UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2012
[ ] 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 May 15, 2012, there were 7,478,409 shares of Registrant's Class A Common
Stock and 21,176,262 shares of Registrant's Class B Common Stock outstanding.
AMINCOR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 44
Item 4. Controls and Procedures.......................................... 44
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 46
Item 1A. Risk Factors..................................................... 48
Item 5. Other Information ............................................... 58
Item 6. Exhibits......................................................... 58
SIGNATURES................................................................... 59
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.
We undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking statements or information. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Annual Report on Form 10-K and
elsewhere in this Quarterly Report on Form 10-Q. Any one of these factors may
cause our actual results to differ materially from recent results or from our
anticipated future results. You should not rely too heavily on the
forward-looking statements contained in this Quarterly Report on Form 10-Q,
because these forward-looking statements are relevant only as of the date they
were made.
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
March 31, December 31,
2012 2011
------------ ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 737,160 $ 1,286,240
Accounts receivable, net of allowance of $1,906,505 and
$1,903,626 in 2012 and 2011, respectively 7,782,199 8,005,935
Inventories, net 4,425,049 4,473,245
Costs and estimated earnings in excess of billings on
uncompleted contracts 671,521 381,931
Prepaid expenses and other current assets 1,758,917 936,027
Current assets - discontinued operations 438,414 5,217
------------ ------------
Total current assets 15,813,260 15,088,595
------------ ------------
PROPERTY AND EQUIPMENT, NET 11,801,749 11,633,966
PROPERTY AND EQUIPMENT, NET - DISCONTINUED OPERATIONS 122,393 598,106
------------ ------------
Total property and equipment, net 11,924,142 12,232,072
------------ ------------
OTHER ASSETS:
Mortgages receivable, net of allowance for credit losses 6,000,000 6,000,000
of $180,000 in 2012 and 2011
Goodwill 15,882,388 15,882,388
Other intangible assets, net 9,274,624 9,742,458
Other assets 476,933 513,305
Assets held for sale 2,667,433 2,667,433
Other assets - discontinued operations 75,000 75,000
------------ ------------
Total other assets 34,376,378 34,880,584
------------ ------------
Total assets $ 62,113,780 $ 62,201,251
============ ============
4
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 31, December 31,
2012 2011
------------ ------------
(unaudited) (audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,009,599 $ 10,206,720
Accrued expenses and other current liabilities 2,414,398 2,765,709
Assumed liabilities - current portion 2,088,899 2,088,899
Notes payable - current portion 3,761,237 1,846,565
Capital lease obligations - current portion 225,984 220,274
Loans payable to related party 1,314,742 838,485
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,532,628 1,105,741
Deferred revenue 677,107 666,558
Current liabilities - discontinued operations 4,487,906 4,569,594
------------ ------------
Total current liabilities 26,512,500 24,308,545
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 190,997 190,997
Notes payable - net of current portion 2,144,306 1,800,371
Capital lease obligations - net of current portion 486,792 543,617
Due to related parties 842,074 894,837
Other long-term liabilities 18,313 18,313
------------ ------------
Total long-term liabilities 3,682,482 3,448,135
------------ ------------
Total liabilities 30,194,982 27,756,680
------------ ------------
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 outstanding 7,478 7,478
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,176,262 issued and outstanding 21,176 21,176
Additional paid-in capital 87,104,199 87,025,401
Accumulated deficit (52,581,477) (50,038,363)
------------ ------------
Total Amincor shareholders' equity 34,553,129 37,017,445
------------ ------------
NONCONTROLLING INTEREST EQUITY (2,634,331) (2,572,874)
------------ ------------
Total equity 31,918,798 34,444,571
------------ ------------
Total liabilities and shareholders' equity $ 62,113,780 $ 62,201,251
============ ============
The accompanying notes are an integral part of
these consolidated condensed financial statements
5
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
Three Months Ended March 31,
(Unaudited)
2012 2011
------------ ------------
Net revenues $ 13,897,017 $ 14,137,902
COST OF REVENUES 10,704,512 10,790,129
------------ ------------
Gross profit 3,192,505 3,347,773
SELLING, GENERAL AND ADMINISTRATIVE 5,695,027 5,158,362
------------ ------------
Loss from operations (2,502,522) (1,810,589)
------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 155,942 91,186
Other income (109,732) (69,088)
------------ ------------
Total other expenses 46,210 22,098
------------ ------------
Loss before provision for income taxes (2,548,732) (1,832,687)
Provision for income taxes -- --
------------ ------------
Net loss from continuing operations (2,548,732) (1,832,687)
------------ ------------
Loss from discontinued operations (55,839) (1,131,399)
Net loss (2,604,571) (2,964,086)
------------ ------------
Net loss attributable to non-controlling interests (61,457) (174,732)
------------ ------------
Net loss attributable to Amincor stockholders $ (2,543,114) $ (2,789,354)
============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED:
Net loss from continuing operations attributable to
Amincor stockholders $ (0.09) $ (0.06)
============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 28,654,671
============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR STOCKHOLDERS - BASIC AND DILUTED:
Net loss attributable to Amincor stockholders $ (0.09) $ (0.10)
============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 28,654,671
============ ============
The accompanying notes are an integral part of
these consolidated condensed financial statements
6
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statement of Changes in Shareholders' Equity
Three Months Ended March 31, 2012 and 2011
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, 2010 (audited) 1,752,823 $1,753 7,478,409 $7,478 21,176,262 $21,176
Share based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at March 31, 2011 (unaudited) 1,752,823 $1,753 7,478,409 $7,478 21,176,262 $21,176
========= ====== ========= ====== ========== =======
Balance at December 31, 2011 (audited) 1,752,823 $1,753 7,478,409 $7,478 21,176,262 $21,176
Share based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at March 31, 2012 (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, 2010 (audited) $86,465,401 $(28,075,512) $(1,476,524) $56,943,772
Share based compensation 1,311 -- -- 1,311
Net loss -- (2,789,354) (174,732) (2,964,086)
----------- ------------ ----------- -----------
Balance at March 31, 2011 (unaudited) $86,466,712 $(30,864,866) $(1,651,256) $53,980,997
=========== ============ =========== ===========
Balance at December 31, 2011 (audited) $87,025,401 $(50,038,363) $(2,572,874) $34,444,571
Share based compensation 78,798 -- -- 78,798
Net loss -- (2,543,114) (61,457) (2,604,571)
----------- ------------ ----------- -----------
Balance at March 31, 2012 (unaudited) $87,104,199 $(52,581,477) $(2,634,331) $31,918,798
=========== ============ =========== ===========
The accompanying notes are an integral part of
these consolidated condensed financial statements
7
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
2012 2011
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (2,548,732) $ (1,832,687)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property,
plant and equipment 382,164 516,588
Amortization of intangible assets 467,834 475,933
Share based compensation 78,798 1,311
Gain on sale of equipment (86,726) (39,010)
Provision for doubtful accounts 15,590 64,333
Changes in assets and liabilities:
Accounts receivable 208,145 (123,596)
Inventories 48,196 (502,328)
Costs and estimated earnings in excess of billings
on uncompleted contracts (289,590) (495,514)
Prepaid expenses and other current assets 220,226 100,663
Other assets (2,750) 8,001
Accounts payable 988,417 253,838
Accrued expenses and other current liabilities (351,310) (1,142,822)
Billings in excess of costs and estimated earnings
on uncompleted contracts 426,887 425,467
Deferred revenue 10,549 --
------------ ------------
NET CASH USED IN OPERATIONS - CONTINUING OPERATIONS (432,302) (2,289,823)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (549,947) (82,113)
Proceeds from sale of equipment 86,726 50,515
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (463,221) (31,598)
------------ ------------
8
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
2012 2011
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) from / to related parties 423,494 (338,281)
Proceeds from loans with related parties -- 276,437
Principal payments of capital lease obligations (51,115) (33,260)
Repayments of notes payable (428,902) (79,412)
Proceeds from notes payable 497,977 --
Payments of assumed liabilities -- (275,748)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - CONTINUING OPERATIONS 441,454 (450,264)
------------ ------------
Net cash used in operating activities - discontinued operations (95,011) (2,357,424)
Net cash provided by investing activities - discontinued operations -- 3,822,048
Net cash provided by financing activities - discontinued operations -- 41,653
------------ ------------
Decrease in cash (549,080) (1,265,408)
Cash, beginning of period 1,286,240 2,607,325
------------ ------------
Cash, end of period $ 737,160 $ 1,341,917
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 90,726 $ 42,960
============ ============
Income taxes $ 80,082 $ --
============ ============
Non-cash financing activities:
Financing of insurance policy by notes payable $ 1,003,993 $ --
============ ============
Conversion of accounts payable to term notes payable $ 1,185,538 $ --
============ ============
The accompanying notes are an integral part of
these consolidated condensed financial statements
9
Amincor, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
March 31, 2012 and 2011
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor" or the "Company") was incorporated on October 8, 1997
and was dormant from 2002 through the end of 2009. Amincor is headquartered in
New York, New York. During 2010, Amincor acquired all or a majority of the
outstanding stock of the following companies:
Baker's Pride, Inc. ("BPI")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings", or "Tulare")
Tyree Holdings Corp. ("Tyree")
On January 3, 2011, the Company acquired all of the assets and assumed certain
liabilities of Environmental Testing Laboratories, Inc. ("ETL Business"). The
Company assigned the ETL Business to Environmental Quality Services, Inc.
