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, 2014


or


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


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

For the fiscal year ended December 31, 2016

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)


Delaware

45-1539785

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)


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)


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.


Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

Emerging growth company [  ]


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, 20142016 was approximately $7,757,683.$1,447,232.  As of April 8, 2015,September 10, 2017, the number of the registrant’s common shares outstanding was 11,061,114.11,017,388.


DOCUMENTS INCORPORATED BY REFERENCE:


None.



































Heatwurx, Inc.

Form 10-K


Table of Contents



PART I

4

ITEM 1. Business

4

ITEM 1A. Risk Factors

9

ITEM 1B. Unresolved Staff Comments

1814

ITEM 2. Properties

1814

ITEM 3. Legal Proceedings

1814

ITEM 4. Mine Safety Disclosure

1814

PART II

1815

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

1815

ITEM 6. Selected Financial Data

2117

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

2117

ITEM 8. Financial Statements and Supplementary Data

2723

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

5342

ITEM 9A. Controls and Procedures

5342

ITEM 9B. Other Information

5443

PART III

5443

ITEM 10. Directors, Executive Officers and Corporate Governance

5443

ITEM 11. Executive Compensation

5644

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

5844

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

6046

ITEM 14. Principal Accountant Fees and Services

6347

PART IV

6447

ITEM 15. Exhibits

64

SIGNATURES

6647



























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” 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, 2016.  


During 2016, we did not receive financial support and we are unable to obtain financing from another source.  We do not expect 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 discontinued the operations of Dr. Pave, LLC and Dr. Pave Worldwide LLC during 2015.  We have significantly scaled back operations to maintain only a minimal level of operations necessary to support our licensee and look for potential merger candidates.  It is our products, our effortsintention to move forward as a public entity and to seek a merger candidate.  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® NEW 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® NEW 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


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 inch40-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.


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”.




6



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).


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





7



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.  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,September 10, 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 September 30, 2016, we failed to make a mandatory principal and interest payments under the senior secured note dated February 16, 2015. The failure to make a mandatory 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 2016.


On June 30, 2016, the Company assumed the revolving line of credit from Dr. Pave, LLC.  The revolving line of credit was secured by all the assets of Dr. Pave, LLC.  Dr. Pave, LLC was discontinued and there are no assets to secure the liability.  There have been no payments under the revolving line of credit.


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.








9



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 are unable to make required payments on our secured line of credit, we are in default and the creditors could foreclose on all of our assets. Such event couldwould 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,a strategic acquisitions,acquisition, and we may not be able to do so on commercially reasonable terms or at all.all and be forced to cease all operations.


We have a limitedsingle member of management holding the positions of Interim Chief Executive Officer and Interim Chief Financial Officer.  We may have a conflict of interest between the best interests of our company and the best interests of our director’s other business interests.


Mr. John McGrain remains our sole officer.  Mr. McGrain is also a member of JMW Fund, LLC, San Gabriel Fund, LLC, and Richland Fund, all of which are significant equity and debt holders of the Company. A conflict of interest may arise between the best interests of our company and the best interests of Mr. McGrain's other business interests. In such a situation where a conflict of interest exists any decision by Mr. McGrain which furthers the best interests of his other business interest may be harmful to our business. Additionally, we have no established parameters or understandings regarding the allocation of present or future business opportunities between us and Mr. McGrain’s other business interests.


We rely on consultants and if we are unable to retain these or other similarly qualified individuals, we may not be 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. If we lose the services of these consultants and are unable to find replacement consultants or similarly qualified individuals, our business may fail.




10



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


Our sole officer 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 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 has no experience operating history andan asphalt restoration business.  As such, 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 financing is very limited. These issues raise substantial doubt as to our ability to continue as a going concern.


We have 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 markets 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 operations 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 continue as a going concern.  The Company’s independent accounting firm has included an explanatory paragraph in its audit opinion describing this condition.  Management of the Company intends to address these issues by raising additional capital through private placements and the issuance of additional debt.  There can be no assurance that the Company will be able raise additional capital or secure additional debt.


At inception, our business essentially consisted of the investment in in-process research 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 life 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 have a negative impact on our business 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 majority of the warranty items will be passed through from the OEM partners and resellers through us and ultimately to the manufacturer, there are some parts on our equipment which will not be the responsibility of the manufacturer such as the heating elements on our HWX-30 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 impacted and we may not be able to continue operations.





The growth of our business depends upon the development 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. Because of the complexity of our products, significant delays may occur 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:


·

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

·

establishing, managing and maintaining key reseller relationships;

·

finding licensed partners, both municipal and private

·

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

·

developing effective sales, advertising and marketing programs; and

·

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 obtainimplement planned principal operations 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 ongenerate any 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 inface 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 knowledge of our company and the industry with new hires, and we will not be dependent upon any one individual.  However, until we achieve more significant growth as a company, there is a disproportionate dependence upon our executive management team, and the loss of their services could significantly impair our business operations.  Some companies reduce thehigh 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, we may be unable to service our existing customers 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:


·

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

·

our patents will be issued;

·

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

·

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

·

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 contest regarding the issued or pending patents of others. In addition, we could incur substantial costs in defending ourselves in suits brought against 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 against 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.









Our long-term plan depends, in part, on our ability to expand the sales of our products to customers located outside of the United States and, accordingly, our business will be susceptible to risks associated with international operations. If we are unable to successfully manage the risks involved in international operations, the expected growth of our business may be negatively impacted.


We have no experience operating in foreign jurisdictions. We continue to explore opportunities outside 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:


·

fluctuations in currency exchange rates;

·

unexpected changes in foreign regulatory requirements;

·

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

·

difficulties in managing and staffing international operations;

·

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

·

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

·

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

·

increased financial accounting and reporting burdens and complexities;

·

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 2016, 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.








11



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, 20142016 we had outstanding warrants to purchase an aggregate of 2,424,9802,000,304 shares of common stock, the issuance of up to 1,246,500269,500 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.











12



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, 2014,2016, 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.



13



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 are located in Gardena, California, where we lease 8,000 square feet ofThe Company terminated its office and warehouse space.lease in January 2016.  There are currently no properties held by the Company.


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 2016 under the symbol “HUWX” since October 7, 2013.  Prior to October 7, 2013, there was no public market for our common stock.


 

CLOSING BID

 

CLOSING ASK

 

CLOSING BID

 

CLOSING ASK

2014

 

HIGH

 

LOW

 

HIGH

 

LOW

2016

 

HIGH

 

LOW

 

HIGH

 

LOW

First Quarter

 

3.00

 

2.01

 

3.25

 

2.33

 

0.23

 

0.16

 

0.40

 

0.30

Second Quarter

 

2.40

 

1.50

 

2.61

 

2.20

 

0.18

 

0.16

 

0.33

 

0.30

Third Quarter

 

2.35

 

1.25

 

2.40

 

1.53

 

0.16

 

0.16

 

0.38

 

0.30

Fourth Quarter

 

2.14

 

1.50

 

2.23

 

1.90

 

0.16

 

0. 14

 

0.43

 

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLOSING BID

 

CLOSING ASK

 

CLOSING BID

 

CLOSING ASK

2013

 

HIGH

 

LOW

 

HIGH

 

LOW

2015

 

HIGH

 

LOW

 

HIGH

 

LOW

First Quarter

 

-

 

-

 

-

 

-

 

2.10

 

1.10

 

2.20

 

0.90

Second Quarter

 

-

 

-

 

-

 

-

 

1.50

 

0.52

 

1.70

 

0.26

Third Quarter

 

-

 

-

 

-

 

-

 

1.01

 

0.51

 

1.01

 

0.55

Fourth Quarter

 

4.55

 

2.05

 

4.75

 

2.80

 

0.51

 

0.15

 

0.70

 

0.15





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, 2015September 10, 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.


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 1,246,500269,500 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, 2014,2016, there were 810,00039,500 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 436,500145,000 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 Companys 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 Companys then current stockholders own less than 50% of the surviving corporation; or

·

a sale of all or substantially all of the Companys assets.


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, 2014.2016.


EQUITY COMPENSATION PLAN INFORMATION


Equity compensation

plan approved by

security holders:

Number of securities to

be issued upon exercise

of outstanding options

Weighted average

exercise price of

outstanding options

Number of securities

remaining available for

future issuance under

equity compensation

plan

Number of securities to

be issued upon exercise

of outstanding options

Weighted average

exercise price of

outstanding options

Number of securities

remaining available for

future issuance under

equity compensation

plan

2011 Equity Incentive Plan

1,246,500 (1)

$ 2.35

553,500

269,500 (1)

$ 1.88

1,530,500


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





Unregistered Sales of Equity Securities


OnDuring 2015, the Company raised $88,000 and issued 50,284 shares of common stock and warrants to purchase 25,141 shares of common stock under the October 1, 2014 we commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit (the “Units”).offering.   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


On March 13, 2015, we issued a total of December 31, 2014 the Company raised $366,324 and issued 209,32415,000 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 warrants to purchase 104,659 sharesExchange Commission (the “Commission”) under the Securities Act of common stock1933, as partamended (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 private equity offering.  The Company issued 1,207,491foregoing. Applicable offering restrictions were also implemented by us in compliance with Rule 903(b)(3) of Regulation S. Those who received the shares of common stock and warrantsalso agreed to purchase 603,742 shares of common stock as partconform to the restrictions on resale 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 ofsecurities contained in Regulation S. No selling commissions were paid in connection with 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.share issuances.



There were no equity securities issued during 2016.





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.





17



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 TIGTIG”) 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.


During 2014, we acquired Dr. Pave, LLC a service company offering asphalt repair and restoration utilizing the Heatwurx asphalt repair technology and established a new entity Dr. Pave Worldwide LLC to house our franchise program providing franchisees with the exclusive Heatwurx equipment and processing.  We 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 decided not to renew its franchise registrations throughout the U.S. do to the extensive costs.  In 2015, we offered 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, 2016.  


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 discontinued the operations of Dr. Pave, LLC and Dr. Pave Worldwide LLC.  In addition, we significantly scaled back operations to maintain only a minimal level of operations necessary to support our licensee and look for potential merger candidates.  The Company sold the remaining equipment and inventory to the licensee during 2016.  Based upon the Company’s current financial position, the Company has started its transition from a technology development focused companydoes not believe it will be able to a sales and marketing focused company.satisfy the mandatory principal payments.  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, 2016; principal in the amount of $962,361 is outstanding and payable under the secured notes.  These notes are secured by all the assets of the Company, including intellectual property rights.  We are in default on the notes, and as a result the Company’s assets may be foreclosed upon.   


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, 20142016 compared to year ended December 31, 20132015


For the year ended December 31, 2014,2016, our net loss was $4,526,000,approximately $336,000 including income from discontinued operations of approximately $1,000, compared to a net loss of $3,069,000,approximately $3,354,000 including loss from discontinued operations of approximately $371,000 for the year ended December 31, 2013.2015.  Further description of these losses is provided below.





Revenue


Revenue decreased to approximately $200,000$5,000 for the year ended December 31, 20142016 from approximately $312,000$113,000 for the year ended December 31, 2013.  Revenue is generated from the sale2015 as a result of ourdecreased equipment and consumable products as well as service work performed.  Our consumables consistsales.  The prior year sales of consumables consisted 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 fewersales in 2015 were offset by significant sales discounts.  The Company does not anticipate any future revenue from equipment sales during the year, offset by an increase in service revenue from repairs performed.2017.




18



Cost of Goods Sold


CostThere was no cost of goods sold decreasedduring 2016 compared to approximately $113,000$126,000 for the year ended December 31, 20142015.  In 2015 the Company recognized cost of goods sold from $188,000 for the year ended December 31, 2013, due to decreasedconsumable sales, and had a negative gross profit as a result of our equipment as described above.significant discounts.


Selling, General and Administrative


Selling, general and administrative expenses increaseddecreased to approximately $2,845,000$70,000 for the year ended December 31, 20142016 from approximately $2,819,000$945,000 for the year ended December 31, 2013.2015. 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$406,000; a decrease in travel and office expenses of approximately $258,000$376,000 which includes commercial insurance, rent and other expenses incurred in the addition of the Dr. Pave office in California; offset byexpenses; a decrease in outside consulting feeslegal and investor relations expenses of $181,000,$53,000; a decrease in advertising and promotion activities of approximately $166,000,$35,000; and a net reductiondecrease in legal fees, offeringbad debt expense of $5,000.


Impairment of assets held for sale


As part of the strategy to keep operations running at minimum capacity, in 2015 we chose to sell assets or return collateralized assets to relieve the debt, which were not critical to the continued.  We reclassified these non-critical 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.


Impairment of intangible asset


Based on our current financial condition and the inability to obtain financing; we are unable to pursue the necessary commercialization activities to drive us to profitability.  We have therefore estimated no future cash flows related coststo the intangible assets and investor relations costsrecognized an impairment of approximately $65,000.intangible assets in the amount of $1,517,859 for the year ended December 31, 2015.


Research and Development


Research and development decreased to approximately $190,000$6,000 for the year ended December 31, 20142016 from approximately $267,000$29,000 for the year ended December 31, 2013. The principal reason for the decrease is2015, as a reduction in legal and other intellectual property consulting fees related to certainresult of fewer patent applications on technologybeing filed thereby reducing the legal fees associated therewith, a decrease in manufacturing research and processes that may be patentable.development costs, and a decrease in consulting fees.


We currently have fivesix issued U.S. patents: fourfive utility patents and one design patent. One additional U.S. patent has been allowed and will 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 will issue in April,9,022,686 was issued May 5, 2015 and covers complementary features of our computer-controlled asphalt heater.


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.


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.






22



Impairment of goodwill


As of January 1, 2014, Dr. Pave had net liabilities of $215,659 assumed by the Company; in addition to the consideration of 58,333 shares of common stock valued at $175,000.  The total consideration paid in the acquisition of Dr. Pave resulted in goodwill in the amount of $390,659.  The Company determined that the goodwill was immediately impaired as of the acquisition date based on the lack of service revenue for the prior year.  An impairment of goodwill from the acquisition in the amount of $390,659, was recorded as an operating expense in the income statement for the year ended December 31, 2014


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.




19



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, 2014,2016, we had an accumulated deficit of approximately $12,905,000.


Management anticipates that we will require substantial additional funds to continue operations.  As$15,255,000 from operating activities.  The Company had total cash on hand of approximately $3,000 as of December 31, 2014, we2016. 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.


Operating Activities


During 2016, the Company used $30,853 in cash for continuing operations and $12,350 for discontinued operations compared to cash used of $639,550 for continuing operations and $232,356 for discontinued operations during 2015.   This decrease in cash used for operating activities was due to the significant reduction in employees and overhead expenses.  The Company has had approximately $21,000 cash on hand and were spending approximately $290,000 per month, of whichlittle revenue since inception.  The Company does not currently have any revenue under contract nor does it have any immediate sales prospects. The Company has significantly scaled back operations to maintain only a minor amount was satisfiedminimal level of operations necessary to support our licensee and look for potential merger candidates.  For the year ended December 31, 2016, the Company incurred a net loss from continuing operations of approximately $337,000. The operations of Dr. Pave, LLC and Dr. Pave Worldwide, LLC have been discontinued. These business components are included in discontinued operations as of December 31, 2016. 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 proceedsanother company, we will be required to terminate all operations.


Investing Activities


During 2016 the Company received $17,000 in cash for continuing operations from operations.  Hence, the amountsale of assets held for sale.  Compared to net cash on hand is not adequate to meet our operating expenses overreceived of $29,701 from continuing operations and $10,503 from discontinued operations; primarily from the next twelve months.sale of property and equipment in 2015.


Financing Activities


In October 2013,During 2016, the Company initiated a follow-on Series D preferred stock offeringgenerated $15,000 in cash from financing activities compared to sell the remaining 772,352 units at $3.00 per unit.  During 2014,$821,098 in 2015.   This decrease in cash provided by financing activities was due to the Company issued 171,987 units sold at $3.00 per unitno longer receiving financial support for gross proceedsthe business and operations from their small group of $515,963.investors.  The Company paid share issuance costs inentered into a Senior secured loan agreement on February 16, 2015, extended on March 23, 2016, with JMW Fund, Richland Fund, and San Gabriel Fund (collectively, the amount of $6,000.  Each unit in this offering consists of one share of“lenders”) whereby the Company’s Series D preferred Stock and one-half warrant, with each whole warrant exercisable at $3.00 per share.  Thelenders agreed to loan to 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 underan aggregate of $2,000,000.  The interest rate on the terms of a Loan Agreement.  Each loannotes 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 oninterest payments are due 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.month beginning March 1, 2015.  The warrants expire three years followingnotes mature six months from the date of issuanceissuance.  If any interest payment remains unpaid in excess of 90 days, and maythe lender has not declared the entire principal and unpaid accrued interest due and payable, the interest rate on that amount only will be offered for sale, sold, transferred or assigned without our consent.  On February 28, 2014, we completed our $1,000,000 debt financing throughincreased to 18% per annum, until the sale ofpast due interest amount is paid in full.  The notes and warrantsany future notes 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 valueloan agreement are secured by all of the warrants in the amount of $248,129 as a discount on notes payable which will be amortized over the termassets of the notesCompany, including intellectual property rights. Upon the occurrence of an event of default the lenders have the right to interest expense inforeclose on the income statement.assets of the Company.  The Company recognized amortization of discount on notes payable in interest expense of $100,999 forreceived $15,000 under the Senior secured loan agreement during the year ended December 31, 2014.2016.


On March 1, 2014,During 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,During the year ended December 31, 2015, we issued notes with an aggregate principal in the amount of $1,819,003 and accrued interest in$753,000 under the amount of $30,487 from the unsecuredsenior secured notes payable was converted to one share of common stock plus one-half warrant for each $1.75 ofunder 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.$2 million loan agreement as described above.


On October 9, 2014, the Company

20



We received $75,000$80,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, with principal and unpaid interest due and payablenotes in January 2015; which were converted 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, 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, was convertedentered into during December 2014, into a senior secured note payable under athe $2 million loan agreement, with JMW Fund, Richland Fund, and San Gabriel Fund.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.



Based upon the Company’s current financial position and inability to obtain additional financing, we do not believe it will be able to satisfy the mandatory principal payments under the $2,000,000 senior secured debt.  We will continue to work with the lenders to explore additional extension or conversion options as needed.  These notes are secured by all the assets of the Company, including intellectual property rights.  We are in default on the notes, our assets may be foreclosed upon.



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, 2014,2016, is as follows:


Contractual

Obligation

Total

Due in 2015

Due in 2016-2017

Due in 2018-2019

Thereafter

Operating lease obligation (1)

$    35,133

$    35,133

$              -

$              -

$              -

Equipment financing (2)

190,320

56,486

108,070

25,764

-

Revolving line of credit (3)

229,980

229,980

-

-

-

Unsecured notes payable (4)

440,000

20,000

420,000

-

-

Senior secured notes payable (5)

160,000

160,000

-

-

-

TOTAL

$  1,055,433

$  501,599

$  528,070

$  25,764

$              -


Contractual

Obligation

Total

Due in

2017

Due in

2018-2019

Due in

2020-2021

Thereafter

Revolving line of credit (1)

$

229,980

$

229,980

$

-

$

-

$

-

Unsecured notes payable (2)

 

420,000

 

420,000

 

-

 

-

 

-

Senior secured notes payable (3)

 

962,361

 

962,361

 

-

 

-

 

-

TOTAL

$

1,612,341

$

1,612,341

$

-

$

-

$

-

(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, assumed by the Company in 2016.

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

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



21










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 significantSignificant 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 as the options granted were either fully-vested upon the date of grant or had relatively short vesting periods.  As such, 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 our25% forfeiture rate in the future.2015 due to Company changes and significant reduction in operations and personnel.


