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 September 30, 2013

☐

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   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 November 14, 2013, 48,351,379 shares of our common stock were outstanding.

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HII TECHNOLOGIES, INC.

FORM 10-Q

September 30, 2013

TABLE OF CONTENTS

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ITEM 1 –FINANCIAL INFORMATION

See accompanying notes to unaudited consolidated financial statements

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See accompanying notes to unaudited financial statements.

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15

See accompanying notes to unaudited financial statements.

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APACHE ENERGY SERVICES, LLC

NOTES TO FINANCIAL STATEMENTS

(unaudited)

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 September 30, 2012 consists of the following:

A truck was purchased in February 2012, and was subsequently sold in September 2012 for $52,500 resulting in a net gain of $2,386.   The purchase of the truck was funded through standard commercial financing.  The financing was paid in full from the proceeds of the sale.  Depreciation expense for the period amounted to $19,652.

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 September, 2012, two customers accounted for 85% 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 September 26, 2012, the original members contributed $36,350.  During the same period, the original members received distributions totaling $70,000 from the net earnings of AES.

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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.

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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. (“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 14 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.

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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 September 30, 2013 and 2012

Revenues. HIIT revenues increased to $3,931,716 for the three months ended September 30, 2013, as compared to $104,579 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 (acquired in September 2012) along with the commercialization of AES Safety Services division (commencing January 2013) and STP’s mobile oilfield power and lighting business (beginning December 2012). All three divisions benefitted from the continued activity in horizontal drilling and it related hydraulic fracing.  AES revenues for the three months ended September 30, 2012 were $334,103.

Selling, general, and administrative. HIIT selling, general and administrative expenses increased to $1,129,584, or 29% of revenue, for the three months ended September 30, 2013, as compared to $56,847 for the comparable period in 2012. The increase was primarily attributable to increased wage expense of $338,285 for new employees related to the AES acquisition in September 2012, the launch of STP’s new business in mobile oilfield power in December 2012, the cost of public reporting and holding company expenses, and the testing and development costs related to water recycling technologies of $83,371. AES selling, general and administrative expenses for the three months ended September 30, 2012 were $3,817.

Bad debt expense.  We incurred $77,021 in bad debt expense in the three months ended September 30, 2013 with no such expense in the comparable 2012 period.  Our bad debt expense is attributable to the write-off of one customer’s receivable along with management’s estimate of potential future bad debt.

Acquisition expense. We had no acquisition expenses for the three months ended September 30, 2013, as compared to $146,302 for the comparable period in 2012.  These expenses in 2012 were related to the acquisition of AES.  AES had no acquisition expenses for the three months ended September 30, 2012.

Interest expense. We had interest expense of $97,327 in the three months ended September 30, 2013, as compared to $1,007 for the comparable period in 2012.  The increase 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 and the line of credit. AES had interest expense of $2,861 for the three months ended September 30, 2012.

Net loss. We had a net loss of $175,211 for the three months ended September 30, 2013 as compared to a net loss of $110,228 for the comparable period in 2012. AES had a net loss of $56,207 for the three months ended September 30, 2012.

Results of Operations for the Nine Months Ended September 30, 2013 and 2012

Revenues. HIIT revenues increased to $9,767,926 for the nine months ended September 30, 2013, as compared to $104,579 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 (acquired in September 2012) along with the commercialization of AES Safety Services (commencing January 2013) and the growth of STP’s business in mobile oilfield power (beginning December 2012). All three divisions benefitted from the continued activity in horizontal drilling and it related hydraulic fracing.  AES revenues for the period from January 4, 2012 (inception) to September 30, 2012 were $1,320,211.

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Selling, general, and administrative. HIIT selling, general and administrative expenses increased to $2,593,782, or 27% of revenue, for the nine months ended September 30, 2013, as compared to $249,479 for the comparable period in 2012. The increase was primarily attributable to increased wage expense of $849,364 for new employees related to the AES acquisition in September 2012, the growth of STP’s business in mobile oilfield power in December 2012, the cost of public reporting and holding company expenses, and the testing and development costs related to water recycling technologies of $235,364. AES selling, general and administrative expenses for the period from January 4, 2012 (inception) to September 30, 2012 were $27,156.

Bad debt expense.  We incurred $131,021 in bad debt expense in the nine months ended September 30, 2013 with no such expense in the comparable 2012 period.  Our bad debt expense is attributable to the write-off of one customer’s receivable along with management’s estimate of potential future bad debt.

Loss on extinguishment of liability. We had loss on extinguishment of liabilities of $96,297 in the nine months ended September 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.

Acquisition expense. We had no acquisition expenses for the nine months ended September 30, 2013, as compared to $146,302 for the comparable period in 2012.  These expenses in 2012 were related to the acquisition of AES.  AES had no acquisition expenses for the period from January 4, 2012 (inception) to September 30, 2012.

Interest expense. We had interest expense of $319,901 in the nine months ended September 30, 2013, as compared to $1,007 for the comparable period in 2012.  The increase 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. AES had interest expense of $2,861 for the period from January 4, 2012 (inception) to September 30, 2012.

