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: June 30, 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 88-0376372
(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 [ ] Smaller reporting company [X]
(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 August 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 JUNE 30, 2011
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 41
Item 4. Controls and Procedures.......................................... 41
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 43
Item 1A. Risk Factors..................................................... 44
Item 6. Exhibits......................................................... 50
SIGNATURES................................................................... 51
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 Company website is located at http://www.amincorinc.com.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
June 30, December 31,
2011 2010
------------ ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 1,239,490 $ 2,612,998
Accounts receivable, net of allowance of $518,883 and
$608,325 in 2011 and 2010, respectively 10,283,093 8,596,583
Note receivable -- 522,501
Due from related party 1,683,940 1,717,233
Inventories, net 4,376,384 3,369,862
Costs and estimated earnings in excess of billings on
uncompleted contracts 836,753 279,152
Prepaid expenses and other current assets 1,124,034 739,781
Current assets - discontinued operations 1,294,278 1,570,473
------------ ------------
Total current assets 20,837,972 19,408,583
------------ ------------
PROPERTY AND EQUIPMENT, NET 14,760,118 15,104,049
PROPERTY AND EQUIPMENT, NET - DISCONTINUED OPERATIONS 1,165,649 2,365,950
------------ ------------
Total property and equipment, net 15,925,767 17,469,999
------------ ------------
OTHER ASSETS:
Mortgages receivable 6,180,000 6,180,000
Goodwill 15,746,397 15,538,400
Other intangible assets, net 12,837,990 13,534,890
Deferred financing costs, net 241,219 319,465
Other assets 145,415 157,571
Assets held for sale 2,730,000 6,575,000
Other assets - discontinued operations 291,667 1,234,367
------------ ------------
Total other assets 38,172,688 43,539,693
------------ ------------
Total assets $ 74,936,427 $ 80,418,275
============ ============
4
June 30, December 31,
2011 2010
------------ ------------
(unaudited) (audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,573,500 $ 8,359,899
Assumed liabilities - current portion 2,440,649 2,480,921
Accrued expenses and other current liabilities 3,142,549 3,966,462
Loans payable to related party 690,637 713,930
Notes payable - current portion 350,810 418,181
Capital lease obligations - current portion 106,666 138,474
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,416,364 536,825
Due to officer 144,592 144,592
Current liabilities - discontinued operations 4,354,755 4,372,176
------------ ------------
Total current liabilities 23,220,522 21,131,460
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion -- 28,375
Capital lease obligations - net of current portion 623,633 450,342
Notes payable - net of current portion 1,552,515 1,643,483
Other long-term liabilities 21,661 21,661
Long-term liabilities - discontinued operations 10,536 199,280
------------ ------------
Total long-term liabilities 2,208,345 2,343,141
------------ ------------
Total liabilities 25,428,867 23,474,601
------------ ------------
COMMITMENTS AND 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 21,176 21,176
Additional paid-in capital 88,593,228 88,250,203
Accumulated deficit (37,460,281) (29,858,319)
------------ ------------
Total Amincor shareholders' equity 51,163,354 58,422,292
------------ ------------
NONCONTROLLING INTEREST EQUITY (1,655,794) (1,478,617)
------------ ------------
Total equity 49,507,560 56,943,675
------------ ------------
Total liabilities and shareholders' equity $ 74,936,427 $ 80,418,275
============ ============
The accompanying notes are an integral part of these
consolidated or combined condensed financial statements
5
Amincor, Inc. and Subsidiaries
Consolidated or Combined Condensed Statements of Operations
Six Months Ended June 30, 2011 and 2010
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
------------ ------------ ------------ ------------
(consolidated) (combined) (consolidated) (combined)
Net revenues $ 16,108,368 $ 18,878,645 $ 30,773,613 $ 36,704,691
COST OF REVENUES 11,804,357 14,476,237 22,635,865 27,071,197
------------ ------------ ------------ ------------
Gross profit 4,304,011 4,402,408 8,137,748 9,633,494
SELLING, GENERAL AND ADMINISTRATIVE 5,273,032 4,725,791 10,983,080 9,142,902
------------ ------------ ------------ ------------
(Loss) income from operations (969,021) (323,383) (2,845,332) 490,592
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 8,383 338,202 609,630 636,287
Other expenses (income) 40,515 127,579 (395,748) 106,503
------------ ------------ ------------ ------------
Total other expenses (income) 48,898 465,781 213,882 742,790
------------ ------------ ------------ ------------
Loss before provision for income taxes (1,017,919) (789,164) (3,059,214) (252,198)
Provision for income taxes -- 120,000 -- 120,000
------------ ------------ ------------ ------------
Net loss from continuing operations (1,017,919) (909,164) (3,059,214) (372,198)
------------ ------------ ------------ ------------
Loss from discontinued operations (3,797,134) (504,942) (4,719,926) (1,890,445)
Net loss (4,815,053) (1,414,106) (7,779,140) (2,262,643)
------------ ------------ ------------ ------------
Net loss attributable to non-controlling interests (2,445) (120,364) (177,177) (85,823)
------------ ------------ ------------ ------------
Net loss attributable to Amincor stockholders $ (4,812,608) $ (1,293,742) $ (7,601,963) $ (2,176,820)
============ ============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS -
BASIC AND DILUTED:
Net loss from continuing operations attributable to
Amincor stockholders $ (0.04) $ (0.03) $ (0.11) $ (0.01)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 35,303,082 28,654,671 28,283,237
============ ============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR STOCKHOLDERS -
BASIC AND DILUTED:
Net loss attributable to Amincor stockholders $ (0.17) $ (0.04) $ (0.27) $ (0.08)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 35,303,082 28,654,671 28,283,237
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated or combined condensed financial statements
6
Amincor, Inc. and Subsidiaries
Consolidated or Combined Condensed Statement of Changes in Shareholders' Equity
Six Months Ended June 30, 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 (audited) -- $ -- 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 21,176
Net loss -- -- -- -- -- --
--------- ------ ---------- ------- ---------- -------
Balance at June 30, 2010 (unaudited) 1,752,823 1,753 14,126,820 14,127 21,176,262 21,176
--------- ------ ---------- ------- ---------- -------
Balance at December 31, 2010 (audited) 1,752,823 1,753 7,478,409 7,478 21,176,262 21,176
--------- ------ ---------- ------- ---------- -------
Issuance of stock options -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------- ---------- -------
Balance at June 30, 2011 (unaudited) 1,752,823 $1,753 7,478,409 $ 7,478 21,176,262 $21,176
========= ====== ========== ======= ========== =======
Amincor, Inc.
