UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2011
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File No.: 000-28865
AMINCOR, INC.
(Exact name of registrant as specific in its charter)
Nevada 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor
New York, NY 10019
(Address of Principal Executive Offices)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has 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 (ss.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, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
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 15, 2011, there were 7,478,409 shares of Registrant's Class A Common
Stock and 21,176,262 shares of Registrant's Class B Common Stock outstanding.
AMINCOR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
Contents
PART I - FINANCIAL INFORMATION............................................... 4
Item 1. Financial Statements.............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................24
Item 3. Quantitative and Qualitative Disclosures About Market Risk........34
Item 4. Controls and Procedures...........................................34
PART II - OTHER INFORMATION..................................................36
Item 1. Legal Proceedings..................................................36
Item 1A. Risk Factors......................................................37
Item 6. Exhibits...........................................................40
SIGNATURES....................................................................41
2
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q, unless the context indicates otherwise,
the terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to
Amincor, Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates and projections about us, our industry, our beliefs, and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "would," "should," "scheduled," "projects,"
and variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties, and other factors, some of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q speak only
as of the date hereof and caution should be taken not to place undue reliance on
any such forward-looking statements. Forward-looking statements are subject to
certain events, risks and uncertainties many of which are outside of our
control. When considering forward-looking statements, you should carefully
review the risks, uncertainties and other cautionary statements in this
Quarterly Report on Form 10-Q as they identify certain important factors that
could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements. These factors include, among others,
the risks described below under Item 1A Risk Factors and elsewhere in this
Quarterly Report on Form 10-Q. We do not undertake any obligation to update any
forward looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission, ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our website is located at http://www.amincorinc.com. The website contains a link
to the SEC's Web site, where electronic copies of the materials we file with the
SEC are available for viewing (including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and other required filings).
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 31, December 31,
2011 2010
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,372,282 $ 2,643,069
Accounts receivable, net of allowance of $662,543
and $608,325, respectively 9,497,091 8,878,357
Note receivable -- 522,501
Due from related party 1,781,396 1,717,233
Inventories, net 5,182,337 4,468,578
Costs and estimated earnings in excess of billings
on uncompleted contracts 774,666 279,152
Prepaid expenses and other current assets 881,137 899,693
------------ ------------
TOTAL CURRENT ASSETS 19,488,909 19,408,583
------------ ------------
PROPERTY AND EQUIPMENT, NET 17,343,376 17,469,999
------------ ------------
OTHER ASSETS:
Mortgages receivable 6,180,000 6,180,000
Goodwill 15,777,898 15,569,400
Other intangible assets, net 14,221,314 14,446,590
Deferred financing costs, net 280,342 319,465
Other assets 437,081 449,239
Assets held for sale 2,930,000 6,575,000
------------ ------------
TOTAL OTHER ASSETS 39,826,635 43,539,694
------------ ------------
TOTAL ASSETS $ 76,658,920 $ 80,418,276
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 31, December 31,
2011 2010
------------ ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,927,702 $ 12,213,624
Assumed liabilities - current portion 2,567,371 2,480,921
Accrued expenses and other current liabilities 3,419,451 4,306,900
Due to related party 276,407 --
Loans payable to related party 439,783 713,930
Notes payable - current portion 350,810 418,181
Capital lease obligations - current portion 224,566 254,220
Billings in excess of costs and estimated earnings on
uncompleted contracts 962,292 536,825
Due to officer 210,228 206,860
------------ ------------
TOTAL CURRENT LIABILITIES 20,378,610 21,131,461
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 28,375 28,375
Capital lease obligations - net of current portion 603,570 637,901
Notes payable - net of current portion 1,628,444 1,643,483
Other long-term liabilities 39,022 33,382
------------ ------------
TOTAL LONG-TERM LIABILITIES 2,299,411 2,343,141
------------ ------------
TOTAL LIABILITIES 22,678,021 23,474,602
------------ ------------
CONTINGENCIES
SHAREHOLDERS' EQUITY:
AMINCOR SHAREHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value per share;
3,000,000 authorized, 1,752,823 issued and outstanding 1,753 1,753
Common stock - class A; $0.001 par value;
22,000,000 authorized, 7,478,409 issued and oustanding 7,478 7,478
Common stock - class B; $0.001 par value;
40,000,000 authorized, 21,176,262 issued and oustanding 21,177 21,177
Additional paid-in capital 88,251,513 88,250,202
Accumulated deficit (32,647,673) (29,858,319)
------------ ------------
TOTAL AMINCOR SHAREHOLDERS' EQUITY 55,634,248 58,422,291
------------ ------------
NONCONTROLLING INTEREST EQUITY (1,653,349) (1,478,617)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 53,980,899 56,943,674
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 76,658,920 $ 80,418,276
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
Three Months Ended March 31,
2011 2010
------------ ------------
(unaudited) (unaudited)
NET REVENUES $ 16,111,281 $ 22,445,230
COST OF REVENUES 12,297,395 16,730,538
------------ ------------
Gross profit 3,813,886 5,714,692
SELLING, GENERAL AND ADMINISTRATIVE 6,687,857 5,935,470
------------ ------------
Loss from operations (2,873,971) (220,778)
------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 118,866 648,831
Other income (28,751) (21,077)
------------ ------------
Total Other Expenses (Income) 90,115 627,754
------------ ------------
Loss before provision for income taxes (2,964,086) (848,532)
------------ ------------
Provision for income taxes -- --
------------ ------------
Net loss (2,964,086) (848,532)
------------ ------------
Net (loss) income attributable to non-controlling interests (174,732) 34,541
------------ ------------
Net loss attributable to Amincor shareholders $ (2,789,354) $ (883,073)
============ ============
LOSS PER SHARE - BASIC AND DILUTED
Net loss attributable to Amincor shareholders $ (0.10) $ (0.06)
============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 14,126,820
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
6
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 2011 and 2010
Amincor, Inc. and Subsidiaries
-----------------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------ --------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at December 31, 2009 -- -- 14,126,820 $14,127 -- --
Prior period adjustment -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2009,
as restated -- -- 14,126,820 14,127 -- --
---------- ------ ---------- ------- ---------- -------
Issuance of preferred and
common stock to investors
in the limited partnerships
that were lenders to the
predecessor business of the
Company's subsidiaries 1,752,823 1,753 -- -- 21,176,262 21,177
Net loss -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at March 31, 2010
(unaudited) 1,752,823 1,753 14,126,820 14,127 21,176,262 21,177
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2010 1,752,823 1,753 7,478,409 7,478 21,176,262 21,177
---------- ------ ---------- ------- ---------- -------
Stock based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at March 31, 2011
(unaudited) 1,752,823 $1,753 7,478,409 $ 7,478 21,176,262 $21,177
========== ====== ========== ======= ========== =======
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at December 31, 2009 $48,957,087 $(23,129,690) $(1,295,085) $ 24,546,439
Prior period adjustment -- 728,066 87,238 815,304
----------- ------------ ----------- ------------
Balance at December 31, 2009,
as restated 48,957,087 (22,401,624) (1,207,847) 25,361,743
----------- ------------ ----------- ------------
Issuance of preferred and
common stock to investors
in the limited partnerships
that were lenders to the
predecessor business of the
Company's subsidiaries (22,930) -- -- --
Net loss -- (883,073) 34,541 (848,532)
----------- ------------ ----------- ------------
Balance at March 31, 2010
(unaudited) 48,934,157 (23,284,697) (1,173,306) 24,513,211
----------- ------------ ----------- ------------
Balance at December 31, 2010 88,250,202 (29,858,319) (1,478,617) 56,943,674
----------- ------------ ----------- ------------
Stock based compensation 1,311 -- -- 1,311
Net loss -- (2,789,354) (174,732) (2,964,086)
----------- ------------ ----------- ------------
Balance at March 31, 2011
(unaudited) $88,251,513 $(32,647,673) $(1,653,349) $ 53,980,899
=========== ============ =========== ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
7
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
2011 2010
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,964,086) $ (848,532)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 614,047 314,428
Amortization of intangible assets 522,276 514,175
Amortization of deferred financing cost 39,123 39,117
Stock based compensation 1,311 --
Gain on sale of equipment (39,010) --
Provision for doubtful accounts 54,218 150,954
Changes in assets and liabilities:
Accounts receivable (672,952) (3,537,187)
Due from factor - related party -- 66,106
Inventory (713,759) (308,998)
Costs and estimated earnings in excess of billings
on uncompleted contracts (495,514) (611,459)
Construction in process -- 113,336
Prepaid expenses and other current assets 18,556 330,890
Other assets 12,157 35,048
Accounts payable (322,766) 670,810
Accrued expenses and other current liabilities (887,443) 3,329,422
Billings in excess of costs and estimated earnings
on uncompleted contracts 425,467 2,212,732
Billings on construction -- (1,357,778)
Other long-term liabilities 5,640 96,179
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATIONS (4,402,735) 1,209,243
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (82,889) (40,393)
Proceeds from sales of assets held for sale 3,645,000 --
Proceeds from sales of equipment 50,515 --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,612,626 (40,393)
------------ ------------
The accompanying notes are an integral part of these consolidated
condensed financial statements.
