UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 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)
Explanatory Note: Relying on the Securities and Exchange Commission's Order
(Securities Exchange Act of 1934 Release No. 68224, November 14, 2012), Amincor,
Inc. (the "Company") is filing this Form 10-Q for the three and nine months
ended September 30, 2012 (the "Report") six days after the filing deadline. As a
result of Hurricane Sandy, the Company's accountants as well as certain
subsidiary companies had no electricity and were unavailable during such storm
and the related aftermath. This limited ability to communicate with the
Company's management for an extended period of time hindered the Company's
ability to file the Report on a timely basis.
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 September 30, 2012, there were 7,478,409 shares of Registrant's Class A
Common Stock and 21,245,190 shares of Registrant's Class B Common Stock
outstanding.
AMINCOR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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...........50
Item 4. Controls and Procedures..............................................50
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................53
Item 1A. Risk Factors.........................................................55
Item 5. Other Information....................................................66
Item 6. Exhibits.............................................................66
SIGNATURES....................................................................67
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
September 30, December 31,
2012 2011
------------ ------------
(unaudited) (audited)
(as restated)
ASSETS
CURRENT ASSETS:
Cash $ 33,243 $ 1,286,240
Accounts receivable, net of allowance of $1,906,784
and $1,903,626 in 2012 and 2011, respectively 8,653,925 8,005,935
Inventories, net 4,137,145 4,473,245
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,081,830 381,931
Prepaid expenses and other current assets 706,576 936,027
Current assets - discontinued operations 435,809 5,217
------------ ------------
Total current assets 15,048,528 15,088,595
------------ ------------
PROPERTY AND EQUIPMENT, NET 14,310,011 11,633,966
PROPERTY AND EQUIPMENT, NET - DISCONTINUED OPERATIONS -- 598,106
------------ ------------
Total property and equipment, net 14,310,011 12,232,072
------------ ------------
OTHER ASSETS:
Mortgages receivable, net 6,000,000 6,000,000
Goodwill 8,111,488 15,882,388
Other intangible assets, net 3,717,685 9,742,458
Other assets 121,757 513,305
Assets held for sale 2,667,433 2,667,433
Other assets - discontinued operations -- 75,000
------------ ------------
Total other assets 20,618,363 34,880,584
------------ ------------
Total assets $ 49,976,902 $ 62,201,251
============ ============
4
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
September 30, December 31,
2012 2011
------------ ------------
(unaudited) (audited)
(as restated)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,587,531 $ 10,206,720
Assumed liabilities - current portion 1,980,909 2,088,899
Accrued expenses and other current liabilities 2,076,218 2,765,709
Loans payable to related party - current portion 1,843,201 838,485
Notes payable - current portion 5,170,112 1,846,565
Capital lease obligations - current portion 297,875 220,274
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,310,231 1,105,741
Deferred revenue 655,239 666,558
Current liabilities - discontinued operations 4,360,985 4,569,594
------------ ------------
Total current liabilities 30,282,301 24,308,545
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 190,247 190,997
Capital lease obligations - net of current portion 563,307 543,617
Loans payable to related party - net of current portion 843,089 894,837
Notes payable - net of current portion 2,104,017 1,800,371
Other long-term liabilities 18,313 18,313
------------ ------------
Total long-term liabilities 3,718,973 3,448,135
------------ ------------
Total liabilities 34,001,274 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 oustanding 7,478 7,478
Common stock - class B; $0.001 par value;
40,000,000 authorized, 21,245,190 issued and outstanding 21,245 21,245
Additional paid-in capital 87,306,265 87,025,332
Accumulated deficit (68,636,105) (50,038,363)
------------ ------------
Total Amincor shareholders' equity 18,700,636 37,017,445
------------ ------------
NONCONTROLLING INTEREST EQUITY (2,725,008) (2,572,874)
------------ ------------
Total equity 15,975,628 34,444,571
------------ ------------
Total liabilities and shareholders' equity $ 49,976,902 $ 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
Nine Months Ended September 30, 2012 and 2011
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
Net revenues $ 14,313,167 $ 15,072,730 $ 41,269,430 $ 44,906,813
COST OF REVENUES 11,236,270 12,574,106 31,885,737 35,121,318
------------ ------------ ------------ ------------
Gross profit 3,076,897 2,498,624 9,383,693 9,785,495
SELLING, GENERAL AND ADMINISTRATIVE 4,249,963 2,933,026 14,992,687 13,010,971
------------ ------------ ------------ ------------
Loss from operations (1,173,066) (434,402) (5,608,994) (3,225,476)
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 216,586 188,637 533,644 487,277
Other income 13,199 104,363 (179,823) 10,951
Impairment of goodwill and intangible assets 12,583,396 -- 12,583,396 --
------------ ------------ ------------ ------------
Total other expenses 12,813,181 293,000 12,937,217 498,228
------------ ------------ ------------ ------------
Loss before provision for income taxes (13,986,247) (727,402) (18,546,211) (3,723,704)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss from continuing operations (13,986,247) (727,402) (18,546,211) (3,723,704)
------------ ------------ ------------ ------------
Loss from discontinued operations (9,093) (1,246,255) (203,665) (6,029,093)
Net loss (13,995,340) (1,973,657) (18,749,876) (9,752,797)
------------ ------------ ------------ ------------
Net loss attributable to non-controlling interests (40,028) (303,807) (152,134) (480,985)
------------ ------------ ------------ ------------
Net loss attributable to Amincor stockholders $(13,955,312) $ (1,669,850) $(18,597,742) $ (9,271,812)
============ ============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS -
BASIC AND DILUTED:
Net loss from continuing operations attributable to
Amincor stockholders $ (0.49) $ (0.03) $ (0.65) $ (0.13)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 28,723,599 28,723,599 28,723,599 28,723,599
============ ============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR STOCKHOLDERS -
BASIC AND DILUTED:
Net loss attributable to Amincor stockholders $ (0.49) $ (0.06) $ (0.65) $ (0.32)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 28,723,599 28,723,599 28,723,599 28,723,599
============ ============ ============ ============
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
Nine Months Ended September 30, 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 (as restated) (audited) 1,752,823 $ 1,753 7,478,409 $ 7,478 21,245,190 $ 21,245
========= ======= ========= ======= ========== ========
Share based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance at September 30 , 2011 (unaudited) 1,752,823 $ 1,753 7,478,409 $ 7,478 21,245,190 $ 21,245
========= ======= ========= ======= ========== ========
Balance at December 31, 2011 (as restated) (audited) 1,753,823 $ 1,753 7,478,409 $ 7,478 21,245,190 $ 21,245
========= ======= ========= ======= ========== ========
Share based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balance at September 30, 2012 (unaudited) 1,753,823 $ 1,753 7,478,409 $ 7,478 21,245,190 $ 21,245
========= ======= ========= ======= ========== ========
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at December 31, 2010 (as restated) (audited) $86,465,332 $(28,075,512) $(1,476,524) $ 56,943,772
=========== ============ =========== ============
Share based compensation 356,946 -- -- 356,946
Net loss -- (9,271,812) (480,985) (9,752,797)
----------- ------------ ----------- ------------
Balance at September 30 , 2011 (unaudited) $86,822,278 $(37,347,324) $(1,957,509) $ 47,547,921
=========== ============ =========== ============
Balance at December 31, 2011 (as restated) (audited) $87,025,332 $(50,038,363) $(2,572,874) $ 34,444,571
=========== ============ =========== ============
Share based compensation 280,933 -- -- 280,933
Net loss -- (18,597,742) (152,134) (18,749,876)
----------- ------------ ----------- ------------
Balance at September 30, 2012 (unaudited) $87,306,265 $(68,636,105) $(2,725,008) $ 15,975,628
=========== ============ =========== ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
7
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 2012 and 2011
(Unaudited)
2012 2011
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(18,546,211) $ (3,723,704)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 1,115,700 1,523,549
Amortization of intangible assets 1,212,277 1,427,802
Amortization of deferred financing costs 117,369 117,369
Impairment of goodwill and intangible assets 12,583,396 --
Stock based compensation 280,933 356,947
Gain on sale of equipment (97,126) (73,689)
Provision for (recovery of) doubtful accounts 3,159 (8,600)
Changes in assets and liabilities:
Accounts receivable (651,149) (1,740,797)
Inventories 336,100 (1,178,526)
Costs and estimated earnings in excess of billings
on uncompleted contracts (699,899) (674,945)
Prepaid expenses and other current assets 827,838 (140,446)
Other assets 274,179 (191,944)
Accounts payable 3,929,466 2,308,909
Accrued expenses and other current liabilities (689,491) (642,719)
Billings in excess of costs and estimated earnings
on uncompleted contracts 204,490 1,627,690
Deferred revenue (11,319) --
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATIONS - CONTINUING OPERATIONS 189,712 (1,013,104)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,131,651) (174,554)
Proceeds from sale of equipment 97,126 113,220
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (3,034,525) (61,334)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments to) related parties 952,968 (1,542,700)
Principal payments of capital lease obligations (157,197) (103,954)
(Borrowings from) repayments of notes payable (1,463,425) 238,646
Borrowings from notes payable 2,537,970 --
Payments of assumed liabilities (108,740) (791,039)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - CONTINUING OPERATIONS 1,761,576 (2,199,047)
------------ ------------
Net cash used in operating activities - discontinued operations (169,760) (2,356,364)
Net cash provided by investing activities - discontinued operations -- 3,845,000
Net cash used in financing activities - discontinued operations -- (179,965)
------------ ------------
Decrease in cash (1,252,997) (1,964,814)
Cash, beginning of period 1,286,240 2,607,325
------------ ------------
Cash, end of period $ 33,243 $ 642,511
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 98,956 $ 172,348
============ ============
Income taxes $ 80,082 $ 14,700
============ ============
Non-cash investing and financing activities:
Financing of insurance policy by note payable $ 1,003,993 $ --
============ ============
Conversion of accounts payable to term notes payable $ 1,548,655 $ --
============ ============
Acquisition of equipment by capital leases and notes payable $ 254,488 $ 203,191
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
8
Amincor, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
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 some of
the liabilities of Environmental Testing Laboratories, Inc. ("ETL Business").
