UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No.: 000-30291 |
HII TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 03-0453686 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
710 North Post Oak Road, Suite 400 Houston, Texas77024 (Address of principal executive offices) |
Issuers telephone number: (713) 821-3157
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) 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, 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 [ ] (Do not check if a smaller reporting company)
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
As of May 1, 2013, 44,042,683 shares of our common stock were outstanding.
1
HII TECHNOLOGIES, INC.
FORM 10-Q
March 31, 2013
TABLE OF CONTENTS
| Page |
| |
PART I-- FINANCIAL INFORMATION |
|
| |
|
|
|
|
Item 1. | Financial Statements | 3 |
|
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 17 |
|
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 |
|
Item 4 | Control and Procedures | 20 |
|
|
|
|
|
PART II-- OTHER INFORMATION |
|
| |
|
|
|
|
Item 1 | Legal Proceedings | 22 |
|
Item 1A | Risk Factors | 22 |
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
|
Item 3. | Defaults Upon Senior Securities | 22 |
|
Item 4. | Mine Safety Disclosures | 22 |
|
Item 5. | Other Information | 22 |
|
Item 6. | Exhibits | 22 |
|
|
|
|
|
SIGNATURES | 23 |
|
2
ITEM 1 FINANCIAL INFORMATION
HII TECHNOLOGIES, INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
(unaudited) | |||||
| |||||
|
|
| March 31 |
| December 31 |
|
|
| 2013 |
| 2012 |
ASSETS |
|
|
| ||
Current assets: |
|
|
| ||
| Cash and cash equivalents | $ 152,375 |
| $ 379,336 | |
| Accounts receivable | 2,306,770 |
| 1,297,103 | |
| Current portion of note receivable | 12,484 |
| 11,614 | |
| Prepaid expense and other current assets | 67,896 |
| 55,515 | |
|
|
|
|
|
|
|
| Total current assets | 2,539,525 |
| 1,743,568 |
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $34,844 and $23,442 | 401,643 |
| 537,881 | ||
Note receivable, net of current portion | - |
| 3,722 | ||
Deposits | 31,500 |
| - | ||
Goodwill |
| 1,897,380 |
| 1,897,380 | |
|
|
|
|
|
|
|
| Total assets | $ 4,870,048 |
| $ 4,182,551 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
| ||||
Current liabilities: |
|
|
| ||
| Accounts payable | $ 1,041,342 |
| $ 364,974 | |
| Accounts payable and other liabilities, related parties | 379,448 |
| 340,248 | |
| Accrued expenses and other liabilities | 495,368 |
| 323,417 | |
| Current portion of notes payable - related parties, net of discount of $8,756 and $13,133 | 524,577 |
| 520,200 | |
| Current portion of secured notes payable, net of discount of $72,012 and $103,926 | 862,988 |
| 896,074 | |
|
|
|
|
|
|
|
| Total current liabilities | 3,303,723 |
| 2,444,913 |
|
|
|
|
|
|
Long term liabilities: |
|
|
| ||
| Notes payable - related parties net of current portion | 758,333 |
| 866,667 | |
|
|
|
|
|
|
|
| Total liabilities | 4,062,056 |
| 3,311,580 |
|
|
|
|
|
|
Commitments and contingencies | - |
| - | ||
|
|
|
|
|
|
Stockholders' equity |
|
|
| ||
| Preferred stock, $.001 par value, 10,000,000 shares authorized, |
|
|
| |
|
| no shares issued or outstanding | - |
| - |
| Common stock, $.001 par value, 250,000,000 shares authorized,44,042,683 and 43,317,683 shares issued and outstanding | 44,042 |
| 43,317 | |
| Additional paid-in-capital | 26,963,820 |
| 26,913,135 | |
| Accumulated deficit | (26,199,870) |
| (26,085,481) | |
|
|
|
|
|
|
|
| Total stockholders' equity | 807,992 |
| 870,971 |
|
|
|
|
|
|
|
| Total liabilities and stockholders' equity | $ 4,870,048 |
| $ 4,182,551 |
See accompanying notes to unaudited consolidated financial statements.
3
HII TECHNOLOGIES, INC. | |||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
For the three months ended March 31, 2013 and 2012 | |||||
(unaudited) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2013 |
| 2012 |
|
|
|
|
|
|
REVENUES | $ 2,609,773 |
| $ - | ||
|
|
|
|
|
|
COST OF REVENUES | 2,077,481 |
| - | ||
|
|
|
|
|
|
GROSS PROFIT | 532,292 |
| - | ||
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
| ||
| Selling, general and administrative | 550,731 |
| 76,333 | |
|
|
|
|
|
|
| Total operating expenses | 550,731 |
| 76,333 | |
|
|
|
|
|
|
LOSS FROM OPERATIONS | (18,439) |
| (76,333) | ||
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
| ||
| Interest expense | (78,451) |
| - | |
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES | (96,890) |
| (76,333) | ||
|
|
|
|
|
|
PROVISION FOR INCOME TAXES | (17,499) |
|
| ||
|
|
|
|
|
|
NET LOSS | $ (114,389) |
| $ (76,333) | ||
|
|
|
|
|
|
Basic and diluted net loss per share | $ - |
| $ - | ||
|
|
|
|
|
|
Weighted average shares outstanding-Basic and diluted | 43,741,294 |
| 33,820,183 |
See accompanying notes to unaudited consolidated financial statements.
