UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20142015

or

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 333-184948

Heatwurx, Inc.

(Exact name of registrant as specified in its charter)

18001 S. Figueroa, Unit F, Gardena,530 S Lake Avenue #615, Pasadena, CA 9024891101

(Address of principal executive offices and Zip Code)

(310) 324-4513(626) 364-5342

(Registrant’s telephone number, including area code)

18001 S. Figueroa, Unit G, Gardena, CA 90248

(Former names, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  YES [  ]  NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act YES  [  ]  NO [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO  [  ]  NO [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES [X][  ]  NO [ ][X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [  ]  NO [X]

The aggregate market value of common units held by non-affiliates of the registrant on June 30, 20142015 was approximately $7,757,683.$3,946,998.  As of April 8, 2015,May 22, 2017, the number of the registrant’s common shares outstanding was 11,061,114.11,061,414.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

Heatwurx, Inc.

Form 10-K

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” or “should,” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this report, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.  All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Undue reliance should not be placed on any forward-looking statement, each of which applies only as of the date of this report. Before investing in our securities, investors should be aware that the occurrence of the events described in the section entitled “Risk Factors”“Risk Factors” and elsewhere in this report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.

PART I

ITEM 1. Business

Overview

Heatwurx, Inc. was incorporated under the laws of the State of Delaware on March 29, 2011 as Heatwurxaq, Inc. and subsequently changed its name to Heatwurx, Inc. (“the Company” or “Heatwurx”) on April 15, 2011.

We are an asphalt preservation and repair, equipment company. Our innovative, and eco-friendly hot-in-place recycling process corrects surface distresses within the top three3 inches of existing pavement by heating the surface material to a temperature between 325°325° and 375°375° Fahrenheit with our electrically powered infrared heating equipment, mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair, and mixing in additional recycled asphalt pavement and a binder (asphalt-cement), and then compacting repaired area with a vibrating roller or compactor. We consider our equipment to be eco-friendly as the Heatwurx process reuses and rejuvenates distressed asphalt, uses recycled asphalt pavement for filler material, eliminates travel to and from asphalt batch plants, and extends the life of the roadway.  We believe our equipment, technology and processes provide savings over other repair processes that can be more labor and equipment intensive.

Our hot-in-place recycling process and equipment was selected by the Technology Implementation Group of the American Association of State Highway Transportation Officials (“AASHTO TIG”) as an “additionally Selected Technology” for the year 2012. We develop, manufacture and intend to sell our unique and innovative and eco-friendly equipment to federal, state and local agencies as well as contractors for the repair and rehabilitation of damaged and deteriorated asphalt surfaces.

In January 2014, we acquired Dr. Pave, LLC a service company offering asphalt repair and restoration utilizing the Heatwurx asphalt repair technology.  Dr. Pave, offered asphalt restoration services to municipalities and the commercial sector in southern California.

Effective July 22, 2014, we established a new entity named Dr. Pave Worldwide LLC to house our franchise program providing franchisees with the exclusive Heatwurx equipment and processing.  We formally launched our franchise sales program throughout the U.S. in the third quarter of 2014; however, to date, no franchises have been sold.  The Company has decided not to renew its franchise registrations throughout the U.S. due to the extensive costs.  During 2015, we began offering license agreements, which grants a license of all Heatwurx equipment and supplies and the use of the Heatwurx intellectual property within a specified territory.  We have had limited salesone licensee as of December 31, 2015.

During 2015 we are no longer receiving financial support and we do not believe we will be able to obtain financing from another source.  We do not believe we are able to achieve a level of revenues adequate to support our cost structure.  Do to the slow growth in the service sector and the high cost of the franchise registrations, we have decided to discontinue the operations of Dr. Pave, LLC and Dr. Pave Worldwide LLC.  In addition, we have significantly scaled back operations to maintain only a minimal level of operations necessary to support our licensee, warehouse the equipment held for the licensee and look for potential merger candidates.  It is our products, our effortsintention to move forward as a public entity and to seek potential merger candidates.  If the Company fails to merge or be acquired by another company, we will be required to terminate all operations.

Section 107 of the JOBS Act provides that an “emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.  In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.  However, we are principally focused on developing our distribution network, implementing our marketing strategychoosing to focus“opt out” of such extended transition period, and as a result, we will comply with new or revised standards on the salerelevant dates on which adoption of such standards is required for non-emerging growth companies.  Section 107 of the JOBS Act provides that our products and service.  We currently operate in one business segment.decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Heatwurx Products

Heatwurx NEW HWX-30S - Electrically Powered (remote) Infrared Heater

The HEATWURX^® NEWHEATWURX® HWX-30S Electric Infrared Heater is designed to effectively heat asphalt pavement to a pliable 325° to 375° Fahrenheit without scorching, burning, or oxidizing the existing asphalt with a highly efficient Stainless-Steel reflector. The HWX-30S equipped with supporting legs, lockable swivel Colson castors (6x2) with built-in brakes to support high maneuverability and easy positioning. The HWX-30S can easily attached to a skid steer with standard quick releases that can be used to repair/rejuvenate distressed asphalt.  The HEATWURX^® NEWHEATWURX® HWX-30S Electric Infrared Heater specifications are as follows:

·

Weight 850 lbs. Lightweight for easy maneuverability

·

Heats repair area of 30 square feet

·

Generator requirement 36 kilowatts (minimum) - Fuel consumption approximately 2.8 gallons of fuel per hour

·

Custom industrial heating elements

·

Highly efficient Stainless-Steel heating reflector

·

Cycle times of approximately 20 - 40 minutes depending on depth and weather conditions

·

Heavy duty steel constructed frame

·

Swivel legs with Castors (built in brake) and top wind 7,000 lbs. jacks - superior maneuverability and positioning

·

Heavy duty steel attachment plate for skid steers

·

Electric control panel UL-listed and CSA-certified

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Heatwurx HWX-30 - Electrically Powered Infrared Heater

The HEATWURX^® HWX-30 Electric Infrared Heater is designed to effectively heat asphalt pavement to a pliable 325° to 375° Fahrenheit without scorching, burning, or oxidizing the existing asphalt. The HWX-30 is easily attached to a skid steer with standard quick releases and is a self-contained mobile infrared heater that can be used to repair/rejuvenate distressed asphalt. The HEATWURX^® HWX-30 Electric Infrared Heater specifications are as follows:

·

Weight 3,550 lbs. (with generator mounted)

·

Heats repair area of 30 square feet

·

Generator requirement 36 kilowatts

·

Custom industrial heating elements

·

Cycle times of approximately 20 - 40 minutes depending on depth and weather conditions

·

Fuel consumption approximately 2.8 gallons of fuel per hour

·

Heavy duty steel constructed frame

·

Top wind 7,000 lbs. jacks

·

Six inches of heat resistance insulation

·

Heavy duty high temperature powder coated finish for maximum durability and visibility

·

Heavy duty steel attachment plate for skid steers or forklifts

Heatwurx AP-40 - Asphalt Processor

The HEATWURX^® HWX-AP40 Asphalt Processor is powered by an orbital hydraulic motor and has a 40 inch working width. Designed to process and rejuvenate existing asphalt in place, it processes, remixes, and levels the heated, rejuvenated asphalt to the desired depth, ready for compaction. It is designed to easily attach to a skid steer and has custom beveled tines to provide a seamless bond between the repaired area and existing pavement. The HEATWURX^® HWX-AP40 Asphalt Processor specifications are as follows:

·

One inch wear plate with ability to adjust to desired depth

·

Orbital hydraulic motor

·

40” working width

·

5/16” processing blades

·

Custom beveled cutting blades tooling to maximize asphalt bonding

·

12 gauge wings to funnel material into desired location

Company History

Heatwurx, Inc. was incorporated under the laws of the State of Delaware on March 29, 2011 as Heatwurxaq, Inc. and subsequently changed its name to Heatwurx, Inc. on April 15, 2011.  Our founders were Larry Griffin and David Eastman, the principals of Hunter Capital Group, LLC, an investment banking entity, which acquired our technology, equipment designs, trademarks, and patent applications from Richard Giles, the inventor and a founder of the Company in April 2011.

Competitive Environment

Distressed asphalt occuroccurs when asphalt-surfaced pavements are subjected to a broad spectrum of traffic levels, from two-lane rural routes to multi-lane interstate highways. Any agency responsible for asphalt-surfaced pavements eventually performs pothole patching or repair. Pothole patching or repair is generally performed either as an emergency repair under harsh conditions, or as routine maintenance scheduled for warmer and drier periods. Pothole patching and repair can be performed during various weather conditions.

In most cases, the public likes all potholes to be patched or repaired promptly and forms a negative opinion of the agency when this fails to happen in a timely manner.

Potholes are generally caused by moisture, freeze-thaw cycle, traffic, poor underlying support, or some combination of these factors. Pothole patching or repair is necessary in those situations where potholes compromise safety and cause damage to vehicles.

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In general, the competitive environment for asphalt patching and repair is fragmented.  Numerous entities including contractors, municipalities and others provide services to repair roads.  However, there are a number of generally accepted methods of repairing and patching asphalt that our process competes against which are listed below under, “Examples of Asphalt Repair and Patching Techniques”.

Examples of Asphalt Repair and Patching Techniques

The following techniques and asphalt repair methods have been documented by the Transportation Research Board as part the Strategic Highway Research Program (“SHRP”).  The Federal Highway Association Long Term Pavement Performance (“LTPP”) program conducted five years of additional research on pothole repair, providing guidelines and recommendations to assist highway maintenance agencies and other related organizations in planning, constructing, and monitoring the performance of pothole repairs in asphalt-surfaced pavements.

Throw-and-Roll

Many maintenance agencies use the “throw-and-roll” method for patching potholes. It is the most commonly used method because of its high rate of production.

The throw-and-roll method consists of the following steps:

1.

Shovel the hot asphalt into a pothole (which may or may not be filled with water or debris).

2.

Drive over the asphalt using the truck tires to compact.