and Subsidiaries
--------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at December 31, 2009 (audited) $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 (22,929) -- -- --
Net loss -- (2,176,820) (85,823) (2,262,643)
----------- ------------ ----------- -----------
Balance at June 30, 2010 (unaudited) 48,934,158 (24,578,444) (1,293,670) 23,099,100
----------- ------------ ----------- -----------
Balance at December 31, 2010 (audited) 88,250,203 (29,858,319) (1,478,617) 56,943,674
----------- ------------ ----------- -----------
Issuance of stock options 343,025 -- -- 343,025
Net loss -- (7,601,963) (177,177) (7,779,140)
----------- ------------ ----------- -----------
Balance at June 30, 2011 (unaudited) $88,593,228 $(37,460,281) $(1,655,794) $49,507,560
=========== ============ =========== ===========
The accompanying notes are an integral part of these
consolidated or combined condensed financial statements
7
Amincor, Inc. and Subsidiaries
Consolidated or Combined Condensed Statements of Cash Flows
Six Months Ended June 30, 2011 and 2010
(Unaudited)
2011 2010
------------ ------------
(consolidated) (combined)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (3,059,214) $ (372,198)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 1,031,746 438,794
Amortization of intangible assets 993,900 977,700
Amortization of deferred financing cost 78,246 78,234
Stock based compensation 343,025 --
Gain on sale of equipment (49,330) --
Provision for doubtful accounts 83,475 51,741
Changes in assets and liabilities:
Accounts receivable (1,769,984) (895,546)
Due from factor - related party -- (389,885)
Inventory (1,006,522) (149,851)
Costs and estimated earnings in excess of billings
on uncompleted contracts (557,601) (860,678)
Construction in process -- 113,336
Prepaid expenses and other current assets (384,253) 92,962
Other assets 12,156 22,647
Accounts payable 2,171,875 1,995,978
Accrued expenses and other current liabilities (823,913) (179,278)
Billings in excess of costs and estimated earnings
on uncompleted contracts 879,539 1,597,490
Billings on construction -- (1,357,778)
Other long-term liabilities -- 140,587
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATIONS - CONTINUING OPERATIONS (2,056,855) 1,304,256
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (98,103) (102,466)
Proceeds from sale of equipment 79,320 --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (18,783) (102,466)
------------ ------------
8
2011 2010
------------ ------------
(consolidated) (combined)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/repayments with related parties 10,000 (1,293,210)
Net proceeds from loans with related parties -- 1,150,544
Principal payments of capital lease obligations (62,173) --
Net payments of notes payable (157,838) (325,558)
Payments of assumed liabilities (425,964) (456,717)
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES - CONTINUING OPERATIONS (635,975) (924,941)
------------ ------------
Net cash used in operating activities - discontinued operations (4,461,151) (9,029)
Net cash provided by investing activities - discontinued operations 5,045,301 89,096
Net cash provided by (used in) financing activities - discontinued operations 753,956 (80,068)
------------ ------------
(Decrease) increase in cash (1,373,507) 276,848
Cash, beginning of period 2,612,998 339,049
------------ ------------
Cash, end of period $ 1,239,491 $ 615,897
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the six months ended June 30,
Interest $ 172,348 $ 1,390,218
============ ============
Income taxes $ 14,700 $ --
============ ============
Non-cash investing activities:
Acquisition of net assets of Environmental Quality Services, Inc. $ -- $ --
============ ============
Acquisition of equipment by capital lease and notes payable $ 203,191 $ 660,808
============ ============
The accompanying notes are an integral part of these
condolidated or combined condensed financial statements
9
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Condensed Financial Statements
June 30, 2011 and 2010
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.
The Company remained dormant until January 2010 at which time it entered
into letters of intent to acquire all or a majority of the outstanding stock of
the following companies: Tulare Holdings, Inc., Tyree Holdings Corp., Epic
Sports International, Inc., Baker's Pride, Inc., Imperia Masonry Supply Corp.,
Whaling Distributors, Inc. and Allentown Metal Works, Inc. All of such letters
of intent were subject to completion of satisfactory due diligence. After
completion of its due diligence review the Company terminated the letters of
intent to acquire Allentown Metal Works, Inc. and Whaling Distributors, Inc. and
completed the acquisition of Tulare Holdings, Inc., Tyree Holdings Corp., Epic
Sports International, Inc., Baker's Pride, Inc. and Imperia Masonry Supply Corp.
As of June 30, 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")
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.
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.
As of June 30, 2011, Amincor has adopted a plan to discontinue operations at the
following entities within the next twelve months:
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare")
MASONRY
Masonry formerly manufactured concrete, lightweight, and split face
manufacturing block for the construction industry, supplied a wide array of
other masonry and building products, and operated a retail home center, which
sold hardware, masonry materials and building supplies to contractors and retail
customers.
11
TULARE HOLDINGS
Tulare formerly prepared frozen vegetables (primarily spinach) from produce
purchased from growers which were sold to the food service industry under a
private label and to food brokers and retail food stores under the Tulare Frozen
Food label.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated or combined 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 in the United States of
America ("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 or combined condensed financial statements should be
read in conjunction with the Form 10-K dated April 15, 2011 which includes the
audited consolidated or combined financial statements for the three years ended
December 31, 2010.
PRINCIPLES OF CONSOLIDATION OR COMBINATION
The consolidated or combined condensed financial statements include the accounts
of Amincor, Inc. and all of its consolidated or combined subsidiaries
(collectively the "Company"). All intercompany balances and transactions have
been eliminated in consolidation or combination. The combined financial
statements represents a period prior to the acquisition of the subsidiaries.
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.
12
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.
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.
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. The change to
the percentage-of-completion method of accounting is believed to be desirable
and Tyree has improved its ability to make estimates that are sufficiently
dependable to justify its use. This change of method required an adjustment to
the Company's accumulated deficit of $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.
As a result of the change to the percentage-of-completion method of accounting,
the consolidated balance sheets reflects an asset account "Costs and estimated
earnings in excess of billings on uncompleted contracts," which represents
revenues recognized in excess of amounts billed. Also as a result of the change
to the percentage-of-completion method of accounting, the consolidated balance
sheets reflects 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. Their customers
require rapid results and accurate reporting. EQS submits an invoice with each
report it distributes to its clients. Revenue is recognized as testing services
are performed.
13
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
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.
14
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.
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. An impairment
of $892,048 was recorded on the goodwill and other intangible assets of Masonry
as of June 30, 2011.
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, which is reflected in the loss from discontinued
operations. 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. DISCONTINUED OPERATIONS
Effective June 30, 2011 the Company discontinued the operations of Masonry
Supply Holding Corp. and Tulare Holdings, Inc. As a result, losses from of
Masonry and Tulare are included in the loss from discontinued operations in the
accompanying financial statements for the three and six months ended June 30,
2011, respectively. Assets and liabilities related to discontinued operations
are presented separately on the balance sheets as of June 30, 2011 and December
31, 2010, respectively. Changes in net cash from discontinued operations are
presented in the accompanying statement of cash flows for the six months ended
June 30, 2011 and 2010, respectively. All prior period information has been
reclassified to conform to the current period presentation.
The following amounts related to Masonry and Tulare have been segregated from
continuing operations and reported as discontinued operations:
15
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
------------ ------------ ------------ ------------
Net revenue from discontinued operations $ 2,186,153 $ 4,616,726 $ 3,632,189 $ 9,235,910
Loss from discontinued operations $ (3,797,134) $ (504,942) $ (4,719,926) $ (1,890,445)
The following is a summary of the assets and liabilities of the discontinued
operations. The amounts were derived from historical financial information.
June 30, December 31,
2011 2010
------------ ------------
Accounts receivable $ 433,757 $ 281,774
Inventories 677,188 1,098,716
Prepaid expenses and other current assets 183,333 189,983
Property, plant and equipment, net 1,165,649 2,365,950
Goodwill and other intangible assets -- 942,700
Other assets 291,667 291,667
------------ ------------
Total assets $ 2,751,594 $ 5,170,790
============ ============
Accounts payable $ 3,874,213 $ 3,853,724
Accrued expenses and other current liabilities 235,360 402,706
Capital lease obligations 255,718 315,026
------------ ------------
Total Liabilities $ 4,365,291 $ 4,571,456
============ ============
Net (Liabilities) Assets $ (1,613,697) $ 599,334
============ ============
The Company continues to provide administrative services and office facilities
to these lines of business until such time that the liquidation of their assets
is complete.
4. INVENTORIES
Inventories consist of:
* Baking ingredients,
* Construction and service maintenance parts.
A summary of inventory as of June 30, 2011 and December 31, 2010 is below.
June 30, December 31,
2011 2010
------------ ------------
Raw materials $ 4,141,081 $ 3,083,440
Ingredients 235,304 286,422
------------ ------------
$ 4,376,384 $ 3,369,862
============ ============
5. PROPERTY, PLANT, AND EQUIPMENT
At June 30, 2011 and December 31, 2010, property, plant, and equipment consisted
of the following:
16
Range of Estimated June 30, December 31,
Useful Lives 2011 2010
------------ ------------ ------------
Land n/a $ 430,000 $ 917,054
Machinery and equipment 2 - 10 years 9,178,467 8,894,141
Furniture and fixtures 5 - 10 years 112,315 112,314
Building and leasehold improvements 10 years 4,613,695 3,679,424
Computer equipment and software 5 - 7 years 764,087 730,511
Construction in progress n/a 14,801 56,801
Vehicles 3 - 10 years 2,921,569 3,084,966
------------ ------------
18,034,935 17,475,211
Less accumulated depreciation 3,274,817 2,371,162
------------ ------------
$ 14,760,118 $ 15,104,049
============ ============
Property, plant, and equipment include items under capital leases of $863,999 as
of June 30, 2011 and $660,808 as of December 31, 2010. Accumulated depreciation
includes $94,401 and $47,201 related to those items as of June 30, 2011 and
December 31, 2010, respectively.