4
HII TECHNOLOGIES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | ||||||||
For the three monthes ended March 31, 2013 | ||||||||
(unaudited) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Common Stock |
| Paid-In |
| Accumulated |
|
| |
| Shares | Par |
| Capital |
| Deficit |
| Total |
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012 | 43,317,683 | $ 43,317 |
| $ 26,913,135 |
| $(26,085,481) |
| $ 870,971 |
|
|
|
|
|
|
|
|
|
Common stock issued for lease deposit | 350,000 | 350 |
| 31,150 |
| - |
| 31,500 |
Warrants exercised | 375,000 | 375 |
| 18,375 |
| - |
| 18,750 |
Stock options issued for services | - | - |
| 1,160 |
| - |
| 1,160 |
Net loss | - | - |
| - |
| (114,389) |
| (114,389) |
|
|
|
|
|
|
|
|
|
Balances at March 31, 2013 | 44,042,683 | $ 44,042 |
| $ 26,963,820 |
| $(26,199,870) |
| $ 807,992 |
HII TECHNOLOGIES, INC. | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the three months ended March 31, 2013 and 2012 | ||||||
(unaudited) | ||||||
|
|
|
|
| ||
|
|
|
| 2013 |
| 2012 |
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
| |||
| Net loss | $ (114,389) |
| $ (76,333) | ||
| Adjustments to reconcile net loss to net |
|
|
| ||
|
| cash used in operating activities: |
|
|
| |
|
| Amortization of note payable discount | 36,291 |
| - | |
|
| Stock-based compensation | 1,160 |
| 6,120 | |
|
| Depreciation | 29,374 |
| - | |
|
| Changes in: |
|
|
| |
|
|
| Accounts receivable | (1,009,667) |
| - |
|
|
| Prepaid expense and other current assets | (12,381) |
| 59,410 |
|
|
| Other assets | 2,852 |
| - |
|
|
| Accounts payable | 676,368 |
| 12,201 |
|
|
| Accounts payable and other liabilities - related parties | 35,000 |
| - |
|
|
| Accrued expenses | 171,951 |
| 16,983 |
| Net cash provided by (used in) operating activities | (183,441) |
| 18,381 | ||
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITY: |
|
|
| |||
| Cash received from the sale of property and equipment | 42,776 |
| - | ||
| Cash paid for purchase of property and equipment | (19,087) |
| - | ||
| Cash provided by investing activity | 23,689 |
| - | ||
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITY: |
|
|
| |||
| Proceeds from exercise of warrants | 18,750 |
| - | ||
| Proceeds from sale-leaseback transaction | 87,375 |
| - | ||
| Payments on notes payable | (173,334) |
| - | ||
| Net cash used in financing activity | (67,209) |
| - | ||
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH |
|
|
| |||
| EQUIVALENTS | (226,961) |
| 18,381 | ||
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period | 379,336 |
| 76,651 | |||
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period | $ 152,375 |
| $ 95,032 | |||
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
| |||
| Cash paid for income taxes | $ - |
| $ - | ||
| Cash paid for interest | 22,616 |
| - | ||
|
|
|
|
|
|
|
Noncash investing and financing activities |
|
|
| |||
| Unpaid additions to property and equipment Common stock issued for lease deposit | 4,200 31,500 |
| - - | ||
See accompanying notes to unaudited consolidated financial statements.
6
HII TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim financial statements of HII Technologies, Inc. (we, our, HII or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2012 and 2011 contained in HII Technologies Form 10-K originally filed with the Securities and Exchange Commission on March 24, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for years ended December 31, 2012 and 2011 as reported in the Companys Form 10-K have been omitted.
Principles of consolidation
The consolidated financial statements include the accounts of HII and its wholly-owned subsidiaries KMHVC, Inc. (dba STP) and Apache Energy Services, LLC (AES). AES launched a new operating division in January 2013 providing safety consultancy services to the oilfield industry. Significant intercompany accounts and transactions have been eliminated. A separate set of financials for AES from inception, January 4, 2012 through March 31, 2012, are presented following those of HII as AES satisfies the requirements for predecessor reporting.
