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 June 30, 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)

Issuer’s 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 August 14, 2013, 45,187,683 shares of our common stock were outstanding.




1



HII TECHNOLOGIES, INC.

  

FORM 10-Q

  

June 30, 2013


TABLE OF CONTENTS

  

  

Page

  

PART I-- FINANCIAL INFORMATION

  

  

  

  

  

  

Item 1.

Financial Statements

3

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

  

Item 4

Control and Procedures

22

  

  

  

 

  

PART II-- OTHER INFORMATION

 

  

  

  

 

  

Item 1

Legal Proceedings

23

  

Item 1A

Risk Factors

23

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

  

Item 3.

Defaults Upon Senior Securities

23

  

Item 4.

Mine Safety Disclosures

23

  

Item 5.

Other Information

23

  

Item 6.

Exhibits

24

  

  

  

 

  

SIGNATURES

24

  




2



ITEM 1 –FINANCIAL INFORMATION


HII TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

 

June 30

 

December 31

 

 

 

2013

 

2012

ASSETS

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 $        121,962

 

 $      379,336

 

Accounts receivable, net

      2,633,849

 

 1,297,103

 

Current portion of note receivable

       9,608

 

      11,614

 

Current portion of deferred financing costs

    31,850

 

         -

 

Prepaid expense and other current assets

     52,420

 

     55,515

 

 

Total current assets

  2,849,689

 

 1,743,568

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $52,911 and $23,442

     372,526

 

   537,881

Note receivable, net of current portion

-

 

       3,722

Deposits

    31,500

 

-

Deferred financing costs, net of current portion

    31,850

 

-

Goodwill

 

 1,897,380

 

 1,897,380

 

 

Total assets

 $     5,182,945

 

 $   4,182,551

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

Accounts payable

 $     1,143,230

 

 $      364,974

 

Accounts payable and other liabilities, related parties

     178,000

 

    340,248

 

Accrued expenses and other liabilities

   649,581

 

     323,417

 

Line of credit

   934,200

 

         -   

 

Current portion of notes payable - related parties, net of discount of $4,379 and $13,133

     478,954

 

   520,200

 

Current portion of secured notes payable, net of discount of $40,098 and $103,926

       359,902

 

      896,074

 

 

Total current liabilities

  3,743,867

 

 2,444,913

 

 

 

 

 

 

Long term liabilities:

 

 

 

 

Notes payable - related parties net of current portion

      650,000

 

     866,667

 

 

Total liabilities

  4,393,867

 

     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,

 

 

 

 

 

45,187,683 and 43,317,683 shares issued and outstanding

         45,187

 

      43,317

 

Additional paid-in-capital

 27,317,288

 

    26,913,135

 

Accumulated deficit

   (26,573,397)

 

 (26,085,481)

 

 

Total stockholders' equity

       789,078

 

       870,971

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 $     5,182,945

 

 $   4,182,551


See accompanying notes to unaudited consolidated financial statements



3




HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30

 

June 30

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

REVENUES

 $   3,226,437

 

 $                -

 

 $  5,836,210

 

 $                - 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUES

   2,361,309

 

-

 

 4,438,790

 

-

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

     865,128

 

-

 

   1,397,420

 

-

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

                   Selling, general and administrative

        913,467

 

    116,299

 

   1,464,198

 

   192,632

                   Bad debt expense

       54,000

 

  14,000

 

      54,000

 

     14,000

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

       967,467

 

    130,299

 

1,518,198

 

    206,632

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

       (102,339)

 

  (130,299)

 

 (120,778)

 

   (206,632)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Gain (loss) on liability settlement

-

 

  51,460

 

-

 

     51,460

 

Loss on extinguishment of liability

    (96,297)

 

-

 

    (96,297)

 

-

 

Interest expense

  (144,123)

 

-

 

   (222,574)

 

-

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE INCOME TAXES

   (342,759)