("EQS").
As of March 31, 2012, the following are operating subsidiaries of Amincor:
Baker's Pride, Inc.
Tyree Holdings Corp.
Environmental Quality Services, Inc.
Amincor Other Assets, Inc. ("Other Assets")
Amincor Contracts Administrators, Inc. ("Contract Admin")
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 for a national supermarket and its food service channels
throughout the Midwest and Eastern region of the United States. BPI operates
facilities in Burlington and Clear Lake, Iowa and is headquartered in
Burlington, Iowa.
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. Tyree markets its services
throughout the Northeast, Mid-Atlantic and Southern California regions of the
United States to national and multinational enterprises, as well as to local and
10
national governmental agencies and municipalities. The majority of the Tyree's
revenue is derived from customers in the Northeastern United States. Tyree's
headquarters are located in Mt. Laurel, New Jersey.
EQS
EQS provides environmental and hazardous waste testing in the Northeastern
United States, and is headquartered in Farmingdale, New York.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables. As of March 31, 2012, all of Other Assets' real estate and
equipment are classified as held for sale.
CONTRACT ADMIN
Contract Admin was incorporated to manage contracts which were entered into by
Amincor but performed by Tyree.
DISCONTINUED OPERATIONS
During the year ended December 31, 2011, Amincor adopted a plan to discontinue
the operations of the following entities within the next twelve months:
Masonry Supply Holding Corp.
Tulare Holdings, Inc.
Epic Sports International, Inc.
MASONRY
Masonry manufactured and distributed concrete and lightweight block to the
construction industry. IMSC also operated a retail home center and showroom,
where it sold masonry related products, hardware and building supplies to
customers. Masonry's headquarters, showroom and operating facility were located
in Pelham Manor, New York.
TULARE HOLDINGS
Tulare prepared and packaged frozen vegetables (primarily spinach), from produce
supplied by growers, for the food service and retail markets throughout southern
California and the southwestern United States. Tulare sold to retailers under a
private label, and to food brokers and retail food stores under the Tulare
Frozen Foods label. Tulare's headquarters and processing facility was located in
Lindsay, California.
11
ESI
ESI was the worldwide licensee for the Volkl and Boris Becker Tennis brands. In
2010, ESI became the exclusive sales representative of Volkl and Becker products
for Samsung C&T America, Inc. ESI sold its products domestically through
retailers located throughout the United States, and internationally through
International Distributors who would sell to retailers in their local markets
and on-line retailers. ESI was headquartered in New York, New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles in the United States of America
("GAAP") have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures are adequate to make the
information not misleading. In the opinion of management, all adjustments
necessary for a fair statement of the results of operations and financial
position for the periods presented have been reflected as required by Regulation
S-X. The results of operations for the interim period presented is not
necessarily indicative of the results of operations to be expected for the year.
These consolidated 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, 2011.
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of Amincor,
Inc. and all of its consolidated subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization of property, plant and
equipment, allowances for doubtful accounts and inventory obsolescence,
estimates related to completion of contracts and loss contingencies on
particular uncompleted contracts and the valuation allowance on deferred tax
assets. Actual results could differ from those estimates.
12
REVENUE RECOGNITON
BPI
Revenue is recognized from product sales when goods are delivered to the BPI'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 on construction services,
measured by the percentage of total costs incurred to date to estimated total
costs for each contract. This method is used because management considers costs
to date to be the best available measure of progress on these contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which overall contract losses become probable. Changes in job performance,
job conditions and estimated profitability, including those arising from final
contract settlements, may result in revisions to costs and income. These
revisions are recognized in the period in which it is probable that the customer
will approve the variation and the amount of revenue arising from the revision
can be reliably measured. An amount equal to contract costs attributable to
claims is included in revenues when negotiations have reached an advance stage
such that it is probable that the customer will accept the claim and the amount
can be measured reliably.
The asset account "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
The liability account, "Billings in excess of cost and estimated earnings on
uncompleted contracts," 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. EQS submits an
invoice with each report it distributes to its clients. Revenue is recognized as
testing services are performed.
13
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers is analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI and EQS extend unsecured credit to customers in the ordinary course of
business but mitigate the associated risks by performing credit checks and
actively pursuing past due accounts. Tyree follows the practice of filing
statutory "mechanics" liens on construction projects where collection problems
are anticipated.
MORTGAGES RECEIVABLE
The mortgages receivable consist of commercial loans collateralized by property
in Pelham Manor, New York. The loans were non-performing and property was in the
process of foreclosure as of March 31, 2012. The value of the mortgages is based
on the fair value of the collateral.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to operations. A loan is
determined to be non-accrual when it is probable that scheduled payments of
principal and interest will not be received when due according to the
contractual terms of the loan agreement. When a loan is placed on non-accrual
status, all accrued yet uncollected interest is reversed from income. Payments
received on non-accrual loans are generally applied to the outstanding principal
balance. Loans are removed from non-accrual status when management believes that
the borrower will resume making the payments required by the loan agreement.
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.
14
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived tangible 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.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share considers the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or could otherwise cause the issuance of common
stock. Such contracts include stock options, convertible notes and convertible
preferred stock, which when exercised or converted into common stock would cause
the issuance of common stock that then would share 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 antidilutive effect.
15
SHARE-BASED COMPENSATION
All share-based awards are measured based on their grant date fair values and
are charged to expenses over the period during which the required services are
provided in exchange for the award (the vesting period). Share-based awards are
subject to specific vesting conditions. Compensation cost is recognized over the
vesting period based on the grant date fair value of the awards and the portion
of the award that is ultimately expected to vest.
GOING CONCERN
The accompanying consolidated condensed financial statements have been prepared
assuming the Company will continue as a going concern. The future of the company
is dependent upon its ability to generate revenues and positive cash flow from
its continuing operations and raise debt and/or equity funds. The financial
statements do not include any adjustments relating to the recoverability of the
Company's assets or the payment of its liabilities in the event the Company
cannot continue in existence.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's consolidated
condensed financial statements to conform to the current year's presentation.
3. DISCONTINUED OPERATIONS
Effective June 30, 2011 the Company discontinued the operations of Masonry 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 consolidated condensed financial statements for the three
months ended March 31, 2012 and 2011, respectively. Assets and liabilities
related to discontinued operations are presented separately on the condensed
balance sheets as of March 31, 2012 and December 31, 2011. Changes in net cash
from discontinued operations are presented in the accompanying condensed
statements of cash flows for the three months ended March 31, 2012 and 2011,
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:
16
Three Months Ended March 31,
2012 2011
------------ ------------
Results from discontinued operations:
Net revenues from discontinued operations $ 1,331 $ 1,973,379
============ ============
Loss from discontinued operations $ (55,839) $ (1,131,399)
============ ============
The following is a summary of the assets and liabilities of the discontinued
operations, excluding assets held for sale (which is recorded separately on the
consolidated condensed balance sheets).
March 31, December 31,
2012 2011
------------ ------------
Prepaid expenses and other current assets $ 438,414 $ 5,217
Property, plant and equipment, net 122,393 598,106
Other assets 75,000 75,000
------------ ------------
Total assets $ 635,807 $ 678,323
============ ============
Accounts payable $ 3,604,205 $ 3,661,771
Accrued expenses and other current liabilities 883,701 907,823
------------ ------------
Total liabilities $ 4,487,906 $ 4,569,594
============ ============
Net liabilities $ (3,852,099) $ (3,891,271)
============ ============
The Company continues to provide administrative services for the discontinued
operations until the liquidation of these assets is completed.
