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: September 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 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor
New York, NY 10019
(Address of Principal Executive Offices)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 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 SEPTEMBER 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........................................ 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 39
Item 4. Controls and Procedures.......................................... 39
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 41
Item 1A. Risk Factors..................................................... 42
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
September 30, December 31,
2011 2010
------------ ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 642,511 $ 2,607,325
Accounts receivable, net of allowance of $432,758 and
$450,000 in 2011 and 2010, respectively 10,345,980 8,596,583
Note receivable -- 522,501
Due from related party 3,415,738 1,717,233
Inventories, net 4,548,388 3,369,862
Costs and estimated earnings in excess of billings on
uncompleted contracts 954,097 279,152
Prepaid expenses and other current assets 855,106 714,659
Current assets - discontinued operations 145,157 1,601,268
------------ ------------
Total current assets 20,906,977 19,408,583
------------ ------------
PROPERTY AND EQUIPMENT, NET 14,322,139 15,090,964
PROPERTY AND EQUIPMENT, NET - DISCONTINUED OPERATIONS 932,603 2,379,035
------------ ------------
Total property and equipment, net 15,254,742 17,469,999
------------ ------------
OTHER ASSETS:
Mortgages receivable 6,180,000 6,180,000
Goodwill 15,554,397 15,346,400
Other intangible assets, net 12,065,230 13,196,032
Deferred financing costs, net 202,096 319,465
Other assets 342,920 150,975
Assets held for sale 2,730,000 6,575,000
Other assets - discontinued operations 461,667 1,771,821
------------ ------------
Total other assets 37,536,310 43,539,693
------------ ------------
Total assets $ 73,698,029 $ 80,418,275
============ ============
4
September 30, December 31,
2011 2010
------------ ------------
(unaudited) (audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,996,937 $ 7,668,394
Assumed liabilities - current portion 2,075,574 2,480,921
Accrued expenses and other current liabilities 2,990,599 3,633,318
Loans payable to related party 869,735 713,930
Notes payable - current portion 957,184 333,764
Capital lease obligations - current portion 183,754 138,474
Billings in excess of costs and estimated earnings on
uncompleted contracts 2,164,515 536,825
Current liabilities - discontinued operations 5,085,868 5,625,834
------------ ------------
Total current liabilities 23,324,166 21,131,460
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion -- 28,375
Capital lease obligations - net of current portion 504,764 450,342
Notes payable - net of current portion 2,224,753 1,587,937
Other long-term liabilities 21,661 21,661
Long-term liabilities - discontinued operations 74,861 254,826
------------ ------------
Total long-term liabilities 2,826,039 2,343,141
------------ ------------
Total liabilities 26,150,205 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 88,607,149 88,250,203
Accumulated deficit (39,130,130) (29,858,319)
------------ ------------
Total Amincor shareholders' equity 49,507,426 58,422,291
------------ ------------
NONCONTROLLING INTEREST EQUITY (1,959,602) (1,478,617)
------------ ------------
Total equity 47,547,824 56,943,674
------------ ------------
Total liabilities and shareholders' equity $ 73,698,029 $ 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
Nine Months Ended September 30, 2011 and 2010
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2011 2010 2011 2010
------------ ------------ ------------ ------------
(consolidated) (combined) (consolidated) (combined)
Net revenues $ 15,073,125 $ 16,655,373 $ 44,907,208 $ 50,927,138
COST OF REVENUES 12,593,955 13,763,208 35,229,820 39,354,254
------------ ------------ ------------ ------------
Gross profit 2,479,170 2,892,165 9,677,388 11,572,884
SELLING, GENERAL AND ADMINISTRATIVE 2,835,574 3,486,057 12,902,862 11,035,650
------------ ------------ ------------ ------------
(Loss) income from operations (356,404) (593,892) (3,225,474) 537,234
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 446,047 912,147 1,050,408 1,479,706
Other expenses (income) (156,431) (429,349) (552,179) (322,847)
------------ ------------ ------------ ------------
Total other expenses (income) 289,616 482,798 498,229 1,156,859
------------ ------------ ------------ ------------
Loss before provision for income taxes (646,020) (1,076,690) (3,723,703) (619,625)
Provision for income taxes -- (120,000) -- --
------------ ------------ ------------ ------------
Net loss from continuing operations (646,020) (956,690) (3,723,703) (619,625)
------------ ------------ ------------ ------------
Loss from discontinued operations (1,327,637) (1,917,166) (6,029,093) (4,516,875)
Net loss (1,973,657) (2,873,856) (9,752,796) (5,136,500)
------------ ------------ ------------ ------------
Net loss attributable to non-controlling interests (303,808) (181,935) (480,985) (267,758)
------------ ------------ ------------ ------------
Net loss attributable to Amincor stockholders $ (1,669,849) $ (2,691,921) $ (9,271,811) $ (4,868,742)
============ ============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS -
BASIC AND DILUTED:
Net loss from continuing operations
attributable to Amincor stockholders $ (0.02) $ (0.03) $ (0.13) $ (0.02)
============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted 28,654,671 35,303,082 28,654,671 35,303,082
============ ============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR
STOCKHOLDERS - BASIC AND DILUTED:
Net loss attributable to Amincor stockholders $ (0.06) $ (0.08) $ (0.32) $ (0.14)
============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted 28,654,671 35,303,082 28,654,671 35,303,082
============ ============ ============ ============
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
Nine Months Ended September 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 -- $ --
------------ ------------ ------------ ------------ ------------ ------------
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 September 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
------------ ------------ ------------ ------------ ------------ ------------
Vesting of stock options -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 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 $(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 -- (4,868,742) (267,758) (5,136,500)
------------ ------------ ------------ ------------
Balance at September 30, 2010
(unaudited) $ 48,934,158 $(27,270,366) $ (1,475,605) $ 20,225,243
============ ============ ============ ============
Balance at December 31, 2010
(audited) $ 88,250,203 $(29,858,319) $ (1,478,617) $ 56,943,674
------------ ------------ ------------ ------------
Vesting of stock options 356,946 -- -- 356,946
Net loss -- (9,271,811) (480,985) (9,752,796)
------------ ------------ ------------ ------------
Balance at September 30, 2011
(unaudited) $ 88,607,149 $(39,130,130) $ (1,959,602) $ 47,547,824
============ ============ ============ ============
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
Nine Months Ended September 30, 2011 and 2010
(Unaudited)
2011 2010
------------ ------------
(consolidated) (combined)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (3,723,703) $ (619,625)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment 1,523,549 645,646
Amortization of intangible assets 1,427,802 1,403,502
Amortization of deferred financing cost 117,369 117,351
Stock based compensation 356,946 --
Gain on sale of equipment (73,689) --
Provision for doubtful accounts (8,600) (940,961)
Changes in assets and liabilities:
Accounts receivable (1,740,797) 349,604
Due from factor - related party -- (2,053,181)
Inventory (1,178,526) (402,522)
Costs and estimated earnings in excess of billings
on uncompleted contracts (674,945) (960,041)
Construction in process -- 113,336
Prepaid expenses and other current assets (140,446) 31,507
Other assets (191,944) 18,000
Accounts payable 2,308,909 2,243,015
Accrued expenses and other current liabilities (642,719) 1,275,686
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,627,690 2,046,231
Billings on construction -- (1,357,778)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATIONS - CONTINUING OPERATIONS (1,013,104) 1,909,770
