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EX-31 - 302 CERTIFICATION OF MATTHEW C. FLEMMING - HII Technologies, Inc.ex31.htm
EX-32 - 906 CERTIFICATION OF MATTHEW C. FLEMMING - HII Technologies, Inc.ex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


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


For the quarterly period ended March 31, 2012


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 ___ No ___


Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ] (Do not check if a smaller reporting company)

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes         No     X    


As of May 11, 2012, 33,820,183 shares of our common stock were outstanding.




1



HII TECHNOLOGIES, INC.

  

FORM 10-Q

  

March 31, 2012


TABLE OF CONTENTS

  

  

Page

  

PART I-- FINANCIAL INFORMATION

3

  

  

  

  

  

Item 1.

Financial Statements

3

 

Item 2.

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

10

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15

  

Item 4

Control and Procedures

15

  

  

  

 

  

PART II-- OTHER INFORMATION

16

  

  

  

 

  

Item 1

Legal Proceedings

16

  

Item 1A

Risk Factors

16

  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

  

Item 3.

Defaults Upon Senior Securities

16

  

Item 4.

Mine Safety Disclosures

16

  

Item 5.

Other Information

16

  

Item 6.

Exhibits

17

  

  

  

 

  

SIGNATURES

17

  




2



ITEM 1 –FINANCIAL INFORMATION


HII TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


 

 

 

March 31

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

ASSETS

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 $                        95,032

 

 $                   76,651

 

Prepaid expense and other current assets

                    25,979

 

              85,389

 

 

 

 

 

 

 

 

Total assets

 $                      121,011

 

 $                 162,040

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

Current liabilities:

 

 

 

 

Accounts payable

 $                        16,668

 

 $                     4,467

 

Accrued expenses

                    73,591

 

           56,608

 

 

 

 

 

 

 

 

Total liabilities

                    90,259

 

           61,075

 

 

 

 

 

 

Commitments and contingencies

 -

 

 -

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

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,

 

 

 

 

 

33,820,183 and 33,820,183 shares issued and outstanding

                    33,820

 

            33,820

 

Additional paid-in-capital

             26,099,695

 

     26,093,575

 

Accumulated deficit

      (26,102,763)

 

     (26,026,430)

 

 

 

 

 

 

 

 

Total stockholders' equity (deficit)

                    30,752

 

          100,965

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 $                      121,011

 

 $                 162,040

 

 

 

 

 

 

 

 

 

 

 

 


See accompanying notes to unaudited consolidated financial statements



















3



HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31, 2012

(unaudited)



 

 

 

2012

 

2011

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

Selling, general and administrative

 $                      76,333

 

 $                      76,499

 

 

 

 

 

 

 

Total operating expenses

                76,333

 

               76,499

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

              (76,333)

 

             (76,499)

 

 

 

 

 

 

OTHER EXPENSE

 

 

 

 

Interest expense

                       -

 

           (206,784)

 

 

 

 

 

 

LOSS BEFORE DISCONTINUED OPERATIONS

              (76,333)

 

           (283,283)

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

                       -

 

           (364,531)

 

 

 

 

 

 

NET LOSS

 $                    (76,333)

 

 $                  (647,814)

 

 

 

 

 

 

Basic and diluted net income (loss) per share from continuing operations

 $                             -   

 

 $                        (0.01)

Basic and diluted net income (loss) per share from discontinued operations

                       -   

 

                (0.01)

Basic and diluted net income (loss) per share

                   -   

 

               (0.02)

 

 

 

 

 

 

Weighted average shares outstanding-Basic and diluted

      33,820,183

 

        38,428,555


See accompanying notes to unaudited consolidated financial statements







4




HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'  EQUITY (DEFICIT)

For the three months ended March 31, 2012

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

 

 

Shares

Par

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

Balances at December 31, 2011

33,820,183

 $    33,820

 

 $   26,093,575

 

 $     (26,026,430)

 

 $   100,965

 

 

 

 

 

 

 

 

 

Stock options issued for services

             -

            -

 

           6,120

 

                  -

 

       6,120

Net loss

            -

         -

 

             -

 

     (76,333)

 

     (76,333)

 

 

 

 

 

 

 

 

 

Balances at March 31, 2012

33,820,183

 $    33,820

 

 $   26,099,695

 

 $     (26,102,763)

 

