U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2012
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from _______________ to _______________
Commission file number 000-28865
AMINCOR, INC.
(Exact Name of Registrant as Specified 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, New York 10019
(Address of Principal Executive Office) (Zip Code)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Class A Common Stock par value $.001 per share
Class B Common Stock par value $.001 per share
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 if the registrant has submitted electronically or posted
on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
To date, there has been no active trading market in Registrant's Stock and
therefore no market value has been computed.
As of April 15, 2013, there were 7,663,023 shares of Registrant's Class A Common
Stock and 21,286,344 shares of Registrant's Class B Common Stock outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS........................................................... 4
ITEM 1A. RISK FACTORS....................................................... 15
ITEM 1B. UNRESOLVED STAFF COMMENTS.......................................... 25
ITEM 2. PROPERTIES......................................................... 25
ITEM 3. LEGAL PROCEEDINGS.................................................. 26
ITEM 4. MINE SAFETY DISCLOSURES............................................ 28
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................. 28
ITEM 6. SELECTED FINANCIAL DATA............................................ 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......... 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE......................................................... 52
ITEM 9A. CONTROLS AND PROCEDURES............................................ 53
ITEM 9B. OTHER INFORMATION.................................................. 55
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............. 55
ITEM 11. EXECUTIVE COMPENSATION............................................. 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.................................... 62
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE....................................................... 63
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES............................. 63
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES............................ 64
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EXPLANATORY NOTE
In this Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 that may be outside of our control. When
considering forward-looking statements, you should carefully review the risks,
uncertainties and other cautionary statements in this Annual Report on Form 10-K
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 under Item
1A Risk Factors and elsewhere in this Annual Report on Form 10-K. We do not
undertake any obligation to update or reserve any forward looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission, ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our website is located at http://www.amincorinc.com. The website contains a link
to the SEC's Web site, where electronic copies of the materials we file with the
SEC are available for viewing (including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and other required filings).
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PART I
ITEM 1. BUSINESS
AMINCOR, INC.
HISTORY OF THE COMPANY
Amincor, Inc. was incorporated under the laws of the state of Nevada on October
8, 1997 under the name GSE Group, Inc. GSE Group, Inc. was originally formed to
provide consulting services for reverse mergers to public shell corporations and
private companies seeking to gain access to the public markets. On October 20,
1997, GSE Group, Inc. changed its name to Global Stock Exchange Corp. and on
April 28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp
("Joning"). In July 2000, Joning ceased its business activities. On March 8,
2002, Joning filed a Registration Statement on Form 10-SB under the Securities
Exchange Act of 1934 (the "Exchange Act") as a shell company with the purpose of
finding a suitable company for a reverse merger transaction. Joning ceased
filing periodic reports subsequent to its filing of its Form 10-QSB on October
24, 2004 as it did not have the personnel or resources to continue the filings
and there was no operating business or pending business transactions. On
February 2, 2010, Joning changed its name to Amincor, Inc. On August 4, 2010,
Amincor, Inc. filed its Form 10 registration statement and became a public
reporting company on October 4, 2010.
OVERVIEW
Amincor, Inc. is a holding company operating through its operating subsidiaries
Baker's Pride, Inc., Environmental Holding Corp. and Tyree Holdings Corp.
Additionally, Amincor Contract Administrators, Inc. and Amincor Other Assets,
Inc. are subsidiaries with minimal operations. As of June 30, 2011, management
elected to discontinue the operations of Masonry Supply Holding Corp. and Tulare
Frozen Foods, LLC. As of September 30, 2011, management elected to discontinue
the operations of Epic Sports International, Inc.
Amincor's officers and directors are responsible for the strategic direction of
the operating subsidiaries. The Company accomplishes this through strategic
planning, raising capital for business expansion via internal growth or
acquisition based growth and exploring unique opportunities for each subsidiary.
The executive management team of each subsidiary company has substantial
experience in their respective fields and have responsibility for the operation
of their business unit subject to overall direction of Registrant's management.
Amincor's officers and directors are actively engaged with the management of
each subsidiary. Amincor is able to assist the subsidiaries in executing their
business plans and in making necessary financial and other resources available.
This is accomplished through frequent site visits, weekly and monthly conference
calls and various reporting requirements such as budget to actual comparisons,
cash flow monitoring, accounts payable and accounts receivable management,
credit and collections, and periodic reporting by the subsidiary management to
Amincor.
PERSONNEL
Amincor is provided personnel from Capstone Trade Partners, Ltd., and office
supplies, office equipment, office space and other materials required for the
performance of its business from Capstone Capital Group I, LLC. Currently,
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Capstone has 14 full-time employees and no part-time employees including Messrs.
John R. Rice III and Joseph F. Ingrassia who dedicate approximately 70% of their
time to Amincor business.
AMINCOR, INC.'S SUBSIDIARY COMPANIES
AMINCOR CONTRACT ADMINISTRATORS, INC.
Amincor Contract Administrators, Inc., a Delaware corporation, incorporated on
August 25, 2010, is a wholly owned subsidiary of Registrant formed to administer
various contracts, related to certain assets held by Amincor Other Assets, Inc.
and the subsidiary companies, including, but not limited to certain
international service contracts for Tyree Holdings Corp.
