10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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, CA 90248

(Address of principal executive offices and Zip Code)

(310) 324-4513

(Registrant’s telephone number, including area code)

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 [  ]

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 [ ]

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]

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 registrant has 8,287,730 shares of common stock outstanding as of November 13, 2014.

HEATWURX, INC.

FORM 10-Q

For the Quarter Ended September 30, 2014

TABLE OF CONTENTS

	Page No.
PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS	1
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET	20
ITEM 4.  CONTROLS AND PROCEDURES	20
PART II - OTHER INFORMATION	21
ITEM 1A.  RISK FACTORS	21
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 6.  EXHIBITS	22
SIGNATURES	23

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HEATWURX, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,	December 31,
	2014	2013*
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$  55,734	$  186,864
Accounts receivable	26,739	19,200
Prepaid expenses and other current assets	117,346	80,386
Inventory	200,751	228,256
Total current assets	400,570	514,706
EQUIPMENT, net of depreciation	480,391	369,775
INTANGIBLE ASSETS, net of amortization	1,785,716	2,053,572
TOTAL ASSETS	$ 2,666,677	$  2,938,053
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$  144,558	$    77,028
Accrued liabilities	130,165	258,006
Advance payment	-	155,497
Loan payable	54,767	41,186
Current portion of notes payable	250,000	590,000
Revolving line of credit	229,980	-
Total current liabilities	809,470	1,121,717
LONG-TERM LIABILITIES:
Loan payable	149,413	145,458
Unsecured notes payable	1,824,561	-
Total long-term liabilities	1,973,974	145,458
TOTAL LIABILITIES	2,783,444	1,267,175
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS’ EQUITY (DEFICIT):
Series B Preferred Stock, $0.0001 par value, no shares were issued and outstanding at September 30, 2014 and 177,000 shares issued and outstanding at December 31, 2013; there was no liquidation preference as of September 30, 2014 and $416,227 as of December 31, 2013	-	18
Series C Preferred Stock, $0.0001 par value, no shares issued and outstanding at September 30, 2014 and 101,000 shares issued and outstanding at December 31, 2013; there was no liquidation preference as of September 30, 2014 and $224,668 as of December 31, 2013	-	10
Series D Preferred Stock, $0.0001 par value, 883,303 and 727,648 shares issued and outstanding at September 30, 2014 and December 31, 2013 respectively; liquidation preference of $2,903,955 at September 30, 2014 and $2,403,691 at December 31, 2013	88	73
Common stock, $0.0001 par value, 20,000,000 shares authorized; 8,287,730 issued and 8,434,665 outstanding at September 30, 2014 and 8,082,000 shares issued and outstanding  at December 31, 2013, respectively.	843	808
Additional paid-in capital	9,884,774	8,483,727
Accumulated deficit	(10,002,472)	(6,813,758)
Total stockholders’ equity (deficit)	(116,767)	1,670,878
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$  2,666,677	$  2,938,053

*Amounts derived from the audited financial statements for the year ended, December 31, 2013.

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

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HEATWURX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014	2013	2014	2013
REVENUE:
Equipment sales	$  16,624	$  118,728	$           101,069	$           233,928
Service revenue	35,997	-	79,872	-
Other revenue	-	7,182	4,860	8,462
Total revenues	52,621	125,910	185,801	242,390
COST OF GOODS SOLD	25,289	80,450	104,621	154,100
GROSS PROFIT	27,332	45,460	81,180	88,290
EXPENSES:
Selling, general and administrative	677,398	664,425	2,194,809	2,066,596
Impairment of goodwill	-	-	390,659	-
Research and development	11,729	55,465	179,993	190,451
Total expenses	689,127	719,890	2,765,461	2,257,047
LOSS FROM OPERATIONS	(661,795)	(674,430)	(2,684,281)	(2,168,757)
OTHER INCOME AND EXPENSE:
Interest income	1	989	75	2,023
Interest expense	(130,135)	(45,399)	(303,167)	(95,042)
Total other income and expense	(130,134)	(44,410)	(303,092)	(93,019)
LOSS BEFORE INCOME TAXES	(791,929)	(718,840)	(2,987,373)	(2,261,776)
Income taxes	(25)	-	(75)	-
NET LOSS	$  (791,954)	$  (718,840)	$ (2,987,448)	$ (2,261,776)
Preferred stock cumulative dividend	53,054	213,760	112,208	238,596
Deemed dividend	26,832	-	26,832	-
Net loss attributable to common stockholders	$  (871,840)	$  (932,600)	$  (3,126,488)	$  (2,500,372)
Net loss per common share basic and diluted	$  (0.10)	$  (0.12)	$  (0.37)	$  (0.62)
Weighted average shares outstanding used in calculating net loss per common share	8,433,752	7,837,262	8,366,014	4,011,974

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

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HEATWURX, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$  (2,987,448)	$    (2,261,776)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	67,560	40,774
Amortization of intangible asset	267,856	267,857
Amortization of discount on notes payable	130,701	-
Impairment of goodwill	390,659	-
Stock-based compensation	209,854	67,219
Changes in current assets and liabilities:
(Increase) decrease in receivables	(7,539)	6,552
Increase in prepaid and other current assets	(12,468)	(30,224)
Increase in inventory	(56,207)	(158,252)
Increase in accounts payable	38,790	28,222
Decrease in accrued liabilities	(277,823)	(36,603)
Cash used in operating activities	(2,236,065)	(2,076,231)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(25,719)	(27,673)
Cash from acquisition of subsidiary	3,355	-
Cash used in investing activities	(22,364)	(27,673)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of unsecured notes payable	2,149,003	-
Proceeds from issuance of senior secured notes payable	-	1,000,000
Repayment of senior secured notes payable		(250,018)
Loan repayment of senior subordinated note payable	(500,000)	-
Proceeds from issuance of preferred shares, net of commissions paid	509,963	1,348,730
Repayment of loan payable	(31,667)	(20,346)
Cash provided by financing activities	2,127,299	2,078,366
NET CHANGE IN CASH AND CASH EQUIVALENTS	$    (131,130)	$    (25,538)
CASH AND CASH EQUIVALENTS, beginning of period	$  186,864	$    1,027,475
CASH AND CASH EQUIVALENTS, end of period	$    55,734	$       1,001,937

See Supplemental Cash Flow Information, Note 11

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

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HEATWURX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  PRINCIPAL BUSINESS ACTIVITIES:

Organization and Business - Heatwurx, Inc., a Delaware corporation (“Heatwurx,” or 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.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation - These unaudited interim consolidated financial statements and related notes are presented in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, they do not include all disclosures required in the annual financial statements by U.S. GAAP.  In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments considered necessary to present fairly in all material respects the financial position as of September 30, 2014.  

These financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2013, and have been prepared on a consistent basis with the accounting policies described in Note 2 - Summary of Significant Accounting Policies of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.  Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any future period.

The Company’s unaudited interim consolidated financial statements include Dr. Pave, LLC and Dr. Pave Worldwide, LLC, the Company’s wholly-owned subsidiaries.  All intercompany investments, accounts and transactions have been eliminated.

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

The Company also faces certain risks and uncertainties which 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 the Company has relied exclusively on private placements of Company securities with a small group of investors to finance its business and operations.  The Company has had little revenue since our inception.  For the nine months ended September 30, 2014, the Company incurred a net loss of $2,987,448 and utilized approximately $2,236,065 in cash flows from operating activities.  The Company had cash on hand of $55,734 as of September 30, 2014.  Successful completion of the Company’s development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its development and commercialization activities, 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 Company has no definitive commitments or arrangements for additional debt, equity or other funding.  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.

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Management anticipates that the Company will require additional funds to continue operations.  As of September 30, 2014, it had approximately $56,000 cash on hand.  Adjusting for $390,659 in one-time expense for impairment of goodwill from the acquisition of Dr. Pave, LLC in the first quarter 2014, our spending on operations is approximately $275,000 per month, of which only a very small amount is satisfied by revenues.  The amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.  On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.

The issues described above raise substantial doubt about the Company’s ability to continue as a going concern. Although the Company has $1,701,000 remaining under the $3,000,000 debt offering and an estimate of $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes; the Company cannot guarantee it will be able to raise the entire offering amounts, if any. The Company is solely reliant on raising additional capital in order to maintain its current operations.  To date the Company has been able to raise debt and equity financing through the assistance of a small number of investors who have been substantial participants in the Company’s debt and equity offerings since its formation.  If these investors choose not to assist with the Company’s capital raising initiatives in the future, management does not expect that the Company would be able to obtain any alternative forms of financing at this time and it would not be able to continue to satisfy its current or long term obligations.  Based upon the Company’s current monthly spending the Company anticipates the need to raise at least $2,000,000 to $3,000,000 to meet its cash flow requirements for the next twelve months.  If the Company successfully raises $2,000,000 to $3,000,000 in the private debt and equity offerings, management believes the proceeds the Company will receive and anticipated revenues from equipment sales and restoration services will be sufficient to fund its operations, including its expected capital expenditures, through the next twelve months. Without these additional funds, the Company would be required to reduce operations, curtail any future growth opportunities, cease operations all together, or seek to merge with or be acquired by another company.

The accompanying 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.

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 with the quarterly report filed for September 30, 2014.

5

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.

3.  PROPERTY AND EQUIPMENT:

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

	September 30, 2014		December 31, 2013
	(unaudited)
Office furniture and equipment	$	30,152	$	20,562
Demo and service equipment		599,432		426,336
		629,584		446,898
Accumulated depreciation		(149,193)		(77,123)
	$	480,391	$	369,775

Depreciation expense was $22,427 and $67,560 for the three and nine months ended September 30, 2014 and $14,518 and $40,774 for the three and nine months ended September 30, 2013.