 $    30,752


See accompanying notes to unaudited consolidated financial statements








5



HII TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2012

(unaudited)



 

 

 

 

2012

 

2011

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

 $              (76,333)

 

 $             (283,283)

 

Adjustments to reconcile net loss to net

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

Amortization of note payable discount

                      -

 

           13,444

 

 

Stock issued for services

             6,120

 

                   -

 

 

Changes in:

 

 

 

 

 

 

Prepaid expense and other current assets

          59,410

 

        (36,675)

 

 

 

Accounts payable

          12,201

 

          54,092

 

 

 

Accrued expenses

          16,983

 

       169,122

 

 

Net cash provided by (used in) continuing operations

          18,381

 

       (83,300)

 

 

Net cash provided by (used in) discontinued operations

                  -   

 

     (189,802)

 

Net cash provided by (used in) operating activities

        18,381

 

      (273,102)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Cash used in discontinued operations

                  -   

 

            (837)

 

Cash used in investing activities

                 -   

 

             (837)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from notes payable - related party

               -   

 

        142,000

 

Proceeds from notes payable

               -   

 

      128,000

 

 

Net cash provided by continuing operations

                -   

 

        270,000

 

Net cash provided by financing activities

                  -   

 

          270,000

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH

 

 

 

 

EQUIVALENTS

            18,381

 

          (3,939)

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

         76,651

 

            4,440

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 $                95,032

 

 $                     501

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

Cash paid for income taxes

 $                         -

 

 $                         -

 

Cash paid for interest

                   -

 

                     -

 

 

 

 

 

 

 

Non-cash financing transactions:

 

 

 

 

Accrued interest and fees added to debt principal

                  -

 

         81,001

 

Debt discount due to shares and warrants issued with debt

                  -

 

           8,809



See accompanying notes to unaudited consolidated financial statements





6





HII TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


NOTE 1 - 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, 2011 and 2010 contained in HII Technologies’ Form 10-K originally filed with the Securities and Exchange Commission on March 27, 2012.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for years ended December 31, 2011 and 2010 as reported in the Company’s Form 10-K have been omitted.


NOTE 2 – DISCONTINUED OPERATIONS


On May 10, 2011, HII’s wholly owned subsidiary KMHVC, Inc. (“HVC”) consummated the sale of substantially all of HVC’s assets to Chromatic Industries, Inc. (“Purchaser”). The sale was affected pursuant to an asset purchase agreement (the “Purchase Agreement”) pursuant to which HVC transferred substantially all of its assets and certain enumerated liabilities to the Purchaser. The aggregate purchase price was $7,688,174 consisting of $6,032,151 in cash and assumption by Purchaser of $1,656,023 of accounts payable and certain liabilities of HVC.


Prior year financial statements have been restated to present the operations of HVC as discontinued operations.


The results of operations are presented under the caption “Income (loss) from discontinued operations” in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011.


NOTE 3 – SALE LEASEBACK


On May 15, 2008, HII’s wholly owned subsidiary, Shumate Machine Works entered into a series of simultaneous transactions pursuant to which it purchased the property underlying its lease (the “Original Lease”) with Brewer Family Charitable Remainder Annuity Trust #1 located at 1011 Beach Airport Road, Conroe, Texas 77301.  The operations of HVC were conducted at this location. The terms of the Original Lease included an option to purchase the underlying property.  Shumate Machine Works purchased the property for $1,726,949 pursuant to a warranty deed.


Concurrently with the purchase of the property, Shumate Machine Works entered into a sale and simultaneous lease transaction with Trader Properties LLC.  Shumate Machine Works sold the property to Trader Properties for an aggregate purchase price of $2,180,000 pursuant to a general warranty deed with vendor’s lien.  As such, Shumate Machine Works received net cash of $319,617.


Pursuant to the guidelines in ASC 840, the gain on the sale of $304,031 is accounted for as a deferred gain in the consolidated balance sheets and amortized on a straight-line basis over the life of the lease, at the rate of $2,533 per month as a reduction to rent expense.  The reduction in rent is included in the Loss from Discontinued Operations on the Statement of Operations for the period ended March 31, 2011.


On August 10, 2011, the lease for the Conroe facilities was fully assumed by another company and released HII of all obligations under the lease.  As a result, the remaining deferred gain of $207,739 was recognized in August 2011. In connection with a third party taking over the Conroe facilities lease, an independent real estate broker was paid $6,000 and was issued 15,000 shares of our common stock for services rendered in August 2011.  