4. INVENTORIES
Inventories consist of:
* Construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventory as of March 31, 2012 and December 31, 2011 is below:
17
March 31, December 31,
2012 2011
---------- ----------
Raw materials $4,397,196 $4,321,380
Ingredients 541,688 637,153
Finished goods 58,516 91,405
---------- ----------
4,997,400 5,049,938
Inventory reserves 572,351 576,693
---------- ----------
Inventories, net $4,425,049 $4,473,245
========== ==========
5. PROPERTY, PLANT AND EQUIPMENT
As of March 31, 2012 and December 31, 2011 property, plant and equipment from
continuing operations consisted of the following:
Useful Lives March 31, December 31,
(Years) 2012 2011
------- ------------ ------------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 13,218,598 12,840,288
Building and leasehold improvements 10 3,226,010 3,226,010
Vehicles 3-10 212,093 212,093
Computer equipment and software 5-7 811,210 804,010
Furniture and fixtures 5-10 110,439 110,439
Construction in progress n/a 14,801 14,801
------------ ------------
18,023,151 17,637,641
Less accumulated depreciation 6,221,402 6,003,675
------------ ------------
$ 11,801,749 $ 11,633,966
============ ============
Total depreciation expense related to continuing operations for three months
ended March 31, 2012 and 2011 was $382,164 and $516,588, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill of $15,882,388 and licenses and permits of $3,430,400 at March 31, 2012
and December 31, 2011, have indefinite useful lives and are not amortized but
tested for impairment annually. Intangible assets with finite useful lives are
amortized on a straight-line basis over the useful lives of the assets.
Intangible assets consist of the following at March 31, 2012 and December 31,
2011:
18
Estimated
Useful Lives March 31, December 31,
(Years) 2012 2011
------- ------------ ------------
Intangible assets subject to amortization:
Customer relationships 5-10 $ 8,976,700 $ 8,976,700
Non-competition agreements 5 5,886,300 5,886,300
------------ ------------
14,863,000 14,863,000
Less accumulated amortization 9,018,776 8,550,942
------------ ------------
Intangible assets subject to amortization, net 5,844,224 6,312,058
------------ ------------
Intangible assets not subject to amortization:
Licenses and permits 3,430,400 3,430,400
------------ ------------
$ 9,274,624 $ 9,742,458
============ ============
The above licenses and permits have renewal provisions which are generally one
to four years. 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 three months ended
March 31, 2012 and 2011 was $467,834 and $475,933, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2012 and December 31 2011:
19
March 31, December 31,
2012 2011
---------- ----------
Equipment loans payable, collateralized by the
assets purchased, and bearing interest at annual
fixed rates ranging from 8.0% to 15.0% with
principal and interest payable in installments
through July 2014. $ 827,693 $ 820,251
Promissory notes payable to current accounts
payable vendors including imputed interest
calculated using annual rate of 8.8%. Payment
terms are from 12 to 36 months. 2,904,158 1,956,068
Promissory notes payable 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
Liability under a guarantee agreement for a note
payable of an entity related to minority
stockholders to a commercial bank in monthly
installments of principal of $5,932 and interest
payable through December 31, 2015. The annual
interest rate is 8%. 282,188 370,617
Note payable for commercial insurance premium
financing with a finance company, bearing interest
at 2.45%, secured by all sums payable to the
insured under the policy. The note matures
November 30, 2012. 893,527 --
Bridge loan with a commercial bank, collateralized
by property, plant and equipment in addition to
assets purchased, and bearing interest at 1.75%
above the U.S. Prime Rate. The loan matures on
June 1, 2012. 497,977 --
---------- ----------
Total 5,905,543 3,646,936
Less current portion 3,761,237 1,846,565
---------- ----------
Long-term portion $2,144,306 $1,800,371
========== ==========
8. RELATED PARTY LOANS
Related parties are natural persons or other entities that have the ability,
directly or indirectly, to control another party or exercise significant
influence over the other party in making financial and operating decisions.
Related parties include other parties that are subject to common control or that
are subject to common significant influences.
Loans from a related party consist of the following at March 31, 2012 and
December 31, 2011:
20
March 31, December 31,
2012 2011
---------- ----------
Loan and security agreement which expires on
November 1, 2013 bearing interest at 18% per
annum. Maximum borrowing of $850,000 $ 740,063 $ 338,908
Loan and security agreement which expires on
August 15, 2014 bearing interest at 18% per annum.
Maximum borrowing of $600,000 574,679 499,577
---------- ----------
Total loans and amounts payable to related party $1,314,742 $ 838,485
========== ==========
Interest expense for these loans amounted to $79,833 and $40,714 for the three
months ended March 31, 2012 and 2011, respectively.
9. OPERATING SEGMENTS
The Company is organized into six operating segments: (1) Amincor, (2) Other
Assets, (3) Contract Admin, (4) BPI, (5) EQS, and (6) Tyree. Assets related to
discontinued operations ("Disc. Ops") are also presented below. Segment
information is as follows:
March 31, December 31,
2012 2011
------------ ------------
ASSETS:
Amincor $ 243,306 $ 536,061
Other Assets 8,667,433 8,667,433
Contract Admin -- --
BPI 24,863,126 24,851,264
EQS 1,259,905 1,298,597
Tyree 26,444,204 26,169,574
Disc. Ops 635,806 678,322
------------ ------------
Total assets $ 62,113,780 $ 62,201,251
============ ============
March 31, December 31,
2012 2011
------------ ------------
GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 7,770,900 7,770,900
EQS 535,988 535,988
Tyree 7,575,500 7,575,500
------------ ------------
Total Goodwill $ 15,882,388 $ 15,882,388
============ ============
21
March 31, December 31,
2012 2011
------------ ------------
INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 5,003,721 5,194,946
EQS 135,000 135,000
Tyree 4,135,903 4,412,512
------------ ------------
Total Intangible
assets $ 9,274,624 $ 9,742,458
============ ============
Three Months Ended March 31,
2012 2011
------------ ------------
NET REVENUES:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 4,144,288 3,506,495
EQS 233,420 188,182
Tyree 9,519,309 10,443,225
------------ ------------
Total net revenues $ 13,897,017 $ 14,137,902
============ ============
Three Months Ended March 31,
2012 2011
------------ ------------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES:
Amincor $ (182,201) $ (743,036)
Other Assets 6,895 343,801
Contract Admin -- 395
BPI (854,158) (130,136)
EQS (173,493) (115,241)
Tyree (1,345,775) (1,188,470)
------------ ------------
Total loss before
provision for income
taxes $ (2,548,732) $ (1,832,687)
============ ============
22
Three Months Ended March 31,
2012 2011
------------ ------------
DEPRECIATION OF PROPERTY
AND EQUIPMENT:
Amincor $ -- $ --
Other Assets -- 250,021
Contract Admin -- --
BPI 206,550 1,571
EQS 22,857 25,463
Tyree 152,757 239,533
------------ ------------
Total depreciation of
property and equipment $ 382,164 $ 516,588
============ ============
Three Months Ended March 31,
2012 2011
------------ ------------
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 191,225 191,225
EQS -- 8,099
Tyree 276,609 276,609
------------ ------------
Total amortization of
intangible assets $ 467,834 $ 475,933
============ ============
Three Months Ended March 31,
2012 2011
------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (80,715) $ (44,886)
Other Assets (6,895) --
Contract Admin -- --
BPI 100,819 45,436
EQS 18,640 3,071
Tyree 124,093 87,565
------------ ------------
Total interest expense,
net $ 155,942 $ 91,186
============ ============
23
10. COMMITMENTS AND CONTINGENCIES
BPI
In order to secure Baker's Pride's USDA loan, BPI had a Phase I environmental
site assessment done on the property where its Mt. Pleasant Street Bakery, Inc.
resides as required by BPI's prospective lender. The study, completed on October
7, 2011, recommended a Phase II environmental site assessment on the grounds
that there were underground storage tanks on the premises that did not have any
record of being removed. In addition, the site assessment showed a potential
environmental hazard on property adjacent to the Mt. Pleasant Street Bakery
caused by the operations on the adjacent property. The Phase II environmental
site assessment was completed on October 31, 2011 and was submitted to the Iowa
Department of Natural Resources ("IDNR") for its review. IDNR requested a Tier 2
site cleanup report ("Tier 2") be issued and completed in order to better
understand what environmental hazard exists on the property. The Tier 2 site
cleanup report was completed on February 3, 2012 and was submitted to IDNR for
further review. IDNR's correspondence dated March 21, 2012, required revisions
to the Tier 2 to be in compliance with IDNR's regulations. The most recent
correspondence with IDNR dated May 4, 2012 is to hold a teleconference to
discuss the remediation strategy. The date of the teleconference is still to be
determined. Management has retained the necessary environmental consultants to
be in compliance with IDNR's request, but the potential liability is largely
dependent on IDNR's recommended remediation strategy. As of the date of the
report, the potential liability is undeterminable.