Total depreciation expense related to continuing operations for the six months
ended June 30, 2011 and 2010, was $1,031,746 and $438,794, respectively. Total
depreciation expense related to continuing operations for the three months ended
June 30, 2011 and 2010 was $514,099 and $219,291, respectively.
6. 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 June
30, 2011 and December 31, 2010:
Range of Estimated June 30, December 31,
Useful Lives 2011 2010
------------ ------------ ------------
Customer Relationships 5 - 10 years $ 9,138,700 $ 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
------------ ------------
18,986,900 18,689,900
Less Accumulated Amortization 6,148,910 5,155,010
------------ ------------
$ 12,837,990 $ 13,534,890
============ ============
The above licenses and permits have renewal provisions which are generally one
to four years. At June 30, 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.
17
Amortization expense related to continuing operations for the six months ended
June 30, 2011 and 2010 was $993,900 and $977,700, respectively. Amortization
expense related to continuing operations for the three months ended June 30,
2011 and 2010 was $496,950 and $488,850, respectively.
Goodwill and licenses and permits of $3,430,400 and $3,295,400 at June 30, 2011
and December 31, 2010, respectively have indefinite useful lives and are not
amortized but tested for impairment annually.
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2011 and December 31, 2010:
June 30, 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% as of June 30, 2011 and December 31, 2010, with principal
and interest payable in installments through July 2014 $ 834,940 $ 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% 431,419 454,221
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 1,903,324 2,061,664
Less current portion 350,810 418,181
------------ ------------
Long-term portion $ 1,552,515 $ 1,643,483
============ ============
8. LOANS FROM RELATED PARTIES
Loans from related parties consists of the following at June 30, 2011 and
December 31, 2010:
18
June 30, 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 $ 690,637 $ 713,930
------------ ------------
Total loans and amounts payable to related parties $ 690,637 $ 713,930
============ ============
Interest expense for these loans amounted to approximately $95,043 and $0 for
the six months ended June 30, 2011 and 2010, respectively. Interest expense for
these loans amounted to approximately $54,330 and $0 for the three months ended
June 30, 2011 and 2010, respectively.
9. 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 the 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). 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.
On April 1, 2011 the Company's Board of Directors granted an aggregate of
472,000 common stock options to the President, Vice-President, CFO and certain
management and employees of the Company and certain officers and employees of
its subsidiary companies, all at an exercise price of $1.88, based on the
estimated fair market value of the Company's share price at the date of the
grant. The stock options vested immediately. The Company estimates the fair
value of stock options on the date of grant using the Black-Scholes option
model, which requires the input of subjective assumptions. These assumptions
include the estimated volatility of the Company's common stock price of the
expected term ("volatility"), the fair value of the Company's stock, the
risk-free interest rate and the dividend yield. Changes in the subjective
assumptions can materially affect the estimated fair value of
stock-compensation. The Company determined the fair value of the options issued
using the pricing model with the following assumptions: 5 years expiration
period, stock price volatility of 40%, risk free interest rate of 2.24%, and
dividend yield of 0%.
19
Stock based compensation cost of approximately $342,000 and $0 is reflected in
selling, general and administrative expenses on the accompanying consolidated or
combined condensed statements of operations for the three months ended June 30,
2011 and 2010, respectively and approximately $343,000 and $0 for the six months
ended June 30, 2011, and 2010, respectively.
10. OPERATING SEGMENTS
Operating subsidiaries are organized primarily by Amincor and its operating
subsidiaries into nine operating segments: (1) Amincor, (2) Other Assets, (3)
Contract Admin, (4) BPI, (5) EQS, (6) ESI, (7) Tyree, and (8) Disc. Ops. (where
appropriate). Segment information is as follows:
June 30, December 31,
2011 2010
------------ ------------
TOTAL ASSETS:
Amincor $ 2,516,225 $ 4,675,136
Other Assets 20,525,781 26,044,101
Contract Admin -- 197
BPI 15,652,399 14,945,020
EQS 1,170,409 --
ESI 588,680 581,334
Tyree 31,731,338 29,001,697
Disc. Ops 2,751,594 5,170,790
------------ ------------
Total assets $ 74,936,426 $ 80,418,275
============ ============
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2011 2010 2011 2010
-------- -------- -------- --------
TOTAL CAPITAL EXPENDITURES:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 21,334 94,134 90,445 94,134
EQS -- -- -- --
ESI -- -- -- --
Tyree -- 5,297 7,658 8,332
-------- -------- -------- --------
Total capital expenditures $ 21,334 $ 99,431 $ 98,103 $102,466
======== ======== ======== ========
20
June 30, December 31,
2011 2010
------------ ------------
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin --
BPI 7,770,900 7,770,900
EQS 207,997 --
ESI 192,000 192,000
Tyree 7,575,500 7,575,500
------------ ------------
Total goodwill $ 15,746,397 $ 15,538,400
============ ============
June 30, December 31,
2011 2010
------------ ------------
TOTAL INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 5,577,396 5,959,846
EQS 280,800 --
ESI 296,826 338,858
Tyree 6,682,968 7,236,186
------------ ------------
Total intangible assets $ 12,837,990 $ 13,534,890
============ ============
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
NET REVENUES:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 3,754,152 3,131,725 7,260,647 6,599,629
EQS 329,480 -- 517,662 --
ESI 412,188 1,037,833 939,530 2,432,926
Tyree 11,612,549 14,709,087 22,055,774 27,672,136
------------ ------------ ------------ ------------
Net revenues $ 16,108,368 $ 18,878,645 $ 30,773,613 $ 36,704,691
============ ============ ============ ============
21
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES:
Amincor $ (1,139,108) $ -- $ (1,991,237) $ --
Other Assets (250,021) -- (493,302) --
Contract Admin -- -- 395 --
BPI 518,682 (224,894) 935,673 (186,572)
EQS (153,529) -- (348,536)
ESI 78,029 (506,964) 18,470 (709,263)
Tyree (71,973) (177,305) (1,180,677) 643,638
------------ ------------ ------------ ------------
Income (loss) before Provision for
Income Taxes $ (1,017,920) $ (909,164) $ (3,059,214) $ (252,198)
============ ============ ============ ============
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Amincor $ -- $ -- $ -- $ --
Other Assets 250,021 -- 500,042 --
Contract Admin -- -- -- --
BPI 1,571 -- 3,141 --
EQS 25,463 -- 50,927 --
ESI 1,059 36 2,118 284
Tyree 235,986 219,255 475,519 438,510
------------ ------------ ------------ ------------
Total depreciation of property and equipment $ 514,099 $ 219,291 $ 1,031,746 $ 438,794
============ ============ ============ ============
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 191,225 191,225 382,450 382,450
EQS 8,100 -- 16,200 --
ESI 21,016 21,016 42,032 42,032
Tyree 276,609 276,609 553,218 553,218
------------ ------------ ------------ ------------
Total amortization of intangible assets $ 496,950 $ 488,850 $ 993,900 $ 977,700
============ ============ ============ ============
22
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (267,265) $ -- $ (484,914) $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 58,010 137,077 131,169 279,393
EQS 9,501 -- 12,572 --
ESI 174 19,767 5,269 68,728
Tyree 207,964 181,357 945,534 288,166
------------ ------------ ------------ ------------
Total interest expense, net $ 8,383 $ 338,202 $ 609,630 $ 636,287
============ ============ ============ ============
11. 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
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.
DISCONTINUED OPERATIONS
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.
23
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.
12. 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. In addition, Tyree is
ready to expand by entering new geographic areas.
In 2011, management expects to mortgage or sell the property occupied by Tulare
Frozen Foods in Lindsay, CA for $2,000,000. BPI has a USDA loan proposal of $7.5
million from an Iowa bank and is awaiting USDA approval.