 

   (78,839)

 

    (439,649)

 

    (155,172)

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

     (30,768)

 

-

 

    (48,267)

 

-

 

 

 

 

 

 

 

 

 

 

NET LOSS

 $   (373,527)

 

 $    (78,839)

 

 $   (487,916)

 

 $     (155,172)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 $         (0.01)

 

 $             -   

 

 $         (0.01)

 

 $                -   

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding-Basic and diluted

 44,429,551

 

 34,598,864

 

   44,087,324

 

   34,209,524


See accompanying notes to unaudited consolidated financial statements






4




HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'  EQUITY

For the six monthes ended June 30, 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

700,000

 700

 

    49,300

 

-

 

    50,000

Common stock issued for services

820,000

   820

 

    165,980

 

-

 

   166,800

Warrants issued for extension of secured note

-

-

 

   55,154

 

-

 

    55,154

Stock options issued for services

-

-

 

  102,569

 

-

 

  102,569

Net loss

-

-

 

-

 

   (487,916)

 

  (487,916)

 

 

 

 

 

 

 

 

 

Balances at June 30, 2013

45,187,683

$45,187

 

$27,317,288

 

$(26,573,397)

 

$789,078


See accompanying notes to unaudited consolidated financial statements





5




HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2013 and 2012

(unaudited)

 

 

 

 

 

 

 

 

 

2013

 

2012

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

 $          (487,916)

 

 $          (155,172)

 

Adjustments to reconcile net loss to net

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

Amortization of note payable discount

                 72,582

 

                          -    

 

 

Stock-based compensation

               269,369

 

                 41,390

 

 

Depreciation

                 50,899

 

                          -    

 

 

Loss on extinguishment of liability

                 96,297

 

 -    

 

 

Warrants issued for extension of secured note

                 55,154

 

 -    

 

 

Bad debt expense

                 54,000

 

 -    

 

 

Loss on asset sale

                   4,029

 

 -    

 

 

Changes in:

 

 

 

 

 

 

Accounts receivable

          (1,390,746)

 

                          -    

 

 

 

Notes receivable

                        -   

 

               (20,000)

 

 

 

Prepaid expense and other current assets

                 40,323

 

                 41,362

 

 

 

Other assets

               (31,500)

 

                        -   

 

 

 

Accounts payable

               778,256

 

                 37,690

 

 

 

Accounts payable and other liabilities - related parties

             (162,248)

 

                        -   

 

 

 

Accrued expenses

               229,867

 

                 14,307

 

Net cash used in operating activities

             (421,634)

 

               (40,423)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Cash received from the sale of property and equipment

                 71,754

 

                        -   

 

Cash paid for purchase of property and equipment

               (48,702)

 

                        -   

 

Cash provided by investing activities

                 23,052

 

                        -   

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from exercise of warrants

                 50,000

 

                        -   

 

Proceeds from sale-leaseback transaction

                 87,375

 

                        -   

 

Payments for deferred financing costs

               (14,500)

 

 

 

Proceeds from line of credit, net

               372,400

 

                        -   

 

Payments on notes payable

             (354,067)

 

                        -   

 

Net cash provided by financing activities

               141,208

 

                        -   

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

             (257,374)

 

               (40,423)

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

               379,336

 

                 76,651

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 $            121,962

 

 $              36,228

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

Cash paid for income taxes

 $                     -   

 

 $                     -   

 

Cash paid for interest

                 62,846

 

                        -   

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

     Payment on secured note paid directly from line of credit

512,600       

-

     Deferred financing costs paid directly from line of credit

49,200       

-

     Common stock issued for lease deposit

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 the years ended December 31, 2012 and 2011 as reported in the Company’s 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 “South Texas Power”) and Apache Energy Services, LLC (“AES”).  AES launched a new operating division in January 2013 doing business as AES Safety Services 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 June 30, 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 six months ended June 30, 2013 is shown below:



7




Notes payable - related parties

 

 

 

 

 

 

 

 

 Balance at January 1, 2013

 

 $     1,386,867

 

 Less:  payments on notes payable

 

          (266,667)

 

 Add:  amortization of note discount

 

               8,754

 

 

 

 

        1,128,954

 

 Less - current maturities, net - related parties

 

           (478,954)

 

 Long-term notes payable, net June 30, 2013

 

 $        650,000

 

 

 

 

 

 Notes payable - third parties

 

 

 

 

 

 

 

 

 Balance at January 1, 2013

 

 $        896,074

 

 Less:  payments on notes payable

 

        (600,000)

 

 Add:  amortization of note discount

 

           63,828

 

 

 

 

         359,902

 

 Less - current maturities, net - third parties

 

        (359,902)

 

 Long-term notes payable, net June 30, 2013

 

 $                 -   


NOTE 4 – LINE OF CREDIT


On June 26, 2013, our wholly-owned subsidiaries, KMHVC, Inc. and AES (the “Borrower”) entered into a $2 million revolving accounts receivable financing facility with Rosenthal & Rosenthal (“Rosenthal”). The financing facility provides for the Borrower to have access to the lesser of (i) $2 million or (ii) 85% of Net Amount of Eligible Receivables (as defined in the financing agreement). The financing facility is paid for by the assignment of the Borrower’s accounts receivable to Rosenthal and is secured by the Borrower’s assets. The financing facility has an interest rate of 4.00% in excess of the prime rate reported by the Wall Street Journal per annum. The interest rate increases to the prime rate plus 7.00% for any borrowings in excess of 85% of the Borrower’s Net Amount of Eligible Receivables. In addition, the Borrower paid Rosenthal a facility fee of $30,000 on the closing and an annual fee of $20,000 and a monthly administration fee of $1,000 as well as monthly additional charges of not less than $2,000. The financing facility is for an initial term of two-years, expiring on June 30, 2015, and will renew on a year to year basis, unless terminated in accordance with the financing agreement. If the facility is terminated prior to the first anniversary, Borrower is obligated to pay Rosenthal a fee of $40,000 and if terminated after the first anniversary and prior to the second anniversary then Borrower shall pay a fee of $20,000. We guaranteed repayment of the line of credit, which guaranty is secured by our assets.

 

During the six months ended June 30, 2013, the Company made draws, net of expenses of $934,200, as of June 30, 2013.

 

Pursuant to the terms of the financing facility, the Company is required to maintain at the end of each quarter, tangible net worth in an amount not less than negative $1,000,000 and working capital of not less than negative $2,000,000.


The Company paid a total of $63,700 in various financing fees which will be amortized over the two year life of the line of credit.  A summary is shown below:


Balance at January 1, 2013

 

 $           -   

 Add:  financing fees paid

 

    63,700

 Less:  amortization of deferred financing costs

             -   

 

 

 

 

    63,700

 Less:  current maturities

 

  (31,850)

 Long-term deferred financing costs

 $ 31,850



NOTE 5 – 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.



8




On March 4, 2013, a warrant holder exercised warrants to purchase 375,000 common shares at an exercise price of $0.05, for total proceeds of $18,750.  


On May 23, 2013, a warrant holder exercised warrants to purchase 300,000 common shares at an exercise price of $0.10, for total proceeds of $30,000.


In connection with the acquisition of AES, the Company entered into a consulting agreement for business development advisory services in which the consultant would be issued up to a maximum of 750,000 common shares if AES met certain performance targets.  These performance targets were met and as such, on May 31, 2013, the Company issued 750,000 common shares to the consultant.  The shares were recorded at their fair value of $150,000. The Company recognized a loss on extinguishment of this liability of $87,000 which is the difference between the liability accrued of $63,000 and the fair value of the stock.