NOTE 2 ACQUISITION
On September 27, 2012, we closed the acquisition of all of the outstanding membership interests of AES pursuant to the terms of a Securities Purchase Agreement dated September 26, 2012, by and among the Company, AES and the members of AES (the Purchase Agreement). The purchase price consisted of: (a) cash in the amount of $290,000, of which $250,000 was paid on the closing date and the remaining $40,000 is payable (subject to a purchase price adjustment) in six equal installments, with the first installment payable on the first day of each month beginning the third month following the month in which the closing occurred and each month thereafter until paid in full; (b) $1,300,000 in 5% subordinated secured promissory notes, and (c) 6,500,000 common shares, which shares vest pursuant to restricted stock agreements.
The acquisition of AES has been accounted for as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.
NOTE 3 NOTES PAYABLE
A summary of the activity in notes payable for the three months ended March 31, 2013 is shown below:
7
Note payable - related parties
Balance at January 1, 2013 |
| $ 1,386,867 | |
Less: payments on notes payable |
| (108,334) | |
Add: amortization of note discount |
| 4,377 | |
|
|
| 1,282,910 |
Less - current maturities, net - related party |
| (524,577) | |
Long-term notes payable, net March 31, 2013 |
| $ 758,333 | |
|
|
|
|
Notes payable -third parties | |||
|
|
|
|
Balance at January 1, 2013 |
| $ 896,074 | |
Less: payments on notes payable |
| (65,000) | |
Add: amortization of note discount |
| 31,914 | |
|
|
| 862,988 |
Less - current maturities, net - third parties |
| (862,988) | |
Long-term notes payable, net March 31, 2013 |
| $ - |
NOTE 4 COMMON STOCK
On January 10, 2013 and pursuant to the December 7, 2012 agreement with Power Reserve Corp. (PRC) the Company issued 350,000 shares of common stock to PRC as a prepayment toward future lease payments. The shares were valued at $31,500 and are reported as deposits in the consolidated balance sheets.
On March 4, 2013, a warrant holder exercised warrants to purchase 375,000 common shares at an exercise price of $0.05, for a total of $18,750.
NOTE 5 STOCK OPTIONS AND WARRANTS
Stock options
HII currently has two stock option plans: (a) the 2001 Stock Option Plan reserved 285,714 common shares and 300,571 stock options have been granted through June 30, 2012 of which 300,571 options have expired unexercised, and (b) the 2005 Stock Incentive Plan reserved 10,000,000 shares, of which 9,165,140 shares have been issued through March 31, 2013, and 743,000 options are outstanding as of March 31, 2013.
During the quarter ended March 31, 2013, no options were exercised or expired.
During the quarter ended March 31, 2013, 350,000 options were granted to an employee and valued at $41,720 using the Black-Scholes pricing model. Significant assumptions used in the valuation include the following:
Expected term 5 years
Expected volatility 245.43%
Risk free interest rate 0.76%
Expected dividend yield 0.00%
The 350,000 options will vest based on achievement of certain revenue targets, none of which have been met as of March 31, 2013.
Stock compensation expense recognized for the quarter ended March 31, 2013 related to prior issued options amounted to $1,160. Unrecognized compensation cost as of December 31, 2012 of $12,367 is expected to be recognized over a period of 2.67 years.
Warrants
On March 4, 2013, a warrant holder exercised warrants to purchase 375,000 common shares at an exercise price of $0.05, for a total of $18,750.
8
During the three months ended March 31, 2013, no warrants were granted or expired unexercised.
A summary of activity in options and warrants is as follows:
|
| Options |
| Weighted Average Remaining Life |
| Weighted Average Exercise Price |
| Aggregate Intrinsic Value |
| Warrants |
| Weighted Average Remaining Life |
| Weighted Average Exercise Price |
| Aggregate Intrinsic Value | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2012 | 393,000 |
| 4.20 |
| $ 0.12 |
| $ - |
| 7,193,269 |
| 2.91 |
| $ 0.15 |
| $ 57,500 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Granted | 350,000 |
|
|
| 0.15 |
|
|
| - |
|
|
| - |
|
| |
| Exercised | - |
|
|
| - |
|
|
| (375,000) |
|
|
| 0.05 |
|
| |
| Forfeited | - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding at March 31, 2013 | 743,000 |
| 4.36 |
| $ 0.13 |
| $ 24,680 |
| 6,818,269 |
| 2.71 |
| $ 0.16 |
| $ 276,750 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 2013, a member of the Board provided cash advances to the Company totaling $35,000, resulting to an outstanding balance of $150,000 as of March 31, 2013. In addition, a member of the Board purchased equipment for STP at a cost of $4,200 and sold it to the Company for the same cost. This amount is outstanding as of March 31, 2013. The outstanding amounts are included in accounts payable and other liabilities - related parties in the consolidate balance sheets.