TYREE
On December 5, 2011, Tyree's largest customer filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court for the Southern District of
New York. As of that date, Tyree has a pre-petition receivable of approximately
$1.5 million. As an unsecured creditor, Tyree may never collect or may only
collect a small percentage of this pre-petition amount owed. An allowance for
this receivable was established. Additionally, Tyree has a post-petition
administrative claim for approximately $600,000. Tyree's customer has continued
to pay amounts due to Tyree related to post-petition amounts, but the amount due
to Tyree has not been significantly reduced as of March 31, 2012. Management
believes that the post-petition administrative claim will be collectible. A
Proof of Claim with respect to amounts owed prior to the petition date was filed
with the Bankruptcy court on Tuesday April 10, 2012. On the date hereof, Tyree
has filed a motion for the court to allow Tyree's post-petition claim and to
compel the customer to immediately satisfy such claim.
Payments from this customer within the 90 day period prior to the Petition Date
may constitute preferential transfers subject to avoidance by the Bankruptcy
Court. Under the Bankruptcy Code there are several statutory defenses to an
action for recovery of preferential transfers, including, among other potential
defenses, whether the transfers at issue were in the ordinary course of business
or constituted new value. If the Bankruptcy Court finds that there have been
24
such preferential transfers, the Company would have to pay such amounts to the
bankruptcy estate, The Company's management believes that it has adequate
statutory defenses to these preferential claims, and has not recorded any
reserves for preferential claims.
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 for becoming a party to legal proceedings involving customers or other
interested parties. The issues involved in any such proceedings would generally
relate to alleged responsibility arising under federal or state laws to
remediate any contamination found on properties owned or operated either by
current or former customers or by other parties who allege damages. To limit its
exposure to such proceedings, Tyree purchases site pollution, pollution and
professional liability insurance for itself and Tyree's predecessor companies.
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.
ESI
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. In the year of the termination, the Volkl agreement provides
for a minimum guaranteed royalty payment of approximately $513,720; which is
approximately $256,860 in excess of the guaranteed minimum royalty. As of March
31, 2012, ESI has paid approximately $128,430 of the guaranteed minimum royalty
and recorded approximately an additional $128,430 as an accrued liability.
Management believes this additional minimum guaranteed payment is without merit
and intends to vigorously pursue its remedies against the various parties,
including seeking damages for infringement, improper use of company assets and
breach of fiduciary duty.
Upon termination, the Strategic Alliance Agreement specifies a disposal period
whereby ESI is required to assist Samsung in selling any inventory and
collecting any accounts receivable for 180 days and 240 days, respectively, from
the termination date. During the disposal period, commissions payable to ESI are
held in reserve by Samsung. At the end of the disposal period, unsold inventory
and uncollected accounts receivable will be charged back to ESI against the
commission reserve. In the event the chargebacks exceed the commission reserve,
25
ESI is required under the agreement to pay Samsung the excess within 10 business
days after the disposal period ends. As of March 31, 2012, management does not
believe it is likely that chargebacks will exceed the commission reserve. An
estimate of liabilities resulting from terminating the strategic alliance
agreement with Samsung cannot be made since the disposal period has not ended.
Therefore, no amount has been accrued in these financial statements as of March
31, 2012 for any such contingent liabilities.
IMSC/OTHER ASSETS
Capstone Business Credit, LLC ("CBC"), a related party, is the plaintiff in a
foreclosure action against Imperia Family Realty, LLC ("IFR"). IFR is related to
the former owners of Masonry's business. In November, 2011 a Judgment of
Foreclosure was granted by the court ordering that the IMSC property in Pelham
Manor, New York (the "Property") be sold at public auction.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. CBC, on behalf of Amincor, bid the amount
of their lien and was the successful bidder.
As of the report date, title to the Property has not been transferred due to a
title issue involving the notice of pendency ("Notice") that expired and was not
renewed at least 20 days prior to the Judgment of Foreclosure and sale being
filed and entered. Since no title transfers or judgment/liens were filed against
the Property after the expiration of the Notice, the Company believes it is
likely conditional title will be issued and, after recording the deed, IFR will
no longer have any ownership interest in the property.
11. LIQUIDITY MATTERS / GOING CONCERN
The Company has incurred losses for the three months ended March 31, 2012 and
for the year ended December 31, 2011, as well as having negative cash flows from
continuing operations for the three months ended March 31, 2012 and the year
ended December 31, 2011. The results of the Company's cash flows from continuing
operations for the three months ended March 31, 2012 and the year ended December
31, 2011 have been adversely impacted by the customer slowdown in infrastructure
capital expenditures caused by the continued softness in general economic
conditions, and cash flow issues related to major customers. The Company
discontinued the operations of IMSC, Tulare and ESI in 2011 which had a
significant negative impact on the Company's cash flows. The Company's primary
focus is to achieve profitable operations and positive cash flow from the
continuing operations of its long established niche businesses - Tyree and
Baker's Pride.
Prior to the year-ended December 31, 2011, internally generated operating cash
flows were sufficient to meet the Company's business operating requirements.
However, operating cash flows have not been sufficient to finance capital
26
improvements or provide funds for the substantial marketing efforts necessary
for growing the businesses.
The Company's plan for improving future continuing operations has several
different aspects as follows:
* Lowering its overhead costs by reducing its workforce in order to
achieve maximum utilization;
* Consolidating certain accounting roles from the subsidiary level to
the Company's headquarters, restructuring purchase agreements with
suppliers (allowing for leaner inventory levels) and reducing the
warehousing costs;
* Renegotiating compensation arrangements and consolidating its
administrative location with an operating office in order to reduce
rent expenses.
The Company has taken and will continue to take steps to increase revenues from
continuing operations as outlined below:
* Hiring a new sales executive with extensive food industry background
to increase sales of existing and new products of BPI;
* Increasing its revenues from the Tyree's second largest customer,
based on the improving relationship between Tyree and customer's
management;
* Obtaining new construction contracts for Tyree through aggressive
bidding on jobs from new customers;
* Expanding EQS into new types of water treatment and purification
services;
* Expanding services provided to existing customers; and
* Increasing customer orders for Tyree and EQS to fulfill pent-up demand
for construction needs that have been deferred due to the weak economy
in the last several years.
In addition, the Company has done the following:
* Entered into a six-month bridge loan agreement for BPI (the "Bridge
Loan") of $2,750,000, in January 2012 (which is secured by BPI's
equipment);
* Consolidated certain premises thereby reducing rents and negotiated
reduced rents with landlords;
* Sold equipment of IMSC in February 2012 for $426,000; and
* Term out certain material payments to vendors to ease cash flow. The
Company has spoken to major vendors concerning regarding payment
terms.
And, the Company intends to do the following:
* Close on an eleven year United States Department of Agriculture loan
for BPI (the "USDA Loan") of $5 million to replace the aforementioned
Bridge Loan and provide additional funds for expansion;
27
* Liquidate the property previously occupied by Tulare in Lindsay,
California for approximately $2 million;
* Sell the Company's property in Allentown, Pennsylvania for
approximately $500,000 plus unpaid real estate taxes
Management believes that, even without the addition of the capital from stock
sales, the Company will be able to generate sufficient cash flows through March
31, 2013.
12. 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.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
As of the report date, Amincor, Inc. ("Amincor" or "Company" or "Registrant") is
a holding company that operates the following entities:
Amincor Contract Administrators, Inc. ("Contract Admin")
Amincor Other Assets, Inc. ("Other Assets")
Baker's Pride, Inc. ("BPI")
Environmental Quality Services, Inc. ("EQS")
Tyree Holdings Corp. ("Tyree")
Advanced Waste & Water Technology, Inc. ("AWWT") (as of May 1, 2012)
Contract Admin and Other Assets are subsidiaries with minimal operations.
CONTRACT ADMIN
Amincor Contract Administrators, Inc. is a wholly owned subsidiary of Registrant
formed to administer various contracts, related to certain assets held by
Amincor Other Assets, Inc. and the subsidiary companies, including, but not
limited to certain international service contracts for Tyree.
OTHER ASSETS
Other Assets, Inc. is a wholly owned subsidiary of Registrant formed to hold the
rights to certain physical assets, including plant, property and equipment,
which were foreclosed on or assigned to Amincor, Inc.
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.
29
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.
RECENT ADDITION
ADVANCED WASTE & WATER TECHNOLOGY, INC.
AWWT is a newly formed Delaware corporation that was incorporated on November
17, 2011. AWWT was inactive through April 30, 2012, and had no significant
assets or liabilities as of April 30, 2012. AWWT became an Amincor company as of
May 1, 2012 and is a wholly owned subsidiary of Environmental Holding Corp. AWWT
will provide certain water remediation services in the northeast United States.