8
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
2011 2010
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds/repayments from/to related parties 212,244 (524,308)
Net payments of loans with related party (274,147) (775,259)
Principal payments of capital lease obligations (63,985) (59,075)
Net (payments) proceeds from notes payable (82,410) 1,201,248
Due to officer / shareholder 3,368 (17,489)
Payments of assumed liabilities (275,748) (892,887)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (480,678) (1,067,770)
------------ ------------
(Decrease) increase in cash (1,270,787) 101,080
Cash, beginning of period 2,643,069 390,310
------------ ------------
Cash, end of period $ 1,372,282 $ 491,390
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest $ 42,960 $ 405,621
============ ============
Income taxes $ -- $ --
============ ============
Non-cash investing activities:
Acquisition of net assets of Environmental Quality Systems, Inc. $ -- $ --
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
9
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor" or the "Company") was incorporated under the laws of
the state of Nevada on October 8, 1997 under the name GSE Group, Inc. GSE Group,
Inc. was originally formed to provide consulting services for reverse mergers to
public shell corporations and private companies seeking to gain access to the
public markets. On October 20, 1997, GSE Group, Inc. changed its name to Global
Stock Exchange Corp. and on April 28, 2000, Global Stock Exchange Corp. changed
its name to Joning Corp ("Joning"). In July 2000, Joning ceased its business
activities. On March 8, 2002, Joning filed a Registration Statement on Form10-SB
under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell
company with the purpose of finding a suitable company for a reverse merger
transaction. Joning ceased filing periodic reports subsequent to its filing of
its Form 10-QSB on October 24, 2004 as it did not have the personnel or
resources to continue the filings and there was no operating business or pending
business transactions. On June 2, 2008, Joning filed a Form 15-12G to terminate
its registration. On February 2, 2010 Joning changed its name to Amincor, Inc.
Amincor remained dormant until January 2010 at which time it was used by two
limited partnerships which are related to each other by a common general
partner. The general partner, Capstone Capital Management, Inc. ("CCM") entered
into financing agreements on behalf of Capstone Cayman Special Purpose Fund,
L.P. ("CCSPF") and Capstone Special Purpose Fund, L.P. ("CSPF"), and together
with CCM, CCSPF, collectively, the "Capstone Funds") transferred the Company to
the limited partners and creditors of the Capstone Funds. In connection with
such transfers, the Company was assigned all of the right, title and interest of
the debt owed to the Capstone Funds by Capstone Business Credit, LLC ("CBC") and
Capstone Capital Group I, LLC ("CCGI"), which were asset based lenders
(collectively, the "Lenders"). Subsequently, the Lenders assigned to the Company
their security interests in substantially all of their assets.
As of March 31, 2011, Amincor operates the following entities as a result of the
assignment of all the right, title and interest of the debt owed to the Lenders:
Baker's Pride, Inc. ("BPI")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare")
Tyree Holdings Corp. ("Tyree")
Environmental Quality Services, Inc. ("EQS")
10
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread.
ESI
ESI is the worldwide licensee for the Volkl and Boris Becker Tennis brands and,
in November 2010, became the exclusive sales representative for Samsung C&T
America, Inc.'s ("Samsung") purchases of Volkl and Boris Becker & Co. tennis
products. Under the agreement with Samsung C&T America, Inc. (the "Samsung
Agreement"), ESI's primary focus has become designing and marketing these tennis
branded products.
Through October 2010, ESI was an importer, wholesale distributor, and brand
manager of high-end performance and lifestyle apparel, tennis racquets, tennis
bags, and sporting goods accessories.
MASONRY
Masonry manufactures concrete, lightweight, and split face manufacturing block
for the construction industry, supplies a wide array of other masonry and
building products, and operates a retail home center, which sells hardware,
masonry materials and other building supplies to contractors and retail
customers.
TULARE HOLDINGS
Tulare prepares frozen vegetables (primarily spinach) from produce purchased
from growers which are sold to the food service industry under a private label
and to food brokers and retail food stores under the Tulare Frozen Food label.
TYREE
Tyree performs maintenance, repair and construction services to customers with
underground petroleum storage tanks and petroleum product dispensing equipment.
Complimenting these services, Tyree is engaged in environmental consulting, site
assessment, analysis and management of site remediation for owners and operators
of property with petroleum storage facilities.
EQS
Environmental Quality Services, Inc. ("EQS") provides environmental and
hazardous waste testing in the Northeast United States.
11
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") have been condensed or omitted
pursuant to those rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading. In the opinion
of management, all adjustments necessary for a fair statement of the results of
operations and financial position for the periods presented have been reflected
as required by Regulation S-X. The results of operations for the interim period
presented is not necessarily indicative of the results of operations to be
expected for the year. These consolidated condensed financial statements should
be read in conjunction with the Form 10-K dated April 15, 2011 which includes
the audited consolidated financial statements for the three years ended December
31, 2010.
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of Amincor,
Inc. and all of its consolidated subsidiaries (collectively the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and 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 periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization, allowances for doubtful
accounts and inventory obsolescence, estimates related to completion of
contracts and loss contingencies on particular uncompleted contracts, and the
valuation allowance on deferred tax assets. Actual results could differ from
those estimates.
REVENUE RECOGNITION
BPI
Revenue is recognized from product sales when goods are delivered to the
Company's shipping dock, and are made available for pick-up by the customer, at
which point title and risk of loss pass to the customer. Customer sales
discounts are accounted for as reductions in revenues in the same period the
related sales are recorded.
12
ESI
Licensee revenue has been recognized upon the shipment of products with
allowances, credits and other adjustments recorded in the period the related to
the associated sales. Commission revenue earned under the Samsung Agreement is
recognized when Samsung invoices and ships the product based on approved ESI
sales orders.