NOTE 7 COMMITMENTS AND CONTINGENCIES
From time to time, HII may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management; no pending or known threatened claims, actions or proceedings against HII are expected to have a material adverse effect on HIIs consolidated financial position, results of operations or cash flows. HII cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of any lawsuits and investigations.
The Company has entered into various operating leases for office and storage facilities for terms ranging from month to month to six months. Rent expense for the three months ended March 31, 2013 for these leases amounted to $17,250.
On December 7, 2012, the Company's subsidiary, STP, entered into a strategic alliance agreement with PRC for an operating lease of equipment. Under the agreement, PRC has agreed to fund the purchase of generators, light towers and related equipment for STP's rental fleet. Under the agreement, STP's monthly lease payment to PRC is calculated as 50% of monthly rental revenue earned on the leased PRC equipment, after a minimum fixed monthly amount of $30,000 in STP revenues has been achieved. The lease effectively started in January 2013, and in January 2013 the Company issued 350,000 shares of common stock as a deposit for future lease payments (see Note 4 above). In addition, the lease contained a provision for a minimum of $10,000 in payments per month for the first 3 months, which was paid by the Company. During the quarter ended March 31, 2013, STP recognized $39,940 in lease expense.
9
In January 2013, the Company entered into a master lease agreement with Enterprise Leasing Company. The Company leased 21 vehicles under this master lease with monthly lease payments totaling approximately $17,875. 7 of the leased vehicles resulted from a sale/leaseback transaction with Enterprise in January 2013 where Enterprise purchased 7 vehicles from the Company for $87,375 resulting in a net loss of $11,773. $2,133 of the loss was recognized immediately and the remainder is being amortized over the life of each respective lease.
NOTE 8 SUBSEQUENT EVENTS
On April 1, 2013, an employee was granted options for 500,000 common shares at an exercise price of $0.15 per share. The options have a term of five years and vest monthly over a period of twenty four months. A director was also granted options for 500,000 common shares at an exercise price of $0.15 per share. The options have a term of five years and vested immediately.
10
ITEM 1 FINANCIAL INFORMATION APACHE ENERGY SERVICES, LLC
APACHE ENERGY SERVICES, LLC | |||
BALANCE SHEET | |||
As of March 31, 2012 | |||
(unaudited) | |||
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
| ||
Current assets: |
| ||
| Cash and cash equivalents | $ 189,793 | |
| Accounts receivable | 325,960 | |
| Prepaid expense and other current assets | 3,348 | |
|
|
|
|
|
| Total current assets | 519,101 |
|
|
|
|
Property and equipment, net of accumulated depreciation of $4,775 | 110,112 | ||
|
|
|
|
|
| Total assets | $ 629,213 |
|
|
|
|
LIABILITIES AND MEMBERS' EQUITY |
| ||
Current liabilities: |
| ||
| Accounts payable | $ 237,907 | |
| Sales tax payable | 25,324 | |
| Current portion of equipment note payable | 9,936 | |
|
|
|
|
|
| Total current liabilities | 273,167 |
|
|
|
|
Long term liabilities: |
| ||
| Equipment notes payable, net of current portion | 46,194 | |
|
|
|
|
| Total liabilities | 319,361 | |
|
|
|
|
|
|
|
|
Members' equity |
| ||
| Members' capital | 36,350 | |
| Retained earnings | 273,502 | |
|
|
|
|
|
| Total members' equity | 309,852 |
|
|
|
|
|
| Total liabilities and members' equity | $ 629,213 |
See accompanying notes to unaudited financial statements.
11
APACHE ENERGY SERVICES, LLC | |||
STATEMENT OF OPERATIONS | |||
For the period from January 4, 2012 (inception) to March 31, 2012 | |||
(unaudited) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES | $ 536,371 | ||
|
|
|
|
COST OF REVENUES | 249,379 | ||
|
|
|
|
GROSS PROFIT | 286,992 | ||
|
|
|
|
OPERATING EXPENSES: |
| ||
| Selling, general and administrative | 13,490 | |
|
|
|
|
| Total operating expenses | 13,490 | |
|
|
|
|
NET INCOME | $ 273,502 |
See accompanying notes to unaudited financial statements.
12
APACHE ENERGY SERVICES, LLC | |||||||
STATEMENT OF MEMBERS' EQUITY | |||||||
For the period from January 4, 2012 (inception) to March 31, 2012 | |||||||
(unaudited) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Members' |
| Retained |
| Members' |
|
|
| Capital |
| Earnings |
| Equity |
|
|
|
|
|
|
|
|
Capital contributions |
| $ 36,350 |
| $ - |
| $ 36,350 | |
|
|
|
|
|
|
|
|
Net income for the period | - |
| 273,502 |
| 273,502 | ||
|
|
|
|
|
|
|
|
Balance at March 31, 2012 | $ 36,350 |
| $273,502 |
| $309,852 |
See accompanying notes to unaudited financial statements.