4.  ASSET PURCHASE 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 we refer 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 now 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.  The Company performed its annual impairment analysis in October of 2013.  The Company used the Relief-from-Royalty method.  The Company believes that is the most appropriate method for valuing the developed technology as it is a revenue generating technology.  As of September 30, 2014, our developed technology intangible asset had a carrying value of $1,785,716 net of accumulated amortization of $714,284.  Amortization expense for the three months ended September 30, 2014 and 2013 was $89,286; and $267,856 and $267,857 for the nine months ended September 30, 2014 and 2013, respectively.

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 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.  As of September 30, 2014 there is no expectation that these performance stock options will vest.

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5.  ACQUISITION:

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

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
REVENUES
Equipment sales	$	16,624	$	118,728	$	101,069	$	233,928
Service revenue		35,997		-		79,872		-
Other revenue		-		7,182		4,860		8,462
Total revenues		52,621		125,910		185,801		242,390
COST OF GOODS SOLD		25,289		80,450		104,621		154,100
GROSS PROFIT		27,332		45,460		81,180		88,290
EXPENSES:
Selling, general and administrative		677,398		762,321		2,194,809		2,164,492
Impairment of goodwill		-		-		390,659		-
Research and development		11,729		55,465		179,993		190,451
Total expenses		689,127		817,786		2,765,461		2,354,943
LOSS FROM OPERATIONS		(661,795)		(772,326)		(2,684,281)		(2,266,653)
OTHER INCOME AND EXPENSE:
Interest income		1		989		75		2,023
Interest expense		(130,135)		(50,462)		(303,167)		(100,105)
Total other income and expense		(130,134)		(49,473)		(303,092)		(98,082)
LOSS BEFORE INCOME TAXES		(791,929)		(821,799)		(2,987,373)		(2,364,735)
Income taxes		(25)		-		(75)		-
NET LOSS	$	(791,954)	$	(821,799)	$	(2,987,448)	$	(2,364,735)
Preferred stock cumulative dividend		53,054		213,760		112,208		238,596
Deemed dividend		26,832		-		26,832		-
Net loss attributable to common stockholders	$	(871,840)	$	(1,035,559)	$	(3,126,488)	$	(2,603,331)
Net loss per common share basic and diluted	$	(0.10)	$	(0.13)		$  (0.37)		$  (0.65)
Weighted average shares outstanding used in calculating net loss per common share		8,433,752		7,837,262		8,366,014		4,011,974

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6.  NOTES 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 is payable monthly on the first day of each month.  The principal amount and all then-accrued and unpaid interest is payable on June 30, 2015.

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

On February 28, 2014, the Company closed its $1,000,000 debt financing.  The total notes issued were in the aggregate principal amount of $850,000 and were issued with an aggregate of 283,329 warrants to the investors.  The warrants are detachable and exercisable immediately.  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 $32,439 and $84,875 for the three and nine months ended September 30, 2014, respectively.

On March 1, 2014, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the option of the Company before all of the notes are sold.  The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering will receive one warrant for each $3.00 loaned.  The three-year warrants will be exercisable immediately at $3.00 per share.  As of September 30, 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 warrants are detachable and exercisable immediately.  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 $25,904 and $45,826 for the three and nine months ended September 30, 2014, respectively.

Revolving line of credit - The Company assumed a revolving line of credit entered into by Dr. Pave at its inception in July 2013 in the amount of $229,980.  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 principal amount and all then-accrued and unpaid interest is payable on August 15, 2015.  Interest on the line of credit totaling $2,268 was outstanding at September 30, 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 first day of each month.  The principal amount and all then-accrued and unpaid interest is payable on June 30, 2015.

Interest on the secured notes payable totaling $1,578 was outstanding at September 30, 2014.  

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 our 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 transport and demonstration of our equipment.  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 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 with 0% interest matures on October 15, 2018.

8

As of September 30, 2014, the loans are subject to mandatory principal payments as follows:

Year ending December 31,	Payments
2014	$	12,620
2015		536,388
2016		2,207,134
2017		49,768
2018		27,253
Total principal payments	$	2,833,163

7.  STOCKHOLDERS’ EQUITY:

Common Stock - The Company has authorized 20,000,000 common shares with a $0.0001 par value. There were 8,287,730 issued and 8,434,665 outstanding at September 30, 2014 and 8,082,000 shares issued and outstanding at December 31, 2013.

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 September 30, 2014 and December 31, 2013, there were 883,303 and 1,005,648 preferred shares outstanding, respectively.

Series B Preferred Stock - As of September 30, 2014 there were no shares of Series B Preferred Stock outstanding.

On April 14, 2014 all remaining Series B preferred shares, 101,935, were mandatorily converted into common shares.   The conversion of Series B preferred shares to common shares resulted in a release of $40,529 in accumulated dividends during the nine months ended September 30, 2014.

Series C Preferred Stock - As of September 30, 2014 there were no shares of Series C Preferred Stock outstanding.

On April 14, 2014 all remaining Series C preferred shares, 45,000, were mandatorily converted into common shares.  Holders of Series C Preferred Stock accrued dividends at the rate per annum of $0.16 per share. The Company paid accrued dividends on the Series C converted shares of $17,870 during the three months ended September 30, 2014.

Series D Preferred Stock - As of September 30, 2014 there were 883,303 shares of Series D Preferred Stock outstanding.

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 $355,966.  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 dividends of $49,254 and $138,937 during the three and nine months ended September 30, 2014, respectively. As of September 30, 2014 the Company had dividends payable in accrued expenses of $53,054.

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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. We have determined that there is a beneficial conversion feature (“BCF”).  The calculated value as of the commitment date of the BCF was $24,279, 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, as the Series D Preferred Stock is immediately convertible.  This amount was recorded as a charge against our accumulated deficit in our accompanying balance sheet.

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.

Each unit includes one-half warrant.  Each full warrant grants the right to purchase a share of the Company’s common stock and, as of September 30, 2014, there were warrants to purchase 449,817 shares of common stock outstanding.  On September 30, 2014, the Board of Directors authorized extending the expiration date of the warrants outstanding issued in the Series D Preferred offering to October 1, 2015.  Except as so extended all other provisions of the warrants have not been altered or otherwise amended.  A deemed dividend of $26,832 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model.  

In addition, the Company agreed to use its best efforts to register the shares underlying the warrants issued in the follow-on Series D preferred stock offering and the original Series D preferred stock offering.  The Company failed to file the registration statement within the required 90-day period following the completion of the offering on May 30, 2014.

Stock Options

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2012	1,022,000	$ 2.00
Granted	410,000	$ 2.76
Exercised	-	$      -
Cancelled	(112,000)	$ 2.00
Balance, December 31, 2013	1,320,000	$ 2.23	3.44
Granted	298,000	$ 3.00
Exercised	-	$      -
Cancelled	(266,500)	$ 2.25
Balance, September 30, 2014	1,351,500	$ 2.40	3.18
Exercisable, December 31, 2013	845,000	$ 2.04
Exercisable, September 30, 2014	765,500	$ 2.14

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On January 13, 2014, the Board of Directors approved the grant of 94,000 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 2 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 January 16, 2014, the Board of Directors approved the grant of 40,000 options to the Company’s Directors for their 2013 service, in accordance with 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.  

On February 1, 2014, 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 2 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.

The fair value of each stock option granted was estimated on the date of grant using the Black Scholes option pricing model with the following assumptions:

	September 30, 2014
Risk-free interest rate range	1.49% - 1.71%
Expected life	5.0 years
Vesting Period	0 - 4 Years
Expected volatility	42%
Expected dividend	-
Fair value range of options at grant date	$0.671- $1.167

The Company recorded stock-based compensation expense of $46,133 and $209,854 during the three and nine months ended September 30, 2014, respectively.  The Company recorded stock-based compensation expense of $17,526 and $67,219 during the three and nine months ended September 30, 2013, respectively.

As of September 30, 2014 there was $403,153 of unrecognized compensation expense related to the issuance of the stock options.

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Performance Stock Options

There were no performance stock options granted during the three and nine months ended September 30, 2014.

	Number of Options	Weighted Average Exercise Price
Balance, December 31, 2012	1,440,000	$ 0.11
Granted	-	$      -
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014 and December 31, 2013	1,440,000	$ 0.11
Exercisable, September 30, 2014 and December 31, 2013	40,000	$ 2.00

See Note 4 for further discussion of the performance options.

Warrants

The Company issued 85,993 warrants in connection with the follow-on Series D unit offering during the first nine months of 2014, 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 Company issued 283,329 warrants in connection with the non-public offering of notes and warrants 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.

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2013	363,824	$ 3.00
Granted	802,317	$ 3.00
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014	1,166,141	$ 3.00	1.95

8.  NET LOSS PER COMMON SHARE:

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

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Outstanding options were not included in the computation of diluted loss per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive.  

	For the three months ended		For the nine months ended
	September 30,		September 30,
	2014	2013	2014	2013
Net Loss	$ (791,954)	$ (718,840)	$ (2,987,448)	$ (2,261,776)
Basic and diluted:
Preferred stock cumulative dividend - Series A	--	--	--	--
Preferred stock cumulative dividend - Series B (1)	--	8,551	(62,227)	25,373
Preferred stock cumulative dividend - Series C	--	4,073	2,200	12,087
Preferred stock cumulative dividend - Series D	53,054	201,136	172,235	201,136
Income applicable to preferred stockholders	53,054	213,760	112,208	238,596
Deemed dividend	26,832	--	26,832	--
Net loss applicable to common stockholders	$ (871,840)	$ (932,600)	$ (3,126,488)	$ (2,500,372)

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

(1)  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.