The Company assigned the ETL Business to Environmental Quality Services, Inc.
("EQS").
As of September 30, 2012, the following are operating subsidiaries of Amincor:
Baker's Pride, Inc.
Tyree Holdings Corp.
Environmental Quality Services, Inc.
Advanced Waste & Water Technology, Inc. ("AWWT")
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
national governmental agencies and municipalities. The majority of Tyree's
revenue is derived from customers in the Northeastern United States. Tyree's
headquarters are located in Mt. Laurel, New Jersey.
9
EQS
EQS provides environmental and hazardous waste testing in the Northeastern
United States, and is headquartered in Farmingdale, New York.
AWWT
AWWT provides waste and water remediation services in the Northeast 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 September 30, 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 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.
10
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 their 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 Amincor's Annual Report on Form 10-K for the fiscal year ended December 31,
2011 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.
11
REVENUE RECOGNITION
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 ("Tyree 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
Tyree 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.
12
AWWT
AWWT provides water remediation and logistics services for its clients which
include any business that produces waste water. AWWT invoices clients based on
bills of lading which specify the quantity and type of water treated. Revenue is
recognized as water remediation services are performed.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers is analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
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
foreclosure as of September 30, 2012. The value of the mortgages is based on the
fair value of the collateral.
ALLOWANCE FOR LOAN LOSSES
An 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.
13
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Market is determined based on the net realizable value with
appropriate consideration given to obsolescence, excessive levels and other
market factors. An inventory reserve is recorded if the carrying amount of the
inventory exceeds its estimated market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
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.
On July 16, 2012, BPI was notified that Aldi, Inc. ("Aldi"), BPI's primary
customer would be terminating its contract with the Company as of the end of
October 2012 due to BPI's inability to meet certain pricing, cost and product
offering needs. Consequently, BPI performed an impairment study and concluded
that BPI's goodwill and intangible assets were fully impaired, due to the loss
of this customer.
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.
14
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.
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 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 and
nine months ended September 30, 2012 and 2011, respectively. Assets and
liabilities related to discontinued operations are presented separately on the
condensed balance sheets as of September 30, 2012 and December 31, 2011. Changes
15
in net cash from discontinued operations are presented in the accompanying
condensed statements of cash flows for the nine months ended September 30, 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:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
Results From Discontinued Operations:
Net revenues from discontinued operations $ -- $ 28,321 $ 1,983 $ 4,600,040
============ ============ ============ ============
Loss from discontinued operations $ (9,093) $ (1,246,255) $ (203,665) $ (6,029,093)
============ ============ ============ ============
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).
September 30, December 31,
2012 2011
------------ ------------
Accounts receivable $ 2,612 $ --
Prepaid expenses and other current assets 433,197 5,217
Property, plant and equipment, net -- 598,106
Other assets -- 75,000
------------ ------------
Total assets $ 435,809 $ 678,323
============ ============
Accounts payable $ 3,477,372 $ 3,661,771
Accrued expenses and other current liabilities 883,613 907,823
------------ ------------
Total Liabilities $ 4,360,985 $ 4,569,594
============ ============
Net Liabilities $ (3,925,176) $ (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 September 30, 2012 and December 31, 2011 is below:
16
September 30, December 31,
2012 2011
---------- ----------
Raw materials $3,810,499 $4,321,380
Ingredients 639,477 637,153
Finished goods 234,040 91,405
---------- ----------
4,684,016 5,049,938
Inventory reserves 546,871 576,693
---------- ----------
Inventories, net $4,137,145 $4,473,245
========== ==========
5. PROPERTY AND EQUIPMENT
As of September 30, 2012 and December 31, 2011 property and equipment from
continuing operations consisted of the following:
Useful Lives September 30, December 31,
(Years) 2012 2011
------------ ------------ ------------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 16,082,707 12,840,288
Furniture and fixtures 5-10 123,403 110,439
Building and leasehold improvements 10 3,362,068 3,226,010
Computer equipment and software 5-7 909,997 804,010
Construction in progress n/a 14,801 14,801
Vehicles 3-10 334,415 212,093
------------ ------------
21,257,391 17,637,641
Less accumulated depreciation 6,947,380 6,003,675
------------ ------------
$ 14,310,011 $ 11,633,966
============ ============
Total depreciation expense related to continuing operations for nine months
ended September 30, 2012 and 2011 was $1,115,700 and $1,523,549, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
On July 16, 2012, BPI was notified that Aldi, BPI's primary customer would be
terminating its contract with the Company as of the end of October 2012 due to
BPI's inability to meet certain pricing, cost and product offering needs. As
such, BPI performed an impairment study and concluded that BPI's goodwill and
intangible assets were fully impaired. The Company recorded an impairment
expense of $7,770,900 and $4,812,496 for BPI's goodwill and intangible assets
(customer relationships), respectively, in the third quarter of 2012.
Goodwill of $8,111,488 and $15,882,388 at September 30, 2012 and December 31,
2011, respectively, and licenses and permits (an intangible asset) of $3,430,400
at September 30, 2012 and December 31, 2011, have indefinite useful lives and
17
are not being amortized but tested for impairment annually or whenever an event
occurs that may indicate a significant decrease in the market value of the
assets has taken place.
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 September 30, 2012 and December 31, 2011:
Esimated
Useful Lives September 30, December 31,
(Years) 2012 2011
------------ ------------ ------------
Intangible assets subject to amortization
Customer relationships 5-10 $ 1,327,700 $ 8,976,700
Non-competition agreements 5 5,886,300 5,886,300
----------- -----------
7,214,000 14,863,000
Less accumulated amortization 6,926,715 8,550,942
----------- -----------
Intangible assets subject to amortization, net 287,285 6,312,058
Intangible assets not subject to amortization
Licenses and permits 3,430,400 3,430,400
----------- -----------
Intangible assets, net $ 3,717,685 $ 9,742,458
=========== ===========
The above licenses and permits have renewal provisions which are generally one
to four years. At September 30, 2012, the weighted-average period to the next
renewal was ten months. The costs of renewal are nominal and are expensed when
incurred. The Company intends to renew all licenses and permits currently held.
Amortization expense related to continuing operations for the nine months ended
September 30, 2012 and 2011 was $1,212,277 and $1,427,802, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2012 and December 31
2011:
18
September 30, 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% as of June 30, 2011 and
December 31, 2010, with principal and interest payable
in installments through July 2014 $ 696,449 $ 820,251
Promissory notes payable, with zero interest to current
accounts payable vendors. Payment terms are from 12 to
36 months 2,956,007 1,956,067
Promissory notes payable, with accrued interest, to
three former stockholders of a predecessor company.
These notes are unsecured and are subordinate to the
Company's senior debt. The notes mature on December 31,
2012 and bear interest at an annual rate of 6.0% 500,000 500,000
Note payable to a commercial bank. Payable in monthly
installments of principal and interest of $6,198
through March 2015. The annual interest rate is 7.25%
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. 246,594 370,618
Bridge loan with a commercial bank, collateralized by
property, plant and equipment in addition to assets
purchased, and bearing interest at 2.75% above the U.S.
Prime Rate with a floor of 5.0% and a ceiling of 7.0%.
The loan matures on May 31, 2013 337,109 --
Total 2,537,970 --
Less current portion 7,274,129 3,646,936
Long-term portion 5,170,112 1,846,565
---------- ----------
$2,104,017 $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 September 30, 2012 and
December 31, 2011:
19
September 30, December 31,
2012 2011
---------- ----------
Loan and security agreement with Capstone Capital
Group, LLC which expires on November 1, 2013 bearing
interest at 18% per annum. Maximum borrowing of
$1,000,000 $1,001,346 $ 338,908
Loan and security agreement with Capstone Capital
Group, LLC which expires on May 15, 2015 bearing
interest at 18% per annum. Maximum borrowing of
$1,000,000 841,855 499,577
---------- ----------
Total loans and amounts payable to related parties $1,843,201 $ 838,485
========== ==========
Interest expense for these loans amounted to $258,150 and $132,711 for the nine
months ended September 30, 2012 and 2011, respectively.