13
APACHE ENERGY SERVICES, LLC | ||||
STATEMENT OF CASH FLOWS | ||||
For the period from January 4, 2012 (inception) to March 31, 2012 | ||||
(unaudited) | ||||
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |||
| Net income | $ 273,502 | ||
| Adjustments to reconcile net income to net |
| ||
|
| cash provided by operating activities: |
| |
|
| Depreciation expense | 4,775 | |
|
| Changes in: |
| |
|
|
| Accounts receivable | (325,960) |
|
|
| Prepaid expense and other current assets | (3,348) |
|
|
| Accounts payable | 237,907 |
|
|
| Accrued liabilities | 25,324 |
| Net cash provided by operating activities | 212,200 | ||
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
| |||
|
| Purchase of property and equipment | (58,757) | |
| Net cash used in investing activities | (58,757) | ||
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITY: |
| |||
|
| Members' contributions | 36,350 | |
| Net cash provided by financing activity | 36,350 | ||
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS | 189,793 | |||
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period | - | |||
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period | $ 189,793 | |||
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
| |||
| Interest expense paid | $ - | ||
| Income taxes paid | - | ||
|
|
|
|
|
NONCASH INVESTING ACTIVITY |
| |||
| Purchase of property and equipment through a financing loan | $ 56,130 |
See accompanying notes to unaudited financial statements.
14
APACHE ENERGY SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Description of Business. Apache Energy Services, LLC (Apache, AES, we, our, us or the Company) provides water transfer services in connection with the hydraulic fracturing (fracing) of oil and gas reservoirs. AES arranges for up to millions of gallons to be delivered to frac pads and drill sites. The water transfer services can range from drilling water wells and digging water storage pits to arranging for miles of above ground temporary pipe and high volume pumps to address all of the logistics needs of water during fracing for an oilfield operator. Once a frac job is completed, AES transfers the pipe, pumps and other temporary infrastructure to another location at the request of its customers.
Basis of presentation. On September 27, 2012, HII Technologies, Inc. (HII) acquired all of AES outstanding membership interests pursuant to the terms of a Securities Purchase Agreement dated September 26, 2012 by and among AES, the members of AES and HII. AES was deemed the predecessor entity in this transaction. The financials included herein are presented at their historical basis.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash equivalents. Cash equivalents include all highly liquid investments with original maturities of three months or less.
Accounts Receivable. Accounts receivable are comprised of unsecured amounts due from customers. AES carries it accounts receivable at their face amounts less an allowance for bad debts. The allowance for bad debts is recognized based on managements estimate of likely losses per year, based on past experience and review of customer profiles and the aging of receivable balances. As of March 31, 2012, no allowance for bad debts was required for AES receivable accounts.
Revenue recognition. Revenue is recognized when all of the following criteria are met: 1) persuasive evidence of an arrangement, 2) delivery has occurred, 3) the price is fixed and determinable, and 4) collectability is reasonably assured.
Property and equipment. Property and equipment is valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which ranges from three to five years.
Income taxes. AES operates as a limited liability company and is a disregarded entity for federal and state income tax purposes. AES is not liable for U.S. federal income taxes as its members recognize their share of income and loss in their respective tax return. Accordingly, no provision for U.S. federal income taxes is recorded.
Fair Value of Financial Instruments. The carrying value of short-term instruments, including cash and cash equivalents and accounts payable approximate fair value due to the short maturities of these instruments.
15
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2012 consists of the following:
| Cost | Accumulated Depreciation | Net Book Value |
|
|
|
|
Road Crossings | $ 9,891 | $ 276 | $ 9,615 |
Transportation Trailers | 56,130 48,866 | 935 3,564 | 55,195 45,302 |
| $ 114,887 | $ 4,775 | $ 110,112 |
A truck was purchased in February 2012 through standard commercial financing and was subsequently sold in September 2012 for $52,500. The related equipment note payable was paid in full from the proceeds of the sale. Depreciation expense for the period amounted to $4,775.
NOTE 3 CUSTOMER CONCENTRATION
AES provides its services to relatively few oil and gas companies that have accounted for a substantial portion of AES revenues. For the period ended March 31, 2012, one customer accounted for 100% of AES total net sales.
AES customers generally do not enter into long-term agreements obligating them to future services. AES may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in orders from any of AES significant customers, or a delay or default in payment by any significant customer could materially impact AES business and prospects. Because of AES significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of AES significant customers.
NOTE 4 MEMBERS EQUITY
AES was formed on January 4, 2012, by two members. Each original member had a 50% ownership in AES. During the period from January 4, 2012 to March 31, 2012, the original members contributed $36,350.