9.  COMMITMENTS AND CONTINGENCIES:

Lease Commitments - On July 18, 2012, the Company entered into a thirteen month lease for office space for our 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.  

The Company also has a lease of warehouse and office space for our equipment and operations located in Gardena, CA.  The lease term continues through July 2015.

Total rent expense for the three and nine months ended September 30, 2014 was $5,280 and $43,684.  Rent expense for the three and nine months ended September 30, 2013 was $9,228 and $26,867; respectively.

The Company’s remaining commitment under its current lease terms through July 2015 is approximately $50,000.

Purchase Commitments - As of September 30, 2014, the Company’s outsourced manufacturing company has begun fabrication of our equipment resulting in a commitment to purchase the finished equipment totaling approximately $30,000.

10.  RELATED PARTY TRANSACTIONS:

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 did not pay consulting fees to Mr. Giles during the three months ended September 30, 2014; the Company paid consulting fees $69,800 during the nine months ended September 30, 2014.  During the three and nine months ended September 30, 2013 the Company paid consulting fees of $47,400 and $142,200, respectively to Richard Giles. The Company had a Senior Subordinated note payable with Mr. Richard Giles, on April 15, 2014, the Company made the final required principal payment of $250,000 on the Senior Subordinated note payable.  

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During the nine months ended September 30, 2014 the Company issued 16,659 Series D Preferred shares to Reginald Greenslade, one of the Company’s directors.  The Company issued 16,666 Series D Preferred shares to Gus Blass III, one of the Company’s directors. The Company issued 1,500 Series D Preferred shares to David Dworsky, the Chief Executive Officer of the Company.  

11.  SUPPLEMENTAL CASH FLOW INFORMATION:

	Nine Months Ended September 30,
	2014		2013
Cash paid for interest	$	229,571	$	95,042
Cash paid for income taxes	$	-	$	100
Series C Dividend payable in current liabilities	$	-	$	27,068
Series D Dividend payable in current liabilities	$	53,054	$	24,407
Non-Cash investing and financing transactions
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	$	83,507
Beneficial conversion feature on warrants issued in conjunction with Series D preferred shares	$	24,279	$	-
Shares issued in acquisition of Dr. Pave	$	175,000	$	-
Deemed dividend related to warrant extension	$	26,832	$	-

12.  SUBSEQUENT EVENTS:

Effective October 28, 2014, Alexander Kramer resigned as the Company’s Chief Financial Officer. In such capacity Mr. Kramer had served as the Company’s principal financial officer and principal accounting officer. Mr. Kramer advised the Company that he has no material disagreement with the Company on any matter relating to the Company’s operations, policies or practices, and Mr. Kramer has made himself available to support the Company by assisting with its transition needs.  In connection with his resignation, Mr. Kramer entered into a Separation and Severance Agreement and Release of Claims with the Company on October 28, 2014. The Separation Agreement terminates and supersedes the terms of Mr. Kramer’s letter agreement with the Company, April 28th, 2014, regarding his terms of employment.  

Equity Offering

On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.  The Company issued 546,620 shares of our common stock and warrants to purchase 273,310 shares of common stock as part of the conversion of 318,860 Series D Preferred Shares as of November 13, 2014.

Loan proceeds

On October 9, 2014 the Company received a short- term unsecured loan in the amount of $75,000. The short-term loan bears interest at a rate of 12% per annum.  The principal amount and all then-accrued interest is payable on November 15, 2014; the Company does have the option to extend the loan.  

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Distribution Agreement

On October 23, 2014, the Company entered into an Exclusive Distribution Agreement with Beijing Enhanced Solutions, Inc. (“BES”). The Company appointed BES as the exclusive distributor and sales representative of its products in the Macau Special Administrative Region and the Hong Kong Special Administrative Region of China.  This Agreement is for an initial term of five years.  After the initial term the Agreement will automatically renew for two additional terms of two years each, unless the Agreement is terminated for cause.  The Agreement grants BES the exclusive right to distribute and sell Heatwurx products during the term, in the territory.  BES can appoint sub-distributors of its choice in furtherance of this goal. The Distributor agreed to use its best efforts to design sales channels, methods, and campaigns which maintain the Company’s ethos of being a safe, eco-friendly, high quality provider.

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

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 2013 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 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° and 400° 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.

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

Effective July 22, 2014, the Company established a new entity named Dr. Pave Worldwide LLC to house the recently announced [on Form 8-K filed August 7, 2014] franchise program providing franchisees with the exclusive Heatwurx equipment and processing.  The franchising program is on track with submission for regulatory approval.  We formally launched our franchise sales program throughout the U.S. in the third quarter of 2014.

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 nine months ended September 30, 2014 compared to the nine months ended September 30, 2013

For the nine months ended September 30, 2014, our net loss was $2,987,448, compared to a net loss of $2,261,776 for the same period of 2013.  Further description of these losses is provided below.

Revenue

Revenue decreased to approximately $186,000 for the nine months ended September 30, 2014 from approximately $242,000 for the nine months ended September 30, 2013, as a result of decreased equipment sales during the period.

Cost of goods sold

Cost of goods sold decreased to approximately $105,000 for the nine months ended September 30, 2014 from approximately $154,000 for the nine months ended September 30, 2013.

Selling, general and administrative

Selling, general and administrative expenses increased to approximately $2,195,000 for the nine months ended September 30, 2014 from approximately $2,067,000 for the nine months ended September 30, 2013. The increase in selling, general and administrative expenses is principally due to an increase in employee expenses of approximately $146,000; and an increase in office expenses of approximately $202,000 which includes commercial insurance, rent and other expenses incurred in the addition of Dr. Pave offices in California; offset by a decrease in advertising and promotion of approximately $117,000; and a net reduction in legal fees, offering related cost and investor relations costs of approximately $103,000.

As part of the acquisition of Dr. Pave; the Company recognized goodwill in the amount of $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, during the nine months ended September 30, 2014.

Research and Development

Research and development decreased to approximately $180,000 for the nine months ended September 30, 2014 from approximately $190,000 for the nine months ended September 30, 2013. The decrease is principally due to the termination of our research and development consulting contract with Mr. Richard Giles, fewer patent applications being filed thereby reducing the legal fees associated therewith; offset by an increase in our manufacturing research and development costs.

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For the three months ended September 30, 2014 compared to the three months ended September 30, 2013

For the quarter ended September 30, 2014, our net loss was $791,954, compared to a net loss of $718,840 for the same period of 2013.  Further description of these losses is provided below.

Revenue

Revenue decreased to approximately $53,000 for the three months ended September 30, 2014 from approximately $126,000 for the three months ended September 30, 2013, as a result of reduced equipment sales during the period.

Cost of goods sold

Cost of goods sold decreased to approximately $25,000 for the three months ended September 30, 2014 from approximately $80,000 for the three months ended September 30, 2013.

Selling, general and administrative

Selling, general and administrative expenses increased to approximately $677,000 for the three months ended September 30, 2014 from approximately $664,000 for the three months ended September 30, 2013. The increase in selling, general and administrative expenses is principally due to an increase in employee expenses of approximately $44,000; an increase in office expenses of approximately $67,000 which includes commercial insurance, rent and other expenses incurred in the addition of Dr. Pave offices in California; offset by a net reduction in legal fees, offering related cost and investor relations costs of approximately $73,000; and a decrease in advertising and promotion activities related to business development of approximately $25,000.

Research and Development

Research and development decreased to approximately $12,000 for the three months ended September 30, 2014 from approximately $55,000 for the three months ended September 30, 2013. The principal reason for the decrease is due to the termination of our research and development consulting contract with Mr. Richard Giles.

Liquidity and capital resources

To date we have relied exclusively on private placements with a small group of investors to finance our business and operations.  We have had little revenue since our inception.  For the first nine months of 2014, the Company incurred a net loss of approximately $2,987,000 and utilized $2,236,000 in cash flows from operating activities.  The Company had cash on hand of approximately $56,000 as of September 30, 2014.  Successful completion of the Company’s development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its development and commercialization activities, 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 Company has incurred operating losses, accumulated deficit and negative cash flows from operations since inception.  As of September 30, 2014, the Company had an accumulated deficit of approximately $10,002,000.  

Management anticipates that the Company will require substantial additional funds to continue operations.  As of September 30, 2014, we had approximately $56,000 cash on hand and were spending approximately $275,000 per month, of which only a very small amount was satisfied by gross revenues.  The amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.  

Financing Activities

In October 2013, the Company initiated a follow-on non-public 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 ended May 30, 2014.  During 2014, we sold 171,987 units at $3.00 per unit for gross proceeds of $515,963 and paid share issuance costs of $6,000.

18

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 made the final required principal payments of $500,000 on the Senior Subordinated note payable during the second quarter of 2014.

In December 2013, we raised $90,000 pursuant to the terms of a Loan Agreement and the issuance of Unsecured Promissory Notes.  The notes were extended to mature on June 30, 2015 and bear interest of 12% per annum, paid monthly 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 were extended to mature on June 30, 2015 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 on the first day of each month.  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, 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.  On February 28, 2014, we completed our $1,000,000 debt financing through the sale of notes and warrants under the Loan Agreement.  The notes were in the aggregate principal amount of $850,000 and were issued with an aggregate of 283,329 warrants to the investors.  We utilized $250,000 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 option of the Company before all of the notes are sold.  The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering will receive one warrant for each $3.00 loaned.  The three-year warrants will be exercisable immediately at $3.00 per share.  These securities are being offered and will be sold solely to accredited investors without selling commissions.  The proceeds of this offering will be used to satisfy outstanding debt and provide working capital for the Company.  As of September 30, 2014, we have received $1,299,003 under the debt offering and issued warrants to purchase 432,995 shares of our common stock.