3.

Move on to the next pothole.

One difference between this method and the traditional throw-and-go method is that some effort is made to compact the patches. Compaction provides a tighter patch for traffic than simply leaving loose material. The extra time to compact the patches (generally one to two additional minutes per patch) will not significantly affect productivity.

This is especially true if the areas to be patched are separated by long distances and most of the time is spent traveling between potholes.

Crack Sealing

Crack sealing is utilized by agencies, parking lot owners and homeowners to seal cracks in asphalt pavement to prevent water and other debris from penetrating the asphalt and causing further damage during the freeze and thaw cycles.  This method is preventative and not suitable for repairing or patching potholes.

The process for sealing cracks consists of the following steps:

1.

Clean the surface of the area to be sealed and let dry.

2.

Heat the sealing material to 300° to 400° Fahrenheit.

3.

Pour the heated material into the crack.

4.

Let cool and dry.

5.

Place a layer of sand over the sealing material to prevent tracking by vehicle tires.

Spray Injection Patching

The spray injection repair technique is performed by spraying heated aggregate (minerals such as sand, gravel, or crushed stone) into the area to be repaired.  This repair method requires a truck to haul the replacement asphalt and specialized machinery to heat and disperse.

The spray-injection procedure consists of the following steps:

1.

Blow water and debris from the pothole with a high-pressure air blower.

2.

Spray a generous layer of binder (asphalt-cement) on the sides and bottom of the pothole.

3.

Blow heated aggregate (minerals such as sand, gravel or crushed stone) and asphalt-cement (binder) into the pothole.

4.

Cover the patched area with a layer of dry aggregate (minerals).

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This procedure process does not include compaction of the repaired area.

Semi-Permanent Repair (Saw cut)

Many agencies employ semi-permanent repair methods such as saw cutting. This method represents an increased level of effort for repairing potholes. This increased effort increases the performance of the repair by improving the underlying and surrounding support provided for the repair. It also raises the cost, due to the increased labor required and the amount of time the repair takes.

The semi-permanent repair method has traditionally been considered one of the best for repairing potholes, short of full-depth removal and replacement. This procedure includes the following steps:

1.

Remove water and debris from the pothole.

2.

Using a radial saw with a hardened blade, cut the repair area on four sides creating a square or rectangle.

3.

Remove the material inside the section that was cut.

4.

Shovel hot asphalt into the repair area. Spread with an asphalt rake to proper grade.

5.

Compact with a vibrating drum roller or vibrating plate compactor.

This repair procedure results in a tightly compacted repair. However, it requires more workers and equipment and has a lower productivity rate than both the throw-and-roll and the spray-injection procedure.

Intellectual Property

We currently have fivesix issued U.S. patents: fourfive utility patents and one design patent. One additional U.S. patent has been allowed and should issue in April 2015. We have threetwo pending U.S. patent applications and fivethree foreign patent applications.  

Three issued utility patents, US Patent Nos. 8,556,536; 8,562,247 and 8,714,871 were issued on Oct. 15, 2013, Oct. 24, 2013, and May 6, 2014, respectively and cover certain unique device and method of use aspects of our asphalt repair equipment.   Our design patent, US Patent No. D700,633, was issued on March 4, 2014 and covers the ornamental design of our asphalt processor.  U.S. Patent No. 8,801,325 issued August 12, 2014 and covers aspects of our computer-controlled asphalt heater. U.S. Pat. Appl.Patent No. 14/456,285 should issue in April,9,022,686 was issued May 5, 2015 and covers complementary features of our computer-controlled asphalt heater.

Our patent application entitled, “System and Method for Sending and Managing Pothole Location and Pothole Characteristics” was filed on January 16, 2013; the USPTO rejected the application based on prior art referenced by the examiner.  Our response to the rejection is due by April 30, 2015.  We expect to filefiled a response which argues that the invention as claimed is patentable over the cited prior art.

Our patent application entitled “Asphalt Brick Device and Method of Making Same” was filed on June 28, 2013; the USPTO rejected the application based on prior art referenced by the examiner.  Our response to the rejection, which argued that the invention as claimed is patentable over the cited prior art, was filed on December 17, 2014.  

Our provisional patent application entitled "System and Method for Roadway Pavement Restoration" was filed on April 7, 2014. The provisional patent application will be converted to a regular (i.e. non-provisional) patent application and filed on April 7, 2015 in both the U.S. and Canada. The application includes a remotely-operated processor and a heater powered by a truck-mounted generator.

We intend to develop other technologies for which we will seek patent protection. In addition, we have made and expect to continue to make certain international filings to attempt to protect our intellectual property rights in the United States and in a limited number of countries outside of the United States. However, we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies. We do not believe our ability to operate our business is dependent on the patentability of our technology.

Governmental Regulation

We do not manufacture our own equipment,equipment; it will be up to the manufacturer as well as the end-users to comply with any governmental regulations.  To the extent that any regulations require changes to our equipment, we will have to comply or risk losing the customers.  See “Risk Factors” for a discussion relating to compliance with government regulations.

As part of our sales operations,and service operation, we hirehired drivers with Commercial Driver’s Licenses (“CDL’s”) to transport our asphalt repair equipment across the country to demonstrate the effectiveness of our equipment to potential clients.  clients and utilize our equipment while performing asphalt repairs.

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As such, we are a motor carrier subject to regulation by the U.S. Department of Transportation (“DOT”) and the Federal Motor Carrier Safety Administration (“FMCSA”), and certain business is also subject to state rules and regulations. The DOT periodically conducts reviews and audits to ensure our compliance with federal safety requirements, and we report certain accident and other information to the DOT.

In March 2014, the FMCSA issued a supplemental notice of proposed rulemaking, request for comments which would improve commercial motor vehicle safetyWe significantly reduced personnel and reduce the overall paperwork burden for both motor carriersoperations in July 2015, and drivers by increasing the use of electronic logging devices within the motor carrier industry, which would in turn improve compliance with the applicable hours-ofno longer performed service rules.  During late 2013, we began use of an electronic logging device in its fleet.

In March 2014, the FMCSA updated the February 20, 2014 Notice of Proposed Rulemaking establishing a Commercial Driver’s License Drug and Alcohol Clearinghouse. This rule will establish a database of commercial driver´s license holders under the Agency’s administration that will contain controlled substances and alcohol test result information for the holders of commercial driver’s licenses.or demonstrations. We do not anticipate that the establishment of the Clearinghousehiring drivers or performing asphalt repair.  We will have a meaningful impact on our driver hiring or retaining process.

In 2013, the FMCSA, in conjunction with the National Highway Traffic Safety Administration, submitted a Notice of Proposed Rulemaking to require the installation of speed-limiting devices on heavy trucks. The final rule regarding this proposal has not yet been published. We believe this rule will have minimal implementation cost due to the small size of our fleet. We do not anticipate a negative impact on our operations or productivity.

We continue to monitor the actions of the FMCSA and other regulatory agencies and evaluate all proposed rules to determine their impact on our continuing operations.

Employees

As of April 8, 2015,May 22, 2017, we had sevenone full-time employees and twono part-time employee.employees.

Competition

According to the 2011 IBIS World Report on US Road and Highway Maintenance, the total spent on road maintenance in the United States is in excess of $30 billion per year.  As an emerging company, we arewere at a competitive disadvantage because we dodid not have the financial resources of larger, more established competitors, nor dodid we have a sales force large enough to challenge our competitors.  We intendintended to address this disadvantage by entering into distribution agreements, licensing and franchising opportunities, and provide on-going education and training to our sales partners, customers, and governmental agencies. We alsohave one licensee that we will continue to support.  We do not have the funds to create a competitive advantage.  We do believe that our equipment and processes are better than what is offered by other companies, is more effective and that purchasers will choose our equipment because of its effectiveness,has a better quality of design, reputation in the marketplace, as well as theand received recognition we have received from state and federal agencies.agencies, however we do not have the financing to support our cost structure.  We intendhave significantly reduced our personnel and operations to offer an industry standard one-year limited warranty and provide nationwide service thoughsolely support our Original Equipment Manufacturing (“OEM”) partners and resellers.licensee.  See “Risk Factors” for a discussion of the risks associated with our company.

ITEM 1A. Risk Factors

An investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition, and/or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and investors may lose all or part of their investment. Investors should read the section entitled “Cautionary Note Regarding Forward-Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

Risks Relating to the Company’s Business

We are currently in default under two separate secured notes and, if either of our creditors chooses, our assets will be foreclosed upon and we will have no business operations.

On April 1, 2015, we failed to make a mandatory interest payment under a secured note dated February 16, 2015. The failure to make a mandatory interest payment constituted an event of default under the note. Upon the occurrence of an event of default under the note, the creditors may foreclose upon all of the assets of our company.  The Company has not made any interest payments during the second half of 2015.

On August 15, 2015, we failed to make a mandatory payment under the revolving line of credit we assumed upon the acquisition of Dr. Pave, LLC by our company. The revolving line of credit is secured by all of the assets of Dr. Pave, LLC, which is presented in discontinued operations. Due to our failure to make the mandatory payment, the creditors under the revolving line of credit could foreclose upon all of the assets of Dr. Pave, LLC.

If any of our creditors who have been issued secured notes elects to foreclose upon our assets, we will no longer have any business operations.

We have substantial indebtedness, which could have adverse consequences to us, and we may not be able to generate sufficient cash flow to fund our liquidity needs, including servicing our indebtedness.

