UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

HII TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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         No _X__   Registrant became subject to the filing requirements on November 13, 2011.

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 ___ 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 November 11, 2011, 33,820,183 shares of our common stock were outstanding.

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HII TECHNOLOGIES, INC.

FORM 10-Q

September 30, 2011

TABLE OF CONTENTS

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ITEM 1 –FINANCIAL INFORMATION

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Level 3 Valuation Techniques

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Our Level 3 liabilities consist of the derivative liabilities associated with certain freestanding warrants that contain exercise price reset provisions.

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

NOTE 11 – SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after September 30, 2011 up through the date the Company issued these financial statements and did not identify any recognizable or nonrecognizable subsequent events.

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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. is a Texas based energy field services company which intends to focus on measurement while drilling (MWD) downhole tools.  We entered the development stage on May 10, 2011 upon the consummation of the sale of substantially all of the assets of KMHVC, Inc. (f/k/a Hemiwedge Valve Corporation), our wholly owned valve design and production subsidiary.  We retained approximately $300,000 in net cash at closing.

We currently employ 1 person. 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.HWEGstockholder.com.

Business Development

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.  In August 2011, we changed our name to “HII Technologies, Inc.”, which name change was required in connection with the May 2011 asset sale discussed below.

Sale of KMHVC, Inc.’s (f/k/a Hemiwedge Valve Corporation) Assets—Discontinued Operations

On May 10, 2011, we, and our wholly owned subsidiary KMHVC, Inc. (f/k/a Hemiwedge Valve Corporation (“HVC”, collectively the “Sellers’) consummated the sale of substantially all of HVC’s assets to Chromatic Industries, Inc. (“Chromatic”). The sale was effected pursuant to an asset purchase agreement (the “HVC Purchase Agreement”) pursuant to which HVC transferred substantially all of its assets and certain enumerated liabilities to Chromatic. in exchange for approximately $7,688,000 payable as follows: (a) Cash in a net amount (after reduction of repayment of the April 5, 2011 and April 29, 2011 promissory notes issued by,  Asymmetric Investments, LLC) equal to $6.032 million, which cash would be paid directly to existing creditors of the Sellers to extinguish Sellers’ debt obligations, with any remainder being paid to the Sellers, and (b) assume scheduled trade account payables and foundry payables of the Sellers not exceeding $1.656 million.  In addition, at Closing, the 3,500,000 warrants to purchase our common stock issued to Asymmetric on April 5, 2011 were forfeited.  We retained approximately $300,000 in net cash at closing.

Working capital and balance sheet issues were the primary reasons we sold the assets of our KMVHC subsidiary in May 2011.  We had significant debt, much of which was secured by a pledge of our assets.  Further, certain KMHVC customers and suppliers had concerns relating to the new and unique nature of our valve product line, such as the ability to procure spare parts in the future.   While the product line ultimately did grow in the two years prior to its sell in 2011, it grew at a rate slower than anticipated and created additional capital constraints on us. These factors, along with the significant secured debt severely affected our capital raising efforts.  Selling KMHVC’s assets allowed us to repay our creditors and provided working capital for our current plan.

KMHVC’s business

Our subsidiary manufactured and sold proprietary engineered valves under the product line known as the Hemiwedge® Cartridge valve.  This quarter-turn hemispherical wedge valve engineered to provide what we believe

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are substantial technological improvements compared with what is available in the marketplace today, such as traditional butterfly, ball, and gate valve designs.

KMHVC manufactured the valves in house whereas we intend to use third parties to manufacture our products.  In addition, the KMHVC valves are surface level flow control products whereas we intend to focus on down hole measurement tools.

Sale of Shumate Machine Works’ Assets—Discontinued Operations

On October 8, 2008, we, and our wholly owned subsidiary Shumate Machine Works, Inc. (“Machine Works”) consummated the sale of substantially all of Machine Works’ assets to American International Industries, Inc. (“Purchaser”). The sale was effected pursuant to an asset purchase agreement (the “Purchase Agreement”) pursuant to which Machine Works transferred substantially all of its assets and certain enumerated liabilities to Purchaser. The aggregate purchase price was $6,703,749 consisting of assumption by Purchaser of (i) $5 million of promissory notes due Stillwater National Bank and Trust Company and (ii) $1,703,749 of certain other liabilities, including without limitation, accounts payable of Machine Works.  We also issued 1,401,170 shares of our common stock to Purchaser as a purchase price adjustment of $420,351.