TULARE AND IMSC
Revenue is recognized upon the shipment of products. Allowances, credits and
other adjustments are recorded in the period the related sales occur.
TYREE
Maintenance and repair services for several retail petroleum customers are
performed under multi-year, unit price contracts. Under these agreements, the
customer pays a set price per contracted retail location per month and Tyree
provides a defined scope of maintenance and repair services at these locations
on an on-call or as scheduled basis. Revenue earned under these contracts is
recognized each month at the prevailing per location unit price. Revenue from
other maintenance and repair services is recognized as these services are
rendered.
Effective January 1, 2010, Tyree began using the percentage-of-completion
method, which recognizes income as work on a contract progresses. This change of
method from the completed contract method required an adjustment to the
Company's accumulated deficit of approximately $815,000 representing income on
uncompleted contracts in prior years that would have been recognized in prior
years had the percentage of completed method been in effect.
Under the percentage-of-completion method of accounting, the consolidated
balance sheets reflect an asset account "Costs and estimated earnings in excess
of billings on uncompleted contracts," which represents revenues recognized in
excess of amounts billed. The consolidated balance sheets reflect a liability
account, "Billing in excess of cost and estimated earnings on uncompleted
contracts," which represents billings in excess of revenues recognized.
EQS
EQS provides environmental testing for its clients that range from smaller
engineering and contractors to well known petroleum companies. Revenue is
recognized at the time services are rendered.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers is analyzed based on historical experience, as
13
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Market is determined based on the net realizable value with
appropriate consideration given to obsolescence, excessive levels and other
market factors. An inventory reserve is recorded if the carrying amount of the
inventory exceeds its estimated market value.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
Construction in progress is not depreciated. Depreciation of the property begins
when it is placed in service.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived intangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
14
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value. No impairment
losses have been recognized.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share considers the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or could otherwise cause the issuance of common
stock, such as options, convertible notes and convertible preferred stock, were
exercised or converted into common stock or could otherwise cause the issuance
of common stock that then shared in earnings (loss). Such potential additional
common shares are included in the computation of diluted earnings per share.
Diluted loss per share is not computed because any potential additional common
shares would reduce the reported loss per share and therefore have an
anti-dilutive effect.
3. INVENTORIES
Inventories consist of:
* baking ingredients,
* masonry supplies, masonry and building materials,
* frozen produce and related packaging materials, and
* construction and service maintenance parts.
A summary of inventory as of March 31, 2011 and December 31, 2010 is below.
March 31, December 31,
2011 2010
---------- ----------
Finished Goods $ 763,662 $ 442,586
Raw materials 3,804,211 3,350,102
Packaging supplies 337,030 389,468
Ingredients 277,434 286,422
---------- ----------
Net inventory $5,182,337 $4,468,578
========== ==========
15
4. PROPERTY, PLANT, AND EQUIPMENT
At March 31, 2011 and December 31, 2010 property, plant, and equipment consisted
of the following:
Range of Estimated March 31, December 31,
Useful Lives 2011 2010
------------ ------------ ------------
Land n/a $ 917,054 $ 917,054
Machinery and equipment 2 - 10 years 10,113,865 10,045,112
Furniture and fixtures 5 - 10 years 160,872 160,871
Building and leasehold improvements 10 years 5,175,370 4,725,652
Computer equipment and software 5 - 7 years 758,307 730,511
Construction in progress n/a 14,801 56,801
Vehicles 3 - 10 years 3,655,758 3,713,573
------------ ------------
20,796,027 20,349,574
Less accumulated depreciation 3,452,651 2,879,575
------------ ------------
$ 17,343,376 $ 17,469,999
============ ============
Property, plant, and equipment includes items under capital leases of $1,241,547
as of March 31, 2011 and December 31, 2010, respectively. Accumulated
depreciation includes $215,987 and $163,351 related to those items as of March
31, 2011 and December 31, 2010 respectively.
Total depreciation expense for the three months ended March 31, 2011 and 2010,
was $614,047 and $314,428, respectively.
5. INTANGIBLE ASSETS
Intangible assets with finite useful lives are amortized on a straight-line
basis over the useful lives of the assets and consist of the following at March
31, 2011 and December 31, 2010:
Range of Estimated March 31, December 31,
Useful Lives 2011 2010
------------ ------------ ------------
Customer Relationships 5 - 10 years $ 9,130,600 $ 8,976,700
Non-Competition Agreements 7 years 5,886,300 5,886,300
Licenses and Permits 10.3 years 3,607,500 3,472,500
Service Contracts 5.3 years 354,400 354,400
Brand Names 10 years 1,013,000 1,013,000
------------ ------------
19,991,800 19,702,900
Less Accumulated Amortization 5,770,486 5,256,310
------------ ------------
$ 14,221,314 $ 14,446,590
============ ============
The above licenses and permits have renewal provisions which are generally one
to four years. At March 31, 2011, the weighted-average period to the next
renewal was thirteen months. The costs of renewal are nominal and are expensed
when incurred. The Company intends to renew all licenses and permits currently
held.
16
Amortization expense for the three months ended March 31, 2011 and 2010 was
$522,276 and $514,175, respectively.
Goodwill and licenses and permits of $3,430,400 and $3,295,400 at March 31, 2011
and December 31, 2010, respectively have indefinite useful lives and are not
amortized but tested for impairment annually.
LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2011 and December 31,
2010:
March 31, December 31,
2011 2010
---------- ----------
Equipment loans payable, collateralized by the assets
purchased, and bearing interest at annual fixed rates
ranging from 8.0% to 15.0% with principal and interest
payable in installments through July 2014 $ 899,005 $ 967,480
Promissory notes payable, with accrued interest, to
three former stockholders of a predecessor company.
These notes are unsecured and are subordinate to the
Company's senior debt. The notes mature on
December 31, 2012 and bear interest at an annual rate of 6.0% 500,000 500,000
Note payable to a commercial bank. Payable in monthly
installments of principal and interest of $6,198 through
March 2015. The annual interest rate is 7.25% 443,284 454,221
Bank loan payable, with an interest rate of 5.25% per annum
and maturing in March 2014 73,940 75,885
Bank line of credit allowing for borrowings of up to $90,000.
Interest at prime plus 4.25% per annum 63,025 64,078
---------- ----------
Total 1,979,254 2,061,664
Less current portion 350,810 418,181
---------- ----------
Long-term portion $1,628,444 $1,643,483
========== ==========
17
LOANS FROM RELATED PARTIES
Loans from related parties consists of the following at March, 31, 2011 and
December 31, 2010:
March 31, December 31,
2011 2010
---------- ----------
Loan and security agreement with Capstone Capital
Group, LLC which expires on November 1, 2013 bearing
interest at 18% per annum. Maximum borrowing of $800,000 $ 439,783 $ 713,930
---------- ----------
Total loans and amounts payable to related parties $ 439,783 $ 713,930
========== ==========
Interest expense for these loans amounted to $40,714 and $0 for the three months
ended March 31, 2011 and 2010, respectively
6. EQUITY
EQUITY INCENTIVE PLAN
Effective April 1, 2011, the Company established the Amincor, Inc. 2011 Equity
Incentive Plan (the "Plan") to motivate employees (the "Participants") to
achieve the long-term goals of the Company. Under the terms of the Plan, the
Company has authorized 1,000,000 shares of its common stock to be available for
the exercise of stock options granted. Options granted may be either incentive
stock options or non-qualified stock options under purposes of determining their
income tax treatment. A maximum of 100,000 shares of common stock may be granted
to any one participant during a calendar year. Participants of the Plan include
employees, employee directors and non-employee directors. Stock options may be
granted within ten years of the effective date (five years for a ten percent
stockholder of the Company), have a exercise price per share based on the fair
market value of the stock at the grant date and the Participants have a four
year vesting period from the anniversary date of the grant vesting 25% each
year, provided that the Participant is employed by the Company on the
anniversary date. Under the Plan, the Company may grant Stock Appreciation
Rights and Stock Awards to the Participants of the Plan. The Plan is subject to
the approval of the Company's shareholders.