We currently have substantial indebtedness. Our level of indebtedness has important consequences to us and to youexisting shareholders and your investment.potential investors. For example, our level of indebtedness may:

·

require us to dedicate a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the funds available to use for operations, future business opportunities and other general corporate purposes;

·

make it more difficult for us to satisfy our debt obligations, and any failure to comply with such obligations, including financial and other restrictive covenants, could result in an event of default or an inability to borrow under the agreements governing such indebtedness;

·

in the case of a default or an event of default, as applicable, lead to, among other things, an acceleration of our indebtedness or foreclosure on the assets securing our indebtedness, which could have a material adverse effect on our business or financial condition;

·

limit our ability to obtain additional financing, or to sell assets to raise funds, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy;

·

place us at a competitive disadvantage relative to others in the industry as it is not common for companies involved in the asphalt repair business to operate with such high leverage;

·

heighten our vulnerability to downturns in our business, the industry or in the general economy and limit our flexibility in planning for or reacting to changes in our business and the retail industry; or

·

reduce our ability to carry out our plans to expand our product offerings and sales channels.

Our ability to service our indebtedness is dependent on our ability to generate cash from internal operations or from additional debt or equity offerings sufficient to make required payments on such indebtedness, which is, to a significant extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, some of which factors are further described in this “Risk Factors” section. We are permitted by the terms of our indebtedness to incur additional indebtedness; however, we have recently only received funds from a limited number of related parties.parties and those related parties have ceased funding our operations. We have experienced negative cash flows from operating activities since inception, and our business may not generate sufficient cash flow from operations or from debt or equity offerings to enable us to service our indebtedness or to fund our other liquidity needs. We currently most likely be unable to make required payments on our secured line of credit which would result in a default and possible foreclosure of all of our assets. Such event could have a material adverse effect on us and we may need to take various actions, including seeking to refinance all or a portion of our indebtedness, seeking additional debt or equity financing or reducing or delaying capital expenditures, strategic acquisitions, and we may not be able to do so on commercially reasonable terms or at all.

We have a limited operating historysingle member of management holding the positions of Interim Chief Executive Officer and there can be no assurance that we can achieve or maintain profitability.  We will need significant additional financing to maintain current operations. Our ability to obtain additional financingInterim Chief Financial Officer, and also is very limited. These issues raise substantial doubt as to our ability to continue as a going concern.the sole member of the board of directors.

We haveEffective August 31, 2015 David Dworsky resigned from his position as a limited operating history, and the likelihood of our success must be evaluated in light of the problems, expenses, complications and delays that we may encounter because we are a small business. As a result, we may not be profitable and we may not be able to generate sufficient revenue to develop as we have planned.

Our ability to achieve and maintain profitability and positive cash flow is currently dependent upon and will continue to be dependent upon:

·

the market’s acceptance of our equipment;

·

our ability to keep abreast of the changes by government agencies and in laws related to our business, particularly in the areas of intellectual property and environmental regulation;

·

our ability to maintain any competitive advantage via patents, if attainable, or protection of our intellectual property and trade secrets;

·

our ability to attract customers who require the products we offer;

·

our ability to generate revenues through the sale of our products to potential customers; and

·

our ability to manage the logistics and operationsdirector of the Company and the distribution of our products and services.

If we are unable to successfully manage these aspects of our business, our business, financial condition, and/or results of operations could suffer, the trading price of our shares of common stock could decline, and investors may lose all or part of their investment.

We have incurred significant operating losses since formation and our independent accountants have issued a going concern opinion with respect to our financial statements as of and for the years ended December 31, 2014 and 2013. We expect to continue to incur significant net losses for the foreseeable term and we will not be able to attain a level of profitability sufficient to sustain operations without additional sources of capital.

We have limited sales and a history of substantial operating losses. We reported a net operating loss for the period from incorporation on March 29, 2011 to December 31, 2014.  We also had an accumulated deficit of approximately $12,916,000 at December 31, 2014. In order to achieve profitable operations we need to secure sufficient sales of our preservation and repair equipment. Our potential customers are federal, state, and local governmental entities, pavement contractors, equipment distributors and original equipment manufacturers.  We cannot be certain that our business will be successful or that we will generate significant revenues and become profitable. If we are unable to achieve profitability or locate alternate sources of capital, we may be forced to cease operations.

As of December 31, 2014, we had approximately $21,000 cash on hand.  We are solely reliant on raising additional capital to maintain current operations.  To date we have been able to raise debt and equity financing through the assistance of a small number of our related party investors who have been substantial participants in our debt and equity offerings since our formation.  If these investors choose not to assist the Company with its capital raising initiatives in the future we do not expect that we would be able to obtain any alternative forms of financing at this time.

Successful completion of the Company’s development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its marketing strategy, build our distribution network, focus on the sale of our products, and achieve a level of revenues adequate to support the Company’s cost structure.  Many of the Company’s objectives to establish profitable business operations rely upon the occurrence of events outside its control; there is no assurance that the Company will be successful in accomplishing these objectives.

The issues described above raise substantial doubt about the Company’s ability to continueJohn P. McGrain was appointed as a going concern.  The Company’s independent accounting firm has included an explanatory paragraph in its audit opinion describing this condition.  Managementdirector of the Company intends to address these issues by raising additional capital through private placements andreplace Mr. Dworsky.  On September 14, 2015, the issuanceBoard of additional debt.  There can be no assurance thatDirectors of the Company will be able raise additional capital or secure additional debt.

At inception, our business essentially consistedappointed John McGrain, as Interim Chief Executive Officer and Interim Chief Financial Officer of the investment in in-process researchCompany.    On September 15, 2015, Donald Larson a director and development as we refer to as the “asphalt preservation and repair solution”.  The Company now classifies the asset as developed technology and it is amortized over the estimated lifechairman of the asset.  The developed technology is subject to an annual review to test for impairment.  If the asset was determined to be impaired this could havecompensation committee and Gus Blass III a negative impact on our businessdirector and results of operations.

Our inability to achieve significant sales of our asphalt preservation and repair equipment could require us to take a material impairment charge related to our intangible assets.  Our intangible assets are tested for impairment at least annually in accordance with U.S. GAAP.  The valuation of intangible assets require assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates.  Our inability to sell our asphalt preservation and repair equipment could cause a significant reduction in the fair market value of our intangible assets, resulting in an impairment charge.  Given the significance of our intangible asset balance, as a percentage of our total asset balance, any impairment charge could be material to our operating results and related financial statements.

We currently have a single manufacturer of our equipment.  If our manufacturing partner chooses not to manufacture our equipment or is otherwise unable to timely manufacture our equipment, we may not be able to locate another manufacturing partner in a timely manner to satisfy future demand for our products.

We currently have only one manufacturing partner, ERC Company, a California-based company.  We do not currently have a formal agreement with our manufacturing partner, who is free to discontinue manufacturing services for us or to increase prices charged to us.  This arrangement is adequate for the near term as we do not have a large number of customer orders and do not have any urgent need for equipment.  However, we anticipate that as our business grows, we will contract with additional manufacturing partners to protect us against business interruptions related to having a sole manufacturing partner.  If we experience any business interruption in our manufacturing partner’s business or if our manufacturing partner decides to discontinue manufacturing for us on mutually agreeable terms, we may be unable to meet commitments to existing customers or attract new ones.

We are developing our warranty policies. If we begin selling a material amount of equipment, we will need to formalize our warranty polices with our suppliers and our customers.  If we are unable to negotiate favorable warranty terms with our suppliers or, if our suppliers experience financial difficulties, we may have a material warranty obligation.

We have sold a limited number of units to date.  We intend to offer an industry standard one-year limited warranty and provide nationwide service though our OEM partners and resellers.  Although we anticipate that the majoritychairman of the warranty items will be passed throughaudit committee resigned from their positions with the OEM partners and resellers through us and ultimately to the manufacturer, there are some parts on our equipment which will not be the responsibilityCompany. As a result of the manufacturer such as the heating elements onresignations, Mr. McGrain remains our HWX-30sole director and HWX-30S electrically powered infrared heaters.  We will need to provide industry standard warranties on these parts as well.  In addition, if our manufacturing partner experiences financial difficulty we may have additional warranty exposure to the end customers.  If we have ultimate liability under any warranty claims, our financial position would be impactedofficer.  Mr. McGrain is also a member of JMW Fund, LLC, San Gabriel Fund, LLC, Richland Fund, LLC, and we may not be able to continue operations.

The growthArroyo Fund, LLC, all of our business depends upon the developmentwhich are significant equity and successful commercial acceptance of our products.  If we are unable to achieve successful commercial acceptance of our product, our business, financial condition, and/or results of operations could suffer.

We depend upon a variety of factors to ensure that our preservation and repair equipment is successfully commercialized, including implementation of manufacturing processes, effective sales, marketing, and customer service. Becausedebt holders of the complexityCompany. A conflict of our products, significant delaysinterest may occurarise between introduction to the market and volume production phases.

The development of our marketing strategy, developing distribution relationships and driving sales of our preservation and repair equipment involves many difficulties, including:

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successful marketing of the preservation and repair equipment and achieving customer acceptance;

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establishing, managing and maintaining key reseller relationships;

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finding licensed partners, both municipal and private

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producing products that meet the quality, performance and price expectations of our customers;

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developing effective sales, advertising and marketing programs; and

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managing additional customer service and warranty costs associated with supporting product modifications and/or subsequent potential field upgrades.

If we are unable to achieve successful commercial acceptance of our product, we may be unable to generate sufficient revenues to sustain operations and may be forced to cease operations.

We and our customers may be required to comply with a number of laws and regulations, both foreign and domestic, in the areas of safety, health and environmental controls.Failure to comply with government regulations could severely limit our sales opportunities and future revenues.

We intend to market our preservation and repair equipment domestically and internationally. We may be required to comply with local and international laws and regulations and obtain permits when required.  We also cannot be certain that we will be able to obtain or maintain, required permits and approvals, that new or more stringent environmental regulations will not be enacted or that if they are, that we will be able to meet the stricter standards.

Failure to obtain operating permits, or otherwise to comply with federal and state regulatory and environmental requirements, could affect our abilities to market and sell our preservation and repair equipment and could have a material adverse effect on our business, financial condition, and/or results of operations, the trading price of our shares of common stock could decline, and investors may lose all or part of their investment.

Our ability to grow the business depends on being able to demonstrate our equipment to potential customers and distributors and train them on proper usage.  If we do not add more demonstration and sales teams, our growth may be limited geographically.