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.










Newly Adopted Accounting Standards and Recent Accounting Pronouncements


TheSee Note 2 of Notes to Consolidated Financial Accounting Standards BoardStatements in Item 8 for a discussion of newly adopted accounting standards and recently issued Accounting Standards Update (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. 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 every reporting period 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 date 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.accounting pronouncements.



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, Consolidation, which eliminates the financial reporting distinction of being a development stage entity within U.S. generally accepted accounting principles. Accordingly, 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 amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early application of each of these 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 is effective for interim and annual periods beginning after December 15, 2016.  We are considering the impact of the adoption of ASU 2014-09 on our results of operations, financial condition and cash flows.



ITEM 8. Financial Statements and Supplementary Data


Index to Financial Statements


Heatwurx, Inc.


ReportReports of Hein & Associates LLP, Independent Registered Public Accounting Firm

24

Consolidated Balance Sheets at December 31, 2016 and 2015

25

Consolidated Statements of Operations for the years ended December 31, 2016 and 2015

26

Consolidated Statements of Stockholders’ Equity (Deficit) for the period from January 1, 2015  through December 31, 2016

27

Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015

28

 

 

Consolidated Balance Sheets at December 31, 2014 and 2013

29

Consolidated Statements of Operations for the years ended December 31, 2014 and 2013

30

Consolidated Statements of Stockholders’ Equity for the period from December 31, 2012  through December 31, 2014

31

Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013

32

Notes to the Financial Statements

3329





































Pritchett, Siler & Hardy, P.C.

Certified Public Accountants

515 South 400 East, Suite 100

Salt Lake City, UT 84111

Office: (801) 328-2727 Fax: (801) 328-11123



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders

Stockholders of Heatwurx, Inc.


We have audited the accompanying consolidated balance sheets of Heatwurx, Inc. and subsidiaries as of December 31, 20142016 and 2013,2015, and the related consolidated statements of operations,income, stockholders’ equity (deficit), and cash flows for the years then ended. TheseHeatwurx, Inc.’s management is responsible for these consolidated financial statements are the responsibility of the Company's management.statements. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Companycompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’scompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Heatwurx, Inc. and subsidiaries as of December 31, 20142016 and 2013,2015, and the consolidated results of theirits operations and theirits cash flows for the years then ended, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements the Company has suffered recurring losses from operations, since incorporation and recognizedhas minimal revenues since inception. Additionally, the Company has an accumulated net deficit of approximately $13,000,000 as of December 31, 2014. These conditions raiseworking capital which raises substantial doubt about the Company'sits ability to continue as a going concern. Management's plansplan in regard to these matters are also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ Hein & Associates LLPPritchett, Siler and Hardy, P.C.


Irvine, CAPritchett, Siler and Hardy, P.C.

April 14, 2015Salt Lake City, UT

September 25, 2017









HEATWURX, INC.

CONSOLIDATED BALANCE SHEETS



 

December 31,

 

2016

 

2015

 

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

$

3,237

 

$

2,090

Prepaid expenses and other current assets

 

-

 

 

47,722

Assets held for sale

 

-

 

 

42,000

Current assets from discontinued operations

 

-

 

 

12,350

Total current assets

 

3,237

 

 

104,162

EQUIPMENT, net of depreciation

 

-

 

 

159

TOTAL ASSETS

$

3,237

 

$

104,321

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

$

166,165

 

$

159,249

Accrued liabilities

 

134,513

 

 

95,339

Interest payable

 

108,608

 

 

41,990

Interest payable, related party

 

332,566

 

 

119,618

Income taxes payable

 

200

 

 

200

Current portion of senior secured notes payable, related party

 

962,361

 

 

947,361

Current portion of unsecured notes payable, net of discount of $0 and

$967 at December 31, 2016 and 2015, respectively

 

420,000

 

 

419,033

Revolving line of credit

 

91,980

 

 

-

Revolving line of credit, related party

 

138,000

 

 

-

Current liabilities from discontinued operations

 

-

 

 

300,338

Total current liabilities

 

2,354,393

 

 

2,083,128

TOTAL LIABILITIES

 

2,354,393

 

 

2,083,128

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

Series D preferred stock, $0.0001 par value, 178,924 shares issued

and outstanding at December 31, 2016 and 2015; liquidation preference

of $864,743 at December 31, 2016 and $821,683 at December 31, 2015

 

18

 

 

18

Common stock, $0.0001 par value, 20,000,000 shares authorized;

11,017,388 issued and outstanding at December 31, 2016 and 2015

 

1,102

 

 

1,102

Additional paid-in capital

 

14,329,057

 

 

14,322,366

Accumulated deficit

 

(15,254,917)

 

 

(14,874,680)

Stockholders’ equity (deficit) from discontinued operations

 

(1,426,416)

 

 

(1,427,613)

Total stockholders’ equity (deficit)

 

(2,351,156)

 

 

(1,978,807)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$

3,237

 

$

104,321








The accompanying notes are an integral part of these consolidated financial statements.




HEATWURX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



 

For the year ended

December 31,

 

2016

 

2015

 

 

 

 

REVENUE:

 

 

 

Equipment sales

$

5,000

 

$

74,599

Other revenue

 

-

 

 

38,826

Total revenues

 

5,000

 

 

113,425

 

 

 

 

 

 

COST OF GOODS SOLD

 

-

 

 

125,876

GROSS PROFIT

 

5,000

 

 

(12,451)

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

69,968

 

 

945,460

Research and development

 

6,558

 

 

29,246

Impairment of intangible asset

 

-

 

 

1,517,859

Impairment of assets held for sale

 

-

 

 

186,068

Total expenses

 

76,526

 

 

2,678,633

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS, before taxes

 

(71,526)

 

 

(2,691,084)

 

 

 

 

 

 

OTHER INCOME AND EXPENSE

 

 

 

 

 

Gain from debt forgiveness

 

4,731

 

 

-

Loss on disposal of assets

 

(25,000)

 

 

(60,743)

Interest income

 

-

 

 

4,651

Interest expense, including amortization of debt discount

 

(245,384)

 

 

(235,644)

Total other income and expense

 

(265,653)

 

 

(291,736)

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(337,179)

 

 

(2,982,820)

Income taxes

 

-

 

 

(100)

LOSS FROM CONTINUED OPERATIONS, net of tax

 

(337,179)

 

 

(2,982,920)

LOSS FROM DISCONTINUED OPERATIONS, net of tax

 

1,197

 

 

(371,307)

   NET LOSS

$

(335,982)

 

$

(3,354,227)

 

 

 

 

 

 

Preferred Stock Cumulative Dividend and Deemed Dividend

$

(43,058)

 

$

(42,942)

Net loss applicable to common stockholders

$

(379,040)

 

$

(3,397,169)

Net loss per common share basic and diluted from continuing operations

 

(0.03)

 

 

(0.27)

Net loss per common share basic and diluted from discontinued operations

 

0.00

 

 

(0.03)

Net loss per common share basic and diluted

$

(0.03)

 

$

(0.31)

Weighted average shares outstanding used in calculating net loss per common share

 

11,017,388

 

 

11,012,565





The accompanying notes are an integral part of these consolidated financial statements.




HEATWURX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)



 

Series D

Preferred

Stock

Common Stock

Additional

Paid-In

Capital

Accumulated deficit Disc-

ontinued

Operations

Accumu-

lated

Deficit

Total

 

Shares

$

Shares

$

$

$

$

$

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

178,924

$18

10,952,356

1,095

14,111,944

(1,056,306)

(11,848,818)

1,207,933

Shares and warrants issued pursuant to private placement dated October 1, 2014

-

-

50,285

5

87,995

-

-

88,000

Adjustment for shares issued pursuant to private placement dated October 1, 2014

-

-

(253)

-

-

-

-

-

Stock issued for consulting services

-

-

15,000

2

25,498

-

-

25,500

Stock-based compensation (options)

-

-

-

-

96,929

-

-

96,929

Dividends accrued on Series D shares

-

-

-

-

-

-

(42,942)

(42,942)

Net loss from continuing operations

-

-

-

-

-

-

(2,982,920)

(2,982,920)

Net loss from discontinued operations

-

-

-

-

-

(371,307)

-

(371,307)

Balance at December 31, 2015

178,924

18

11,017,388

1,102

14,322,366

(1,427,613)

(14,874,680)

(1,978,807)

Stock-based compensation (options)

-

-

-

-

6,691

-

-

6,691

Dividends accrued on Series D shares

-

-

-

-

-

-

(43,058)

(43,058)

Net loss from continuing operations

-

-

-

-

-

-

(337,179)

(337,179)

Net income from discontinued operations

-

-

-

-

-

1,197

-

1,197

Balance at December 31, 2016

178,924

18

11,017,388

1,102

14,329,057

(1,426,416)

(15,254,917)

(2,351,156)



















28



HEATWURX, INC.

CONSOLIDATED BALANCE SHEETS


 

December 31,

 

2014

2013

ASSETS

 

 

CURRENT ASSETS:

 

 

Cash and cash equivalents

$  21,234

$  186,864

Accounts receivable

4,095

19,200

Prepaid expenses and other current assets

131,862

80,386

Inventory

222,018

228,256

Total current assets

379,209

514,706

EQUIPMENT, net of depreciation

466,413

369,775

INTANGIBLE ASSETS, net of amortization

1,696,430

2,053,572

TOTAL ASSETS

$  2,542,052

$  2,938,053

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

CURRENT LIABILITIES:

 

 

Accounts payable

$  190,168

$  77,028

Accrued liabilities

105,613

256,094

Advance payment

-

155,497

Deferred revenue

58,165

-

Interest payable

19,541

1,812

Income taxes payable

100

100

Loan payable

56,486

41,186

Current portion of senior secured notes payable

160,000

-

Current portion of senior subordinated note payable

-

500,000

Revolving line of credit

229,980

-

Current portion of unsecured notes payable

20,000

90,000

Total current liabilities

840,053

1,121,717

LONG-TERM LIABILITIES:

 

 

Loan payable

133,834

145,458

Unsecured notes payable, net of discount of $59,768

360,232

-

Total long-term liabilities

494,066

145,458

TOTAL LIABILITIES

1,334,119

1,267,175

COMMITMENTS AND CONTINGENCIES (NOTE 10)

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Series B preferred stock, $0.0001 par value, no shares issued and outstanding at December 31, 2014 and 177,000 shares issued and outstanding at December 31, 2013; there was no liquidation preference as of December 31, 2014 and $416,227 at December 31, 2013

-

18

 

 

 

Series C preferred stock, $0.0001 par value, no shares issued and outstanding as of December 31, 2014 and 101,000 shares issued and outstanding at December 31, 2013; there was no liquidation preference as of December 31, 2014 and $224,668 at December 31, 2013

-

10

 

 

 

Series D preferred stock, $0.0001 par value, 178,924 shares issued and outstanding at December 31, 2014 and 727,648 shares issued and outstanding at December 31, 2013; liquidation preference of $810,216 at December 31, 2014 and $2,403,691 at December 31, 2013

18

73

 

 

 

Common stock, $0.0001 par value, 20,000,000 shares authorized; 9,495,045 issued and 10,952,356 outstanding at December 31, 2014 and 8,082,000 shares issued and outstanding at  December 31, 2013

1,095

808

Additional paid-in capital

14,111,944

8,483,727

Accumulated deficit during development stage

(12,905,124)

(6,813,758)

Total stockholders’ equity

1,207,933

1,670,878

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$  2,542,052

$  2,938,053

The accompanying notes are an integral part of these consolidated financial statements.


29



HEATWURX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



 

For the year ended

December 31, 2014

For the year ended

December 31, 2013

REVENUE:

 

 

Equipment sales

$  101,119

$  253,463

Service revenue

92,962

25,000

Other revenue

6,120

34,017

Total revenues

200,201

312,480

 

 

 

COST OF GOODS SOLD

113,251

188,002

GROSS PROFIT

86,950

124,478

 

 

 

EXPENSES:

 

 

Selling, general and administrative

2,844,784

2,818,736

Research and development

189,745

267,062

Loss on extinguishment of debt

822,205

-

Impairment on goodwill

390,659

-

Total expenses

4,247,393

3,085,798

 

 

 

LOSS FROM OPERATIONS

(4,160,443)

(2,961,320)

 

 

 

OTHER INCOME AND EXPENSE:

Interest income

249

2,394

Interest expense

(365,956)

(109,725)

Total other income and expense

(365,707)

(107,331)

 

 

 

LOSS BEFORE INCOME TAXES

(4,526,150)

(3,068,651)

Income taxes

(100)

(50)

           NET LOSS

$  (4,526,250)

$  (3,068,701)

 

 

 

Preferred Stock Cumulative Dividend

 and Deemed Dividend

1,502,891

21,302

Net loss applicable to common stockholders

$  (6,029,141)

$  (3,090,003)

Net loss per common share basic and diluted

$  (0.68)

$  (0.61)

Weighted average shares outstanding used in calculating net loss per common share

8,857,815

5,037,405







The accompanying notes are an integral part of these consolidated financial statements.




30



HEATWURX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM DECEMBER 31,2012 THROUGH

DECEMBER 31, 2014

 

Series A

Preferred Stock

Series B

Preferred Stock

Series C

Preferred Stock

Series D

Preferred Stock

Common Stock

Additional

Paid-In

Capital

Accumu-

lated

Deficit

Total

 

Shares

$

Shares

$

Shares

$

Shares

$

Shares

$

$

$

$

Balance at December 31, 2012

600,000

$60

1,500,000

$150

760,000

$76

-

$ -

1,900,000

$ 190

$5,992,636

$(3,430,807)

$2,562,305

Preferred stock conversion to common shares

(600,000)

(60)

(1,323,000)

(132)

(659,000)

$(66)

-

-

6,182,000

$618

$(360)

$        -

$        -

Issued pursuant to private placement dated June 22, 2013

-

-

-

-

-

-

727,648

73

-

-

2,182,871

-

2,182,944

Share issuance costs

-

-

-

-

-

-

-

-

-

-

(84,232)

-

(84,232)

Stock-based compensation

-

-

-

-

-

-

-

-

-

-

216,083

-

216,083

Dividends accrued on Series C shares

-

-

-

-

-

-

-

-

-

-

-

(69,096)

(69,096)

Dividends on accrued on Series D shares

-

-

-

-

-

-

-

-

-

-

-

(68,425)

(68,425)

Beneficial conversion feature on issuance of Series D shares

-

-

-

-

-

-

-

-

-

-

176,729

(176,729)

-

Net loss for the period

-

-

-

-

-

-

-

-

-

-

-

(3,068,701)

(3,068,701)

Balance at December 31, 2013

-

$  -

177,000

$18

101,000

$10

727,648

$73

8,082,000

$808

$8,483,727

$(6,813,758)

$1,670,878

Preferred stock conversion to common shares

-

-

(177,000)

$(18)

(101,000)

$(10)

(16,332)

$(2)

294,332

$29

$  -

$  -

$  -

Issued pursuant to private placement dated June 22, 2013

-

-

-

-

-

-

171,987

17

-

-

515,946

-

515,963

Share issuance costs

-

-

-

-

-

-

-

-

-

-

(6,000)

-

(6,000)

Shares issued in the Acquisition of Dr. Pave, LLC

-

-

-

-

-

-

-

-

58,333

6

174,994

-

175,000

Preferred stock conversion to common shares issued in private placement dated October 1, 2014

-

-

-

-

-

-

(704,379)

(70)

1,207,491

121

(50)

-

-

Inducement premium on preferred stock conversion to common

-

-

-

-

-

-

-

-

-

-

1,332,376

(1,332,376)

-

Debt conversion in private placement dated October 1, 2014

-

-

-

-

-

-

-

-

1,100,876

110

2,506,872

-

2,506,982

Issuance of commons stock and warrants

-

-

-

-

-

-

-

-

209,324

21

366,303

-

366,324

Stock-based compensation

-

-

-

-

-

-

-

-

-

-

231,524

-

231,524

Dividends accrued on Series C shares

-

-

-

-

-

-

-

-

-

-

-

(2,200)

(2,200)

Beneficial conversion feature on Series D

-

-

-

-

-

-

-

-

-

-

51,110

(51,110)

-

Dividends paid or accrued on Series D shares

-

-

-

-

-

-

-

-

-

-

-

(179,430)

(179,430)

Warrants issued in connection with debt offering

-

-

-

-

-

-

-

-

-

-

455,142

-

455,142

Net loss for the period

-

-

-

-

-

-

-

-

-

-

-

(4,526,250)

(4,526,250)

Balance at December 31, 2014

-

-

-

-

-

-

178,924

$18

10,952,356

$1,095

$14,111,944

$(12,905,124)

$1,207,933


The accompanying notes are an integral part of these consolidated financial statements.



3127



HEATWURX, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS


 

For the year ended

December 31, 2014

For the year ended

December 31, 2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

Net loss

$  (4,526,250)

$    (3,068,701)

Adjustments to reconcile net loss to cash flows used in operating activities:

 

 

     Depreciation expense

104,118

57,763

     Amortization of intangible assets

357,142

357,143

     Amortization of discount on note payable

153,617

-

     Loss on extinguishment of debt

822,205

-

     Impairment of goodwill

390,659

-

Stock-based compensation

231,524

216,083

Changes in current assets and liabilities:

 

 

  Decrease in receivables

15,105

11,751

  Increase in prepaid and other current assets

(26,984)

(24,518)

  Increase in inventory

(77,474)

(97,369)

  (Decrease) in income taxes payable

-

(50)

  Increase in accounts payable

84,399

3,856

  (Decrease) increase in accrued liabilities

(331,937)

6,091

  Increase in deferred revenue

58,165

-

  Increase (decrease) in interest payable

50,263

(818)

Cash used in operating activities

(2,695,448)

(2,538,769)

CASH FLOWS FROM INVESTING ACTIVITES:

 

 

Purchases of property and equipment

(48,299)

(27,674)

Acquisition of business

3,355

-

Cash used in investing activities

(44,944)

(27,674)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

Proceeds from advance payment

-

73,359

Proceeds from issuance of unsecured notes payable

2,244,003

90,000

Proceeds from issuance of senior secured notes payable

-

1,000,000

Repayment of senior secured notes payable

-

(250,018)

Repayment of senior subordinated note payable

(500,000)

(500,000)

Proceeds from issuance of common shares

366,324

-

Proceeds from issuance of Series D preferred shares

509,963

1,348,730

Repayment on equipment loan payable

(45,528)

(30,239)

Cash provided by financing activities

$  2,574,762

$  1,731,832

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

(165,630)

(834,611)

CASH AND CASH EQUIVALENTS,

beginning of period

186,864

1,021,475

CASH AND CASH EQUIVALENTS,

end of period

$  21,234

$    186,864

 

For the year ended

December 31,

 

2016

 

2015

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

Net loss

$

(335,982)

 

$

(3,354,227)

Less: (Income) loss from discontinued operations, net of tax

 

(1,197)

 

 

371,307

Loss from continuing operations

 

(337,179)

 

 

(2,982,920)

Adjustments to reconcile net loss from continuing operations to net cash used in

operating activities:

 

 

 

 

 

  Depreciation expense

 

159

 

 

60,251

  Gain on debt forgiveness

 

(4,731)

 

 

-

  Amortization of intangible assets

 

-

 

 

178,571

  Amortization of discount on note payable

 

967

 

 

58,801

  Impairment of assets held for sale

 

-

 

 

186,068

  Impairment of intangible asset

 

-

 

 

1,517,859

  Loss on disposal of equipment

 

25,000

 

 

60,743

  Bad debt expense

 

-

 

 

5,148

  Stock-based compensation

 

6,691

 

 

96,929

  Shares exchanged for services

 

-

 

 

25,500

Changes in current assets and liabilities:

 

 

 

 

 

  Decrease in receivables

 

-

 

 

(3,838)

  Decrease (increase) in prepaid expenses and other current assets

 

47,722

 

 

105,136

  Increase in inventory

 

-

 

 

(7,065)

  Increase in income taxes payable

 

-

 

 

100

  (Decrease) increase in accounts payable

 

(10,343)

 

 

5,318

  (Decrease) increase in accrued liabilities

 

686

 

 

(41,774)

  (Decrease) increase in deferred revenue

 

-

 

 

(58,165)

  Increase in interest payable

 

54,613

 

 

31,595

  Increase in interest payable, related party

 

185,562

 

 

122,193

Net cash used in operating activities from continuing operations

 

(30,853)

 

 

(639,550)

Net cash used in operating activities from discontinued operations

 

(12,350)

 

 

(232,356)

Net cash used in operating activities

 

(43,203)

 

 

(871,906)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

  Purchases of property and equipment

 

-

 

 

(1,399)

  Proceeds from the sale of assets held for sale

 

17,000

 

 

-

  Proceeds from the sale of property and equipment

 

-

 

 

31,100

Net cash provided by investing activities from continuing operations

 

17,000

 

 

29,701

Net cash provided by investing activities from discontinued operations

 

-

 

 

10,503

Net cash provided by investing activities

 

17,000

 

 

40,204

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

  Proceeds from issuance of senior secured notes payable

 

15,000

 

 

753,000

  Proceeds from issuance of common shares with warrants

 

-

 

 

88,000

  Repayment on equipment loan payable

 

-

 

 

(19,902)

Net cash provided by financing activities from continuing operations

 

15,000

 

 

821,098

Net cash provided by financing activities from discontinued operations

 

-

 

 

-

Net cash provided by financing activities

 

15,000

 

 

821,098

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(11,203)

 

 

(10,604)

CASH AND CASH EQUIVALENTS, beginning of period, including discontinued operations

 

14,440

 

 

25,044

CASH AND CASH EQUIVALENTS, Continuing Operations, end of period

 

3,237

 

 

2,090

CASH AND CASH EQUIVALENTS, Discontinued Operations, end of period

$

-

 

$

12,350




The accompanying notes are an integral part of these financial statements.