AMINCOR OTHER ASSETS, INC.
Amincor Other Assets, Inc., a Delaware corporation, incorporated on April 5,
2010, 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.
Amincor Other Assets, Inc. holds the title to the 360,000 square foot facility
where Allentown Metal Works, Inc. formerly operated. The site has fallen into
disrepair as a result of vandalism by local thieves. The buildings on site are
functionally obsolete and are not suitable as a modern manufacturing facility.
Any purchaser would have to raze the buildings on the 19 acre site and reclaim
the concrete, brick, wood and steel infrastructure. Estimates have ranged
between $750,000 and $1,000,000 to perform this work. The property, prior to
March 12, 2012, had been listed for sale for $3,000,000 and after six months of
being on the market the price was reduced to $2,250,000. The only offer received
during this period was for $200,000. The offer was declined and management
enlisted the services of an auction company to inspect the site in anticipation
of holding an absolute auction. After conducting a site visit with the auction
company the auction company declined to hold an absolute auction because of the
conditions of the buildings and the vandalism that has occurred. The site is
across the street from a police sub-station and due to its size there is no
adequate way to secure the property. All of the buildings on the complex were
locked, bolted and boarded up. There was evidence that the exterior siding had
been removed after which unknown persons entered the buildings, broke windows
and locks and left the buildings open. Management has expressed concern that
someone may inadvertently fall into one of the many machine pits that exist as a
result of the removal of the heavy machine and milling equipment that had been
sold, and injure themselves creating a liability issue for the owner. Based on
these events and the advice of the auction company, Management has listed the
property for sale for $500,000. The property is under contract with the
Allentown Economic Development Corporation for $500,000 less outstanding taxes
due and owing on the property. The sale is anticipated to close on April 30,
2013.
BAKER'S PRIDE, INC.
OVERVIEW
Baker's Pride, Inc., a Delaware corporation, was incorporated on August 28,
2008.
Baker's Pride, Inc. ("BPI") consists of three operating entities; The Jefferson
Street Bakery, Inc. ("Jefferson Street Bakery"), The Mt. Pleasant Street Bakery,
Inc. ("Mt. Pleasant Street Bakery") and The South Street Bakery, Inc. ("South
Street Bakery").
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Jefferson Street Bakery produces several varieties of sliced bread.
Historically, its entire annual production of 19 million loaves of bread and
over 1.1 million packages of donuts were sold to one client, Aldi, Inc., for
five distribution centers that services 332 stores in the Midwestern U.S.
Jefferson Street Bakery, through various predecessor entities, had continuously
supplied Aldi, Inc. for approximately 34 years. On October 31, 2012, Aldi, Inc.
terminated BPI as a supplier to Aldi, Inc. due to BPI's inability to meet
certain pricing, cost and product offering needs. Jefferson Street Bakery has
bid on new opportunities with Aldi, Inc. If these new opportunities materialize,
it is anticipated revenues from Aldi, Inc. would resume in the fourth quarter of
2013.
Mt. Pleasant Street Bakery is under contract with two co-packers as of the time
of writing, but is in negotiations with many more who are involved in the sale
of both finished and unfinished yeast and cake doughnuts which are manufactured
and flash-frozen bakery goods to be distributed to supermarket "in-store" bakery
departments and food service channels. As of December 31, 2012, Mt. Pleasant
Street Bakery facility increased its frozen storage capacity along with
extensive room for several additional product lines. In addition, Mt. Pleasant
Street Bakery has completed the installation of a state of the art donut
production system that can produce and freeze many varieties of donuts at an
average production rate of 26,700 donuts per hour. This facility also houses a
cookie production system which will produce cookies at a rate of 2,300 lbs. or
3,000 one dozen packages of cookies per hour in a variety of sizes, flavors and
shapes. The production of brownie and cake type bakery snack products will
complete the first phase of the restart of Mt. Pleasant Street Bakery.
The remaining available space, which management has deemed the final phase of
the build-out of Mt. Pleasant Street Bakery's 260,000 square foot facility, is
currently being studied for development which may include the installation of a
high-speed bun and bread production system. The bun system is being designed to
produce an average of 6,000 packages of buns per hour and the bread system will
produce an average of 6,260 loaves of bread per hour (throughput). This
throughput will enable BPI to respond to its current client's request for
additional products and volume. In addition, it will also provide additional
capacity to attract new clients and diversify its customer base. BPI will
require additional funding in order to complete this project.
In January 2012, BPI received a $2.75 million dollar bridge loan from Central
State Bank of State Center, Iowa. This capital was used to acquire additional
equipment and to complete the installation and startup of its production and
refrigeration machinery for the new donut, cookie, brownie and cake production
systems at Mt. Pleasant Street Bakery. Central State Bank of Iowa has verbally
agreed to extend the term of the loan through January 2014.
Major transitions are taking place in the baking industry. There is growing
utilization of frozen outsourced products rather than production from scratch at
each site in the "in-store" bakery and food service channels. However, one
primary factor remains constant in all markets and in all categories: consumers
are demanding value. BPI sees these major transitions as opportunities to grow
its business and diversify its product portfolio and customer base through
direct sales and co-packing agreements.