On June 3, 2013, a warrant holder exercised warrants to purchase 25,000 common shares at an exercise price of $0.05, for total proceeds of $1,250.


On June 21, 2013, the Company issued 70,000 common shares for consulting services.  The Company recognized a loss on extinguishment of liability of $9,297 which is the difference between the liability accrued of $7,503 and the fair value of the shares of $16,800.


NOTE 6 – STOCK OPTIONS AND WARRANTS


Stock options


HII currently has two stock option plans: (a) the 2005 Stock Incentive Plan reserved 10,000,000 common shares and 8,615,140 stock options have been granted through April 9, 2012, and (b) the 2012 Stock Incentive Plan reserved 10,000,000 common shares and 1,550,000 stock options have been granted through June 30, 2013.  As of June 30, 2013, there are 1,743,000 options outstanding.


During the six months ended June 30, 2013, no options were exercised or expired.


During the six months ended June 30, 2013, 350,000 options were granted to an employee and valued at $41,720 using the Black-Scholes pricing model.   The 350,000 options will vest based on achievement of certain revenue targets, none of which have been met as of June 30, 2013


During the six months ended June 30, 2013, 1,000,000 options were granted to an employee and director and valued at $178,237 using the Black-Scholes pricing model.   The 500,000 options issued to the director vested immediately while the remaining 500,000 options vest monthly over a period of 24 months.  


Significant assumptions used in the valuation of the above options include the following:


Expected term

5 years

Expected volatility

227.64% - 245.43%

Risk free interest rate

0.70%  - 0.76%

Expected dividend yield

0.00%


Stock compensation expense recognized for the six months ended June 30, 2013 related to the above options and options granted in the prior year amounted to $102,569.  Unrecognized compensation cost as of June 30, 2013 of $89,573 is expected to be recognized over a period of 2.5 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 total proceeds of $18,750.  


On May 23, 2013, a warrant holder exercised warrants to purchase 300,000 common shares at an exercise price of $0.10, for total proceeds of $30,000.


On June 3, 2013, a warrant holder exercised warrants to purchase 25,000 common shares at an exercise price of $0.05, for total proceeds of $1,250.




9



On June 21, 2013, the Company issued 200,000 warrants in conjunction with the forbearance of a noteholder concerning the note being paid in full two-months after the due date.  The warrants have an exercise price of $0.28 and a term of 5 years.


The warrants were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include the following:


Expected term

5 years

Expected volatility

215.84%

Risk free interest rate

1.42%

Expected dividend yield

0.00%


The fair value of the warrants of $55,154 was immediately recorded as interest expense since the note was fully paid as of June 30, 2013.  


During the six months ended June 30, 2013, 100,000 warrants 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

1,350,000

 

 

 

     0.15

 

 

 

200,000

 

 

 

   0.28

 

 

 

Exercised

-

 

 

 

-

 

 

 

(700,000)

 

 

 

       0.07

 

 

 

Forfeited

-

 

 

 

-

 

 

 

(100,000)

 

 

 

      0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2013

1,743,000

 

    4.49

 

 $     0.14

 

 $240,240

 

6,593,269

 

     2.50

 

 $         0.16

 

 $ 776,298


 

NOTE 7 – RELATED PARTY TRANSACTIONS


During the six months ended June 30, 2013, a member of the Board provided cash advances to the Company totaling $63,000, resulting to an outstanding balance of $178,000 as of June 30, 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 has been paid as of June 30, 2013. The outstanding amounts are included in accounts payable and other liabilities – related parties in the consolidated balance sheets.


NOTE 8 – 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 HII’s 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 six months ended June 30, 2013 for these leases amounted to $28,155.   


On December 7, 2012, as amended on July 19, 2013, the Company's subsidiary, STP, entered into a strategic alliance agreement with PRC for an operating lease of equipment.  Under the agreement, PRC 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.  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 5 above).  In addition, the lease contained a provision for a



10



minimum of $10,000 in payments per month for the first 3 months, which was paid by the Company.  During the six months ended June 30, 2013, STP recognized $59,710 in lease expense.