Our decision to sell our contract mining and machining assets primarily related to lack of capital. We did not have sufficient capital to purchase the new machines required to effectively compete in this market.  In addition, we believed focusing on one business line would produce more profitable operations and would enhance our capital raising efforts.  Ultimately our board of directors felt it in the best interests of the company to focus efforts on our proprietary engineered valve product.

Shumate Machine Works (SMW) business

SMW  manufactured products, spare parts, and assemblies for the oil & gas field services market segment designed to customer specifications.  SMW was primarily a service company whereby SMW assembled component parts into a product such as a Top drive unit for a drilling rig, which was eventually sold to an end user after leaving SMW’s machine shop.  Our focus will be developing and selling MWD products, which we will sell directly to end users.  

Acquisition of Hemiwedge Assets

On December 5, 2005, we acquired the intellectual property rights to the Hemiwedge® line of products, including the Hemiwedge® valve, from Soderberg Research and Development, Inc. and certain of its affiliates.  The intellectual property rights acquired consist of all patents, trademarks, and internet website relating to the Hemiwedge® product line.  For these intellectual property rights, we paid $138,500 in cash and a two-year, six percent (6%) promissory note in the principal amount of $100,000, payable in 24 equal installments of principal and interest.  In addition, we agreed to deposit: (a) $72,000 into an escrow account, the property of Soderberg Research Inc., to be paid in the form of a monthly advance in the amount of $3,000 for each month of the 24 month period beginning with the month immediately following the closing date; and (b) three percent (3%) of the net sales proceeds collected from customers from: (i) gross revenue from sales of products to which the acquired intellectual property relates, less (ii) sales and/or use taxes, import and/or export duties, outbound transportation costs, and amounts allowed or credited due to returns, which payments shall begin two years after the closing date and continue until March 29, 2013.  The $72,000 in monthly advances shall be credited against the three percent (3%) of the net sales proceeds. In May 2011, this royalty obligation was assumed by Chromatic Industries in connection with their purchase of the Hemiwedge technology and related assets with consent provided by SRD. We have no further obligation to SRD since May 2011.

Plan of Operation

Below is a brief description of our planned activities over the next 12 months:

Months 1 through 3 (August 2011-October 2011)

Continue data gathering of current down hole tool projects known, summarizing our internal data and historical customer feedback and conclude discussions with oilfield inventors and patent attorneys about any inventions that need a commercialization partner.

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Months 4 through 6 (November 2011-January 2012)

Months 7 through 9 (February 2012-April 2012)

Manage the outside manufacturing of several prototypes for the purposes of validating design and concepts.

Months 10 through 12 (May 2012-July 2012)

Continue development of technology, refining items that didn’t perform, start search for bigger company partnering deals once proof of concept is finalized with prototype.

Trends, events and uncertainties

The primary driver for our current business as well as our prior contract mining and machining and engineered valve product business, is the demand for oil and gas The status of the global economy impacts oil and natural gas consumption.

During the latter portion of 2008 and throughout much of 2009, there was a substantial decline in oil and natural gas prices and demand for our services due to the worldwide recession.  Since then, oil prices have rebounded.  According to the International Energy Agency’s (IEA) January 2011 “Oil Market Report,” 2011 world petroleum demand is forecasted to increase 2% over 2010 levels.  Emerging economies continue to be a significant factor in the recovery, while mature economies play a lesser role.  The outlook thus faces uncertainties, as the global recovery continues to remain somewhat fragile.  However, we believe that, over the long term, any major macroeconomic disruptions may ultimately correct themselves as the underlying trends of smaller and more complex reservoirs, high depletion rates, and the need for continual reserve replacement should drive the long-term need for our products and services.

A decrease in oil and gas prices causing an industry wide slowdown may result in certain companies to bring in-house the manufacturing of certain component parts otherwise made at outside machining and manufacturing companies.  This practice directly impacted our prior contract mining and machining and engineered valve product business.   As we intend to sell fully assembled products (and not just components) to end-users, we believe this particular practice will not affect our business.

Results of Operations for the Three Months Ended September 30, 2011 and 2010.  

Revenues.  We had no revenues for the three months ended September 30, 2011 and 2010, as our industrial valve sales operations have been re-classified as discontinued operations for the periods mentioned above as a result of our sale of KMHVC, Inc.’s (f/k/a Hemiwedge Valve Corporation) assets in May 2011.