Cash Requirements

The issues described in the paragraphs above raise substantial doubt about the Company’s ability to continue as a going concern.  Although we have a $3,000,000 non-public debt offering as noted above open through December 2014, we cannot guarantee we will be able to raise the entire offering amounts, if any.  On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.  On October 9, 2014 the Company received a short- term unsecured loan in the amount of $75,000. The short-term loan bears interest at a rate of 12% per annum.  The principal amount and all then-accrued interest is payable on November 15, 2014; the Company does have the option to extend the loan.  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 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.

19

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 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Our principal executive officer, David Dworsky, and our principal financial and accounting officer at the time, Alexander Kramer, 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) 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, 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.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a - 15(f)) during the three and nine months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

20

PART II. OTHER INFORMATION

ITEM 1A.  RISK FACTORS

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

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

During the nine months ended September 30, 2014, shareholders owning 16,332 shares of Series D Preferred Stock converted the preferred shares into 16,332 shares of Common Stock pursuant to a conversion provision in the Certificate of Designations of Series D Preferred Stock.  These shares of Common Stock were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 3(a)(9) thereof.  No commission or other remuneration was paid or given directly or indirectly for soliciting the exchange.

On March 1, 2014, we commenced a non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the option of the Company before all of the notes are sold.  The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering will receive one warrant for each $3.00 loaned.  The three-year warrants will be exercisable immediately at $3.00 per share.  During the quarter ended September 30, 2014, we have received $579,000 and issued promissory notes for a like amount and issued warrants to purchase 192,998 shares of our common stock.

On October 1, 2014, we commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit (the “Units”).  Each Unit consists of one common share and one-half warrant, with each whole warrant exercisable at $2.00 per share. The purchase price for the Units is payable in either cash, conversion of outstanding Series D Preferred Shares or certain outstanding promissory notes. As of November 13, 2014 we raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering; we issued 546,620 shares of our common stock and warrants to purchase 273,310 shares of common stock as part of the conversion of 318,860 Series D Preferred Shares.

On October 9, 2014, we received a short- term unsecured loan in the amount of $75,000. The short-term loan bears interest at a rate of 12% per annum.  The principal amount and all then-accrued interest is payable on November 15, 2014; we have the option to extend the loan.

These notes, warrants and shares of Common Stock 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.

21

ITEM 6.  EXHIBITS

SEC Ref. No.	Title of Document
31.1	Rule 15d-14(a) Certification by Principal Executive Officer
31.2	Rule 15d-14(a) Certification by Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase

* 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.

22

SIGNATURES

Pursuant to the requirements 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.
Dated: November 13, 2014	By: /s/ David Dworsky
	David Dworsky, Chief Executive Officer
	(Principal Executive and Financial Officer)
Dated: November 13, 2014	By: /s/ Heather Kearns
	Heather Kearns, Interim CFO
	(Principal Financial and Accounting Officer)

23

EX-31.1

Certification

I, David Dworsky, certify that:

1.

I have reviewed this Form 10-Q quarterly report of Heatwurx, Inc. for the quarter ended September 30, 2014;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014

/s/ David Dworsky

David Dworsky, Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Certification

I, Heather Kearns, certify that:

1.

I have reviewed this Form 10-Q quarterly report of Heatwurx, Inc. for the quarter ended September 30, 2014;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014

/s/ Heather Kearns

Heather Kearns, Interim Chief Financial Officer

(Principal Financial Officer)

EX-32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Heatwurx, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 13, 2014

/s/ David Dworsky

David Dworsky, Chief Executive Officer

(Principal Executive Officer)

EX-32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Heatwurx, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 13, 2014

/s/ Heather Kearns

Heather Kearns, Interim Chief Financial Officer

(Principal Financial Officer)

XML

Stockholders' Equity Disclosure: Schedule of Stockholders' Equity Note, Warrants (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Details
Warrants outstanding	1,166,141	363,824
Weighted average exercise price, warrants	$ 3.00	$ 3.00
Warrants granted	802,317

XML

Acquisition Disclosure (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Jan. 02, 2014
Impairment of goodwill, operating expense	$ 390,659
Agreement and Plan of Reorganization
Common stock issued for acquisition	58,333
Consideration for common stock issued for acquisition	175,000
Net liabilities assumed in acquisition		215,659
Total consideration in acquisition resulting in goodwill		390,659
Impairment of goodwill, operating expense	$ 390,659

XML

Stockholders' Equity Disclosure: Schedule of Performance Stock Options (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Performance Stock Options

	Number of Options	Weighted Average Exercise Price
Balance, December 31, 2012	1,440,000	$ 0.11
Granted	-	$      -
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014 and December 31, 2013	1,440,000	$ 0.11
Exercisable, September 30, 2014 and December 31, 2013	40,000	$ 2.00

XML

Related Party Transactions (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Richard Giles
Related party consulting fees	$ 47,400	$ 69,800	$ 142,200
Repayment of Senior Subordinated note payable		$ 250,000
Greenslade - Series D Preferred Shares
Stock issued to related parties		16,659
Blass - Series D Preferred Shares
Stock issued to related parties		16,666
Dworsky - Series D Preferred Shares
Stock issued to related parties		1,500

XML

Stockholders' Equity Disclosure: Schedule of Stock Option Activity (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Dec. 31, 2012
Details
Number of options outstanding	1,351,500	1,320,000	1,022,000
Weighted average exercise price, options outstanding	$ 2.40	$ 2.23	$ 2.00
Number of options granted	298,000	410,000
Weighted average exercise price, options granted	$ 3.00	$ 2.76
Number of options cancelled	266,500	112,000
Weighted average exercise price, options cancelled	$ 2.25	$ 2.00
Weighted average remaining life (in years), options outstanding	3.18	3.44
Number of options exercisable	765,500	845,000
Weighted average exercise price, options exercisable	$ 2.14	$ 2.04

XML

Asset Purchase Agreement Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Asset Purchase Agreement Disclosure

4.  ASSET PURCHASE 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 we refer 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 now 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.  The Company performed its annual impairment analysis in October of 2013.  The Company used the Relief-from-Royalty method.  The Company believes that is the most appropriate method for valuing the developed technology as it is a revenue generating technology.  As of September 30, 2014, our developed technology intangible asset had a carrying value of $1,785,716 net of accumulated amortization of $714,284.  Amortization expense for the three months ended September 30, 2014 and 2013 was $89,286; and $267,856 and $267,857 for the nine months ended September 30, 2014 and 2013, respectively.

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 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.  As of September 30, 2014 there is no expectation that these performance stock options will vest.

XML

Supplemental Cash Flow Information Disclosure: Schedule of Cash Flow, Supplemental Disclosures (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013
Details
Cash paid for interest		$ 229,571	$ 95,042
Cash paid for income taxes			100
Series C Dividend payable in accounts payable			27,068
Series D Dividend payable in accrued expenses		53,054	24,407
Repayment of senior secured notes payable with Series D preferred shares			749,982
Financing the purchase of equipment under a 5 year loan agreement		49,204	83,507
Beneficial conversion feature on warrants issued in conjunction with Series D preferred shares		24,279
Shares issued in acquisition of Dr. Pave		175,000
Deemed dividend related to warrant extension	$ 26,832	$ 26,832

XML

Basis of Presentation and Summary of Significant Accounting Policies: Basis of Presentation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Details
Net loss during period	$ 791,954	$ 718,840	$ 2,987,448	$ 2,261,776
Cash flows utilized in operating activities			2,236,065
Cash on hand	$ 55,734		$ 55,734

XML

Supplemental Cash Flow Information Disclosure: Schedule of Cash Flow, Supplemental Disclosures (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Cash Flow, Supplemental Disclosures

	Nine Months Ended September 30,
	2014		2013
Cash paid for interest	$	229,571	$	95,042
Cash paid for income taxes	$	-	$	100
Series C Dividend payable in current liabilities	$	-	$	27,068
Series D Dividend payable in current liabilities	$	53,054	$	24,407
Non-Cash investing and financing transactions
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	$	83,507
Beneficial conversion feature on warrants issued in conjunction with Series D preferred shares	$	24,279	$	-
Shares issued in acquisition of Dr. Pave	$	175,000	$	-
Deemed dividend related to warrant extension	$	26,832	$	-

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Subsequent Events (Details) (USD $)	0 Months Ended	1 Months Ended
	Oct. 09, 2014 Loan payable due - purchase of equipment	Oct. 01, 2014 Equity offering, units	Nov. 13, 2014 Equity offering, common stock and warrants	Nov. 13, 2014 Conversion of Series D Preferred Shares, common stock and warrants
Number of units to be offered		3,650,807
Description of units offered		$1.75 per unit, 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.
Number of units to be offered, potential proceeds		$ 2,200,000
Proceeds from issuance of equity			308,825
Common stock issued in private placement			176,469
Common stock available for purchase from warrants issued			88,232	273,310
Common stock issued for conversion of preferred stock				546,620
Proceeds from short-term debt	$ 75,000

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Property and Equipment Disclosure: Summary of the cost of property and equipment (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Property, Plant and Equipment, Gross	$ 629,584	$ 446,898
Accumulated depreciation	(149,193)	(77,123)
Equipment, net of depreciation	480,391	369,775
Computer Equipment
Property, Plant and Equipment, Gross	30,152	20,562
Demo and service equipment
Property, Plant and Equipment, Gross	$ 599,432	$ 426,336

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Property and Equipment Disclosure (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Details
Depreciation expense	$ 22,427	$ 14,518	$ 67,560	$ 40,774

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Property and Equipment Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Property and Equipment Disclosure

3.  PROPERTY AND EQUIPMENT:

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

	September 30, 2014		December 31, 2013
	(unaudited)
Office furniture and equipment	$	30,152	$	20,562
Demo and service equipment		599,432		426,336
		629,584		446,898
Accumulated depreciation		(149,193)		(77,123)
	$	480,391	$	369,775

Depreciation expense was $22,427 and $67,560 for the three and nine months ended September 30, 2014 and $14,518 and $40,774 for the three and nine months ended September 30, 2013.