Our current marketing efforts utilize two driver/trainers that demonstrate on-site at the corporate office our equipment to potential customers and distributors to demonstrate the value of our equipment and train them on the process.  This team can travel to potential customers to conduct the demonstrations and training.  These efforts are very time-consuming and with fuel prices, can be very expensive.  In order to overcome the natural geographic limitations, we intend to deploy demonstration equipment throughout the country and hire and train additional driver/trainers.  These efforts will be dependent upon our ability (i) to raise capital to purchase and/or lease new demonstration equipment and (ii) to locate and hire qualified personnel.  If we cannot raise additional capital or locate qualified personnel, it will be much more difficult to grow our business.  If that happens, our stock price may decline and our investors may lose all or a part of their investment.

Commodity or component price increases and/or significant shortages of component products may erode our expected gross profit on sales and adversely impact our ability to meet commitments to customers.

We require steel for the manufacture of our products.  Accordingly, increases in the price of steel could significantly increase our production cost.  If we were unable to fully offset the effect of any such increased costs through price increases, productivity improvements, or cost reduction programs, our expected gross profit on sales would decline.

We also rely on suppliers to secure component products required for the manufacture of our products. We have no assurance that key suppliers will be able to increase production in a timely manner in the event of an increase in the demand for our products.  A disruption in deliveries to or from suppliers or decreased availability of components could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs.  If component supply is insufficient for the demand for our products, we may be unable to meet commitments to existing customers or attract new ones.

Our business is subject to the risk that our customers and/or other companies will produce their own version of our equipment which could significantly reduce our expected product sales.

We intend to sell finished products through an independent reseller network, directly to an end-user through a licensing or franchising model, and directly to OEMs.  Some of our potential customers are OEMs that currently manufacture or could in the future manufacture their own products.  Despite their manufacturing abilities, we believe that these customers have chosen to purchase from us due to the quality of our products and to reduce their production risks and maintain their company focus.  There is also the risk that other companies will copy our equipment and will become our competitors. However, we have no assurance that these customers will place significant equipment orders with us or continue to outsource manufacturing in the future.  Our sales would decline and our profit margin would suffer if our potential customers decide to produce their own version of our products or there is increased competition from other manufacturers.

Our future success is dependent, in part, on the performance and continued service of our key management personnel. Without their continued service, we may be forced to interrupt or cease operations.

We are presently dependent to a great extent upon the experience, abilities and continued services of our executive officers, who are all at-will employees.  Our executive team is responsible for the development, and execution of our strategic vision.  Our management team has cultivated significant relationships in our industry that are critical to our success.  As we grow and more people are added to the team over time, management will share their knowledgebest interests of our company and the industry with new hires, and we will not be dependent uponbest interests of Mr. McGrain's other business interests. In such a situation where a conflict of interest exists any one individual.  However, until we achieve more significant growth as a company, there is a disproportionate dependence upon our executive management team, anddecision by Mr. McGrain which furthers the lossbest interests of their services could significantly impair ourhis other business operations.  Some companies reduce the risk of the loss of key individuals by purchasing life insurance policies that pay the company upon the death of key personnel.  We do not have a key man life insurance policy on our executive management personnel and do not intend to purchase one.  If we interrupt or cease operations due to the loss of an executive officer’s availability, weinterest may be unableharmful to service our existing customersbusiness. Additionally, we have no established parameters or acquire new customers, and our business may suffer and our stock prices may decline.

The success of our business depends upon our ability to attract, retain and motivate highly skilled employees.  If we experience any adverse outcome in such matters, our ability to grow and manage our business may suffer.

Our ability to execute our business plan and be successful depends upon our ability to attract, retain and motivate highly skilled employees. As we expand our business, we will need to hire additional personnel to support our operations.  We may be unable to retain our key employees or attract other highly qualified employees in the future.  If we fail to attract new personnel with the requisite skills and industry knowledge we will need to execute against our business plan, our business, financial condition, and/or results of operations could suffer.

The success of our business depends, in part, upon our infrared heating process, our asphalt processing/tilling procedure and technical information which may be difficult to protect and may be perceived to infringe on the intellectual property rights of third parties.  If we are unable to protect our products from being copied by others it may negatively impact our expected sales.  Claims by others of infringement could prove costly to defend and if we are unsuccessful we could be forced into an expensive redesign of our products.

Our success depends, in part, on our ability to obtain patents, and operate without infringing on the proprietary rights of third parties. We cannot assure that:

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the patents of others will not have an adverse effect on our ability to conduct our business;

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our patents will be issued;

·

our patents, if issued, will provide us with competitive advantages;

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patents, if issued, will not be challenged by third parties;

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we will develop additional proprietary technology that is patentable; or

·

others will not independently develop similar or superior technologies, duplicate elements of our preservation and repair equipment or design around it.

In the future, we may be accused of patent infringement by other companies.  To defend and/or settle such claims, we may need to acquire licenses to use, or to contest the validity of, issued or pending patents. We cannot assure that any license acquired under such patents would be made available to us on acceptable terms, if at all, or that we would prevail in any contestunderstandings regarding the issuedallocation of present or pending patents of others. In addition, we could incur substantial costs in defending ourselves in suits brought againstfuture business opportunities between us for alleged infringement of another party's patents or in defending the validity or enforceability of our patents, if any, or in bringing patent infringement suits againstand Mr. McGrain’s other parties based on our patents.  Any negative outcome of a patent infringement case or failure to obtain license agreements would necessitate the need to redesign our products, which creates added expense.  Such redesigned products may not be accepted in the market place and we may not be able to continue our operations.

Because we are smaller and have fewer financial and other resources than many other companies that manufacture and sell equipment for road repair work, we may not be able to successfully compete in the very competitive road repair work equipment industry.

There are over eleven million miles of paved roadways throughout the world. There is significant competition among companies that manufacture and sell equipment to repair existing roadways. Our business faces competition from companies that are much more connected to the decision-makers, have been in business for a longer period of time, and have the financial and other resources that would enable them to invest in new technologies if they chose to. These companies may be able to achieve substantial economies of scale and scope, thereby substantially reducing their costs and the costs to their customers.  If these companies are able to substantially reduce their marginal costs, the market price to the customer may decline and we may be not be able to offer our preservation and repair equipment at a price that allows us to compete economically.  Even if we are able to operate profitably, these other companies may be substantially more profitable than us, which may make it more difficult for us to raise any financing necessary for us to achieve our business plan and may have a materially adverse effect on our business.

Mergers or other strategic transactions involving our competitors could weaken our competitive position, which could harm our operating results. If our competitors merge or are involved in other strategic transactions that place us at a disadvantage in the marketplace, our results of operations could decline.

Some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships.  Any consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure and could result in a competitor with greater financial, technical, marketing, service and other resources which could result in a loss of our expected market share. If this occurs, our results of operations could decline.

interests.

Our long-term plan depends,sole officer and director established his own internal controls over our financial reporting, disclosure controls and procedures. He is responsible for monitoring these controls and has limited experience that may lead to errors and omissions.

Mr. McGrain, as our sole officer and director is responsible for maintaining our financial reporting, including proper accounting records, selecting appropriate accounting principles, safeguarding assets and complying with relevant laws and regulations. His lack of experience may lead to inadequate controls and procedures resulting in part, on our ability to expanderrors and omissions that may go undetected and jeopardize the salesviability of our products to customers located outsidecompany.

If we lose the services of the United States and, accordingly, our businessMr. McGrain we will be susceptible to risks associated with international operations.left without management.

Mr. McGrain is currently our sole director and officer. If we are unable to successfully managefind a replacement prior to the risks involved in international operations, the expected growthloss of his services our business may fail.

We rely on consultants and if we are unable to retain these or other similarly qualified individuals, we may not be negatively impacted.able to carry out our business operations.

We are dependent upon service providers for accounting and legal matters. Loss of their services would adversely affect our business and our ability to maintain our operations. We may lose the services of our current consultants due to non-payment. If we lose the services of these consultants and are unable to find replacement consultants or similarly qualified individuals, our business may fail.

Our sole officer and director does not have experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.

Our sole officer and director has no public company management experience or responsibilities.  This could impair our ability to comply with legal and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required reports and other information required on a timely basis.  There can be no assurance that our management will be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations.  Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.

Because our sole officer and director has no experience with the asphalt restoration industry, we may not generate material sales and we face a high risk of failure.

Our sole officer and director has no experience operating in foreign jurisdictions. We continuean asphalt restoration business.  As such, there can be no assurance that we will be able to explore opportunities outsideimplement planned principal operations or generate any sales, and face a high risk of North America.  Our lack of experience in operating our business outside of North America increases the risk that our current and any future international expansion efforts will not be successful.  Conducting international operations subjects us to new risks that, generally, we do not face in the United States, including:

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fluctuations in currency exchange rates;

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unexpected changes in foreign regulatory requirements;

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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

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difficulties in managing and staffing international operations;

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potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings;

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localization of our solutions, including translation into foreign languages and associated expenses;

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the burdens of complying with a wide variety of foreign laws and different legal standards, including laws and regulations related to privacy;

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increased financial accounting and reporting burdens and complexities;

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political, social and economic instability abroad, terrorist attacks and security concerns in general; and

·

reduced or varied protection for intellectual property rights in some countries.

If we fail to manage the risks associated with international operations, expected international sales may not materialize or may not prove to be as profitable as anticipated.failure.

We may be sued by claimants that allege that they were injured due to our equipment.  Our business will be negatively impacted if we do not have sufficient insurance to protect us against these claims.

Any business today is at risk of becoming involved in lawsuits.  It is extremely difficult to identify all possibly claims that could be made against us based on our business, but to name a few, we may be sued by drivers that claim that roads repaired by our equipment caused them to get into an automobile accident or a worker using our equipment to repair a road may claim that he or she was injured by our equipment.  These claims may or may not be meritorious.  In any event, we will attempt to protect ourselves against these claims by purchasing general liability insurance.  There can be no assurance that we will be able to obtain the insurance or that it will be sufficient to protect us against future claims.  Further, even if we obtain insurance, some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage.  As a result, we might also be required to incur significant legal fees with no assurance of outcome, and we may be subject to adverse judgments or settlements that could significantly impair our ability to operate.