NOTE 5 CONTINGENCIES
From time to time, AES may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management; no pending or known threatened claims, actions or proceedings against AES are expected to have a material adverse effect on AES financial position, results of operations or cash flows. AES cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters. There can be no assurance as to the ultimate outcome of these lawsuits and investigations.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from Management's expectations. Factors that could cause differences include, but are not limited to, continued reliance on external sources on financing, development risks for new products and services, commercialization delays and customer acceptance risks when introducing new products and services, fluctuations in market demand, pricing for raw materials as well as general conditions of the energy and oilfield marketplace.
Overview
HII Technologies, Inc. (HIIT) is a Houston, Texas based oilfield services company with operations in Texas, Oklahoma, Ohio and West Virginia focused on commercializing technologies in water management, safety services and portable power used by exploration and production (E&P) companies in the United States. The Companys total water management services subsidiary does business as AES Water Solutions and manages the logistical and transportation associated with millions of gallons of water used typically during hydraulic fracturing and completions of horizontally drilled oil and gas wells. AES Safety Services is the Companys onsite oilfield contract safety consultancy providing experienced trained safety personnel during oilfield site preparation, rigging up with drilling activity and related operations enhancing safety for E&P customers and providing the flexibility as outsourced safety consultants to its customers to quickly address their needs. The Companys oilfield power subsidiary does business as South Texas Power (STP) and operates a fleet of mobile generators, light towers and related equipment for in-field power where remote locations provide little or no existing electrical infrastructure.
We currently employ 8 persons and extensively use independent contractor crews in connection with our field service work. Our executive offices are located at 710 North Post Oak Road, Suite 400, Houston, Texas 77024. Our telephone number is (713) 821-3157 and our Internet address is www.HIITinc.com.
Business Development HII Technologies, Inc.
Organization
Our predecessor, Global Realty Management Group, Inc., or GRMG, was incorporated in the State of Florida in 1997. In June 2002, GRMG reincorporated under the laws of the State of Delaware from the State of Florida pursuant to a merger with a newly formed Delaware corporation. Under the terms of this reincorporation merger, GRMG changed its name from Global Realty Management Group, Inc. to Excalibur Industries, Inc. in connection with merging with the Excalibur operations. In October 2005, we changed our name from Excalibur Industries, Inc. to Shumate Industries, Inc. In February 2009, we changed our name from Shumate Industries, Inc. to Hemiwedge Industries, Inc. to emphasize and focus on our valve product technology after the recent sale of assets related to our contract machining business discussed below. On August 31, 2011, we changed our name to HII Technologies, Inc., which name change was required in connection with the May 2011 asset sale by our subsidiary KMHVC, Inc.
Acquisition of Apache Energy Services, LLC
On September 27, 2012, we consummated the acquisition (the Acquisition) of all of the outstanding membership interests of Apache Energy Services LLC (dba AES), a Nevada limited liability company (AES ) pursuant to the terms of a Securities Purchase Agreement dated September 26, 2012 by and among the us, AES and the members of AES (the Purchase Agreement). AES is a water transfer services company serving oilfield customers. The purchase price consisted of: (a) Cash in the amount of $290,000, of which $250,000 was paid on the closing date and the remaining $40,000 is payable (subject to a purchase price adjustment) in six equal installments, with the first installment payable on the first day of each month beginning the third month following the month in which the Closing occurs and each month thereafter until paid in full; (b) $1,300,000 in 5% subordinated secured promissory notes (the Notes), and (c) 6,500,000 shares (the Shares) of the registrants common stock. The Notes are payable in 12 equal quarterly installments beginning on February 1, 2013 and have a maturity date of November 1, 2015. The Notes are secured by the assets of the registrant and AES. The Shares are subject to a restricted stock agreement pursuant to which 500,000 shares will vest each quarter beginning December 31, 2012. The purchase agreement contains 2-year non-compete/non-solicitation provisions for Messrs. Mulliniks and Cox.
17
Apache Energy Services, LLC (AES) was organized in Nevada on January 4, 2012. AES is a water transfer services company providing turn-key water solutions for oil and gas exploration and production companies needed during hydraulic fracturing of oil and gas reservoirs, commonly known as fracing.
AES currently operates in select shale and other areas in Oklahoma and Texas. AES principals have more than 50 years of combined oil and gas experience, with extensive experience in operation of oil and gas wells in Texas, West Virginia and Kentucky. AES serves customers seeking water acquisition, temporary water transmission and storage, transportation, in connection with shale oil and gas hydraulic fracturing drilling, or hydro-fracturing, operations. AES does not currently provide disposal activities directly, but it will handle logistics for disposal activities with third party operators on behalf of its customers.
KMHVCs business
On October 26, 2012, KMHVC applied for a dba to do business as South Texas Power (STP) in connection with our decision to start up an oilfield generator rental business.