On August 12, 2011, the South Street Bakery began leasing certain property and
equipment located in Clear Lake, Iowa. In August 2012, based on management's
assessment of lack of profitability at the South Street Bakery, the lease was
not renewed and operations ceased at the South Street Bakery. Operations have
been relocated to Mt. Pleasant Street where existing employees and management
can operate the cookie and doughnut lines concurrently depending on customer
demand.
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CUSTOMERS
Historically, BPI had significant concentration in one customer, Aldi, Inc.,
which operates over 332 grocery stores in the Midwestern U.S., of which BPI
services approximately 200. BPI has expanded its customer base through the
introduction of additional product categories and SKU's. Aldi was responsible
for approximately 89.5%, 92.1%, and 100.0% of BPI's revenues for the years ended
December 31, 2012, 2011 and 2010 respectively.
On October 31, 2012, Aldi, Inc., BPI's most significant customer, terminated 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 has been successful in establishing new
customers to replace the Aldi, Inc. bread business, however, the combination of
new established customers is still less than the historic size of Aldi, Inc's
business. Additionally, management has diversified BPI's customer base and has
executed contracts in fulfillment of this goal with both bread and doughnut
co-pack customers.
BPI's management and sales team continue to seek new private label wholesale and
co-pack customers for the donut and bread facilities and anticipates several
large donut and bread customers to be under contract by the end of the second
and third quarters of 2013. On March 22, 2013, BPI executed a Co-Packer
Agreement with one of the world's largest family-owned food companies and
leading supplier to the foodservice, in store bakery, retail and industrial
marketplaces. BPI will prepare, manufacture, process and package certain donut
products and BPI management anticipates annual sales to be a minimum of
$1,600,000, with additional donut products and additional sales possible if so
requested.
MARKETING
BPI's goal in all markets it serves is to help its customers to be successful by
providing marketing and merchandizing assistance gained over many years of
experience in the private label bakery business. The focus of its marketing
activities will be on its private label wholesale and co-pack customers rather
than consumers because in most instances the products it produces are sold as
private label brands or at retail under BPI's Flint Hills and Clear Lake Farms
brands.
Fresh bakery customers: Due to the freshness cycle, BPI markets directly to
fresh bakery customers because of the limited geographic area it serves.
Frozen bakery customers: BPI has expanded its product offering of frozen baked
goods as a result of the investment at the Mt. Pleasant Street facility. BPI is
now shipping both frozen bread and doughnut products which have significantly
increased its geographic reach. BPI will continue to use its network of food
brokers to assist in marketing this segment.
COMPETITION
The fresh packaged bread, bun and donut market is very competitive and is
dominated by large bakeries whose primary focus is branded bread, buns and
donuts. Of these, Grupo Bimbo SA de C.V. with its recent purchase of the North
American Sara Lee Fresh Bakery business and its previous acquisition of Weston
Bakeries USA, will have the most impact on this trading area. BPI also competes
with Hostess Brands (which has recently filed for Chapter 11 Bankruptcy
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protection), Campbell Soup Company (Pepperidge Farms) and Lewis Brothers
Bakeries, Inc., an independent regional bakery. BPI believes the efficiency it
offers as a dedicated baker of private label/ store branded bakery products
gives it a competitive advantage while delivering value to the consumer. The
liquidation of the Hostess bakery operation by the US Bankruptcy Court has
created potential opportunities for BPI with regard to co-packing both bread and
doughnut products as a result of having excess capacity available at its state
of the art facilities.
BPI's frozen products such as donuts, cookies and brownies will be designed for
supermarket "in-store" bakery departments and food service channels. These
frozen products will face competition from companies such as Dawn Foods,
Maplehurst Inc., Bake `n Joy, Inc. and CSM, a multinational company with an
increasing presence in the U.S. due to its acquisition of Best Brands, Inc. and
Bake Mark, H.C. Brill. There are also several one category bakeries in larger
cities in the Midwest with which BPI competes.
INTELLECTUAL PROPERTY
BPI received approval from the USPTO for the trademark BROWNIE CAKES, as filed
with the USPTO under registration number 3995128 which will be used in the
development of its brownie, business. BPI has been utilizing the brand names
Clear Lake Farms and Flint Hills for its proprietary cookie, donut and bread
products.
INGREDIENTS AND RAW MATERIALS
BPI's primary ingredients are various flours, sugars and other sweeteners;
soybean or other vegetable oil products; salt, yeast and other leavening agents
as well as commercial bakery pre-mixes. When it begins production of the donut,
cookie and brownie categories it will add eggs, chocolate, butter, raisins and
nutmeats to its primary ingredient list. BPI also uses a large amount of plastic
and other packaging materials to wrap its products to ensure freshness and
wholesomeness. BPI's facilities use natural gas for ovens and donut fryers as
well as electricity to power other equipment. Some fluctuations in the cost of
these items are normal because most are dependent on growing conditions and
demand by consumers. In most cases these normal fluctuations can be managed by
forward buying or fixed supply contracts.
REGULATION
BPI is a producer of bakery goods, therefore, its facilities are subject to
federal agencies such as the Food and Drug Administration, Department of
Agriculture, Federal Trade Commission, Department of Commerce and the
Environmental Protection Agency with respect to processes used for production,
quality of products, packaging, and labeling as well as storage and distribution
of products. Under various regulations and statues, these agencies prescribe
required and established standards for quality, wholesomeness and labeling.