9. CORRECTION OF SHARES OF COMMON STOCK ISSUED
On June 27, 2012, the Company issued 68,928 shares of Class B common shares as a
correction of the amount of shares issued on the Company's Payment in Kind date
of December 31, 2009. Management discovered a calculation error and these
additional Class B common shares were issued to accurately represent the number
of shares owned by the shareholder. As a result, the amount of Class B shares
outstanding as of December 31, 2011 and the weighted average shares outstanding
for the nine months ended September 30, 2011 have been restated. This correction
is de minimus and had no discernible effect on previously reported loss per
share.
10. OPERATING SEGMENTS
The Company is organized into seven operating segments: (1) Amincor, (2) Other
Assets, (3) Contract Admin, (4) BPI, (5) EQS, (6) AWWT, and (7) Tyree. Assets
related to discontinued operations ("Disc. Ops") are also presented below.
Segment information is as follows:
September 30, December 31,
2012 2011
------------ ------------
TOTAL ASSETS:
Amincor $ 116,225 $ 536,061
Other Assets 8,667,434 8,667,433
Contract Admin -- --
BPI 14,239,047 24,851,264
EQS 1,235,371 1,298,597
Tyree 25,282,018 26,169,574
AWWT 998
Disc. Ops 435,809 678,322
------------ ------------
Total assets $ 49,976,902 $ 62,201,251
============ ============
20
September 30, December 31,
2012 2011
------------ ------------
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI -- 7,770,900
EQS 535,988 535,988
AWWT -- --
Tyree 7,575,500 7,575,500
------------ ------------
Total goodwill $ 8,111,488 $ 15,882,388
============ ============
September 30, December 31,
2012 2011
------------ ------------
TOTAL INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI -- 5,194,946
EQS 135,000 135,000
AWWT -- --
Tyree 3,582,685 4,412,512
------------ ------------
Total intangible assets $ 3,717,685 $ 9,742,458
============ ============
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
NET REVENUES:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI 3,977,989 3,968,096 12,349,973 11,228,743
EQS 165,408 260,839 620,950 778,501
AWWT 686 -- 3,936 --
Tyree 10,169,084 10,843,795 28,294,571 32,899,569
------------ ------------ ------------ ------------
Net revenues $ 14,313,167 $ 15,072,730 $ 41,269,430 $ 44,906,813
============ ============ ============ ============
21
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES:
Amincor $ 548,241 $ 1,228,372 $ 440,204 $ (768,136)
Other Assets 26,743 (244,433) (29,656) 443,169
Contract Admin -- -- (592) 395
BPI (13,709,169) (245,313) (15,420,252) (403,893)
EQS 5,913 (187,888) (340,640) (396,873)
AWWT (8,991) -- (9,323) --
Tyree (848,984) (1,278,140) (3,185,952) (2,598,366)
------------ ------------ ------------ ------------
Income (loss) before Provision for Income Taxes $(13,986,247) $ (727,402) $(18,546,211) $ (3,723,704)
============ ============ ============ ============
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Amincor $ -- $ -- $ -- $ --
Other Assets -- 250,021 -- 750,063
Contract Admin -- -- -- --
BPI 213,742 2,755 628,043 5,896
EQS 22,915 25,643 68,574 76,390
AWWT -- -- -- --
Tyree 139,056 215,502 419,083 691,200
------------ ------------ ------------ ------------
Total depreciation of property and equipment $ 375,713 $ 493,921 $ 1,115,700 $ 1,523,549
============ ============ ============ ============
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
Contract Admin -- -- -- --
BPI -- 191,225 382,450 573,675
EQS -- 8,100 -- 24,300
AWWT -- -- --
Tyree 276,609 276,609 829,827 829,827
------------ ------------ ------------ ------------
Total amortization of intangible assets $ 276,609 $ 475,934 $ 1,212,277 $ 1,427,802
============ ============ ============ ============
22
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2012 2011 2012 2011
------------ ------------ ------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (94,385) $ (64,927) $ (262,521) $ (205,556)
Other Assets (7,068) -- (20,941)
Contract Admin -- --
BPI 153,520 66,261 381,657 197,430
EQS 21,720 31,810 61,577 44,382
AWWT 59 -- 61
Tyree 142,740 155,493 373,811 451,021
------------ ------------ ------------ ------------
Total interest expense, net $ 216,586 $ 188,637 $ 533,644 $ 487,277
============ ============ ============ ============
11. 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 the Mt. Pleasant Street Bakery, Inc.
resides (the "Property") 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 to showing an
environmental hazard on property adjacent to the Mt. Pleasant Street Bakery
caused by the operations of the adjacent property owners. 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 be issued and completed in order to
better understand what environmental hazard exists on the Property. At this
time, the potential liability is estimated to be approximately $115,000. The
remediation work is 100% eligible for a refund from IDNR's Innocent Landowner
Fund. A liability has been recorded on BPI's balance sheet for this amount and a
corresponding asset was also recorded to reflect the future expense and refund
to be incurred by BPI.
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 $1,515,401.27. This pre-petition receivable has
been fully reserved for in the Company's allowance for doubtful accounts. A
Proof of Claim was filed with the Bankruptcy court on Tuesday, April 10, 2012.
On August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
23
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed.
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 (Euro) 400,000; which is (Euro)
200,000 in excess of the guaranteed minimum royalty. As of September 30, 2012,
ESI has paid (Euro) 100,000 of the guaranteed minimum royalty and recorded an
additional (Euro) 100,000 as an accrued liability. Management has initiated
counterclaims against the various parties seeking damages for, including but not
limited to infringement, improper use of company assets and breach of fiduciary
duty. As of September 30, 2012, the disposal period as defined under the
Strategic Alliance agreement has ended. Management does not believe additional
liabilities resulting from terminating the strategic alliance agreement with
Samsung are likely. Therefore, no additional amounts have been accrued in these
financial statements as of September 30, 2012.
As of this Report, the case continues to be litigated and Management will update
accordingly.
LEGAL PROCEEDINGS
AMINCOR
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Defendants believe that this lawsuit has no merit or
basis and intend to vigorously defend it.
On September 28, 2012, Sean Frost ("Frost") filed a Complaint to Compel
Arbitration Regarding Breach of Employment Contract and Related Breach of Labor
Code Claims and For an Award of Compensatory Damages in the Superior Court of
24
the State of California, County of San Diego against Epic Sports International
Inc., Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The
first cause of action is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action is for breach of contract for alleged non-payment of expenses,
vacation days and assumption of certain debts. The third cause of action is for
violation of the California Labor Code for failure to pay wages due and owing.
Frost is seeking among other things, damages, attorneys' fees and costs and
expenses. Defendants believe that this lawsuit has no merit or basis and intend
to vigorously defend it.
TYREE
Tyree's services are regulated by federal, state and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. This
ongoing regulation results in Tyree or Tyree's predecessor companies being put
at risk at becoming a party to legal proceedings involving customers or other
interested parties. The issues involved in such proceedings generally relate to
alleged responsibility arising under federal or state laws to remediate
contamination at properties owned or operated either by current or former
customers or by other parties who allege damages. To limit its exposure to such
proceedings, Tyree purchases, for itself and Tyree's predecessor companies, site
pollution, pollution and professional liability insurance. Aggregate limits, per
occurrence limits and deductibles for this policy are $10,000,000, $5,000,000
and $50,000, respectively.
Tyree and its subsidiaries are, from time to time, involved in ordinary and
routine litigation. Management presently believes that the ultimate outcome of
these proceedings individually or in the aggregate, will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. Nevertheless, litigation is subject to inherent uncertainties and
unfavorable rulings could occur. An unfavorable ruling could include monetary
damages and, in such event, could result in a material adverse impact on the
Company's financial position, results of operations or cash flows for the period
in which the ruling occurs.
IMSC/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.
A former principal of Imperia Bros., Inc. (a predecessor company of Masonry)
filed a notice of appeal dated November 14, 2011 with the court contesting the
Judgment of Foreclosure. The Company believes that the appeal will not be upheld
by the court since the same appellate court, on February 16, 2010, issued an
order that granted CBC a motion of summary judgment and dismissed all of the
former principal's affirmative defenses.
25
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. CBC then assigned its bid to
Amincor.
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 a conditional title will be issued and after recording the deed, IFR will
no longer have any ownership interest in the property.
12. LIQUIDITY MATTERS / GOING CONCERN
From 2008 through September 30, 2012, internally generated operating cash flows
have been sufficient to meet the Company's business operating requirements.
However, operating cash flows have not been sufficient to finance capital
improvements or provide funds for the substantial marketing efforts necessary
for growing the businesses. 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 which will allow for leaner inventory levels and reducing
the warehousing costs;
* Renegotiating compensation arrangements and consolidating its
administrative location with operating offices 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:
* 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 based on aggressive bidding on
jobs from new customers;
* Expanding services into new types of services for water purification;
* Expanding services provided to the existing customers;
* Increasing customer orders is expected due to anticipated construction
needs that have been deferred in the last several years due to the
weak economy.