7



NOTE 4 – STOCK OPTIONS AND WARRANTS


Stock options


HII currently has two stock option plans: (a) the 2001 Stock Option Plan reserved 285,714 common shares and 300,571 stock options have been granted through March 31, 2012 of which 300,571 options have expired unexercised, and (b) the 2005 Stock Incentive Plan reserved 10,000,000 shares, of which 8,615,140 shares have been issued through March 31, 2012, and 193,000 options are outstanding as of March 31, 2012.


During the three months ended March 31, 2012, 153,000 options were granted and no options were exercised or expired.


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


Expected term

   5 years

Expected volatility

407.11%

Risk free interest rate

    0.82%

Expected dividend yield

    0.00%


During the period ended March 31, 2012, stock compensation recognized under the plan was $6,120.


On April 9, 2012, our board of directors adopted the 2012 Stock Incentive Plan. See Note 8.


Warrants


During April 2011, HII issued 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 in conjunction with a $900,000 10% secured promissory note. These warrants were cancelled in May 2011 in connection with the Asset Sale.


HII entered into certain note agreements in 2007.  In conjunction with these notes 610,000 warrants were issued with an exercise price of $1.89 and an exercise price reset provision.  HII and the holders of these convertible notes executed a Settlement Agreement on March 8, 2011, whereby the notes were fully settled for a cash payment of $500,000, setting the exercise price on the warrants at a fixed rate of $0.055, removing the exercise reset provision, and resetting the life of the warrants to extend five years of the date of the Settlement Agreement.  The settlement resulted in $3,740,510 of gain on debt extinguishment, net of $35,335, relating to fair value of the reset warrants.


During the three months ended March 31, 2012, no warrants were granted or exercised and 536,300 expired unexercised.


 

 

 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, 2011

    40,000

 

        1.96

 

 $        0.25

 

 $           -   

 

4,875,611

 

          2.02

 

 $     0.27

 

 $             -   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 153,000

 

 

 

        0.10

 

 

 

            -  

 

 

 

            -

 

 

 

Exercised

         -   

 

 

 

               -   

 

 

 

            -  

 

 

 

        -

 

 

 

Forfeited

         -   

 

 

 

              -   

 

 

 

 (536,300)

 

 

 

     (0.50)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2012

 193,000

 

          4.16

 

 $        0.13

 

 $           -   

 

4,339,311

 

          1.99

 

 $     0.24

 

 $             -   







8



NOTE 5 – 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 these lawsuits and investigations.


NOTE 6 – SUBSEQUENT EVENTS


2012 Stock Incentive Plan


On April 9, 2012, our board of directors adopted the 2012 Stock Incentive Plan. The purpose of our 2012 Stock Incentive Plan is to advance the best interests of the Company by providing those persons who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 10,000,000 shares, subject to adjustment. No shares have been issued under this Plan.


The Company evaluated all events or transactions that occurred after March 31, 2012 up through the date the Company issued these financial statements and did not identify any recognizable or nonrecognizable subsequent events.

 



9



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


We are a Houston, Texas based energy field services company which is focused in pursuing technologies used in drilling and production of hydrocarbons via licensing, acquiring and/or developing products and services including down hole tools. We entered this 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. HII Technologies changed its name August 2011 in connection with selling the name and assets of the Hemiwedge technology it had previously licensed and developed. We retained approximately $300,000 in net cash from our May 2011 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. 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 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 $6,032,000, 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 $1,656,000. 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.




10



Accordingly, our financial results for the three months ended March 31, 2012 and 2011 present the operation of HVC as discontinued operations.


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 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.


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.


Activities to Date


Since May 2011, we procured a new trading symbol for our common stock, which commenced trading on February 29, 2012 and all activities required in connection with the same including completion of independent audits for our 2009, 2010 and 2011 financial statements. Operationally, since May 2011, we have reviewed several business strategies and ideas including down hole tool technologies used in the drilling and production of oil and natural gas and services businesses benefiting from the increased activity levels in resource exploration plays such as oilfield shale areas.