Failure to comply with these agencies requirements may result in letters of
warning, fines, or product recall.
BPI's operations, like others in the baking industry, are subject to various
federal, state and local laws in regard to environmental matters. BPI believes
that compliance with existing environmental laws and regulation will not
materially affect its financial conditions or its competitive position. At
present BPI believes it is substantially in compliance with all material
environmental regulations.
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BPI's products, operations and facilities are subject to state and local
regulations which are monitored through licensing, enforcement by state health
and agriculture agencies of various local and state standards and inspections.
The cost of compliance with such laws and regulations has not adversely affected
on the BPI's business
PERSONNEL
BPI currently has 44 full-time employees and believes that its employee
relations are good. Once the bread and donut product lines are at full capacity
the number of employees is expected to grow significantly. BPI's Chief Executive
Officer is Robert Brookhart, who formerly served as the President of BPI. Mr.
Ron Danko, formerly Chief Executive Officer of BPI, tendered his resignation due
to attend to medical issues in 2012 and subsequently passed away.
ENVIRONMENTAL HOLDING CORP.
Environmental Quality Services, Inc.
OVERVIEW
On January 3, 2011, pursuant to a certain assignment and assumption agreement,
Amincor assumed all of the right, title and interest in and to certain loan
agreements and collateral of Environmental Testing Laboratories, Inc., a company
in the business of providing environmental testing and laboratory services
("Borrower").
Environmental Holding Corp., a Delaware corporation, was incorporated on
December 23, 2010, and is a wholly owned subsidiary of Amincor. Environmental
Quality Services, Inc. ("EQS"), a Delaware corporation was incorporated on
January 5, 2011, and is a wholly owned subsidiary of Environmental Holding Corp.
EQS provides environmental testing services in the northeast United States. EQS'
services include RCRA (resource conservation recovery act) and hazardous waste
characterization; TCLP (toxic characteristic leaching procedure) analyses;
underground storage tank analytical assessment; landfill/ground water
monitoring; NPDES (national pollution discharge elimination system) effluent
characteristics analysis; PCB (polychlorinated biphenyls) and PCB congener
analysis; lead paint testing; fingerprint categorization, petroleum analyses.
The client base of EQS ranges from the small engineering firms to well-know
petroleum companies. EQS customers require rapid response, accurate results and
the ability to provide our services on a 24/7 basis. EQS has had longstanding
relationships with major utilities, large petroleum companies and engineering
firms.
EQS also has the capability to provide its clients with specific data
deliverables in any required format. Its in-house computer programmer creates
the formats necessary for individual client needs. This service saves its
clients hours of data entry or re-formatting time.
In January 2013, Amincor's management conducted an analysis of operations at EQS
for the prior two years and has decided that it was more prudent to sell the
existing company rather than to continue to operate it. As a result of the
financial crisis and the reduction in construction, the lab services business
has become commoditized with business going to the lowest bidder. Management did
not believe that EQS would be contributing in a positive way to net income and
9
elected to sell the company. One of the managers of EQS elected to purchase EQS
in exchange for the assumption of the accounts payable and a $500,000 note to
Amincor Other Assets, Inc. which is collateralized with a secured lien on all of
the lab equipment of EQS. As of the date of this filing, the Company has entered
into a letter of intent for the sale of EQS, but no formal sale documents have
been executed.
CUSTOMERS
EQS customers include petroleum companies, contractors, environmental consulting
firms, utilities and municipalities.
COMPETITION
There are thousands of facilities in the United States who classify themselves
as environmental testing laboratories. The scope of services provided range from
sample collection, analysis and report compilation to simple analysis. A number
of the companies in this business have multiple locations, all operating under
the same company name. Several of those operate as "national" labs wherein they
serve the US from one or two facilities and use overnight shipments to provide
the receipt and delivery of laboratory tests. These laboratories are typically
the low cost providers, but lack in the proximity, response and quality that EQS
provides to its customers through the Northeast. The unique service that EQS
provides is proven by the fact that most clients have been clients since its
founding.
Since EQS is a single laboratory, working with clients in the Northeast as
opposed to national accounts, our main competitors serve the same target market;
local regulatory authorities, consultants, engineers, and municipalities.
These local competitors include such companies as:
American Analytical Laboratories
Long Island Analytical Laboratories
H2M Laboratories
Analytical Chemists Laboratories, Inc
EcoTest Laboratories
There are several factors clients consider when evaluating a vendor in the
environmental analytical field. These factors typically include: labor,
equipment, technical support, pricing and the specific services available. In
this market, it is cost effective to have labor shifts to satisfy clients that
run emergency schedules, and have a need for services 24/7. Finding and keeping
the right personnel is also a challenge in a market that typically does not pay
the highest salaries. In an effort to fight turnover, recruiting at the college
level has proven to be beneficial - hiring competent technicians early, training
them, and offering benefits such as reimbursement for schooling, flexible hours
in an effort to ensure continuity of the employee base.