We are a voluntary filer and are not required to file Exchange Act reports going forward and may cease to file reports at any time and for any reason without notice.

On June 5, 2013 our S-1 registration statement became effective which meant we became subject to certain reporting obligations of the Exchange Act. Under Section 15(d) of the Exchange Act such an issuer is subject to the periodic and current reporting requirements of Section 13(a) of that Act. These reports would include Forms 10-K, 10-Q, and 8-K, but would not include items such as beneficial ownership reports and proxy statements.  The reporting obligation for such an issuer is automatically suspended if the class of securities is held by fewer than 300 record holders at the beginning of any fiscal year (other than a year in which the registration statement became effective).  Such an issuer then becomes a voluntary filer. A voluntary filer may continue to file periodic reports on a voluntary basis; however, it is not required to do so.

On January 1, 2015, we had fewer than 300 record holders and, thus, our reporting obligations were automatically suspended.  As such, we became a voluntary filer.  Although we are delinquent at this time in filing our Exchange Act reports for 2015, we have no plans to cease filing Exchange Act reports.  We may, however, cease to file our Exchange Act reports at any time and for any reason without notice.  As a result, less information may be publicly available than would be otherwise contained in our reports.

We may not maintain sufficient insurance coverage for the risks associated with our business operations. Accordingly, we may incur significant expenses for uninsured events and our business, financial condition and results of operations could be materially and adversely affected.

Risks associated with our business and operations include, but are not limited to, claims for wrongful acts committed by our officers, directors, employees and other representatives, the loss of intellectual property rights, the loss of key personnel and risks posed by natural disasters. Any of these risks may result in significant losses. We do not carry business interruption insurance. In addition, we cannot provide any assurance that our insurance coverage is sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under our insurance policies on a timely basis or at all. If we incur any loss not covered by our insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations could be materially and adversely affected.

15

We have raised substantial amounts of capital in private placements and if it is determined that we failed to comply with applicable securities laws, we could be subject to rescission claims or lawsuits that could severely damage our financial position.

We have offered and sold securities in private placements to investors pursuant to certain exemptions from the registration requirements of the Securities Act of 1933, as well as those of various state securities laws. Such exemptions are highly technical in nature and the basis for relying on such exemptions is factual; that is, the applicability of such exemptions depends upon our conduct and that of those persons contacting prospective investors and making the offering. We have not received a legal opinion to the effect that any of our prior offerings were exempt from registration under any federal or state law. Instead, we have relied upon the operative facts as the basis for such exemptions, including information provided by investors themselves. If any prior offerings did not qualify for such exemption, an investor would have the right to rescind its purchase of the securities if it so desired. If investors were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if we did not in fact qualify for the exemptions upon which it has relied, we may become subject to significant fines and penalties imposed by the Securities and Exchange Commission and state securities agencies.

Risks Related to our Common Stock:

The exercise of our warrants and options may result in a dilution of our current stockholders' voting power and an increase in the number of shares eligible for future resale in the public market which may negatively impact the trading price of our shares of common stock.

The exercise of some or all of our outstanding warrants and options could significantly dilute the ownership interests of our existing stockholders.  As of December 31, 20142015 we had outstanding warrants to purchase an aggregate of 2,424,9802,000,304 shares of common stock, the issuance of up to 1,246,500591,167 shares of common stock upon exercise of stock options and 1,440,00040,000 performance stock options.  To the extent warrants and/or options are exercised, additional shares of common stock will be issued, and such issuance will dilute existing stockholders.

In addition to the dilutive effects described above, the exercise of those securities would lead to an increase in the number of shares eligible for resale in the public market. Substantial dilution and/or a substantial increase in the number of common shares available for future resale may negatively impact the trading price of our shares of common stock.

An active, liquid and orderly trading market for our common stock may not develop and the trading price of our common stock may be volatile. If an orderly trading market for our common stock does not develop and/or if the trading price for our common stock is volatile, the trading price of our shares of common stock will likely result in higher spreads.

Our common stock is trading in the over-the-counter market and is quoted on the OTCQB.OTC Pink. The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our common stock. In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on stock exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers. We cannot insure that our trading volume will be sufficient to significantly reduce this spread, or that we will have sufficient market makers to affect this spread. These higher spreads could adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, the investor could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time the investor wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale. We do not anticipate that there will be any public trading market for the warrants.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, their respective prices may be more volatile.

Ownership of our common shares is concentrated and investors will have minimal influence on stockholder decisions.

As of December 31, 2014,2015, our executive officers, directors,officer, director, and a small number of investors, beneficially owned an aggregate of 9,259,7468,240,797 shares of common stock, shares underlying warrants, shares underlying exercisable options and/or preferred stock convertible into common stock, representing approximately 84%75% of the voting power of our then-outstanding capital stock.  As a result, our existing officers, directors,officer, director, and such investors could significantly influence stockholder actions of which other investors disapprove or that are contrary to their interests. This ability to exercise significant influence could prevent or significantly delay another company from acquiring or merging with us and the trading price of our shares of common stock could decline, and, accordingly, investors may lose all or part of their investment.

Securities analysts may not cover our common stock and this may have a negative impact on the market price of our common stock.

The trading market for our common stock may depend on the research and reports that securities analysts publish about us or our business.  We do not have any control over these analysts.  There is no guarantee that securities analysts will cover our common stock.  If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock.  If we are covered by securities analysts, and our stock is downgraded, the price of our stock would likely decline.  If one or more of these analysts ceases to cover us or fails to publish regularly reports on us, we could lose or fail to gain visibility in the financial markets, which could cause a decline in our stock price and/or trading volume, and, accordingly, investors may lose all or part of their investment.

The application of the Securities and Exchange Commission’s “penny stock” rules to our common stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.

If our common stock trades at less than $5.00 per share, then it will be subject to the Securities and Exchange Commission’s (“SEC”) penny stock rules.  Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules.  The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect investors’ ability to resell our common stock which may depress the market price of our common stock and, accordingly, investors may lose all or part of their investment.

We do not intend to pay dividends on common stock for the foreseeable future, and investors must rely on increases in the market prices of our common stock for returns on their investment.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur.  Investors seeking cash dividends should not purchase our common stock.  Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

Our executive offices arewere located in Gardena, California, during 2015 where we leaseleased 8,000 square feet of office and warehouse space.

ITEM 3. Legal Proceedings

The Company faces exposure to various legal claims in the ordinary course of business.  We maintain insurance policies in the amounts and with coverage and deductibles as we believe reasonable and prudent.  However, we cannot be assured that the insurance companies will promptly honor their policy obligations or that the coverage or levels of insurance will be adequate to protect us from all material expenses related to future claims.  We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of material legal proceedings.

ITEM 4. Mine Safety Disclosure

Not applicable.

PART II

ITEM 5. Market for Registrant’s Common Stock and Related Stockholder Matters

Our common stock, $0.0001 par value, has been traded on the Over-the-Counter marketplace (OTCQB) during 2015 under the symbol “HUWX” since October 7, 2013.  Prior to October 7, 2013, there was no public market for our common stock.

The above quotations, as provided by OTC Markets Group, Inc., reflect inter-dealer prices and do not include retail markup, markdown or commissions.  In addition, these quotations may not necessarily represent actual transactions.

As of April 8, 2015May 22, 2017 we had 105107 stockholders of record.

Dividends

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

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Securities Authorized for Issuance under Equity Compensation Plans

Our Board of Directors and stockholders approved the Amended and Restated Heatwurx, Inc. 2011 Equity Incentive Plan (the “Plan”) in October 2012.

Eligibility.  Employees, non-employee directors, advisors, and consultants of the Company and its affiliates are eligible to receive grants under the Plan.

Shares Available.  In October 2012, the Board of Directors and stockholders increased the number of shares of common stock reserved for issuance under the Plan to a total of 1,800,000 shares. There are currently 1,246,500591,167 outstanding option grants to officers, directors, employees and consultants under the Plan. If unexercised options expire or are terminated, the underlying shares will again become available for grants under the Plan.

Grants under the Plan.  The Plan provides for the grant of options to purchase shares of common stock of the Company. Options may be incentive stock options, designed to satisfy the requirements of Section 422 of the U.S. Internal Revenue Code, or non-statutory stock options, which do not meet those requirements.  Incentive stock options may only be granted to employees of the Company and its affiliates. Non-statutory stock options may be granted to employees, non-employee directors, advisors, and consultants of Company and its affiliates.

Outstanding Options.  As of December 31, 2014,2015, there were 810,00053,000 outstanding options exercisable at a price per share of $3.00; 85,000 outstanding options exercisable at a price per share of $2.00 and 436,500325,000 outstanding options exercisable at a price per share of $3.00.$1.50.  These options expire five years from the date of issuance. Options issued to directors are fully vested upon grant.  Options vest over a period of 2 - 4 years as specified at the time of grant.

Administration of the Plan.  The Plan provides that it will be administered by the Board or a Committee designated by the Board.  Our Board of Directors appointed a Compensation Committee, which administers the Plan.  The Compensation Committee has complete discretion to:

·

determine who should receive an option;

·

determine the type, the number shares, vesting requirements and other terms and conditions of options;

·

interpret the Plan and options granted under the Plan; and

·

make all other decisions relating to the operation and administration of the Plan and the options granted under the Plan.

Terms of Options.  The exercise price for non-statutory and incentive stock options granted under the equity compensation plan may not be less than 100% of the fair market value of the common stock on the option grant date or 110% in the case of incentive stock options granted to employees who own stock representing more than 10% of the voting power of all classes of common stock of the Company and its parent and subsidiaries (“10%-Stockholders”).  The Compensation Committee has the authority to establishing the vesting, including the terms under which vesting may be accelerated, and other terms and conditions of the options granted.  Options can have a term of no more than ten years from the grant date except for incentive stock options granted to 10%-Stockholders which can have a term of no more than five years from the grant date.