Selling, general, and administrative.  Selling, general and administrative expenses increased to $311,612, or approximately 143%, for the three months ended September 30, 2011, as compared to $128,354 for the comparable period in 2010. The increase is primarily attributable to an accrual for Texas Margin Tax associated with the sale of assets in May 2011 of $50,000, costs associated with exiting the remaining seven year lease in Conroe totaling approximately $115,000 and approximately $70,000 in professional fees and costs associated with the audit of our financial statements for the years ended December 31, 2010 and 2009 and filing of our Registration Statement on Form 10 in September 2011.

Gain on Sale/lease back.  We had a gain on our sale/lease back of $210,273 for the three months ended September 30, 2011, as compared to no gain or loss for the three months ended September 30, 2010.  The gain from Sale/lease back during the third quarter 2011 was attributable to the termination of our 7 remaining years under our prior 10 year Conroe, Texas facilities lease and the resulting gain from the amortized amounts realized during the quarter.

Gain (loss) on derivatives.  We had no gain or loss on derivatives in the three months ended September 30, 2011, as compared to a gain of $35,379 for the comparable period in 2010.  In March 2011, in connection with the settlement of the convertible notes, the exercise reset provision was cancelled and the warrants were no longer treated as derivative liabilities.   

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Gain (loss) on liability settlement.  We had a gain on liability settlement of $27,455 in the three months ended September 30, 2011 as compared to no gain or loss in the three months ended September 30, 2010.  The gain on settlement for 2011 was related to the settlement various outstanding liabilities at less than face value of the amount owed.

Interest expense.  We had no interest expense for the three months ended September 30, 2011 as compared to $219,154 for the three months ended September 30, 2010. The Company had no debt in the three months ended September 30, 2011 and therefore no interest expense, as compared to the same period in 2010 where there was more than $5 million in debt creating interest expense.  

Income (loss) from discontinued operations.  We had no gain or loss from discontinued operations for the three months ended September 30, 2011 as compared to a net loss from discontinued operations of $135,986 for the three months ended September 30, 2010.  There were no discontinued operations in the three months ended September 30, 2011, and the loss in the comparable quarter 2010 was primarily attributable to the operations of our valve division that was sold in May 2011.

Net income (loss).  We had a net loss of $73,884 for the three months ended September 30, 2011 as compared to a net loss of $448,115 for the three months ended September 30, 2010. The loss during the three month period ended September 30, 2011 was primarily attributable to the general and administrative expenses incurred in connection with the termination of our Conroe, Texas facilities lease and the professional fees associated with filing our Registration Statement on Form 10, which costs were  partially offset by the gain on the sale/lease back referred to above.   The net loss for the three month period ended September 30, 2010 was primarily attributed to general and administrative costs as well as interest expense partially offset by a gain on derivatives during the quarter.

Results of Operations for the Nine Months Ended September 30, 2011 and 2010.  

Revenues.  We had no revenues for the nine months ended September 30, 2011 and 2010, as our industrial valve sales operations have been re-classified as discontinued operations for the periods mentioned above as a result of our sale of KMHVC, Inc.’s (f/k/a Hemiwedge Valve Corporation) assets in May 2011.

Selling, general, and administrative.  Selling, general and administrative expenses increased to $479,650, or approximately 43%, for the nine months ended September 30, 2011, as compared to $335,587 for the comparable period in 2010. The increase was primarily attributable to an accrual of $50,000 for the Texas Margin Tax associated with the sale of assets in May 2011, costs associated with exiting the remaining seven year lease in Conroe which totaled approximately $115,000, and approximately $70,000 in professional fees and costs associated with the audit of our financial statements for the years ended December 31, 2010 and 2009 and in connection with the filing of our Registration Statement on Form 10 in September 2011.

Gain on Sale/lease back. We had a gain on our sale/lease back of $210,273 for the nine months ended September 30, 2011 as compared to no gain or loss for the nine months ended September 30, 2010.  The gain from sale/lease back during the nine months ended September 30, 2011 was attributable to the termination of our 7 remaining years under our prior 10 year Conroe, Texas facilities lease and the resulting gain from the amortized amounts realized during the quarter.