Pricing is fairly competitive. The marketable difference can be found in the
levels of product deliverables - meaning Quality Control packages - and
turnaround time - the time lapsed between sample submittal and delivered results
to a client. EQS' quick turnaround time is a key selling point with their
clients. Not many labs have the capability to turn out results in 24 or even 48
hours. Management of a project from the initial planning stages through the
final reporting, and updating the client as the project progresses is an
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invaluable service, as critical decisions are made based on the analytical
results. In determining the client's needs and adapting and modifying techniques
and technology to meet and exceed the client's expectations, a satisfied client
is EQS best testimonial.
PERSONNEL
EQS currently has 13 full time employees and believes that its employee
relations are good. Ms. Patricia Werner-Els serves as the President of EQS.
Advanced Waste & Water Technology, Inc.
OVERVIEW
Advanced Waste & Water Technology, Inc. ("AWWT"), a Delaware corporation, was
incorporated on November 17, 2011. AWWT was inactive through April 30, 2012, and
had no significant assets or liabilities as of April 30, 2012. AWWT became an
Amincor company as of May 1, 2012 and is a wholly owned subsidiary of
Environmental Holding Corp. AWWT provides certain water remediation services in
the northeast United States.
On November 5, 2012 AWWT acquired the assets of Environmental Water Treatment,
LLC through an assumption of certain liabilities and assets, a note to the
seller in the amount of $50,000 and the requirement to post a letter of credit
to the New York State Department of Environmental Conservation ("NYS DEC") by
June 30, 2013. AWWT has paid $25,000 against the note since its acquisition date
and believes it will meet its obligations under the sellers' note when it comes
due.
AWWT is the only licensed water treatment facility on Long Island that is
capable of treating and discharging petroleum impacted water into the sanitary
sewer system. Since the acquisition management has expanded the NYS DEC permit
and is able to accept other waste water streams other than petroleum impacted
water. AWWT's President, Patricia Werner-Els, was selected as an EPA Panel
member for water treatment technology and our technology has been highlighted in
North Eastern Driller Magazine.
CUSTOMERS
AWWT's current customers include major oil companies, petroleum marketers,
jobbers, municipal entities, school districts, industrial facilities and other
businesses which regularly have water accumulation within their underground
storage tanks.
COMPETITION
There are many firms operating within the waste water remediation services
industry. They can be broken out into the following categories: (1) Design and
build firms, which consists of consulting, engineering and construction
companies who build waste water treatment facilities to cater to specific
remediation needs, (2) Utilities and other treatment operators, which consists
of businesses that produce waste water and seek to have an off or on-site
remediation strategy for their waste water add (3) Wastewater equipment vendors,
which consists of businesses selling pre-made wastewater treatment solutions.
AWWT seeks to compete in all of these areas by continuing to operate its
wastewater treatment plant in Farmingdale, NY and by utilizing its license to
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treat wastewater treatment streams at their source with electrocoagulation
("EC") technology.
AWWT has a geographic advantage as carriers of impacted water that operate on
Long Island are not required to pay tolls or drive substantial distances to
discharge their water at AWWT's facility. Management recently signed an expanded
licensing agreement with H2O Tech, Inc. to use their EC technology. The EC
technology provides for a non-chemical, green water treatment technology for
agricultural, municipal, industrial and frack water. The Company has been
marketing its service throughout the Marcellus and Utica shales and to selected
water users in agricultural, municipal and industrial applications.
Since AWWT is currently a single wastewater treatment facility, working with
clients in the Northeast as opposed to national accounts, our main competitors
serve the same target market; local regulatory authorities, consultants,
engineers, and municipalities.
These local competitors include such companies as:
Advanced Waste Services
Aquatech
Clear Flo Technologies
Paradise Energy, Inc.
Lorco Petroleum Service
AWWT operates in a highly regulated industry. This type of regulation directly
affects the type of customers and wastewater AWWT can deal with. The U.S.
government has shown an increased willingness to enact and enforce environmental
regulations and has set ambitious targets in areas such as renewable energy and
provisions of clean water. Because of this, AWWT is able to capitalize on new
opportunities as legislation adapts to the changing environment.
In addition to municipal, industrial and agricultural markets, AWWT intends to
become a full service environmental treatment provider for large scale fracking
projects providing residual waste processing services, on-site mobile wastewater
treatment units and turn key solutions for wastewater disposal or reuse. AWWT is
currently working to solidify a relationship and is exploring a wastewater
treatment opportunity with a major driller in the Marcellus Shale. AWWT will
utilize key resources within the Joint Land Owners Coalition of New York as well
as other environmentalist organizations to strategically position the Company.
Management believes that water recycling is a standard that will be adopted by
most industrial countries throughout the world in order to maintain fresh water
supplies for their populations. EC technology can facilitate the attainment of
this standard.
PERSONNEL
AWWT currently has 3 full time employees and believes that its employee
relations are good. Ms. Patricia Werner-Els serves as the President of AWWT.
TYREE HOLDINGS CORP.
OVERVIEW
Tyree Holdings Corp., a Delaware corporation, was incorporated on January 7,
2008.
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On January 17, 2008, Tyree Holdings Corp. ("Tyree") acquired certain business
assets and assumed certain liabilities of Tyree's predecessor companies, which
have continuously operated since 1930. Tyree is currently one of the largest
multi-faceted retail petroleum and environmental services providers of the
Northeast and Mid-Atlantic regions of the United States. Tyree Holdings Corp.
services over 3,000 gas stations from Maine to Maryland. Headquartered in Mt.