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Asset Purchase Agreement Disclosure (Details) (Asset Purchase Agreement, USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Apr. 15, 2011
Asset Purchase Agreement
Total purchase price				$ 2,500,000
Cash payment				1,500,000
Issuance of senior subordinated note (value)				1,000,000
Developed technology intangible asset (value)	1,785,716		1,785,716
Developed technology intangible asset (accumulated amortizaton)	714,284		714,284
Developed technology intangible asset (amortization expense)	$ 89,286	$ 267,856	$ 267,857
Performance stock options granted				1,400,000
Performance stock options, exercise price				$ 0.057

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Net Loss Per Common Share Disclosure: Schedule of Earnings Per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net income (loss)	$ (791,954)	$ (718,840)	$ (2,987,448)	$ (2,261,776)
Net income (loss) available to preferred stockholders	53,054	213,760	112,208	238,596
Deemed dividend related to warrant extension	26,832		26,832
Net income (loss) applicable to common stockholders	(871,840)	(932,600)	(3,126,488)	(2,500,372)
Series B Dividend
Cumulative dividend		8,551	(62,227)	25,373
Series C Dividend
Cumulative dividend		4,073	2,200	12,087
Series D Dividend
Cumulative dividend	$ 53,054	$ 201,136	$ 172,235	$ 201,136

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CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 55,734	$ 186,864
Accounts receivable	26,739	19,200
Prepaid expenses and other current assets	117,346	80,386
Inventory	200,751	228,256
Total current assets	400,570	514,706
Other assets:
Equipment, net of depreciation	480,391	369,775
Intangible assets, net of amortization	1,785,716	2,053,572
Total other assets	2,266,107	2,423,347
Total assets	2,666,677	2,938,053
Current liabilities:
Accounts payable	144,558	77,028
Accrued liabilities	130,165	258,006
Advance payment		155,497
Loan payable, current	54,767	41,186
Current portion of notes payable	250,000	590,000
Revolving line of credit	229,980
Total current liabilities	809,470	1,121,717
Long-term liabilities:
Loan payable	149,413	145,458
Unsecured notes payable	1,824,561
Total long-term liabilities	1,973,974	145,458
Total liabilities	2,783,444	1,267,175
Commitments and contingencies
Stockholders' equity:
Preferred stock value	88	101
Common stock value	843	808
Additional paid-in capital	9,884,774	8,483,727
Accumulated deficit	(10,002,472)	(6,813,758)
Total stockholders' equity	(116,767)	1,670,878
Total liabilities and stockholders' equity	$ 2,666,677	$ 2,938,053

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Principal Business Activities

3 Months Ended

Sep. 30, 2014

Notes

Principal Business Activities

1.  PRINCIPAL BUSINESS ACTIVITIES:

Organization and Business - Heatwurx, Inc., a Delaware corporation (“Heatwurx,” or 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)

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Notes Payable Disclosure: Schedule of Loan Payable (Details) (Loan Payable Due, USD $)	Sep. 30, 2014
Loan Payable Due
Mandatory principal loan payments (2014)	$ 12,620
Mandatory principal loan payments (2015)	536,388
Mandatory principal loan payments (2016)	2,207,134
Mandatory principal loan payments (2017)	49,768
Mandatory principal loan payments (2018)	27,253
Total principal payments	$ 2,833,163

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Notes Payable Disclosure: Schedule of Loan Payable (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Loan Payable

Year ending December 31,	Payments
2014	$	12,620
2015		536,388
2016		2,207,134
2017		49,768
2018		27,253
Total principal payments	$	2,833,163

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Stockholders' Equity Disclosure (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended	9 Months Ended		1 Months Ended		3 Months Ended	9 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Series B Preferred Stock	Sep. 30, 2014 Series C Preferred Stock	May 31, 2014 Series D Preferred Stock	Jan. 31, 2014 Series D Preferred Stock	Sep. 30, 2014 Series D Preferred Stock	Sep. 30, 2014 Series D Preferred Stock	Oct. 31, 2013 Series D Preferred Stock	Sep. 30, 2014 2011 Equity Incentive Plan, January 13, 2014	Sep. 30, 2014 2011 Equity Incentive Plan, January 16, 2014	Sep. 30, 2014 2011 Equity Incentive Plan, February 1, 2014	Sep. 30, 2014 2011 Equity Incentive Plan, April 4, 2014	Sep. 30, 2014 2011 Equity Incentive Plan, June 19, 2014	Sep. 30, 2014 2011 Equity Incentive Plan, June 19, 2014 (2)	Sep. 30, 2014 Series D Unit offering	Sep. 30, 2014 Non-public offering of notes and warrants	Sep. 30, 2014 Non-public offering of notes and warrants(2)
Common stock authorized	20,000,000		20,000,000		20,000,000
Common shares issued	8,287,730		8,287,730		8,082,000
Common shares outstanding	8,434,665		8,434,665		8,082,000
Preferred stock authorized	4,500,000		4,500,000		4,500,000
Preferred stock outstanding	883,303		883,303		1,005,648
Preferred shares converted to common shares						101,935	45,000
Accumulated dividends released						$ 40,529
Annual dividend rate							$ 0.16				$ 0.24
Dividends payable							17,870			53,054	53,054
Shares outstanding										883,303	883,303
Units offered (Common Stock and Warrants)												772,352
Units offered (Common Stock and Warrants), price per unit												$ 3.00
Units offered (Common Stock and Warrants), potential proceeds												2,317,056
Units offered (Common Stock and Warrants), additional over-allotment												1,000,000
Units offered (Common Stock and Warrants), potential proceeds for additional over-allotment												3,000,000
Units sold during offering								118,655	53,332
Gross proceeds from units sold in offering								355,966	159,996
Issuance costs									6,000
Dividends paid										49,254	138,937
Original issue price per share										$ 3.00	$ 3.00
Beneficial conversion feature (BCF)											24,279
Number of options granted			298,000		410,000								94,000	40,000	50,000	4,000	10,000	100,000
Stock-based compensation expense	46,133	17,526	209,854	67,219
Unrecognized compensation expense	$ 403,153		$ 403,153
Number of warrants issued																			85,993	283,329	432,995

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Stockholders' Equity Disclosure: Schedule of Stock Option Valuation Assumptions (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Stock Option Valuation Assumptions

	September 30, 2014
Risk-free interest rate range	1.49% - 1.71%
Expected life	5.0 years
Vesting Period	0 - 4 Years
Expected volatility	42%
Expected dividend	-
Fair value range of options at grant date	$0.671- $1.167

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Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2014

Notes

Basis of Presentation and Summary of Significant Accounting Policies:

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

Basis of Presentation - These unaudited interim consolidated financial statements and related notes are presented in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, they do not include all disclosures required in the annual financial statements by U.S. GAAP.  In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments considered necessary to present fairly in all material respects the financial position as of September 30, 2014. 

These financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2013, and have been prepared on a consistent basis with the accounting policies described in Note 2 - Summary of Significant Accounting Policies of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.  Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any future period.

The Company’s unaudited interim consolidated financial statements include Dr. Pave, LLC and Dr. Pave Worldwide, LLC, the Company’s wholly-owned subsidiaries.  All intercompany investments, accounts and transactions have been eliminated.

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

The Company also faces certain risks and uncertainties which 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 the Company has relied exclusively on private placements of Company securities with a small group of investors to finance its business and operations.  The Company has had little revenue since our inception.  For the nine months ended September 30, 2014, the Company incurred a net loss of $2,987,448 and utilized approximately $2,236,065 in cash flows from operating activities.  The Company had cash on hand of $55,734 as of September 30, 2014.  Successful completion of the Company’s development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its development and commercialization activities, 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 Company has no definitive commitments or arrangements for additional debt, equity or other funding.  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.

Management anticipates that the Company will require additional funds to continue operations.  As of September 30, 2014, it had approximately $56,000 cash on hand.  Adjusting for $390,659 in one-time expense for impairment of goodwill from the acquisition of Dr. Pave, LLC in the first quarter 2014, our spending on operations is approximately $275,000 per month, of which only a very small amount is satisfied by revenues.  The amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.  On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.

The issues described above raise substantial doubt about the Company’s ability to continue as a going concern. Although the Company has $1,701,000 remaining under the $3,000,000 debt offering and an estimate of $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes; the Company cannot guarantee it will be able to raise the entire offering amounts, if any. The Company is solely reliant on raising additional capital in order to maintain its current operations.  To date the Company has been able to raise debt and equity financing through the assistance of a small number of investors who have been substantial participants in the Company’s debt and equity offerings since its formation.  If these investors choose not to assist with the Company’s capital raising initiatives in the future, management does not expect that the Company would be able to obtain any alternative forms of financing at this time and it would not be able to continue to satisfy its current or long term obligations.  Based upon the Company’s current monthly spending the Company anticipates the need to raise at least $2,000,000 to $3,000,000 to meet its cash flow requirements for the next twelve months.  If the Company successfully raises $2,000,000 to $3,000,000 in the private debt and equity offerings, management believes the proceeds the Company will receive and anticipated revenues from equipment sales and restoration services will be sufficient to fund its operations, including its expected capital expenditures, through the next twelve months. Without these additional funds, the Company would be required to reduce operations, curtail any future growth opportunities, cease operations all together, or seek to merge with or be acquired by another company.