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (174,554) (206,268)
Proceeds from sale of equipment 113,220 --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (61,334) (206,268)
------------ ------------
8
2011 2010
------------ ------------
(consolidated) (combined)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments to related parties (1,542,700) (5,577,670)
Net proceeds from loans with related parties -- 5,697,325
Principal payments of capital lease obligations (103,954) (12,288)
Net payments of notes payable 238,646 126,432
Payments of assumed liabilities (791,039) (2,117,881)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES - CONTINUING OPERATIONS (2,199,047) (1,884,082)
------------ ------------
Net cash used in operating activities - discontinued operations (2,356,364) (22,839)
Net cash provided by investing activities - discontinued operations 3,845,000 107,711
Net cash provided by (used in) financing activities - discontinued
operations (179,965) (84,872)
------------ ------------
Decrease in cash (1,964,814) (180,580)
Cash, beginning of period 2,607,325 325,359
------------ ------------
Cash, end of period $ 642,511 $ 144,779
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the nine months ended September 30,
Interest $ 172,348 $ 2,233,637
=========== ============
Income taxes $ 42,340 $ 30,829
=========== ============
Non-cash investing activities:
Acquisition of net assets of Environmental Quality Services, Inc. $ -- $ --
=========== ============
Acquisition of equipment by capital lease and notes payable $ 203,191 $ 170,678
=========== ============
Conversion of certain accounts payable to notes payable - vendor $ 1,022,091 $ --
=========== ============
The accompanying notes are an integral part of these consolidated or
combined condensed financial statements
9
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Condensed Financial Statements
September 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 Form
10-SB under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell
company with the purpose of finding a suitable company for a reverse merger
transaction. Joning ceased filing periodic reports subsequent to its filing of
its Form 10-QSB on October 24, 2004 as it did not have the personnel or
resources to continue the filings and there was no operating business or pending
business transactions. Therefore Joning was delinquent in its Exchange Act
reporting obligations from the filing of its Form 10-Q for the quarter ended May
30, 2004 (which it filed on October 25, 2004) until June 2, 2008 when it 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 September 30, 2011, Amincor operates the following entities:
Baker's Pride, Inc. ("BPI")
Tyree Holdings Corp. ("Tyree")
Environmental Quality Services, Inc. ("EQS")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of cookies.
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.
10
EQS
EQS provides environmental and hazardous waste testing in the Northeast United
States.
DISCONTINUED OPERATIONS
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.
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.
As of September 30, 2011, Amincor has adopted a plan to discontinue operations
at the following entity within the next twelve months:
Epic Sports International, Inc. ("ESI")
ESI
ESI was 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 was to design and marketing these tennis
branded products.
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
11
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 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. 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.
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.
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.
Tyree uses the percentage-of-completion method, which recognizes income as work
on a contract progresses. Under 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
12
represents revenues recognized in excess of amounts billed and 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.
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
13
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived intangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
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. An impairment of $467,870 was recorded on the goodwill of
ESI as of September 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 and effective September 30, 2011
the Company discontinued the operations of Epic Sports International, Inc. As a
result, losses from Masonry, Tulare and ESI are included in the loss from
discontinued operations in the accompanying financial statements for the three
and nine months ended September 30, 2011, respectively. Assets and liabilities
related to discontinued operations are presented separately on the balance
sheets as of September 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 nine months ended September 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, Tulare and ESI have been segregated
from continuing operations and reported as discontinued operations:
14
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
------------ ------------ ------------ ------------
Results From Discontinued Operations:
Net revenues from discontinued operations $ 28,321 $ 4,715,538 $ 4,600,040 $ 16,384,373
Loss from discontinued operations $ (1,327,637) $ (1,917,166) $ (6,029,093) $ (4,516,875)
The following is a summary of the assets and liabilities of the discontinued
operations. The amounts were derived from historical financial information.
September 30, December 31,
2011 2010
------------ ------------
Accounts receivable $ -- $ 303,364
Inventories 114,923 1,098,716
Prepaid expenses and other current assets 30,234 199,188
Property, plant and equipment, net 932,603 2,379,035
Goodwill and other intangible assets -- 1,473,558
Other assets 461,667 298,263
------------ ------------
Total assets $ 1,539,427 $ 5,752,124
============ ============
Accounts payable $ 4,292,024 $ 4,723,243
Accrued expenses and other current liabilities 793,844 902,591
Other Long Term Liabilities 74,861 254,826
------------ ------------
Total Liabilities $ 5,160,729 $ 5,880,660
============ ============
Net Liabilities $ (3,621,302) $ (128,536)
============ ============
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,
* Finished bakery goods.
A summary of inventory as of September 30, 2011 and December 31, 2010 is below.
September 30, December 31,
2011 2010
---------- ----------
Raw materials $4,055,311 $3,083,440
Ingredients 434,719 286,422
Finished goods 58,358 --
---------- ----------
$4,548,388 $3,369,862
========== ==========
5. PROPERTY, PLANT, AND EQUIPMENT
At September 30, 2011 and December 31, 2010, property, plant, and equipment
consisted of the following:
15
Range of Estimated September 30, December 31,
Useful Lives 2011 2010
------------ ------------ ------------
Land n/a $ 917,054 $ 917,054
Machinery and equipment 2 - 10 years 9,215,110 8,894,141
Furniture and fixtures 5 - 10 years 110,439 110,438
Building and leasehold improvements 10 years 4,126,641 3,679,424
Computer equipment and software 5 - 7 years 779,547 706,162
Construction in progress n/a 14,801 56,801
Vehicles 3 - 10 years 2,836,924 3,084,966
------------ ------------
18,000,516 17,448,986
Less accumulated depreciation 3,678,377 2,358,022
------------ ------------
$ 14,322,139 $ 15,090,964
============ ============
Property, plant, and equipment include items under capital leases of $863,999 as
of September 30, 2011 and $660,808 as of December 31, 2010. Accumulated
depreciation includes $118,001 and $47,201 related to those items as of
September 30, 2011 and December 31, 2010, respectively.
Total depreciation expense related to continuing operations for the nine months
ended September 30, 2011 and 2010, was $1,523,550 and $645,646, respectively.
Total depreciation expense related to continuing operations for the three months
ended September 30, 2011 and 2010 was $493,921 and $207,136, 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
September 30, 2011 and December 31, 2010:
Range of Estimated September 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 -- --
------------ ------------
15,025,000 14,863,000
Less Accumulated Amortization 6,390,170 4,962,368
------------ ------------
$ 8,634,830 $ 9,900,632
============ ============
The above licenses and permits have renewal provisions which are generally one
to four years. At September 30, 2011, the weighted-average period to the next
renewal was ten months. The costs of renewal are nominal and are expensed when
incurred. The Company intends to renew all licenses and permits currently held.