7. OPERATING SEGMENTS
Operating subsidiaries are organized primarily by Amincor and its operating
subsidiaries into eight operating segments: (1) Amincor, (2) Other Assets, , (3)
BPI, (4) EQS, (5) ESI, (6) IMSC, (7) Tulare, and (8) Tyree. Segment information
is as follows:
18
March 31, December 31,
2011 2010
------------ ------------
TOTAL ASSETS:
Amincor $ 2,871,144 $ 2,454,319
Other Assets 20,975,802 25,393,324
BPI 15,862,952 16,215,222
EQS 1,134,541 --
ESI 703,910 605,874
IMSC 3,683,701 3,682,765
Tulare 2,031,179 3,064,878
Tyree 29,395,691 29,001,894
------------ ------------
TOTAL ASSETS $ 76,658,920 $ 80,418,276
============ ============
Three Months Ended March 31,
2011 2010
------------ ------------
TOTAL CAPITAL EXPENDITURES:
Amincor $ -- $ --
Other Assets -- --
BPI 69,111 --
EQS -- --
ESI -- --
IMSC -- 37,358
Tulare 6,120 --
Tyree 7,658 3,035
------------ ------------
TOTAL CAPITAL EXPENDITURES $ 82,889 $ 40,393
============ ============
March 31, December 31,
2011 2010
------------ ------------
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
BPI 7,770,900 7,770,900
EQS 208,498 --
ESI 192,000 192,000
IMSC 31,000 31,000
Tulare -- --
Tyree 7,575,500 7,575,500
------------ ------------
TOTAL GOODWILL $ 15,777,898 $ 15,569,400
============ ============
19
March 31, December 31,
2011 2010
------------ ------------
TOTAL OTHER INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
BPI 5,768,621 5,959,846
EQS 288,900 --
ESI 317,842 338,858
IMSC 886,374 911,700
Tulare -- --
Tyree 6,959,577 7,236,186
------------ ------------
TOTAL OTHER INTANGIBLE ASSETS $ 14,221,314 $ 14,446,590
============ ============
Three Months Ended March 31,
2011 2010
------------ ------------
NET REVENUES:
Amincor $ -- $ --
Other Assets -- --
BPI 3,506,495 3,467,904
EQS 188,182 --
ESI 527,343 1,395,093
IMSC 456,978 1,248,384
Tulare 989,058 3,370,800
Tyree 10,443,225 12,963,049
------------ ------------
NET REVENUES $ 16,111,281 $ 22,445,230
============ ============
Three Months Ended March 31,
2011 2010
------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES:
Amincor $ (459,250) $ --
Other Assets 423,845 --
BPI (130,131) 38,326
EQS (115,241) --
ESI (59,559) (202,299)
IMSC (532,295) (1,069,395)
Tulare (902,985) (316,106)
Tyree (1,188,470) 700,942
------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES $ (2,964,086) $ (848,532)
============ ============
20
Three Months Ended March 31,
2011 2010
------------ ------------
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Amincor $ -- $ --
Other Assets 250,021 --
BPI 1,571 --
EQS 25,463 --
ESI 1,059 248
IMSC 66,185 64,782
Tulare 30,215 30,143
Tyree 239,533 219,255
------------ ------------
TOTAL DEPRECIATION OF
PROPERTY AND EQUIPMENT $ 614,047 $ 314,428
=========== ============
Three Months Ended March 31,
2011 2010
------------ ------------
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
BPI 191,225 191,225
EQS 8,100 --
ESI 21,016 21,016
IMSC 25,326 25,325
Tulare -- --
Tyree 276,609 276,609
------------ ------------
TOTAL AMORTIZATION OF
INTANGIBLE ASSETS $ 522,276 $ 514,175
============ ============
Three Months Ended March 31,
2011 2010
------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (217,649) $ --
Other Assets -- --
BPI 73,160 142,315
EQS 3,071 --
ESI 5,095 48,961
IMSC 53,108 129,540
Tulare 114,511 221,206
Tyree 87,570 106,809
------------ ------------
TOTAL INTEREST EXPENSE, NET $ 118,866 $ 648,831
============ ============
8. CONTINGENCIES
LEGAL PROCEEDINGS
TYREE
Tyree's services are regulated by federal, state, and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. This
ongoing regulation results in Tyree or Tyree's predecessor companies being put
at risk at becoming a party to legal proceedings involving customers or other
interested parties. The issues involved in such proceedings generally relate to
21
alleged responsibility arising under federal or state laws to remediate
contamination at properties owned or operated either by current or former
customers or by other parties who allege damages. To limit its exposure to such
proceedings, the Tyree purchases, for itself and Tyree's predecessor companies,
site pollution, pollution, and professional liability insurance. Aggregate
limits, per occurrence limits, and deductibles for this policy are $10,000,000,
$5,000,000 and $50,000, respectively.
Tyree and its subsidiaries are, from time to time, involved in ordinary and
routine litigation. Management presently believes that the ultimate outcome of
these proceedings individually or in the aggregate, will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. Nevertheless, litigation is subject to inherent uncertainties and
unfavorable rulings could occur. An unfavorable ruling could include monetary
damages and, in such event, could result in a material adverse impact on the
Company's financial position, results of operations or cash flows for the period
in which the ruling occurs.
IMSC
Counsel for the former President of IMSC has indicated intent to file suit
against IMSC. The allegations of this potential action are unknown to management
at this point. Management believes any claims made by the former President will
be deemed frivolous and will have little or no impact on the Company or IMSC.
CBC, a related party, is the plaintiff in a foreclosure action against Imperia
Family Realty, LLC and has been granted a Judgment of Foreclosure. A former
principal of Imperia Bros. Inc. (a predecessor company to IMSC) filed a
countersuit in response to the foreclosure action. CBC believes this
countersuit, which is being contested, is frivolous and will not be successful.
Management believes the litigation described will have little or no impact on
the Company and IMSC.
9. BUSINESS ACQUISITION
EQS was acquired on January 3, 2011 and the acquisition was accounted for using
the acquisition method. EQS accounts for less than 4% of the Company's total
consolidated assets and income.
10. LIQUIDITY MATTERS
Since the beginning of the recession in 2008, the Company has not borrowed from
any bank, finance company, other unrelated lender and has not received any
private equity financing. Since that time, internally generated operating cash
flows have been sufficient to meet the Company's business operating
requirements. However, operating cash flows have not been sufficient to finance
capital improvements or provide funds for the substantial marketing efforts
necessary for growing the businesses. For example, an outlay of about $2,000,000
is required to complete the frozen donut line for BPI and another $1,500,000 is
22
required to overhaul Masonry's Block Plant. In addition, Tyree is ready to
expand by entering new geographic areas.
In 2011, management expects to mortgage the property occupied by Tulare Frozen
Foods in Lindsay, CA for $2,000,000 and also has a USDA loan proposal from an
Iowa bank and is waiting for the USDA approval. The loan is for $7,500,000.00
and, if approved, will be used for BPI in Burlington, IA.