Gain (loss) on derivatives.  We had a gain of $225,836 on derivatives in the nine months ended September 30, 2011 as compared to a loss of $35,997 for the comparable period in 2010.  The gain or loss was based on the change in the derivative liability for the applicable period as a result in the change in the relative fair value of the instruments as calculated using the Black-Scholes model.

Gain (loss) on extinguishment of debt.  We had a gain on extinguishment of debt in the nine months ended September 30, 2011 of $3,838,682 as compared to a loss of $852,043 in the comparable period in 2010.  The loss on extinguishment of debt in the nine month period ended September 30, 2010 was related to termination of certain notes and the related reissuance of notes with longer maturities and the resulting accounting treatment as well as the accounting of the fair value of warrants issued with notes. The gain on extinguishment of debt in 2011 was primarily attributed from our settlement with the 2007 bridge loan noteholders during the period.

Gain (loss) on liability settlement.  We had a gain on liability settlement of $206,863 in the nine months ended September 30, 2011 as compared to no gain or loss in the nine months ended September 30, 2010.  The gain on settlement for 2011 was primarily related to settlement of the outstanding break-up fees incurred with a failed acquisition in late 2007.

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Interest expense.  Our interest expenses decreased to $456,056, or 20%, for the nine months ended September 30, 2011 as compared to $567,946 for the nine months ended September 30, 2010.

Income (loss) from discontinued operations.  Our net income from discontinued operations was $4,756,783 (which includes the gain on the sale of the assets of $5,308,531) for the nine months ended September 30, 2011 as compared to a net loss from discontinued operations of $571,269 for the nine months ended September 30, 2010.  The net income from discontinued operations in the nine months ended September 30, 2011 is primarily attributable to our sale of our valve division in May 2011.

Net income (loss).  We had net income of $8,302,731 for the nine months ended September 30, 2011 as compared to a net loss of $2,362,842 for the nine months ended September 30, 2010. The gain during the nine month period ended September 30, 2011 was attributable to the sale of substantially all the assets of our valve product line and associated intellectual property in May 2011.  The net loss for the nine month period ended September 30, 2010 was primarily attributable to a loss on an extinguishment of debt, general and administrative expenses and interest expense.

Liquidity and Capital Resources

We have financed our operations, acquisitions, debt service, and capital requirements through cash flows generated from operations, debt financing, loans from officers, and issuance of equity securities.  In addition, we sold substantially all of our assets in May 2011 which allowed us to retire all outstanding indebtedness. We had cash of $193,989 and working capital of $230,502 as of September 30, 2011 as compared to cash of $4,440 and a working capital deficit of $8,001,117 as of December 31, 2010.

Net cash used in operating activities for the nine months ended September 30, 2011 was $1,816,016 resulting mainly from the settlement of our liabilities as a result of the sale of the Hemiwedge valve product line and related assets. By comparison, net cash used in operating activities for the nine months ended September 30, 2010 was $251,781.

Our net cash provided by financing activities was $2,021,995 in the nine months ended September 30, 2011.  We received proceeds from the sale of HVC’s assets and proceeds of $670,000 from the issuance of promissory notes, which amount was offset by the repayment of $49,674 in notes payable.  Our net cash provided by financing activities for the nine months ended September 30, 2010 was $361,995 consisting of proceeds of $313,000 from the issuance of promissory notes and $175,000 from issuance of common stock which was offset by the repayment of $130,458 in notes payable.

The net increase in cash for the nine months ended September 30, 2011 was $189,549 as compared to a net increase in cash of $102,349 for the nine months ended September 30, 2010.

Sale of KMHVC, Inc.’s (f/k/a Hemiwedge Valve Corporation) Assets

On May 10, 2011, we, and our wholly owned subsidiary KMHVC, Inc. (f/k/a Hemiwedge Valve Corporation (“HVC”, collectively the “Sellers’) consummated the sale of substantially all of HVC’s assets to Chromatic Industries, Inc. (“Chromatic”). The sale was effected pursuant to an asset purchase agreement (the “HVC Purchase Agreement”) pursuant to which HVC transferred substantially all of its assets and certain enumerated liabilities to Chromatic in exchange for approximately $7,688,000 payable as follows: (a) Cash in a net amount (after reduction of repayment of the April 5, 2011 and April 29, 2011 promissory notes issued by, Asymmetric Investments, LLC) equal to $6.032 million, which cash would be paid directly to existing creditors of the Sellers to extinguish Sellers’ debt obligations, with any remainder being paid to the Sellers, and (b) assume scheduled trade account payables and foundry payables of the Sellers not exceeding $1.656 million.  In addition, at Closing, the 3,500,000 warrants to purchase our common stock issued to Asymmetric on April 5, 2011 were cancelled.  We retained approximately $300,000 in net cash at closing.