The Company has taken the following actions as follows:
26
* Consolidate certain premises thereby reducing rents and is negotiated
for reduced rents with landlords;
* Sold equipment of IMSC (a discontinued entity) in February 2012 for
$426,000;
* Term out certain material payments to vendors to ease cash flow. The
Company has spoken to major vendors concerning regarding payment
terms;
* Sell its stock publicly and attempt to raise public and private
capital;
* Hired a new sales executive with extensive food industry background to
increase sales of existing and new products of the BPI;
* Secured an interest only extension through April 2013 on BPI's bridge
loan agreement for BPI (the "Bridge Loan") in August 2012 which has
allowed BPI to purchase additional equipment to begin donut
manufacturing operations.
* Reduced management salaries at the corporate and subsidiary level of
the Company to better align management's salaries with net revenues.
In addition, the Company intends to do the following:
* Liquidate the property previously occupied by Tulare (a discontinued
entity) in Lindsay, California for approximately $2 million;
* Sell its property in Allentown, Pennsylvania for $640,000. There is a
due diligence period of 60 days and closing 30 days following the
completion of the due diligence period, which is January 5, 2013. The
sale is contingent on $512,000 in mortgage financing. As of the date
of this Report, the buyer, after conducting its due diligence, has
sent notice of cancellation of the sale agreement. Management is in
discussions as to the appropriate next steps for the sale of the
property.
If the Company's plans change, or its assumptions change or prove to be
inaccurate, or if available cash otherwise proves to be insufficient to
implement its business plans, the Company may require additional equity or debt
financing. Given the uncertain economic environment and the pressure that the
financial sector has been under, the Company cannot predict whether additional
funds will be available in adequate amounts. If funds are needed but not
available, the Company's business may need to be altered or curtailed.
13. SUBSEQUENT EVENTS
BPI - ALDI TERMINATION OF ITS CONTRACT WITH BPI
Effective November 2, 2012, BPI has stopped production at the Jefferson Street
facility due to BPI's primary customer, Aldi, terminating its contract with BPI.
The contract termination has necessitated layoffs of production personnel and
wage reductions of remaining personnel in order to minimize losses until
production resumes at the Jefferson Street facility. As of the time of filing
there are many ongoing discussions and opportunities for new business, however,
BPI has not yet secured a significant contract with a new customer.
27
On November 30, 2012, BPI will be terminating the equipment and facility lease
which allows for production at the South Street facility. It is management's
intention to enter into a co-packing agreement for all of the products formerly
produced internally with other bakeries in order to continue to provide the same
product offerings without operating the facility. Management intends to move
existing equipment owned but residing at its South Street facility and install
it at the Mt. Pleasant Street facility. Management intends to return to its
business plan of operating the South Street facility thereby reducing fixed
overhead and variable costs by using cross trained personnel and providing its
customer base the opportunity to purchase one or all three of its product types
in less than trailer load quantities but obtain cost effective logistics through
a combined load of all products offered by BPI.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
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 of 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; and 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.
ADVANCED WASTE & WATER TECHNOLOGY, INC.
AWWT is a wholly owned subsidiary of Environmental Holding Corp. AWWT provides
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 nine months ended September 30, 2012, cash flows used in operating
activities from continuing operations were $189,712. This was principally due to
a net loss from continuing operations of $18,546,211 which was partially offset
by an impairment of goodwill and intangible assets of approximately $12.6
million, an increase in accounts payable of approximately $3.9 million and add
backs for depreciation and amortization of intangible assets of approximately
$1.1 million and $1.2 million, respectively. The net loss from continuing
operations is discussed in greater detail in the results from operations for the
nine and three months ended September 30, 2012 and 2011 section of this MD&A.
For the nine months ended September 30, 2012, cash flows used in investing
activities were $3,034,525 primarily due to the purchase of additional plant,
machinery and equipment at Baker's Pride, Inc.'s subsidiary Mt. Pleasant Street
Bakery, Inc.
30
For the nine months ended September 30, 2012, cash provided by financing
activities was $1,761,576 primarily due to the financing of the aforementioned
investing activities and the terming out of certain accounts payable vendors for
Tyree.
For the nine months ended September 30, 2012, total cash used in discontinued
operations was $169,760. 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.
However, as reflected in the accompanying consolidated condensed financial
statements, we recorded a net loss from continuing operations of $18,546,211 for
the nine months ended September 30, 2012. We had a working capital deficit of
$15,233,773 and an accumulated deficit of $68,636,105. The results of the
Company's cash flows from continuing operations for the nine months ended
September 30, 2012 have been adversely impacted by the customer slowdown in
infrastructure capital expenditures caused by the general downturn of the
economic conditions and cash flow issues related to major customers. The Company
has discontinued operations of IMSC, Tulare and ESI in 2011 which had
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.
From 2008 through September 30, 2012, internally generated operating cash flows
have been sufficient to meet the Company's business operating requirements.
However, operating cash flows have not been sufficient to finance capital
improvements or provide funds for the substantial marketing efforts necessary
for growing the businesses. 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 which will allow for leaner inventory levels and reducing
the warehousing costs;
* Renegotiating compensation arrangements and consolidating its
administrative location with operating offices 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:
* 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 based on aggressive bidding on
jobs from new customers;
* Expanding services into new types of services for water purification;
31
* Expanding services provided to the existing customers;
* Increasing customer orders is expected due to anticipated construction
needs that have been deferred in the last several years due to the
weak economy.
The Company has taken the following actions as follows:
* Consolidate certain premises thereby reducing rents and is negotiated
for reduced rents with landlords;
* Sold equipment of IMSC (a discontinued entity) in February 2012 for
$426,000;
* Term out certain material payments to vendors to ease cash flow. The
Company has spoken to major vendors concerning regarding payment
terms;
* Sell its stock publicly and attempt to raise public and private
capital;
* Hired a new sales executive with extensive food industry background to
increase sales of existing and new products of the BPI;
* Secured an interest only extension through April 2013 on BPI's bridge
loan agreement for BPI (the "Bridge Loan") in August 2012 which has
allowed BPI to purchase additional equipment to begin donut
manufacturing operations.
* Reduced management salaries at the corporate and subsidiary level of
the Company to better align management's salaries with net revenues.
In addition, the Company intends to do the following:
* Liquidate the property previously occupied by Tulare (a discontinued
entity) in Lindsay, California for approximately $2 million;
* Sell its property in Allentown, Pennsylvania for $640,000. There is a
due diligence period of 60 days and closing 30 days following the
completion of the due diligence period, which is January 5, 2013. The
sale is contingent on $512,000 in mortgage financing. As of the date
of this Report, the buyer, after conducting its due diligence, has
sent notice of cancellation of the sale agreement. Management is in
discussions as to the appropriate next steps for the sale of the
property.
If the Company's plans change, or its assumptions change or prove to be
inaccurate, or if available cash otherwise proves to be insufficient to
implement its business plans, the Company may require additional equity or debt
financing. Given the uncertain economic environment and the pressure that the
financial sector has been under, the Company cannot predict whether additional
funds will be available in adequate amounts. If funds are needed but not
available, the Company's business may need to be altered or curtailed.
CONTINGENT LIABILITIES:
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
32
for a minimum guaranteed royalty payment of (Euro) 400,000; which is (Euro)
200,000 in excess of the guaranteed minimum royalty. As of September 30, 2012,
ESI has paid (Euro) 100,000 of the guaranteed minimum royalty and recorded an
additional (Euro) 100,000 as an accrued liability. Management has initiated
counterclaims against the various parties seeking damages for, including but not
limited to infringement, improper use of company assets and breach of fiduciary
duty. As of September 30, 2012, the disposal period as defined under the
Strategic Alliance agreement has ended. Management does not believe additional
liabilities resulting from terminating the strategic alliance agreement with
Samsung are likely. Therefore, no additional amounts have been accrued in these
financial statements as of September 30, 2012.
As of this Report, the case continues to be litigated and Management will update
accordingly.
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 $1,515,401. This pre-petition receivable has
been fully reserved for in the Company's allowance for doubtful accounts. A
Proof of Claim was filed with the Bankruptcy court on Tuesday, April 10, 2012.
On August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed
BPI
In order to secure Baker's Pride's USDA loan, BPI had a Phase I environmental
site assessment done on the property where the Mt. Pleasant Street Bakery, Inc.
resides (the "Property") 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 to showing an
environmental hazard on property adjacent to the Mt. Pleasant Street Bakery
caused by the operations of the adjacent property owners. 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 be issued and completed in order to
better understand what environmental hazard exists on the Property. At this
33
time, the potential liability is estimated to be approximately $115,000. The
remediation work is 100% eligible for a refund from IDNR's Innocent Landowner
Fund. A liability has been recorded on BPI's balance sheet for this amount and a
corresponding asset was also recorded to reflect the future expense and refund
to be incurred by BPI.
TULARE
The City of Lindsay, California has invoiced Tulare Frozen Foods, LCC ("TFF")
$533,571 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 TFF's
$206,666 deposit as settlement and release in full of all outstanding
obligations was sent to the City of Lindsay for review on March 29, 2012. As of
the date of this filing, no settlement has been reached.
ASSETS HELD FOR SALE
The 360,000 square foot facility formerly operated by Allentown Metal Works,
Inc. formerly operated has fallen into disrepair as a result of vandalism. The
buildings on site are functionally obsolete and 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. On
October 5, 2012, the Company entered into sale agreement for this property and
facility for $640,000, with a due diligence period of 60 days and closing 30
days following the completion of the due diligence period, which is January 5,
2013. The sale is contingent on $512,000 in mortgage financing. As of the date
of this Report, the buyer, after conducting its due diligence, has sent notice
of cancellation of the sale agreement. Management is in discussions as to the
appropriate next steps for the sale of the property.