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 June 30, 2012.
13. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through
the date of the accompanying consolidated or combined condensed financial
statements became available to be issued. The following is a material subsequent
event.
On August 12, 2011, Baker's Pride, Inc., through its wholly owned subsidiary,
The South Street Bakery, Inc.("SSB") entered into a lease agreement (the "Lease
Agreement") with Corbi Properties, LLC, an Iowa limited liability company and
Clear Lake Specialty Products, Inc., an Iowa corporation (collectively, the
"Landlord"). Pursuant to the Lease Agreement, SSB is leasing from the Landlord
certain property and equipment located in Clear Lake, Iowa. The term of the
Lease Agreement is one (1) year, with the right of an automatic one (1) year
extension if SSB has complied with the terms of the Lease Agreement. SSB shall
pay the Landlord $360,000 per year or monthly installments of $30,000. In
addition to the monthly installments, SSB paid a security deposit of $60,000.
Concurrently with the signing of the Lease Agreement, the Landlord granted SSB
an irrevocable option to purchase all of the Landlord's right, title and
interest in and to the property, plant and assets, as set forth in that certain
option agreement, dated August 12, 2011, by and among the Landlord and SSB (the
"Option Agreement"). In consideration for the grant of the option, SSB paid the
Landlord $275,000 in cash (the "Option Payment"). The exercise price of the
option is $3,607,000 less the Option Payment, any payments made pursuant to the
Lease Agreement and any profit participation payments made pursuant to the terms
of the Option Agreement. The option may be exercised at anytime between August
12, 2011 and 5:30 p.m. New York City time on August 11, 2012.
This summary of the Lease Agreement and the Option Agreement does not purport to
be complete and is subject to, and qualified in its entirety by, the full text
of the Lease Agreement and the Option Agreement filed as Exhibits 10.1 and
Exhibit 10.2 hereto, respectively, and are incorporated by reference herein.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
AMINCOR, INC.
Amincor, Inc. 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. On February 2,
2010, Joning changed its name to Amincor, Inc.
Amincor is a holding company operating through various subsidiaries in two
operating divisions. The Environmental Services and Industrial Services Division
is comprised of Tyree Holdings Corp. and Masonry Supply Holding Corp. The
Consumer Products Division is comprised of Baker's Pride, Inc., Tulare Holdings,
Inc. and Epic Sports International, Inc. Amincor Contract Administrators, Inc.
and Amincor Other Assets, Inc. are subsidiaries with minimal operations.
As of June 30, 2011, Amincor owns the following operating entities:
Baker's Pride, Inc. ("BPI")
Epic Sports International, Inc. ("ESI")
Environmental Quality Services, Inc. ("EQS")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare")
Tyree Holdings Corp. ("Tyree")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread.
EQS
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.
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
25
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 manufactured 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. As of June 30, 2011, as discussed in more detail below, Amincor
management made the decision to discontinue the operations of Masonry due to
lack of profitability.
TULARE HOLDINGS
Tulare prepared frozen vegetables (primarily spinach) from produce purchased
from growers which are sold to the food service industry under a private label.
As of June 30, 2011, as discussed in more detail below, Amincor management made
the decision to discontinue the operations of Tulare due to lack of
profitability.
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 properties with petroleum storage facilities.
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 subsidiaries. Management believes that until there is a
market for Amincor's securities, raising additional capital will remain a
challenge. Management is engaged in several projects to raise capital at this
time. Reducing the impact of negative cash flows associated with under
performing assets such as those of Masonry and Tulare may have a positive impact
on the consolidating operations of the remaining operating subsidiaries and as a
result increase the attractiveness of Amincor as an investment opportunity.
Management continues to work with Baker's Pride's management towards the
completion of a USDA loan through an Iowa based financial institution which will
increase products offered to the market and increase cash flow once implemented.
Management continues to work with Tyree's management to further reduce overhead
expenditures so it can better manage its accounts payable and serve its
customers better.
26
DISCONTINUED OPERATIONS
On June 30, 2011, management adopted a plan to discontinue the operations of
Masonry Supply Holding Corp. and Tulare Holdings, Inc.
Our decision to discontinue the operations of Masonry was based upon several
factors, including (but not limited to) a continued decline in demand for
construction materials as a result of the recession alongside diminishing market
share as a result of competitors who were better positioned to sell their
products below Masonry's costs and maintain a larger portion of the market
share. After an analysis of trends from January through May of 2011, management
determined that for every additional dollar invested, Masonry was only able to
generate less than a dollar's worth of sales. The growth strategy for Masonry
was to acquire additional market share by supplying large quantities of
manufactured block and masonry supplies to dealers in addition to Masonry's
current customer base. However, management believed that the capital
expenditures necessary to follow the aforementioned strategy did not carry a
significantly high enough return on investment, and the funds necessary to
complete the capital expenditure projects were not readily available. Management
intends to sell the assets of Masonry and settle its existing accounts payable,
but does not believe there will be any significant excess cash resulting from
the liquidation that could be used for other purposes.
Tulare has faced declining gross margins as a result of increased raw material
costs combined with having to lower selling prices to remain competitive.
Tulare's management believes that competitors are prepared to make significant
capital expenditures to invest in new facilities to regain lost customers in the
food service distribution channel due to deferred maintenance costs. Tulare
shared the same issues with respect to its plant and equipment deterioration and
required similar capital expenditures to continue to compete competitively
within its industry. The combination of Tulare's aging plant and equipment,
higher raw product costs and the inability pass on higher raw product costs onto
its customers lead to negative cash flow. Management believes that the trends
seen with respect to Tulare are irreversible without significant capital
expenditures, and thus decided to cease operations. The lack of availability of
funds to provide capital expenditure to modernize Tulare's production facility
was a major factor in management's decision to cease operations. Management
intends to sell all the assets of Tulare Frozen Foods, LLC to settle its
existing accounts payable and apply any excess funds generated from the
liquidation of the assets to the other operations within Amincor.
In accordance with Generally Accepted Accounting Principles, the combined
results of Masonry and Tulare have been presented on our financial statements as
discontinued operations. It is management's intention to complete the
liquidation of Masonry and Tulare's assets within the next twelve months, if not
sooner.
RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 and 2010
NET REVENUE
Net revenue for the six month period ended June 30, 2011 totaled $30,773,613
compared to net revenues of $36,704,691 for the six month period ended June 30,
2010, a decrease in net revenue of $5,931,078, or approximately 16.2%. The
27
primary reason for the decrease in net revenues is related to Tyree and Epic.
Tyree and Epic's net revenues decreased by over $6 million, but the difference
was partially offset by an increase in net revenues for Baker's Pride and the
addition of EQS's net revenues for the six months ended June 30, 2011. A
breakout of net revenue by subsidiary company can be found on the footnotes to
the financial statements as filed with this Form 10-Q.
COST OF REVENUE
Cost of revenue for the six month period ended June 30, 2011 totaled $22,635,865
or approximately 73.6% of net revenues compared to $27,071,197 or approximately
73.8% of net revenues for the six month period ended June 30, 2010. Cost of
revenue was relatively unchanged as a percentage of net revenues between the six
month period ended June 30, 2011 and June 30, 2010. A detailed analysis of each
subsidiary company's individual cost of revenue can be found within their
respective management's discussions and analysis sections of this Form 10-Q.
OPERATING EXPENSES
Operating expenses for the six month period ended June 30, 2011 totaled
$10,983,080 compared to $9,142,902 for the six month period ended June 30, 2010,
an increase in operating expenses of $1,840,178, or approximately 20.1%. The
primary reason for the increase in operating expenses is related to Amincor's
corporate headquarters which has been included in the six months ended June 30,
2011 results but was not included in the six months ended June 30, 2010 as there
were no material operations within Amincor during the period ended June 30,
2010.
(LOSS) INCOME FROM OPERATIONS
Loss from operations for the six month period ended June 30, 2011 totaled
($2,845,332) compared to an income from operations of $490,592 for the six month
period ended June 30, 2010, an increase in loss from operations of $3,335,924.