32



HEATWURX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.

1.  PRINCIPAL BUSINESS ACTIVITIES:ACTIVITIES:


Organization and Business - Heatwurx, Inc. (“Heatwurx,” the “Company”) is an asphalt repair equipment and technology company.  Heatwurx was incorporated on March 29, 2011 as Heatwurxaq, Inc. and subsequently changed its name to Heatwurx, Inc. on April 15, 2011.  On January 1, 2014, Heatwurx acquired Dr. Pave, LLC, a service company offering asphalt repair and restoration.  On July 22, 2014 Dr. Pave Worldwide, LLC was organized to offer franchises for the operation of businesses that use the Heatwurx branded equipment and Heatwurx repair process to repair, maintain and preserve roadways.  (Note 5)


2.

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:POLICIES:


Basis of Presentation - These consolidated financial statements and related notes are presented in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”) and are expressed in U.S. dollars.  The Company’s consolidated financial statements include Dr. Pave, LLC and Dr. Pave Worldwide, LLC; both wholly-owned subsidiaries.subsidiaries of the Company, which are represented in the Company’s discontinued operations (Note 6).  All intercompany balances and transactions have been eliminated in the consolidated financial statements.


Going Concern and Management’s Plan - The Company’s financial statements are prepared using U.S. GAAP applicableand are subject to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications had no effect on the net loss.


The Company also faces certain risks and uncertainties whichthat are present in many emerging companies regarding product development, future profitability, ability to obtain future capital, protection of patents and property rights, competition, rapid technological change, government regulations, recruiting and retaining key personnel, and third party manufacturing organizations.


To date we haveThe Company has previously relied exclusively on private placements with a small group of investors to finance ourits business and operations.  We haveThe Company has had little revenue since our inception.  For the year ended December 31, 2014,2016, the Company incurred a net loss from continuing operations of approximately $4,526,000$337,179 and utilizedused approximately $2,695,000$30,853 in net cash flows from operating activities.activities from continuing operations and approximately $12,350 in net cash from operating activities from discontinued operations. The Company had total cash on hand of approximately $21,000$3,237 as of December 31, 2014.  Successful completion of the Company’s marketing program and its transition2016. The Company is not able to profitable operations is dependent upon obtainingobtain additional financing adequate to fulfill its commercialization activities, andnor achieve a level of revenues adequate to support the Company’s cost structure.   ManyThe 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 Company discontinued operations of Dr. Pave, LLC and Dr. Pave Worldwide, LLC on December 31, 2015. These business components are captured within discontinued operations as of December 31, 2016 (Note 6). The Company has 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 the Company’s objectivesintention 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 Company cannot assure that additional debt, equity or other funding will be availablemove forward as a public entity and to it on acceptable terms, if at all.seek potential merger candidates.  If the Company fails to obtain additional funding when needed, it would be forced to scale back, or terminate its operations, or seek to merge with or be acquired by another company.company, we will be required to terminate all operations.


Management anticipates thatDuring the year ended December 31, 2016, the Company will require significant additional funds to continue operations.  Asreceived cash in the aggregate of December 31, 2014, we had approximately $21,000 cash on hand and were spending approximately $290,000 per month, of which only a minor amount was satisfied by gross proceeds from operations.  Hence,$15,000 under the amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.  As of April 8, 2015 the Company raised $450,000 in relation to a $2,000,000 senior secured debt offering issuedoffering.  Based upon the Company’s current financial position and inability to obtain additional financing, the Company was not able to satisfy the mandatory principal payments in February.2016 under the $2,000,000 senior secured debt.  The Company will continue to work with the lenders to explore extension or conversion options, but there is no guarantee the lenders will agree to modify the repayment terms of the notes under conditions that will allow the Company to continue to repay the notes, if at all. As these notes are secured by all of the assets of the Company, including intellectual property rights, the Company is in default in regard to interest payments on the notes, and the lenders may call the notes and foreclose on the Company’s assets.








The issues described above raise substantial doubt about the Company’s ability to continue as a going concern.  Although theThe Company has commenced a new $2,000,000 secured debt offering, it cannot guarantee it will be able to raise the entire offering amount, if any.  The Company isbeen solely reliant on raising additional debt and capital in order to maintain its current operations.  To datePreviously the Company has beenwas able to raise debt and equity financing through the assistance of a small number of our investors who have been substantial participants in its debt and equity offerings since the Company’s formation.  If theseThese investors choosehave chosen not to further assist the Company with its capital raising initiatives in the future,and, at this time, the Company doesis not expect that it would be able to obtain any alternative forms of financing at this time and the Company wouldwill not be able to continue to satisfy its current or long term obligations.  Based upon the Company’s current monthly spend theThe Company anticipates the need to raise at least $3,500,000 to meet its cash flow requirements for the next twelve months.  If the Company successfully raise $2,000,000 in the private debt offering, the proceeds the Company will receive and anticipated revenues from equipment sales and service performed may not be sufficient to fund the Company’s operations, including the Company’s expected capital expenditures, through the next twelve months.  Without additional funds, the Company will be required to reduce operations, curtail any future growth opportunities, cease operations all together, or seekneeds to merge with or be acquired by another company.  If a candidate is not identified, the Company will be forced to cease operations all together.



29



The accompanying audited financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be different should the Company be unable to continue as a going concern.


Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions by management that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates to be reasonable, actual results could differ materially from those estimates and could impact future results of operations and cash flows.


Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2014. At times, the Company may have cash balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits of up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.  As of December 31, 2014, none of the Company’s accounts exceeded the FDIC insured limits.


Accounts Receivable and Bad Debt Expense - Management reviews individual accounts receivable balances that exceed 90 days from the invoice date.  Based on an assessment of current creditworthiness of the customer, the Company estimates the portion, if any, of the balance that will not be collected.  All accounts deemed to be uncollectible are written off to operationoperating expense.  The Company recognized no bad debt expense during the year ended December 31, 2016 and $5,148 during the year ended December 31, 2015. There was no allowance for uncollectible accounts for the years ended December 31, 20142016 and 2013.


Inventories - The Company’s finished goods and materials and supplies inventories are recorded at lower of cost or net realizable value.  Cost is determined by using the FIFO (first-in, first-out) inventory method.2015.


Equipment - Equipment is stated at cost and consists of office and computer equipment depreciated on a straight linestraight-line basis over an estimated useful life of three years, and process demonstration equipment (demo equipment) depreciated on a straight linestraight-line basis over an estimated useful life of seven years.  Maintenance and repairs are charged to expense as incurred.



Assets held for sale - In efforts to streamline the operations and expenses the Company has opted to sell or return certain assets to improve cash flow or settle debt.  The 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 - The Company periodically reviews its long-lived assets to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition, at least annually or more frequently if events or changes in circumstances indicate a potential impairment may exist.  Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date.  An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets. The Company performs its impairment analysis in October of each year.  There were no impairment charges for the years ended December 31, 2014 and 2013.


Goodwill- The Company recognizes goodwill as the excess purchase price paid after allocation to the identifiable assets and liabilities based on their estimated fair value.  The Company assesses the carrying amount of goodwill for impairment annually, or more frequent if an event occurs or circumstances changes that would more likely than not reduce the fair value below its carrying value.  The Company recognized an immediate impairment of $1,517,859 on intangible assets related to the goodwill acquired in theasset purchase of Dr. Pave, LLC, based on the lack of service revenueagreement during the prior year.year ended December 31, 2015. (Note 5)


Intangible Assets - Intangible assets consistconsisted of developed technology acquired as part of an acquisition, which was deemed in-process research and development upon acquisition. During development, in-process research and development is not subject to amortization and is tested for impairment. In October 2012, the in-process research and development was reclassified as developed technology. The Company’s developed technology iswas amortized over its estimated useful life of seven years.  Based on the Company’s financial position and substantial doubt about the Company’s ability to continue as a going concern, the Company has chosen to estimate future cash flows at zero. The Company recognized an impairment of $1,517,859 during the second quarter of 2015.


Debt Discount- The Company recognizes the fair value of detachable warrants issued in conjunction with a debt instrument as debt discount.  The discount is amortized using the interest method over the life of the notes.  The amortization of the discount was $153,617$967 and $58,801 for the yearyears ended December 31, 2014.2016 and 2015, respectively.


Extinguishment of Debt - The Company recognizes any difference between the reacquisition price of debt and the net carrying amount of the extinguished debt in income of the period of the extinguishment as gains or losses.  The Company recognized a loss of $822,205 on the extinguishment of unsecured notes payable during the year ended December 31, 2014.

30



Stock-Based Compensation- The Company accounts for the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award, determined on the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. The Company estimates forfeitures at the time of grant and makes revisions, if necessary, at each reporting period if actual forfeitures differ from those estimates. The Company estimated future unvested forfeitures at 25% and 0% for the yearyears ended December 31, 2014.2016 and 2015, respectively.


Advertising Expense - The Company charges advertising costs to expense as incurred. Advertising costs were $90,109($69) and $247,500$25,431 from continuing operations for the year ended December 31, 20142016 and 2013,2015, respectively.


Income Taxes- The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.


The provision for income taxes includes federal and state income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax basis of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized.






With respect to uncertain tax positions, the Company would recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The Company had no unrecognized tax benefits or uncertain tax positions at December 31, 20142016 or 2013.2015.


Compensated absences - AtFor the years ended December 31, 20142016 and 2013,2015, the Company recorded a liability for paid time off earned by permanent employees but not taken, in accordance with human resource policies.


Research and development- 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 the Company develop for use in its products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated.


Revenue Recognition - The Company sells its equipment (HWX-30 heater, HWX-30S mobile heater and HWX-AP-40 asphalt processor), as well as certain consumables 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 the Company receives an order or contract from a customer.  The Company assesses 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.


Other revenue represents consumable revenue.


Interest income is recognized as earned, over the term of the investment.revenue and discounts on equipment and consumables sold.


Fair ValueConcentration of Supplier and Customer Risk - During the year ended December 31, 2016, one customer was responsible for 100% of total revenues.


Reclassifications- Prior year amounts have been adjusted to reflect the current year presentation. These reclassifications had no impact on the Company’s consolidated balance sheet or consolidated statements of operations or consolidated statements of cash flows.


Recent Accounting Pronouncements - In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which standardizes cash flow statement classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements, and distributions received from equity method investments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  We are considering the impact the adoption of ASU 2016-15 may have on our presentation of cash flows.



31



In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which standardizes cash flow statement classification of certain transactions, including cash payments for debt prepayment or extinguishment, proceeds from insurance claim settlements, and distributions received from equity method investments. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  We are considering the impact the adoption of ASU 2016-15 may have on our presentation of cash flows.


From May 2014 through December 2016, the FASB issued several ASUs related to Revenue from Contracts with Customers.  These ASUs are intended to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts.  The new guidance is effective for interim and annual periods beginning after December 15, 2017, although entities may adopt one year earlier if they choose.  The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.  We do not currently anticipate there would be any change to timing or method of recognizing revenue.  As such, we do not believe this new standard will have a material impact on our results of operations, financial condition or cash flows.


In August 2014, the FASB issued ASU 2014-15, Presentation of Financial InstrumentsStatements - Going Concern (“ASU 2014-15”), which would require disclosure of uncertainties about an entity’s ability to continue as a going concern. The new guidance is effective for the annual period ending after December 15, 2016 and for interim periods thereafter. We adopted ASU 2014-15 as of December 31, 2016, which did not have a significant impact on our financial statement disclosures.


3.

ASSETS HELD FOR SALE:


The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured atThe authoritative guidance for fair value into onemeasurements establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three different levels depending onof the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilitieshierarchy are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:


·

Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities

·

Level 2 - inputs to the valuation techniques that are other significantthan quoted prices but are observable inputs for the assets or liabilities, through corroboration with market data at the measurement date,either directly or indirectly

·

Level 3 - significantinputs to the valuation techniques that are unobservable inputsfor the assets or liabilities


The Company reviews the carrying amounts of long-lived assets whenever events or changes in circumstances indicate that reflect management’s best estimatethe carrying amounts may not be recoverable. An impairment loss is recognized when the carrying amount of whatthe long-lived asset is not recoverable and exceeds its fair value. The Company estimated the fair values of long-lived assets based on the Company’s own judgments about the assumptions that market participants would use to pricein pricing the assets or liabilities at the measurement date.asset and on observable market data, when available. The Company classified these fair value measurements as Level 3.


The carrying amount of certain financial instruments, including cash and cash equivalents and interest payable approximates fair value due to the relatively short maturity of such instruments. The senior secured, unsecured and senior subordinated notes payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at December 31, 2014 and 2013. The Company does not have any fair value instruments for assets and liabilities measured at fair value on a recurring or non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at December 31, 2014, nor gains or losses reported in the statement of operations.

Assets held for sale

 

Fair Value Measurements Using Significant

Unobservable Inputs (Level 3)

 

 

Equipment

Inventory

Total

Beginning balance

 

$

25,875

$

16,125

$

42,000

Disposals

 

 

 (25,875)

 

 (16,125)

 

 (42,000)

Ending balance

 

$

--

$

--

$

--







36



Concentration of Supplier and Customer Risk - During the year ended December 31, 2014,2016 the Company’s asphalt repairCompany recognized a loss on disposal of assets consisting of equipment including major components, were purchased from two primary suppliers providing an aggregateand inventory in the amount of 95% of total equipment purchases.  During the same period, two customers were responsible for an aggregate of 53% of total revenues.$25,000.


Recent Accounting Pronouncements

The Financial Accounting Standards Board recently issued Accounting Standards Update (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. 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 every reporting period 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 date 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.




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, Consolidation, which eliminates the financial reporting distinction of being a development stage entity within U.S. generally accepted accounting principles. Accordingly, 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 amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early application of each of these amendments is permitted for any annual reporting period or interim period for which the entity’s financials statements has not yet been issued.  The Company has 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 is effective for interim and annual periods beginning after December 15, 2016.  The Company is considering the impact of the adoption of ASU 2014-09 on its results of operations, financial condition and cash flows.


4.

3.  PROPERTY AND EQUIPMENT:EQUIPMENT:


A summary of the cost of property and equipment, by component, and the related accumulated depreciation is as follows:


 

December 31,

2014

 

December 31,

2013

December 31,

2016

 

December 31,

2015

Computer equipment & software

 

$

30,152

 

$

20,562

$

19,150

 

$

19,150

Demo equipment

 

 

599,432

 

 

426,336

Leasehold improvements

 

 

22,580

 

 

-

 

 

652,164

 

 

446,898

Accumulated depreciation

 

 

(185,751)

 

 

(77,123)

 

(19,150)

 

 

(18,991)

 

$

466,413

 

$

369,775

$

--

 

$

159


Depreciation expense was $104,118$159 and $57,763$60,251 for the years ended December 31, 20142016 and 2013,2015, respectively. The Company recognized a loss on disposal of fixed assets of $60,743 during the year ended December 31, 2015.  The Company reclassified fixed assets with a net book value of $186,549 to assets held for sale, at fair market value and recognized a loss on impairment of assets held for sale during the year ended December 31, 2015 of $62,554.




5.

4.  ASSET PURCHASE AGREEMENT:AGREEMENT:


On April 15, 2011, the Company entered into an Asset Purchase Agreement with an individual who is a founder and a current stockholder. Pursuant to the agreement, the Company purchased the related business and activities of the design, manufacture and distribution of asphalt repair machinery under the Heatwurx brand. The total purchase price was $2,500,000. The purchase price was paid in a $1,500,000 cash payment and the issuance of a senior subordinated note to the seller in the amount of $1,000,000. (Note 6)


The business essentially consisted of the investment in research and development of the technology, the patents applied for as a result of the research and development activities and certain distribution relationships that were in process, but not finalized as of the acquisition date.  Collectively, these investments constitute the in-process research and development the Company refers to as the “asphalt preservation and repair solution.” The Company capitalized $2,500,000 of in-process research and development related to this asphalt preservation and repair solution. As of October 1, 2012, in-process research and development is nowwas classified as developed technology and amortized over its estimated useful life of seven years. The initial estimated fair value of the in-process research and development was determined using the income approach.  Under the income approach, the expected future cash flows from the asset are estimated and discounted to its net present value at an appropriate risk-adjusted rate of return.  Based on the Company’s financial position and substantial doubt about the Company’s ability to continue as a going concern, the Company has chosen to estimate future cash flows at zero.  The Company recognized an impairment of $1,517,859 during the second quarter of 2015. As of December 31, 2014,2015, the Company’s developed technology intangible asset had a value of $1,696,430, net of accumulated amortization of $803,570.no value.  Amortization expense prior to the impairment for the years ended December 31, 2014 and 20132015 was $357,142 and $357,143; respectively.$178,571.


Expected amortization expense for our developed technology for the next five years is as follows:


2015

$ 357,143

2016

357,143

2017

357,143

2018

357,143

2019

267,858

 

$ 1,696,430


In conjunction with the Asset Purchase Agreement, the Company granted 200,000 performance stock options to a founder of the Company with an exercise price of $0.40 per share and a term of seven years. Following the effectiveness of the seven for one stock split that was completed in October 2011, the 200,000 performance stock options were exchanged for 1,400,000 performance stock options with an exercise price of $0.057 per share.  AsOn February 10, 2015, the founder of December 31, 2014 there is no expectation that thesethe Company elected to cancel the 1,400,000 performance stock options will vest.options.