Promissory Notes

In March 2009, we issued $100,000 of 10.5% promissory notes and 5 year warrants to purchase 50,000 shares of our common stock at an exercise price of $0.25 per share to two individuals.  The proceeds were used for working capital and general corporate purposes.  The issuances were exempt under Section 4(2) of the Securities Act of 1933, as amended.

From July 2009 through March 2010, we issued $928,000 of 10% notes which, had maturity dates of less than one year and were secured by junior lien on our assets.  The proceeds were used for working capital and general

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corporate purposes.  The issuances were exempt under Rule 506 of the Securities Act of 1933, as amended.  We also issued 5 year warrants to purchase 2,452,500 shares of our common stock with an exercise price ranging from $0.05 to $0.10 in connection with these notes.

In January 2011, we issued a $100,000 10% secured convertible note and 75,000 shares of our common stock in connection with the note  to a single accredited investor.  The proceeds were used for working capital and general corporate purposes.

In February 2011, we issued a $62,000 10% secured convertible note to a related party.   The proceeds were used for working capital and general corporate purposes.

From April to May, 2011, we issued $900,000 of 10% secured promissory notes and a 15-month common stock warrant to purchase 3,500,000 shares of our common stock at an exercise price of $0.001 per share to a single accredited investor.  The proceeds were used to repay outstanding indebtedness and for working capital and general corporate purposes.

All of these promissory notes were repaid with the proceeds our May 2011 sale of substantially all of our assets related to our valve division.

June 2010 Amended and Restated Loan Documents

Pursuant to the provisions of an Assignment of Note, Loan Documents and Security Interests (“Assignment Agreement”) dated June 30, 2010 by and among Stillwater National Bank and Trust Company (the “Bank”), as assignor, and Eads Investments I, LLC and D. Bradley McWilliams (collectively, “New Lenders”), as assignees, the New Lenders purchased from the Bank all outstanding indebtedness and obligations (“Prior Indebtedness”) of Hemiwedge Industries, Inc. (the “Corporation”) and its subsidiary, Hemiwedge Valve Corporation (“Subsidiary”)  (collectively, “Borrowers”) under and pursuant to the Loan and Consolidation Agreement and certain other loan documents, each  dated September 30, 2008 among Borrowers, certain other parties and the Bank (collectively the “Prior Loan Documents”).

As a condition of the purchase of the Prior Indebtedness by the New Lenders from the Bank under the Assignment Agreement, the Bank agreed to release the Borrowers from all obligations and indebtedness to the Bank under the Original Loan Documents pursuant to the terms of a Consent and Release Agreement dated June 30, 2010.

As a condition of (a) the purchase by the New Lenders of the Prior Indebtedness and all obligations of Borrowers to the Bank under the Prior Loan Documents and (b) the agreement by the New Lenders to extend and renew the Prior Indebtedness and obligations of the Borrowers under the Prior Loan Documents and (c) the Lenders’ forbearance from accelerating the loans and Prior Indebtedness under the Prior Loan Documents, we entered into an Amended and Restated Loan Agreement and certain other loan documents and security agreements with the New Lenders (“New Loan Documents”) all dated June 30, 2010 evidencing our indebtedness and granting certain security interests to the New Lenders (“New Indebtedness”).

The New Loan Documents dated June 30, 2010 consisted of:  (i) an Amended and Restated Loan Agreement (the “Loan Agreement”) by and among us and the New Lenders; (ii) a 10% Amended and Restated Promissory Note in the aggregate principal amount of $706,125 issued by the Corporation and the Subsidiary in favor of the New Lenders (the “Note”); (iii) an Amended and Restated Security Agreement by and among the Corporation, the Subsidiary and the New Lenders (the “Security Agreement”); and (iv) a Stock Pledge and Security Agreement between the Corporation and the New Lenders (the “Pledge Agreement”).