Amortization expense related to continuing operations for the nine months ended
September 30, 2011 and 2010 was $1,427,804 and $1,403,502, respectively.
Amortization expense related to continuing operations for the three months ended
September 30, 2011 and 2010 was $475,934 and $467,834, respectively.
Goodwill, and licenses and permits of $3,295,400 at September 30, 2011 and
December 31, 2010, have indefinite useful lives and are not amortized but tested
for impairment annually.
16
7. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2011 and December 31,
2010:
September 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 $ 1,930,279 $ 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% 751,657 454,221
------------ ------------
Total $ 3,181,937 $ 1,921,701
------------ ------------
Less current portion 869,735 713,930
------------ ------------
Long-term portion $ 2,312,202 $ 1,207,771
============ ============
8. LOANS FROM RELATED PARTIES
Loans from related parties consist of the following at September 30, 2011 and
December 31, 2010:
September 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 $ 494,561 $ 713,930
borrowing of $800,000
Group, LLC which expires on August 15, 2014
bearing interest at 18% per annum. Maximum
borrowing of $600,000 $ 375,175 --
------------ ------------
Total loans and amounts payable to related parties $ 869,736 $ 713,930
============ ============
Interest expense for these loans amounted to approximately $132,711 and $0 for
the nine months ended September 30, 2011 and 2010, respectively. Interest
expense for these loans amounted to approximately $37,667 and $0 for the three
months ended September 30, 2011 and 2010, respectively.
17
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%.
On September 1, 2011 the Company's Board of Directors granted an aggregate of
485,000 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 $1.73, based on the
estimated fair market value of the Company's share price at the date of the
grant. The stock options vest over a two year period. 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 year expiration
period, stock price volatility of 40%, risk free interest rate of 0.90%, and
dividend yield of 0%.
Stock based compensation cost of approximately $356,946 and $0 is reflected in
selling, general and administrative expenses on the accompanying consolidated or
combined condensed statements of operations for the nine months ended September
30, 2011 and 2010, respectively and approximately $13,921 and $0 for the three
months ended September 30, 2011, and 2010, respectively.
18
10. OPERATING SEGMENTS
Operating subsidiaries are organized primarily by Amincor and its operating
subsidiaries into seven operating segments: (1) Amincor, (2) Amincor Other
Assets, Inc. ("Other Assets"), (3) Amincor Contract Administrators, Inc.
("Contract Admin"), (4) BPI, (5) EQS, (6) Tyree, and (7) Discontinued Operations
("Disc. Ops.") (where appropriate). Segment information is as follows:
September 30, December 31,
2011 2010
------------ ------------
TOTAL ASSETS:
Amincor $ 3,596,980 $ 4,675,136
Other Assets 20,275,760 26,044,101
Contract Admin -- 197
BPI 16,176,326 14,945,020
EQS 1,262,679 --
Tyree 30,846,857 29,001,697
Disc. Ops 1,539,427 5,752,124
------------ ------------
Total assets $ 73,698,029 $ 80,418,275
============ ============
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
TOTAL CAPITAL EXPENDITURES:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 36,643 12,847 127,088 106,981
EQS -- -- -- --
Tyree 739 268,274 8,397 276,606
------------ ------------ ------------ ------------
Total capital expenditures $ 37,382 $ 281,121 $ 135,485 $ 383,587
============ ============ ============ ============
September 30, December 31,
2011 2010
------------ ------------
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 7,770,900 7,770,900
EQS 207,997 --
Tyree 7,575,500 7,575,500
------------ ------------
Total goodwill $ 15,554,397 $ 15,346,400
============ ============
19
September 30, December 31,
2011 2010
------------ ------------
TOTAL INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 5,386,171 5,959,846
EQS 137,700 --
Tyree 6,406,359 7,236,186
------------ ------------
Total intangible assets $ 11,930,230 $ 13,196,032
============ ============
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
NET REVENUES:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin 395 -- 395 --
BPI 3,968,096 3,307,880 11,228,743 9,907,509
EQS 260,839 -- 778,502 --
Tyree 10,843,795 13,347,493 32,899,569 41,019,629
------------ ------------ ------------ ------------
Net revenues $ 15,073,125 $ 16,655,373 $ 44,907,208 $ 50,927,138
============ ============ ============ ============
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES:
Amincor $ 1,246,436 $ (364,858) $ (768,133) $ (364,859)
Other Assets (773,240) -- (1,243,208) --
Contract Admin -- -- 395 --
BPI 346,813 (43,012) 1,282,486 (229,584)
EQS (245,658) -- (594,194)
Tyree (1,220,370) (668,819) (2,401,047) (25,181)
------------ ------------ ------------ ------------
Income (loss) before Provision
for Income Taxes $ (646,020) $ (1,076,690) $ (3,723,703) $ (619,625)
============ ============ ============ ============
20
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
DEPRECIATION OF PROPERTY
AND EQUIPMENT:
Amincor $ -- $ -- $ -- $ --
Other Assets 250,021 -- 750,063 --
Contract Admin -- -- -- --
BPI 2,755 -- 5,896 --
EQS 25,643 -- 76,390 --
Tyree 215,681 207,136 691,200 645,646
------------ ------------ ------------ ------------
Total depreciation of property
and equipment $ 493,921 $ 207,136 $ 1,523,550 $ 645,646
============ ============ ============ ============
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
AMORTIZATION OF INTANGIBLE
ASSETS:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 191,225 191,225 573,675 573,675
EQS 8,100 -- 24,300 --
Tyree 276,609 276,609 829,827 829,827
------------ ------------ ------------ ------------
Total amortization of intangible
assets $ 475,934 $ 467,834 $ 1,427,802 $ 1,403,502
============ ============ ============ ============
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (117,512) $ -- $ (602,426) $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 66,261 155,779 197,430 435,172
EQS 31,810 -- 44,382 --
Tyree 465,488 756,368 1,411,022 1,044,534
------------ ------------ ------------ ------------
Total interest expense, net $ 446,047 $ 912,147 $ 1,050,408 $ 1,479,706
============ ============ ============ ============
21
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.
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.
22
In 2011, management expects to list the property formerly occupied by Tulare
Frozen Foods in Lindsay, CA for sale for approximately $2,000,000. BPI has a
USDA loan proposal of $5.0 million from an Iowa bank and is awaiting USDA
approval.
The Company has filed a Form 10 Registration Statement with the SEC to register
its Class A and Class B common shares. Once the Registration Statement has been
approved by the SEC the Company intends to seek to have its shares listed to be
publicly traded and thereafter to raise capital through the sale of its equity
securities.
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 September 30, 2012.
13. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through
the date the accompanying consolidated condensed financial statements became
available to be issued. There were no material subsequent events.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 September 30, 2011, Amincor operates the following entities:
Baker's Pride, Inc. ("BPI")
Environmental Quality Services, Inc. ("EQS")
Tyree Holdings Corp. ("Tyree")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of cookies.
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.
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.
ESI
ESI was 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 was to design and marketing these tennis
branded products.