The Tulare property has also been listed with real estate agents. There are
potential buyers interested in the property, but as of the date of filing no
binding sales agreement has been executed. A sales contract is pending between a
local developer and Amincor Other Assets, Inc.
RESULTS FROM OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the nine months ended September 30, 2012 totaled $41,269,430
compared to net revenues of $44,906,813 for the nine months ended September 30,
2011, a decrease in net revenues of $3,637,383 or approximately 8.1%. The
primary reason for the decrease in net revenues is related to Tyree's
operations. Tyree's net revenues decreased by approximately $4.6 million, but
this decrease was partially offset by an increase in net revenues for Baker's
Pride of approximately $1.1 million. A detailed analysis of each subsidiary
company's individual net revenues can be found within their respective MD&A
sections of this Form 10-Q.
34
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2012 totaled
$31,885,737 or approximately 77.3% of net revenues as compared to $35,121,318 or
approximately 78.2% of net revenues for the nine months ended September 30,
2011. Cost of revenues was relatively unchanged as a percentage of net revenues
between the nine months ended September 30, 2012 and September 30, 2011. A
detailed analysis of each subsidiary company's individual cost of revenues can
be found within their respective MD&A sections of this Form 10-Q.
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2012 totaled
$14,992,687 as compared to $13,010,971 for the nine months ended September 30,
2011, an increase in operating expenses of $1,981,716 or approximately 15.2%.
This is due primarily to the addition of the South Street Bakery (subsidiary of
BPI) which had approximately $1.2 million in operating expenses in 2012.
LOSS FROM OPERATIONS
Loss from operations for the nine months ended September 30, 2012 totaled
$5,608,994 as compared to $3,225,476 for the nine months ended September 30,
2011, an increase in loss from operations of $2,383,518 or approximately 73.9%.
The primary reason for the increase in loss from operations is related to the
decreases in net revenues and the increases in operating expenses as noted
above.
OTHER EXPENSES
Other expenses for the nine months ended September 30, 2012 totaled $12,937,217
as compared to $498,228 for the nine months ended September 30, 2011, an
increase in other expenses of $12,438,989. The primary reason for the increase
in other expenses is related to the impairment of goodwill and intangible assets
related to the loss of BPI's primary customer, Aldi, Inc. ("Aldi") of
approximately $12.6 million.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $18,546,211 for the nine months
ended September 30, 2012 as compared to $3,723,704 for the nine months ended
September 30, 2011, an increase in net loss from continuing operations of
$14,822,507. The primary reason for the increase in net loss from continuing
operations is related to the impairment of goodwill and intangible assets
related to the loss of BPI's primary customer, Aldi, Inc. of approximately $12.6
million.
35
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $203,665 for the nine months ended
September 30, 2012 as compared to $6,029,093 for the nine months ended September
30, 2011, a decrease in net loss from discontinued operations of $5,825,428 or
approximately 96.6%. 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. As such, Masonry and Tulare were operating entities for the
six months ended June 30, 2011 and ESI was an operating entity for the nine
months ended September 30, 2011, as compared to winding down of these companies
in 2012. The net loss of Masonry was $197,983 for the nine months ended
September 30, 2012 as compared to $3,555,482 for the nine months ended September
30, 2011, a decrease in net loss of $3,357,499 or approximately 94.4%. The net
income of Tulare was $27,530 for the nine months ended September 30, 2012 as
compared to a net loss of $1,854,010 for the nine months ended September 30,
2011, a decrease in net loss of $1,881,540. The net loss of ESI was $33,212 for
the nine months ended September 30, 2012 as compared to $619,601 for the nine
months ended September 30, 2011, a decrease in net loss of $586,389 or
approximately 94.6%.
NET LOSS
Net loss totaled $18,749,876 for the nine months ended September 30, 2012 as
compared to $9,752,797 for the nine months ended September 30, 2011, an increase
in net loss of $8,997,079 or approximately 92.3%. The primary reason for the
increase in other expenses is related to the impairment of goodwill and
intangible assets related to the loss of BPI's primary customer, Aldi of
approximately $12.6 million, which was partially offset by the reductions in
losses from Tulare, Masonry and ESI associated with discontinuing their
operations.
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended September 30, 2012 totaled $14,313,167
compared to net revenues of $15,072,730 for the three months ended September 30,
2011, a decrease in net revenues of $759,563 or approximately 5.0%. The primary
reason for the decrease in net revenues is related to Tyree's operations where
net revenues decreased by approximately $675,000 million. A detailed analysis of
each subsidiary company's individual net revenues can be found within their
respective MD&A sections of this Form 10-Q.
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2012 totaled
$11,236,270 or approximately 78.5% of net revenues as compared to $12,574,106 or
approximately 83.4% of net revenues for the three months ended September 30,
2011. The primary reason for the decrease in cost of revenues is related to
36
Tyree's operations where cost of revenues went from 87.5% of net revenues during
the three months ended September 30, 2011 to 80.0% of net revenues during the
three months ended September 30, 2012. A detailed analysis of each subsidiary
company's individual cost of revenues can be found within their respective MD&A
sections of this Form 10-Q.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2012 totaled
$4,249,963 as compared to $2,933,026 for the three months ended September 30,
2011, an increase in operating expenses of $1,316,937 or approximately 44.9%.
The primary reason for this increase was related to a significant reduction of
Amincor's accounts payable balances through negotiated settlements with various
service providers and vendors that occurred in 2011.
LOSS FROM OPERATIONS
Loss from operations for the three months ended September 30, 2012 totaled
$1,173,066 as compared to $434,402 for the three months ended September 30,
2011, an increase in loss from operations of $738,664 or approximately 170.0%.
The primary reason for the increase in loss from operations is related to the
increases in operating expenses as noted above.
OTHER EXPENSES
Other expenses for the three months ended September 30, 2012 totaled $12,813,181
as compared to $293,000 for the three months ended September 30, 2011, an
increase in other expenses of $12,520,181. The primary reason for the increase
in other expenses is related to the impairment of goodwill and intangible assets
related to the loss of BPI's primary customer, Aldi of approximately $12.6
million.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $13,986,247 for the three months
ended September 30, 2012 as compared to $727,402 for the three months ended
September 30, 2011, an increase in net loss from continuing operations of
$13,258,845. The primary reason for the increase in net loss from continuing
operations is related to the impairment of goodwill and intangible assets
related to the loss of BPI's primary customer, Aldi of approximately $12.6
million.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $9,093 for the nine months ended
September 30, 2012 as compared to $1,246,255 for the three months ended
September 30, 2011, a decrease in net loss from discontinued operations of
$1,237,162 or approximately 99.3%. Management discontinued the operations of the
37
following companies in 2011 - Masonry and Tulare as of June 30, 2011 and ESI as
of September 30, 2011. As such, Masonry and Tulare were operating entities for
the six months ended June 30, 2011 and ESI was an operating entity for the nine
months ended September 30, 2011, as compared to winding down of these companies
in 2012. The net loss of Masonry was $125,422 for the three months ended
September 30, 2012 as compared to $302,391 for the three months ended September
30, 2011, an increase in net loss of $176,969 or approximately 58.5%. The net
income of Tulare was $122,620 for the three months ended September 30, 2012 as
compared to a net loss of $387,177 for the three months ended September 30,
2011, a decrease in net loss of $509,796. The net loss of ESI was $6,291 for the
three months ended September 30, 2012 as compared to $637,340 for the three
months ended September 30, 2011, a decrease in net loss of $637,049 or
approximately 99.0%. The balance of the difference is related to a write off of
management fees recognized at the Amincor level but related to discontinued
operations in 2011.
NET LOSS
Net loss totaled $13,995,340 for the three months ended September 30, 2012 as
compared to $1,973,657 for the three months ended September 30, 2011, an
increase in net loss of $12,021,683 or approximately 609.1%. The primary reason
for the increase in net loss is related to the increase in other expenses, the
impairment of goodwill and intangible assets related to the loss of BPI's
primary customer, Aldi of approximately $12.6 million mitigated by a decrease in
losses from discontinued operations.
ADVANCED WASTE AND WATER TECHNOLOGY, INC.
AWWT began operating on May 1, 2012 and has had minimal activity for the nine
and three month period ended September 30, 2012.
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.
LOSS OF MATERIAL CUSTOMER
On July 16, 2012, BPI was notified that Aldi, BPI's primary customer would be
terminating its contract with the Company as of the end of October 2012 due to
BPI's inability to meet certain pricing, cost and product offering needs. As
such, BPI performed an impairment study and concluded that BPI's goodwill and
intangible assets were fully impaired.