In January 2013, the Company entered into a master lease agreement with Enterprise Leasing Company which is being accounted for as an operating lease.  As of June 30, 2013 the Company leases 24 vehicles and two trailers under this master lease with monthly lease payments totaling approximately $25,215.  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 9 – SUBSEQUENT EVENTS


On August 1, 2013, the Company agreed to take a secured note for $290,000 for a past due accounts receivable from a customer. The terms of the note are 5% interest per annum, with principal and interest due on July 31, 2014.



11




ITEM 1 –FINANCIAL INFORMATION – APACHE ENERGY SERVICES, LLC


APACHE ENERGY SERVICES, LLC

BALANCE SHEET

As of June 30, 2012

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

Current assets:

 

 

Cash and cash equivalents

 $                      123,947

 

Accounts receivable

                 455,978

 

Prepaid expense and other current assets

                      3,242

 

 

 

 

 

 

Total current assets

                  583,167

 

 

 

 

Property and equipment, net of accumulated depreciation of $12,478

                  102,408

 

 

 

 

 

 

Total assets

 $                      685,575

 

 

 

 

LIABILITIES AND MEMBERS' EQUITY

 

Current liabilities:

 

 

Accounts payable

 $                        49,736

 

Sales tax payable

                    56,386

 

Current portion of equipment note payable

                    10,084

 

 

 

 

 

 

Total current liabilities

                116,206

 

 

 

 

Long term liabilities:

 

 

Equipment notes payable, net of current portion

                    42,794

 

 

 

 

 

Total liabilities

                159,000

 

 

 

 

 

 

 

 

Members' equity

 

 

Members' capital

                    36,350

 

Retained earnings

                490,225

 

 

 

 

 

 

Total members' equity

                 526,575

 

 

 

 

 

 

Total liabilities and members' equity

 $                      685,575


See accompanying notes to unaudited financial statements




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APACHE ENERGY SERVICES, LLC

STATEMENT OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three months ended June 30, 2012

 

From inception, January 4, 2012 to June 30, 2012

 

 

 

 

REVENUES

$         449,737

 

$                986,108

 

 

 

 

 

 

COST OF REVENUES

193,165

 

442,544

 

 

 

 

 

 

GROSS PROFIT

256,572

 

543,564

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

Selling, general and administrative

9,849

 

23,339

 

 

 

 

 

 

 

Total operating expenses

9,849

 

23,339

 

 

 

 

 

 

NET INCOME

 $         246,723

 

$               520,225



See accompanying notes to unaudited financial statements






13




APACHE ENERGY SERVICES, LLC

STATEMENT OF MEMBERS' EQUITY

For the period from January 4, 2012 (inception) to June 30, 2012

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members'

 

Retained

 

Members'

 

 

 

Capital

 

Earnings

 

Equity

 

 

 

 

 

 

 

 

Capital contributions

 

 $     36,350

 

 $          -   

 

 $     36,350

 

 

 

 

 

 

 

 

Distributions

 

               -   

 

   (30,000)

 

  (30,000)

 

 

 

 

 

 

 

 

Net income for the period

               -   

 

   520,225

 

  520,225

 

 

 

 

 

 

 

 

Balance at June 30, 2012

 $     36,350

 

 $ 490,225

 

$  526,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited financial statements

 

 

 

 

 

 

 

 





14




APACHE ENERGY SERVICES, LLC

STATEMENT OF CASH FLOWS

For the period from January 4, 2012 (inception) to June 30, 2012

(unaudited)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

Net income

 $           520,225

 

Adjustments to reconcile net income to net

 

 

 

cash provided by operating activities:

 

 

 

Depreciation expense

                 12,478

 

 

Changes in:

 

 

 

 

Accounts receivable

             (455,978)