In addition, we  issued New Lenders 5-year common stock purchase warrants (the “Warrants”) to purchase 2,875,000 shares of our common stock (“Warrant Shares”) at an exercise price of $0.10 per share”); provided that the amount of Warrant Shares shall be reduced to 575,000 shares of Common Stock at a purchase price of $0.10 per share if, on or before August 15, 2010 either (i) New Lenders sell all (but not less than all) of their interest in Note to a third party for the full outstanding balance thereunder, or (ii) the Note is paid in full plus all interest and costs (without duplication) owed thereon (including attorney fees of New Lenders) all in the form and substance satisfactory to the New Lenders.

The Note had a maturity date of June 30, 2011.  Interest accrues on the Note at a rate of 10% and is to be paid on September 30, 2010, December 31, 2010, March 31, 2011 and the balance due on the Maturity Date.  At the Corporation’s option, interest may be paid in Common Stock at a rate of 5,000 shares of Common Stock per day (the “Interest Common Stock”).

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The Note was secured by a pledge of all of our (and our subsidiary’s) assets under the terms of the Security Agreement.  In addition, we pledged its shares of subsidiary’s common stock as additional security for the Note.

These obligations were repaid with the proceeds our May 2011 sale of substantially all of our assets related to our valve division.

Capital Requirements

As of the date of this report, we do believe that we will be able to fund our operations for the next 12 months.    The closing of our sale of the Hemiwedge valve assets on May 10, 2011, allowed us to repay all outstanding indebtedness.  We currently only have one employee and sublease our office space 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.  We believe the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue Recognition

Product sales revenue is recognized when persuasive evidence of an arrangement exists, the sale is complete, the price is fixed or determinable, and collectability is reasonably assured.  This typically occurs when the order is shipped.  Shipping terms are FOB shipping and title passes to the customer at the time the product is shipped.  Customers have the right to inspection and acceptance for generally up to five days after taking delivery.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.  The allowance for doubtful accounts represents our estimate of the amount of possible credit losses existing in our accounts receivable.  We determine the allowance based on management’s estimate of likely losses based on a review of current open receivables and our historical write-off experience.  We review the adequacy of our allowance for doubtful accounts quarterly.  Significant individual accounts receivable balances and balances which have been outstanding greater than 90 days are reviewed individually for collectability.  Account balances, when determined to be uncollectible, are charged against the allowance.

Inventory

Inventory is stated at the lower of cost (average cost for raw materials, for work-in-process and finished goods) or market.  Slow-moving inventories are periodically reviewed for impairment in value.  Work-in-process and finished goods include labor, materials and production overhead.

Discontinued Operations

On May 10, 2011, we entered into an Asset Purchase Agreement with Chromatic Industries, Inc. pursuant to which we agreed to sell the assets of Hemiwedge Valve Corporation, subject to certain closing conditions.  This transaction closed on May 10, 2011.

The depreciable assets of Hemiwedge Valve Corporation were depreciated through the date of Board approval and then the cost and accumulated depreciation was moved to a long term asset account identified as "Assets held for sale."

Prior year financial statements have been restated to present the operations of Hemiwedge Valve Corporation as discontinued operations.

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The assets and liabilities of the discontinued operations are presented separately under the captions "Current assets from discontinued operations," “Assets held for sale,” "Current liabilities from discontinued operations," and “Long-term liabilities from discontinued operations” respectively, in the accompanying Balance Sheets at December 31, 2010 and 2009.  The results of operations are presented under the caption “Income (loss) from discontinued operations” in the accompanying Consolidated Statement of Operations for the years ended December 31, 2010 and 2009 and the nine months ended September 30, 2011 and 2010.

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

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’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 based on the definition of “disclosure controls and procedures” in Rule 13a-15(e).  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that all material information required to be disclosed in this Quarterly Report on Form 10-Q has been made known to them in a timely fashion.

 Our Chief Executive Officer and Chief Financial Officer has also evaluated whether any change in our internal controls occurred during the last fiscal quarter and have concluded that there were no material changes in our internal controls or in other factors that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, these controls.

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

In July 2011, we issued 15,000 shares of our common stock in consideration of services rendered.  The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3 – DEFAULT UPON SENIOR SECURITIES

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None.

ITEM 4 – (REMOVED AND RESERVED)

ITEM 5 – OTHER INFORMATION

We filed a Registration Statement on Form 10 on September 14, 2011.  This registration statement became effective on November 13, 2011.

ITEM 6 - EXHIBITS

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.

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