24
In September 2011, ESI received notice of termination of the Volkl license. ESI
was formerly 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 disclosed in our June 30, 2011 Form 10-Q and as discussed in more
detail below, Amincor management made the decision to discontinue the operations
of Masonry due to lack of profitability and is in the process of winding down
and liquidating the assets of Masonry.
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 disclosed in our June 30, 2011 Form 10-Q and as discussed in more detail
below, Amincor management made the decision to discontinue the operations of
Tulare due to lack of profitability and is in the process of winding down and
liquidating the assets of Tulare.
AMINCOR, INC.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2011, cash flows used in operating
activities were $1,103,104. This was principally due to loss from continuing
operations and an increase in both accounts receivable and inventory of
approximately $2.9 million. The increase in accounts receivable can be
attributed to the acquisition of EQS to our consolidated financials in the first
quarter of 2011 and additional customers associated with the South Street Bakery
in the third quarter of 2011. This was offset, in part by a decrease in accounts
payable and billings in excess of costs and estimated earnings on uncompleted
contracts.
For the nine months ended September 30, 2011, cash flows used in investing
activities were $61,334 mainly due to the leasing of additional vehicles by
Tyree and additional equipment purchased by Baker's Pride. This was partially
offset by the sale of some unutilized equipment by Tyree.
For the nine months ended September 30, 2010, cash used in financing activities
was $2,199,047 mainly due to the repayment of our related party borrowings and
payments of assumed liabilities.
For the nine months ended September 30, 2011, total cash provided by
discontinued operations was $1,308,671. Cash provided by discontinued operations
is primarily related to the sale of assets of discontinued operations and is
partially offset by continuing net operating losses.
25
As of September 30, 2011, the Company had a working capital deficit of
approximately $2.4 million and an accumulated deficit of approximately $39.1
million. 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 for the Company
will remain a challenge. Management is engaged in several projects to raise
capital at this time for the Company. Reducing the impact of negative cash flows
associated with discontinued operations of Masonry, Tulare and Epic 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 the USDA loan through a bank which will
increase products offered to the market and increase cash flow and EBIDTA once
implemented. Management continues to work with Tyree's management to further
reduce overhead expenditures so that it can better manage its accounts payable
and serve its customers better. Management believes that they have sufficient
access to working capital to operate the business through September 30, 2012.
DISCONTINUED OPERATIONS
On June 30, 2011, management elected to discontinue the operations of Masonry
Supply Holding Corp. and Tulare Frozen Foods, LLC. On September 30, 2011,
management elected to discontinue the operations of Epic Sports International,
Inc.
With respect to Masonry, continued reduced demand for construction materials as
a result of the recession has made it difficult for Masonry to compete within
their industry. Competitors of Masonry have been selling their products below
their costs in an attempt to maintain a larger portion of the overall
diminishing market share. After an analysis of trends from January through May
of 2011, it became clear 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 their
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, due to the aforementioned loss
on sales, 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 major competitors paying
higher amounts for raw product alongside selling their products at reduced
profit margins through June 2011. 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 remain competitive 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 expenditures 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
26
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.
With respect to Epic, management determined, after reviewing the market
potential for the niche brand of Volkl Tennis, that it was highly unlikely that
Epic could sustain operations from its own cash flow without substantial
financial support from its parent. The decision to discontinue operations was
made after evaluating the impact that the Samsung financing and the additional
capital provided by its parent have had on operations over the last 12 months.
In addition, the Volkl license was terminated in September 2011, providing
further support for management's decision to discontinue the operations of Epic.
In accordance with Generally Accepted Accounting Principles of the United States
of America ("GAAP"), the combined results of Masonry Supply Holding Corp.,
Tulare Frozen Foods, LLC and Epic Sports International, Inc. have been presented
on our financial statements as discontinued operations. It is management's
intention to complete the liquidation of Masonry, Tulare and Epic's assets
within the next twelve months, if not sooner.
RESULTS FROM OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011 AND
2010
NET REVENUE
Net revenue for the nine month period ended September 30, 2011 totaled
$44,907,208 compared to net revenues of $50,927,138 for the nine month period
ended September 30, 2010, a decrease in net revenue of $6,019,930 or
approximately 11.8%. The primary reason for the decrease in net revenues is
related to Tyree's operations. Tyree's net revenues decreased by over $8
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 nine months
ended September 30, 2011. A detailed analysis of each subsidiary company's
individual net revenue can be found within their respective management's
discussions and analysis sections of this Form 10-Q
COST OF REVENUES
Cost of revenues for the nine month period ended September 30, 2011 totaled
$35,229,820 or approximately 78.5% of net revenues compared to $39,354,254 or
approximately 77.3% of net revenues for the nine month period ended September
30, 2010. Cost of revenue was relatively unchanged as a percentage of net
revenues between the nine month period ended September 30, 2011 and September
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 nine month period ended September 30, 2011 totaled
$12,902,862 compared to $11,035,650 for the nine month period ended September
30, 2010, an increase in operating expenses of $1,867,212 or approximately
16.9%. A detailed analysis of each subsidiary company's individual operating
expenses can be found within their respective management's discussions and
analysis sections of this Form 10-Q.
27
(LOSS) INCOME FROM OPERATIONS
Loss from operations for the nine month period ended September 30, 2011 totaled
($3,225,474) compared to an income from operations of $537,234 for the nine
month period ended September 30, 2010, an increase in loss from operations of
$3,762,710. 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
Other expenses for the nine month period ended September 30, 2011 totaled
$498,229 compared to $1,156,859 for the nine month period ended September 30,
2010, a decrease in other expenses of $658,631 or approximately 56.9%. The
primary reason for the decrease in other expenses is related to lower interest
expense due to more intercompany financing of debt in 2011.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $3,723,703 for the nine month period
ended September 30, 2011 compared to $619,625 for the nine month period ended
September 30, 2010, an increase in net loss from continuing operations of
$3,104,078 or approximately 501.0%. 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.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $6,029,093 for the nine months
ended September 30, 2011 compared to $4,516,875 for the nine months ended
September 30, 2010, an increase in net loss of $1,512,218 or approximately
33.5%. The net loss from discontinued operations related to Masonry Supply
Holding Corp. was $3,555,482 for the nine months ended September 30, 2011
compared to $1,654,934 for the nine months ended September 30, 2010, an increase
in net loss of $1,900,548 or approximately 114.8%. 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 $1,854,010
for the nine months ended September 30, 2011 compared to a net loss of
$1,536,623 for the nine months ended September 30, 2010, an increase in net loss
of $317,387 or approximately 20.7%. The primary reason for the increase in net
loss related to the operations of Tulare Frozen Foods, LLC was the inability of
the Tulare to increase prices related to rising raw material costs. The net loss
from discontinued operations related to Epic Sports International, Inc. was
$619,601 for the nine months ended September 30, 2011 compared to a net loss of
$1,325,318 for the nine months ended September 30, 2010, a decrease in net loss
of $705,717 or approximately 53.2%. The primary reason for the decrease in net
loss was due to overhead reductions related to marketing and promotions, a
reduction in staff and reductions on third party consulting.