6.

5.  ACQUISITIONDISCONTINUED OPERATIONS:


On January 7, 2014,In efforts to streamline operations and expenses the Company entered into an Agreement and Plan of Reorganization (the “Acquisition Agreement”) dated January 8, 2014 withelected to discontinue the Dr. Pave LLC, a California limited liability company (“Dr. Pave”).and Dr. Pave was controlled by David Dworsky, the Chief Executive OfficerWorldwide entities during 2015.  The financial results of the Company.  The acquisition of Dr. Pave gave the Company the immediate ability to provide service work to municipalities and other end purchasers of Heatwurx equipment. The Company acquired all of the outstanding membership interests in Dr. Pave for 58,333 shares of common stock of the Company at a value of $3.00 per share for considerationthese events are represented in the amount of $175,000.  The considerationdiscontinued operations included the issuance of 41,668 shares to Dworsky Partners, LLC, an entity in which David Dworsky owned 80% of the ownership interest, and 3,333 shares to Reginald Greenslade, one of the Company’s directors.  As a result of the acquisition, which closed on January 8, 2014, Dr. Pave became a wholly owned subsidiary of the Company.   The parties to the Acquisition Agreement established the effective date of the closing of the transaction for tax and accounting purposes as of January 1, 2014.







38



As of January 1, 2014, Dr. Pave had net liabilities of $215,659 assumed by the Company; in addition to the consideration of 58,333 shares of common stock valued at $175,000.  The total consideration paid in the acquisition of Dr. Pave resulted in goodwill in the amount of $390,659.  The Company determined that the goodwill was immediately impaired as of the acquisition date based on the lack of service revenue for the prior year.  An impairment of goodwill from the acquisition in the amount of $390,659, was recorded as an operating expense in the income statement for the year ended December 31, 2014.2016 and 2015 financial statements.


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


 

For the Years Ended

December 31,

 

2014

 

2013

REVENUES

 

 

 

Equipment sales

$

101,119

 

$

253,463

Service revenue

 

92,962

 

 

25,000

Other revenue

 

6,120

 

 

34,017

     Total revenues

 

200,201

 

 

312,480

 

 

 

 

 

 

COST OF GOODS SOLD

 

113,251

 

 

188,002

GROSS PROFIT

 

86,950

 

 

124,478

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

2,844,784

 

 

3,072,383

Research and development

 

189,745

 

 

267,062

Loss on extinguishment of debt

 

822,205

 

 

-

Impairment of goodwill

 

390,659

 

 

-

Total expenses

 

4,247,393

 

 

3,339,445

LOSS FROM OPERATIONS

 

(4,160,443)

 

 

(3,214,967)

 

 

 

 

 

 

OTHER INCOME AND EXPENSE:

 

 

 

 

 

Interest income

 

249

 

 

2,394

Interest expense

 

(365,956)

 

 

(121,737)

     Total other income and expense

 

(365,707)

 

 

(119,343)

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(4,526,150)

 

 

(3,334,310)

Income taxes

 

(100)

 

 

(50)

     NET LOSS

$

(4,526,250)

 

$

(3,334,360)

 

 

 

 

 

 

Preferred stock cumulative dividend and deemed dividend

 

1,502,891

 

 

21,302

 

 

 

 

 

 

Net loss attributable to common stockholders

$

(6,029,141)

 

$

(3,355,662)

 

 

 

 

 

 

Net loss per common share basic and diluted

$

(0.68)

 

$

(0.67)

 

 

 

 

 

 

Weighted average shares outstanding used in calculating net loss per common share

 

8,857,815

 

 

5,037,405









The operating results of the discontinued operations of Dr. Pave and Dr. Pave Worldwide for the years ended December 31, 2016 and 2015 are summarized below:


 

2016

 

2015

Revenue

$

--

 

$

28,870

Expense

 

(1,733)

 

 

400,177

   Net Income (loss), before Other

   income and expense and taxes

 

1,733

 

 

(371,307)

Other income (expense)

 

(536)

 

 

 

Income tax benefit

 

--

 

 

--

   Net Loss, net of tax

$

1,197

 

$

(371,307)


The balance sheet items for discontinued operations as of December 31, 2015 and 2014 are summarized below:


 

2016

 

2015

Cash and cash equivalents

$

--

 

$

12,350

   Total assets

$

--

 

$

12,350

 

 

 

 

 

 

Payables and accrued liabilities

 

--

 

 

70,358

Short-term debt

 

--

 

 

229,980

   Total liabilities

$

--

 

$

300,338


The Company’s borrowings included in discontinued operations as of December 31, 2016 and 2015 are as follows:


Revolving line of credit - The Company assumed revolving lines of credit through the January 8, 2014 acquisition of Dr. Pave in the amount of $229,980.  In June 2016, Heatwurx, Inc. assumed the revolving lines of credit along with the accumulated accrued interest from the discontinued entity Dr. Pave, LLC (see Note 7 below).


Secured Notes Payable - The Company assumed secured notes payable through the acquisition of Dr. Pave in the amount of $160,000. The principal amount and accrued interest in the amount of $14,361 was converted into the senior secured loan agreement as described below on June 30, 2015.


7.

6.  NOTES PAYABLE:PAYABLE:


Unsecured Notes Payable - The Company issued senior unsecured notes payable totaling $90,000 on December 11, 2013.  The notes bear interest at a rate of 12% per annum.  Interest was payable monthly on the first day of each month.  On October 15, 2014, full principal amount of $90,000 and accrued interest in the amount of $1,332 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 52,189 common shares and 26,095 warrants in the private equity offering dated October 1, 2014, see Note 8.


On January 6, 2014, the Company commenced atwo non-public offeringofferings of notes and warrants of up to $1,000,000.in 2014. The promissory notes bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  As additional consideration for a lender to enter into the Loan Agreement, the Company has agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to the Company. The Company allocated the fair value of the warrants as a discount on notes payable which is amortized over the term of the notes to interest expense in the income statement. The Warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without the consent of the Company.  The three-year warrants will bewere exercisable immediately at $3.00 per share.  The Company issued notes in the aggregate principal amount of $850,000 and issued an aggregate of 283,329 warrants to the investors.  The Company 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$967 and $58,801 during the year ended December 31, 2014.  On October 15, 2014, principal in the amount of $500,0002016 and accrued interest in the amount of $7,397 was converted to one share of common stock plus one-half warrant for each $1.752015, respectively.  As of the outstanding principaldate of this filing; these notes have not been paid in full and accrued interest.  The Company issued 289,941 common shares and 144,970 warrants in the private equity offering dated October 1, 2014, see Note 8.  As of December 31, 2014 there were notes outstanding with a carrying amount of $297,794, net of $52,206 debt discount.interest continues to accrue.


Secured Notes Payable - On March 1, 2014,February 16, 2015, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which closed 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.  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.  During 2014, the Company issued notes in the aggregate principal amount of $1,299,003 and were issued with an aggregate of 432,995 warrants to the investors.  The Company 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.  On October 15, 2014, principal in the amount of $1,229,003 and accrued interest in the amount of $21,758 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 714,720 common shares and 357,360 warrants in the private equity offering dated October 1, 2014, see Note 8.   As of December 31, 2014 there were notes outstanding with a carrying amount of $62,438, net of $7,562 debt discount.


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, the full principal amount of $75,000 and accrued interest in the amount of $2,047 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, see Note 8.


On December 11, 2014 the Company received $20,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on February 15, 2015.  As of December 31, 2014; principal in the amount of $20,000 was outstanding.  On February 23, 2015, the note was convertedentered 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 the Company 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.  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. The Company has not paid the interest on the notes timely and interest is therefore accrued at the 18% interest rate as stated above. On March 23, 2016; all senior secured notes were extended to a maturity date of September 30, 2016.  The Company is in default on the senior secured loan agreement.  The lenders may call the notes or foreclose upon the assets of the Company.




The following table shows the difference between the reacquisition price of debt and the net carrying amount of the extinguished debt.  The Company recognized a loss of $822,205 on the extinguishment of unsecured notes payable during the year ended December 31, 2014.34


 

Principal

Discounts

on notes

payable

Accrued

interest

Net

carrying

value of the

debt

Fair value

of the

common

stock and

warrants

Loss on

the

extinguishment

of debt

Unsecured note Issued December 2013

$ 90,000

$ --

$ 1,332

$ 91,332

$ 118,225

$ 26,893

Issued under the $1M loan agreement

500,000

94,924

7,397

412,473

656,807

244,334

Issued under the $3M loan agreement

1,229,003

146,834

21,758

1,103,927

1,619,064

515,137

October 9, 2014 Short-term

75,000

-

2,047

77,047

112,886

35,841

Total

$ 1,894,003

$ 241,758

$  32,534

$ 1,684,779

$ 2,506,982

$ 822,205



Revolving line of credit - The Company In June 2016, Heatwurx, Inc. assumed athe revolving line of credit entered into byalong with the accumulated accrued interest from the discontinued entity Dr. Pave, at its inception in July 2013 in the amountLLC.  The total available under line of $229,980.credit is $250,000 with $20,020 unused as of December 31, 2016. The balance on the line of credit bears interest at a rate of 12% per annum. Interest is payable monthly on the first day of each month. The outstanding principal amountbalances became due as of July 1, 2015, and all then-accruedwere payable in sixty (60) equally amortized monthly installments of principal and unpaid interest is payable on August 15, 2015.  Interestdue on the line of credit totaling $7,079 was outstanding at December 31, 2014.


Secured Notes Payable - The Company assumed secured notes payable issued by Dr. Pave on December 11, 2013 totaling $160,000.  The notes bear interest at a rate of 12% per annum.  Interest is payable monthly on the firstfifteenth day of each month.  Thecalendar month until paid in full. As of December 31, 2016 no principal amount and all then accrued and unpaid interestpayments have been made, the Company is payable on June 30, 2015.  Interestin default on the secured notes payable totaling $4,641 was outstanding at December 31, 2014.revolving line of credit. The Company is working with the lenders to explore extension or conversion options.


In May 2013 the company issued senior secured notes payable totaling $1,000,000. The notes bear interest at a rate of 12% per annum and was payable monthly on the first day of each month.  The entire principal balance and all accrued interest were due September 15, 2013.  In August 2013, principal in the amount of $749,982 was retired through the issuance of Series D preferred shares.  On September 15, 2013 the remaining principal in the amount of $250,018 and accrued interest was paid in full.

 

Principal

Balance

Interest

Rate

Accrued

Interest

Warrants

issued

Warrant

Fair Value

- Discount

Unamortized

Discount

Unsecured notes payable

$

420,000

12%

$

88,287

139,997

$

115,159

$

--

Secured notes payable

$

962,361

12% - 18%

$

292,703

--

 

--

 

--

Revolving line of credit

$

229,980

12%

$

60,184

--

 

--

 

--

 

$

1,612,341

 

$

441,174

139,997

$

115,159

$

--


Senior Subordinated Note Payable - The Company issued a senior subordinated note payable in the amount of $1,000,000 on April 15, 2011 to Richard Giles, a founder, stockholder and former director of the Company.  The note bears interest at a rate of 6% per annum and matured on April 15, 2014. The holder of the senior subordinated note agreed to subordinate to the lenders of the senior secured notes his security interest in the Company’s assets granted under the Subordinated Security Agreement dated April 15, 2011.  Mandatory principal payments of $500,000 were made in 2013 and the Company made the final required principal payments totaling $500,000 during the first half of 2014.


Loan Payable

In September 2012, the Company financed the purchase of equipment used for transportation and service work performed.  The note, in the original amount of $142,290, bears interest at a rate of 2.6% per annum and matures on September 4, 2017.  


In August 2013, the Company financed the purchase of a truck to transport our equipment used in service and demonstrations.  The loan, in the amount of $83,507, bears interest at a rate of 6.1% per annum and matures on December 1, 2018.  


In September 2014, the Company financed the purchase of equipment used in connection with the Heatwurx equipment to facilitate demonstrations and repairs.  The loan, in the amount of $49,204; matures on October 15, 2018.



41



As of December 31, 2014,2016, the loans are subject to mandatory principal payments as follows:


Year ending December 31,

Payments

2015

$

466,466

Year

Payments

2016

 

478,214

$

1,612,341

2017

 

49,856

 

--

2018

 

25,764

 

--

2019

 

--

 

--

2020

 

--

Total principal payments

$

1,020,300

$

1,612,341

Less: unamortized debt discount

 

--

Total current portion

$

1,612,341


Based upon the Company’s financial position, the Company does not believe it will be able to satisfy the mandatory principal payments in 2017.  The Company will work with the lenders to explore extension or conversion options.  There is no guarantee the lenders will accommodate our requests.  The Company is in default in regard to interest payments on the notes, the Company’s assets may be foreclosed upon.


8.

7.  INCOME TAXES:TAXES:


The Company and its predecessor file income tax returns in the U.S. federal jurisdiction and in the states of Colorado, Utah, North Dakota and California. There are currently no income tax examinations underway for these jurisdictions. The Company filed its initial tax returns for the nine months ended December 31, 2011 with federal and Utah and December 31, 2012 is the initial tax filing period for Colorado, and December 31, 2013 is the initial tax filing period for North Dakota and California.


The Company provides deferred income taxes for differences between the tax reporting bases and the financial reporting bases of assets and liabilities. The Company had no unrecognized income tax benefits. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would beclassified as a component of interest expense and operating expense, respectively. Unrecognized tax benefits are not expected to increase or decrease within the next twelve months.


As of December 31, 2014,2016, the Company’s tax year for 2011, 20122013, 2014 and 20132015 are subject to examination by the tax authorities.


Deferred Income Taxes - The Company does not recognize the deferred income tax asset at this time because the realization of the asset is less likely than not. As of December 31, 2014,2016 the Company has net operating losses for federal and state income tax purposes of approximately $8,386,743$13,094,547 and $7,717,262, respectively, which$12,407,648, respectively.  As of December 31, 2015, the Company had net operating losses for federal and state income tax purposes of approximately $12,761,702 and $12,704,903, respectively.




35



The net operating losses are available for application against future taxable income and which will start expiring in 2031 and 2026, respectively.2031. The benefit associated with the net operating loss carry forward will more likely than not go unrealized unless future operations are successful. Since the success of future operations is indeterminable, the potential benefits resulting from these net operating losses have not been recorded in the financial statements.


December 31,

2014

 

December 31,

2013

December 31, 2016

 

December 31, 2015

Deferred Tax Assets:

 

 

 

 

 

 

Current

 

 

 

Net operating loss carry forward - Federal

$

2,851,493

 

$

1,876,666

$

4,452,146

 

$

4,338,979

Net operating loss carry forward - State

 

343,854

 

 

191,386

 

617,509

 

 

598,096

Contribution carry forward

 

199

 

 

188

 

199

 

 

199

Stock-based compensation

 

196,495

 

 

126,245

Accrued liabilities and deferred rent

 

15,139

 

 

7,707

 

723

 

 

1,519

Total current deferred tax assets

 

5,070,577

 

 

4,938,793

 

 

 

 

 

Noncurrent

 

 

 

 

 

Depreciation

 

(135)

 

 

(16,533)

Amortization

 

272,507

 

 

42,380

 

--

 

 

--

Total

 

3,679,687

 

 

2,244,572

Total noncurrent deferred tax (liabilities)/assets

 

(135)

 

 

(16,533)

Total net deferred tax assets

 

5,070,442

 

 

4,992,260

Valuation allowance for deferred tax asset

 

(3,562,412)

 

 

(2,177,939)

 

(5,070,442)

 

 

(4,922,260)

Total deferred tax assets

 

117,275

 

 

66,633

$

--

 

$

--

 

 

 

 

 

Deferred Tax Liabilities:

 

 

 

 

 

Deferred state taxes

 

--

 

 

--

Depreciation

 

117,275

 

 

66,633

Amortization

 

-

 

 

--

Total deferred tax liability

 

117,275

 

 

66,633

Net deferred tax asset

$

--

 

$

--



The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management's analysis, a full reserve has been established against this asset. The change in the valuation allowance in 2016 and 2015 was $148,182 and 1,359,848, respectively.



A reconciliation between the statutory federal income tax rate of 34% and our effective tax rate for the yearyears ended December 31, 2014, the period from January 1, 2013 through December 31, 2013,2016 and 2015, are as follows:


Year ended

December 31, 2014

Year ended

December 31, 2013

Year ended

December 31, 2016

Year ended

December 31, 2015

Federal statutory income tax rate

34.0%

34.0%

State tax rate (net)

5.7%

7.1%

Permanent differences

(6.8)%

(0.6)%

(0.9)%

7.5%

Deferred tax asset valuation allowance

(30.6)%

(36.8)%

(38.8)%

(48.6)%

Other

3.4%

Effective income tax rate

--

--


9.

8.  STOCKHOLDERS’ EQUITY:EQUITY:


Common Stock - The Company has authorized 20,000,000 common shares with a $0.0001 par value. There were 9,495,045 shares issued and 10,952,356 outstanding at December 31, 2014 and 8,082,00011,017,388 shares issued and outstanding at December 31, 2013.2016 and 11,017,388 shares issued and outstanding at December 31, 2015.


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 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. AsDuring the first half of December 31, 20142015, the Company raised $366,324 and issued 209,32450,285 shares of common stock and warrants to purchase 104,65925,141 shares of common stock as partfor cash proceeds of $88,000.


On March 13, 2015 the private equity offering.  The Company issued 1,207,49115,000 common 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.exchange for consulting services valued at $25,500.


Preferred Stock - The Company has authorized 4,500,000 shares of Preferred Stock with a $0.0001 par value.  As holders of any series of preferred stock convert into common shares the preferred shares are no longer outstanding and become available for reissuance.  As of December 31, 2014 and 2013, there were 178,924 and 1,005,648 preferred shares outstanding, respectively.


Series A Preferred Stock - As of December 31, 2014 and 2013 there were no shares of Series A preferred stock outstanding.


There was no activity during the year ended December 31, 2014 and 600,000 Series A preferred shares were converted to common shares at a ratio of seven to one during the year ended December 31, 2013.  The Series A preferred stock ranked senior in liquidation and dividend preferences to the Company’s common stock.  Holders of Series A preferred stock accrued dividends at the rate per annum of $0.066664.  Dividends on Series A preferred shares are paid only upon liquidation, therefore the conversion of Series A preferred shares to common shares resulted in a full release of the accumulated dividends as of December 31, 2013.


Series B Preferred Stock - As of December 31, 2014 there were no shares outstanding and 177,000 shares of Series B preferred stock outstanding as of December 31, 2013.


During the years ended December 31, 2014 and 2013; 177,000 and 1,323,000 Series B preferred shares were converted to common shares, respectively.  The Series B preferred stock ranks senior in liquidation and dividend preferences to the Company’s common stock.  Holders of Series B preferred stock accrue dividends at the rate per annum of $0.16 per share.  Dividends on Series B preferred shares are paid only upon liquidation, therefore the conversion of Series B preferred shares to common shares resulted in a release of $40,529 and $361,426 in accumulated dividends during the years ended December 31, 2014 and 2013, respectively.


Series C Preferred Stock- As of December 31, 2014 there were no shares outstanding and 101,000 shares of Series C preferred stock outstanding as of December 31, 2013.




During the years ended December 31, 2014 and 2013; 101,000 and 659,000 Series C preferred shares were converted to common shares, respectively. The Series C preferred stock ranks senior in liquidation and dividend preferences to the Company’s common stock. Holders of Series C preferred stock accrue dividends at the rate per annum of $0.16 per share. Dividends of $24,869 and $95,600 were paid upon the conversion of Series C preferred shares to common shares during 2014 and 2013, respectively.36



Series D Preferred Stock - As of December 31, 20142016 and 2013December 31, 2015 there were 178,924 and 727,648 shares of Series D preferred stock outstanding, respectively.


