received a cash payment from Dr. Pave, LLC for the purchased equipment and consumables, the Company recorded the cash receipt and recognized an Advance payment liability from Dr. Pave, LLC of approximately $155,000 as of December 31, 2013. Upon the close of the acquisition the Company has assumed the short-term loan obligation on behalf of Dr. Pave, LLC. *Series D Unit offering* In January 2014, the Company received $159,996 from investors in its current offering of up to 772,352 units at $3.00 per Unit in the follow-on Series D Preferred stock offering. Each unit in this offering consists of one share of the Companys Series D Preferred Stock and one-half warrant, with each whole warrant exercisable at $3.00 per share. A total of $6,000 was paid in selling commissions to a licensed selling agent in connection with this initial transaction. The Units sold in this offering were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. We have agreed to utilize reasonable best efforts to file a registration statement within 90 days following completion of this offering to register the common shares issuable upon exercise of the warrants. *Option grants* On January 16, 2014, the Board granted options to purchase 10,000 shares of Common Stock of the Company to each director of the Company for services performed as a director during 2013. The options are exercisable at $3.00 per share and are fully vested. The options were granted pursuant to the Companys 2011 Stock Incentive Plan and are exercisable for a period of five years. The Company recognized compensation expense of $46,564 during the year ended December 31, 2013 with respect to these option grants. *Senior Subordinate note payment* On February 15, 2014 the Company made the required principal payment of $250,000 on the Senior Subordinated note payable. As of March 27, 2014 the current senior subordinated note payable is $250,000. See Note 5 Notes Payable for further discussion. *Preferred stock conversion to common shares* As of March 27, 2014; 75,065 Series B preferred shares and 56,000 Series C preferred shares were converted into a total of 131,065 common shares subsequent to December 31, 2013. As of March 27, 2014 there were 8,271,398 common shares outstanding.

Subsequent Events

12 Months Ended

Dec. 31, 2013

Notes

Subsequent Events

13. SUBSEQUENT EVENTS:

Debt offerings

On January 6, 2014, the Company commenced a non-public offering of notes and warrants up to $1,000,000. The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016. As additional consideration for a lender to enter into the Loan Agreement, the Company has agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to the Company. The Warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without the consent of the Company. The three-year warrants will be exercisable immediately at $3.00 per share.

On February 28, 2014, Heatwurx, Inc. completed its $1,000,000 debt financing through the sale of notes and warrants under the Loan Agreement. The notes were in the aggregate principal amount of $850,000 and were issued with an aggregate of 283,329 warrants to the investors. The aggregate loan amount includes a loan of $250,000 from Mr. Blass, the father of Gus Blass III, one of the directors of the Company. Mr. Blass was issued 83,333 warrants in connection with the loan.

On March 1, 2014, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the option of the Company before all of the notes are sold. The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016. Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering. Each lender in the offering will receive one warrant for each $3.00 loaned. The three-year warrants will be exercisable immediately at $3.00 per share. These securities are being offered and will be sold solely to accredited investors without selling commissions. The proceeds of this offering will be used to satisfy outstanding debt and provide working capital for the Company. As of March 27, 2014 we have received $150,000 under the debt offering and issued warrants to purchase 50,000 shares of our common stock.

The securities offered in both of these offerings have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements

Dr. Pave Acquisition Agreement

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, LLC was controlled by David Dworsky, the Chief Executive Officer of the Company. 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 total 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 Reg 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.

The securities offered and sold in the above transactions have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

During 2013, the Company entered into a transaction to sell equipment, equipment parts and consumables to Dr. Pave, LLC totaling approximately $155,000. In light of the January 2014 transaction the Company determined the earnings process was not complete and did not recognize the sale in revenue and corresponding cost of goods sold for the year ended 2013. The Company determined it was most appropriate to reflect the equipment, equipment parts and consumables as consigned inventory to Dr. Pave, and are therefore included in the Companys inventory as of December 31, 2013. In December 2013 Dr. Pave, LLC entered into a short-term loan agreement for approximately $160,000 to raise the cash for payment to Heatwurx. The Company received a cash payment from Dr. Pave, LLC for the purchased equipment and consumables, the Company recorded the cash receipt and recognized an Advance payment liability from Dr. Pave, LLC of approximately $155,000 as of December 31, 2013. Upon the close of the acquisition the Company has assumed the short-term loan obligation on behalf of Dr. Pave, LLC.

Series D Unit offering

In January 2014, the Company received $159,996 from investors in its current offering of up to 772,352 units at $3.00 per Unit in the follow-on Series D Preferred stock offering. Each unit in this offering consists of one share of the Companys Series D Preferred Stock and one-half warrant, with each whole warrant exercisable at $3.00 per share. A total of $6,000 was paid in selling commissions to a licensed selling agent in connection with this initial transaction. The Units sold in this offering were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. We have agreed to utilize reasonable best efforts to file a registration statement within 90 days following completion of this offering to register the common shares issuable upon exercise of the warrants.

Option grants

On January 16, 2014, the Board granted options to purchase 10,000 shares of Common Stock of the Company to each director of the Company for services performed as a director during 2013. The options are exercisable at $3.00 per share and are fully vested. The options were granted pursuant to the Companys 2011 Stock Incentive Plan and are exercisable for a period of five years. The Company recognized compensation expense of $46,564 during the year ended December 31, 2013 with respect to these option grants.

Senior Subordinate note payment

On February 15, 2014 the Company made the required principal payment of $250,000 on the Senior Subordinated note payable. As of March 27, 2014 the current senior subordinated note payable is $250,000. See Note 5 Notes Payable for further discussion.

Preferred stock conversion to common shares

As of March 27, 2014; 75,065 Series B preferred shares and 56,000 Series C preferred shares were converted into a total of 131,065 common shares subsequent to December 31, 2013. As of March 27, 2014 there were 8,271,398 common shares outstanding.