38
Net revenues generated from Aldi comprised 93.6% and 97.5% of net revenues for
the nine months ended September 30, 2012 and 2011, respectively. All of the
revenues generated from Aldi were generated from BPI's Jefferson Street
facility. The balance of net revenues were generated by BPI's South Street
facility. On November 30, 2012, BPI will be terminating the equipment and
facility lease which allows for production at the South Street facility. It is
management's intention to enter into a co-packing agreement for all of the
products formerly produced internally with other bakeries in order to continue
to provide the same product offerings without operating the facility. Management
intends to move existing equipment owned but residing at the South Street
facility and install it at the Mt. Pleasant Street facility. Management intends
to return to its business plan of operating the bakery thereby reducing fixed
overhead and variable costs by using cross trained personnel and providing its
customer base the opportunity to purchase one or all three of its product types
in less than trailer load quantities but obtain cost effective logistics through
a combined load of all products offered by BPI.
Effective November 2, 2012, BPI has stopped production at the Jefferson Street
facility. As such, there were layoffs of production personnel and wage
reductions of remaining personnel in order to minimize losses until production
resumes at the Jefferson Street facility. As of the time of filing there are
many ongoing discussions and opportunities for new business, however, BPI has
not yet secured a significant contract with a new customer.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the nine months ended September 30, 2012 totaled $12,349,973 as
compared to $11,228,743 for the nine months ended September 30, 2011, an
increase of $1,121,230 or approximately 10.0%. Revenues generated by the
Jefferson Street facility were in excess of 90.0% of revenues for the nine
months ended September 30, 2012 and 2011.
Bread sales for the nine months ended September 30, 2012 totaled $10,718,864 as
compared to $10,079,965 for the nine months ended September 30, 2011, an
increase of $638,899 or approximately 6.3%. Factors contributing to this
increase: the continuing effect of wholesale price increases and the
corresponding price increase granted by the Company's customer in April 2011 of
7% as well as an additional price 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 nine months
ended September 30, 2012 as compared to the same period in 2011.
39
Donut sales for the nine months ended September 30, 2012 totaled $841,055 as
compared to $862,975 for the nine months ended September 30, 2011, a decrease of
$21,920 or approximately 2.5%. This decrease was primarily due to fewer
production days available in 2012 than available in 2011. In addition, units
decreased as a result of additional SKU offerings by BPI's customer from other
vendors.
Cookie sales for the nine months ended September 30, 2012 totaled $790,054 as
compared to $285,803 for the nine months ended September 30, 2011, an increase
of $504,251 or approximately 176.4%. This increase was primarily due to the
South Street Bakery facility beginning production in late August 2011 and as
such, the nine months ended September 30, 2011 only reflects two months of
operations.
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2012 totaled $9,143,661
or approximately 74.0% of net revenues as compared to $7,988,598 or
approximately 71.1% for the nine months ended September 30, 2011, an increase of
$1,155,063 or approximately 14.5%. The Company had a 10.0% increase in net
revenues against a 14.5% increase in cost of revenues in 2012, as compared to
2011.
Of this increase of $1,155,063 in cost of revenues in 2012 for Baker's Pride,
Inc.; the South Street Bakery generated an increase of $1,351,684 to cost of
revenues with net revenues of $790,054. BPI's other operating unit, the
Jefferson Street Bakery Inc., had net revenues of $11,559,919 and cost of
revenues of $7,791,977. BPI is in the process of negotiating with the owner of
the equipment utilized at the South Street Bakery for purchase. BPI intends to
move this machinery to its Mt. Pleasant Street facility where it will increase
its efficiencies and facility utilization.
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2012 totaled
$5,406,787 or approximately 43.8% of net revenues as compared to $3,439,939 or
30.6% for the nine months ended September 30, 2011, an increase of $1,966,849 or
approximately 57.2%. The primary reason for this increase was the result of
management fees paid to Amincor for approximately $2.0 million for the nine
months ended September 30, 2012 that were not incurred during the nine months
ended September 30, 2011.
LOSS FROM OPERATIONS
Loss from operations for the nine months ended September 30, 2012 totaled
$2,200,476 or approximately 17.8% of net revenue as compared to $199,793 or
approximately 1.8% for the nine months ended September 30, 2011, an increase of
$2,000,683. The increase in loss from operations was primarily due to the
increases in cost of revenues and operating expenses as noted above.
40
OTHER EXPENSES
Other expenses for the nine months ended September 30, 2012 totaled $13,219,777
or approximately 107.0% of net revenues as compared to $204,099 or approximately
1.8% of net revenues for the nine months ended September 30, 2011, an increase
of $13,015,677. The primary reason for this increase in 2012 is due to the
impairment of goodwill and intangible assets resulting from the loss of Aldi as
a customer of approximately $12.6 million. The remaining increase is related to
a higher interest expense due to a larger loan balance on BPI's working capital
line and the 2012 bridge loan to purchase new equipment for the Mt. Pleasant
Street facility.
NET LOSS
Net loss for the nine months ended September 30, 2012 totaled $15,420,252 as
compared to $403,893 for the nine months ended September 30, 2011, an increase
of $15,016,360. Of the Company's 2012 increase in net loss of $15,016,360, the
South Street Bakery facility generated approximately $2.1 million and goodwill
and intangible impairments assets and amortization resulting from the loss of
Aldi as a customer resulted in approximately $12.4 million of this net loss.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended September 30, 2012 totaled $3,977,989 as
compared to $3,968,096 for the three months ended September 30, 2011, an
increase of $9,893 or approximately 0.2%. Revenues generated by the Jefferson
Street facility were in excess of 85.0% of revenues for the three months ended
September 30, 2012 and 2011. Bread sales for the three months ended September
30, 2012 totaled $3,569,093 as compared to $3,396,259 for the three months ended
September 30, 2011, an increase of $172,833 or approximately 5.1%. Factors
contributing to this increase: the continuing effect of the wholesale price
increases granted by the Company's customer in April 2011 and continued through
June 2012. This was a 7% increase, and 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 increase in the number of bread units sold for the
three months ended September 30, 2012 as compared to the same period in 2011.
Donut sales for the three months ended September 30, 2012 totaled $278,323 as
compared to $286,034 for the three months ended September 30, 2011, a decrease
of $7,711 or approximately 2.7%. This decrease was primarily due to fewer days
of production at the Jefferson Street Bakery.
Cookie sales for the three months ended September 30, 2012 totaled $130,573 as
compared to $285,803 for the three months ended September 30, 2011, a decrease
41
of $155,230 or approximately 54.3%. This decrease was primarily due to reduced
orders and frequency from existing customers as a result of continued economic
downturn.
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2012 totaled
$2,946,204 or approximately 74.1% of net revenues as compared to $2,911,231 or
approximately 73.4% for the three months ended September 30, 2011, an increase
of $34,973 or approximately 1.2%. The Company had a 0.2% increase in net
revenues against a 1.2% increase in cost of revenues in 2012, as compared to
2011.
Of this increase of $34,973 in cost of revenues in 2012 for Baker's Pride, Inc.;
the South Street Bakery generated an increase of $309,106 to cost of revenues
with net revenues of $130,574. BPI's other operating unit, the Jefferson Street
Bakery Inc., had net revenues of $3,847,415 and cost of revenues of $2,631,388.
BPI is in the process of negotiating with the owner of the equipment utilized at
the South Street Bakery for purchase. BPI intends to move this machinery to its
Mt. Pleasant Street facility where it will increase its efficiencies and
facility utilization.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2012 totaled
$1,735,967 or approximately 43.6% of net revenues as compared to $1,227,972 or
30.9% for the three months ended September 30, 2011, an increase of $507,995 or
approximately 41.4%. The primary reason for this increase in 2012 is related to
an increase in management fees paid to Amincor for approximately $700,000 for
the three months ended September 30, 2012 that were not incurred during the
three months ended September 30, 2011.
LOSS FROM OPERATIONS
Loss from operations for the three months ended September 30, 2012 totaled
$704,182 or approximately 17.7% of net revenue as compared to $171,108 or
approximately 4.3% for the three months ended September 30, 2011, an increase in
loss from operations of $533,074. The increase in loss from operations was
primarily due to the increases in cost of revenues and operating expenses as
noted above.
OTHER EXPENSES
Other expenses for the three months ended September 30, 2012 totaled $13,004,987
or approximately 326.9% of net revenues as compared to $74,206 or approximately
1.9% of net revenues for three months ended September 30, 2011, an increase of
$12,930,782. The primary reason for this increase in 2012 is due to the
impairment of goodwill and intangible assets resulting from the loss of Aldi as
a customer of approximately $12.6 million. The remaining increase is related to
a higher interest expense due to a larger loan balance on BPI's working capital
line and the 2012 bridge loan to purchase new equipment for the Mt. Pleasant
Street facility.
42
NET LOSS
Net loss for the three months ended September 30, 2012 totaled $13,709,169 as
compared to $245,313 for the three months ended September 30, 2011, an increase
of $13,463,856. Of the Company's 2012 increase in net loss of $13,463,856, the
South Street Bakery facility generated approximately $900,000 and goodwill and
intangible impairments resulting from the loss of Aldi as a customer resulted in
approximately $12.4 million of this net loss.
ENVIRONMENTAL QUALITY SERVICES, INC.