 

 

 

Prepaid expense and other current assets

                 (3,242)

 

 

 

Accounts payable

                 49,736

 

 

 

Accrued liabilities

                 56,386

 

Net cash provided by operating activities

               179,605

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITY:

 

 

 

Purchase of property and equipment

               (58,757)

 

Net cash used in investing activity

               (58,757)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITY:

 

 

 

Payments on financing loan

                 (3,251)

 

 

Members' contributions

                 36,350

 

 

Members' distributions

               (30,000)

 

Net cash provided by financing activities

                   3,099

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

               123,947

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

                        -   

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 $           123,947

 

 

 

 

 

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






15




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.


NOTE 2 – PROPERTY AND EQUIPMENT


Property and equipment at June 31, 2012 consists of the following:


 

 

 Accumulated

 Net Book

 

 Cost

 Depreciation

 Value

 

 

 

 

 Road Crossings

 $          9,891

 $          1,104

 $          8,787

 Transportation

      56,130

          3,740

         52,390

 Trailers

      48,866

         7,635

      41,231

 

 $      114,887

 $        12,479

 $      102,408


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 $12,478.

 

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 June 30, 2012, two customers 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 June 30, 2012, the original members contributed $36,350 and received distributions of $30,000.

 



16



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.





17



ITEM 2.  MANAGEMENT’S 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 Company’s 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 Company’s onsite oilfield contract safety consultancy providing experienced trained safety personnel during oilfield site preparation, “drilling completion” 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 Company’s 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 9 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 registrant’s 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.




18



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.


KMHVC’s 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 June 30, 2013 and 2012


Revenues.  HIIT revenues increased to $3,226,437 for the three months ended June 30, 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 STP’s mobile oilfield power and lighting business. AES revenues for the three months ended June 30, 2012 were $449,737.


Selling, general, and administrative. HIIT selling, general and administrative expenses increased to $909,438, or 28% of revenue, for the three months ended June 30, 2013, as compared to $116,299 for the comparable period in 2012. The increase was primarily attributable to increased wage expense of $302,248 for new employees related to the AES acquisition and launch of STP’s new business in mobile oilfield power and the cost of public reporting and holding company expenses, and the testing and development costs related to water recycling technologies of $151,993. AES selling, general and administrative expenses for the three months ended June 30, 2012 were $9,849.


Loss on extinguishment of liability.  We had loss on extinguishment of liabilities of $96,297 in the three months ended June 30, 2013, which expense is primarily attributable to the extinguishment of $63,000 for a consulting agreement for business development advisory services with Company stock with a fair value of $150,000. No loss on extinguishment of liabilities was incurred in the comparable period in 2012.


Interest expense.  We had interest expense of $144,123 in the three months ended June 30, 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 a net loss of $373,527 for the three months ended June 30, 2013 as compared to a net loss of $78,839 for the comparable period in 2012. AES had net income of $246,723 for the three months ended June 30, 2012.


Results of Operations for the Six Months Ended June 30, 2013 and 2012


Revenues.  HIIT revenues increased to $5,836,210 for the six months ended June 30, 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 growth of STP’s business in mobile oilfield power. AES revenues for the period from January 4, 2012 (inception) to June 30, 2012 were $986,108.


Selling, general, and administrative. HIIT selling, general and administrative expenses increased to $1,460,169, or 25% of revenue, for the six months ended June 30, 2013, as compared to $192,632 for the comparable period in 2012. The increase was primarily attributable to increased wage expense of $511,079 for new employees related to the AES acquisition and growth of STP’s business in mobile oilfield power and the cost of public reporting and holding company expenses, and the testing and development costs related to water recycling technologies of $151,993. AES selling, general and administrative expenses for the period from January 4, 2012 (inception) to June 30, 2012 were $23,339.