DISCONTINUED OPERATIONS
On June 30, 2011, management elected to discontinue the operations of Masonry
Supply Holding Corp. ("Masonry" or "IMSC") and Tulare Holdings, Inc ("Tulare
Holdings" or " Tulare"). On September 30, 2011, management elected to
discontinue the operations of Epic Sports International, Inc. ("ESI").
In accordance with Generally Accepted Accounting Principles of the United States
of America ("GAAP", the combined results of Masonry, Tulare and ESI have been
presented on our financial statements as discontinued operations. It is
management's intention to complete the liquidation of Masonry, Tulare and ESI's
assets within the next twelve months, if not sooner.
AMINCOR (CONSOLIDATED BASIS)
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2012, cash flows used in operating
activities from continuing operations were $432,302. This was principally due to
a net loss from continuing operations of approximately $2.5 million which was
partially offset by addbacks for depreciation of approximately $380,000,
amortization of intangible assets of approximately $470,000, and an increase in
accounts payable of approximately $990,000. The net loss from continuing
operations is discussed in greater detail in the results from operations for the
three months ended March 31, 2012 and 2011 section of the Management's
Discussion and Analysis.
30
For the three months ended March 31, 2012, cash flows used in investing
activities were $463,221 primarily due to the purchase of additional plant,
machinery and equipment at Baker's Pride, Inc.'s subsidiary Mt. Pleasant Street
Bakery, Inc.
For the three months ended March 31, 2012, cash provided by financing activities
was $441,454 primarily due to the financing of the aforementioned investing
activities.
For the three months ended March 31, 2012, total cash used in discontinued
operations was $95,011. Cash used in discontinued operations was primarily
related to the winding down of entities classified as discontinued operations.
The accompanying consolidated condensed financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
settlement of liabilities and commitments in the normal course of business. We
had negative cash flows for the three months ended March 31, 2012 and for the
year ended December 31, 2011, and a negative working capital deficit of
$10,699,240 and an accumulated deficit of $52,581,477 as of March 31, 2012. The
results of the Company's cash flows from continuing operations for the three
months ended March 31, 2012 have been adversely impacted by Tyree customer's
slowdown in infrastructure capital expenditures caused by the general downturn
of the economic conditions and cash flow issues related to major Tyree
customers. The Company has discontinued operations of IMSC, Tulare and ESI in
2011 which had a significant negative impact on the Company's cash flows in
2011. The Company's primary focus is to achieve profitable operations and
positive cash flow of its operations of its long established niche businesses -
Tyree and Baker's Pride.
Prior to year-ended December 31, 2011, internally generated operating cash flows
were 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.
The Company's plan for improving future continuing operations has several
different aspects as follows:
* Lowering its overhead costs by reducing its workforce in order to
achieve maximum utilization;
* Consolidating certain accounting roles from the subsidiary level to
Amincor holding company, restructuring purchase agreements with
suppliers (allowing for leaner inventory levels) and reducing the
warehousing costs; and
* Renegotiating compensation arrangements and consolidating its
administrative location with an operating office in order to reduce
rent expenses.
The Company has taken and will continue to take steps to increase revenues from
continuing operations as outlined below:
31
* Hiring a new sales executive with extensive food industry background
to increase sales of existing and new products of BPI;
* Increasing its revenues from the Tyree's second largest customer,
based on the improving relationship between Tyree and customer's
management;
* Obtaining new construction contracts for Tyree through aggressive, but
profitable bidding on jobs from new customers;
* Expanding EQS into new types of water treatment and purification
services;
* Expanding services provided to existing customers; and
* Increasing Tyree customer orders to fulfill pent-up demand for
construction needs that have been deferred due to the weak economy in
the last several years.
In addition, the Company has done the following:
* Entered into a six-month bridge loan agreement for BPI (the "Bridge
Loan") of $2,750,000, in January 2012 (which is secured by BPI's
equipment);
* Consolidated certain premises thereby reducing rents and negotiated
reduced rents with landlords;
* Sold equipment of IMSC in February 2012 for $426,000; and
* Term out certain material payments to vendors to ease cash flow. The
Company has spoken to major vendors concerning regarding payment
terms.
And, the Company intends to do the following:
* Close on an eleven year United States Department of Agriculture loan
for BPI (the "USDA Loan") of $5 million to replace the aforementioned
Bridge Loan and provide additional funds for expansion;
* Liquidate the property previously occupied by Tulare in Lindsay,
California for approximately $2 million; and
* Sell the Company's property in Allentown, Pennsylvania for
approximately $500,000 plus unpaid real estate taxes.
Management believes that, even without the addition of the capital from stock
sales, that the Company will be able to generate sufficient cash flows through
March 31, 2013.
32
COMMITMENTS AND CONTINGENCIES:
BPI
In order to secure Baker's Pride's USDA loan, BPI had a Phase I environmental
site assessment done on the property where its Mt. Pleasant Street Bakery, Inc.
resides as required by BPI's prospective lender. The study, completed on October
7, 2011, recommended a Phase II environmental site assessment on the grounds
that there were underground storage tanks on the premises that did not have any
record of being removed. In addition, the site assessment showed a potential
environmental hazard on property adjacent to the Mt. Pleasant Street Bakery
caused by the operations on the adjacent property. The Phase II environmental
site assessment was completed on October 31, 2011 and was submitted to the Iowa
Department of Natural Resources ("IDNR") for their review. IDNR requested a Tier
2 site cleanup report ("Tier 2") be issued and completed in order to better
understand what environmental hazard exists on the property. The Tier 2 site
cleanup report was completed on February 3, 2012 and was submitted to IDNR for
further review. IDNR's correspondence dated March 21, 2012, required revisions
to the Tier 2 to be in compliance with IDNR's regulations. The most recent
correspondence with IDNR dated May 4, 2012 is to hold a teleconference to
discuss the remediation strategy. The date of the teleconference is still to be
determined. Management has retained the necessary environmental consultants to
be in compliance with IDNR's request, but the potential liability is largely
dependent on IDNR's recommended remediation strategy. As of the date of this
report, the potential liability is undeterminable.
TYREE
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of approximately $1.5 million. As an unsecured
creditor, Tyree may never collect or may only collect a small percentage of this
pre-petition amount owed. An allowance for this receivable was established in
2011. Additionally, Tyree has a post-petition administrative claim for
approximately $600,000. GPMI has continued to pay amounts due to Tyree related
to post-petition amounts, but the amounts due to Tyree have not been
significantly reduced as of March 31, 2012. Management believes that the
post-petition administrative claim will be collectible. A Proof of Claim with
respect to amounts owed prior to the petition date was filed with the Bankruptcy
court on Tuesday April 10, 2012. On the date hereof, Tyree has filed a motion
for the court to allow Tyree's post-petition claim and to compel the customer to
immediately satisfy such claim.
Payments from this customer within the 90 day period prior to the Petition Date
may constitute preferential transfers subject to avoidance by the Bankruptcy
Court. Under the Bankruptcy Code there are several statutory defenses to an
action for recovery of preferential transfers, including, among other potential
defenses, whether the transfers at issue were in the ordinary course of business
33
or constituted new value. If the Bankruptcy Court finds that there have been
such preferential transfers, the Company would have to pay such amounts to the
bankruptcy estate, The Company's management believes that it has adequate
statutory defenses to these preferential claims, and has not recorded any
reserves for preferential claims.
ESI
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. In the year of the termination, the Volkl agreement provides
for a minimum guaranteed royalty payment of approximately $513,720; which is
approximately $256,860 in excess of the guaranteed minimum royalty. As of March
31, 2012, ESI has paid approximately $128,430 of the guaranteed minimum royalty
and recorded approximately an additional $128,430 as an accrued liability.
Management believes this additional minimum guaranteed payment is without merit
and intends to vigorously pursue its remedies against the various parties,
including seeking damages for infringement, improper use of company assets and
breach of fiduciary duty.
Upon termination, the Strategic Alliance Agreement specifies a disposal period
whereby ESI is required to assist Samsung in selling any inventory and
collecting any accounts receivable for 180 days and 240 days, respectively, from
the termination date. During the disposal period, commissions payable to ESI are
held in reserve by Samsung. At the end of the disposal period, unsold inventory
and uncollected accounts receivable will be charged back to ESI against the
commission reserve. In the event the chargebacks exceed the commission reserve,
ESI is required under the agreement to pay Samsung the excess within 10 business
days after the disposal period ends. As of March 31, 2012, management does not
believe it is likely that chargebacks will exceed the commission reserve. An
estimate of liabilities resulting from terminating the strategic alliance
agreement with Samsung cannot be made since the disposal period has not ended.
Therefore, no amount has been accrued in these financial statements as of March
31, 2012 for any such contingent liabilities.