On June 21, 2013, the Company offered 1,500,000 units at $3.00 per unit for potential total proceeds of $4,500,000.  On August 30, 2013, the Company completed its offering with a total of 727,648 units sold at $3.00 per unit for gross proceeds of $2,182,944, which consisted of $1,432,962 in cash and $749,982 in a non-cash conversion of senior secured notes payable.  The Company paid share issuance costs in the amount of $84,232.  Each unit consisted of one share of Series D preferred Stock and one-half warrant, with each whole warrant exercisable at $3.00 per share.  


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 for up to $2,317,056 gross proceeds. The offering includes an over-allotment of 1,000,000 units for an additional $3,000,000 in potential gross proceeds.  The offering term was extended and ended May 30, 2014.  The terms of the follow-on Series D preferred stock offering are the same as the original Series D preferred stock offering.


In January 2014, the Company issued 53,332 units sold at $3.00 per unit for gross proceeds of $159,996.  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 26,666 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.


In May 2014, the Company issued 118,655 units sold at $3.00 per unit for gross proceeds of $355,967.  Each unit consisted 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 59,327 shares of common stock. The warrants will be exercisable by the holders at any time through October 1, 2015.


Holders of Series D preferred stock accrue dividends at the rate per annum of $0.24 per share, payable on a quarterly basis. As dividends are accrued and payable quarterly on the Series D preferred stock, the Company paid no dividends of $177,846 and $24,407 during the yearsyear ended December 31, 20142016 and 2013, respectively.$31,475 during the year ended December 31, 2015.  As of December 31, 20142016 the Company has dividends payable in accrued expenses of $45,590.$89,000.


The holders of the Series D preferred stock have conversion rights equivalent to such number of fully paid and non-assessable shares of common stock as is determined by dividing the Series D original issue price of $3.00 by the then applicable conversion price. Each Series D Share will convert into one share of our common stock at any time at the option of the holder of the Series D Shares or will be converted at the option of the Company at any time the trading price of our common stock is at least $4.50 per share for ten consecutive trading days. The conversion ratio is subject to anti-dilution adjustments, including in the event that the Company issues equity securities at a price equivalent to or less than the conversion price in effect immediately prior to such issue. The Company determined that there is a beneficial conversion feature (“BCF”).  The calculated value as of the commitment date of the BCF was $176,729, which represents the difference between the effective conversion price and the stated conversion price multiplied by the total number of shares which may be converted.  We have recorded this amount as a deemed dividend as of the date of issuance, August 30, 2013, as the Series D preferred stock is immediately convertible.  During 2014 the Company extended the warrant expiration date one year which created a modification to the original unit offering.  The Company calculated additional value to the BCF of $24,279 and recorded this amount as a deemed dividend as of the date of extension.  The above mentioned amounts were recorded as a charge against our accumulated deficit in our accompanying balance sheet.





During the year ended December 31, 2014, shareholders owning 16,332 shares of Series D preferred stock converted the preferred shares into 16,332 shares of common stock pursuant to the conversion provision in the Certificate of Designations of Series D preferred stock.


In October 2014 the Company induced conversion of the Series D preferred stock into the private equity offering dated October 1, 2014.  Each holder of the Series D preferred shares was offered common stock as determined by the dividing the original issue price of $3.00 by the private equity offering unit price of $1.75, times the number of Series D preferred shares being converted.  The holders of the Series D preferred shares received the calculated number of common shares and one-half warrant per common share.  The Company converted 704,379 Series D preferred shares into 1,207,491 common shares and 603,742 warrants exercisable at $2.00 per share, each warrant grants the right to purchase a share of the Company’s common stock.  The Company determined that there is an inducement premium associated with the conversion of the Series D preferred into the private equity offering dated October 1, 2014.  The calculated value of the inducement premium was $1,332,376, which represents the additional number of common shares issued as a result of the lower conversion price multiplied by the stock’s trading price on the day of conversion price plus the fair value of the warrants.  The Company recorded this amount as a deemed dividend as of December 31, 2014.


The holders of Series D preferred stock have a liquidation preference over the holders of the Company’s common stock equivalent to the purchase price per share of the Series D preferred stock plus any accrued and unpaid dividends, whether or not declared, on the Series D preferred stock. A liquidation would be deemed to occur upon the happening of customary events, including transfer of all or substantially all of the Company’s common stock or assets or a merger, or consolidation. The Company believes that such liquidation events are within its control and therefore the Company has classified the Series D preferred stock in stockholders’ equity.


The holders of Series D preferred stock vote together as a single class with the holders of the Company’s common stock on all action to be taken by the Company’s stockholders. Each share of Series D preferred stock entitles the holder to the number of votes equal to the number of shares of common stock into which the shares of the Series D preferred stock are convertible as of the record date for determining stockholders entitled to vote on such matter.


The Company agreed to use its best efforts to register the shares underlying the warrants issued in the Series D preferred stock offering and the Private equity offering dated October 1, 2014.  


Stock Options


Number of Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Life (Years)

Number of

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Life (Years)

Balance, December 31, 2012

1,022,000

$ 2.00

4.30

Balance, December 31, 2014

1,246,500

$ 2.35

2.83

Granted

410,000

$ 2.76

 

425,000

$ 1.50

 

Exercised

--

$      --

 

--

--

 

Cancelled

(112,000)

$ 2.00

 

 (1,080,333)

$ 2.33

 

Balance, December 31, 2013

1,320,000

$ 2.23

3.44

Balance, December 31, 2015

591,167

$ 1.78

3.75

Exercisable, December 31, 2015

463,000

$ 1.76

3.68

Granted

298,000

$ 3.00

 

--

--

 

Exercised

--

--

 

--

--

 

Cancelled

(371,500)

$ 2.46

 

 (321,667)

$ 1.69

 

Balance, December 31, 2014

1,246,500

$ 2.35

2.83

Exercisable, December 31, 2013

845,000

$ 2.04

 

Exercisable, December 31, 2014

882,583

$ 2.20

 

Balance, December 31, 2016

269,500

$ 1.88

2.04

Exercisable, December 31, 2016

269,500

$ 1.88

2.04


On January 13, 2014,April 30, 2015, the Board of Directors approved the grant of 94,000125,000 options to the former CEO of the Company, David Dworsky, in accordance with the terms of the 2011 Equity Incentive Plan, as amended.  The options vested immediately and had an exercise price of $1.50 per share. Mr. Dworsky’s options were cancelled 90 days after his resignation from the Board on August 31, 2015, per the terms of the 2011 Equity Incentive Plan. At the grant of the April 30, 2015 option, Mr. Dworsky forfeited his vested options of 93,750 and unvested options of 206,250 with an exercise price of $3.00 per share.


On April 30, 2015, the Board of Directors approved the grant of 100,000 options to an employee for continued consulting services, in accordance with the terms of the 2011 Equity Incentive Plan, as amended.  The options vested immediately and had an exercise price of $1.50 per share.  The options cancelled 90 days after the end of the consulting agreement at December 31, 2015.  At the grant of the new April 30, 2015 options, the former employee forfeited his vested options of 100,000 and unvested options of 100,000 with an exercise price of $2.00 per share.



37



On April 30, 2015, the Board of Directors approved the grant of 200,000 options to employees of the Company, in accordance with the terms of the 2011 Equity Incentive Plan, as amended. One-thirdOne-half of the options vest immediately, with the remaining vesting over a 2on the one year period.anniversary of the grant date.  The options have an exercise price of $3.00$1.50 per share, with an expiration date of five years from the grant date.  




On January 16, 2014, the Board of Directors approved the grant of 40,00075,000 options to the Company’s Directors for their 2013 service, in accordance withcancelled during 2016 per the terms of the 2011 Equity Incentive Plan, as amended. The options vest immediately and have an exercise price of $3.00 per share, with an expiration date of five years from the grant date.  Plan.


On February 1, 2014,There were no options granted during the Board of Directors approved the grant of 50,000 options to an employee of the Company, in accordance with the terms of the 2011 Equity Incentive Plan, as amended. The options vest ratably over a four year period.  The options have an exercise price of $3.00 per share, with an expiration date of five years from the grant date.


On April 4, 2014, the Board of Directors approved the grant of 4,000 options to employees of the Company, in accordance with the terms of the 2011 Equity Incentive Plan, as amended. One-third of the options vest immediately, with the remaining vesting over a two year period.  The options have an exercise price of $3.00 per share, with an expiration date of five years from the grant date.


On June 19, 2014, the Board of Directors approved the grant of 10,000 options to the new Secretary of the Board.  The options vest immediately. The options have an exercise price of $3.00 per share, with an expiration date of five years from the grant date.


On June 19, 2014, the Board of Directors approved the grant of 100,000 options to an employee of the Company, in accordance with the terms of the 2011 Equity Incentive Plan, as amended. The options vest ratably over a three-year period.  The options have an exercise price of $3.00 per share, with an expiration date of five years from the grant date.


ended December 31, 2016.  The fair value of each stock option granted during the year end December 31, 2015 was estimated on the date of grant using the Black Scholes option pricing model with the following assumptions:


 

December 31, 2014

December 31, 2013

Risk-free interest rate range

1.49%-1.71%

0.11% - 1.55%

Expected life

5.0 Years

5.0 Years

Vesting period

0 - Years

0 - 4 Years

Expected volatility

42%

39%

Expected dividend

-

-

Fair value range of options at grant date

$0.671 - $1.167

$1.008 - $1.089

December 31, 2015

Risk-free interest rate range

1.43%

Expected life

5.0 Years

Vesting period

0 - 1 Year

Expected volatility

42%

Expected dividend

--

Forfeiture rate

25%

Fair value range of options at grant date

$0.259


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 the 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 as the options granted were either fully-vested upon the date of grant or had relatively short vesting periods.  As such, 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 our25% forfeiture rate in the future.  2015 due to Company changes and significant reduction in operations and personnel.


For the years ended December 31, 20142016 and 2013,2015, the Company recorded stock-based compensation expense of $231,524$6,691 and $216,083,$96,929, respectively.


As of December 31, 2014 and 20132016 there was $308,041no unrecognized compensation expense and $404,006, respectively,as of December 31, 2015 there was $6,691 of unrecognized compensation expense related to the issuance of the stock options.






Performance Stock Options


There were no performance stock options granted during the yearyears ended December 31, 2014.2016 and 2015.


Number of Options

 

Weighted

Average

Exercise

Price

Number of Options

 

Weighted

Average

Exercise Price

Balance, December 31, 2012

1,440,000

 

$ 0.06

Balance, December 31, 2014

1,440,000

 

$ 0.11

Granted

--

 

$      --

--

 

--

Exercised

--

 

$      --

--

 

--

Cancelled

--

 

$      --

 (1,400,000)

 

$ 0.06

Balance, December 31, 2013 and 2014

1,440,000

 

$ 0.11

Exercisable, December 31, 2013 and 2014

40,000

 

$ 2.00

Balance, December 31, 2015

40,000

 

$ 2.00

Granted

--

 

--

Exercised

--

 

--

Cancelled

--

 

--

Balance, December 31, 2016

40,000

 

$2.00

Exercisable, December 31, 2015 and 2016

40,000

 

$ 2.00


See Note 45 for further discussion of the performance options.







Warrants


The CompanyThere were no warrants issued 85,993 warrants during the year ended December 31, 2014 and 363,824 warrants during the year ended December 31, 2013 in connection with the Series D unit offering discussed above. Each unit consisted of one share of Series D preferred stock and one-half warrant, with each whole warrant exercisable at $3.00 per share and grants the right to purchase a share of the Company’s common stock. The warrants are exercisable by the holders through and including October 1, 2015.2016.


TheDuring 2015 the Company issued 283,329 warrants in connection with the non-public offering of notes and warrant up to $1,000,000.  The warrants expire three years from the date of issuance and are exercisable immediately at $3.00 per share.


The Company issued 432,995 warrants in connection with the non-public offering of notes and warrants up to $3,000,000.  The warrants expire three years from the date of issuance and are exercisable immediately at $3.00 per share.


The Company issued 104,65925,141 warrants in connection with the private equity offering dated October 1, 2014 discussed above.2014.  Each unit consisted of one share of Common stock and one-half warrant, with each whole warrant exercisable at $2.00 per share and grants the right to purchase a share of the Company’s common stock.  The warrants expire three years from the date of issuance and are exercisable immediately.


The Company issued 550,438 warrants in connection with the conversion of unsecured notes payable into the private equity offering dated October 1, 2014.  The unsecured notes payable converted into one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The warrants expire three years from the date of issuance and are exercisable immediately at $2.00 per share.

 

Number of

Warrants

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Life (Years)

Balance, December 31, 2014

2,424,980

$ 2.48

2.28

Granted

25,141

$ 2.00

 

Exercised

--

--

 

Cancelled

(449,817)

$ 3.00

 

Balance, December 31, 2015

2,000,304

$ 2.36

1.64

Granted

--

--

 

Exercised

--

--

 

Cancelled

--

--

 

Balance, December 31, 2016

2,000,304

$ 2.36

0.63


The Company issued 603,742 warrants in connection with the conversion of Series D preferred shares into the private equity offering dated October 1, 2014.  The Series D preferred shares converted into one share of common stock plus one-half warrant for each $1.75 of the original purchase price.  The warrants expire three years from the date of issuance and are exercisable immediately at $2.00 per share.









 

Number of

Warrants

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Life (Years)

Balance, December 31, 2012

--

$      --

 

Granted

363,824

$ 3.00

 

Exercised

--

$      --

 

Cancelled

--

$      --

 

Balance, December 31, 2013

363,824

$ 3.00

1.88

Granted

2,061,156

$ 2.39

 

Exercised

--

--

 

Cancelled

--

--

 

Balance, December 31, 2014

2,424,980

$ 2.48

2.28


10.

9.  NET LOSS PER COMMON SHARE:SHARE:


The Company computes loss per share of common stock using the two-class method required for participating securities.  The Company’s participating securities include all series of its convertible preferred stock.  Undistributed earnings allocated to these participating securities are added to net loss in determining net loss applicable to common stockholders.  Basic and Diluted loss per share are computed by dividing net loss applicable to common stockholder by the weighted-average number of shares of common stock outstanding.


Outstanding options and warrants underlying 3,671,4802,309,804 shares weredo not includedassume conversion, exercise or contingent exercise in the computation of diluted loss per share because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive.


The calculation of the numerator and denominator for basic and diluted net loss per common share is as follows:


 

For the year

ended

December 31,

2014

For the year

ended

December 31,

2013

Net Loss

$ (4,526,250)

$ (3,068,701)

Basic and diluted:

 

 

Preferred stock cumulative dividend - Series A (1)

--

(68,490)

Preferred stock cumulative dividend - Series B (1)

(62,227)

(224,458)

Preferred stock cumulative dividend - Series C

2,200

69,096

Preferred stock cumulative dividend - Series D

230,542

245,154

Deemed dividend - inducement premium

1,332,376

--

Income applicable to preferred stockholders

1,502,891

21,302

Net loss applicable to common stockholders

$ (6,029,141)

$ (3,090,003)

 

For the year ended

December 31,

 

2016

 

2015

Net loss from continuing operations

$

(337,179)

 

$

(2,982,920)

Net income (loss) from discontinued operations

 

1,197

 

 

(371,307)

Net loss

 

(335,982)

 

 

(3,354,227)

Basic and diluted:

 

 

 

 

 

Preferred stock cumulative dividend - Series D

 

(43,058)

 

 

(42,942)

Income applicable to preferred stockholders

 

(43,058)

 

 

(42,942)

Net loss applicable to common stockholders

$

(379,040)

 

$

(3,397,169)


(1)11.

Upon conversion of the Series B preferred stock into common stock, the holders of the Series B preferred stock were no longer entitled to the dividends recorded in the adjustment to net loss applicable to common shareholders in prior periods.  As a result, current year reported dividends were adjusted downward to reflect this release of accumulated dividends.









10.  COMMITMENTS AND CONTINGENCIES:CONTINGENCIES:


Lease Commitments - On July 18, 2012, theThe Company entered into a thirteen month lease for office space for its corporate headquarters located in Greenwood Village, Colorado.  Under the terms of the lease agreement, the Company leased approximately 2,244 square feet of general office space.  The lease term commenced on July 23, 2012 and ended June 30, 2014.  


Upon movement of the Company’s corporate headquarters to California, the Company assumed a lease of warehouse and office space for the equipment and operations located in Gardena, CA.  The lease term continuescontinued through July 2015.  The Company was under a month-to-month agreement August 2015 through January 2016.


Total rent expense for the year ended December 31, 20142016 and 20132015 was $55,744$2,250 and $36,404,$50,035, respectively.




39



Vendors and Debt - The Company’s remaining commitment under its current lease term for 2015 is approximately $20,000.Company has significant liabilities as of December 31, 2016 with limited cash flow generated by the sale of Company assets and revenue. The Company has $300,678 in accounts payable and accrued expenses from continuing operations.  In addition, the Company has $2,053,515 in debt and accrued interest from continuing operations.  The Company will work with their vendors and lenders to establish payment plans, explore extensions and conversion of debt.


Purchase Commitments - During the year ended December 31, 2014, the Company had a commitment to its manufacturer to purchase equipment and parts totaling approximately $70,000.  In December 2014, the Company paid the existing commitment in full.  No future commitment exists at this time.


12.

11.  RELATED PARTY TRANSACTIONS:TRANSACTIONS:


Consulting arrangements

On July 15, 2014, the Company terminated the Consulting Agreement with Mr. Richard Giles, a founder, stockholder, and former director of the Company.  The Company paid consulting fees of $69,800 to Mr. Giles during the year ended December 31, 2014; and $189,600 during the year ended December 31, 2013.  The Company had a Senior Subordinated note payable with Mr. Richard Giles, during the year ended December 31, 2014, the Company made the final required principal payments totaling $500,000 and paid interest of $7,500.  The Company paid principal payments totaling $500,000 and interest of $57,500 on the Senior Subordinated note payable during the year ended December 31, 2013.


In November 2014 the Company entered into an arrangement with Heather Kearns, the Interim Chief Financial officer and paid consulting fees of $18,000.


Share activity

Justin Yorke is the manager of the JMW Fund, LLC, the San Gabriel Fund, LLC, and the Richland Fund;Fund, LLC; and wasis a director from April 2011 until June 2012.  of the Company.  Mr. McGrain, our Interim Chief executive officer and Interim Chief financial officer is also a member of the JMW Fund, LLC, the San Gabriel Fund, LLC, and the Richland Fund, LLC.  These funds own 4,725,721 shares of common stock and holds warrants to purchase 1,278,186 common shares in the aggregate.


During the year ended 2014December 31, 2015 Mr. Yorke, as the manager,converted $20,000 and $160,000 unsecured notes payable into senior secured notes payable.  In addition, Mr. Yorke was issued 83,330 Series D preferred shares and warrants to purchase 41,665 common shares.  Mr. Yorke, as the manager, converted 166,660 Series D preferred shares into 285,700 common shares and warrants to purchase 142,8502,857 common shares as part of the Private equity offering dated October 1, 2014.  Mr. Yorke, as the manager, accrued dividends from preferred stock in 2014, totaling $27,725.  During 2014, Mr. Yorke, as the manager, was issued unsecured notes payable in the aggregate principal amount of $1,729,003, bearing interest at 12% per annum and granted warrants to purchase 576,327 common shares in connection with the Company’s $1 million and $3 million note offerings.  In October 2014, Mr. Yorke, as the manager, was issued a short-term unsecured loan in the amount of $75,000, bearing interest at 12% per annum.  Mr. Yorke, as the manager, converted an aggregate amount or $1,926,537 unsecured notes payable and accrued interest into 1,100,876 common shares and was granted warrants to purchase 550,438 common shares in the Private equity offering dated October 1, 2014.  during 2015.