The Plan authorizes the Compensation Committee to provide for accelerated vesting of options upon a “Change in Control,” as defined in the Plan.  All of the options currently outstanding provide that if there is a Change in Control, (i) immediately prior to the effective date of the Change in Control, an unvested award will become fully exercisable as to all shares subject to the award and (ii) unless the option is assumed by a successor corporation or parent thereof, immediately following the Change in Control any unexercised options will terminate and cease to be outstanding. A Change in Control includes:

·

any Person (as such term is used in Sections 13(b) and 14(b) of the 1934 Act) is or becomes the beneficial owner ("Beneficial Owner") (as defined in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of securities representing fifty percent (50%) or more of the combined voting power of the Company’s securities that are then outstanding; provided, however, that an initial public offering shall not constitute a Change in Control for purposes of the Plan;

·

a merger or consolidation after which the Company’s then current stockholders own less than 50% of the surviving corporation; or

·

a sale of all or substantially all of the Company’s assets.

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Amendment and Termination.  The Board of Directors may amend or terminate the Plan and outstanding options at any time without the consent of option holders provided that such action does not adversely affect outstanding options. Amendments are subject to stockholder approval to the extent required by applicable laws and regulations. Unless terminated sooner, the Plan will automatically terminate on April 15, 2021, the tenth anniversary of April 15, 2011, the date the Plan was adopted by our Board of Directors and approved by our Stockholders.

The table below provides information as to the number of options outstanding and their weighted average exercise price at December 31, 2014.2015.

EQUITY COMPENSATION PLAN INFORMATION

⁽¹⁾ Excludes 1,440,00040,000 performance options that were not issued under the equity compensation plan.

Unregistered Sales of Equity Securities

On October 1, 2014, we commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit (the “Units”“Units”).  Each Unit consists of one common share and one-half warrant, with each whole warrant exercisable at $2.00 per share.  The purchase price for the Units is payable in either cash, conversion of outstanding Series D preferred shares or certain outstanding promissory notes. As of December 31, 2014 the Company raised $366,324 and issued 209,324 shares of common stock and warrants to purchase 104,659 shares of common stock as part of the private equity offering.  The Company issued 1,207,491 shares of common stock and warrants to purchase 603,742 shares of common stock as part of the conversion of 704,379 Series D preferred shares.  The Company issued 1,100,876 shares of common stock and warrants to purchase 550,438 shares of common stock as part of the conversion of $1,926,537 principal and accrued interest in certain outstanding promissory notes.  The Company recognized a loss of $822,205 on the extinguishment of these promissory notes during the year ended December 31, 2014.  The Company raised an additional $88,000 and issued 50,284 shares of common stock and warrants to purchase 25,141 shares of common stock subsequent to December 31, 2014 through the close of the offering on March 1, 2015.

On March 13, 2015, we issued a total of 15,000 shares of common stock to a total of three individuals for services performed.  These issuances were made pursuant to Regulation S promulgated by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”). The issuances were made in off-shore transactions as defined in Regulation S and there were no directed selling efforts made in the U.S. by us or any of our respective affiliates, or any person acting on behalf of any of the foregoing. Applicable offering restrictions were also implemented by us in compliance with Rule 903(b)(3) of Regulation S. Those who received the shares also agreed to conform to the restrictions on resale of the securities contained in Regulation S. No selling commissions were paid in connection with the share issuances.

These Units in the above offerings were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as transactions by an issuer not involving any public offering.  Each of the investors was an accredited investor as defined in Regulation D.  Each investor delivered appropriate investment representations with respect to these issuances and consented to the imposition of restrictive legends upon the stock certificates representing the shares and the warrant certificates.  Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction.  No underwriting discounts or commissions were paid in connection with the issuances.

ITEM 6. Selected Financial Data

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report.

This Item 7 may contain forward-looking statements that involve substantial risks and uncertainties.  When considering these forward-looking statements investors should keep in mind the cautionary statements in this report.  Please see the sections entitled “Cautionary Notice Regarding Forward-Looking Statements” and Item 1A. “Risk Factors” elsewhere in the report.

Heatwurx, Inc. was incorporated under the laws of the State of Delaware on March 29, 2011 as Heatwurxaq, Inc. and subsequently changed its name to Heatwurx, Inc. (“the Company” or “Heatwurx”) on April 15, 2011.

We are an asphalt preservation and repair, equipment company. Our innovative, and eco-friendly hot-in-place recycling process corrects surface distresses within the top 3 inches of existing pavement by heating the surface material to a temperature between 325° and 375° Fahrenheit with our electrically powered infrared heating equipment, mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair, and mixing in additional recycled asphalt pavement and a binder (asphalt-cement), and then compacting repaired area with a vibrating roller or compactor. We consider our equipment to be eco-friendly as the Heatwurx process reuses and rejuvenates distressed asphalt, uses recycled asphalt pavement for filler material, eliminates travel to and from asphalt batch plants, and extends the life of the roadway.  We believe our equipment, technology and processes provide savings over other processes that can be more labor and equipment intensive.

Our hot-in-place recycling process and equipment was selected by the Technology Implementation Group of the American Association of State Highway Transportation Officials (“AASHTO TIG”TIG”) as an “additionally Selected Technology” for the year 2012. We develop, manufacture and intend to sell our unique and innovative and eco-friendly equipment to federal, state and local agencies as well as contractors for the repair and rehabilitation of damaged and deteriorated asphalt surfaces.

In January 2014, we acquired Dr. Pave, LLC a service company offering asphalt repair and restoration utilizing the Heatwurx asphalt repair technology.  Dr. Pave, offered asphalt restoration services to municipalities and the commercial sector in southern California.  

Effective July 22, 2014, we established a new entity named Dr. Pave Worldwide LLC to house our franchise program providing franchisees with the exclusive Heatwurx equipment and processing.  We formally launched our franchise sales program throughout the U.S. in the third quarter of 2014; however, to date, no franchises have been sold.  The Company has decided not to renew its franchise registrations throughout the U.S. do to the extensive costs.  During 2015, we began offering license agreements, which grants a license of all Heatwurx equipment and supplies and the use of the Heatwurx intellectual property within a specified territory.  We have one licensee as of December 31, 2015.  

During 2015 we are no longer receiving financial support and we do not believe we will be able to obtain financing from another source.  We do not believe we are able to achieve a level of revenues adequate to support our cost structure.  Do to the slow growth in the service sector and the high cost of the franchise registrations, we have decided to discontinue the operations of Dr. Pave, LLC and Dr. Pave Worldwide LLC.  In addition, we have significantly scaled back operations to maintain only a minimal level of operations necessary to support our licensee, warehouse the equipment held for the licensee and look for potential merger candidates.  During 2015, the Company has started its transition fromentered into a technology development focused companyletter of intent with the licensee to a salessell all remaining equipment and marketing focused company.inventory warehoused in the Gardena location.  Based upon the Company’s current financial position, the Company does not believe it will be able to satisfy the mandatory principal payments in 2016.  The Company will work with the lenders to explore extension or conversion options.  There is uniquely positionedno guarantee the lenders will accommodate our requests.  As of December 31, 2015; principal in the amount of $947,361 is outstanding and payable within six months under the secured notes.  These notes are secured by all of the assets of the Company, including intellectual property rights.  We are in default in regards to interest payments on the notes, and as a result the Company’s assets may be foreclosed upon.   

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The issues described above raise substantial doubt about the Company’s ability to continue as a going concern.  It is our intention to move forward as a public entity and to seek potential merger candidates.  If the Company fails to merge or be acquired by another company, we will be required to terminate all operations.

Section 107 of the JOBS Act provides that an “emerging growth company can take advantage of the infrastructure road issues plaguing most statesextended transition period provided in Section 7(a)(2)(B) of the country,Securities Act for complying with new or revised accounting standards.  In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.  However, we are choosing to “opt out” of such extended transition period, and as a permanent road repair solution,result, we will comply with new or revised standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.  Section 107 of the JOBS Act provides that comesour decision to opt out of the extended transition period for complying with an industry first 5 year warranty.  The Company’s sales and marketing strategy will focus on finding licensed partners, both municipal and private, with a focus on selling the consumables in volume.  Our efforts will be to use political and industry influencers to help spread the word, create targeted marketing programs and use social media to expand our reach.  The Companynew or revised accounting standards is excited to announce it offers a guaranteed repair insured by a division of an A rated Insurance Company.  The Company is positioned to sell; and we believe our efforts will save municipalities, utilities, and private industry millions of dollars by extending the life of roadways.irrevocable.

Results of operations for the year ended December 31, 20142015 compared to year ended December 31, 20132014

For the year ended December 31, 2014,2015, our net loss was $4,526,000,$2,982,920, compared to a net loss of $3,069,000,$3,685,601, for the year ended December 31, 2013.2014.  Further description of these losses is provided below.

Revenue

Revenue decreasedincreased slightly to approximately $200,000$113,000 for the year ended December 31, 2015 from approximately $107,000 for the year ended December 31, 2014 from approximately $312,000 for the year ended December 31, 2013.  Revenue is generated from the saleas a result of ourincreased consumables sales; offset by equipment and consumable products as well as service work performed.discounts.  Our consumables consist of our proprietary blend of polymer pellets used to strengthen the repair when mixed in to the recycled asphalt product; and RxEHAB rejuvenation strips which is an oil-based product which creates the binding agent for the asphalt repair.  The decrease was a result of fewer equipment sales during the year, offset by an increase in service revenue from repairs performed.

Cost of Goods Sold

Cost of goods sold decreasedincreased to approximately $113,000$126,000 for the year ended December 31, 2015 from $67,000 for the year ended December 31, 2014, from $188,000 for the year ended December 31, 2013, due to decreasedincreased consumable sales ofand significant sales discounts issued on our equipment as described above.equipment; generating a negative gross profit.