Once the Company is cleared to sell its stock publicly, the Company plans to
create a market for the stock and obtain capital from private and public
investors.
Management believes that, even without the addition of the capital from loans
and stock sales, that the Company will be able to generate sufficient cash flows
through March 31, 2012.
11. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through
the date of the accompanying consolidated condensed financial statements became
available to be issued.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. AMINCOR, INC.
Amincor, Inc. ("Amincor" or the "Company") was incorporated under the laws of
the state of Nevada on October 8, 1997 under the name GSE Group, Inc. GSE Group,
Inc. was originally formed to provide consulting services for reverse mergers to
public shell corporations and private companies seeking to gain access to the
public markets. On October 20, 1997, GSE Group, Inc. changed its name to Global
Stock Exchange Corp. and on April 28, 2000, Global Stock Exchange Corp. changed
its name to Joning Corp ("Joning"). In July 2000, Joning ceased its business
activities. On March 8, 2002, Joning filed a Registration Statement on Form
10-SB under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell
company with the purpose of finding a suitable company for a reverse merger
transaction. Joning ceased filing periodic reports subsequent to its filing of
its Form 10-QSB on October 24, 2004 due to the fact it had no operating business
or pending business transactions. On June 2, 2008, Joning filed a Form 15-12G to
terminate its registration as a reporting company. On February 2, 2010 Joning
changed its name to Amincor, Inc.
Amincor remained dormant until January 2010 at which time it was used by two
limited partnerships which are related to each other by a common general
partner. The general partner, Capstone Capital Management, Inc. ("CCM") entered
into financing agreements on behalf of Capstone Cayman Special Purpose Fund,
L.P. ("CCSPF") and Capstone Special Purpose Fund, L.P. ("CSPF"), and together
with CCM, CCSPF, collectively, the "Capstone Funds") transferred their ownership
in Amincor to the limited partners and creditors of the Capstone Funds. In
connection with such transfers, Amincor was assigned all of the right, title and
interest of the debt owed to the Capstone Funds by Capstone Business Credit, LLC
("CBC") and Capstone Capital Group I, LLC ("CCGI"), which were asset based
lenders (collectively, the "Lenders"). Subsequently, the Lenders assigned to
Amincor their interests in substantially all of their assets.
As of March 31, 2011, Amincor owns the following operating entities as a result
of the assignment of assets held by the Lenders:
Baker's Pride, Inc. ("BPI")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare")
Tyree Holdings Corp. ("Tyree")
Environmental Quality Services, Inc. ("EQS") (acquired on January 3, 2011
as more fully described below and on Amincor's Form 8-K filed on
January 26, 2011, which is incorporated by reference herein).
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread.
24
ESI
ESI is the worldwide licensee for the Volkl and Boris Becker Tennis brands and,
in November 2010, became the exclusive sales representative for Samsung C&T
America, Inc.'s ("Samsung") purchases of Volkl and Boris Becker & Co. tennis
products. Under the agreement with Samsung C&T America, Inc. (the "Samsung
Agreement"), ESI's primary focus has become designing and marketing these tennis
branded products.
Through October 2010, ESI was an importer, wholesale distributor, and brand
manager of high-end performance and lifestyle apparel, tennis racquets, tennis
bags, and sporting goods accessories.
MASONRY
Masonry manufactures concrete, lightweight, and split face manufacturing block
for the construction industry, supplies a wide array of other masonry and
building products, and operates a retail home center, which sells hardware,
masonry materials and other building supplies to contractors and retail
customers.
TULARE HOLDINGS
Tulare prepares frozen vegetables (primarily spinach) from produce purchased
from growers which are sold to the food service industry under a private label.
TYREE
Tyree performs maintenance, repair and construction services to customers with
underground petroleum storage tanks and petroleum product dispensing equipment.
Complimenting these services, Tyree is engaged in environmental consulting, site
assessment, analysis and management of site remediation for owners and operators
of property with petroleum storage facilities.
RECENT ACQUISITION
Environmental Quality Services, Inc., a Delaware corporation, was incorporated
on December 23, 2010. Environmental Quality Services, Inc. ("EQS") provides
environmental testing services in the northeast United States. EQS' services
include RCRA (resource conservation recovery act) and hazardous waste
characterization; TCLP (toxic characteristic leaching procedure) analyses;
underground storage tank analytical assessment; landfill/ground water
monitoring; NPDES (national pollution discharge elimination system) effluent
characteristics analysis; PCB (polychlorinated biphenyls) and PCB congener
analysis; lead paint testing; fingerprint categorization; petroleum analyses.
The client base of EQS ranges from the small engineering firms to well-known
petroleum companies. EQS customers require rapid response, accurate results and
the ability to provide its services on a 24/7 basis and has the capability to
provide its clients with specific data deliverables in any required format. EQS
has longstanding relationships with major utilities, large petroleum companies
and engineering firms.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
AMINCOR, INC.
LIQUIDITY AND CAPITAL RESOURCES
Amincor continues to seek new capital in the form of equity and debt to support
the operations of its operating subsidiaries. Management believes that until
there is a market for the Amincor's securities raising additional capital for
Amincor will remain difficult.
BAKER'S PRIDE, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011 AND 2010
SEASONALITY
Seasonality does not influence revenue or results in our present operation;
however, as we expand and diversify into additional categories seasonality will
become more of a factor.
NET REVENUE
Net revenue for the three month period ended March 31, 2011 totaled $3,506,495
compared to $3,467,904 for the three month period ended March 31, 2010, an
increase of $38,591 or approximately 1.1%. All revenue was generated by Baker's
Pride's Jefferson Street Bakery, Inc. as the Mt. Pleasant Street Bakery, Inc.'s
facility is awaiting funds to complete start-up of donut, brownie and cookie
production.
Baker's Pride's bread category sales for the three month period ended March 31,
2011 totaled $3,236,164 compared to $3,199,984 for the three month period ended
March 31, 2010; an increase of $36,180 or approximately 1.1%. The increase was a
result of additional bread units being produced; as well as newly negotiated
wholesale price increases that were in effect for last three weeks of the
quarter. Baker's Pride's donut category for the three month period ended March
31, 2011 totaled $270,901 compared to $267,987 for the three month period ended
March 31, 2010; an increase of $2,914 or approximately 1.1%.
COST OF REVENUE
Cost of revenue for the three month period ended March 31, 2011 totaled
$2,475,818, or approximately 70.6% of net revenue, compared to $2,248,821, or
approximately 64.8% of net revenue, for the three month period ended March 31,
2010; an increase of $226,997, or approximately 10.1%. The increase in cost of
revenue for the three month period ended March 31, 2011 compared to the three
month period ended March 31, 2010 was primarily the result of Baker's Pride's
direct materials costs (ingredients and packaging), which increased $222,489
during the three month period ended March 31, 2011, or approximately 16.4%,
compared to the three month period ended March 31, 2010. Wholesale price
26
increases of approximately 7% took effect in mid March which will continue to
offset increased input costs of ingredients, packaging and energy going forward.
OPERATING EXPENSES
Operating expenses for the three month period ended March 31, 2011 totaled
$1,102,071 compared to $1,055,539 for the three month period ended March 31,
2010; an increase of $46,532 or 4.4%. Operating expenses as a percentage of
total sales are expected to decrease in correlation with the startup of the Mt.