As of December 31, 20142016 and 2015, the Company has an unsecured notesecured notes payable with Mr. Yorke as the manager, in the aggregate amount of $20,000; a secured note payable in the amount of $160,000,$962,361 and an$947,361, respectively.  An outstanding balance of $138,000 on the revolving line of credit.credit as of December 31, 2016 and 2015.  Mr. Yorke, as the manager, received or has accruedearned interest payments from loans payable in 2014 totaling $105,275.  See Note 14 for additional disclosure.the years ended December 31, 2016 and 2015 of $192,728 and $120,565, respectively. Total accrued interest as of December 31, 2016 and 2015 was $332,566 and $139,838, respectively.






During the year ended December 31, 2014,2015, Mr. Gus Blass III, a former member of our board of directors and a stockholder was issued 16,666 Series D preferred shares and warrants to purchase 8,333 common shares.  Mr. Blass III received or has accruedwhom resigned September 15, 2015, earned dividends from preferred stock in 2014 totaling $22,355.  In addition, Mr. Gus Blass II,$24,065 and $24,000, for the years ended December 31, 2016 and 2015, respectively.  Total accrued dividends as of December 31, 2016 and 2015 was $48,065 and $24,000, respectively.


During the year ended December 31, 2015, Reginald Greenslade, a former member of our board of directors and father to Mr. Gus Blass III, a member of our board of directors, was issued an unsecured note payable instockholder, who resigned August 1, 2015; earned interest totaling $5,533 and $5,519 for the amount of $250,000 during 2014, paying interest at 12% per annum, with a maturity date of January 6, 2016.  Mr. Gus Blass II was granted warrants to purchase 83,333 common shares in connection with the unsecured note payable.  Mr. Blass II, received or has accrued interest payments in 2014 totaling $29,507.


During the yearyears ended December 31, 2014, Reginald Greenslade, a2016 and 2015, respectively.  Total accrued interest as of December 31, 2016 and 2015 was $10,158 and $4,626, respectively.


David Dworsky, the former Chief Executive Officer and board member of ourthe Company, whom resigned his Officer position effective April 30, 2015 and his board position effective August 31, 2015.  Mr. Dworsky earned dividends on 1,500 shares of directors and a stockholder, was issued 16,659 Series D preferred sharestotaling $361 and warrants$360 for the years ended December 31, 2016 and 2015, respectively. Total accrued dividends as of December 31, 2016 and 2015 was $721 and $360, respectively.


13.

SUPPLEMENTAL CASH FLOW INFORMATION:


 

For the year ended

December 31,

 

2016

 

2015

Cash paid for interest

$

--

 

$

25,356

Cash paid for income taxes

$

--

 

$

--

 

 

 

 

 

 

Non-Cash investing and financing transactions

 

 

 

 

 

Assumption of Revolving line of credit

$

229,980

 

$

--

Returned equipment applied to outstanding loan principal

$

--

 

$

98,098

Conversion of unsecured notes to senior secured notes

$

--

 

$

174,361

Shares issued for consulting services

$

--

 

$

25,500









14.

SUBSEQUENT EVENTS:


We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to purchase 8,329 common shares.  Mr. Greenslade converted 16,659 Series D preferred sharesdetermine if they must be reported. Management has determined that other than as disclosed below, there were no additional reportable subsequent events to be disclosed.


Debt offerings

The Company entered into 28,487 common shares and warrants to purchase 14,279 common sharesSecured notes under the senior secured loan agreement in the Private equity offering dated October 1, 2014.  Mr. Greenslade received or has accrued dividends from preferred stock in 2014 totaling $2,180.  On January 1, 2014 as partaggregate amount of the Dr. Pave, LLC acquisition, the Company assumed an outstanding balance of $45,980$75,000 on the revolving line of credit to Mr. Greenslade.  Mr. Greenslade received or has accrued interest in 2014 totaling $5,518.June 9, 2017; $15,000 on July 26, 2017 and $105,000 on August 7, 2017.


During the year ended 2014,Other

On July 17, 2017, the Company issued 1,500 Series D preferred shares and warrantsa press release entitled “Heatwurx Announces Letter of Intent with Promet Therapeutics, LLC Relating to purchase 750 common shares to David Dworsky, the Chief Executive Officer of the Company.  Mr. Dworsky received or has accrued dividendsa Reverse Merger” in 2014 totaling $213.


During the year ended December 31,2013, Mr. Yorke, as the manager, of JMW Fund, San Gabriel Fund and Richland Fund; held $400,000 of the senior secured notes payable, $250,000 of the notes were converted into 83,330 Series D preferred shares and warrants to purchase 41,665 common shares.  Mr. Yorke, as the manager, received dividends from preferred stock in 2013 totaling $6,794.  As of December 31, 2013which the Company had an unsecured note payabledisclosed that it has entered into a non-binding letter of intent to engage in a reverse merger with Mr. Yorke, as the manager, in the amount of $90,000.  Mr. Yorke, as the manager, received interest payments in the amount of $8,617 during 2013.  


During the year ended December 31, 2013, Mr. Gus Blass III, a member of our board of directors and a stockholder, held $125,000 of the senior secured notes payable in an individual capacity and $125,000 through an entity in which he is a managing member.  The principal amount of the senior secured notes payable was converted into 83,332 Series D preferred shares and warrants to purchase 41,666 common shares.  Mr. Blass III received dividends from preferred stock in 2013 totaling $6,685.  In addition, Mr. Gus Blass II, a former member of our board of directors and father to Mr. Gus Blass III, a member of our board of directors, held a senior secured note payable in the amount of $250,000 during 2013, the senior secured note payable, principal and interest, was paid in full to Mr. Blass II on September 15, 2013.  Mr. Blass II, received interest payments in 2013 totaling $9,452.Promet Therapeutics, LLC.


Dr. Pave AcquisitionBoard of Directors

On January 7, 2014,August 24, 2017, Mr. Justin Yorke and Mr. Christopher Bragg were appointed to the Company entered into an Agreement and PlanBoard of Reorganization (the “Acquisition Agreement”) dated January 8, 2014 with Dr. Pave, LLC, a California limited liability company.  Dr. Pave, LLC was controlled by David Dworsky, the Chief Executive OfficerDirectors of the Company.  The Company acquired all of the outstanding membership interests in Dr. Pave for 58,333 shares of common stock of the Company at a value of $3.00 per share for total consideration in the amount of $175,000.  The consideration included the issuance of 41,668 shares to Dworsky Partners, LLC, an entity in which David Dworsky owned 80% of the ownership interest, and 3,333 shares to Reginald Greenslade, a member of our board of directors.











12.  SUPPLEMENTAL CASH FLOW INFORMATION


 

For the year

ended

December 31,

2014

 

For the year

ended

December 31,

2013

Cash paid for interest

$

194,447

 

$

107,913

Cash paid for income taxes

$

132

 

$

100

Series C Dividend payable in accrued expenses

$

--

 

$

22,668

Series D Dividend payable in accrued expenses

$

45,590

 

$

44,018

 

 

 

 

 

 

Non-Cash investing and financing transactions

 

 

 

 

 

Repayment of unsecured notes payable and accrued interest with issuance of common shares

$

2,506,982

 

$

--

Repayment of senior secured notes payable with issuance of Series D preferred shares

$

--

 

$

749,982

Financing the purchase of equipment under a 4 year loan agreement

$

49,204  

 

$

--

Financing the purchase of equipment under a 5 year loan agreement

$

--

 

$

83,507

Deemed dividend and inducement premium on conversion of Series D preferred shares to common shares

$

1,332,376

 

$

--

Beneficial conversion feature on warrants issued in conjunction with Series D preferred shares

$

51,110    

 

$

176,729


13.  SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)


The following summarizes the Company’s quarterly results of operations for 2014 and 2013:


2014

March 31

June 30

September 30

December 31

Total revenue

$

20,345

$

112,835

$

52,621

$

14,400

Net loss

 

(1,344,276)

 

(851,216)

 

(791,954)

 

(1,538,804)

Net loss applicable to common stockholders

 

(1,382,824)

 

(912,351)

 

(871,840)

 

(2,862,126)

Net loss per common share

basic and diluted

$

(0.17)

$

(0.11)

$

(0.10)

$

(0.32)

 

 

 

 

 

 

 

 

 

2013

March 31

June 30

September 30

December 31

Total revenue

$

19,200

$

97,280

$

125,910

$

70,090

Net loss

 

(816,365)

 

(726,571)

 

(718,840)

 

(806,925)

Net loss applicable to common stockholders

 

(915,307)

 

(768,358)

 

(932,600)

 

(473,738)

Net loss per common share

basic and diluted

$

(0.48)

$

(0.34)

$

(0.12)

$

(0.06)


14.  SUBSEQUENT EVENTS


On March 17, 2015, Stephen Garland resigned from his position as director of the Company.  


Share offering

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 through the close of the Private equity offering on March 1, 2015.


In March 2015, the Company issued 15,000 common shares to consultants for services.





Debt offerings

On February 16, 2015, the Company entered into a Senior secured loan agreement with JMW Fund, Richland Fund, and San Gabriel Fund (collectively called the lenders) whereby the lenders agreed to loan to the Company 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. Upon the occurrence of an event of default the lenders have the right to foreclose on the assets of the Company.


On February 23, 2015 the Company converted the December 11, 2014 short-term unsecured note payable into a senior secured promissory note in the amount of $20,000 under the $2 million Loan agreement.


As of April 8, 2015 the following lists the senior secured notes outstanding:


Date loan proceeds received






Loan maturity date

Funding received

JMW Fund

2/5/15

8/15/15

$40,000

2/23/15

8/23/15

$40,000

2/24/15

8/24/15

$50,000

3/3/15

9/15/15

$40,000

3/11/15

9/15/15

$30,000

San Gabriel Fund

2/5/15

8/15/15

$40,000

2/23/15

8/23/15

$40,000

2/24/15

8/24/15

$50,000

3/13/15

9/15/15

$30,000

Richland Fund

2/5/15

8/15/15

$10,000

2/23/15

8/23/15

$20,000

2/26/15

8/26/15

$50,000

3/11/15

9/15/15

$30,000

TOTAL

$470,000





















ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


None.None


ITEM 9A. Controls and Procedures


Our principal executive officer, David Dworsky, andmanagement, with the participation of our principal financial and accounting officer, Heather Kearns, haveChief Executive Officer, who also serves as our Chief Financial Officer, has concluded, based on their evaluation, as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) are (1) not effective to ensure that material information required to be disclosed by us in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission due to the material weakness noted below, and (2) designedlacking design to ensure that material information required to be disclosed by us in such reports is accumulated, organized and communicated to our management, including our principal executive officer and principal financial officer, as appropriated, to allow timely decisions regarding required disclosure.


Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors;director; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Management assessed our internal control over financial reporting as of December 31, 2014,2016, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO 1992 Criteria). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.


Based on our assessment, management has concluded that our internal control over financial reporting was not effective, as of the end of the fiscal year, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.


In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure that our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.







Material Weakness and Related Remediation Initiatives


Our CEO and CFOmanagement concluded that as of December 31, 2014,2016, the following material weaknesses existed: 1. Due to the Company’s budget constraints, the Company’s accounting department does not maintain the number of accounting personnel (either in-house or external) necessary to ensure more complete and effective financial reporting controls.  Through the efforts of management, external consultants, and our Audit Committee, we have developed a specific action plan to remediate the material weaknesses. We expectDue to implement these various action plans during 2015. Iflack of funds we are ablewere unable to complete these action plans in a timely manner, we anticipate thatremediate the material weakness will be remediated by December 31, 2015.during 2016.  Due to the significant reduction in operations, the Company was unable to remediate the material weakness thus far in 2017.  



42



There were no changes in our internal control over financial reporting (as defined in Rule 15d - 15(f) under the Exchange Act) during the quarteryear ended December 31, 20142016 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.


ITEM 9B. Other Information


None.None


PART III


ITEM 10. Directors, Executive Officers and Corporate Governance


The following table sets forthinformation as of April 8, 2015,September 10, 2017, the name and agesage of, and position or positions held by, our executive officersofficer and directorsdirector and, following the table the employment background, of these persons, and any directorshipsdirectorship held by the current directorsdirector during the last five years in any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940 is detailed.  The Board believesconsists of a single director, whom was elected by the former Board members prior to resigning in August and September 2015, which believed that all the directorsdirector named below areis highly qualified and havehas the skills and experience required for effective service on the Board.  The directors’director’s individual biographies below containbiography follows containing information about theirhis experience, qualifications and skills that led the Board to nominate them.him.


Name

Age

Positions

David Dworsky

65

Chief Executive Officer, Director

Heather Kearns

37

Interim Chief Financial Officer

Reginald Greenslade

51

Chairman

Gus Blass III

62

Director

Donald Larson

76

Director


David Dworsky.John P. McGrain (Age 71), CEO, CFO, Director.  David DworskyJohn McGrain has served as Director since August 31, 2015 and our President,Interim Chief Executive Officer and Interim Chief Financial Officer since December 16, 2013.September 14, 2015.  Mr. DworskyMcGrain has served in the following positions duringcapacities over the last five years: From 2008 through 2011, he served as PresidentManager and Chief Executive Officer and was a major stockholder of Dworsky Companies, Inc., engaged in providing building services, such as landscape maintenance, landscape construction, commercial sweeping services, and environmental cleaning of hard surfaces utilizing environmentally safe cleaning techniques for the commercial, industrial, and municipal markets in Southern California; during 2011 he also served as President and Chief Executive Officer and was a majority shareholder of Dworsky Facilities, Inc., engaged in environmental cleaning and commercial sweeping services in Southern California; also during 2011 he was retained as a consultant by The Brickman Group, a Delaware company which acquired Dworsky Landscape, a segmentsole member of the Dworsky Companies; from 2011 to present Mr. Dworsky has served as Chief Executive OfficerJPG Investments, LLC, and is a major shareholdermember of Dworsky Partners LLC engaged in environmental cleaning and commercial sweeping services in Southern California, and as President and Chief Executive Officer and is a major shareholder of Dr. Pave, LLC, engaged in the asphalt repair industry in Southern California.






Heather Kearns.  Heather Kearns has served as our Interim Chief Financial Officer since November 6, 2014.  Ms. Kearns has served in the following positions duringfunds: JMW Fund, LLC; the last five years: From November of 2011 to March of 2013, Ms. Kearns worked as a consultant providing contract accounting services on special projects for Front Range CPA,Richland Fund, LLC; and the San Gabriel Fund, LLC.  From March 2013 to June 2014, Ms. Kearns worked as a Controller for the Company.  She was responsible for financial information of the Company in assistance to the CFO.  From June of 2014 to the present she has been working as a Controller for Sun Office Solutions, a retailer of office products and business solutions.  As the controller she is the Director of accounting responsible for financial information of Sun Office Solutions.  Prior to her appointment as Chief Financial Officer, she had also been working as an independent contractor doing accounting for the Company.


Reginald Greenslade.  Reginald Greenslade has been a director since September 2012, and elected Chairman of the Board in December 2013.  He has also been a director of Tuscany International Drilling Inc., a Canadian-based oilfield services company, from October 2007 to January 2013, President of Tuscany International Drilling Inc. from April 2010 and President and Chief Executive Officer from June 2011 to January 2013.  Mr. Greenslade has also served as a director of Spartan Energy Corp from February 2014 to present, a direct of Spartan Oil Corp from June 2011 February 2013 and a director of Spartan Exploration Ltd. from January 2010 to June 2011.  Mr. Greenslade has served as an officer and/or director of both public and private companies during his career.  We believe that his prior experience gives him the qualification and skills to serve as a director and as chairman of our nominating committee.


Gus Blass III.  Gus Blass III has been a director since August 2012.  He has been a General Partner of Capital Properties LLC since 1981.  Capital Properties owns and manages over one million square feet of warehouse space in the Little Rock, Arkansas area and invests in public and private companies.   Mr. Blass also serves on the board of directors at BancorpSouth, from 2007 to present.  Mr. Blass has a Bachelor of Science Degree in Finance and Banking from the University of Arkansas.  We believe that Mr. Blass’s financial and business expertise, including a diversified background of managing and directing public and private companies with substantial real property and serving on other boards of directors, give him the qualifications and skills to serve as a director and as the chairman of our audit committee.


Donald Larson.  Donald Larson has been a director since November 2011.  Mr. Larson is Chairman and Chief Executive Officer of W. D. Larson Companies LTD., Inc. (Larson Companies).  Larson Companies with its affiliates is the second largest Peterbilt dealer group in North America operating in Minnesota, Wisconsin, North Dakota, South Dakota and Ohio.  Mr. Larson opened his first Peterbilt dealership in South St. Paul, MN in 1971 and, through internal growth and acquisitions, has expanded to 16 locations employing more than 500 persons.  Mr. Larson also owns and is Chairman and Chief Executive Officer of Citi-Cargo & Storage Co., Inc., a provider of business storage and transportation solutions, including contract public warehousing and distribution services throughout the Midwestern United States.  We believe that Mr. Larson’s experience in building up the Larson companies and overseeing over 500 employees provides him ample experience to serve as a director of our company and chairman of our compensation committee.


Board of Directors


Our Board of Directors is comprised of fourthree directors. Our directorsThe director will serve a one-year terms,term, or until an earlier resignation, death or removal, or their successors are elected. There are no family relationships among any of our directors or officers.


Directors do not receive cash compensation for service on the Board of Directors. We reimburse ourBoard. The Company reimburses its directors for their out-of-pocket costs, including travel and accommodations, relating to their attendance at any Board of Directors meeting. Directors are entitled to participate in our equity compensation plan.



Biographical information




55



CommitteesJustin Yorke (Age 51), Director.  Mr. Yorke has over twenty-five years of experience in finance. Mr. Yorke joined San Gabriel Advisors, a private equity investment fund as a partner over 10 years ago. Mr. Yorke is involved in managing day-to-day activities of San Gabriel Advisors’ investment portfolios and is active on the boards of directors of the Boardportfolios investments.  Mr. Yorke is also currently a member of Directorsthe board of directors of Splash Beverage, a private company.  Prior to that, Mr. Yorke was based in Hong Kong where he acted as Fund Manager for Darier Henstch, a private Swiss Bank for over 10 years.


Audit committeeChristopher Bragg (Age 34), Director. Mr. Bragg has over fifteen years of experience in the financial industry.  Mr. Bragg joined Arroyo Capital Management, an investment fund manager, as a partner in 2014.  From 2012 to 2014, Mr. Bragg was the West Coast operations manager at Empire Capital Management, a technology focused hedge fund.  Prior to that Mr. Bragg spent six years between client service, trade support and the settlements desk at Camden Asset Management, a convertible arbitrage hedge fund.  He currently serves on the board of directors of publicly traded Two Rivers Water and Farming Company, as well as the board of directors of two non-profit organizations.


Our audit committee consistsA conflict of Mr. Blass, committee chairman and designated audit committee financial expert, and Messrs. Greenslade and Larson. All membersinterest may arise between the best interests of our audit committee meetcompany and the independence standards for directors as set forth inbest interests of the NASDAQ Exchange Rules. The audit committee reviews in detail and recommends approvaldirectors’ other business interests. In such a situation where a conflict of interest exists any decision by the full Boarddirectors which furthers the best interests of Directorstheir other business interest may be harmful to our business. Additionally, we have no established parameters or understandings regarding the allocation of our annual and quarterly financial statements, recommends approval of the remuneration of our auditors to the full board, reviews the scope of the audit procedurespresent or future business opportunities between us and the final audit report with the auditors, and reviews our overall accounting practices and procedures and internal controls with the auditors.directors’ other business interests.