Selling, General and Administrative

Selling, general and administrative expenses increaseddecreased to approximately $2,845,000$945,000 for the year ended December 31, 20142015 from approximately $2,819,000$2,020,000 for the year ended December 31, 2013.2014. The increasedecrease in selling, general and administrative expenses is principally due to an increasethe significant reduction in operating activities which include a decrease in employee expenses of approximately $180,000; an increase$601,000; a decrease in travel and office expenses of approximately $258,000$236,000 which includes commercial insurance, rent and other expenses incurred in the addition of the Dr. Pave office in California; offset by a decrease in outside consulting fees of $181,000,expenses; a decrease in advertising and promotion activities of approximately $166,000,$205,000; and a net reductiondecrease in legal fees, offering related costs and investor relations costsexpenses of approximately $65,000.$36,000, offset by an increase in bad debt expense of $5,000.

Research and DevelopmentImpairment of assets held for sale

ResearchAs part of the strategy to keep operations running at minimum capacity, we have chosen to sell assets or return collateralized assets to relieve the debt, which are not critical to the continued operations and development decreasedsupport of our licensee. The items we consider critical will be our Heatwurx branded products, the HWX-30 heater; HWX-30S heater, HWX-AP40 processor, which are held for our licensee and included in assets held for sale.  We have reclassified assets for sale from equipment or inventory and recognized an impairment loss when the carrying amount of the assets exceeds its fair value.  During the year ended December 31, 2015 we recognized an impairment on assets held for sale in the amount of $186,068.

Based on our current financial condition and the inability to approximately $190,000obtain financing; we are unable to pursue the necessary commercialization activities to drive us to profitability.  We have therefore estimated no future cash flows related to the intangible assets and have recognized an impairment of intangible assets in the amount of $1,517,859 for the year ended December 31, 2014 from approximately $267,000 for the year ended December 31, 2013. The principal reason for the decrease is a reduction in legal and other intellectual property consulting fees related to certain patent applications on technology and processes that may be patentable.2015.

We currently have five issued U.S. patents: four utility patents and one design patent. One additional U.S. patent has been allowed and will issue in April 2015.  We have three pending U.S. patent applications and five foreign patent applications.  Three issued utility patents, US Patent Nos. 8,556,536; 8,562,247 and 8,714,871 were issued on Oct. 15, 2013, Oct. 24, 2013, and May 6, 2014, respectively and cover certain unique device and method of use aspects of our asphalt repair equipment.   Our design patent, US Patent No. D700,633, was issued on March 4, 2014 and covers the ornamental design of our asphalt processor.  U.S. Patent No. 8,801,325 issued August 12, 2014 and covers aspects of our computer-controlled asphalt heater. U.S. Pat. Appl. No. 14/456,285 will issue in April, 2015 and covers complementary features of our computer-controlled asphalt heater.

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We intend to develop other technologies for which we will seek patent protection. In addition, we have made and expect to continue to make certain international filings to attempt to protect our intellectual property rights in a limited number of countries outside of the United States. However, we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies. We do not believe our ability to operate our business is dependent on the patentability of our technology.

Loss on extinguishment of debt

During the year ended December 31, 2014 the Company settled notes with a net carrying value of $1,684,778 with the issuance of 1,100,876 common shares and granted warrants to purchase 550,438 shares of common stock.  The common shares and warrants had a total fair value of $2,506,872.  The Company recognized the difference between the fair value of the common shares and warrants and the net carrying amount of the extinguished debt as a loss of $822,205 on the extinguishment of unsecured notes payable during the year ended December 31, 2014.

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Impairment of goodwill

As part 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 2014, we recognized goodwill in the amount of $390,659.  The Company$390,659 as part of the total consideration paid, which is included in discontinued operations.  We determined that the goodwill wasshould be 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 from discontinued operations in the income statement, during the year ended December 31, 2014.

Research and Development

Research and development decreased to approximately $29,000 for the year ended December 31, 2015 from approximately $178,000 for the year ended December 31, 2014, as a result of fewer patent applications being filed thereby reducing the legal fees associated therewith, a decrease in manufacturing research and development costs, and a decrease in consulting fees.

We currently have six issued U.S. patents: five utility patents and one design patent. We have two pending U.S. patent applications and three foreign patent applications.  Three issued utility patents, US Patent Nos. 8,556,536; 8,562,247 and 8,714,871 were issued on Oct. 15, 2013, Oct. 24, 2013, and May 6, 2014, respectively and cover certain unique device and method of use aspects of our asphalt repair equipment.   Our design patent, US Patent No. D700,633, was issued on March 4, 2014 and covers the ornamental design of our asphalt processor.  U.S. Patent No. 8,801,325 issued August 12, 2014 and covers aspects of our computer-controlled asphalt heater. U.S. Patent No. 9,022,686 was issued May 5, 2015 and covers complementary features of our computer-controlled asphalt heater.

We intend to protect our intellectual property rights in the United States and in a limited number of countries outside of the United States. However, we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies. We do not believe our ability to operate our business is dependent on the patentability of our technology.

Income Taxes

We have incurred tax losses since we began operations. A tax benefit would have been recorded for losses incurred since March 29, 2011; however, due to the uncertainty of realizing these assets, a valuation allowance was recognized which fully offset the deferred tax assets.

Liquidity and capital resources

Overview

To date we have relied exclusively on private placements with a small group of investors and loans from a small group of related parties to finance our business and operations.  We have had little revenue since our inception.  For the year ended December 31, 2014, we incurred a net loss of approximately $4,526,000 and utilized $2,695,448 in cash flows from operating activities.  We had cash on hand of approximately $21,000 as of December 31, 2014.  Successful completion of our development program, implementation of our marketing strategy and transition to profitable operations is dependent upon obtaining additional financing until we are able to achieve a level of revenues adequate to support our cost structure.  Many of our objectives to establish profitable business operations rely upon the occurrence of events outside our control; there is no assurance that we will be successful in accomplishing these objectives.

We have incurred operating losses, accumulated deficit and negative cash flows from operations since inception.  As of December 31, 2014,2015, we had an accumulated deficit of approximately $12,905,000.$14,875,000 from continuing operations.

Management anticipates that we will require substantial additional funds to continueOperating Activities

The Company has had little revenue since inception.  For the year ended December 31, 2015, the Company incurred a net loss from continuing operations of approximately $2,983,000 and used approximately $640,000 in net cash from operating activities from continuing operations and approximately $232,000 in net cash from operating activities from discontinued operations.  AsThe Company had total cash on hand of approximately $14,000 as of December 31, 2014, we had approximately $21,000 cash2015.

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The Company is not able to obtain additional financing adequate to fulfill its commercialization activities, nor achieve a level of revenues adequate to support the Company’s cost structure.   The Company does not currently have any revenue under contract nor does it have any immediate sales prospects.  The Company has significantly reduced employees and overhead. The decision to cease operations of Dr. Pave, LLC and Dr. Pave Worldwide, LLC was made on hand and were spending approximately $290,000 per month,December 31, 2015. These business components are captured within discontinued operations as of whichDecember 31, 2015. The Company has significantly scaled back operations to maintain only a minor amount was satisfiedminimal level of operations necessary to support our licensee, warehouse the equipment held for the licensee and look for potential merger candidates.  It is the Company’s intention to move forward as a public entity and to seek potential merger candidates.  If the Company fails to merge or be acquired by gross proceeds fromanother company, we will be required to terminate all operations.  Hence, the amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.

Financing Activities

In October 2013, the Company initiated a follow-on Series D preferred stock offering to sell the remaining 772,352 units at $3.00 per unit.  During 2014, the Company issued 171,987 units sold at $3.00 per unit for gross proceeds of $515,963.  The Company paid share issuance costs in the amount of $6,000.  Each unit in this offering consists of one share of the Company’s Series D preferred Stock and one-half warrant, with each whole warrant exercisable at $3.00 per share.  The Company issued warrants to purchase 85,993 shares of common stock outstanding. The warrants will be exercisable by the holders at any time on or after the issuance date of the warrants through October 1, 2015.

On January 6, 2014, we initiated a debt offering of up to $1,000,000 under the terms of a Loan Agreement.  Each loan is evidenced by an unsecured promissory note bearing interest at the rate of 12% per annum and maturing on January 6, 2016.  Interest will be paid in equal monthly installments on the first day of each month.  As additional consideration for a lender to enter into the Loan Agreement, we agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to us, exercisable at $3.00 per share.  The warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without our consent.  On February 28, 2014, we completed our $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. We allocated the fair value of the warrants in the amount of $248,129 as a discount on notes payable which will be amortized over the term of the notes to interest expense in the income statement.  The Company recognized amortization of discount on notes payable in interest expense of $100,999 for the year ended December 31, 2014.

On March 1, 2014,2015, we commenced a similar non-public offering of notes and warrants up to $3,000,000 which remained open until December 31, 2014.  The promissory notes 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 us in prior offerings may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering received one warrant for each $3.00 loaned.  The three-year warrants are exercisable immediately at $3.00 per share.  As of the closing of the offering, we issued notes in the aggregate principal amount of $1,299,003 and were issued with an aggregate of 432,995 warrants to the investors.  We allocated the fair value of the warrants in the amount of $207,014 as a discount on notes payable which will be amortized over the term of the notes to interest expense in the income statement.  The Company recognized amortization of discount on notes payable in interest expense of $52,618 for the year ended December 31, 2014.

We utilized $500,000 of the debt to payclosed our February 2014 and April 2014 final required principal payments on the senior subordinated note payable.