Plan of Operation


While there can be no assurances of any milestones being met by us, below is a brief description of our planned activities over the next 12 months:


We will continue reviewing drilling and production products and services technologies developed by inventors, design and operating companies. Our plan is to in-license, acquire or develop internally products or services that can be used in the energy services market particularly focusing on oilfield resource areas such as ‘shale plays’. Currently we anticipate finalizing due diligence and discussions surrounding a potential opportunity in down hole MWD tools during 2012. We intend to utilize our relationships with larger energy services companies, end user customers and our supply chain experience to establish a product line or services company that generates operational revenues and cash flow. At this time, we have not determined when these product or services opportunities would be obtained by us and when any of these technologies would be commercialized in the marketplace.



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Trends, events and uncertainties


The primary driver for our current business as well as our prior contract 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 future 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 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 March 31, 2012


Revenues. We had no revenues for the three months ended March 31, 2012 and 2011, 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 decreased slightly to $76,333 for the three months ended March 31, 2012, as compared to $76,499 for the comparable period in 2011. These expenses during the first three months ended March 31, 2012 were primarily the result of accrued payroll for our principal for approximately $18,000 and professional fees associated with the ongoing expenses of being a public reporting company of $39,000.


Interest expense. We did not incur any interest expense for the three months ended March 31, 2012 as compared to $206,784 for the comparable period in 2011. The decrease is due to all outstanding debt being paid in full in May 2011.


Loss from discontinued operations. We did not incur any loss from discontinued operations for the three months ended March 31, 2012 as compared to a net loss from discontinued operations of $364,531 for the comparable period in 2011. The difference period over period is primarily attributable to our sale of our valve division in May 2011.


Net loss. We had net loss of $76,333 for the three months ended March 31, 2012  as compared to a net loss of $647,814 for the comparable period in 2011.  The Net Loss was primarily attributed to selling, general and administrative expenses as discussed above.


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 and used the proceeds to retire all outstanding indebtedness and retain net cash of approximately $300,000. We had cash of approximately $95,032 and working capital of $30,752 as of March 31, 2012 as compared to cash of $76,651 and working capital of $100,965 as of March 31, 2011.


Net cash provided by operating activities for the three months ended March 31, 2012 was $18,381 resulting primarily from our decrease in prepaid expenses and increase in liabilities which was offset by our net loss of $76,333. By comparison, net cash used in operating activities for the three months ended March 31, 2011 was $273,102.




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We did not have any financing activities in the three months ended March 31, 2012. Our net cash provided by financing activities for the three months ended March 31, 2011 was $270,000 consisting of proceeds of notes payable.


The net increase in cash three months ended March 31, 2012 was approximately $18,381 as compared to a net decrease in cash of $3,939 for the three months ended March 31, 2011.


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 $6,032,000, 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 $1,656,000. 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


From January 2010 through March 2010, we issued $88,000 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 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 296,250 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 a $900,000 10% secured promissory note 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



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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 accrued on the Note at a rate of 10% and was 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”).


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.


Liquidity and Capital Requirements


As of the date of this report, we 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.


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."


The results of operations are presented under the caption “Income (loss) from discontinued operations” in the accompanying Consolidated Statement of Operations for the three month period ended March 31, 2011.




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Off-Balance Sheet Arrangements


None.


ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.


ITEM 4 – CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.


Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2012, 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 March 31, 2012 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


Material developments in legal proceedings affecting us are described in Part I, Item 3 – Legal Proceedings, of our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no developments in these matters since the filing of such Annual Report with the Securities and Exchange Commission on March 27, 2012.


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 January 18, 2012, we issued a 5-year non-qualified stock option to purchase 153,000 shares of our common stock at an exercise price of $0.10 per share to a consultant in consideration of financial reporting and accounting services provided.  We relied on the exemption provided under Section 4(2) of the Securities Act of 1933, as amended..


ITEM 3 – DEFAULT UPON SENIOR SECURITIES


None.


ITEM 4 – MINE SAFETY DISCLOSURES


Not applicable.


ITEM 5 – OTHER INFORMATION

None.



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ITEM 6 – EXHIBITS



Item No.


Description


Method of Filing

31.1

Certification of Matthew C. Flemming pursuant to Rule 13a-14(a)

Filed herewith.

32.1

Chief Executive Officer and Chief Financial Officer Certification pursuant o 18 U.S.C. § 1350 adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

Filed herewith.


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



 

HII TECHNOLOGIES, INC.

 

 

 

 

May 11, 2012

 /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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