TULARE
The City of Lindsay, California has invoiced Tulare Frozen Foods, LLC ("Tulare")
$533,572 for outstanding delinquent amounts. A significant portion of the
outstanding delinquent amounts are penalties, interest and fees that have
accrued. A settlement proposal, whereby the City of Lindsay would retain
Tulare's $206,667 deposit as settlement and release in full of all outstanding
obligations was sent to the City of Lindsay for review on March 29, 2012.
34
ASSETS HELD FOR SALE
A 360,000 square foot facility in Allentown, Pennsylvania has fallen into
disrepair as a result of vandalism by local thieves. The buildings on site are
functionally obsolete and are not suitable as a modern manufacturing facility.
Any purchaser would have to raze the buildings on the 19 acre site and reclaim
the concrete, brick, wood and steel infrastructure. Management has listed the
property for sale for $500,000 plus all outstanding property taxes. To date two
offers were received, one from a private individual and the other from the
Allentown Economic Development Corporation. The private individual offered less
than the offering price and Management is conducting a tax search to counter
offer at the list price plus the back taxes. The Allentown Economic Development
Corporation offered full price and payment in full of all taxes; but the offer
demands certain warranties and representations that management is not prepared
to make. Management intends on making counter offers to both parties once it has
the opportunity to confer with the commercial real estate broker who is
marketing the property.
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended March 31, 2012 totaled $13,897,017
compared to net revenues of $14,137,902 for the three months ended March 31,
2011, a decrease in net revenues of $240,885 or approximately 1.7%. The primary
reason for the decrease in net revenues is related to Tyree's operations.
Tyree's net revenues decreased by approximately $900,000, but this decrease was
partially offset by an increase in net revenues for Baker's Pride of
approximately $600,000. A detailed analysis of each subsidiary company's
individual net revenues 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 three months ended March 31, 2012 totaled $10,704,512
or approximately 77.0% of net revenues as compared to $10,790,129 or
approximately 76.3% of net revenues for the three months ended March 31, 2011.
Cost of revenues was relatively unchanged as a percentage of net revenues
between the three months ended March 31, 2012 and March 31, 2011. A detailed
analysis of each subsidiary company's individual cost of revenues can be found
within their respective Management's Discussions and Analysis sections of this
form 10-K.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2012 totaled $5,695,027
as compared to $5,158,362 for the three months ended March 31, 2011, an increase
in operating expenses of $536,665 or approximately 10.4%. The primary reason for
35
the increase in operating expenses is related to Amincor's corporate offices
which increased its overhead by approximately $200,000 and the addition of
Baker's Pride, Inc.'s South Street Bakery operating expenses of approximately
$300,000 (the South Street Bakery facility commenced operations in August 2011).
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2012 totaled
$2,502,522 as compared to $1,810,589 for the three months ended March 31, 2011,
an increase of $691,933 or approximately 38.2%. The primary reason for the
increase in loss from operations is related to the decreases in net revenues and
the increases in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the three months ended March 31, 2012 totaled
$46,210 as compared to $22,098 for the three months ended March 31, 2011, an
increase in other expenses of $24,112 or approximately 109.1%. The increase in
other expenses is primarily related to an increase in interest expense for the
three months ended March 31, 2012 as a result of BPI's Bridge Loan financing in
January 2012.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $2,548,732 for the three months
ended March 31, 2012 as compared to $1,832,687 for the three months ended March
31, 2011, an increase of $716,045 or approximately 39.1%. The primary reason for
the increase in net loss from continuing operations is related to the increases
in operating expenses and decreases in net revenues as mentioned above.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $55,839 for the three months ended
March 31, 2012 as compared to $1,131,399 for the three months ended March 31,
2011, a decrease of $1,075,560 or approximately 95.1%. Management discontinued
the operations of the following companies in 2011 - Masonry and Tulare as of
June 30, 2011 and ESI as of September 30, 2011. These were operating entities
for the three months ended March 31, 2011, as compared to winding down of these
companies in 2012. The net loss of Masonry was $10,236 for the three months
ended March 31, 2012 as compared to $532,295 for the three months ended March
31, 2011, a decrease of $522,059 or approximately 98.1%. The net loss of Tulare
was $45,603 for the three months ended March 31, 2012 as compared to a net loss
of $902,985 for the three months ended March 31, 2011, a decrease of $857,382 or
approximately 94.9%. The net loss of ESI was $0 for the three months ended March
31, 2012 as compared to a net loss of $59,559 for the three months ended March
31, 2011, a decrease of $59,559 or approximately 100.0%.
36
NET LOSS
Net loss totaled $2,604,571 for the three months ended March 31, 2012 as
compared to $2,964,086 for the three months ended March 31, 2011, a decrease of
$359,515 or approximately 12.1%. The primary reason for the decrease in net loss
is the very significant reductions in losses due to discontinuing the operations
of Masonry, Tulare and ESI in 2011, offset by the significant increase in losses
of Tyree and Baker's Pride in 2012 as discussed above.
BAKER'S PRIDE, INC.
SEASONALITY
During the year ended December 31, 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. Operations at the
Jefferson Street are not influenced by seasonality. However, the donut operation
at the Mt. Pleasant Street operation will greatly be affected by seasonality
once it is operational. For the three months ended March 31, 2011, none of the
operations of Baker's Pride were influenced by seasonality.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended March 31, 2012 totaled $4,144,288 as
compared to $3,506,495 for the three months ended March 31, 2011, an increase of
$637,793 or approximately 18.2%. All revenues for the three months ended March
31, 2011 were generated by BPI's Jefferson Street facility while revenues for
the three months ended March 31, 2012 includes the Jefferson Street and South
Street facilities.
Bread sales for the three months ended March 31, 2012 totaled $3,542,304 as
compared to $3,236,164 for the three months ended March 31, 2011, an increase of
$306,140 or approximately 9.5%. Factors contributing to this increase: the
continuing effect of wholesale price increases granted by the Company's customer
in April 2011 which equaled a 7% increase, a $.025 cents per unit increase to
fund the incremental cost of conversion to cane sugar from high fructose corn
syrup. There was no significant change in bread units sold for the three months
ended March 31, 2012 as compared to the same period in 2011.
Donut sales for the three months ended March 31, 2012 totaled $279,221 as
compared to $270,901 for the three months ended March 31, 2011, an increase of
$8,320 or approximately 3.1%. This increase was primarily due to the adjustment
of donut wholesale prices granted in May 2011 as there was a small decrease in
units sold.
37
Cookie net revenues for the three months ended March 31, 2012 totaled $322,772
as compared to $0 for the three months ended March 31, 2011, an increase of
$322,772. The South Street Bakery operations began in late August 2011.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2012 totaled $3,080,600 or
approximately 74.3% of net revenues as compared to $2,475,818 or approximately
70.6% for the three months ended March 31, 2011, an increase of $604,782 or
approximately 24.4%. The Company had an 18.2% increase in net revenues against a
24.4% increase in cost of revenues in 2012 as compared to 2011.
Of this increase of $604,782 in cost of revenues in 2012, the South Street
Bakery generated an increase of $523,001 in cost of revenues with net revenues
of $322,772. BPI's Jefferson Street Bakery operating unit had net revenues of
$3,821,516 and cost of revenues of $2,557,599. BPI is investing in development
of value added products at the South Street Bakery; with the purpose of
generating increased revenues and gross profit. A series of these new products
will be introduced to the In-store Bakery market at the IDDBA Expo in June 2012.
The IDDBA is the largest showcase of bakery and deli products for the U.S.
supermarket industry.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2012 totaled $1,820,333
or approximately 43.9% of net revenues as compared to $1,129,799 or 32.2% for
the three months ended March 31, 2011, an increase of $690,534 or approximately
61.1%. The primary reason for this increase in 2012 is related to management
fees paid to Amincor of approximately $697,000 during the three months ended
March 31, 2012 that were not incurred during the same period in 2011. In
consolidation, these management fees are eliminated and there is no effect on
results of operations on a consolidated basis for the total company.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2012 totaled $756,645
or approximately 18.3% of net revenue as compared to $99,122 or approximately
2.8% for the three months ended March 31, 2011, an increase of $657,523. The
increase in loss from operations was primarily due to the increases in cost of
revenues and operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the three months ended March 31, 2012 totaled
$97,513 or approximately 2.4% of net revenues as compared to $31,014 or
approximately 0.9% of net revenues for three months ended March 31, 2011, an
increase of $66,500. The primary reason for this increase in 2012 is higher
38
interest expense due to a larger loan balances on BPI's working capital line and
the new 2012 bridge loan to purchase new equipment for the Mt. Pleasant Street
facility.
NET LOSS
Net loss for the three months ended March 31, 2012 totaled $854,158 as compared
to $130,136 for the three months ended March 31, 2011, an increase of $724,023.