Pleasant Street Bakery, Inc.'s facility.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the three month period ended March 31, 2011 totaled
($71,393) or (2.0%) of net revenue, compared to income of $163,545 for the three
month period ended March 31, 2010, or 4.7% of net revenue. This decrease in net
revenue for the three month period ended March 31, 2011 was due to higher input
costs coupled with the inability to adjust wholesale prices until mid March
2011, due to very competitive market conditions. As mentioned previously, the
wholesale prices were adjusted in March 2011 which is expected to have a
positive effect going forward.
OTHER INCOME
Other income for the three month period ended March 31, 2011 totaled $14,422
compared to other income of $17,097 for the three month period ended March 31,
2010, a decrease in other income of $ 2,674, or approximately 15.6%. The
decrease in other income was primarily a result of reduction in rental income.
OTHER EXPENSES
Other expenses for the three month period ended March 31, 2011 totaled $73,160
compared to other expenses of $142,315 for the three month period ended March
31, 2010, a decrease in other expenses of $69,155 or approximately 48.6%. The
decrease in other expenses is primarily related to a decrease in interest
expense as a result of a renegotiated interest rate on their loans due to
Amincor, Inc.
NET INCOME (LOSS)
Net loss for the three month period ended March 31, 2011 totaled ($130,131)
compared to net income of $38,326 for the three month period ended March 31,
2010, a decrease of $168,457 or approximately 440%. The decrease in net income
was primarily due to higher input costs without offsetting increases in pricing
as previously mentioned.
EPIC SPORTS INTERNATIONAL, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011 AND 2010
Note: The three months ended March 31, 2010's performance varied significantly
when compared to the three months ended March 31, 2011 due to the signing of the
Samsung C&T Strategic Alliance Agreement on October 26, 2010. As a result,
27
Epic's revenue stream significantly decreased after the signing of the
agreement. Epic now only recognizes revenue through commission income paid from
Samsung and does not incur physical product expenses related to cost of goods
sold.
NET REVENUE
Net revenue for the three month period ended March 31, 2011 totaled $527,343
compared to $1,395,093 for the three month period ended March 31, 2010, a
decrease of $867,750 or approximately 62.2%. At the Samsung level, gross sales
totaled $1,508,342 for the three month period ended March 31, 2011 compared to
$1,395,093 for the three month period ended March 31, 2010, an increase of
$113,249 or approximately 8.1%. The primary reason for the increase in gross
sales was due to the availability of product in the three month period ended
March 31, 2011 as compared to the three month period ended March 31, 2010.
COST OF REVENUE
Cost of revenue for the three month period ended March 31, 2011 totaled $0 or
approximately 0.0% of net revenues compared to $864,113, or 61.9% of net
revenues for the three month period ended March 31, 2010, a decrease of $864,113
or 100.0%. The reason for the significant decrease in cost of revenue is related
to the agreement with Samsung signed in October 2010.
OPERATING EXPENSES
Operating expenses for the three month period ended March 31, 2011 totaled
$581,806 or approximately 110.3% of net revenues compared to $684,318, or
approximately 49.1% of net revenues for the three month period ended March 31,
2010, a decrease of $102,512 or approximately 15.0%. The decrease in operating
expenses for the three month period ended March 31, 2011 was primarily due to an
initiative to control spending; more specifically with emphasis on expenditures
related to marketing and promotion expenses and third-party consulting fees.
Despite these initiatives to control spending, operating expenses exceeded total
revenues for the three months ended March 31, 2011 by 10.3%.
LOSS FROM OPERATIONS
Loss from operations for the three month period ended March 31, 2011 totaled
$54,464 or approximately 10.3% of net revenues, compared to a loss from
operations of $153,339, or approximately 11.0% of net revenues for the three
month period ended March 31, 2010, a decrease in loss from operations of $98,875
or approximately 64.5%. The decrease in loss from operations was primarily
related to the agreement with Samsung signed in October 2010.
INTEREST EXPENSE
Interest expense for the three month period ended March 31, 2011 totaled $5,095,
compared to $48,961 for the three month period ended March 31, 2010, a decrease
in interest expense of $43,866 or approximately 89.6%. The decrease in interest
expense was attributed to a lower carrying balance on Epic's purchase order
financing agreement in addition to a reduction in the interest rate on the
purchase order financing agreement from 16% to 8.32% per annum.
28
Further reductions in interest expense is attributable to a reduction in factor
fees which decreased to $3,606 from $17,343 for the three month period ended
March 31, 2011 and 2010, respectively, a decrease of $13,737 or approximately
79.2%.
NET LOSS
Net loss for the three month period ended March 31, 2011 totaled $59,559,
compared to a net loss of $202,299 for the three month period ended March 31,
2010, a decrease in net loss of $142,740 or 70.6%. The decrease in net loss is
primarily the result of the new financing received from Samsung along with the
signing of the aforementioned agreement in October 2010.
MASONRY SUPPLY HOLDING CORP.
NET REVENUE
Net revenue for the three month period ended March 31, 2011 totaled $456,978
compared to $1,248,384 for the three month period ended March 31, 2010, a
decrease of $791,406 or approximately 63.4%. The decrease is primarily due to
the lack of new large construction projects associated with significant weather
delays and coupled with cash flow constraints. Some of IMSC's suppliers have
withheld raw materials and finished products as a result of delay in payment.
Accordingly, key inventory and raw materials have been consistently out of
stock, which has restricted Masonry's ability to produce concrete block and to
resell other masonry products which has deterred customers from utilizing
Imperia as their one-stop-shop.
COST OF REVENUE
Cost of revenue for the three month period ended March 31, 2011 totaled
$359,161, or approximately 78.6% of net revenue, compared to $1,105,178, or
88.5% of net revenue, for the three month period ended March 31, 2010, a
decrease as a percentage of total net revenue of 9.9%. The gross profit margin
for the three month period ended March 31, 2011 was approximately 21.4% as
compared to 11.5% for the three month period ended March 31, 2010, a 9.9%
improvement in gross profit margin. The primary reason for this increase was
directly related to an increased management focus on raw material management and
cost reduction, inventory controls, and the implementation of new policies and
procedures.
OPERATING EXPENSES
Operating expenses for the three month period ended March 31, 2011 totaled
$577,004 or approximately 126.3% of net revenue, compared to $1,083,062, or
approximately 86.8% of net revenue for the three month period ended March 31,
2010, a decrease of $506,058, or approximately 46.7%. The decrease in operating
expenses for the three month period ended March 31, 2011 was primarily due to
vehicle cost reductions associated with the decrease in customer deliveries and
the amount of fleet vehicles utilized.
29
LOSS FROM OPERATIONS
Loss from operations for the three month period ended March 31, 2011 totaled
$479,187, or approximately 104.9% of net revenue, compared to a loss from
operations of $939,856, or approximately 75.3% of net revenue for the three
month period ended March 31, 2010, a decrease in loss from operations of
$460,669, or approximately 49.0%. The decrease in loss from operations was
primarily due to decreased operating expense as noted above and an improvement
in operating margins reflected in gross profit.
INTEREST EXPENSE
Interest expense for the three month period ended March 31, 2011 totaled
$53,108, compared to $129,540 for the three month period ended March 31, 2010, a
decrease in interest expense of $76,432 or approximately 59.0%. The decrease in
interest expense was primarily due to a reduction in the interest rate on its
asset-based lending agreement from 16% to 8.32% per annum.
NET LOSS
Net loss for the three month period ended March 31, 2011 totaled $532,295
compared to a net loss of $1,069,396 for the three month period ended March 31,
2010, a decrease in net loss of $537,101, or approximately 50.3%. The decrease
in net loss is attributable to decreased operating expenses as well as the
decrease in interest expense as noted above.