The accompanying 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.

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 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.

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BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Preferred Stock, Par Value	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	4,500,000	4,500,000
Preferred Stock, Issued	883,303	1,005,648
Common Stock, Par Value	$ 0.0001	$ 0.0001
Common Stock, Shares Authorized	20,000,000	20,000,000
Common Stock, Issued	8,287,730	8,082,000
Common Stock, Outstanding	8,434,665	8,082,000
Preferred Series B
Preferred Stock, Par Value	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	1,500,000	1,500,000
Preferred Stock, Issued	0	177,000
Liquidation preference	$ 0	$ 416,227
Preferred Series C
Preferred Stock, Par Value	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	760,000	760,000
Preferred Stock, Issued	0	101,000
Liquidation preference	0	224,668
Preferred Series D
Preferred Stock, Par Value	$ 0.0001	$ 0.0001
Preferred Stock, Shares Authorized	1,500,000	1,500,000
Preferred Stock, Issued	883,303	727,648
Liquidation preference	$ 2,903,955	$ 2,403,691

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Subsequent Events

3 Months Ended

Sep. 30, 2014

Notes

Subsequent Events

12.  SUBSEQUENT EVENTS:

Effective October 28, 2014, Alexander Kramer resigned as the Company’s Chief Financial Officer. In such capacity Mr. Kramer had served as the Company’s principal financial officer and principal accounting officer. Mr. Kramer advised the Company that he has no material disagreement with the Company on any matter relating to the Company’s operations, policies or practices, and Mr. Kramer has made himself available to support the Company by assisting with its transition needs.  In connection with his resignation, Mr. Kramer entered into a Separation and Severance Agreement and Release of Claims with the Company on October 28, 2014. The Separation Agreement terminates and supersedes the terms of Mr. Kramer’s letter agreement with the Company, April 28th, 2014, regarding his terms of employment. 

Equity Offering

On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.  The Company issued 546,620 shares of our common stock and warrants to purchase 273,310 shares of common stock as part of the conversion of 318,860 Series D Preferred Shares as of November 13, 2014.

Loan proceeds

On October 9, 2014 the Company received a short- term unsecured loan in the amount of $75,000. The short-term loan bears interest at a rate of 12% per annum.  The principal amount and all then-accrued interest is payable on November 15, 2014; the Company does have the option to extend the loan. 

Distribution Agreement

On October 23, 2014, the Company entered into an Exclusive Distribution Agreement with Beijing Enhanced Solutions, Inc. (“BES”). The Company appointed BES as the exclusive distributor and sales representative of its products in the Macau Special Administrative Region and the Hong Kong Special Administrative Region of China.  This Agreement is for an initial term of five years.  After the initial term the Agreement will automatically renew for two additional terms of two years each, unless the Agreement is terminated for cause.  The Agreement grants BES the exclusive right to distribute and sell Heatwurx products during the term, in the territory.  BES can appoint sub-distributors of its choice in furtherance of this goal. The Distributor agreed to use its best efforts to design sales channels, methods, and campaigns which maintain the Company’s ethos of being a safe, eco-friendly, high quality provider.

XML

Document and Entity Information	3 Months Ended
	Sep. 30, 2014
Document and Entity Information
Entity Registrant Name	Heatwurx, Inc.
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Entity Central Index Key	0001533743
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding	8,434,665
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3

XML

Basis of Presentation and Summary of Significant Accounting Policies: Basis of Presentation (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Basis of Presentation

Basis of Presentation - These unaudited interim consolidated financial statements and related notes are presented in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, they do not include all disclosures required in the annual financial statements by U.S. GAAP.  In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments considered necessary to present fairly in all material respects the financial position as of September 30, 2014. 

These financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2013, and have been prepared on a consistent basis with the accounting policies described in Note 2 - Summary of Significant Accounting Policies of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.  Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any future period.

The Company’s unaudited interim consolidated financial statements include Dr. Pave, LLC and Dr. Pave Worldwide, LLC, the Company’s wholly-owned subsidiaries.  All intercompany investments, accounts and transactions have been eliminated.

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

The Company also faces certain risks and uncertainties which 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 the Company has relied exclusively on private placements of Company securities with a small group of investors to finance its business and operations.  The Company has had little revenue since our inception.  For the nine months ended September 30, 2014, the Company incurred a net loss of $2,987,448 and utilized approximately $2,236,065 in cash flows from operating activities.  The Company had cash on hand of $55,734 as of September 30, 2014.  Successful completion of the Company’s development program and its transition to profitable operations is dependent upon obtaining additional financing adequate to fulfill its development and commercialization activities, 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 Company has no definitive commitments or arrangements for additional debt, equity or other funding.  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.

Management anticipates that the Company will require additional funds to continue operations.  As of September 30, 2014, it had approximately $56,000 cash on hand.  Adjusting for $390,659 in one-time expense for impairment of goodwill from the acquisition of Dr. Pave, LLC in the first quarter 2014, our spending on operations is approximately $275,000 per month, of which only a very small amount is satisfied by revenues.  The amount of cash on hand is not adequate to meet our operating expenses over the next twelve months.  On October 1, 2014 the Company commenced a non-public equity offering of up to 3,650,807 units at $1.75 per unit, 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. The Company estimates $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes.  Subsequent to the quarter-end the Company raised $308,825 and issued 176,469 shares of our common stock and warrants to purchase 88,232 shares of common stock as part of the private equity offering, as of November 13, 2014.

The issues described above raise substantial doubt about the Company’s ability to continue as a going concern. Although the Company has $1,701,000 remaining under the $3,000,000 debt offering and an estimate of $2,200,000 in potential cash proceeds from the private equity offering, after the conversion of Series D Preferred Shares and certain outstanding promissory notes; the Company cannot guarantee it will be able to raise the entire offering amounts, if any. The Company is solely reliant on raising additional capital in order to maintain its current operations.  To date the Company has been able to raise debt and equity financing through the assistance of a small number of investors who have been substantial participants in the Company’s debt and equity offerings since its formation.  If these investors choose not to assist with the Company’s capital raising initiatives in the future, management does not expect that the Company would be able to obtain any alternative forms of financing at this time and it would not be able to continue to satisfy its current or long term obligations.  Based upon the Company’s current monthly spending the Company anticipates the need to raise at least $2,000,000 to $3,000,000 to meet its cash flow requirements for the next twelve months.  If the Company successfully raises $2,000,000 to $3,000,000 in the private debt and equity offerings, management believes the proceeds the Company will receive and anticipated revenues from equipment sales and restoration services will be sufficient to fund its operations, including its expected capital expenditures, through the next twelve months. Without these additional funds, the Company would be required to reduce operations, curtail any future growth opportunities, cease operations all together, or seek to merge with or be acquired by another company.

The accompanying 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.

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Statement
Equipment sales	$ 16,624	$ 118,728	$ 101,069	$ 233,928
Service revenue	35,997		79,872
Other revenue		7,182	4,860	8,462
Total revenue	52,621	125,910	185,801	242,390
Costs of goods sold	25,289	80,450	104,621	154,100
Gross profit	27,332	45,460	81,180	88,290
Expenses:
Selling, general and administrative	677,398	664,425	2,194,809	2,066,596
Impairment of goodwill			390,659
Research and development	11,729	55,465	179,993	190,451
Total expenses	689,127	719,890	2,765,461	2,257,047
Loss from operations	(661,795)	(674,430)	(2,684,281)	(2,168,757)
Other Income and Expense:
Interest income	1	989	75	2,023
Interest expense	(130,135)	(45,399)	(303,167)	(95,042)
Total other income and expense	(130,134)	(44,410)	(303,092)	(93,019)
Loss before income taxes	(791,929)	(718,840)	(2,987,373)	(2,261,776)
Income taxes	(25)		(75)
Net loss	(791,954)	(718,840)	(2,987,448)	(2,261,776)
Preferred stock cumulative dividend	53,054	213,760	112,208	238,596
Deemed dividend	26,832		26,832
Net loss available to common stockholders	$ (871,840)	$ (932,600)	$ (3,126,488)	$ (2,500,372)
Net loss per common share basic and diluted	$ (0.1)	$ (0.12)	$ (0.37)	$ (0.62)
Weighted average shares outstanding basic and diluted	8,433,752	7,837,262	8,366,014	4,011,974

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Stockholders' Equity Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Stockholders' Equity Disclosure

7.  STOCKHOLDERS’ EQUITY:

Common Stock - The Company has authorized 20,000,000 common shares with a $0.0001 par value. There were 8,287,730 issued and 8,434,665 outstanding at September 30, 2014 and 8,082,000 shares issued and outstanding at December 31, 2013.

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 September 30, 2014 and December 31, 2013, there were 883,303 and 1,005,648 preferred shares outstanding, respectively.

Series B Preferred Stock - As of September 30, 2014 there were no shares of Series B Preferred Stock outstanding.

On April 14, 2014 all remaining Series B preferred shares, 101,935, were mandatorily converted into common shares.   The conversion of Series B preferred shares to common shares resulted in a release of $40,529 in accumulated dividends during the nine months ended September 30, 2014.

Series C Preferred Stock - As of September 30, 2014 there were no shares of Series C Preferred Stock outstanding.