Of the Company's 2012 increase in net loss of $724,023, $603,350 was generated
by the South Street Bakery.
ENVIRONMENTAL QUALITY SERVICES, INC.
SEASONALITY
EQS's sales are typically higher during the second and third quarters of its
fiscal year. The fourth quarter of the year is usually affected by a slow down
at the holiday season and year end. In addition, frigid temperatures combined
with the possibility of extreme weather tend to discourage projects from being
scheduled during the winter months. In the first quarter of 2011, there was
significant snowfall which made it difficult to complete projects which would
have equated to increased laboratory production.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended March 31, 2012 totaled $269,438 as
compared to $267,948 for the three months ended March 31, 2011, an increase of
$1,490 or approximately 0.6%. In September 2011, a flood at EQS's facility
resulted in some equipment damage which impaired EQS's ability to operate
efficiently. Management had expected a larger increase in revenue year over year
but was unable to replace the damaged equipment in an expedited manner due to an
outstanding claim due from its insurance company to replace damaged equipment
and to cover expenses associated with the business interruption resulting from
the flood.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2012 totaled $258,712 or
approximately 96.0% of net revenues as compared to $289,296 or approximately
108.0% for the three months ended March 31, 2011, a decrease of $30,584 or
approximately 10.6%. The primary reason for this decrease in cost of revenues is
associated with improving operating efficiencies in the laboratory. There were
reductions in personnel and negotiations for discounts on consumables with major
vendors alongside an overall better management of material consumption.
39
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2012 totaled $165,579 or
approximately 61.5% of net revenues as compared to $90,822 or 33.9% of net
revenues for the three months ended March 31, 2011, an increase of $74,757 or
approximately 82.3%. The primary reason for this increase is related to the
hiring of additional sales staff to increase the sales volume of EQS. Management
expects the additions in sales personnel to increase revenues in the second
quarter of 2012.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2012 totaled $154,853
or approximately 57.5% of net revenues as compared to $112,170 or approximately
41.9% for the three months ended March 31, 2011, an increase in loss from
operations of $42,683 or approximately 38.1%. The increase in loss from
operations was primarily due to the increases in operating expenses as noted
above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the three months ended March 31, 2012 totaled
$18,640 or approximately 6.9% of net revenues as compared to $3,071 or
approximately 1.1% of net revenue for three months ended March 31, 2011, an
increase of $15,569. The primary reason for this increase is higher interest
expense on a larger loan balances on EQS's working capital line which carried
loan balances of $635,279 and $364,732 as of March 31, 2012 and 2011,
respectively.
NET LOSS
Net loss for the three months ended March 31, 2012 totaled $173,493 as compared
to a net loss of $115,241 for the three months ended March 31, 2011, an increase
of $58,252 or approximately 50.6%. The increase in net loss is primarily related
to the increase in operating expenses and the increase in interest expense as
noted above.
TYREE HOLDINGS, INC.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
SEASONALITY AND BUSINESS CONDITIONS
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.
Approximately 30% of Tyree's revenues are earned from new customer capital
expenditures. Customers' capital expenditures are cyclical and tend 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 when it generates positive cash flows. The highest
40
revenue generation occurs from late in the second quarter through the third
quarter of the year.
On December 5, 2011 Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court in the Southern District of New York. This bankruptcy filing
had a significant impact on Tyree's operations and financial activities.
Although the bankruptcy proceedings are ongoing, we anticipate losses from
pre-petition accounts receivable to be approximately $1,500,000 and an allowance
for this receivable was established in 2011. Immediately following the
bankruptcy filing of GPMI, all ongoing work with GPMI was significantly reduced
and plans for Tyree's restructuring began, including a reduction of
approximately 15% in workforce during the first quarter of 2012.
FINANCING
Tyree maintains a $15 million revolving credit agreement with Amincor 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 million. The balances outstanding under this agreement were $4,775,614 and
$4,279,028 as of March 31, 2012 and 2011, respectively. Borrowings under this
agreement are collateralized by a first lien security interest in all tangible
and intangible assets owned by Tyree. Availability of funding from Amincor is
dependent on Amincor's liquidity. The annual interest rate charged on this loan
was approximately 5% for the quarters ending March 31, 2012 and 2011.
Management believes that the existing credit facility is sufficient to support
the existing business volume of Tyree, but growth will be difficult to attain
until either new working capital is earned through profitable operations or new
equity is invested into Tyree to facilitate internal and acquisition based
growth. The existing credit facility expires on January 17, 2013 which will
require management to put in place a new agreement during 2012.
LIQUIDITY
Tyree incurred net losses of $1,345,774 and $1,188,470 for the three months
ended March 31, 2012 and 2011, respectively. Weather related problems during the
first quarter of 2011, coupled with Tyree's largest customer filing for
bankruptcy in December 2011, as noted above, produced large write-offs of
receivables and reductions in revenues which resulted in corporate cash demands
well in excess of receipts from revenues, thus stressing the available funding
on the existing credit facility. In the fourth quarter of 2011, management
responded with a plan to term out all current vendors. During 2011 $1.9 million
of accounts payable were converted to long and short term debt. Most of the
remaining vendors have agreed to term notes early in 2012, thus addressing the
cash shortfall produced in 2011, while leaving some availability on Tyree's
revolving credit line. In reaction to the GPMI Bankruptcy filing, management
reduced employee headcount by an additional 33 full time employees, rescheduled
41
accounts payable, reduced management's salaries and is negotiating to reduce its
rent commitments. Management expects annualized realized savings to be
approximately $2.8 million, as a result of these actions Management continues to
analyze Tyree's overhead expenses, which it will continue to reduce as Tyree
works to replace the business lost as a result of the GPMI bankruptcy filing.
NET REVENUES
Net revenues for the three months ended March 31, 2012 totaled $9,519,309 as
compared to $10,443,225 for the three months ended March 31, 2011, a decrease of
$923,916 or approximately 8.8%. The decrease in revenues in 2012 can primarily
be attributable to loss of revenues from GPMI due to its bankruptcy filing in
December 2011. Revenues by operating divisions for the three months ended March
31, 2012 and March 31, 2011 were as follows:
REVENUES
2012 2011
------------ ------------
Service and Construction $ 6,395,568 $ 7,314,539
Environmental, Compliance and Engineering 2,925,202 3,049,893
Manufacturing / International 198,539 78,793
------------ ------------
Total $ 9,519,309 $ 10,443,225
============ ============
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2012 totaled $7,401,217 or
approximately 77.7% of net revenues as compared to $8,202,669, or 78.5% for the
three months ended March 31, 2011. The gross profit percentage increased by
0.80% as a result of the restructuring activities completed in the fourth
quarter of 2011 and early in 2012.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2012 totaled $3,351,628,
or approximately 35.2% of net revenues compared to $3,349,050, or approximately
32.1% for the three months ended March 31, 2011. The increase in operating
expenses as a percentage of net revenues in 2012 was attributed to additional
severance and lending costs as a result of GPMI's bankruptcy, coupled by the
sudden decrease in revenues also due to the GPMI bankruptcy.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2012 totaled
$1,233,536, or approximately 13.0% of net revenues as compared to $1,108,494, or
approximately 10.6% of net revenues for the three months ended March 31, 2011,
an increase in loss from operations of $125,042. The increase in loss from
42
operations was primarily due to the decrease in net revenues as previously
discussed above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the three months ended March 31, 2012 totaled
$112,238, or approximately 1.2% of net revenues as compared to other expenses
(income) of $79,976, or approximately 0.8% of net revenues for the three months
ended March 31, 2011, an increase in other expenses (income) of $32,262. The
increase in other expenses (income) during the three months ended March 31, 2012
was primarily due to an increase in interest expense due to a higher carrying
balance on Tyree's line of credit borrowings.
NET LOSS
Net loss for the three months ended March 31, 2012 totaled $1,345,805 as
compared to $1,188,470 for the three months ended March 31, 2011, an increase of
$157,335. The increase in net loss was primarily due to the factors noted above.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated condensed financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP). The preparation of our consolidated
condensed financial statements in accordance with GAAP requires us to make
certain estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements, the reported
amounts and classification of revenues and expense during the periods presented,
and the disclosure of contingent assets and liabilities. We evaluate our
estimates and assumptions on an ongoing basis and material changes in these
estimates or assumptions could occur in the future. Changes in estimates are
recorded in the period in which they become known. We base our estimates on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances and at that time, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates if past experience or other assumptions
do not turn out to be substantially accurate.
Please refer to our Note 2 of our consolidated condensed financial statements
contained in this Quarterly Report on Form 10-Q, and our Management's Discussion
and Analysis of Financial Condition and Results of Operation contained in Part
II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December
31, 2011 and Note 2 of our consolidated financial statements contained therein
for a more complete discussion of our critical accounting policies and use of
estimates.
