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.