28
NET LOSS
Net loss totaled $9,752,796 for the nine month period ended September 30, 2011
compared to $5,136,500 for the nine month period ended September 30, 2010, an
increase in net loss of $4,616,296 or approximately 89.9%. 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 write offs and write down 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 SEPTEMBER 30, 2011 AND
2010
NET REVENUES
Net revenue for the three month period ended September 30, 2011 totaled
$15,073,125 compared to $16,655,373 for the three month period ended September
30, 2010, a decrease in net revenues of $1,582,248 or approximately 9.5%. The
primary reason for the decrease in net revenues is related to Tyree. Tyree's net
revenues decreased by over $2 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 September 30, 2011. A detailed analysis of
each subsidiary company's individual net revenues can be found within their
respective management's discussion and analysis sections of this Form 10-Q.
COST OF REVENUES
Cost of revenues for the three month period ended September 30, 2011 totaled
$12,593,955 or approximately 83.6% of net revenues compared to $13,763,208 or
approximately 82.6% of net revenues for the three month period ended September
30, 2010. Cost of revenues was relatively unchanged as a percentage of net
revenues between the three month period ended September 30, 2011 and September
30, 2010. A detailed analysis of each subsidiary company's individual cost of
revenues can be found within their respective management's discussion and
analysis sections of this Form 10-Q.
OPERATING EXPENSES
Operating expenses for the three month period ended September 30, 2011 totaled
$2,835,574 compared to $3,486,057 for the three month period ended September 30,
2010, a decrease in operating expenses of $650,843 or approximately 18.7%. The
primary reason for the decrease in operating expenses was related to a
significant reduction of Amincor's accounts payable balances through negotiated
settlements with various service providers and vendors.
LOSS FROM OPERATIONS
Loss from operations for the three month period ended September 30, 2011 totaled
$356,404 compared to $593,892 for the three month period ended September 30,
2010, a decrease in loss from operations of $237,488 or approximately 40.0%. The
primary reason for the decrease in loss from operations is related to the
decreases in operating expenses as noted above.
29
OTHER EXPENSES
Other expenses for the three month period ended September 30, 2011 totaled
$289,616 compared to $482,798 for the three month period ended September 30,
2010, a decrease in other expenses of $193,182 or approximately 40.0%. The
primary reason for the decrease in other expenses is related to lower interest
expense due to more intercompany financing of debt in 2011
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations for the three month period ended September
30, 2011 totaled $646,020 compared to $956,690 for the three month period ended
September 30, 2010, a decrease in loss from operations of $310,670 or
approximately 32.5%. The primary reason for the decrease in loss from operations
is related to the decrease in operating expenses.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $1,327,637 for the three months
ended September 30, 2011 compared to a net loss of $1,917,166 for the three
months ended September 30, 2011, a decrease in net loss of $589,530 or
approximately 30.8%. The net loss from discontinued operations related to
Masonry Supply Holding Corp. was $326,145 for the three month period ended
September 30, 2011 compared to a net loss of $274,703 for the three month period
ended September 30, 2010, an increase in net loss of $51,442 or approximately
18.7%. The primary reason for the increase in net loss was related to the
cessation of Masonry's business which caused additional write downs of accounts
receivable and inventory as the Company prepared for the expected liquidation of
those assets. The net loss from discontinued operations related to Tulare Frozen
Foods, LLC was $363,422 for the three months ended September 30, 2011 compared
to a net loss of $1,026,409 for the three months ended September 30, 2010, a
decrease in net loss of $662,987 or approximately 64.6%. The primary reason for
the decrease in net loss was related to significant reductions in overhead
expenses associated with the shutdown of Tulare's facility. The net loss from
discontinued operations related to Epic Sports International, Inc. was $638,070
for the three months ended September 30, 2011 compared to a net loss of $616,055
for the three months ended September 30, 2010, an increase in net loss of
$22,016 or approximately 3.6%. The primary reason for the increase in net loss
was related to asset write downs associated with the discontinuation of Epic
including an increase in the reserve of Epic's accounts receivable and a write
off of all intangible assets.
NET LOSS
Net loss for the three month period ended September 30, 2011 totaled $1,973,657
compared to $2,873,856 for the three month period ended September 30, 2010, a
decrease in net loss of $900,201 or approximately 31.3%. The primary reason for
the decrease in net loss is related to the decreases in operating expenses.
30
BAKER'S PRIDE, INC.
RESULTS FROM OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011 AND
2010
SEASONALITY
During the nine months ended September 30, 2011, Baker's Pride began producing
cookies at its South Street Bakery facility. Seasonality influences the
operations of the South Street Bakery facility as cookie sales are typically
higher during the winter holiday season when compared to the summer season;
while the operations of the Jefferson Street and Mt. Pleasant Street facilities
are not influenced by seasonality.
NET REVENUES
Net revenues for the nine month period ended September 30, 2011 totaled
$11,228,743 compared to $9,907,509 for the nine month period ended September 30,
2010, an increase of $1,321,234 or approximately 13.3%. Revenue was primarily
generated by Baker's Pride's Jefferson Street Bakery, Inc. with additional
revenue being generated by Baker's Pride's South Street Bakery, Inc. subsidiary.
Baker's Pride's bread category sales for the nine month period ended September
30, 2011 totaled $10,079,965 compared to $9,143,200 for the nine month period
ended September 30, 2010, an increase of $936,765; or approximately 10.2%.
Baker's Pride's donut category for the nine month period ended September 30,
2011 totaled $862,975 compared to $764,309 for the nine month period ended
September 30, 2010 an increase of $98,666 or approximately 12.9%. Baker's
Pride's newest category; cookies showed sales of $285,803 for the nine month
period ended September 30, 2011 compared to $0 for the nine month period ended
September 30, 2010, an increase of $285,803 or 100%.
COST OF REVENUES
Cost of revenues for the nine month period ended September 30, 2011 totaled
$7,988,598 or approximately 71.1% of net revenue, compared to $6,706,454 or
approximately 67.7% of net revenue for the nine month period ended September 30,
2010. The increase in cost of revenue was primarily the result of Baker's
Pride's direct materials (ingredients and packaging) cost increasing by $703,094
with income increasing by only $661,078 due to a lag time in gaining pricing
improvement due to competitive conditions and time required for negotiations.
Cost of revenue was affected by an increase in related expenses such as energy
costs, vehicle expenses and operating supplies. Repairs and maintenance expense
increased due to upgrades to Baker's Pride's Jefferson Street facility. Costs
associated with the South Street Bakery, Inc. production such as ingredients,
packaging and payroll further contributed to the increase in cost of revenues.
OPERATING EXPENSES
Operating expenses for the nine month period ended September 30, 2011 totaled
$3,439,939 compared to $3,052,829 for nine month period ended September 30,
2010; an increase of $387,110 or approximately 12.7%. Operating expenses as a
31
percentage of sales are expected to decrease as a result of the South Street
Bakery, Inc. and Baker's Pride's Mt. Pleasant Street facility as well as other
business development projects.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the nine month period ended September 30, 2011 was
($199,793) or 1.8% of revenue, compared to income from operations of $148,226 or
1.5% of net revenue for the nine month period ended September 30, 2010.