The primary reason for the increase in loss from operations is related to the
decreases in net revenues and the increases in operating expenses as noted
above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the six month period ended June 30, 2011 totaled
$213,882 compared to $742,790 for the six month period ended June 30, 2010, a
decrease in other expenses of $528,908, or approximately 71.2%. The primary
reason for the decrease in other expenses is related to interest expense
eliminated in consolidation (amounts due to Amincor, Inc.) in the preparation of
the 2011 financial statements that were not able to be eliminated in the 2010
financial statements (amounts were due to related parties).
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $3,059,214 for the six month period
ended June 30, 2011 compared to $372,198 for the six month period ended June 30,
2010, an increase in net loss from continuing operations of $2,687,016, or
approximately 721.9%. The primary reason for the increase in net loss from
continuing operations is related to the increases in operating expenses
alongside the decreases in net revenues as mentioned above.
28
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $4,719,926 for the six months
ended June 30, 2011 compared to $1,890,445 for the six months ended June 30,
2010, an increase in net loss of $2,829,481, or approximately 149.8%. The net
loss from discontinued operations related to Masonry Supply Holding Corp. was
$3,349,547 for the six months ended June 30, 2011 compared to $1,380,231 for the
six months ended June 30, 2010, an increase in net loss of $1,872,861, or
approximately 135.7%. The primary reason for the increase in net loss was
related to asset write- downs associated with the discontinuation of Masonry,
including a write off of its intangible assets, a write-down of its property
plant, and equipment to its expected net realizable value, a write down of
inventory to its expected net realizable value and an increase in the reserve on
Masonry's existing accounts receivable. The net loss from discontinued
operations related to Tulare Frozen Foods, LLC was $1,466,834 for the six months
ended June 30, 2011 compared to a net loss of $510,214 for the six months ended
June 30, 2010, an increase in net loss of $956,620, or approximately 187.5%. The
primary reason for the increase in net loss was related to the operations of
Tulare Frozen Foods, LLC and the inability of the company to increase prices
related to rising raw material costs.
NET LOSS
Net loss totaled $7,779,140 for the six month period ended June 30, 2011
compared to $2,262,643 for the six month period ended June 30, 2010, an increase
in net loss of $5,516,497, or approximately 243.8%. The primary reason for the
increase in net loss is related to the increases in operating expenses alongside
the decreases in net revenues as mentioned above. In addition, the additional
losses incurred due to the write offs on the discontinued operations further
contributed to the decrease in net loss between the two periods.
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 and 2010
NET REVENUES
Net revenue for the three month period ended June 30, 2011 totaled $16,108,368
compared to $18,878,645 for the three month period ended June 30, 2010, a
decrease in net revenues of $2,270,277, or approximately 14.7%. The primary
reason for the decrease in net revenues is related to Tyree and Epic. Tyree and
Epic's net revenues decreased by over $4 million, but the difference was
partially offset by an increase in net revenues for Baker's Pride and the
addition of EQS's net revenues for the three months ended June 30, 2011. A
breakout of net revenue by subsidiary company can be found on the footnotes to
the financial statements as filed with this Form 10-Q.
COST OF REVENUES
Cost of revenues for the three month period ended June 30, 2011 totaled
$11,804,357, or approximately 73.3% of net revenues compared to $14,476,237 or
approximately 76.7% of net revenues for the three month period ended June 30,
2010. A detailed analysis of each subsidiary company's individual cost of
revenue can be found within their respective management's discussions and
analysis sections of this Form 10-Q.
29
OPERATING EXPENSES
Operating expenses for the three month period ended June 30, 2011 totaled
$5,273,032 compared to $4,725,791 for the three month period ended June 30,
2010, an increase in operating expenses of $547,241, or approximately 11.6%. The
primary reason for the increase in operating expenses is related to Amincor's
corporate headquarters which has been included in the six months ended June 30,
2011 figures but was not included in the six months ended June 30, 2010 as there
were no material operations within Amincor as of June 30, 2010.
LOSS FROM OPERATIONS
Loss from operations for the three month period ended June 30, 2011 totaled
$969,021 compared to $323,383 for the three month period ended June 30, 2010, an
increase in loss from operations of $645,638, or approximately 199.7%. The
primary reason for the increase in loss from operations are related to the
decreases in net revenue and the increases in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the three month period ended June 30, 2011 totaled $48,898
compared to $465,781 for the three month period ended June 30, 2010, a decrease
in other expenses of $416,883, or approximately 89.5%. The primary reason for
the decrease in other expenses is related to interest expense eliminated in
consolidation (amounts due to Amincor, Inc.) in the preparation of the 2011
financial statements that were not able to be eliminated in the 2010 financial
statements (amounts were due to related parties).
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations for the three month period ended June 30,
2011 totaled $1,107,919 compared to $909,164 for the three month period ended
June 30, 2010, an increase in loss from operations of $108,755, or approximately
12.0%. The primary reason for the increase in loss from operations is related to
the decrease in net revenues alongside the increase in operating expenses being
partially offset by the decreases in other expenses in the three months ended
June 30, 2011 when compared to the three months ended June 30, 2010.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $3,797,134 for the three months
ended June 30, 2011 compared to a net loss of $504,942 for the three months
ended June 30, 2011, an increase in net loss of $3,292,192, or approximately
652.0%. The net loss from discontinued operations related to Masonry Supply
Holding Corp. was $2,785,100 for the three month period ended June 30, 2011
compared to a net loss of $310,834 for the three month period ended June 30,
2010, an increase in net loss of $2,474,266, or approximately 796.0%. The
primary reason for the increase in net loss was related to asset write downs
associated with the discontinuation of Masonry, including a write- off of its
intangible assets, a write down on its property, plant and equipment to its
expected net realizable value, a write-down of inventory to its expected net
realizable value and an increase in the reserve on Masonry's existing accounts
receivable. The net loss from discontinued operations related to Tulare Frozen
Foods, LLC was $1,012,034 for the three months ended June 30, 2011 compared to a
net loss of $194,108 for the three months ended June 30, 2010, an increase in
30
net loss of $817,926, or approximately 421.4%. The primary reason for the
increase in net loss was related to the operations of Tulare Frozen Foods, LLC
and the inability of the company to increase prices related to rising raw
material costs.
NET LOSS
Net loss for the three month period ended June 30, 2011 totaled $4,815,053
compared to $1,414,106 for the three month period ended June 30, 2010, an
increase in net loss of $3,518,866, or approximately 272.0%. The primary reason
for the increase in net loss is related to the increases in operating expenses
alongside the decreases in net revenues as mentioned above. In addition, the
additional losses incurred due to the write offs on the discontinued operations
further contributed to the decrease in net loss between the two periods.
BAKER'S PRIDE, INC.
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.
RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the six month period ended June 30, 2011 totaled $7,260,647
compared to $6,599,629 for the six month period ended June 30, 2010, an increase
of $661,018, or approximately 10.0%. All revenue was generated by Bakers Pride's
Jefferson Street Bakery, Inc. as the company's Mt. Pleasant Street Bakery, Inc.
is awaiting funds to complete start-up of donut, brownie and cookie production.
Bakers Pride's bread category sales for the six month period ended June 30, 2011
totaled $6,682,801 compared to $6,086,243, an increase of $596,558, or
approximately 9.8%. The increase was due to increase in units produced as well
as increase in wholesale prices. The negotiated increase of BPI's wholesale
prices occurred in late March 2011; as an offset to higher input costs that
occurred in the fourth quarter 2010 and first quarter 2011. Bakers Pride's donut
category for the six month period ended June 30, 2011 totaled $577,846 compared
to $513,386 for the six month period ended June 30, 2010 an increase of $64,460,
or approximately 12.6%.
COST OF REVENUE
Cost of revenue for the six month period ended June 30, 2011 totaled $5,077,367,
or approximately 69.9% of net revenue, compared to $4,450,317, or approximately
67.4% of net revenue for the six month period ended June 30, 2010. Cost of
revenue was affected by broad based inflation related expenses such as energy
costs, vehicle expenses and operating supplies. Repairs and Maintenance expense
increased due to upgrades to BPI's Jefferson Street facility.