43


Compensation committee


Our compensation committee consists of Mr. Larson, committee chairman, and Messrs. Blass and Greenslade, all of whom are independent directors under the NASDAQ Exchange Rules. The compensation committee reviews and approves annually the compensation of the Chief Executive Officer, provides recommendations annually to full Board of Directors regarding the compensation to other executive officers, and makes recommendations to the Board’s regarding other compensation issues.  


Nominating and Corporate Governance Committee


Our nominating and corporate governance committee consists of Mr. Greenslade, committee chairman, and Messrs. Blass and Larson.  The nominating and corporate governance committee determines the qualifications, qualities, skills, and other expertise required to be a director and develops criteria that it recommends to the full Board of Directors.  The nominating and corporate governance committee also develops and recommends to the full Board of Directors a set of corporate governance guidelines applicable to us, including our certificate of incorporation and bylaws.



Code of Ethics and Business Conduct


We adopted a Code of Ethics and Business Conduct in October 2012, which applies to all of our employees, officers and directors. It establishes standards of conduct for individuals and also individual standards of business conduct and ethics.


ITEM 11. Executive Compensation


The following table provides a summary of annual compensation for our named executive officerofficers for the years ended December 31, 20132016 and December 31, 2014.2015.  We do not have an employment agreement with our named executive officers.


SUMMARY COMPENSATION TABLE


Name and principal position

Year

Salary

($)

Option

Awards

($)

All other

Compensation ($)

Total

($)

David Dworsky - Chief Executive Officer (1)

2014

180,000

-

-

180,000

 

2013

7,500

326,792(2)

-

334,292

Alexander Kramer - Chief Financial Officer (3)

2014

73,125

73,845

36,198

183,168

 

2013

-

-

-

-

Name and principal position

Year

Salary

Option

Awards

All other

Compensation

Total

 

 

($)

($)

($)

($)

John McGrain

Interim Chief Executive Officer and

Interim Chief Financial Officer(1)

2016

2015

1

1

-

-

-

-

1

1

 

 

 

 

 

 

David Dworsky

Former Chief Executive Officer (2)

2016

2015

-

53,250

-(3)

32,450(3)

-

16,183(4)

-

101,883


(1) John McGrain has served as our Interim Chief Executive Officer and Interim Chief Financial Officer since September 14, 2015.

(2)David Dworsky has served as our President, Chief Executive Officer sincefrom December 16, 2013.2013 through April 30, 2015.

(2)(3) Upon his acceptance ofresignation from his position as President and Chief Executive Officer Mr. Dworsky received 300,000 options. Theforfeited his vested options haveof 93,750 and unvested options of 206,250 with an exercise price of $3.00 per share.  Ofshare and was granted 125,000 options with an exercise price of $1.50 per share, the options granted, 25,000 vestedvest immediately and expire five years from the date of grant. Mr. Dworsky’s options were cancelled 90 days after his resignation from the Board on December 16, 2013, andAugust 31, 2015, per the remaining options vested and will vest ratably on an annual basis over a four-year vesting period.




(3) Alexander Kramer served as the Company’s Chief Financial Officer from June 29, 2014 through November 7, 2014.  Mr. Kramer received 100,000 options upon his acceptance of his position as Chief Financial Officer.  Mr. Kramer was also granted 10,000 options when he was appointed Secretaryterms of the Board.  The options expired, 90 days post- employment with the Company on February 5, 2015.  2011 Equity Incentive Plan.

(4) Mr. KramerDworsky received a severance package of $30,000 and payout of his accrued paid-time-off.paid-time-off in the amount of $16,183.


In connection with his appointment as Interim Chief Executive Officer and Interim Chief Financial Officer, we have agreed to pay Mr. Dworsky an annual base salaryMcGrain total compensation of $180,000.  Mr. Dworsky is employed on an at-will basis, which means that either party could terminate the employment relationship at any time.  While employed by us, Mr. Dworsky will be eligible to participate in company-sponsored insurance plans, which currently include health and vision benefits and life and disability plans.  In addition, he receives a cell phone allowance of $150 per month.


In connection with his appointment as Chief Financial Officer, we agreed to pay Mr. Kramer an annual base salary of $180,000. During his employment, Mr. Kramer was eligible to participate in company-sponsored insurance plans, which currently include health and vision benefits and life and disability plans.  Effective October 28, 2014, Mr. Kramer resigned as our Chief Financial Officer.  In connection with his resignation, Mr. Kramer entered into a Separation and Severance Agreement and Release of Claims with us on October 28, 2014. The Separation Agreement terminates and supersedes the terms of Mr. Kramer’s letter agreement with us regarding his terms of employment.  The Separation Agreement (i) memorializes that Mr. Kramer’s employment with us ended on October 28, 2014, (ii) that Mr. Kramer is entitled to a lump sum payment of $30,000 less deductions required by law, (iii) Mr. Kramer waived and released us from all claims he may have had against it, and (iv) Mr. Kramer is entitled to all benefits for which he was qualified in accordance with our various benefit plans in existence at the time of his termination.$1 annually.


Outstanding Equity Awards at Fiscal Year-End


The following table provides information aboutThere are no outstanding stock options held by our named executive officers at December 31, 2014.2016.  All of these options were granted under our 2011 Stock Incentive Plan.Plan, per the terms of the plan options, are cancelled 90 days following their last day affiliated with the Company.  Our named executive officers did not hold any restricted stock or other stock awards at the end of 2014.2016.


 

Number of Shares Underlying

unexercised options

 

 

Name

Exercisable

Unearned

Option exercise

price

Option expiration

date

David Dworsky

93,750

206,250

$3.00

12/15/2018

Alexander Kramer

10,000

100,000

$3.00

2/5/2015


Director Compensation


The following table provides a summary of annual compensation forThere were no fees earned or paid in cash, no option awards granted to our directors (not including our named executive officer) for the year ended December 31, 2014.2016.

















DIRECTOR COMPENSATION


Name

 

Fees Earned

or

Paid in Cash

($)

 

Option Awards(1)

($)

 

Total

($)

Reginald Greenslade

 

 

-

 

 

$ 11,641

 

 

$ 11,641

Gus Blass III

 

 

-

 

 

$ 11,641

 

 

$ 11,641

Donald Larson

 

 

-

 

 

$ 11,641

 

 

$ 11,641

Stephen Garland

 

 

-

 

 

$ 11,641

 

 

$ 11,641


(1) The estimated value of options awarded was determined in accordance with FASB ASC 718; see Note 2 in the footnotes to the Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 2014.  Amounts reported do not reflect amounts actually received by the director.


On January 15, 2014, the board of directors approved the grant of 10,000 stock options to Messrs. Greenslade, Blass III, Larson, and Garland for services performed as directors.  The options vested immediately, are exercisable at $3.00 per share, and expire on January 15, 2019.


ITEM 12. Security Ownership of Certain Beneficial Owners and Management


The following table sets forth information regarding beneficial ownership of our common stock as of April 8, 2015,September 10, 2017, by: our named executive officer and directors; all executive officers and directors as a group; and each person who is known by us to beneficially own more than 5% of our outstanding common stock.





44



Shares of common stock not outstanding but deemed beneficially owned because an individual has the right to acquire the shares of common stock within 60 days, including shares issuable upon conversion of preferred stock, are treated as outstanding when determining the amount and percentage of common stock owned by that individual and by all directors and executive officers as a group. The address of each named executive officer and director is 18001 S Figueroa St. Unit F, Gardena,530 S. Lake Avenue #165, Pasadena, CA 90248.91101. The address of other beneficial owners is set forth below.


The percentage of shares beneficially owned shown in the table is based upon 11,061,11411,017,388 shares of common stock outstanding as of April 8, 2015.September 10, 2017.


Name of beneficial owner

 

Shares

beneficially

owned

 

% of shares

outstanding

Named executive officers and directors:

 

 

 

 

David Dworsky (1)

 

137,668

 

1.23%

Alexander Kramer

 

-

 

-

Gus Blass III (2)

 

516,127

 

4.57%

Reginald Greenslade (3)

 

245,493

 

2.20%

Donald Larson (4)

 

160,000

 

1.44%

All executive officers and directors as a group (5 persons) (5)

 

1,059,288

 

9.44%








Name and address of beneficial owner

 

Shares

beneficially

owned

 

% of shares

outstanding

Stockholders owning more than 5%:

 

 

 

 

JMW Fund LLC (6)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

2,877,114

 

24.52%

San Gabriel Fund LLC (7)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

2,547,899

 

22.02%

Richland Fund LLC (8)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

847,208

 

7.43%

Justin Yorke (9)

4 Richland Place

Pasadena, California 91103

 

6,272,221

 

49.86%

Kirby Enterprise Fund LLC (10)

PO Box 3087

Greenwood Village, Colorado 80155

Manager: Charles Kirby

 

604,000

 

5.46%

Charles F. Kirby (11)

PO Box 3087

Greenwood Village, CO 80155

 

1,200,737

 

10.86%

Richard Giles (12)

6300 Sagewood Dr. Suite 400

Park City, Utah 84098

 

727,500

 

6.55%

Name of beneficial owner

 

Shares

beneficially owned

 

% of shares

outstanding

Named executive officers and directors:

 

 

 

 

John McGrain

 

137,200

 

1.25%

Justin Yorke (1)

4 Richland Place

Pasadena, California 91103

 

6,091,401

 

49.54%

 

 

 

 

 

Name and address of beneficial owner

 

Shares

beneficially owned

 

% of shares

outstanding

Stockholders owning more than 5%:

 

 

 

 

JMW Fund LLC (2)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

2,777,114

 

23.96%

San Gabriel Fund LLC (3)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

2,447,898

 

21.42%

Richland Fund LLC (4)

4 Richland Place

Pasadena, California 91103

Manager: Justin Yorke

 

778,895

 

6.90%

Kirby Enterprise Fund LLC (5)

PO Box 3087

Greenwood Village, Colorado 80155

Manager: Charles Kirby

 

604,000

 

5.48%

Charles F. Kirby (6)

PO Box 3087

Greenwood Village, CO 80155

 

1,200,737

 

10.90%


(1) Includes 41,668 shares held by an LLC of which Mr. Dworsky is a managing member, 93,750 shares underlying exercisable stock options, 1,500 shares underlying preferred stock holdings which are convertible at Mr. Dworsky’s option, and 750 shares underlying warrants.

(2) Includes 85,000 shares underlying exercisable stock options, 125,065 shares held by an LLC of which Mr. Blass is a managing member, and 31,000 shares held by the Alex Connor Blass Trust #3. Also, includes 49,999 shares underlying warrants and 99,998 shares underlying preferred stock holdings which are convertible at Mr. Blass’ option.

(3) Includes 85,000 shares underlying stock options, 22,608 shares underlying warrants and also includes 106,065 shares held by a Corporation in which Mr. Greenslade is an owner.

(4) Includes 85,000 shares underlying stock options.

(5) Includes 733,750 shares underlying exercisable stock options.  Includes 101,498 shares underlying preferred stock holdings which are convertible at the holders’ option into common shares, and 73,322 shares underlying warrants.

(6) Justin Yorke is the manager of the JMW Fund and was a director from April 2011 until June 2012.  Includes 673,407 shares underlying warrants.

(7) Justin Yorke is the manager of the San Gabriel Fund and was a director from April 2011 until June 2012.  Includes 511,280 shares underlying warrants.

(8) Justin Yorke is the manager of the Richland Fund and was a director from April 2011 until June 2012.  Includes 334,929 shares underlying warrants.

(9) Includes ownership of JMW Fund LLC, San Gabriel Fund LLC, and Richland Fund LLC as indicated above.below and some individually owned by Mr. Yorke.  Mr. McGrain is also a member of JMW Fund LLC, San Gabriel Fund LLC, and Richland Fund LLC.  Includes a total of 1,278,186 shares underlying warrants.

(10)(2) Justin Yorke is the manager of the JMW Fund and is a director of the Company.  Mr. McGrain is also a member of the JMW Fund, LLC.  Includes 573,407 shares underlying warrants.

(3) Justin Yorke is the manager of the San Gabriel Fund and is a director of the Company. Mr. McGrain is also a member of the San Gabriel Fund, LLC.   Includes 411,279 shares underlying warrants.

(4) Justin Yorke, is the manager of the Richland Fund and is a director of the Company.  Mr. McGrain is also a member of the Richland Fund, LLC.  Includes 293,500 shares underlying warrants.

 (5) Charles Kirby is the manager of the Kirby Enterprise Fund LLC and was a director from April 2011 until October 2011.







(11)(6) Charles Kirby was a director from April 2011 until October 2011.  Includes 604,000 shares owned by Kirby Enterprise Fund LLC, of which Mr. Kirby is a manager. Also includes 451,554 shares owned by Charles F. Kirby Roth 401(k), 121,500 shares owned by West Hampton Special Situations Fund LLC, of which Mr. Kirby is a manager, 20,000 shares owned by Kirby Enterprise Capital Management LLC, of which Mr. Kirby is a manager, and 3,683 shares owned by River Bend Fund LLC, of which Mr. Kirby is a manager.

(12) Includes 40,000 shares underlying stock options.



ITEM 13. Certain Relationships and Related Transactions, and Director Independence


Transactions with Related Persons, Promoters and Certain Control Persons


This section describes the transactions we have engaged in with persons who were our directors or officers at the time of the transaction, and persons or entities known by us to be the beneficial owners of more than 5% of our common stock for the years ended December 31, 20142016 and 2013.2015.


Transactions with Richard Giles


Mr. Giles formerly beneficially owned more than 5% of the outstanding shares of Company common stock.  Mr. Giles is a founder and was a director of the Company from April 2011 to June 2012.  He also was a consultant of the Company from April 2011 to July 2014. His compensation as a consultant during the years ended December 31, 2014 and 2013 was $69,800 and 189,600, respectively.


On April 15, 2011, the Company entered into an Asset Purchase Agreement with Mr. Giles. Pursuant to the agreement, the Company purchased the related business and activities of the design, manufacture and distribution of asphalt repair machinery under the Heatwurx brand. The total purchase price was $2,500,000. The purchase price was paid in a $1,500,000 cash payment and the issuance of a senior subordinated note to the seller in the amount of $1,000,000.  On April 14, 2014, the Company paid off the senior subordinated note.  The total interest paid on the note was $165,000.


In conjunction with the Asset Purchase Agreement, the Company granted 200,000 performance stock options to Mr. Giles with an exercise price of $0.40 per share and a term of seven years. Following the effectiveness of the 7 for 1 stock split that was completed in October 2011, the 200,000 performance stock options were exchanged for 1,400,000 performance stock options with an exercise price of $0.057 per share.


The performance stock options were to vest in full on the occurrence of any the following: (1) the Company achieves total revenue in the twelve month period ended April 2014 of $49,500,000; or (2) the Company achieves total revenue in the twelve month period ended April 2015 of $99,000,000. If the performance stock options did not vest per the aforementioned vesting schedule, the performance stock options would immediately terminate and expire.  As of December 31, 2014, there is no expectation that these performance stock options will vest.


On February 10, 2015, the Company entered into an agreement with Mr. Giles to terminate 1,400,000 performance stock options.













60



Transactions with JMW Fund, LLC


JMW Fund, LLC, managed by Mr. Yorke a director, beneficially owns more than 5% of the outstanding shares of Company common stock.  In February 2014 the Company entered into a $1 million loan agreement with JMW Fund, LLC owns 2,203,707 common shares and issued unsecured promissory notes payable in the total amount of $200,000.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.warrants to purchase 573,407 shares.  During the year ended December 31, 2014 the Company entered into a $3 million loan agreement with JMW Fund, LLC, and issued unsecured promissory notes payable in the total amount of $610,668.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.  On October 15, 2014 as part of the private equity offering dated October 1, 2014, the Company converted the outstanding principal and interest on the unsecured notes payable with the JMW Fund, LLC in the total amount of $861,164 into 492,093 common shares and was granted warrants to purchase 246,047 shares of common stock.  In May 2014 the Company issued JMW Fund, LLC 33,332 Series D preferred shares and granted warrants to purchase 16,666 shares of common stock.  The warrants expire three years from the date of issuance. On October 15, 2014 as part of the private equity offering dated October 1, 2014, the company converted 66,664 Series D preferred shares into 114,280 common shares and granted warrants to purchase 57,140 shares of common stock.  As of April 8, 2015 the Company has entered into a $2 Million Loan agreement with the JMW Fund, LLC, and issued senior secured promissory notes payable in the total amount of $200,000.


$390,744.  The Company entered into a Loan Agreement with JMW Fund, LLC and issued aadditional senior secured notepromissory notes payable in the amount of $100,000 on May 22, 2013. The note bore interest at a rate$15,000 during the year ended December 31, 2016.  As of 12% per annum and was payable monthly onDecember 31, 2016, the first day of each month.  In August, principalCompany has senior secured notes outstanding in the amount of $99,996 was retired through the issuance of 33,332 Series D preferred shares.  In connection with this transaction, the JMW Fund was issued warrants to purchase up to 16,666 shares of Company common stock at an exercise price of $3.00 per share.  The warrants have an expiration date of October 1, 2015.  On September 15, 2013, the remaining principal$405,774 and accrued interest of $3,222 was paid in full.  In December 2013;$122,187 with the Company entered into a Loan Agreement with JMW Fund, LLC.  The Company assumed the Revolving line of credit from Dr. Pave, LLC during 2016, and issued an unsecured note payableas of December 31, 2016, had a balance of $46,000 with accrued interest of $13,552 was outstanding with the JMW Fund, LLC.  The company is in the amount of $36,000.  The note bears interest at a rate of 12% per annum and is payable monthlydefault on the first daysenior secured loan agreement as of each month.  The principal amount and all then-accrued and unpaid accrued interest is payable on June 30, 2015, no interest payments were made related tothe date of this note during the year ended 2013.report.  


Transactions with San Gabriel Fund, LLC


San Gabriel Fund, LLC, managed by Mr. Yorke a director, beneficially owns more than 5% of the outstanding shares of Company common stock.  In February 2014 the Company entered into a $1 million loan agreement with San Gabriel Fund, LLC owns 2,036,619 common shares and issued unsecured promissory notes payable in the total amount of $200,000.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.warrants to purchase 411,279 shares.  During the year ended December 31, 2014 the Company entered into a $3 million loan agreement with San Gabriel Fund, LLC, and issued unsecured promissory notes payable in the total amount of $351,668.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.  On October 15, 2014 as part of the private equity offering dated October 1, 2014, the Company converted the outstanding principal and interest on the unsecured notes payable with the San Gabriel Fund, LLC in the total amount of $595,885 into 340,505 common shares and was granted warrants to purchase 170,253 shares of common stock.  In May 2014 the Company issued San Gabriel Fund, LLC 33,332 Series D preferred shares and granted warrants to purchase 16,666 shares of common stock.  The warrants expire three years from the date of issuance. On October 15, 2014 as part of the private equity offering dated October 1, 2014, the company converted 66,664 Series D preferred shares into 114,280 common shares and granted warrants to purchase 57,140 shares of common stock.  As of April 8, 2015 the Company has entered into a $2 Million Loan agreement with the San Gabriel Fund, LLC, and issued senior secured promissory notes payable in the total amount of $160,000.