This decrease in income from operations for the nine month period ending
September 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 as
well as costs associated with the South Street Bakery, Inc.
In the second quarter of 2011, average wholesale pricing increased adequately to
offset higher input costs.
OTHER INCOME
Other income for the nine month period ending September 30, 2011 totaled $36,914
compared to other income of $57,362 for the nine month period ending September
30, 2010, a decrease of $20,440 or approximately 35.63%. This was due to lower
rental income.
OTHER EXPENSES
Other expenses for the nine month period ending September 30, 2011 totaled
$241,013 compared to other expenses for the nine month period ending September
30, 2010 $435,172, a decrease of $ 194,159 or approximately 44.6%.
NET LOSS
Net loss for the nine month period ending September 30, 2011 totaled $403,893
compared to net loss of $229,584 for the nine month period ending September 30,
2010 an increase of $174,309 or approximately 75.9%. This increase in net loss
was primarily due to higher cost of goods in the first quarter of 2011 which was
accompanied by a competitive environment that delayed pricing increases to
compensate for the these costs. In addition, Baker's Pride has invested in
upgrades to its Jefferson Street Bakery and the costs associated with the
leasing of South Street Bakery, Inc. subsidiary.
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2011 AND
2010
SEASONALITY
During the three months ended September 30, 2011, Baker's Pride began producing
cookies at its South Street Bakery facility. Seasonality influences the
operations of the South Street Bakery facility as cookie sales are typically
higher during the winter holiday season when compared to the summer season;
while the operations of the Jefferson Street and Mt. Pleasant Street facilities
are not influenced by seasonality.
32
NET REVENUES
Net revenues for the three month period ended September 30, 2011 totaled
$3,968,096 compared to $3,307,880 for the three month period ended September 30,
2010, an increase of $660,216 or approximately 20.0%. Revenue was primarily
generated by Baker's Pride's Jefferson Street Bakery, Inc. with additional
revenue being generated by Baker's Pride's South Street Bakery, Inc. subsidiary.
Baker's Pride's bread category sales for the three month period ended September
30, 2011 totaled $3,396,259 compared to $3,056,957 for the three month period
ended September 30, 2010, an increase of $339,302 or approximately 11.1%.
Baker's Pride donut sales category for the three month period ended September
30, 2011 totaled $286,034 compared to $250,923 for the three month period ended
September 30, 2010, an increase of $35,111 or approximately 14.0%. Baker's
Pride's newest category; cookies, showed sales of $285,803 for the three month
period ended September 30, 2011 compared to $0 for the three month period ended
September 30, 2010, an increase of $285,803 or 100.0%.
COST OF REVENUES
Cost of revenue for the three month period ended September 30, 2011 totaled
$2,911,231 or approximately 73.4% of net revenue, compared to $2,256,137 or
approximately 68.2% for the three month period ended September 30, 2010. Costs
associated with the South Street Bakery, Inc. production, such as ingredients,
packaging and payroll contributed to the increase in cost of revenue.
OPERATING EXPENSES
Operating expenses for the three month period ended September 30, 2011 totaled
$1,227,972 compared to $1,110,870 for the three month period ended September 30,
2010, an increase of $117,102 or approximately 10.5%. Operating expenses as a
percentage of sales are expected to decrease as sales of the South Street
Bakery, Inc. increase and the Mt. Pleasant Street facility and other business
opportunities come on line.
LOSS FROM OPERATIONS
Loss from operations for the three month period ended September 30, 2011 was
$171,108 or 4.3 % of net revenue, compared to loss from operations of $59,126 or
1.7% of net revenue for the three month period ending September 30, 2010. The
costs associated with the South Street Bakery subsidiary was the primary reason
for the increase in loss from operations.
OTHER INCOME
Other income for the three month period ending September 30, 2011 totaled
$10,055 compared to $171,893 for the three month period ending September 30,
2010, a decrease of $161,838 or approximately 94.0%. In the September 2010
period, Baker's Pride received $148,495 of income from Baker's Pride's insurance
carrier to cover flood damage. Non-reoccurring rental income was reduced based
on the terms of the lease.
33
OTHER EXPENSES
Other expenses for the three month period ending September 30, 2011 totaled
$84,261 compared to other expense for the three month period ending September
30, 2010 of $155,779, a decrease of $71,518 or approximately 45.9%. This
decrease was primarily related to a renegotiated interest rate on Baker's
Pride's internal line of credit with Amincor.
NET LOSS
Net loss for the three month period ending September 30, 2011 totaled $245,313
compared to net loss of $43,012 for the three month period ending September 30,
2010, an increase of $202,301. This increase in net loss was primarily due to
costs associated with the South Street Bakery, Inc. subsidiary.
ENVIRONMENTAL QUALITY SERVICES, INC.
EQS was formed on January 1, 2011 and as such has no historical information for
the three and nine month period ended September 30, 2010 on which a formal
Management's Discussion and Analysis can be compared to. Management intends to
file its first MD&A for EQS on our Form 10-Q filing for the period ended March
31, 2012.
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 this trend is that the severe weather
experienced in Tyree's primary market area 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 down the borrowing base as the
year progresses as Tyree generates sufficient cash flow.
CREDIT FACILITY
Tyree maintains a $15,000,000 revolving credit agreement with its Parent which
expires on January 17, 2013. Borrowings under this agreement are limited to 70%
of eligible accounts receivable and the lesser of 50% of eligible inventory or
$4,000,000. The balances outstanding under this agreement were $4,723,636 and
$4,055,948 as of September 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. The annual interest rate charged
on this loan was approximately 5% for calendar years 2011 and 2010,
respectively.
34
LIQUIDITY
Management is currently seeking a new asset based lender that will provide a new
credit facility to support the growth of Tyree. Although management is confident
that it will succeed in negotiating a new credit facility for Tyree, there are
no assurances that they will be successful. Management believes that Tyree has
sufficient access to working capital to sustain operations through September 30,
2012.
RESULTS FROM OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011 AND
2010
NET REVENUES
Net revenues for the nine months ended September 30, 2011 totaled $32,899,569 as
compared to $41,019,629 for the nine months ended September 30, 2010, a decrease
of $8,120,060 or approximately 19.8%. The decrease is due to harsh weather
encountered during the first quarter, the continued sluggish US economy, the
effect of fluctuating oil prices on Tyree's major customers and a deliberate
work slow down by one of Tyree's major customers. Through the nine months ended
September 30, 2011 sales revenues with Tyree's largest customer has declined by
$6,726,000, while revenues generated from competitive bidding has declined by
$1,903,000. Because of continued efforts to preserve cash, Tyree slowed payments
to vendors. This has further impacted 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 nine months ending September 30,
2011 and 2010.
2011 2010
------------ ------------
Net revenues
Service and Construction $ 22,810,991 $ 26,710,350
Environmental, Compliance and
Engineering 9,750,855 13,886,320
Manufacturing / International 337,723 422,959
------------ ------------
Total $ 32,899,569 $ 41,019,629
============ ============
Management believes that revenues generated from its largest customer are not
going to rebound to previous years' levels. Also, management believes that
awards achieved by competitive bidding will continue to decline year over year
until economic conditions improve.