Results of Operations for the Three Months Ended March 31, 2013 and 2012
Revenues. HIIT revenues increased to $2,609,773 for the three months ended March 31, 2013, as compared to no revenues for the comparable period in 2012. This increase was primarily attributable to the continued growth of our wholly owned subsidiary AES frac water supply business along with the commercialization of AES Safety Services and the launch of STPs new business in mobile oilfield power. AES revenues for the period from January 4, 2012 (inception) to March 31, 2012 were $536,571
Selling, general, and administrative. HIIT selling, general and administrative expenses increased to $550,731 for the three months ended March 31, 2013, as compared to $76,333 for the comparable period in 2012. The increase was primarily attributable to increased wage expense of $250,400 for new employees related to the AES acquisition and launch of STPs new business in mobile oilfield power and the cost of public reporting and holding company expenses, and the startup costs of two new operations of $111,000. AES selling, general and administrative expenses for the period from January 4, 2012 (inception) to March 31, 2012 were $13,490.
Interest expense. We had interest expense of $78,451 in the three months ended March 31, 2013, which expense is attributable to the promissory notes we issued in our September 2012 financing as well as the notes issued in connection with our acquisition of AES. No interest expense was incurred in the comparable period in 2012.
Net income (loss). We had net loss of $114,389 for the three months ended March 31, 2013 as compared to a net loss of $76,333 for the comparable period in 2012. AES had net income of $273,502 for the three months ended March 31, 2012.
Liquidity and Capital Resources
We have financed our operations, acquisitions, debt service, and capital requirements through cash flows generated from operations, debt financing, loans and advances from officers, and issuance of equity securities. In addition, we sold substantially all of our assets in May 2011 and used the proceeds to retire all outstanding indebtedness and retain net cash of approximately $300,000. HIIT had cash of $152,375 and a working capital deficit of $764,198 at March 31, 2013 as compared to cash of $379,336 and a working capital deficit at December 31, 2012 of $701,345. AES had cash of $189,793 and working capital of $245,934 at March 31, 2012.
Net cash used in operating activities for the three months ended March 31, 2013 was $183,441 resulting primarily from our net loss of $114,389 which was offset by an increase in accounts payable and accrued expenses of $883,319 and an increase in accounts receivable and prepaid expenses of $1,022,048. By comparison, net cash provided by operating activities for the three months ended March 31, 2012 was $18,381. AES had net cash provided by operating activities of $212,200 for the three months ended March 31, 2012. This was the result of $273,502 in net income offset by an increase in accounts receivable of $325,960 and an increase in accounts payable of $237,907.
Our net cash provided by investing activities was $23,689 in the three months ended March 31, 2013 consisting primarily of proceeds from the sale of property and equipment for $42,776. There was no cash provided by investing activities for the comparable period in 2012. AES had net cash used in investing activities of $58,757 for the three months ended March 31, 2012 due to the purchase of equipment.
18
Our net cash used in financing activities was $67,209 in the three months ended March 31, 2013 consisting primarily of payments on notes payable for $173,334, which was offset by $18,750 received upon the exercise of warrants and $87,375 received on the sale-leaseback transaction. There was no cash provided by financing activities for the comparable period in 2012. AES had net cash provided by financing activities of $36,350 for the three months ended March 31, 2012, due to members contributions.
The net decrease in cash three months ended March 31, 2013 was $226,961 as compared to a net increase in cash of $18,381 for the three months ended March 31, 2012. AES had a net cash increase of $189,793 for the three months ended March 31, 2012.
Promissory Notes 2012
On December 17, 2012, we issued 10% subordinated secured promissory note in the amount of $150,000 and a warrant to purchase 550,000 shares of the registrants common stock. The note is due on December 17, 2013 and bears interest at the ten percent (10%). The note is secured by our assets. The note was issued with a warrant to purchase 550,000 shares of our common stock at an exercise price of $0.09 per share The warrant is exercisable until five (5) years after the closing date. The registrant relied on the exemption from registration provided by Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended, for the offer and sale of the notes and the warrants.
On November 5, 2012, we, and our wholly-owned subsidiary, AES issued a $600,000 10% secured promissory note to a single accredited investor. The aggregate gross proceeds from the sale of the note were $600,000. The proceeds were used to facilitate the purchase of equipment by Apache from Vanderra Resources LLC. The note is due on March 30, 2013 and bear interest at the ten percent (10%). The notes are secured by the Vanderra equipment purchased with the proceeds. The issuance was exempt under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.
On October 31, 2012, we issued a $50,000 10% subordinated secured promissory note to a single accredited investor. The aggregate gross proceeds from the sale of the note were $50,000. The proceeds were used to working capital and general corporate purposes. The note is due on March 30, 2013 and bears interest at ten percent (10%). The note is secured by our assets. The issuance was exempt under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.
