12.

SUBSEQUENT EVENTS:

Debt Offering

In April 2014, the Company received $570,000 under the $3,000,000 debt offering and issued warrants to purchase 189,997 shares of our common stock.

Senior subordinate note payment

On April 15, 2014, the Company made the final required principal payment of $250,000 on the Senior Subordinated note payable.  See Note 6 Notes Payable for further discussion.

Preferred stock conversion to common shares

As of April 15, 2014, the final payment of the Senior Subordinated note payable was a triggering event to create a mandatory conversion of all remaining Series B and Series C Preferred stock outstanding.  As of April 15, 2014; 101,935 Series B preferred shares and 45,000 Series C preferred shares were converted into a total of 146,935 common shares subsequent to March 31, 2014.  On April 29, 2014, 4,000 shares of Series D Preferred stock were voluntarily converted to 4,000 shares of common stock.  As of May 14, 2014 there were 8,422,333 common shares outstanding.

12.  SUBSEQUENT EVENTS

On April 30, 2015, David Dworsky, resigned from his position as Chief Executive Officer but will remain a member of the Company’s board of directors.  In connection with Mr. Dworsky’s willingness to continue to serve as a director of the Company, the Board of Directors (with Mr. Dworsky abstaining) approved the grant of options to purchase 125,000 shares of the Company’s common stock.  The options are exercisable at $1.50 per share and vested on the grant date.

Mr. Dworsky also agreed to cancel outstanding options to purchase 300,000 shares of the Company’s common stock.

Heather Kearns, the Interim Chief Financial Officer will also act as the Interim Chief Executive Officer while the Company and Board of Directors conducts a search for the best candidate as President and Chief Executive Officer.  In connection with Ms. Kearns’ acceptance of Interim Chief Executive Officer, the Board of Directors approved the grant to her of options to purchase 125,000 shares of the Company’s common stock.  The options are exercisable at $1.50 per share with 50% vesting on the grant date and the remaining 50% vesting one year from the grant date.  

On April 30, 2015, Glenn Russell accepted his appointment as a director of the Company replacing Stephen Garland who resigned on March 17, 2015.  

Debt offerings

The Company entered into notes under the senior secured loan agreement with JMW Fund, Richland Fund, and San Gabriel Fund in an aggregate principal amount of $179,000, subsequent to the quarter-end.  The interest rate on the notes is 12% per annum and monthly interest payments are due the first day each month.  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.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONOPERATIONS

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our 2014 Annual Report on Form 10-K, and with the unaudited condensed consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

·

risks associated with the asphalt repair industry, including competition, increases in wages, labor relations, energy and fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and international economic and market conditions;

·

risks associated with the asphalt repair industry, including changes in laws or regulations, increases in taxes, rising insurance premiums, costs of compliance with environmental laws and other governmental regulations;

·

the availability and terms of financing and capital and the general volatility of securities markets;

·

changes in the competitive environment in the asphalt repair industry;

·

risks related to natural disasters;

·

litigation; and

·

other risk factors discussed in the 2014 Annual Report on Form 10-K, filed by the Company with the Securities and Exchange Commission.

Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.

Overview and Basis of Presentation

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. We have not yet commercialized our products and we are therefore classified as a development stage enterprise.

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 350°325° and 400°375° Fahrenheit with our electrically powered infrared heating equipment, mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair, and mixing in additional recycled asphalt pavement and a binder (asphalt-cement), and then compacting repaired area with a vibrating roller or compactor. We consider our equipment to be eco-friendly as the Heatwurx process reuses and rejuvenates distressed asphalt, uses recycled asphalt pavement for filler material, eliminates travel to and from asphalt batch plants, and extends the life of the roadway.  We believe our equipment, technology and processes provide savings over other processes that can be more labor and equipment intensive.

Our hot-in-place recycling process and equipment was selected by the Technology Implementation Group of the American Association of State Highway Transportation Officials (“AASHTO TIG”) 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.  The CompanyOur company, together with Dr. Pave, offers 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.

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 choosing to “opt out” of such extended transition period, and as a 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 our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Results of operations

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements included herewith.  This discussion should not be construed to imply that results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

For the three months ended March 31, 20142015 compared to the three months ended March 31, 20132014

For the quarterthree months ended March 31, 2014,2015, our net loss was $1,344,276,$644,606, compared to a net loss of $816,365$1,344,276 for the same period of 2013.2014.  Further description of these losses is provided below.

Revenue

Revenue increased to approximately $47,000 for the three months ended March 31, 2015 from approximately $20,000 for the three months ended March 31, 2014, from approximately $19,000 for the three months ended March 31, 2013, as a result of increased equipment sales offset by a decrease in service revenue generated and other parts and equipment sales.during the period.