On October 1, 2014, the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit (the “Units”).  Each Unit consistsconsisted of one common share and one-half warrant, with each whole warrant exercisable at $2.00 per share.  The purchase price for the Units iswas payable in either cash, conversion of outstanding Series D preferred shares or certain outstanding promissory notes.  As ofFor the year ended December 31, 2014 the Company2015, we raised $366,324cash proceeds of $88,000 and issued 209,32450,285 shares of common stock and warrants to purchase 104,65925,141 shares of common stock as part of the private equity offering.  The Company issued 1,207,491 shares of common stock and warrants to purchase 603,742 shares of common stock as part of the conversion of 704,379 Series D preferred shares.  

On October 15, 2014, principal in the amount of $1,819,003 and accrued interest in the amount of $30,487 from the unsecured notes payable was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 1,056,850 common shares and 528,425 warrants in the private equity offering dated October 1, 2014.

On October 9, 2014, the Company received $75,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on November 15, 2014.  The note was extended to a maturity date of February 15, 2015.  On December 31, 2014, principal and accrued interest in the total amount of $77,047 was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 44,026 common shares and 22,013 warrants in the private equity offering dated October 1, 2014.

On December 11, 2014 the Company received $20,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, principal and unpaid interest was due and payable on February 15, 2015.  On February 23,16, 2015, the note was convertedwe entered into a seniorSenior secured note payable under a $2 million loan agreement with JMW Fund, Richland Fund, and San Gabriel Fund.Fund (collectively, the “lenders”) whereby the lenders agreed to loan to us up to an aggregate of $2,000,000.  The interest rate on the notes is 12% per annum and monthly interest payments are due the first day each month beginning March 1, 2015.  The notes mature six months from the date of issuance.  If any interest payment remains unpaid in excess of 90 days, and the lender has not declared the entire principal and unpaid accrued interest due and payable, the interest rate on that amount only will be increased to 18% per annum, until the past due interest amount is paid in full.  The notes and any future notes under the loan agreement are secured by all of the assets of the Company, including intellectual property rights. During the year ended December 31, 2015, we have issued notes with an aggregate principal amount of $947,361.

We received $80,000 in short-term unsecured notes in January 2015; which were converted on February 23, 2015 into senior secured notes payable under the $2 million loan agreement as described above, and included above in the aggregate principal amount.  In addition, on February 23, 2015 we converted the outstanding $20,000 short-term unsecured note, entered into during December 2014, into a senior secured note payable under the $2 million loan agreement, included above in the aggregate principal amount.  

In June 2015 we converted $160,000 in secured notes plus accrued interest of $14,361 into senior secured notes payable under the $2 million loan agreement, and is included above in the aggregate principal amount.

Cash Requirements

The issues described in the paragraphs above raise substantial doubt about our ability to continue as a going concern. We arehave been solely reliant on raising additional capital or borrowing funds in order to maintain our current operations.  To date, we have beenWe were able to raise debt and equity financing through the assistance of a small number of our investors who have been substantial participants in ourits debt and equity offerings since our formation.  If theseThese investors choosehave chosen not to assist us with our capital raising initiatives in the future,initiatives.  At this time we doare not expect that we would be able to obtain any alternative forms of financing at this time and we wouldwill not be able to continue to satisfy our current or long term obligations.  Based upon our current monthly spendWe desire to merge or be acquired by another company.  If a candidate is not identified we anticipate the need to raise at least $3,500,000 to meet our cash flow requirements for the next twelve months.will cease operations all together.

Total Contractual Cash Obligations

A summary of our total contractual cash obligations as of December 31, 2014,2015, is as follows:

⁽¹⁾Amount relates to our warehouse and office lease agreement through July 2015.

⁽²⁾ Includes equipment utilized in our demonstration process and service work performed.

⁽³⁾ Represents a revolving line of credit entered into by Dr. Pave at its inception in July 2013.2013, disclosed in discontinued operations.

⁽⁴⁾⁽²⁾ Amount represents outstanding unsecured notes payable under the Company’s loan agreements.agreements which mature in January 2016.

⁽⁵⁾⁽³⁾ Amount represents outstanding balance on senior secured notes payable that mature on June 30, 2015.in February 2016.

Off-Balance Sheet Arrangements

We do not engage in off-balance sheet financing activities.

Critical Accounting Policies and Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates, allocations and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, accrued liabilities and certain expenses. We base our estimates about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience and on other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements.  See Note 2 of the accompanying Notes to the Financial Statements included in Item 8 of this Form 10-K for additional information on these policies and estimates, as well as a discussion of additional accounting policies and estimates.

Revenue Recognition

Equipment sales revenue is recognized when equipment is shipped to our customer and collection is reasonably assured. We sell our equipment (HWX-30 heater and HWX-AP-40 asphalt processor), as well as certain consumables, such as RxEHAB rejuvenation strips and Polymer pellets, to third parties.  Equipment sales revenue is recognized when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed and determinable; (c) collectability is reasonably assured; and (d) delivery has occurred.  Persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer.  We assess collectability at the time of the sale and if collectability is not reasonably assured, the sale is deferred and not recognized until collectability is probable or payment is received.  Typically, title and risk of ownership transfer when the equipment is shipped.

Research and Development Expenses

Research and development costs are expensed as incurred and consist of direct and overhead-related expenses. Expenditures to acquire technologies, including licenses, which are utilized in research and development and that have no alternative future use are expensed when incurred. Technology we develop for use in our products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated.

Stock-based Compensation

We record equity instruments at their fair value on the measurement date by utilizing the Black-Scholes option-pricing model.  Stock Compensation for all share-based payments, is recognized as an expense over the requisite service period.

The significant

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Significant assumptions utilized in determining the fair value of our stock options included the volatility rate, estimated term of the options, risk-free interest rate and forfeiture rate.  In order to estimate the volatility rate at each issuance date, given that we havethe Company has not established a historical volatility rate as it has minimal trading volume since we began trading in October 2013, management reviewed volatility rates for a number of companies with similar manufacturing operations to arrive at an estimated volatility rate for each option grant.  The term of the options was assumed to be five years, which is the contractual term of the options.  The risk-free interest rate was determined utilizing the treasury rate with a maturity equal to the estimated term of the option grant.  Finally, management assumed a zero forfeiture rate in 2014 as the options granted were either fully-vested upon the date of grant or had relatively short vesting periods.  As such,In 2015, with Company changes and significant reduction in operations and personnel, management does not currently believe that any of the options granted will be forfeited.  We will monitor actual forfeiture rates, if any, and make any appropriate adjustments necessary to ourestimated a forfeiture rate in the future.of 25%.

Non-employee share-based compensation charges generally are immediately vested and have no future performance requirements by the non-employee and the total share-based compensation charge is recorded in the period of the measurement date.

Assets held for sale

When assets are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified as long-lived assets held-for-sale and measured at their fair value based on the Company’s own judgments about assumptions that market participants would use in pricing the asset and on observable market data, when available.  An impairment loss is recorded in the statement of operations for long-lived assets held-for-sale when the carrying amount of the asset exceeds its fair value less cost to sell. A long-lived asset is not depreciated while it is classified as held-for-sale.

Impairment of Long-Lived Assets

We review long-lived assets for impairment on an annual basis, during the fourth quarter or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods.

Recent Accounting Pronouncements

TheASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. A public business entity and a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market should apply the ASU prospectively to both of the following:

·

All disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years

·

All businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years.

All other entities should apply the ASU prospectively to both of the following:

·

All disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015

·

All businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015

ASU 2014-09, Revenue from Contracts with Customers (Topic 606):

In May 2014, the Financial Accounting Standards Board recently issued Accounting StandardsASU 2014-09 - Revenue from Contracts with Customers. The Update (ASU) 2014-15, Presentationprovides a robust framework for addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. The revenue recognition policies of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continuealmost all entities will be affected by the new guidance in the ASU. For public business entities, the ASU, as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation everyamended, is effective for annual reporting periodperiods beginning after December 15, 2017, including interim periods (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the datewithin that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.reporting period.

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The Financial Accounting Standards Board recently issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, ConsolidationConsolidation:, which

ASU 2014-10 eliminates the financial reporting distinction of being a development stage entity withinfrom U.S. generally accepted accounting principles. Accordingly,GAAP. For public business entities, the ASU eliminates the incremental requirements for development stage entities to (a) present inception-to-date information in the statements of income, cash flows and shareholder’s equity, (b) label the financial statements as those of a development stage entity, (c) disclose a description of the development stage activities in which the entity is engaged and (d) disclose in the first year in which the development stage entity that in prior years it had been in the development stage. The amendments related to the elimination of inception-to-date information should be applied retrospectively. For public business entities, those amendmentsand the other remaining disclosure requirements of ASC Topic 915 are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early application of each of theseFor other entities, the amendments is permitted for any annual reporting period or interim period for which the entity’s financials statements has not yet been issued.  We have elected early application of these amendments beginning with the quarterly report filed for September 30, 2014.

The Financial Accounting Standards Board recently issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in three parts: (a) "Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40)," (b) "Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables," and (c) "Background Information and Basis for Conclusions."  The new presentation guidance isare effective for interim and annual reporting periods beginning after December 15, 2016.  We2014, and interim reporting periods beginning after December 15, 2015.

ASU 2014-10 also eliminates an exception provided to development stage entities in paragraph 810-10-15-16 of the “Variable Interest Entities (VIE)” subsections of Subtopic 810-10 for determining whether an entity is a VIE on the basis of the amount of investment equity that is at risk. For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein. For all other entities, the amendments to Topic 810 should be applied retrospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017.

ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern:

In August 2014, the Financial Accounting Standards Board issued ASU 2014-15 - Presentation of Financial Statements - Going Concern. The Update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are consideringconditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the impactdate the financial statements are issued. The amendments in the update are effective for the annual period ending after December 15, 2016.

ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory:

In July 2015, the Financial Accounting Standards Board issued ASU 2015-11, Inventory (Topic 330):  Simplifying the Measurement of Inventory.  The amendments in the ASU require entities to measure in scope inventory at the lower of cost and net realizable value.  Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.  For public entities, ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis.  Early adoption of ASU 2014-09 on our results of operations, financial condition and cash flows.2015-11 is permitted.