On September 24, 2012, we issued $300,000 of principal amount of 10% subordinated secured promissory notes and warrants to purchase our common stock. The aggregate gross proceeds from the sale of the notes and warrants were $300,000. The proceeds were used to fund the cash purchase price of the acquisition of AES and for working capital requirements. The notes are due on September 23, 2013 and bear interest of ten percent (10%). The notes are secured by our assets. The notes were issued with Class A warrants to purchase up to 1,800,000 shares of our common stock at an exercise price of $0.10 per share and Class B warrants to purchase up to 900,000 shares of the registrants common stock at an exercise price of $0.10 per share. The number of Warrant Shares underlying each Class A Warrant equals to the principal amount of the Note subscribed for by a purchaser Subscriber multiplied by six (6) The Class B Warrants are exercisable beginning on the one-year anniversary of the Closing Date (the Target Date) and the number of warrant shares underlying the Class B Warrant equals either (A) the principal amount of note subscribed for by a purchaser multiplied by 3 shares, if the Market Price (as defined in the Class B Warrant) on the Target Date is less than $0.20 or (B) 0 shares, if the Market Price on the Target Date is at least $0.20. The Class A Warrants and Class B Warrants are exercisable until five (5) years after the closing date. The Class A Warrants and the Class B Warrants are exercisable on a cashless basis.
Termination of Revolving Credit Facility
On March 18, 2013, our wholly-owned subsidiaries, KMHVC, Inc. and Apache Energy Services, LLC terminated their $1 million revolving accounts receivable based line of credit facility with an asset based lender which was previously entered into November 2012. A cancellation fee of $4,100 was paid in connection with the termination.
Liquidity and Capital Requirements HII Technologies, Inc.
As of the date of this report, we believe that we will be able to fund our operations for the next 12 months by a combination of the continuing operations of our AES subsidiary and our cash and accounts receivables.
19
The closing of our sale of the Hemiwedge valve assets on May 10, 2011, allowed us to repay all outstanding indebtedness at that time. Currently, we have 8 employees and lease our executive office space and facility in South Texas on a month to month basis.
Critical Accounting Policies
Our discussion and analysis of our financial conditions and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires managers to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience, and other assumptions as the basis for making judgments. Actual results could differ from those estimates.
Accounts receivable are comprised of unsecured amounts due from customers. AES and STP carry accounts receivable at their face amounts less an allowance for bad debts. The allowance for bad debts is recognized based on managements estimate of likely losses per year, based on past experience and review of customer profiles and the aging of receivable balances.
Goodwill acquired in a business acquisition is initially measured at cost being the excess of the cost of business combination over the net fair value of the identifiable assets, liabilities and contingent liabilities. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortized but instead, it is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Company elected to have goodwill reviewed for impairment as of December 31, 2012, by an independent outside expert which resulted in no impairment of the goodwill as recorded.
Revenue is recognized when all of the following criteria are met: 1) persuasive evidence of an arrangement, 2) delivery has occurred, 3) the price is fixed and determinable, and 4) collectability is reasonably assured. A job ticket that is completed by AES or STP and signed by the customer's local representative includes the date of services, the type of services and the agreed upon rate for the services. This document meets the requirements for Items 1, 2 and 3 above. Collectability is proven over time with any customer, but assumed to be reasonably assured unless history proves differently.
The Company accounts for share-based awards issued to employees and non-employees in accordance with the guidance on share-based payments. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.
Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value.
Off-Balance Sheet Arrangements
None.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
ITEM 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2013, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to
20
provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
21
PART II: OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 1A RISK FACTORS
As a smaller reporting company as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1.
On April 1, 2012, we granted an option to purchase 500,000 shares of our common stock at an exercise price of $0.15 to an employee under an employment agreement. The issuance was exempt under Section 4(2) of the Securities Act, as amended.
2.
On April 1, 2012, we granted an option to purchase 500,000 shares of our common stock at an exercise price of $0.15 to a director in consideration of services rendered as a director. The issuance was exempt under Section 4(2) of the Securities Act, as amended.
3.
On April 29, 2013, we issued 375,000 shares of common stock upon exercise of previously issued warrants with an exercise price of $0.05 per share. We received $18,750 upon exercise of the warrants. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3 DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 OTHER INFORMATION
None.
22
ITEM 6 - EXHIBITS
Item No. | Description | Method of Filing |
31.1 | Certification of Matthew C. Flemming pursuant to Rule 13a-14(a) | Filed herewith. |
32.1 | Chief Executive Officer and Chief Financial Officer Certification pursuant o 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | Filed herewith. |
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.
| HII TECHNOLOGIES, INC. |
|
|
|
|
May 14, 2013 | /s/ Matthew C. Flemming |
| Matthew C. Flemming |
| President, Chief Financial Officer, Secretary, Treasurer and Director |
| (Principal Executive Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
|
23