31
OPERATING EXPENSE
Operating expense for the six month period ended June 30, 2011 totaled
$2,211,966 compared to $1,941,959 for six month period ended June 30, 2010; an
increase of $270,007, or approximately 13.9%. Operating expenses as a percentage
of sales are expected to decrease with the start up of the company's Mt.
Pleasant Street facility and as other business development projects come on
line.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the six month period ended June 30, 2011 totaled
($28,686), or approximately 0.4 % of net revenue, compared to income of $207,352
or 3.1% of net revenue for the six month period ended June 30, 2010. This
decrease in income from operations for the six month period ending June 30, 2011
was due primarily to higher input costs in the first quarter of 2011 and the
inability to improve wholesale pricing until late March 2011. In the second
quarter of 2011, average wholesale pricing increased adequately to offset higher
input costs. Loss from operations for the six month period ending June 30, 2011
was 0.4% as a percentage of net revenues compared to a loss of 2.0 % for the
three month period ending March 31, 2011.
OTHER EXPENSE (INCOME)
Other expense for the six month period ended June 30, 2011 totaled $129,894
compared to other expense of $393,924 for the six month period ended June 30,
2010, a decrease of $264,031, or approximately 67.0%. The decrease in other
expense is primarily due to an unusual charge of $148,495 related to flash flood
that occurred in May 2010 and a continuing reduction in interest expense as a
result of renegotiated interest rate on the company's loans due to its parent.
Other income for the six month period ending June 30, 2011 totaled ($26,859)
compared to other income of ($33,964) for the six month period ending June 30,
2011, a decrease of $7,105, or approximately 20.9%. The decrease in other income
was primarily due a non recurring payment of $11,753 during the six month period
ending June 30, 2010.
NET LOSS
Net loss for the six month period ending June 30, 2011 totaled $158,579,
compared to net loss of $186,572 for the six month period ending June 30, 2010 a
decrease in net loss of $27,992, or approximately 15.0%. This decrease in net
income was primarily due to higher cost of goods and improvement in facilities
with delayed wholesale pricing increases to offset higher cost of goods.
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the three month period ended June 30, 2011 totaled $3,754,152
compared to $3,131,725 for the three month period ended June 30, 2010, an
increase of $622,426, or approximately 19.9 %. The increase in net revenue was
primarily the result of increase in unit sales of 12.0% as well as increase to
the average wholesale prices of approximately 7%. The 12% increase in the three
month period ending June 30, 2011 as compared to the three month period ending
June 30, 2010 was due to the loss of production in May 2010 due to a flash flood
32
that resulted in 5 days of lost sales. All revenue was generated by Bakers
Pride's Jefferson Street Bakery, Inc. as the company's Mt. Pleasant Street
Bakery, Inc. is awaiting funds to complete start-up of donut, brownies and
cookie production.
Bakers Pride's bread category sales for the three month period ended June 30,
2011 totaled $3,446,637 compared to $2,888,259 for the three month period ended
June 30, 2010, an increase of $558,378, or approximately 19.3%. Bakers Pride's
donut category sales for the three month period ended June 30, 2011 totaled
$307,515, compared to $243,466 for the three month period ended June 30, 2010 an
increase of $64,049, or approximately 26.3%. Increases in both categories were
attributed to loss of production and corresponding sales in May 2010 and
increased wholesale prices when compared to the three month period ending June
30, 2010.
COST OF REVENUE
Cost of revenue for the three month period ended June 30, 2011 totaled
$2,601,549, or approximately 69.3% of net revenue, compared to $2,201,497, or
approximately 70.3% of net revenue for the three month period ended June 30,
2010. The increase in the cost of revenue dollars was primarily the result of
Bakers Pride's direct materials costs (ingredients and packaging) increasing as
well as incremental costs related to producing additional units. Cost of revenue
also increased due to inflation in energy related expenses.
OPERATING EXPENSE
Operating expenses for the three month period ended June 30, 2011 totaled
$1,109,891 compared to $886,417 for three month period ended June 30, 2010, an
increase of $223,473, or approximately 25.2%. The increase in operating expense
was primarily due to additional production days in comparison to prior year,
increase in professional expenses and other business building initiatives.
Operating expenses as a percentage of sales are expected to decrease with the
start up of the company's Mt. Pleasant Street facility and as other business
development projects come on line.
INCOME FROM OPERATIONS
Income from operations for the three month period ended June 30, 2011 totaled
$42,712, or approximately 1.1 % of net revenue, compared to income of $ $43,811,
or approximately 1.4% of net revenue for the three month period ended June 30,
2010. This decrease in net income from operations for the three month period
ending June 30, 2011 compared to the three month period ending June 30, 2010 was
due primarily to higher operating expenses.
OTHER EXPENSE (INCOME)
Other expense for the three month period ending June 30, 2011 totaled $71,156
compared to other expense of $268,706 for the period ending June 30, 2010, a
decrease of $ 197,550, or approximately 73.5%. The decrease in other expense was
primarily due to difference in insurance payments versus actual payments for
expenses related to flash flood in May 2010. Other income for the three month
period ending June 30, 2011 totaled ($12,436), compared to other income of
($16,867) for the three month period ending June 30, 2010, a decrease of $4,431,
or approximately 26.3%. The decrease to other income was primarily due a
reduction in rental income.
33
NET LOSS
Net loss for the three month period ending June 30, 2011 totaled $28,444
compared to net loss of
$224,894 for the three month period ended June 30, 2010, a decrease in net loss
of $196,451, or approximately 73.5%. The decrease in net loss was a primarily a
result of increased revenue, as well as an increase in gross profit as outlined
above
EPIC SPORTS INTERNATIONAL, INC.
Note: The three and six months ended June 30, 2010's performance varied
significantly when compared to the three and six months ended June 30, 2011 due
to the signing of the Samsung C&T Strategic Alliance Agreement on October 26,
2010. As a result, 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.
RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the six month period ended June 30, 2011 totaled $939,530
compared to $2,432,926 for the six month period ended June 30, 2010, a decrease
of $1,493,396, or approximately 61.4%. At the Samsung level, gross sales totaled
$2,774,720 for the six month period ended June 30, 2011 compared to $2,432,926
for the six month period ended June 30, 2010, an increase of $341,794, or
approximately 14.0%. The primary reason for this increase in gross sales was due
to the launch of its new "Organix" product line and the increased consumer
demand for this product during the six month period ended June 30, 2011 when
compared to the six month period ended June 30, 2010.
COST OF REVENUE
Cost of revenue for the six month period ended June 30, 2011 totaled $0 compared
to $1,480,151, or approximately 60.8% of net revenues for the six month period
ended June 30, 2010, a decrease of $1,480,151. 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 six month period ended June 30, 2011 totaled
$915,971, or approximately 97.5% of sales compared to $1,593,310, or
approximately 65.5% of sales for the six month period ended June 30, 2010, a
decrease of $677,518, or approximately 42.5%. The decrease in operating expenses
for the six month period ended June 30, 2011 was primarily due to an initiative
to control spending; more specifically with emphasis on expenditures related to
marketing and promotion, a reduction in staff and on third party consulting.
34
INCOME (LOSS) FROM OPERATIONS
Income from operations for the six month period ended June 30, 2011 totaled
$23,739, or approximately 2.5% of net revenues compared to a loss from
operations of ($640,535) or 26.3% of sales for the six month period ended June
30, 2010, an increase in income from operations of $664,274. The primary reason
for this increase is related to the agreement with Samsung signed in October
2010 alongside management initiatives to reduce operating expenses.
INTEREST EXPENSE
Interest expense for the six month period ended June 30, 2011 totaled $5,269
compared to $68,728 for the six month period ended June 30, 2011, a decrease of
$63,459, or approximately 92.3%. 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. Further reductions in interest expense
are attributable to a reduction in factor fees due to Samsung collecting
receivables on behalf of ESI.