Laurel, New Jersey, Tyree has additional locations in New York, Connecticut,
Pennsylvania and Massachusetts.
The U.S. petroleum refining and marketing industry is experiencing radical
changes, with most major petroleum companies divesting their marketing and
retail distribution divisions. This strategy is leading to the creation of many,
smaller, independent companies which own, in many cases, hundreds of gas
stations that need to have regulatory, maintenance, rehabilitation, and
environmental remediation work performed. This shift is opening a niche market
for companies able to provide these independent companies with strategic
guidance, compliance, installation, maintenance and environmental services.
Tyree is positioned to provide a variety of these services which includes
building new gas stations, maintaining existing gas stations, providing
environmental monitoring and remediation services, professional support
services, and decommissioning gas station and bulk storage facilities for change
in use.
Tyree is organized into three primary business units including Maintenance,
Environmental/ Compliance/ Engineering and Construction. The Maintenance
business unit accounts for approximately 38% of sales and performs the
associated maintenance tasks needed to keep a gasoline service station in
operation. The Maintenance business unit performs about 50,000 service calls per
year; the Environmental, Compliance and Engineering business unit accounts for
36% of sales and performs the remediation services needed to clean ground water
and soil at sites where petroleum releases have occurred. The Environmental,
Compliance and Engineering business unit has about 350 locations in its
portfolio; the Construction business unit accounts for 25% of sales and manages
10 - 12 construction crews throughout the year. Its primary focus is the removal
and installation of petroleum storage and delivery systems; the remaining 1% of
sales is related to Manufacturing and International sales consisting of parts
distribution and professional services.
To better secure its position in the northeast, Tyree is aggressively attempting
to expand its current customer base and increase market share. A two-fold
approach is being rolled out involving improved organic growth and acquisitions.
In 2012, Tyree employee training coupled with capital investment in technology,
is being employed to target improved customer service. Tyree will also seek to
merge with or acquire one or two companies that would strategically improve its
service capability and yield top and bottom line improvements.
CUSTOMERS
Tyree's customers fall into four main categories:
1. Traditional Oil Companies, including Getty Marketing, Getty Realty,
Gulf/Cumberland Farms, Hess, Exxon, Shell, BP and Sunoco. Contracts
are typically multi-year and services are being provided by all Tyree
business units. This class of customer represents approximately 60% of
the company's total sales. Tyree has established strong client
relationships. The largest contracts are with Getty Marketing, which
accounts for approximately 39% of sales and Gulf/Cumberland Farms,
which accounts for approximately 18% of sales.
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2. Oil Company Jobber/Distributors, including Arfa, Atlantic Management,
Capitol Petroleum, Leon Petroleum, Green Valley and Wholesale Fuels.
Contracts are typically multi-year and services are being provided by
all Tyree business units. This class is growing as the Traditional Oil
Companies divest sites and represents approximately 15% of sales.
3. Prime Contractors, including GES, Kleinfelder, LIRO, Skanska, Whiting
Turner, and Tanknology. Contracts are typically job specific and the
result of being awarded a competitively bid project. Projects may be
large and carryover from year to year. This class of customer
represents approximately 15% of sales.
4. "One off" contracts, including various local and state governmental
agencies, private and public sector companies and agencies. Contracts
are typically job specific and the result of being awarded a
competitively bid project. This class of customer represents
approximately 10% of sales.
COMPETITION
Tyree's competition varies significantly by business unit and can be divided
into two segments: (i) Environmental and Compliance services and (ii) Pump &
Tank construction and maintenance services. The Environmental and Compliance
services segment includes professional services companies that tend to compete
throughout the marketplace. There are only a small number of competitors in
Tyree's market area and includes companies such as Delta Environmental, GES,
SAIC and Tanknology. The Pump & Tank service providers tend to be comprised of
smaller, privately owned companies that are very competitive in their respective
geographies. However, they tend not to stray from their immediate market area.
Many of these companies have been weakened by the recent economic slowdown. The
larger companies in Tyree's market area include Jones and Frank, LLC, Island
Pump & Tank, Fenley & Nicol Environmental, and Gem Star Construction in the New
York City/ Long Island area, Salamone Bros., Inc in New Jersey, and Gateway
Petroleum in the Philadelphia area.
PERSONNEL
Tyree currently has 139 full-time employees and 4 part time employees, some of
whom are represented by six different collective bargaining agreements. Labor
contracts expired on December 31, 2012 for five of the six bargaining units.
Tyree management has negotiated settlements with Local Union 99, Local Union 138
and Local Union 355. Tyree management continues to negotiate with Local Union 1,
Local Union 25 and Local Union 200 over unpaid benefits that are due and owing
to each of the respective unions. Tyree management does not dispute that
benefits are due and owing to Local Union 200 and Local Union 1, respectively.
The Local 200 and 1 Unions have filed suit in district court and with the
National Labor Relations Board to enforce their rights as to the unpaid benefit.
Tyree management is seeking to settle the cases by agreeing to multi-year
payment plans. Notwithstanding the foregoing, management believes that its
employee relations are good.
Tyree's executive officers Steven F. Tyree, who serves as the President and
Chief Operating Officer, William M. Tyree, who serves as Vice-President of
Business Development and Robert L. Olson, who serves as Chief Financial Officer.