EQS
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
equate to laboratory production.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the nine months ended September 30, 2012 totaled $848,610 as
compared to $975,821 for the nine months ended September 30, 2011, a decrease of
$127,711 or approximately 13.0%. In September 2011, a flood at EQS's facility
resulted in some equipment damage which impaired EQS's ability to operate
efficiently. It has taken longer than anticipated to recover some of the clients
that were redirected to other laboratories. In addition, one of EQS' major
clients lost a contract that was the primary source of the work they submitted
to EQS for analysis.
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2012 totaled $737,990
or approximately 87.0% of net revenues as compared to $1,047,178 or
approximately 107.3% for the nine months ended September 30, 2011; a decrease in
net revenues of 13.0% alongside a decrease on cost of revenues of 29.5%. The
primary reason for this decrease in cost of revenues is associated with
improving operating efficiencies in the laboratory. There were also reductions
in personnel alongside an overall better management of material consumption.
43
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2012 totaled $516,900
or approximately 60.9% of net revenues as compared to $281,135 or 28.8% of net
revenues for the nine months ended September 30, 2011, an increase of $235,765
or approximately 83.9%. The primary reason for this increase is attributable to
the hiring of additional sales staff to increase the sales volume of EQS. It has
taken longer than anticipated for the additional sales staff to generate the
projected revenues.
LOSS FROM OPERATIONS
Loss from operations for the nine months ended September 30, 2012 totaled
$406,281 or approximately 47.9% of net revenues as compared to $352,493 or
approximately 36.1% for the nine months ended September 30, 2011, an increase in
loss from operations of $53,788 or approximately 15.3%. The increase in loss
from operations was primarily due to the increases in operating expenses as
noted above.
OTHER INCOME (EXPENSES)
Other income for the nine months ended September 30, 2012 totaled $65,641 or
approximately 7.7% of net revenues as compared to other expenses of ($44,382) or
approximately (4.5%) of net revenue for nine months ended September 30, 2011.
The primary reason for this increase is due to an insurance payment received in
July 2012 of approximately $115,000 to replace a piece of equipment which was
damaged in September 2011. This increase was partially offset by higher interest
expenses due to a larger carrying balance on EQS's working capital line of
$736,097 and $514,669 as of September 30, 2012 and 2011, respectively.
NET LOSS
Net loss for the nine months ended September 30, 2012 totaled $340,640 as
compared to a net loss of $396,874 for the nine months ended September 30, 2011,
a decrease in net loss of $56,234 or approximately 14.2%. The decrease in net
loss is primarily attributable to the proceeds from the insurance settlement as
discussed above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended September 30, 2012 totaled $306,752 as
compared to $318,610 for the three months ended September 30, 2011, a decrease
of $11,858 or approximately 3.7%. In September 2011, a flood at EQS's facility
resulted in some equipment damage which impaired EQS's ability to operate
efficiently. It has taken longer than anticipated to recover some of the clients
44
that were redirected to other laboratories. In addition, one of EQS' major
clients lost a contract that was the primary source of the work they submitted
to EQS for analysis.
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2012 totaled $245,729
or approximately 80.1% of net revenues as compared to $374,782 or approximately
117.6% for the three months ended September 30, 2011; a decrease in net revenues
of 3.7% alongside a decrease on cost of revenues of 34.4%. 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.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2012 totaled
$153,608 or approximately 50.1% of net revenues as compared to $99,906 or 31.4%
of net revenues for the three months ended September 30, 2011, an increase of
$53,702 or approximately 53.8%. The primary reason for this increase is
attributable to the hiring of additional sales staff to increase the sales
volume of EQS. It has taken longer than anticipated for the additional sales
staff to generate the projected revenues.
LOSS FROM OPERATIONS
Loss from operations for the three months ended September 30, 2012 totaled
$92,585 or approximately 30.2% of net revenues as compared to $156,078 or
approximately 49.0% for the three months ended September 30, 2011, a decrease in
loss from operations of $63,493 or approximately 88.5%. The decrease in loss
from operations was primarily due to the increases in operating expenses as
noted above.
OTHER INCOME (EXPENSES)
Other income for the three months ended September 30, 2012 totaled $98,498 or
approximately 32.1% of net revenues as compared to ($31,810) or approximately
10.0% of net revenue for three months ended September 30, 2011, an increase of
$130,308. The primary reason for this increase is due to an insurance payment
received in July 2012 of approximately $115,000 to replace a piece of equipment
which was damaged in September 2011. This increase was partially offset by
higher interest expenses due to a larger carrying balance on EQS's working
capital line of $736,097 and $514,669 as of September 30, 2012 and 2011,
respectively
NET INCOME (LOSS)
Net income for the three months ended September 30, 2012 totaled $5,913 as
compared to a net loss of ($187,888) for the three months ended September 30,
45
2011, a decrease in net loss of $193,801. The decrease in net loss is primarily
related to the proceeds from the insurance settlement as discussed above.
TYREE HOLDINGS CORP.
SEASONALITY AND BUSINESS CONDITIONS
Historically, Tyree's revenues tend to be lower during the first half 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. Customer's 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
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. 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 $15,000,000 revolving credit agreement with its Parent 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 $4,000,000. The balances outstanding under this agreement were
$4,877,210 and $4,723,639 as of September 30, 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 nine months ended
September 30, 2012 and 2011.
Going forward, Tyree's growth will be difficult to attain until either (i) new
working capital is earned through profitable operations or (ii) new equity is
invested into Tyree to facilitate organic and acquisition based growth.
LIQUIDITY
Tyree incurred net losses of $3,185,952 and $2,598,367 for the nine months ended
September 30, 2012 and 2011, respectively. Weather related problems during the
46
first quarter of 2011, coupled with Tyree's largest customer filing 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. Much was accomplished during 2011 with $1.9
million of accounts payable 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. In reaction to the GPMI Bankruptcy filing,
management reduced employee headcount by an additional 33 full time employees,
rescheduled accounts payable, reduced management's salaries and is negotiating
to reduce its rent commitments. In addition, Green Valley Oil, LLC ("Green
Valley"), a sub tenant of GPMI, went out of business in June 2012. Tyree was
able to secure two new customers to replace the lost business from Green Valley,
but the lost business was not replaced in its entirety. Management continues to
analyze Tyree's overhead expenses and will continue to reduce it as it works to
replace the business lost as a result of the GPMI bankruptcy filing.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the nine months ended September 30, 2012 totaled $28,294,571 as
compared to $32,899,569 for the nine months ended September 30, 2011, a decrease
of $4,604,998 or approximately 14.0%. 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 division for the nine months
ended September 30, 2012 and September 30, 2011 were as follows:
2012 2011
------------ ------------
Revenues
Service and Construction $ 18,186,769 $ 22,810,991
Environmental, Compliance and Engineering 9,678,475 9,750,855
Manufacturing / International 429,327 337,723
------------ ------------
Total $ 28,294,571 $ 32,899,569
============ ============
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2012 totaled
$22,228,393 or approximately 78.6% of net revenues as compared to $26,621,526,
or 80.9% for the nine months ended September 30, 2011. Cost of revenues as a
percentage of net revenues was relatively unchanged between the two nine month
periods.
47
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2012 totaled
$8,922,361, or approximately 31.5% of net revenues compared to $8,427,597, or
approximately 25.6% for the nine months ended September 30, 2011, an increase in
operating expenses of 494,764 or approximately 5.9%. The increase in operating
expenses as a percentage of net revenues in 2012 is attributed to additional
severance costs from staff reductions 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 nine months ended September 30, 2012 totaled
$2,856,183, or approximately 10.1% of net revenues as compared to $2,149,554, or
approximately 6.5% of net revenues for the nine months ended September 30, 2011,
an increase in loss from operations of $706,629 or approximately 32.9%. The
increase in loss from operations was primarily due to the decrease in net
revenues as previously discussed above.
OTHER EXPENSES
Other expenses for the nine months ended September 30, 2012 totaled $329,769 or
approximately 1.2% of net revenues as compared to other expenses of $448,813, or
approximately 1.4% of net revenues for the nine months ended September 30, 2011,
a decrease in other expenses of $119,044 or 26.5%. The decrease in other
expenses is primarily related to a loan consolidation in December 2011, with its
Parent, Amincor, and a more favorable interest rate with that loan
consolidation.
NET LOSS
Net loss for the nine months ended September 30, 2012 totaled $3,185,952 as
compared to $2,598,367 for the nine months ended September 30, 2011, an increase
of $587,585. The increase in net loss was primarily due to the factors noted
above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
NET REVENUES
Net revenues for the three months ended September 30, 2012 totaled $10,169,084
as compared to $10,843,795 for the three months ended September 30, 2011, a
decrease of $674,711 or approximately 6.2%. 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 September 30, 2012 and September 30, 2011 were as follows:
48
2012 2011
------------ ------------
Revenues
Service and Construction $ 6,490,654 $ 7,618,071
Environmental, Compliance and Engineering 3,443,412 3,140,810
Manufacturing / International 235,018 84,914
------------ ------------
Total $ 10,169,084 $ 10,843,795
============ ============
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2012 totaled
$8,185,531 or approximately 80.5% of net revenues as compared to $9,488,751, or
87.5% for the three months ended September 30, 2011. The primary reason for the
decrease in cost of sales was related to Tyree's construction division which
focused on accepting less overall, but more profitable construction jobs during
the three months ended September 30, 2012.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2012 totaled
$2,733,128, or approximately 26.9% of net revenues compared to $2,466,647, or
approximately 22.7% for the three months ended September 30, 2011, an increase
of $266,481 or approximately 10.8%. The increase in operating expenses as a
percentage of net revenues in 2012 is primarily related to an increase in
management fees paid to Tyree's parent, Amincor.