NET INCOME (LOSS)
Net income for the six month period ended June 30, 2011 totaled $18,470, or
approximately 2.0% of net revenues compared to a net loss of ($709,263) for the
six month period ended June 30, 2010, or approximately 29.2% of net revenues, an
increase in net income of $727,733. The increase in net income is primarily the
result of the new financing received from Samsung along with the signing of the
aforementioned agreement in October 2010, and the previously mentioned operating
expense reductions.
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the three month period ended June 30, 2011 totaled $412,188
compared to $1,037,833 for the three month period ended June 30, 2010, a
decrease of $625,646, or approximately 60.3%. At the Samsung level, gross sales
totaled $1,268,678 for the three month period ended June 30, 2011 compared to
$1,037,833 for the three month period ended June 30, 2010, an increase of
$230,845, or approximately 22.2%. The primary reason for this increase in gross
sales was due to the launch of its new "Organix" product line and the increased
consumer demand for this product during the three month period ended June 30,
2011 when compared to the three month period ended June 30, 2010.
COST OF REVENUE
Cost of revenue for the three month period ended June 30, 2011 totaled $0
compared to $616,038, or approximately 59.4% of net revenue for the three month
period ended June 30, 2010, a decrease of $616,013. The reason for the
significant decrease in cost of revenue is related to the agreement with Samsung
signed in October 2010.
35
OPERATING EXPENSES
Operating expenses for the three month period ended June 30, 2011 totaled
$333,985, or approximately 81.0% of net revenues compared to $908,992, or
approximately 87.6% of net revenues for the three month period ended June 30,
2010, a decrease of $575,007, or approximately 63.3%. The decrease in operating
expenses for the three month period ended June 30, 2011 was primarily due to an
initiative to control spending; more specifically with emphasis on expenditures
related to marketing and promotion, reduction in staff, and third party
consulting.
INCOME (LOSS) FROM OPERATIONS
Income from operations for the three month period ended June 30, 2011 totaled
$78,203, or approximately 19.0% of net revenues compared to a loss from
operations of ($487,197), or approximately 46.9% of net revenues for the three
month period ended June 30, 2010, an increase in income from operations of
$565,400. The increase in income from operations was primarily related to the
aforementioned initiatives to control spending in addition to the agreement with
Samsung signed in October 2010.
INTEREST EXPENSE
Interest expense for the three month period ended June 30, 2011 totaled $174
compared to $19,767 for the three month period ended June 30, 2010, a decrease
of $19,593 or 99.1%. 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. Further reductions in interest expense are attributable
to a reduction in factor fees due to Samsung collecting receivables on behalf of
Epic.
NET INCOME (LOSS)
Net income for the three month period ended June 30, 2011 totaled $78,029, or
approximately 18.9% of net revenue, compared to a net loss of $(506,964), or
approximately 48.8% of net revenue for the three month period ended June 30,
2010, an increase in net income of $584,993. The increase in net income is
primarily the result of the new financing received from Samsung along with the
signing of the aforementioned agreement in October 2010.
TYREE HOLDINGS CORP.
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. In
2011, another contributing factor to lower first quarter revenues was the severe
weather experienced in the Northeast, Tyree's primary market area, which
prohibited some work from being performed. 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
36
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.
AMOUNT DUE FROM FACTOR AND INVENTORY
Tyree maintains a $15,000,000 revolving credit agreement with its parent,
Amincor, Inc. 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 $5,092,618 and $4,154,058 as of June 30, 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 $9,907,382 and $10,845,942 of unused amounts available on the
revolving credit agreement at June 30, 2011 and 2010, respectively, subject to
borrowing base limitations. The annual interest rate charged on this loan was
approximately 5% for the six months ended June 30, 2011 and 2010, respectively.
LIQUIDITY
Management is currently seeking a new asset based lender that will provide a new
credit facility to support the growth of Tyree. Recent activity in this search
has been encouraging. Although Management is confident that it will succeed in
negotiating a new credit facility for Tyree, there are no assurances that it
will be successful. Management believes they have sufficient access to working
capital to sustain operations through June 30, 2012.
EXISTING CREDIT FACILITIES
Tyree's current revolving credit facility has an available credit line of
$2,163,000. During 2010, Tyree reduced the total amount due on the facility by
$1,449,000, however the eligible collateral also was reduced by approximately
the same amount. 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.
RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the six months ended June 30, 2011 totaled $22,055,774 compared
to $27,672,136 for the six months ended June 30, 2010, a decrease of $5,616,362,
or approximately 20.3%. The decrease is due to the extremely harsh weather
endured by the Northeast region of the US during the first quarter, the
continued sluggish US economy and the affect of higher oil prices on Tyree's
major customers. To preserve cash, Tyree slowed payments to vendors. This
further reduced revenues especially on time and materials billings for the
Construction and Environmental business units. Below is an analysis of revenue
by business unit for the six months ending June 30, 2011 and June 30, 2010.
37
REVENUES
2011 2010
------------ ------------
Service and Construction $ 15,192,921 $ 18,255,243
Environmental, Compliance and Engineering 6,610,044 9,008,566
Manufacturing / International 252,809 408,327
------------ ------------
Total $ 22,055,774 $ 27,672,136
============ ============
COST OF REVENUE
Cost of revenue for the six months ended June 30, 2011 totaled $17,132,775, or
approximately 77.7% of net revenue compared to $21,140,728, or 76.4% of net
revenue for the six months ended June 30, 2010, a decrease of $4,007,953, or
approximately 19.0%. The decrease in cost of revenue reflects the decrease in
revenue discussed in the revenue section above, plus continued success with
Tyree's efforts at improving margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended June 30,
2011 totaled $5,310,945, or approximately 24.1% of net revenue compared to
$5,607,633, or approximately 20.3% of net revenue for the six months ended June
30, 2010, a decrease of $296,687, or approximately 5.3%. The decrease in
selling, general and administrative costs during the six months ended June 30,
2011 was due to cost reductions related to personnel layoffs at the end of first
quarter. Management expects the costs to remain at this reduced level for the
balance of the year.
INCOME (LOSS) FROM OPERATIONS
The loss from operations for the six months ended June 30, 2011 totaled
($387,946), or approximately (1.4%) of net revenue, compared to the profit from
operations of $923,775, or approximately 3.3% of net revenue for the six months
ended June 30, 2010, a decrease in profit from operations of ($1,311,721). The
decrease in profit from operations was primarily due to the revenue shortfall
noted above, even though profit margins for the second quarter increased and
selling, general and administrative expenses were reduced.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 2011 totaled $945,534, or
approximately 3.4% of net revenue compared to $288,166, or approximately 1.0% of
net revenue for the six months ended June 30, 2010, an increase of $657,368, or
approximately 228.1%. The increase in interest expense during the six months
ended June 30, 2011 was primarily due to an increase in borrowings from the
credit facilities early in the period noted above.
38
OTHER INCOME
Other income for the six months ended June 30, 2011 totaled $13,254 compared to
other income of $8,029 for the six months ended June 30, 2010, an increase in
other income of $5,225, or approximately 65.1%. This income mainly comes from
the sale of obsolete equipment and scrap materials.
NET INCOME (LOSS)
Net loss for the six months ended June 30, 2011 totaled ($1,320,226) compared to
a net income of $643,638 for the six months ended June 30, 2010, a decrease in
net income of $1,963,864. The decrease in net profit was primarily due to the
factors noted above net of the increase in income taxes of $120,000.
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
NET REVENUE
Net revenue for the three months ended June 30, 2011 totaled $11,612,549
compared to $14,709,087 for the three months ended June 30, 2010, a decrease of
$3,096,538, or approximately 21.1%. The decrease is primarily due to the
continued sluggish US economy and the affect of higher oil prices on Tyree's
petroleum marketing customers. The situation was compounded by a work slowdown
by one of Tyree's major customers. To preserve cash, Tyree slowed payments to
vendors. This further reduced revenues especially on time and materials billings
for the Construction and Environmental business units. Below is an analysis of
revenue by business unit for the three months ending June 30, 2011 and June 30,
2010.