LIQUIDITY AND CAPITAL RESOURCES
As the housing and general construction industry recovers from the impact of the
financial crisis on housing starts and large scale private construction
projects, Masonry must restructure its overhead costs in order to demonstrate it
can break even and grow to profitability. Masonry has adjusted its marketing
strategy to deal with the changes in demand and in its customer base. Once the
overhead reductions impact operations, management believes Masonry will break
even and position itself for future growth.
TULARE HOLDINGS, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2011 AND 2010
NET REVENUE
Net revenue for the three month period ended March 31, 2011 totaled $989,058
compared to $3,370,800 for the three month period ended March 31, 2010, a
decrease of $2,381,742 or approximately 70.7%. The decrease in revenues is
attributed to reduced availability of raw product that has carried over from the
4th quarter of 2010. Weather conditions over the course of the winter resulted
in below average temperatures and above average rainfall in the California
region. The end result of the weather resulted in a lower quantity of harvested
product. In addition, Tulare had planned to shift a larger percentage of its
spring pack spinach to open market in order to meet sales objectives; this
endeavor was affected by the same adverse weather conditions and was
30
unsuccessful as a result. At the end of the quarter there were approximately
$1,200,000 unshipped orders due to the lack of available product.
COST OF REVENUE
Cost of revenue for the three month period ended March 31, 2011 totaled
$1,223,726, or approximately 123.7% of net revenue compared to $3,030,400, or
approximately 89.9% of net revenue, for the three month period ended March 31,
2010, a decrease of $1,806,674, or approximately 59.6%. The decrease in the
dollar amount was due to reduced production in both spinach and southern greens
volume along with unfavorable costs. Management estimates the unfavorable costs
at $250,000, which were due to higher raw product cost from reduced recoveries
and additional labor from reduced machinery efficiency. Also, the lower
production volume impacted overhead absorption by $.06 per pound, or
approximately $120,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three month period ended
March 31, 2011 totaled $403,806, or approximately 40.8% of net revenue, compared
to $435,300, or approximately 12.9% of net revenue, for the three month period
ended March 31, 2010, a decrease of $31,494, or approximately 7.2%. The decrease
in selling, general and administrative expenses for the three month period ended
March 31, 2011 was primarily due to reduced selling expenses as a result of
reduced sales volume.
LOSS FROM OPERATIONS
Loss from operations for the three month period ended March 31, 2011 totaled
$638,474, or approximately 64.6% of net revenue, compared to a loss from
operations of $94,900, or approximately 2.8% of net revenue for the three month
period ended March 31, 2010, an increase in loss from operations of $543,574, or
approximately 572.8%. The increase in loss from operations was due to lower
sales volume and higher costs as outlined above.
OTHER EXPENSES
Other expenses for the three month period ended March 31, 2011 totaled $264,511
compared to other expenses of $221,206 for the three month period ended March
31, 2010, an increase in other expenses of $43,305, or approximately 19.6%. The
Other expenses category consists of interest expense along with fees paid to
Amincor in 2011 and Capstone Capital Group I in 2010. Beginning in 2011 a
monthly collateral management fee of $50,000 is incurred to Amincor under a loan
and security agreement.
NET LOSS
Net loss for the three months ended March 31, 2011 totaled $902,985 compared to
a net loss of $316,106 for the three months ended March 31, 2010, an increase in
net loss of $586,879, or approximately 185.7%. The increase in loss was
primarily due to the issues outlined above.
LIQUIDITY AND CAPITAL RESOURCES
Tulare continues to seek financing secured by its real estate and equipment to
fund operations.
31
TYREE HOLDINGS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
SEASONALITY
Historically, Tyree's revenues tend to be lower during the first quarter of the
year as Tyree's customers complete their planning for the upcoming year. Another
contributing factor to this trend is that the severe weather experienced in the
Northeastern United States, Tyree's primary market area, prohibits some work
from being performed due to weather related conditions. Approximately 30% of
Tyree's revenue comes from new capital investments of its customers. This
spending is cyclical and tends to mirror the condition of the economy. During
normal conditions, Tyree will need to draw from its borrowing base early in the
year and then pay down the borrowing base as the year progresses and it is able
to earn income. The highest revenue generation occurs from late in the second
quarter through the third quarter.
REVOLVING CREDIT AGREEMENT
Tyree maintains a $15,000,000 revolving credit agreement with a related party
which expires on January 17, 2013. Borrowings under this agreement are limited
to 70% of eligible accounts receivable and the lesser of 50% of eligible
inventory, or $4,000,000. The balances outstanding under this agreement were
$4,271,905 and $4,589,231 as of March 31, 2011 and 2010, respectively.
Borrowings under this agreement are collateralized by a first lien security
interest in all tangible and intangible assets owned by Tyree. Tyree had
approximately $10,728,095 and $10,410,769 of unused amounts available on the
revolving credit agreement at March 31, 2011 and 2010, respectively, subject to
borrowing base limitations. The annual interest rate charged on this loan was
approximately 5% for the quarters ended March 31, 2011 and 2010. Management is
currently seeking a new asset-based lender that will provide a new credit
facility to support the growth of Tyree.
Tyree's current revolving credit facility has an available credit line of
$2,175,000. During the quarter ended March 31, 2011, Tyree increased the total
amount due on the facility by $1,245,748. The existing credit facility is
sufficient to support the existing business volume of Tyree, but growth will be
difficult until either new working capital is earned through retained earnings
or new equity is invested into Tyree to facilitate organic and acquisition based
growth.
NET REVENUE
Net revenue for the quarter ended March 31, 2011 totaled $10,443,225 compared to
$12,963,049 for the quarter ended March 31, 2010, a decrease of $2,519,824, or
approximately 19.4%. The decrease is primarily due to the extremely harsh
weather endured by the Northeastern United States during January and February of
2011. Below is an analysis of revenue by business unit for the quarters ending
March 31, 2011 and March 31, 2010.
32
Revenues: 2011 2010
------------ ------------
Service and Construction $ 7,314,539 $ 8,455,490
Environmental, Compliance and Engineering 3,049,893 4,329,088
Manufacturing / International 78,793 178,471
------------ ------------
Total $ 10,443,225 $ 12,963,049
============ ============
COST OF REVENUE
Cost of revenue for the quarter ended March 31, 2011 totaled $8,202,669, or
approximately 78.5% of net revenue, compared to $9,482,027, or approximately
73.1% of net revenue for the quarter ended March 31, 2010, a decrease of
$1,279,358 or approximately 13.5%. Although cost of revenue declined year on
year, the cost as a percentage of revenue increased. This was due to lower
revenues in 2011, compared to 2010, caused by the significant adverse weather
impact in the Northeastern United States during January and February of this
year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the quarter ended March 31,
2011 totaled $2,699,050, or approximately 25.8% of net revenue, compared to
$2,677,251, or approximately 20.7% of net revenue for the quarter ended March
31, 2010, an increase of $21,799, or approximately 0.8%. The increase in
selling, general and administrative costs during the quarter ended March 31,
2011 was due to costs related to personnel layoffs during that period.
Management expects the costs to be lower for the remainder of the year.
INCOME (LOSS) FROM OPERATIONS
The loss from operations for the quarter ended March 31, 2011 totaled
($458,494), or approximately (4.4%) of net revenue, compared to the income from
operations of $803,771, or approximately 6.2% of net revenue for the quarter
ended March 31, 2010, a decrease in income from operations of $1,262,265 or
approximately 157.0%. The decrease in income from operations was primarily due
to the inventory shortfall noted above and the absorption of management fees
incurred to Amincor.