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DISCONTINUED OPERATIONS
On June 30, 2011, management elected to discontinue the operations of Masonry
Supply Holding Corp. and Tulare Frozen Foods, LLC. On September 30, 2011,
management elected to discontinue the operations of Epic Sports International,
Inc. (See Item 7 below).
In accordance with Generally Accepted Accounting Principles of the United States
of America ("GAAP"), the combined results of Masonry Supply Holding Corp.,
Tulare Frozen Foods, LLC and Epic Sports International, Inc. have been presented
on our financial statements as discontinued operations. As of December 31, 2012,
the assets of Tulare and Epic have been liquidated. The only remaining asset of
Masonry is approximately $424,000 in escrow as related to the foreclosure of the
property.
INTELLECTUAL PROPERTY/BRANDS
Amincor has submitted applications for the following trademarks with the United
States Patent and Trademark Office ("USPTO"):
Trademark Registration Number
--------- -------------------
MOMMY'S LITTLE SECRET TREATS 85330721
GLU SENZA COOKIES 85403657
SENZA GLUTEN FREE COOKIES 85403644
CLEAR LAKE FARMS 85330997
BLACK BOTTOM COOKIES 85403632
MESSAGE COOKIES 85331009
Certain brands were owned by Amincor, Inc. as a result of defaults by Whaling
Distributors, Inc. and Caffeine Culture, Inc. Amincor, Inc. through a series of
assignments, acquired the right, title and interest in the following trademarks
as recorded with the USPTO:
Trademark Registration/Serial Number
--------- --------------------------
CHARM AND LUCK Registration Number: 3205784
CHARM AND LUCK WORKING HARD TO MAKE YOU CUTER Registration Number: 78848003
CATCH THE DRIFT Serial Number: 77713436
NEWPORT HARBOR REFLECTING QUALITY SINCE 1969 Registration Number: 3764824
NEWPORT H A R B O R Registration Number: 2285443
NEWPORT HARBOR Serial Number: 75272295
NEWPORT HARBOR Registration Number: 1319471
S-Stimuli Registration Number: 2482282
In January 2012, Amincor assigned all of its worldwide right, title and interest
in and to the "Caffeine" trademark, serial numbers 77 709 244 and 77 979 922, to
a certain individual, as settlement in full for certain previous obligations.
ITEM 1A. RISK FACTORS
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
15
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 6,610,934 shares of the total of
7,663,023 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 CLASS A COMMON AND CLASS B COMMON SHARES ARE NOW QUOTED ON THE OVER THE
COUNTER BULLETIN BOARD UNDER THE SYMBOLS "AMNC" AND "AMNCB", RESPECTIVELY.
While the shares are now quoted on the Over the Counter Bulletin Board, until
there is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on some national securities exchanges). On the
Over-the-Counter Bulletin Board, our stock may be considered a "penny stock."
Purchases and sales of our shares are 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
16
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 7,663,023 Class A common shares
and 21,286,344 Class B common shares and 1,752,823 shares of Preferred Stock
issued and outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
As of the date of this filing, there were 55 Class A stockholders of record,
owning all of the 7,663,023 issued and outstanding shares of our Class A common
stock; there were 88 institutional shareholders of record owning all of the
21,286,344 issued and outstanding shares of our Class B non-voting common stock
and there were 36 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
17
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT
WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE
PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE
OUR ABILITY TO EARN A PROFIT.
We are required to file periodic reports with the SEC pursuant to the Exchange
Act and the rules and regulations promulgated thereunder. In order to comply
with these requirements, our independent registered public accounting firm will
have to review our financial statements on a quarterly basis and audit our
financial statements on an annual basis. Moreover, our legal counsel will have
to review and assist in the preparation of such reports. The costs charged by
these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage
in and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an expense to
our operations and thus have a negative effect on our ability to meet our
overhead requirements and earn a profit. We may be exposed to potential risks
resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our common
stock, if a market ever develops, could drop significantly.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the 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 AMINCORI'S SUBSIDIARIES
AMINCOR NEEDS ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE OPERATIONS AND GROWTH
OF OUR SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE. IN THE
EVENT SUCH ADDITIONAL CAPITAL IS NOT AVAILABLE, AMINCOR MAY NEED TO FILE FOR
BANKRUPTCY PROTECTION.
Amincor's Management is working to secure additional available capital resources
and turnaround the subsidiary companies to generate operating income. Amincor
may raise additional funds through public or private debt or equity financings.
However, there can be no assurance that such resources will be sufficient to
fund the operations of Amincor or the long-term growth of the subsidiaries
businesses. Amincor cannot assure investors that any additional financing will
be available on favorable terms, or at all. Without additional capital
resources, Amincor may not be able to continue to operate, take advantage of
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures, and be forced to curtail its business, liquidate assets
and/or file for bankruptcy protection. In any such case, its business, operating
results or financial condition would be materially adversely affected.
18
Amincor's independent registered public accounting firm has expressed
substantial doubt about Amincor's ability to continue as a going concern in the
audit report on the Company's audited financial statements for the three fiscal
years ended December 31, 2012 included herein. (See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations")
OUR ABILITY TO RETAIN KEY PERSONNEL IN EACH OF OPERATING SUBSIDIARIES WILL BE AN
IMPORTANT FACTOR IN THE SUCCESS OF OUR BUSINESS AND A FAILURE TO RETAIN KEY
PERSONNEL MAY RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN.