REVENUES
2011 2010
------------ ------------
Service and Construction $ 7,878,382 $ 9,799,753
Environmental, Compliance and Engineering 3,560,151 4,679,479
Manufacturing / International 174,016 229,855
------------ ------------
Total $ 11,612,549 $ 14,709,087
============ ============
COST OF REVENUE
Cost of revenue for the three months ended June 30, 2011 totaled $8,930,106, or
approximately 76.9% of net revenue compared to $11,658,701, or 79.3% of net
revenue for the three months ended June 30, 2010, a decrease of $2,728,595, or
approximately 23.4%. The decrease in cost of revenue reflects the decrease in
revenue discussed in the revenue section above, plus continued success with
Tyree's efforts at improving margins.
39
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended June 30,
2011 totaled $2,611,900, or approximately 22.5% of net revenue compared to
$2,930,383, or approximately 19.9% of net revenue for the three months ended
June 30, 2010, a decrease of $318,482, or approximately 10.9%. The decrease in
selling, general and administrative costs during the three months ended June 30,
2011 was due to cost reductions related to personnel layoffs at the end of the
first quarter. Management expects the costs to remain at this reduced level for
the balance of the year.
INCOME FROM OPERATIONS
Income from operations for the three months ended June 30, 2011 totaled $70,543,
or approximately 0.6% of net revenue, compared to the income from operations of
$120,003, or approximately 0.8% of net revenue for the three months ended June
30, 2010, a decrease in income from operations of $49,460, or approximately
41.2%. The decrease in income from operations was primarily due to the revenue
shortfall noted above, even though profit margins increased, and selling,
general and administrative expenses were reduced.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 2011 totaled $207,964, or
approximately 1.8% of net revenue compared to $181,357, or approximately 1.2% of
net revenue for the three months ended June 30, 2010, an increase of $26,607, or
approximately 14.7%. The increase in interest expense during the three months
ended June 30, 2011 was primarily due to an increase in borrowing from the
credit facilities noted above early in the period.
OTHER INCOME
Other income for the three months ended June 30, 2011 totaled $5,665 compared to
other income of $4,049 for the three months ended June 30, 2010, an increase in
other income of $1,616, or approximately 39.9%. This income mainly comes from
the sale of obsolete equipment and scrap materials.
NET INCOME (LOSS)
Net loss for the three months ended June 30, 2011 totaled ($131,756) compared to
a net loss of ($177,305) for the three months ended June 30, 2010, a decrease in
net loss of $45,549, or approximately 25.7%. The decrease in net loss was
primarily due to the factors noted above net of the increase in income taxes of
$120,000.
40
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.
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,
41
* 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 June 30, 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 June 30, 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
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
42
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 generally
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.
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.
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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
securities registered on some national securities exchanges). Our shares
currently are not traded on any stock exchange nor are they quoted on the
Over-the-Counter Bulletin Board. We may in the future 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. If we are successful in finding a market maker and
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.
44
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, as amended) 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. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks. The additional sales practice and disclosure
requirements imposed upon broker-dealers selling penny stock 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, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
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 Preferred Shares are convertible into 10,752,823
shares of Common Stock. Accordingly, The conversion of our Preferred Stock 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
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
45
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.
WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT
WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE
PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE
OUR ABILITY TO EARN A PROFIT.
We are required to file periodic reports with the SEC pursuant to the Exchange
Act and the rules and regulations promulgated thereunder. In order to comply
with these requirements, our independent registered public accounting firm will
have to review our financial statements on a quarterly basis and audit our
financial statements on an annual basis. Moreover, our legal counsel will have
to review and assist in the preparation of such reports. The costs charged by
these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage
in and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an expense to
our operations and thus have a negative effect on our ability to meet our
overhead requirements and earn a profit. We may be exposed to potential risks
resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our common
stock, if a market ever develops, could drop significantly.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Amincor parent 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.
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
AMINCOR MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE GROWTH OF OUR
SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE.
Amincor currently anticipates that its available capital resources and operating
income will be sufficient to meet the expected working capital and capital
expenditure requirements of its subsidiaries for at least the next 12 months.
However, there can be no assurance that such resources will be sufficient to
fund the long-term growth of the subsidiaries businesses. Amincor may raise
additional funds through public or private debt or equity financings. Amincor
cannot assure investors that any additional financing will be available on
favorable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, Amincor may not be able to take advantage of
46
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures, or may be forced to curtail its business. In any such
case, its business, operating results or financial condition would be materially
adversely affected.
OUR ABILITY TO RETAIN KEY PERSONNEL IN EACH OF OPERATING SUBSIDIARIES WILL BE AN
IMPORTANT FACTOR IN THE SUCCESS OF OUR BUSINESS AND A FAILURE TO RETAIN KEY
PERSONNEL MAY RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN.
We are highly dependent upon the management personnel of our subsidiary
companies because of their experience in their respective industries. The
competition for qualified personnel in the market in which our subsidiaries
operate is intense and the loss of the services of one or more of these
individuals in any of these business segments may impair management's ability to
operate our subsidiaries. We have not purchased key man life insurance on any of
these individuals, which insurance would provide us with insurance proceeds in
the event of their death. Without key man life insurance, we may not have the
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
47
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
we will not have to make significant capital expenditures in the future in order
to remain in compliance with applicable laws and regulations. Contamination and
exposure to hazardous substances can also result in claims for damages,
including personal injury, property damage, and natural resources damage claims.
Future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
have a material adverse effect on our business, financial condition or results
of operations.
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
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 are outside of EQS's control and 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
48
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.
THE FACTORS ABOVE ARE NOT EXHAUSTIVE. FOR A MORE COMPLETE LIST OF RISK FACTORS
AFFECTING THE COMPANY AND ITS SUBSIDIARIES, PLEASE REFER TO THE COMPANY'S FORM
10-K FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION ON APRIL
18, 2011, AND ANY AMENDMENTS THERETO.
ITEM 5. OTHER INFORMATION.
On August 12, 2011, Baker's Pride, Inc., through its wholly owned subsidiary,
The South Street Bakery, Inc.("SSB") entered into a lease agreement (the "Lease
Agreement") with Corbi Properties, LLC, an Iowa limited liability company and
Clear Lake Specialty Products, Inc., an Iowa corporation (collectively, the
"Landlord"). Pursuant to the Lease Agreement, SSB is leasing from the Landlord
certain property and equipment located in Clear Lake, Iowa. The term of the
Lease Agreement is one (1) year, with the right of an automatic one (1) year
extension if SSB has complied with the terms of the Lease Agreement. SSB shall
pay the Landlord $360,000 per year or monthly installments of $30,000. In
addition to the monthly installments, SSB paid a security deposit of $60,000.
Concurrently with the signing of the Lease Agreement, the Landlord granted SSB
an irrevocable option to purchase all of the Landlord's right, title and
interest in and to the property, plant and assets, as set forth in that certain
option agreement, dated August 12, 2011, by and among the Landlord and SSB (the
"Option Agreement"). In consideration for the grant of the option, SSB paid the
Landlord $275,000 in cash (the "Option Payment"). The exercise price of the
option is $3,607,000 less the Option Payment, any payments made pursuant to the
Lease Agreement and any profit participation payments made pursuant to the terms
of the Option Agreement. The option may be exercised at anytime between August
12, 2011 and 5:30 p.m. New York City time on August 11, 2012.
49
This summary of the Lease Agreement and the Option Agreement does not purport to
be complete and is subject to, and qualified in its entirety by, the full text
of the Lease Agreement and the Option Agreement filed as Exhibits 10.1 and
Exhibit 10.2 hereto, respectively, and are incorporated by reference herein.
ITEM 6. EXHIBITS.
10.1+ Lease Agreement, dated August 12, 2011, by and among The South Street
Bakery, Inc., Corbi Properties, LLC and Clear Lake Specialty Products,
Inc.
10.2+ Option Agreement, dated August 12, 2011, by and among The South Street
Bakery, Inc., Corbi Properties, LLC and Clear Lake Specialty Products,
Inc.
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
50
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: August 16, 2011 By: /s/John R. Rice, III
----------------------------------------
John R. Rice, III, President
Date: August 16, 2011 By: /s/ Robert L. Olson
----------------------------------------
Robert L. Olson, Chief Financial Officer
51