Cost of goods sold

Cost of goods sold decreasedincreased to approximately $29,000 for the three months ended March 31, 2015 from approximately $9,000 for the three months ended March 31, 2014 from approximately $12,000 for the three months ended March 31, 2013.2014.

Selling, general and administrative

Selling, general and administrative expenses increaseddecreased to approximately $602,000 for the three months ended March 31, 2015 from approximately $805,000 for the three months ended March 31, 2014 from approximately $737,000 for the three months ended March 31, 2013.2014. The increasedecrease in selling, general and administrative expenses is principally due to an increasea decrease in employee expenses of approximately $163,000$152,000; and a decrease in advertising and promotion of approximately $70,000; offset by a reduction in consulting fees of $71,000; an increase in office expenses of approximately $56,000$9,000 which includes commercial insurance, rent and other expenses, incurred to set up the Dr. Pave offices in California.  A net reductionand an increase in legal fees offering related cost and investor relations costs of approximately $27,000; and a decrease in advertising and promotion activities related to business development of approximately $53,000.$10,000.

As part of the acquisition of Dr. Pave;Pave in 2014, the Company recognized goodwill in the amount of $390,659;$390,659 as part of the total consideration paid.  The Company determined goodwill should be immediately impaired as of the acquisition date based on the lack of service revenue for the prior year.  An impairment of goodwill from the acquisition in the amount of $390,659, was recorded as an operating expense in the income statement, forduring the quarterthree months ended March 31, 2014.

Research and Development

Research and development increaseddecreased to approximately $14,000 for the three months ended March 31, 2015 from approximately $100,000 for the three months ended March 31, 2014, from approximately $72,000 foras a result of fewer patent applications being filed thereby reducing the three months ended March 31, 2013. The principal reason for the increase is due to additional legal fees related to certain patent applications on technologyassociated therewith, a decrease in manufacturing research and processes that may be patentable.development costs, and a decrease in consulting fees.

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 three months ended March 31, 2014, the Company2015, we incurred a net loss of approximately $1,334,000$645,000 and utilized $988,000$502,000 in cash flows from operating activities.  The CompanyWe had cash on hand of approximately $82,000$42,000 as of March 31, 2014.2015.  Successful completion of the Company’sour development program, implementation of our marketing strategy and its transition to profitable operations is dependent upon obtaining additional financing adequateuntil we are able to fulfill its development and commercialization activities, and achieve a level of revenues adequate to support the Company’sour cost structure.  Many of the Company’sour objectives to establish profitable business operations rely upon the occurrence of events outside itsour control; there is no assurance that the Companywe will be successful in accomplishing these objectives.

The Company hasWe have incurred operating losses, accumulated deficit and negative cash flows from operations since inception.  As of March 31, 2014, the Company2015, we had an accumulated deficit of approximately $8,219,000.  $13,560,000.

Management anticipates that the Companywe will require substantial additional funds to continue operations.  As of March 31, 2014,2015, we had approximately $82,000$42,000 cash on hand and were spending approximately $250,000$220,000 per month, of which only a very smallminor amount was satisfied by gross revenues.  Theproceeds from operations.  Hence, the amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.

Financing Activities

In October 2013,On March 1, 2015, the Company initiated a follow-onclosed its non-public equity offering at $1.75 per unit (the “Units”).  Each Unit consisted of one common share and one-half warrant, with each whole warrant exercisable at $2.00 per share.  The purchase price for the Units was payable in either cash, conversion of outstanding 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 ends May 30, 2014.  In January 2014, we sold 53,332 units at $3.00 per unit for gross proceeds of $159,996 and paid share issuance costs of $6,000.

The Company had an obligation to make a series of principal payments totaling $500,000 on our current senior subordinated note payable in 2014.  The Company paid $250,000 in accordance with the terms of the senior subordinated note payable duringpreferred shares or certain outstanding promissory notes.  For the three months ended March 31, 20142015 the Company raised cash proceeds of $88,000 and $250,000 on April 15, 2014.  issued 50,285 shares of common stock and warrants to purchase 25,141 shares of common stock as part of the private equity offering.

In December 2013, we raised $90,000 pursuantOn February 16, 2015, the Company entered into a Senior secured loan agreement with JMW Fund, Richland Fund, and San Gabriel Fund (collectively, the “lenders”) whereby the lenders agreed to loan to the termsCompany up to an aggregate of a Loan Agreement and the issuance of Unsecured Promissory Notes.$2,000,000.  The notes mature on June 11, 2014 and bear interest of 12% per annum, paid monthlyrate on the first day of the month.  