OTHER INCOME (EXPENSES)
Other income for the quarter ended March 31, 2011 totaled $7,589 compared to
other income of $3,980 for the quarter ended March 31, 2010, an increase in
other income of $3,609. This income mainly comes from the return of deposits
that were previously expensed on projects and the occasional sale of scrap
materials.
Other Expenses for the three month period ended March 31, 2011 totaled
($737,565) compared to ($106,809) for the three month period ended March 31,
2011, an increase in other expenses of 630,756, or approximately 590.5%. The
primary reason for this increase is the addition of a corporate overhead fee
that was charged in 2011 but was not present in 2010. The corporate overhead fee
for the quarter ended March 31, 2011 totaled $650,000, or approximately 6.2% of
33
net revenue compared to $0, or approximately 0.0% of net revenue for the quarter
ended March 31, 2010, an increase of $650,000. The increase in the fee during
the quarter ended March 31, 2011 was primarily due to holding company
requirements across the business.
NET INCOME (LOSS)
Net loss for the quarter ended March 31, 2011 totaled ($1,188,470) compared to a
net income of $700,942 for the quarter ended March 31, 2010, a decrease in net
income of $1,889,412 or approximately 269.6%. The decrease in net income was
primarily due to the factors noted above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Amincor has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes.
ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain "disclosure controls and procedures" as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on such
evaluation, and as discussed in greater detail below, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective:
* to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms, and
* to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our CEO and
our CFO, to allow timely decisions regarding required disclosure.
34
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15 of the Securities
Exchange Act of 1934. Our internal control system was designed to provide
reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. Our
internal control over financial reporting includes those policies and procedures
that:
* pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets,
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorization
of management and directors, and
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
Our management has not assessed the effectiveness of our internal control over
financial reporting as of March 31, 2011. Management understands that in making
this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at March 31, 2011.
As of the date of this report, we have been unable to complete a full assessment
and adequately test our internal control over financial reporting and
accordingly lack the documented evidence that we believe is necessary to support
an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude whether there are any material
weaknesses, nor can we appropriately remediate any such weaknesses that might
have been detected.
Therefore, there is a possibility that misstatements which could be material to
our annual or interim financial statements could occur that would not be
prevented or detected.
There have been no changes in our internal control over financial reporting
during our first fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
We will complete our assessment of internal control over financial reporting and
take the remediation steps detailed below to enhance our internal control over
financial reporting and reduce control deficiencies. With regards to the
improvement of our internal controls over financial reporting, we believe the
following steps will assist in reducing our deficiencies, but will not
35
completely eliminate them. We will continue to work on the elimination of
control weaknesses and deficiencies noted.
Management of the Company takes very seriously the strength and reliability of
the internal control environment for the Company. Going forward, the Company
intends to implement new internal policies and undertake additional steps
necessary to improve the control environment including, but not limited to:
* Implementing an internal disclosure policy to govern the disclosure of
material, non-public information in a manner designed to provide full
and fair disclosure of information about the Company. This disclosure
policy is intended to ensure that management and employees of the
Company and its subsidiaries comply with applicable laws including the
U.S, Securities Exchange Commission ("SEC") Fair Disclosure Rules
(Regulation FD) governing disclosure of material, non-public
information to the public.
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Counsel for the former President of Masonry has indicated an intent to file suit
against Imperia Masonry Supply Corp. The allegations of such potential action
are unknown to management at this point. The former President signed a general
release of all claims and, accordingly, management believes any claims made by
the former President have no merit or basis in law.
Amincor, as an assignee of Capstone Business Credit, LLC, a related party, is
the plaintiff in a foreclosure action against Imperia Family Realty, LLC and has
been granted a Judgment of Foreclosure. A former principal of Imperia Bros. Inc.
filed a countersuit in response to the foreclosure action. Amincor believes this
countersuit, which is being contested, is frivolous and will not be successful.
Management believes the litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
36
Other than noted above, Registrant is not presently a party to any litigation,
claim or assessment against it, and is unaware of any unasserted claim or
assessment which will have a material effect on the financial position or future
operations of Registrant. No director, executive officer or affiliate of the
Registrant or owner of record or beneficially of more than five percent of the
Registrant's common stock is a party adverse to Registrant or has a material
interest adverse to Registrant in any proceeding.
ITEM 1A. RISK FACTORS.
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
We are and will continue to be subject to the disclosure and reporting
requirements of applicable U.S. securities laws. Many of our principal
competitors are not subject to these disclosure and reporting requirements. As a
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 6,426,320 shares of the total of
7,478,409 issued and outstanding Class A voting shares of our common stock (or
approximately 86% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
OUR STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR STOCK DUE TO THE ABSENCE OF
A PUBLIC TRADING MARKET.
There is presently no public trading market for our common stock. We intend in
the future to seek a market maker to apply to have our common stock quoted on
the Over-the-Counter Bulletin Board, but have not done so to date. Until there
is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
37
securities registered on some national securities exchanges). If we are
successful in applying for quotation on the Over-the-Counter Bulletin Board, our
stock may be considered a "penny stock." In that case, purchases and sales of
our shares will be generally facilitated by broker-dealers who act as market
makers for our shares.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933) must make a special suitability determination for the
purchaser and must receive the purchaser's written consent to the transaction
prior to sale, unless the broker-dealer or the transaction is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt, to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities and to send monthly statements disclosing recent price information
and information with respect to the limited market in penny stocks. The
requirements may discourage such broker-dealers from effecting transactions in
our shares, which could severely limit the market liquidity of the shares and
impede the sale of our shares in the secondary market.
INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE
SHARES OF OUR COMMON STOCK.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock. Investors that require liquidity should also not
invest in our common stock..
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK
TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011.
We are authorized to issue up to 22,000,000 shares of Class A voting common
stock and 40,000,000 shares or Class B non-voting common stock and 3,000,000
shares of Preferred Stock. At present, there are 7,478,409 Class A common shares
and 21,176,262 Class B common shares and 1,752,823 shares of Preferred Stock
issued and outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
38
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
RISK FACTORS AFFECTING ENVIRONMENTAL QUALITY SERVICES, INC.
EQS' RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE
FACTORS OVER WHICH EQS HAS LITTLE OR NO CONTROL.
The factors listed below some of which EQS cannot control may cause EQS'
revenues and result of operations to fluctuate significantly, including, but not
limited to: (i) actions taken by regulatory bodies relating to the verification
and certification of EQS products/services; (ii) the timing and size of customer
purchases; and (iii) customer and/or distributors concerns about the stability
of EQS' business which could cause them to seek alternatives to EQS
products/services.
EQS FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
EQS believes that due to the constant focus on the environmental standards
throughout the world, EQS may be required in the future to adhere to new and
more stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event EQS' products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on EQS'
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
EQS' success depends to an extent upon the performance of its employees, some of
whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia Els. The loss or inability to replace these employees
holding the licenses, permits or certifications necessary to conduct EQS'
business, could adversely affect its business and prospects and operating
results and/or financial condition.
39
ITEM 6. EXHIBITS
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
----------
+ Filed Herewith
40
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.
AMINCOR, INC.
Date: May 23, 2011 By: /s/ John R. Rice, III
-----------------------------------
John R. Rice, III, President
Date: May 23, 2011 By: /s/ Robert L. Olson
-----------------------------------
Robert L. Olson, Chief Financial
Officer
41