43
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
44
preparation and fair presentation of published financial statements. Our
internal control over financial reporting includes those policies and procedures
that:
* pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets,
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorization
of management and directors, and
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
Our management has not assessed the effectiveness of our internal control over
financial reporting as of March 31, 2012. Management understands that in making
this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at March 31, 2012.
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.
45
Management of the Company takes very seriously the strength and reliability of
the internal control environment for the Company. Going forward, the Company
intends to implement new internal policies and undertake additional steps
necessary to improve the control environment including, but not limited to:
* Implementing an internal disclosure policy to govern the disclosure of
material, non-public information in a manner designed to provide full
and fair disclosure of information about the Company. This disclosure
policy is intended to ensure that management and employees of the
Company and its subsidiaries comply with applicable laws including the
U.S, Securities Exchange Commission ("SEC") Fair Disclosure Rules
(Regulation FD) governing disclosure of material, non-public
information to the public.
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In early 2011, counsel for the former President of Imperia Masonry Supply Corp.
indicated an intent to file suit against Imperia Masonry Supply Corp. The
allegations of such potential action are unknown to management at this point. To
date, no litigation regarding this matter has been filed. The Company will
disclose any litigation which results in the future. Management believes any
claims made by the former President will be deemed frivolous and will have
little or no impact on Imperia Masonry Supply Corp. or Amincor, Inc.
Capstone Business Credit, LLC, a related party, is the plaintiff (on behalf of
Amincor Other Assets, Inc.) in a foreclosure action against Imperia Family
Realty, LLC ("IFR"). IFR is related to the former owners of Masonry's business.
In November, 2011 a Judgment of Foreclosure was granted by the court ordering
that the IMSC property in Pelham Manor, New York (the "Property") be sold at
46
public auction. As of December 31, 2009, the mortgage related to this Property
was assigned to Amincor, Inc. and thereafter to Amincor Other Assets, Inc.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder.
As of the report date, title to the Property has not been transferred due to a
title issue involving the notice of pendency ("Notice") that expired and was not
renewed at least 20 days prior to the Judgment of Foreclosure and sale being
filed and entered. Since no title transfers or judgment/liens were filed against
the Property after the expiration of the Notice, the Company believes it is
likely conditional title will be issued and after recording the deed, IFR will
no longer have any ownership interest in the property. Once a deed is issued,
title to the property will be held in the name of Amincor Other Assets, Inc.
Management believes any litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
Additionally, on December 5, 2011, Tyree's largest customer, Getty Petroleum
Marketing, Inc. ("GPMI") filed for Chapter 11 bankruptcy protection in the
United States Bankruptcy Court for the Southern District of New York. As of that
date, Tyree has a pre-petition receivable of $1,515,401.27. As an unsecured
creditor, Tyree may never collect or may only collect a small percentage of this
pre-petition amount owed. Additionally, Tyree has a post-petition administrative
claim of $593,709.20. Tyree may never collect or may only collect a small
percentage of this post-petition amount owed. A Proof of Claim was filed with
the Bankruptcy court on Tuesday, April 10, 2012.
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. Volkl is seeking a approximately $513,720 royalty payment. Epic
has initiated counterclaims intends to vigorously pursue its remedies against
the various parties, including seeking damages for infringement, improper use of
company assets and breach of fiduciary duty.
Other than noted above, Registrant is not presently a party to any litigation,
claim or assessment against it, and is unaware of any unasserted claim or
assessment which will have a material effect on the financial position or future
operations of Registrant. No director, executive officer or affiliate of the
Registrant or owner of record or beneficially of more than five percent of the
Registrant's common stock is a party adverse to Registrant or has a material
interest adverse to Registrant in any proceeding.
47
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,
48
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.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933, as amended) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks. The additional sales practice and disclosure
requirements imposed upon broker-dealers selling penny stock may discourage such
broker-dealers from effecting transactions in our shares, which could severely
limit the market liquidity of the shares and impede the sale of our shares in
the secondary market.
INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE
SHARES OF OUR COMMON STOCK.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK
TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011.
We are authorized to issue up to 22,000,000 shares of Class A voting common
stock and 40,000,000 shares or Class B non-voting common stock and 3,000,000
shares of Preferred Stock. At present, there are 7,478,409 Class A common shares
and 21,176,262 Class B common shares and 1,752,823 shares of Preferred Stock
issued and outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
49
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
As of the date of this filing, there were 52 Class A stockholders of record,
owning all of the 7,478,409 issued and outstanding shares of our Class A common
stock; there were 68 institutional shareholders of record owning all of the
21,176,262 issued and outstanding shares of our Class B non-voting common stock
and there were 36 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
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
50
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 Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
AMINCOR MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE GROWTH OF OUR
SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE.
Amincor currently anticipates that its available capital resources and operating
income will be sufficient to meet the expected working capital and capital
expenditure requirements of its subsidiaries for at least the next 12 months.
However, there can be no assurance that such resources will be sufficient to
fund the long-term growth of the subsidiaries businesses. Amincor may raise
additional funds through public or private debt or equity financings. Amincor
cannot assure investors that any additional financing will be available on
favorable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, Amincor may not be able to take advantage of
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.
51
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
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,
52
including personal injury, property damage, and natural resources damage claims.
Future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
have a material adverse effect on our business, financial condition or results
of operations.
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ONE CUSTOMER ACCOUNTS FOR THE MAJORITY OF BPI'S REVENUES. THE LOSS OF THIS
CUSTOMER COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION,
AND PROFITABILITY.
Aldi, Inc. accounted for a 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 Amincor or BPI.
53
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.
BPI is dependent upon eggs, oils, and flour for ingredients. 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.
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 South Street Bakery. The loss of any of these
facilities could have an adverse impact on BPI's operations, financial condition
and results of operations.
54
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.
A POTENTIAL ENVIRONMENTAL HAZARD EXITS ON BPI'S MT. PLEASANT STREET BAKERY, INC.
PROPERTY.
An environmental site assessment conducted in the fall of 2011 showed a
potential environmental hazard on the property adjacent to the Mt. Pleasant
Street Bakery caused by the operations on the adjacent property. The Iowa
Department of Natural Resources ("IDNR") requested a Tier 2 site cleanup report
("Tier 2") be issued and completed in order to better understand what
environmental hazard exists on the property. The Tier 2 site cleanup report was
completed on February 3, 2012 and was submitted to IDNR for further review.
Management has retained the necessary environmental consultants to be in
compliance with IDNR's request, but the potential liability is largely dependent
on IDNR's recommended remediation strategy. To date, the potential liability is
undeterminable.
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
55
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 Werner - 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.
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
TYREE IS EXPOSED TO CREDIT RISK, INCLUDING BANKRUPTCY, OF ITS CUSTOMERS IN THE
ORDINARY COURSE OF BUSINESS.
Tyree has various credit terms with virtually all of its customers, and its
customers have varying degrees of creditworthiness. Although Tyree evaluates the
creditworthiness of each of its customers, Tyree may not always be able to fully
anticipate or detect deterioration in their creditworthiness and overall
financial condition, which could expose Tyree to an increased risk of nonpayment
or other default under its contracts and other arrangements with them. In the
event that a material customer or customers default on their payment obligations
to Tyree or file for bankruptcy protection, this could materially adversely
affect Tyree's financial condition, results of operations or cash flows.
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of $1,515,401.27. As an unsecured creditor, Tyree
may never collect or may only collect a small percentage of this pre-petition
amount owed. Additionally, Tyree has a post-petition administrative claim for
$593,709.20. Tyree may never collect or may only collect a small percentage of
this post-petition amount owed. A Proof of Claim with respect to amounts owed
prior to the petition date was filed with the Bankruptcy court on Tuesday April
10, 2012. On the date hereof, Tyree has filed a motion for the court to allow
Tyree's post-petition claim and to compel the customer to immediately satisfy
such claim. GPMI's bankruptcy could materially adversely affect Tyree's
financial condition, results of operations or cash flows.
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
56
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 TYREE'S 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 TYREE 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
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
57
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 Tyree 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
16, 2012, AND ANY AMENDMENTS THERETO.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
3.1+ Articles of Incorporation of Advanced Waste & Water Technology, Inc.
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101+ Interactive Data Files pursuant to Rule 405 of Regulation S-T.
----------
+ Filed Herewith
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMINCOR, INC.
Date: May 16, 2012 By: /s/John R. Rice, III
-------------------------------------
John R. Rice, III, President
Date: May 16, 2012 By: /s/ Robert L. Olson
-------------------------------------
Robert L. Olson, Chief Financial
Officer
59