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2011 totaled
$26,621,526 or approximately 80.9% of net revenue compared to $32,647,800 or
79.6% of net revenue for the nine months ended September 30, 2010. As a
percentage of revenues, cost of revenues increased during the nine months ended
September 30, 2011 as compared to the nine months ended September 30, 2010 due
to increases in material prices and labor inefficiencies. These were addressed
at the end of the third quarter in 2011 by a consolidation of management and a
reduction in the workforce.
35
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2011 totaled
$7,467,597, or approximately 22.7% of net revenue as compared to $7,681,820, or
approximately 18.7% of net revenue for the nine months ended September 30, 2010,
a decrease of $214,223 or approximately 2.8%. The increase in operating expenses
as a percentage of revenue during the nine months ended September 30, 2011 was
due to reduced revenues during the period. As the third quarter came to a close,
management made the determination that the level of operating expenses was too
high for the currently forecast level of revenue and instituted a plan to reduce
these costs. This plan included reductions in personnel and other overhead costs
which will result in savings of approximately $2,600,000 per annum.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the nine months ended September 30, 2011 totaled
($1,189,554), or approximately (3.6%) of net revenue, as compared to the income
from operations of $690,008, or approximately 1.7% of net revenue for the nine
months ended September 30, 2010, a decrease in income from operations of
$1,879,562. The decrease in income from operations was primarily due to the
revenue shortfall and cost increases as noted above.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2011 totaled
$1,411,022, or approximately 4.3% of net revenue as compared to $1,044,534, or
approximately 2.5% of net revenue for the nine months ended September 30, 2010,
an increase of $366,488 or approximately 35.1%. The increase in interest expense
during the nine months ended September 30, 2011 was primarily due to an increase
in borrowing from the credit facilities early in the period noted above.
Borrowings at the end of the period had decreased by $368,982 as compared to the
balance at June 30, 2011.
OTHER INCOME
Other income for the nine months ended September 30, 2011 totaled $2,209 as
compared to other income of $329,344 for the nine months ended September 30,
2010, a decrease in other income of $327,135 or approximately 99.3%. This income
mainly comes from the sale of obsolete equipment and scrap materials.
NET LOSS
Net loss for the nine months ended September 30, 2011 totaled $2,598,367 as
compared to a net loss of $25,181 for the nine months ended September 30, 2010,
an increase in net loss of $2,573,185. The increase in net loss was primarily
due to the factors noted above.
36
RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2011 AND
2010
NET REVENUES
Net revenues for the three months ended September 30, 2011 totaled $10,843,795
as compared to $13,347,493 for the three months ended September 30, 2010, a
decrease of $2,503,698 or approximately 18.8%. The decrease is due to the
continued sluggish US economy, the effect of fluctuating oil prices on Tyree's
major customers and a deliberate work slow down by one of Tyree's major
customers. The impact of these customer issues during the quarter was the
primary reason for the $837,036 reduction in revenue of the Service and
Construction business unit Because of continued efforts to preserve cash, Tyree
continued to slow payments to vendors during the quarter. This was the driving
factor for the revenue drop with Environmental, Compliance & Engineering. Below
is an analysis of revenue by business unit for the three months ending September
30, 2011 and 2010.
2011 2010
------------ ------------
Net revenues
Service and Construction $ 7,618,071 $ 8,455,107
Environmental, Compliance and
Engineering 3,140,810 4,877,755
Manufacturing / International 84,914 14,631
------------ ------------
Total $ 10,843,795 $ 13,347,493
============ ============
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2011 totaled
$9,488,751 or approximately 87.5% of net revenue (yielding a 12.5% Gross Profit
(GP) margin) as compared to $11,507,072, or 86.2% of net revenue. When compared
against 2010, there was little change in GP margin. When compared to the prior
quarter's performance, the GP margin decreased due to increases in material
prices, labor inefficiencies, and the completion of several very low margin
construction projects. These were addressed at the end of the third quarter by a
management decision to not perform low margin construction work in the future,
some changes to management structure, and a general reduction in the workforce.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2011 totaled
$2,156,652, or approximately 19.9% of net revenue compared to $2,074,188, or
approximately 15.5% of net revenue for the three months ended September 30,
2010, a decrease of $82,464 or approximately 4.0%. As the third quarter came to
a close, management made the determination that the level of operating expenses
was too high for the currently forecast level of revenue and instituted a plan
to reduce these costs. This plan included reductions in personnel and other
overhead costs which will result in savings of approximately $2,600,000 per
37
annum with the majority of reductions coming from operating expenses. Management
expects to have all the plans' changes in effect by the end of 2011.
LOSS FROM OPERATIONS
The loss from operations for the three months ended September 30, 2011 totaled
$801,608, or approximately 7.4% of net revenue, as compared to the loss from
operations of $233,766, or approximately 1.8% of net revenue for the three
months ended September 30, 2010. The decrease in profit from operations was
primarily due to the revenue shortfall noted above.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2011 totaled $465,488,
or approximately 4.3% of net revenue compared to $756,368, or approximately 5.7%
of net revenue for the three months ended September 30, 2010, a decrease of
$290,880 or approximately 38.5%. Borrowings at the end of the period had
decreased by $281,538 compared to the balance at June 30, 2011.
OTHER EXPENSE (INCOME)
Other expense for the three months ended September 30, 2011 totaled $11,045
compared to other income of ($321,315) for the three months ended September 30,
2010, a decrease in other (income) expense of $332,360. This income mainly comes
from the sale of obsolete equipment and scrap.
NET LOSS
Net loss for the three months ended September 30, 2011 totaled $1,278,140
compared to a net loss of $548,819 for the three months ended September 30,
2010, an increase in net loss of $729,321. The increase in net loss was
primarily due to a decrease in operating income of $51,568, an increase in
interest expense of $229,139 and a large decrease in other income of $332,360.
38
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,
39
* 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 September 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 September 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 this 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
40
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, we are 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.
41
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.
42
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, STOCK OPTIONS 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 of 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
and/or the exercise management stock options 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
43
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
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 WILL 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 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
44
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 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:
* consumer demand for our products,
* the mix of our products' sales,
* our ability to collect accounts receivable on a timely basis,
* the ability of suppliers to provide the materials required in our
operations, and
* 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.
45
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.
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.
46
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ONE CUSTOMER ACCOUNTS FOR THE MAJORITY OF BAKER'S PRIDE, INC.'S ("BPI") REVENUE.
THE LOSS OF THIS CUSTOMER COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS,
FINANCIAL CONDITION, AND PROFITABILITY.
Aldi, Inc. accounts for the majority of BPI's revenue. The loss of Aldi, Inc. or
a significant decline in its credit worthiness would have a materially adverse
effect on BPI's results of operations and financial condition. At minimum, it
would have a materially adverse effect on operations during the short-term until
BPI's was able to generate replacement customers. Other than their relationship
as a customer, Aldi, Inc. is not affiliated with the Registrant or BPI.
DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which includes Ron Danko and Robert Brookhart, who are responsible for all
operations and sales of the business. The loss or unavailability of either Mr.