Net loss. We had a net loss of $663,127 for the nine months ended September 30, 2013 as compared to a net loss of $265,400 for the comparable period in 2012. AES had net income of $464,018 for the period from January 4, 2012 (inception) to September 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 $132,021 and a working capital deficit of $1,272,902 at September 30, 2013 as compared to cash of $379,336 and a working capital deficit of $701,345 at December 31, 2012. AES had cash of $205,139 and working capital of $385,248 at September 30, 2012.

Net cash used in operating activities for the nine months ended September 30, 2013 was $516,927 resulting primarily from our net loss of $663,127 which was offset by an increase in accounts payable and accrued expenses of $865,028 and an increase in accounts receivable and prepaid expenses of $1,509,875. By comparison, net cash used in operating activities for the period from January 4, 2012 (inception) to September 30, 2012 was $64,682. AES had net cash provided by operating activities of $301,175 for the nine months ended September 30, 2012. This was the result of $464,018 in net income offset by an increase in accounts receivable and prepaid expenses of $280,264 and an increase in accounts payable and accrued liabilities of $100,155.

Our net cash used in investing activities was $304,138 in the nine months ended September 30, 2013 consisting of proceeds from the sale of property and equipment for $86,674 and payments received on notes receivable of $8,637 which was offset by $399,449 for the purchase of equipment. By comparison, net cash used in investing activities for the period from January 4, 2012 (inception) to September 30, 2012 was $63,028.  AES had net cash used in investing activities of $6,256 for the nine months ended September 30, 2012 due to the purchase of equipment for $58,756 offset by the proceeds from the sale of equipment of $52,500.

Our net cash provided by financing activities was $573,750 in the nine months ended September 30, 2013 consisting primarily of draws net of expenses on the line of credit of $874,473, $50,000 received upon the exercise of warrants, $87,375 received on the sale-leaseback transaction and advances from a related party of $63,000 offset by payments on notes payable for $462,400, payments for deferred financing costs of $18,698 and payments against related party advances of $20,000. By comparison, net cash provided by financing activities for the nine months ended September 30, 2012 was $300,000.  AES had net cash used in financing activities of $89,780 for the period

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from January 4, 2012 (inception) to September 30, 2012, due to members’ contributions of $36,350 offset by distributions of $70,000 and payments on loans of $56,130.

The net decrease in cash for the nine months ended September 30, 2013 was $247,315 as compared to a net increase in cash of $172,290 for the nine months ended September 30, 2012. AES had a net cash increase of $205,139 for the period from January 4, 2012 (inception) to September 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 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.  As of the Target Date the Market Price was greater than $0.20 and the Class B Warrants were cancelled.

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 but never initiated by HIIT. 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 14 employees and lease our executive office space and facility in South Texas on a month to month basis.

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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.

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 September 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

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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 September 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

1.

On August 12, 2013, we granted an option to purchase 36,000 shares of our common stock at an exercise price of $0.28 to an employee under an employment agreement. The issuance was exempt under Section 4(2) of the Securities Act, as amended.

2.

On September 30, 2013, we issued 1,200,000 shares of common stock upon exercise of previously issued warrants with an exercise price of $0.10 per shares.  In consideration of the exercise price, the warrant holder agreed to cancel and extinguish $120,000 of indebtedness under an outstanding promissory note.  The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

3.

On September 30, 2013, we issued 300,000 shares of common stock upon exercise of previously issued warrants with an exercise price of $0.10 per shares.  In consideration of the exercise price, the warrant holder agreed to cancel and extinguish $30,000 of indebtedness under an outstanding promissory note.  The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

4.

On September 30, 2013, we issued 220,000 shares of common stock upon exercise of previously issued warrants with an exercise price of $0.09 per shares.  In consideration of the exercise price, the warrant holder agreed to cancel and extinguish $19,800 of indebtedness under an outstanding promissory note.  The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

5.

On June 21, 2013, we issued a warrant to purchase 200,000 shares of our common stock at an exercise price of $0.28 per shares in consideration of a noteholder’s forbearance on an outstanding promissory note, including its rights to foreclose on certain of our collateral securing its interest under such note.  The issuance was exempt under Section 4(2) of the Securities Act of 1933, as amended.

6.       On October 31, 2013 we issued 10% convertible promissory notes in the aggregate principal amount of $750,000 to six accredited investors.   We received net proceeds of $600,000 from the issuance of these notes.  The notes have a two-year term from the issuance date.   The notes are convertible into our common stock at a fixed conversion price of $0.50 per share.  The proceeds will be used to fund the cash consideration for our acquisition of Aqua Handling of Texas, LLC and for working capital and general corporate purposes.  We 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 convertible notes.

7.       On November 12, 2013, we issued 1,443,696 shares of our common stock to the former members of Aqua Handling of Texas, LLC as partial consideration for our acquisition of Aqua.  We 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 these shares.

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