On April 14, 2014 all remaining Series C preferred shares, 45,000, were mandatorily converted into common shares.  Holders of Series C Preferred Stock accrued dividends at the rate per annum of $0.16 per share. The Company paid accrued dividends on the Series C converted shares of $17,870 during the three months ended September 30, 2014.

Series D Preferred Stock - As of September 30, 2014 there were 883,303 shares of Series D Preferred Stock outstanding.

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 $355,966.  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 dividends of $49,254 and $138,937 during the three and nine months ended September 30, 2014, respectively. As of September 30, 2014 the Company had dividends payable in accrued expenses of $53,054.

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. We have determined that there is a beneficial conversion feature (“BCF”).  The calculated value as of the commitment date of the BCF was $24,279, 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, as the Series D Preferred Stock is immediately convertible.  This amount was recorded as a charge against our accumulated deficit in our accompanying balance sheet.

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.

Each unit includes one-half warrant.  Each full warrant grants the right to purchase a share of the Company’s common stock and, as of September 30, 2014, there were warrants to purchase 449,817 shares of common stock outstanding.  On September 30, 2014, the Board of Directors authorized extending the expiration date of the warrants outstanding issued in the Series D Preferred offering to October 1, 2015.  Except as so extended all other provisions of the warrants have not been altered or otherwise amended.  A deemed dividend of $26,832 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model. 

In addition, the Company agreed to use its best efforts to register the shares underlying the warrants issued in the follow-on Series D preferred stock offering and the original Series D preferred stock offering.  The Company failed to file the registration statement within the required 90-day period following the completion of the offering on May 30, 2014.

Stock Options

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2012	1,022,000	$ 2.00
Granted	410,000	$ 2.76
Exercised	-	$      -
Cancelled	(112,000)	$ 2.00
Balance, December 31, 2013	1,320,000	$ 2.23	3.44
Granted	298,000	$ 3.00
Exercised	-	$      -
Cancelled	(266,500)	$ 2.25
Balance, September 30, 2014	1,351,500	$ 2.40	3.18
Exercisable, December 31, 2013	845,000	$ 2.04
Exercisable, September 30, 2014	765,500	$ 2.14

On January 13, 2014, the Board of Directors approved the grant of 94,000 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 2 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 January 16, 2014, the Board of Directors approved the grant of 40,000 options to the Company’s Directors for their 2013 service, in accordance with 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. 

On February 1, 2014, 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 2 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.

The fair value of each stock option granted was estimated on the date of grant using the Black Scholes option pricing model with the following assumptions:

	September 30, 2014
Risk-free interest rate range	1.49% - 1.71%
Expected life	5.0 years
Vesting Period	0 - 4 Years
Expected volatility	42%
Expected dividend	-
Fair value range of options at grant date	$0.671- $1.167

The Company recorded stock-based compensation expense of $46,133 and $209,854 during the three and nine months ended September 30, 2014, respectively.  The Company recorded stock-based compensation expense of $17,526 and $67,219 during the three and nine months ended September 30, 2013, respectively.

As of September 30, 2014 there was $403,153 of unrecognized compensation expense related to the issuance of the stock options.

Performance Stock Options

There were no performance stock options granted during the three and nine months ended September 30, 2014.

	Number of Options	Weighted Average Exercise Price
Balance, December 31, 2012	1,440,000	$ 0.11
Granted	-	$      -
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014 and December 31, 2013	1,440,000	$ 0.11
Exercisable, September 30, 2014 and December 31, 2013	40,000	$ 2.00

See Note 4 for further discussion of the performance options.

Warrants

The Company issued 85,993 warrants in connection with the follow-on Series D unit offering during the first nine months of 2014, 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 Company issued 283,329 warrants in connection with the non-public offering of notes and warrants 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.

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2013	363,824	$ 3.00
Granted	802,317	$ 3.00
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014	1,166,141	$ 3.00	1.95

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Notes Payable Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Notes Payable Disclosure

6.  NOTES 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 is payable monthly on the first day of each month.  The principal amount and all then-accrued and unpaid interest is payable on June 30, 2015.

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

On February 28, 2014, the Company closed its $1,000,000 debt financing.  The total notes issued were in the aggregate principal amount of $850,000 and were issued with an aggregate of 283,329 warrants to the investors.  The warrants are detachable and exercisable immediately.  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 $32,439 and $84,875 for the three and nine months ended September 30, 2014, respectively.

On March 1, 2014, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which is intended to remain open until December 31, 2014, unless terminated sooner at the option of the Company before all of the notes are sold.  The promissory notes will bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Persons holding promissory notes issued by the Company in prior offerings may convert these notes into the notes and warrants being offered in this new offering.  Each lender in the offering will receive one warrant for each $3.00 loaned.  The three-year warrants will be exercisable immediately at $3.00 per share.  As of September 30, 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 warrants are detachable and exercisable immediately.  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 $25,904 and $45,826 for the three and nine months ended September 30, 2014, respectively.

Revolving line of credit - The Company assumed a revolving line of credit entered into by Dr. Pave at its inception in July 2013 in the amount of $229,980.  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 principal amount and all then-accrued and unpaid interest is payable on August 15, 2015.  Interest on the line of credit totaling $2,268 was outstanding at September 30, 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 first day of each month.  The principal amount and all then-accrued and unpaid interest is payable on June 30, 2015.

Interest on the secured notes payable totaling $1,578 was outstanding at September 30, 2014. 

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 our 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 transport and demonstration of our equipment.  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 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 with 0% interest matures on October 15, 2018.

As of September 30, 2014, the loans are subject to mandatory principal payments as follows:

Year ending December 31,	Payments
2014	$	12,620
2015		536,388
2016		2,207,134
2017		49,768
2018		27,253
Total principal payments	$	2,833,163

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Stockholders' Equity Disclosure: Schedule of Stock Option Activity (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Stock Option Activity

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2012	1,022,000	$ 2.00
Granted	410,000	$ 2.76
Exercised	-	$      -
Cancelled	(112,000)	$ 2.00
Balance, December 31, 2013	1,320,000	$ 2.23	3.44
Granted	298,000	$ 3.00
Exercised	-	$      -
Cancelled	(266,500)	$ 2.25
Balance, September 30, 2014	1,351,500	$ 2.40	3.18
Exercisable, December 31, 2013	845,000	$ 2.04
Exercisable, September 30, 2014	765,500	$ 2.14

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Basis of Presentation and Summary of Significant Accounting Policies: Recent Accounting Pronouncements, Policy (Policies)

3 Months Ended

Sep. 30, 2014

Policies

Recent Accounting Pronouncements, Policy

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 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.

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Related Party Transactions

3 Months Ended

Sep. 30, 2014

Notes

Related Party Transactions

10.  RELATED PARTY TRANSACTIONS:

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 did not pay consulting fees to Mr. Giles during the three months ended September 30, 2014; the Company paid consulting fees $69,800 during the nine months ended September 30, 2014.  During the three and nine months ended September 30, 2013 the Company paid consulting fees of $47,400 and $142,200, respectively to Richard Giles. The Company had a Senior Subordinated note payable with Mr. Richard Giles, on April 15, 2014, the Company made the final required principal payment of $250,000 on the Senior Subordinated note payable. 

During the nine months ended September 30, 2014 the Company issued 16,659 Series D Preferred shares to Reginald Greenslade, one of the Company’s directors.  The Company issued 16,666 Series D Preferred shares to Gus Blass III, one of the Company’s directors. The Company issued 1,500 Series D Preferred shares to David Dworsky, the Chief Executive Officer of the Company. 

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Net Loss Per Common Share Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Net Loss Per Common Share Disclosure

8.  NET LOSS PER COMMON SHARE:

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

Outstanding options were not included in the computation of diluted loss per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. 

	For the three months ended		For the nine months ended
	September 30,		September 30,
	2014	2013	2014	2013
Net Loss	$ (791,954)	$ (718,840)	$ (2,987,448)	$ (2,261,776)
Basic and diluted:
Preferred stock cumulative dividend - Series A	--	--	--	--
Preferred stock cumulative dividend - Series B (1)	--	8,551	(62,227)	25,373
Preferred stock cumulative dividend - Series C	--	4,073	2,200	12,087
Preferred stock cumulative dividend - Series D	53,054	201,136	172,235	201,136
Income applicable to preferred stockholders	53,054	213,760	112,208	238,596
Deemed dividend	26,832	--	26,832	--
Net loss applicable to common stockholders	$ (871,840)	$ (932,600)	$ (3,126,488)	$ (2,500,372)

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

(1)  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.

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Commitments and Contingencies Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Commitments and Contingencies Disclosure

9.  COMMITMENTS AND CONTINGENCIES:

Lease Commitments - On July 18, 2012, the Company entered into a thirteen month lease for office space for our 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. 

The Company also has a lease of warehouse and office space for our equipment and operations located in Gardena, CA.  The lease term continues through July 2015.

Total rent expense for the three and nine months ended September 30, 2014 was $5,280 and $43,684.  Rent expense for the three and nine months ended September 30, 2013 was $9,228 and $26,867; respectively.

The Company’s remaining commitment under its current lease terms through July 2015 is approximately $50,000.

Purchase Commitments - As of September 30, 2014, the Company’s outsourced manufacturing company has begun fabrication of our equipment resulting in a commitment to purchase the finished equipment totaling approximately $30,000.