In January 2014, the Company assumed Secured Promissory Notes of $160,000 through the acquisition of Dr. Pave.  The notes mature on June 11, 2014 and bear interest of 12% per annum, paid monthly on the first day of the month.  

On January 6, 2014, we initiated a non-public debt offering of up to $1,000,000 under the terms of a Loan Agreement.  Each loan is evidenced by an unsecured promissory note bearing interest at the rate of 12% per annum and maturing on January 6, 2016.  Interest will be paid in equal monthly installments oninterest payments are due the first day each month beginning March 1, 2015.  The notes mature six months from the date of each month.  As additional consideration for aissuance.  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 enter into18% per annum, until the Loan Agreement,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.  During the three months ended March 31, 2015, the Company has agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to theissued notes with an aggregate principal amount of $470,000.  

The Company exercisable at $3.00 per share.  The Warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without the consent of the Company.  Onreceived $80,000 in short-term unsecured notes in January 2015; which were converted on February 28, 2014, we completed our $1,000,000 debt financing through the sale of23, 2015 into senior secured notes and warrantspayable under the Loan Agreement.  The notes were$2 million loan agreement as described above, and included above in the aggregate principal amountamount.  In addition, on February 23, 2015 the Company converted the outstanding $20,000 short-term unsecured note, entered into during December 2014, into a senior secured note payable under the $2 million loan agreement, included above in the aggregate principal amount.  As of $850,000 and wereMay 14, 2015 the Company issued withnotes for an aggregate of 283,329 warrantsadditional $179,000 in relation to the investors.  We utilized $250,000$2,000,000 senior secured debt offering.  

Based upon the Company’s current financial position, the Company does not believe it will be able to satisfy the mandatory principal payments in 2015 under the $2,000,000 senior secured debt.  The Company will work with the lenders to explore extension or conversion options.  These notes are secured by all of the debt to pay our February 2014 required principal payment on the senior subordinated note payable as discussed above.

On March 1, 2014, we commenced a similar non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the optionassets of the Company, before all of the notes are sold.  The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Persons holding promissory notes issued byincluding intellectual property rights.  If the Company in prior offeringsdefaults on the loan payments the Company’s assets may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering will receive one warrant for each $3.00 loaned.  The three-year warrants will be exercisable immediately at $3.00 per share.  These securities are being offered and will be sold solely to accredited investors without selling commissions.  The proceeds of this offering will be used to satisfy outstanding debt and provide working capital for the Company.  As of March 31, 2014, we have received $150,000 under the debt offering and issued warrants to purchase 50,000 shares of our common stock.  In April 2014, the Company received $570,000 under the $3,000,000 debt offering and issued warrants to purchase 189,997 shares of our common stock.

foreclosed upon.  

Cash Requirements

The issues described in the paragraphs above raise substantial doubt about the Company’sour ability to continue as a going concern.  Although we have commenced a new $3,000,000 non-public debt offering as noted above and we have a total of approximately $2,157,000 remaining to be raised under our Series D non-public preferred stock offering, we cannot guarantee we will be able to raise the entire offering amounts, if any.  We are solely reliant on raising additional capital in order to maintain our current operations.  To date, we have been able to raise debt and equity financing through the assistance of a small number of our investors who have been substantial participants in our debt and equity offerings since our formation.  If these investors choose not to assist us with our 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 and we would not be able to continue to satisfy our current or long term obligations.  Based upon our current monthly spend we anticipate the need to raise at least $3,000,000$2,600,000 to meet our cash flow requirements for the next twelve months.  The securities offered in these non-public offerings will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Recent accounting pronouncements

There were no new accounting pronouncements issued during the three months ended March 31, 20142015 that had a material impact or are anticipated to have a material impact on our financial position, cash flows or operating results.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Our principal executive officer, David Dworsky, andmanagement, with the participation of our principal financial and accounting officer, Allen Dodge, 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) designed 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.

Material Weakness and Related Remediation Initiatives

Our CEO and CFO concluded 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 expect to implement these various action plans during 2015. If we are able to complete these action plans in a timely manner, we anticipate that the material weakness will be remediated by December 31, 2015.  

Changes in internal control over financial reporting

There werehas been no changeschange in our internal control over financial reporting, (asas defined in Rules 13a-15(f) of the Exchange Act, Rule 13a - 15(f)) during theour most recent fiscal quarter ended March 31, 20142015, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

PART II.II - OTHER INFORMATION

ITEM 1A.  RISK FACTORS

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 have continued to file our Exchange Act reports and have no plans to cease filing Exchange Act reports, we may 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.

See “Risk“Item 1A - Risk Factors” as disclosed in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 27, 2014.April 14, 2015.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

ITEM 6.  EXHIBITS

* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibits 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.

Heatwurx, Inc.

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