61



The$290,744. As of December 31, 2016, the Company entered into a Loan Agreement with San Gabriel Fund, LLC and issued ahas senior secured note payablenotes outstanding in the amount of $100,000 on May 22, 2013.  The note bore$290,774 and accrued interest at a rate of 12% per annum and was payable monthly on the first day of each month.  In August, principal in the amount of $99,996 was retired through the issuance of 33,332 Series D preferred shares.  In connection$89,990 with this transaction, the San Gabriel Fund, LLC.  The Company assumed the Revolving line of credit from Dr. Pave, LLC during 2016, and as of December 31, 2016, had a balance of $46,000 with accrued interest of $13,084 was issued warrants to purchase up to 16,666 sharesoutstanding with the San Gabriel Fund, LLC.  The company is in default on the senior secured loan agreement as of Company common stock at an exercise price of $3.00 per share.  The warrants have an expiration of one year from the date of issuance.  On September 15, 2013, the remaining principal and accrued interest of $3,222 was paid in full.  In December 2013; the Company entered into a Loan Agreement with San Gabriel Fund, LLC and issued an unsecured note payable in the amount of $36,000. The note bears interest at a rate of 12% per annum and is payable monthly on the first day of each month. The principal amount and all then-accrued and unpaid accrued interest is payable on June 30, 2015.this report.


Transactions with Richland Fund, LLC


Richland Fund, LLC, managed by Mr. Yorke a director, beneficially owns more than 5% of the outstanding shares of Company common stock.  In February 2014 the Company entered into a $1 million loan agreement withThe Richland Fund, LLC owns 485,395 common shares and issued unsecured promissory notes payable in the total amount of $100,000.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.warrants to purchase 293,500 shares.  During the year ended December 31, 2014 the Company entered into a $3 million loan agreement with Richland Fund, LLC, and issued unsecured promissory notes payable in the total amount of $266,668.  The notes bore interest at a rate of 12% per annum and was payable monthly on the first day of each month.  On October 9, 2014 the Company entered into a short-term unsecured note payable with the Richland Fund, LLC in the amount of $75,000.  The note bore interest at 12% per annum and was payable monthly on the first day of each month.  On October 15, 2014 as part of the private equity offering dated October 1, 2014, the Company converted the outstanding principal and interest on the $1 million and $3 million unsecured notes payable with the Richland Fund, LLC in the total amount of $392,441 into 224,252 common shares and was granted warrants to purchase 112,126 shares of common stock. On December 31, 2014 the Company converted the outstanding principal and interest on the short-term unsecured note payable with the Richland Fund, LLC in the total amount of $77,047 into 44,026 common shares and granted 22,013 shares of common stock.  In May 2014 the Company issued Richland, LLC 16,666 Series D preferred shares and granted warrants to purchase 8,333 shares of common stock.  The warrants expire three years from the date of issuance. On October 15, 2014 as part of the private equity offering dated October 1, 2014, the company converted 33,332 Series D preferred shares into 57,140 common shares and granted warrants to purchase 28,570 shares of common stock.  On December 11, 2014 the Company entered into a short-term unsecured note payable with the Richland Fund, LLC in the amount of $20,000.  As of April 8, 2015 the Company has entered into a $2 Million Loan agreement with the Richland Fund, LLC, and issued senior secured promissory notes payable in the total amount of $90,000$245,872 and converted the December 11, 2014 short-term unsecured note payable into a senior secure promissory note in the amount of $20,000.


The As of December 31, 2016, the Company entered into a Loan Agreement with Richland Fund, LLC and issued ahas senior secured note payablenotes outstanding in the amount of $50,000 on May 22, 2013.  The note bore$265,872 and accrued interest at a rate of 12% per annum and was payable monthly on the first day of each month.  In August, principal in the amount of $49,998 was retired through the issuance of 16,666 Series D preferred shares.  In connection$80,526 with this transaction, the Richland Fund, LLC.  The Company assumed the Revolving line of credit from Dr. Pave, LLC during 2016, and as of December 31, 2016, had a balance of $46,000 with accrued interest of $13,226 was issued warrants to purchase up to 8,333 sharesoutstanding with the Richland Fund, LLC.  The company is in default on the senior secured loan agreement as of Company common stock at an exercise price of $3.00 per share.  The warrants have an expirationthe date of October 1, 2015.  On September 15, 2013, the remaining principal and accrued interest was paid in full.  In December 2013; the Company entered into a Loan Agreement with Richland Fund, LLC and issued an unsecured note payable in the amount of $18,000. The note bears interest at a rate of 12% per annum and is payable monthly on the first day of each month. The principal amount and all then-accrued and unpaid accrued interest is payable on June 30, 2015.this report.








Conflicts of Interest Policies


We have adopted a Code of Ethics and Business Conduct.  All our directors, officers, and employees are required to be familiar with the Code of Ethics and comply with its provisions.  The Code of Ethics expressly prohibits loans made by the Company to our directors and executive officers.  Any other transaction involving an executive officer or director that may create a conflict of interest must receive the prior approval of the Audit Committee.  All other conflicts must be reported to the Chief Financial Officer.  The Code of Ethics provides that conflicts of interest should be avoided but allows the Audit Committee to approve transactions with executive officers or directors other than loans or guaranty transactions.





Other than as described in this section, there are no material relationships between us and any of our directors, executive officers, or known holders of more than 5% of our common stock.


ITEM 14. Principal Accountant Fees and Services


Hein & Associates LLP (“Hein”) served as the Company’s independent registered public accounting firm from 2011 through September 3, 2015.


Pritchett, Siler & Hardy PC (“PS&H”) has served as ourthe Company’s independent registered public accounting firm since 2011November 2015 and audited ourits financial statements for the yearsyear ended December 31, 20142015 and 2013.2016.


For the years ended December 31, 20142016 and 2013,2015, the aggregate fees billed by Hein and Pritchett, Siler & Hardy PC to the Company were as follows:


Year ended December 31,

Year ended December 31,

2014

2013

(PS&H)

2016

(Hein)

2016

(PS&H)

2015

(Hein)

2015

Audit fees (1)

$ 92,866

$ 97,227

$ 24,683

$ 14,006

$ 5,400

$ 77,000

Audit-related fees

    4,138

-

-

-

7,385

Tax fees

-

-

-

-

All other fees

-

-

-

-

Total accounting fees and services

$ 97,004

$ 97,227

$ 24,683

$ 14,006

$ 5,400

$ 84,385


(1) Audit fees includes the aggregate fees billed for professional services for the audit of our annual financial statements for the years ended December 31, 20142016 and 20132015 and the review of the financial statements included in our quarterly reports on Form 10-Q filed during the year ended December 31 2014.of the respective years.


Audit Committee Pre-Approval


The Audit Committee reviewsreviewed and approvesapproved in advance the retention of the independent auditors for the performance of all audit and non-audit services that are not prohibited and the fees for such services.  Pre-approval of audit and non-audit services that are not prohibited may be approved pursuant to appropriate policies and procedures established by the Audit Committee for the pre-approval of such services, including through delegation of authority to a member of the Audit Committee or Company management. For the years ended December 31, 20142016 and 2013,2015, all audit fees were reviewed and approved in advance of such services.












PART IV


ITEM 15. Exhibits


The following exhibits are included with this report:


Exhibit

Number

Exhibit Description

Form

Incorporated by

Reference

Filing

Date

Filed

Here-

with

File No.

Exhibit

2.1

Asset Purchase Agreement dated April 15, 2011

S-1

333-184948

2.1

11/14/12

 

3.1

Certificate of Incorporation, as amended

10-Q

333-184948

3.1

8/8/13

 

3.2

Bylaws, as amended

10-K

333-184948

3.2

3/27/14

 

4.1

Specimen of Common Stock Certificate

S-1/A

333-184948

4.1

5/15/13

 

4.2

Certificate of Designations of Series D Preferred Stock, as amended

10-K

333-184948

4.2

3/27/14

 

10.1

Form of Senior Secured Promissory Note (part of a $1.5 million series of notes that were paid off in August 2012)

S-1

333-184948

10.1

11/14/12

 

10.2*

Giles Performance Option Grant Notice dated April 15, 2011

S-1

333-184948

10.2

11/14/12

 

10.3

Form of Investors’ Rights Agreement

S-1

333-184948

10.3

11/14/12

 

10.4

Form of Pledge Agreement

S-1

333-184948

10.4

11/14/12

 

10.5*

Giles Consulting Agreement dated April 15, 2011

S-1

333-184948

10.5

11/14/12

 

10.6

Form of HeatwurxAQ Right of First Refusal and Co-Sale Agreement dated April 15, 2011

S-1

333-184948

10.6

11/14/12

 

10.7

Form of HeatwurxAQ Right of Voting Agreement dated April 15, 2011

S-1

333-184948

10.7

11/14/12

 

10.8

HeatwurxAQ Subordinated Security Agreement dated April 15, 2011

S-1

333-184948

10.8

11/14/12

 

10.9

HeatwurxAQ Subordinated Note dated April 15, 2011

S-1

333-184948

10.9

11/14/12

 

10.10*

Amended and Restated 2011 Equity Incentive Plan

S-1

333-184948

10.10

11/14/12

 

10.11*

Form of Stock Option Agreement Under 2011 Equity Incentive Plan

S-1

333-184948

10.11

11/14/12

 

10.12*

Form of Grant Notice under 2011 Equity Incentive Plan

S-1

333-184948

10.12

11/14/12

 

10.13

Lease between Heatwurx, Inc. and Syracuse Hill II LLC dated July 18, 2012

S-1

333-184948

10.13

11/14/12

 

10.14

Conformed Copy of Settlement and Mutual Release Agreement among Heatwurx, Inc. and Larry Griffin and David Eastman

S-1/A

333-184948

10.15

1/11/13

 

10.15

Senior Loan Agreement dated May 22, 2013, with forms of Senior Secured Promissory Note and Senior Security Agreement attached

S-1/A

333-184948

10.15

5/23/13

 

10.16

Subordination Agreement dated May 22, 2013, with Richard Giles

S-1/A

333-184948

10.16

5/23/13

 

Exhibit

Number

Exhibit Description

Form

Incorporated by

Reference

Filing

Date

Filed

Here-

with

File No.

Exhibit

2.1

Asset Purchase Agreement dated April 15, 2011

S-1

333-184948

2.1

11/14/12

 

3.1

Certificate of Incorporation, as amended

10-Q

333-184948

3.1

8/8/13

 

3.2

Bylaws, as amended

10-K

333-184948

3.2

3/27/14

 

4.1

Specimen of Common Stock Certificate

S-1/A

333-184948

4.1

5/15/13

 

4.2

Certificate of Designations of Series D Preferred Stock, as amended

10-K

333-184948

4.2

3/27/14

 





Exhibit

Number

Exhibit Description

Form

Incorporated by

Reference

Filing

Date

Filed

Here-

with

File No.

Exhibit

10.17

Form of Warrant Agreement - Unit offering (Series D)

10-K

333-184948

10.17

3/27/14

 

10.18

Loan Agreement dated January 6, 2014, including the form of the Promissory Note and the Warrant Agreement

8-K

333-184948

99.1

1/9/14

 

10.19

Agreement and Plan of Reorganization dated January 8, 2014 with Dr. Pave, LLC

8-K

333-184948

99.2

1/9/14

 

10.20

Offer Letter to Alex Kramer dated April 28, 2014

10-Q

333-184948

10.1

8/19/14

 

10.21

Termination Letter of Consulting Agreement dated April 15, 2011 with Richard Giles

10-Q

333-184948

10.2

8/19/14

 

10.22

Exclusive Distribution Agreement, dated October 23, 2014

10-Q

333-184948

10.1

10/29/14

 

10.23

Separation and Severance Agreement and Release of Claims, dated October 28, 2014.

8-K

333-184948

99.1

11/3/14

 

10.24

Senior Secured Loan Agreement dated February 16, 2015

8-K

333-184948

99.1

2/20/15

 

10.25

Promissory Note with San Gabriel Fund, LLC dated February 16, 2015

8-K

333-184948

99.2

2/20/15

 

10.26

Promissory Note with JMW Fund, LLC dated February 16, 2015

8-K

333-184948

99.3

2/20/15

 

10.27

Promissory Note with Richland Fund, LLC dated February 16, 2015

8-K

333-184948

99.4

2/20/15

 

10.28

Security Agreement dated February 16, 2015

8-K

333-184948

99.5

2/20/15

 

10.29

Subsidiary Guaranty Agreement dated February 16, 2015

8-K

333-184948

99.6

2/20/15

 

14.1

Code of Ethics and Business Conduct

S-1

333-184948

14.1

11/14/12

 

21.1

List of Subsidiaries

 

 

 

 

X

23.1

Consent of Hein & Associates LLP, Independent Registered Public Accounting Firm

 

 

 

 

X

24.1

Power of Attorney

S-1

333-184948

24.1

11/14/12

 

31.1

Rule 15d-14a Certification by Principal Executive Officer

 

 

 

 

X

31.2

Rule 15d-14(a) Certification by Principal Financial Officer

 

 

 

 

X

32.1

Section 1350 Certification of Principal Executive Officer

 

 

 

 

X

32.2

Section 1350 Certification of Principal Financial Officer

 

 

 

 

X

101.INS

XBRL Instance Document

 

 

 

 

X

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

 

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

X

Exhibit

Number

Exhibit Description

Form

Incorporated by

Reference

Filing

Date

Filed

Here-

with

File No.

Exhibit

10.1

Form of Senior Secured Promissory Note (part of a $1.5 million series of notes that were paid off in August 2012)

S-1

333-184948

10.1

11/14/12

 

10.2*

Giles Performance Option Grant Notice dated April 15, 2011

S-1

333-184948

10.2

11/14/12

 

10.3

Form of Investors’ Rights Agreement

S-1

333-184948

10.3

11/14/12

 

10.4

Form of Pledge Agreement

S-1

333-184948

10.4

11/14/12

 

10.5*

Giles Consulting Agreement dated April 15, 2011

S-1

333-184948

10.5

11/14/12

 

10.6

Form of HeatwurxAQ Right of First Refusal and Co-Sale Agreement dated April 15, 2011

S-1

333-184948

10.6

11/14/12

 

10.7

Form of HeatwurxAQ Right of Voting Agreement dated April 15, 2011

S-1

333-184948

10.7

11/14/12

 

10.8

HeatwurxAQ Subordinated Security Agreement dated April 15, 2011

S-1

333-184948

10.8

11/14/12

 

10.9

HeatwurxAQ Subordinated Note dated April 15, 2011

S-1

333-184948

10.9

11/14/12

 

10.10*

Amended and Restated 2011 Equity Incentive Plan

S-1

333-184948

10.10

11/14/12

 

10.11*

Form of Stock Option Agreement Under 2011 Equity Incentive Plan

S-1

333-184948

10.11

11/14/12

 

10.12*

Form of Grant Notice under 2011 Equity Incentive Plan

S-1

333-184948

10.12

11/14/12

 

10.13

Lease between Heatwurx, Inc. and Syracuse Hill II LLC dated July 18, 2012

S-1

333-184948

10.13

11/14/12

 

10.14

Conformed Copy of Settlement and Mutual Release Agreement among Heatwurx, Inc. and Larry Griffin and David Eastman

S-1/A

333-184948

10.15

1/11/13

 

10.15

Senior Loan Agreement dated May 22, 2013, with forms of Senior Secured Promissory Note and Senior Security Agreement attached

S-1/A

333-184948

10.15

5/23/13

 

10.16

Subordination Agreement dated May 22, 2013, with Richard Giles

S-1/A

333-184948

10.16

5/23/13

 

10.17

Form of Warrant Agreement - Unit offering (Series D)

10-K

333-184948

10.17

3/27/14

 

10.18

Loan Agreement dated January 6, 2014, including the form of the Promissory Note and the Warrant Agreement

8-K

333-184948

99.1

1/9/14

 

10.19

Agreement and Plan of Reorganization dated January 8, 2014 with Dr. Pave, LLC

8-K

333-184948

99.2

1/9/14

 

10.20

Offer Letter to Alex Kramer dated April 28, 2014

10-Q

333-184948

10.1

8/19/14

 

10.21

Termination Letter of Consulting Agreement dated April 15, 2011 with Richard Giles

10-Q

333-184948

10.2

8/19/14

 

10.22

Exclusive Distribution Agreement, dated October 23, 2014

10-Q

333-184948

10.1

10/29/14

 

10.23

Separation and Severance Agreement and Release of Claims, dated October 28, 2014.

8-K

333-184948

99.1

11/3/14

 

10.24

Senior Secured Loan Agreement dated February 16, 2015

8-K

333-184948

99.1

2/20/15

 

10.25

Promissory Note with San Gabriel Fund, LLC dated February 16, 2015

8-K

333-184948

99.2

2/20/15

 

10.26

Promissory Note with JMW Fund, LLC dated February 16, 2015

8-K

333-184948

99.3

2/20/15

 





Exhibit

Number

Exhibit Description

Form

Incorporated by

Reference

Filing

Date

Filed

Here-

with

File No.

Exhibit

10.27

Promissory Note with Richland Fund, LLC dated February 16, 2015

8-K

333-184948

99.4

2/20/15

 

10.28

Security Agreement dated February 16, 2015

8-K

333-184948

99.5

2/20/15

 

10.29

Subsidiary Guaranty Agreement dated February 16, 2015

8-K

333-184948

99.6

2/20/15

 

10.30

Debt Conversion Agreement

8-K

333-184948

99.1

7/7/15

 

10.31

Press Release

8-K

333-184948

99.2

7/7/15

 

10.32

Promissory Note Extension Agreement

10-Q

333-184948

10.1

8/19/15

 

14.1

Code of Ethics and Business Conduct

S-1

333-184948

14.1

11/14/12

 

16

Letter from CPA - Hein

8-K

333-184948

16

9/22/15

 

16.1

Letter from CPA - Cutler & Co

10-Q

333-184948

16.1

12/1/15

 

21.1

List of Subsidiaries

10-K

333-184948

21.1

4/14/15

 

23.1

Consent of Pritchett, Siler & Hardy PC, Independent Registered Public Accounting Firm

 

 

 

 

X

24.1

Power of Attorney

S-1

333-184948

24.1

11/14/12

 

31.1

Rule 15d-14a Certification by Principal Executive Officer

 

 

 

 

X

32.1

Section 1350 Certification of Principal Executive Officer

 

 

 

 

X

101.INS

XBRL Instance Document

 

 

 

 

X

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

 

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

X


*Management contract, or compensatory plan or arrangement, required to be filed as an exhibit.


SIGNATURE PAGE FOLLOWS




















SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


HEATWURX, INC.


Date: April 14, 2015September 25, 2017

By:

/s/ David DworskyJohn P. McGrain

 

 

David Dworsky, President andJohn P. McGrain, Interim Chief Executive Officer

(Principal Executive Officer)

Date: April 14, 2015

By:

/s/ Heather Kearns

Heather Kearns, and Interim Chief Financial Officer

(Principal (Principal Executive and Financial and Accounting Officer)


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.


NAME

 

TITLE

 

DATE

 

 

 

 

 

/s/ Reginald GreensladeJohn P McGrain

 

Director & Chairman

 

April 14, 2015September 25, 2017

Reginald GreensladeJohn P. McGrain

 

 

 

 

 

 

 

 

 

/s/ Gus Blass IIIJustin Yorke

 

Director

 

April 14, 2015September 25, 2017

Gus Blass IIIJustin Yorke

 

 

 

 

 

 

 

 

 

/s/ Donald LarsonChristopher Bragg

 

Director

 

April 14, 2015September 25, 2017

Donald Larson

/s/ David Dworsky

Director

April 14, 2015

David DworskyChristopher Bragg

 

 

 

 


Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have not Registered Securities Pursuant to Section 12 of the Act


No annual report or proxy statement, form of proxy or other proxy soliciting material was sent or provided to shareholders during the year ended December 31, 2014.2016.

























6650