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Supplemental Cash Flow Information Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Supplemental Cash Flow Information Disclosure

11.  SUPPLEMENTAL CASH FLOW INFORMATION:

	Nine Months Ended September 30,
	2014		2013
Cash paid for interest	$	229,571	$	95,042
Cash paid for income taxes	$	-	$	100
Series C Dividend payable in current liabilities	$	-	$	27,068
Series D Dividend payable in current liabilities	$	53,054	$	24,407
Non-Cash investing and financing transactions
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	$	83,507
Beneficial conversion feature on warrants issued in conjunction with Series D preferred shares	$	24,279	$	-
Shares issued in acquisition of Dr. Pave	$	175,000	$	-
Deemed dividend related to warrant extension	$	26,832	$	-

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Notes Payable Disclosure (Details) (USD $)			1 Months Ended			3 Months Ended	9 Months Ended			3 Months Ended	9 Months Ended			1 Months Ended
	Sep. 30, 2014	Sep. 30, 2012 Loan Payable Due	Aug. 30, 2013 Loan payable due - purchase of truck	Sep. 30, 2014 Loan payable due - purchase of equipment	Dec. 11, 2013 Senior unsecured Notes Payable	Sep. 30, 2014 Notes and warrants	Sep. 30, 2014 Notes and warrants	Feb. 28, 2014 Notes and warrants	Jan. 06, 2014 Notes and warrants	Sep. 30, 2014 Notes and warrants(2)	Sep. 30, 2014 Notes and warrants(2)	Mar. 01, 2014 Notes and warrants(2)	Sep. 30, 2014 Revolving line of credit	Dec. 31, 2013 Secured Notes Payable	Sep. 30, 2014 Secured Notes Payable	Dec. 11, 2013 Secured Notes Payable	Apr. 15, 2011 Senior Subordinated Note Payable
Total amount of notes outstanding		$ 142,290			$ 90,000			$ 850,000		$ 1,299,003	$ 1,299,003						$ 1,000,000
Note interest rate		2.60%			12.00%				12.00%			12.00%				12.00%
Offering amount of notes and warrants									1,000,000			3,000,000
Amortization of discount on notes payable						32,439	84,875			25,904	45,826
Discount on notes payable										207,014	207,014
Lin of credit	229,980												229,980
Interest payable													2,268		1,578
Notes payable assumed														160,000
Loan payable assumed			$ 83,507	$ 49,204

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Acquisition Disclosure: Business Acquisition, Statement of Operations Information (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Business Acquisition, Statement of Operations Information

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
REVENUES
Equipment sales	$	16,624	$	118,728	$	101,069	$	233,928
Service revenue		35,997		-		79,872		-
Other revenue		-		7,182		4,860		8,462
Total revenues		52,621		125,910		185,801		242,390
COST OF GOODS SOLD		25,289		80,450		104,621		154,100
GROSS PROFIT		27,332		45,460		81,180		88,290
EXPENSES:
Selling, general and administrative		677,398		762,321		2,194,809		2,164,492
Impairment of goodwill		-		-		390,659		-
Research and development		11,729		55,465		179,993		190,451
Total expenses		689,127		817,786		2,765,461		2,354,943
LOSS FROM OPERATIONS		(661,795)		(772,326)		(2,684,281)		(2,266,653)
OTHER INCOME AND EXPENSE:
Interest income		1		989		75		2,023
Interest expense		(130,135)		(50,462)		(303,167)		(100,105)
Total other income and expense		(130,134)		(49,473)		(303,092)		(98,082)
LOSS BEFORE INCOME TAXES		(791,929)		(821,799)		(2,987,373)		(2,364,735)
Income taxes		(25)		-		(75)		-
NET LOSS	$	(791,954)	$	(821,799)	$	(2,987,448)	$	(2,364,735)
Preferred stock cumulative dividend		53,054		213,760		112,208		238,596
Deemed dividend		26,832		-		26,832		-
Net loss attributable to common stockholders	$	(871,840)	$	(1,035,559)	$	(3,126,488)	$	(2,603,331)
Net loss per common share basic and diluted	$	(0.10)	$	(0.13)		$  (0.37)		$  (0.65)
Weighted average shares outstanding used in calculating net loss per common share		8,433,752		7,837,262		8,366,014		4,011,974

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Stockholders' Equity Disclosure: Schedule of Stockholders' Equity Note, Warrants (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Stockholders' Equity Note, Warrants

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Life (Years)
Balance, December 31, 2013	363,824	$ 3.00
Granted	802,317	$ 3.00
Exercised	-	$      -
Cancelled	-	$      -
Balance, September 30, 2014	1,166,141	$ 3.00	1.95

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Commitments and Contingencies Disclosure (Details) (USD $)	3 Months Ended		9 Months Ended		23 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Jun. 30, 2014
Details
Lease commitment, terms					Company leased approximately 2,244 square feet of general office space
Total rent expense	$ 5,280	$ 9,228	$ 43,684	$ 26,867
Commitment to purchase equipment	$ 30,000		$ 30,000

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CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (2,987,448)	$ (2,261,776)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	67,560	40,774
Amortization of intangible asset	267,856	267,857
Amortization of discount on notes payable	130,701
Impairment of goodwill	390,659
Stock-based compensation and other non-cash expense	209,854	67,219
Changes in operating assets and liabilities
(Increase) decrease in receivables	(7,539)	6,552
(Increase) decrease in prepaid and other current assets	(12,468)	(30,224)
(Increase) decrease in inventory	(56,207)	(158,252)
Increase (decrease) in accounts payable	38,790	28,222
Increase (decrease) in accrued liabilities	(277,823)	(36,603)
Cash used in operating activities	(2,236,065)	(2,076,231)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	25,719	27,673
Cash from acquisition of subsidiary	3,355
Cash used in investing activities	(22,364)	(27,673)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of unsecured notes payable	2,149,003
Proceeds from issuance of senior secured notes payable		1,000,000
Repayment of senior secured notes payable		250,018
Repayment of senior subordinated notes payable	500,000
Proceeds from issuance of preferred shares, net	509,963	1,348,730
Repayment of loan payable	31,667	20,346
Cash provided by (used in) financing activities	2,127,299	2,078,366
Net change in cash and cash equivalents	(131,130)	(25,538)
Cash and cash equivalents, beginning of period	186,864	1,027,475
Cash and cash equivalents, end of period	$ 55,734	$ 1,001,937

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Acquisition Disclosure

3 Months Ended

Sep. 30, 2014

Notes

Acquisition Disclosure

5.  ACQUISITION:

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

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
REVENUES
Equipment sales	$	16,624	$	118,728	$	101,069	$	233,928
Service revenue		35,997		-		79,872		-
Other revenue		-		7,182		4,860		8,462
Total revenues		52,621		125,910		185,801		242,390
COST OF GOODS SOLD		25,289		80,450		104,621		154,100
GROSS PROFIT		27,332		45,460		81,180		88,290
EXPENSES:
Selling, general and administrative		677,398		762,321		2,194,809		2,164,492
Impairment of goodwill		-		-		390,659		-
Research and development		11,729		55,465		179,993		190,451
Total expenses		689,127		817,786		2,765,461		2,354,943
LOSS FROM OPERATIONS		(661,795)		(772,326)		(2,684,281)		(2,266,653)
OTHER INCOME AND EXPENSE:
Interest income		1		989		75		2,023
Interest expense		(130,135)		(50,462)		(303,167)		(100,105)
Total other income and expense		(130,134)		(49,473)		(303,092)		(98,082)
LOSS BEFORE INCOME TAXES		(791,929)		(821,799)		(2,987,373)		(2,364,735)
Income taxes		(25)		-		(75)		-
NET LOSS	$	(791,954)	$	(821,799)	$	(2,987,448)	$	(2,364,735)
Preferred stock cumulative dividend		53,054		213,760		112,208		238,596
Deemed dividend		26,832		-		26,832		-
Net loss attributable to common stockholders	$	(871,840)	$	(1,035,559)	$	(3,126,488)	$	(2,603,331)
Net loss per common share basic and diluted	$	(0.10)	$	(0.13)		$  (0.37)		$  (0.65)
Weighted average shares outstanding used in calculating net loss per common share		8,433,752		7,837,262		8,366,014		4,011,974

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Net Loss Per Common Share Disclosure: Schedule of Earnings Per Share (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Schedule of Earnings Per Share

	For the three months ended		For the nine months ended
	September 30,		September 30,
	2014	2013	2014	2013
Net Loss	$ (791,954)	$ (718,840)	$ (2,987,448)	$ (2,261,776)
Basic and diluted:
Preferred stock cumulative dividend - Series A	--	--	--	--
Preferred stock cumulative dividend - Series B (1)	--	8,551	(62,227)	25,373
Preferred stock cumulative dividend - Series C	--	4,073	2,200	12,087
Preferred stock cumulative dividend - Series D	53,054	201,136	172,235	201,136
Income applicable to preferred stockholders	53,054	213,760	112,208	238,596
Deemed dividend	26,832	--	26,832	--
Net loss applicable to common stockholders	$ (871,840)	$ (932,600)	$ (3,126,488)	$ (2,500,372)

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Stockholders' Equity Disclosure: Schedule of Performance Stock Options (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2012
Details
Performance Stock options outstanding	1,440,000	1,440,000
Weighted average exercise price, performance stock options outstanding	$ 0.11	$ 0.11
Performance Stock options exercisable	40,000
Weighted average exercise price, performance stock options exercisable	$ 2.00

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Property and Equipment Disclosure: Summary of the cost of property and equipment (Tables)

3 Months Ended

Sep. 30, 2014

Tables/Schedules

Summary of the cost of property and equipment

	September 30, 2014		December 31, 2013
	(unaudited)
Office furniture and equipment	$	30,152	$	20,562
Demo and service equipment		599,432		426,336
		629,584		446,898
Accumulated depreciation		(149,193)		(77,123)
	$	480,391	$	369,775