Danko or Mr. Brookhart could adversely affect its business and prospects and
operating results and/or financial condition.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of BPI'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 BPI to lower prices in the future. Moreover, it is
difficult to raise prices even if internal costs of production increase.
INCREASED COMMODITY PRICES AND AVAILABILITY MAY IMPACT PROFITABILITY.
Many commodity prices have experienced recent volatility. Increases in commodity
prices and availability could have an adverse impact on BPI's profitability.
CHANGE IN CONSUMER PREFERENCES MAY ADVERSELY AFFECT BPI'S FINANCIAL AND
OPERATIONAL RESULTS.
BPI's success is contingent upon its ability to forecast the tastes and
preferences of consumers and offer products that appeal to their preferences.
Consumer preference changes due to taste, nutritional content or other factors,
and BPI's failure to anticipate, identify or react to these changes could result
in reduced demand for its products, which could adversely affect its financial
and operational results. The current consumer focus on wellness may affect
demand for its products. BPI continues to explore the development of new
products that appeal to consumer preference trends while maintaining the product
quality standards.
PRODUCT RECALL OR SAFETY CONCERNS MAY ADVERSELY AFFECT FINANCIAL AND OPERATIONAL
RESULTS.
BPI may have to recall certain products should they be mislabeled, contaminated
or damaged or if there is a perceived safety issue. A perceived safety issue,
product recall or an adverse result in any related litigation could have a
material adverse effect on BPI's operations, financial condition and financial
results.
47
LOSS OF FACILITIES COULD ADVERSELY AFFECT BPI'S FINANCIAL AND OPERATIONAL
RESULTS.
BPI currently has three production facilities: the Jefferson Street Bakery, the
Mt. Pleasant Street Bakery and the South Street Bakery. The loss of any one the
facilities could have an adverse impact on BPI's operations, financial condition
and results of operations.
INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT BPI'S RESULTS OF OPERATIONS.
BPI's ability to competitively serve its customers depends on the availability
of reliable and low-cost transportation. BPI uses trucks to bring its products
to market. Disruption to the timely supply of these services or increases in the
cost of these services for any reason, including availability or cost of fuel,
regulations affecting the industry, or labor shortages in the transportation
industry, could have an adverse effect on BPI's ability to serve its customer,
and could materially and adversely affect BPI's business, financial condition
and results of operations.
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
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.
48
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
FAILURE TO COMPLETE A PROJECT TIMELY OR FAILURE TO MEET A REQUIRED PERFORMANCE
STANDARD ON A PROJECT COULD CAUSE TYREE TO INCUR A LOSS WHICH MAY AFFECT OVERALL
PROFITABILITY.
Completion dates and performance standards may be important requirements to a
client on a given project. If Tyree is unable to complete a project within
specified deadlines or fails to meet performance criteria set forth by a client,
additional costs may be incurred by Tyree or the client may hold Tyree
responsible for costs they incur to rectify the problem. The uncertainty
involved in the timing of certain projects could also negatively affect the
Tyree's staff utilization, causing a drop in efficiency and reduced profits.
SUBCONTRACTOR PERFORMANCE AND PRICING COULD EXPOSE TYREE TO LOSS OF REPUTATION
AND ADDITIONAL FINANCIAL OR PERFORMANCE OBLIGATIONS THAT COULD RESULT IN REDUCED
PROFITS OR LOSSES.
Tyree often hires subcontractors for its projects. The success of these projects
depends, in varying degrees, on the satisfactory performance of its
subcontractors and Tyree's ability to successfully manage subcontractor costs
and pass them through to its customers. If Tyree's subcontractors do not meet
their obligations or Tyree is unable to manage or pass through costs, it may be
unable to profitably perform and deliver contracted services. Under these
circumstances, Tyree may be required to make additional investments and expend
additional resources to ensure the adequate performance and delivery of the
contracted services. In addition, the inability of its subcontractors to
adequately perform or Tyree's inability to manage subcontractor costs on certain
projects could hurt Tyree's competitive reputation and ability to obtain future
projects.
TYREE'S SERVICES COULD EXPOSE IT TO SIGNIFICANT LIABILITY NOT COVERED BY
INSURANCE.
The services provided by Tyree expose it to significant risks of professional
and other liabilities. In addition, Tyree sometimes assumes liability by
contract under indemnification provisions. Tyree is unable to predict the total
amount of such potential liabilities. Tyree has obtained insurance to cover
potential risks and liabilities. However, insurance may be inadequate or
unavailable in the future to protect Tyree for such liabilities and risks.
ENVIRONMENTAL AND POLLUTION RISKS COULD POTENTIALLY IMPACT OUR FINANCIAL
RESULTS.
Tyree is exposed to certain environmental and pollution risks due to the nature
of some of the contract work it performs. Costs associated with pollution clean
up efforts and environmental regulatory compliance have not yet had a material
adverse impact on its capital expenditures, earnings, or competitive position.
However, the occurrence of a future environmental or pollution event could
potentially have an adverse impact.
TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS.
FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN
ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT US TO FINES,
PENALTIES, JUDGMENTS AND IMPOSE LIMITS ON TYREE'S ABILITY TO EXPAND.
Tyree is subject to potential liability and restrictions under environmental
laws, including those relating to treatment, storage and disposal of gasoline,
discharges to air and water, and the remediation of contaminated soil, surface
49
water and groundwater. If Tyree does not comply with the requirements that apply
to a particular site or if it operates without necessary approvals or permits,
Tyree could be subject to civil, and possibly criminal, fines and penalties, and
may be required to spend substantial capital to bring an operation into
compliance or to temporarily or permanently discontinue activities, and/or take
corrective actions. Those costs or actions could be significant and impact
Tyree's results of operations, cash flows and available capital.
In addition to the costs of complying with environmental laws and regulations,
Tyree may incur costs defending against environmental litigation brought by
governmental agencies and private parties. Tyree may be in the future be a
defendant in lawsuits brought by parties alleging environmental damage, personal
injury, and/or property damage, which may result in us incurring significant
liabilities.
ADVERSE WEATHER LESSENS DEMAND FOR TYREE'S SERVICES.
Demand for Tyree's services, decreases substantially during periods of cold
weather, when it snows or when heavy or sustained rains fall. Consequently,
demand for Tyree's services are significantly lower during the winter. High
levels of rainfall can also adversely impact operations during these periods as
well. Such adverse weather conditions can materially and adversely affect
Tyree's results of operations and profitability if they occur with unusual
intensity, during abnormal periods, or last longer than usual.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
Tyree's success depends to an extent upon the performance of its managers, some
of whom hold certain licenses, permits and certifications. The loss or inability
to replace these managers holding the licenses, permits or certifications
necessary to conduct Tyree's 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
None.
ITEM 6. EXHIBITS
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101++ Interactive Data Files pursuant to Rule 405 of Regulation S-T.
----------
+ Filed Herewith
++ To be Filed by Amendment
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: November 21, 2011 By: /s/ John R. Rice, III
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John R. Rice, III, President
Date: November 21, 2011 By: /s/ Robert L. Olson
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Robert L. Olson, Chief Financial Officer
51