LOSS FROM OPERATIONS
Loss from operations for the three months ended September 30, 2012 totaled
$749,575 or approximately 7.4% of net revenues as compared to $1,111,603, or
approximately 10.3% of net revenues for the three months ended September 30,
2011, a decrease in loss from operations of $362,027 or approximately 32.6%. The
decrease in loss from operations was primarily due to the decrease in the cost
of revenues as explained above.
OTHER EXPENSES
Other expenses for the three months ended September 30, 2012 totaled $99,409 or
approximately 1.0% of net revenues as compared to other expenses of $69,813, or
approximately 0.6% of net revenues for the three months ended September 30,
2011, an increase in other expenses of $29,596 or approximately 42.4%. The
decrease in other expenses during the three months ended September 30, 2012 was
primarily due to higher interest expense on borrowings from parent company.
NET LOSS
Net loss for the three months ended September 30, 2012 totaled $848,984 as
compared to $1,181,416 for the three months ended September 30, 2011, a decrease
in net loss of $332,432. The decrease in net loss was primarily due to the
factors noted above.
49
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 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.
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
50
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on such
evaluation, and as discussed in greater detail below, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective:
* to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms, and
* to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our CEO and
our CFO, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15 of the Securities
Exchange Act of 1934. Our internal control system was designed to provide
reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. Our
internal control over financial reporting includes those policies and procedures
that:
* pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets,
* 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.
51
Our management has not assessed the effectiveness of our internal control over
financial reporting as of September 30, 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 September 30, 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.
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
SEC's 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.
52
* 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
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 its 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
53
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. A Proof of Claim was
filed with the Bankruptcy court on Tuesday, April 10, 2012.
On August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed.
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Defendants believe that this lawsuit has no merit or
basis and intend to vigorously defend it.
On September 28, 2012, Sean Frost ("Frost") filed a Complaint to Compel
Arbitration Regarding Breach of Employment Contract and Related Breach of Labor
Code Claims and For an Award of Compensatory Damages in the Superior Court of
the State of California, County of San Diego against Epic Sports International
Inc., Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The
first cause of action is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action is for breach of contract for alleged non-payment of expenses,
vacation days and assumption of certain debts. The third cause of action is for
violation of the California Labor Code for failure to pay wages due and owing.
Frost is seeking among other things, damages, attorneys' fees and costs and
expenses. Defendants believe that this lawsuit has no merit or basis and intend
to vigorously defend it.
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
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Registrant's common stock is a party adverse to Registrant or has a material
interest adverse to Registrant in any proceeding.
ITEM 1A. RISK FACTORS
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
We are and will continue to be subject to the disclosure and reporting
requirements of applicable U.S. securities laws. Many of our principal
competitors are not subject to these disclosure and reporting requirements. As a
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 6,426,320 shares of the total of
7,478,409 issued and outstanding Class A voting shares of our common stock (or
approximately 86% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
OUR STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR STOCK DUE TO THE ABSENCE OF
A PUBLIC TRADING MARKET.
There is presently no public trading market for our common stock. We intend in
the future to seek a market maker to apply to have our common stock quoted on
the Over-the-Counter Bulletin Board, but have not done so to date. Until there
is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
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securities registered on some national securities exchanges). Our shares
currently are not traded on any stock exchange nor are they quoted on the
Over-the-Counter Bulletin Board. We may in the future seek a market maker to
apply to have our common stock quoted on the Over-the-Counter Bulletin Board,
but have not done so to date. If we are successful in finding a market maker and
successful in applying for quotation on the Over-the-Counter Bulletin Board, our
stock may be considered a "penny stock." In that case, purchases and sales of
our shares will be generally facilitated by broker-dealers who act as market
makers for our shares.
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 21,245,190 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
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issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
As of the date of this filing, there were 54 Class A stockholders of record,
owning all of the 7,478,409 issued and outstanding shares of our Class A common
stock; there were 88 institutional shareholders of record owning all of the
21,245,190 issued and outstanding shares of our Class B non-voting common stock
and there were 35 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
57
overhead requirements and earn a profit. We may be exposed to potential risks
resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our common
stock, if a market ever develops, could drop significantly.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
AMINCOR WILL NEED ADDITIONAL CAPITAL TO FUND THE GROWTH OF OUR SUBSIDIARY
COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE.
Amincor will need additional capital resources and operating income to meet the
expected working capital and capital expenditure requirements of its
subsidiaries. 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.
Amincor is currently seeking to raise funds sufficient to finance its ongoing
operations. If the Company is unable to obtain such additional funding, it may
not be able to continue as a going concern.
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
58
operate is intense and the loss of the services of one or more of these
individuals in any of these business segments may impair management's ability to
operate our subsidiaries. We have not purchased key man life insurance on any of
these individuals, which insurance would provide us with insurance proceeds in
the event of their death. Without key man life insurance, we may not have the
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
we will not have to make significant capital expenditures in the future in order
to remain in compliance with applicable laws and regulations. Contamination and
exposure to hazardous substances can also result in claims for damages,
including personal injury, property damage, and natural resources damage claims.
Future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
59
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 ACCOUNTED FOR THE MAJORITY OF BPI'S REVENUES. THE LOSS OF THIS
CUSTOMER WILL HAVE AN IMMEDIATE AND SUBSTANTIAL IMPACT ON OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION, AND PROFITABILITY.
Aldi accounted for a majority of BPI's revenue. Aldi notified BPI that effective
October 31, 2012, Aldi will be terminating BPI as a supplier. The known loss of
Aldi will have a materially adverse effect on BPI's results of operations and
financial condition If management is unable to replace this business, it will
have a materially adverse effect on operations during the short-term until BPI's
is able to generate replacement customers.
At the date of this filing, BPI has stopped production at the Jefferson Street
facility due to BPI's primary customer, Aldi, terminating its contract with BPI.
The contract termination has necessitated layoffs of production personnel and
wage reductions of remaining personnel in order to minimize losses until
production resumes at the Jefferson Street facility.
DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which Robert Brookhart, who is responsible for all operations and sales of the
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business. The loss or unavailability of 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.
INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT BPI'S RESULTS OF OPERATIONS.
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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 EXISTS 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. At this time, the potential
liability is estimated to be approximately $115,000. The remediation work is
100% eligible for a refund from IDNR's Innocent Landowner Fund. A liability has
been recorded on BPI's balance sheet for this amount and a corresponding asset
was also recorded to reflect the future expense and refund to be incurred by
BPI.
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
62
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on EQS'
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
EQS' success depends to an extent upon the performance of its employees, some of
whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia 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.
Similarly, Tyree has entered into workout arrangements with many of its vendors.
While Tyree entered these arrangements in good faith, in the event Tyree
defaults on its workout obligations, 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 August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
63
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed.
GPMI's bankruptcy has materially adversely affected and continues to materially
affect Tyree's financial condition, results of operations and 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
involved in the timing of certain projects could also negatively affect 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
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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
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 ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011 FILED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 2012, AND ANY
AMENDMENTS THERETO.
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ITEM 5. OTHER INFORMATION
On June 27, 2012, the Company issued 68,928 shares of Class B common shares as a
correction of the amount of shares issued on the Company's Payment in Kind date
of December 31, 2009. Management discovered a calculation error and these
additional Class B common shares were issued to accurately represent the number
of shares owned by the shareholder. As a result, the amount of Class B shares
outstanding as of December 31, 2011 and the weighted average shares outstanding
for the nine months ended September 30, 2011 have been restated.
Baker's Pride, Inc. ("BPI") was advised verbally on July 12, 2012 and by written
notice on July 16, 2012 that effective October 31, 2012, Aldi, Inc., BPI's most
significant customer, will be terminating BPI as a supplier to Aldi, Inc. due to
BPI's inability to meet certain pricing, cost and product offering needs.
BPI's management and sales team continues to actively seeking new customers to
replace the Aldi, Inc. business.
On September 28, 2012, Sean Frost ("Frost") filed a Complaint to Compel
Arbitration Regarding Breach of Employment Contract and Related Breach of Labor
Code Claims and For an Award of Compensatory Damages in the Superior Court of
the State of California, County of San Diego against Epic Sports International
Inc., Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The
first cause of action is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action is for breach of contract for alleged non-payment of expenses,
vacation days and assumption of certain debts. The third cause of action is for
violation of the California Labor Code for failure to pay wages due and owing
Frost is seeking among other things, damages, attorneys' fees and costs and
expenses. Defendants believe that this lawsuit has no merit or basis and intend
to vigorously defend it.
ITEM 6. EXHIBITS
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101++ Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
+ Filed Herewith
++ To be Filed by Amendment
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMINCOR, INC.
Date: November 21, 2012 By: /s/ John R. Rice, III
--------------------------------
John R. Rice, III
President
Date: November 21, 2012 By: /s/ Robert L. Olson
--------------------------------
Robert L. Olson
Chief Financial Officer
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