19



Loss on extinguishment of liability.  We had loss on extinguishment of liabilities of $96,297 in the six months ended June 30, 2013, which expense is primarily attributable to the extinguishment of $63,000 for a consulting agreement for business development advisory services with Company stock with a fair value of $150,000. No loss on extinguishment of liabilities was incurred in the comparable period in 2012.


Interest expense.  We had interest expense of $222,574 in the six months ended June 30, 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 a net loss of $487,916 for the six months ended June 30, 2013 as compared to a net loss of $155,172 for the comparable period in 2012. AES had net income of $520,225 for the six months ended June 30, 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 $121,962 and a working capital deficit of $894,178 at June 30, 2013 as compared to cash of $379,336 and a working capital deficit at December 31, 2012 of $701,345. AES had cash of $123,947 and working capital of $466,961 at June 30, 2012.


Net cash used in operating activities for the six months ended June 30, 2013 was $421,634 resulting primarily from our net loss of $487,916 which was offset by an increase in accounts payable and accrued expenses of $845,875 and an increase in accounts receivable and prepaid expenses of $1,350,423. By comparison, net cash used in operating activities for the six months ended June 30, 2012 was $40,423. AES had net cash provided by operating activities of $179,605 for the six months ended June 30, 2012. This was the result of $520,225 in net income offset by an increase in accounts receivable of $455,978 and an increase in accounts payable and accrued liabilities of $106,122.


Our net cash provided by investing activities was $23,052 in the six months ended June 30, 2013 consisting primarily of proceeds from the sale of property and equipment for $71,754 which was offset by $48,702 for the purchase of equipment. 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 six months ended June 30, 2012 due to the purchase of equipment.


Our net cash provided by financing activities was $141,208 in the six months ended June 30, 2013 consisting primarily of draws net of expenses on the line of credit of $372,400, $50,000 received upon the exercise of warrants and $87,375 received on the sale-leaseback transaction offset by payments on notes payable for $354,067. There was no cash provided by financing activities for the comparable period in 2012. AES had net cash provided by financing activities of $3,099 for the six months ended June 30, 2012, due to members’ contributions of $36,350 offset by distributions of $30,000.


The net decrease in cash for the six months ended June 30, 2013 was $257,374 as compared to a net decrease in cash of $40,423 for the six months ended June 30, 2012. AES had a net cash increase of $123,947 for the six months ended June 30, 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 registrant’s 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 AES from an asset sale. The note is due on March 30, 2013 and bear interest at the ten percent (10%). The notes are secured by this equipment



20



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.  This note was paid in full on June 27, 2013.


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 matured 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.  This note was paid in full on May 24, 2013.


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 registrant’s 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 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.


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 management’s 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.



21




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 June 30, 2013, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to 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 SEC’s 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 June 30, 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.




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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


On June 21, 2013, in consideration of secured noteholder’s forbearance under a secured note issued by us, including the noteholder’s rights to foreclose on certain of our collateral securing its interest under the Note, we issued such noteholder a 5-year warrant to purchase 200,000 shares of our common stock at an exercise price of $0.28 per share. We did not receive any proceeds from the issuance of the warrant.  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

1.

See our Current Report on Form 8-K dated June 17, 2013 and filed with the SEC on June 19, 2013 for a discussion of the results of the matters voted on at our annual meeting of stockholders held on June 17, 2013.

2.

See our Current Report on Form 8-K dated June 26, 2013 and filed with the SEC on July 1, 2013 for a discussion of the $2 million revolving accounts receivable financing facility entered into with Rosenthal & Rosenthal by our wholly-owned subsidiaries, KMHVC, Inc. and Apache Energy Services, LLC.



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ITEM 6 – EXHIBITS


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 to 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.

 

 

 

 

August 14, 2013

 /s/ Matthew C. Flemming

 

Matthew C. Flemming

 

President, Chief Financial Officer, Secretary, Treasurer and Director

 

(Principal Executive Officer and Principal Accounting Officer)




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