We are highly dependent upon the management personnel of our subsidiary
companies because of their experience in their respective industries. The
competition for qualified personnel in the market in which our subsidiaries
operate is intense and the loss of the services of one or more of these
individuals in any of these business segments may impair management's ability to
operate our subsidiaries. We have not purchased key man life insurance on any of
these individuals, which insurance would provide us with insurance proceeds in
the event of their death. Without key man life insurance, we may not have the
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
19
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
we will not have to make significant capital expenditures in the future in order
to remain in compliance with applicable laws and regulations. Contamination and
exposure to hazardous substances can also result in claims for damages,
including personal injury, property damage, and natural resources damage claims.
Future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
have a material adverse effect on our business, financial condition or results
of operations.
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ON OCTOBER 31, 2012, BAKER'S PRIDE, INC. ("BPI") LOST ITS PRIMARY CUSTOMER. THE
LOSS OF THIS CUSTOMER ADVERSELY AFFECTED OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION, AND PROFITABILITY.
Aldi, Inc. accounted for 89.5%, 92.1% and 100.0% of revenue for the years ended
December 31, 2012, 2011 and 2010, respectively.
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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,
would be terminating BPI as a supplier to Aldi, Inc. due to BPI's inability to
meet certain pricing, cost and product offering needs. The loss of Aldi, Inc.
has had a materially adverse effect on BPI's results of operations and financial
condition in 2012 and in 2013 up to the date of this report.
DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which includes Robert Brookhart, who is responsible for all operations and sales
of the 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 two production facilities: the Jefferson Street Bakery and the
Mt. Pleasant Street Bakery. The loss of either of these facilities could have an
adverse impact on BPI's operations, financial condition and results of
operations.
21
INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT BPI'S RESULTS OF OPERATIONS.
BPI's ability to competitively serve its customers depends on the availability
of reliable and low-cost transportation. BPI uses trucks to bring its products
to market. Disruption to the timely supply of these services or increases in the
cost of these services for any reason, including availability or cost of fuel,
regulations affecting the industry, or labor shortages in the transportation
industry, could have an adverse effect on BPI's ability to serve its customer,
and could materially and adversely affect BPI's business, financial condition
and results of operations.
RISK FACTORS AFFECTING ENVIRONMENTAL HOLDINGS CORP.
EQS' RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE
FACTORS OVER WHICH EQS HAS LITTLE OR NO CONTROL.
The factors listed below are outside of EQS's control and may cause EQS'
revenues and result of operations to fluctuate significantly, including, but not
limited to: (i) actions taken by regulatory bodies relating to the verification
and certification of EQS products/services; (ii) the timing and size of customer
purchases; and (iii) customer and/or distributors concerns about the stability
of EQS' business which could cause them to seek alternatives to EQS
products/services.
EQS FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
EQS believes that due to the constant focus on the environmental standards
throughout the world, EQS may be required in the future to adhere to new and
more stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event EQS' products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on EQS'
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
EQS' success depends to an extent upon the performance of its employees, some of
whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia 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.
AWWT'S RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND
COMPETITIVE FACTORS OVER WHICH AWWT HAS LITTLE OR NO CONTROL.
The factors listed below are outside of AWWT's control and may cause AWWT's
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 AWWT products/services; (ii) the timing and size of
customer purchases; and (iii) customer and/or distributors concerns about the
stability of AWWT's business which could cause them to seek alternatives to AWWT
products/services.
22
AWWT FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
AWWT 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 AWWT's products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on AWWT's
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
AWWT's 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
AWWT's business, could adversely affect its business and prospects and operating
results and/or financial condition. Additionally, AWWT holds a license for
patented electrocoagulation technologies, which is critical to its business
operations. The loss of this license could adversely affect its business and
prospects and operating results and/or financial condition
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
TYREE NEEDS ADDITIONAL CAPITAL TO FUND THE OPERATIONS AND GROWTH OF THE COMPANY
AND THIS NEW CAPITAL MAY NOT BE AVAILABLE. IN THE EVENT SUCH ADDITIONAL CAPITAL
IS NOT AVAILABLE, TYREE MAY NEED TO FILE FOR BANKRUPTCY PROTECTION.
Tyree management is working to secure additional available capital resources and
turnaround Tyree's operations to generate operating income. However, without
additional capital resources, Tyree may not be able to continue to operate and
may be forced to curtail its business, liquidate assets and/or file for
bankruptcy protection. In any such case, its business, operating results or
financial condition would be materially adversely affected.
FAILURE TO COMPLETE A PROJECT TIMELY OR FAILURE TO MEET A REQUIRED PERFORMANCE
STANDARD ON A PROJECT COULD CAUSE TYREE TO INCUR A LOSS WHICH MAY AFFECT OVERALL
PROFITABILITY.
Completion dates and performance standards may be important requirements to a
client on a given project. If Tyree is unable to complete a project within
specified deadlines or fails to meet performance criteria set forth by a client,
additional costs may be incurred by Tyree or the client may hold Tyree
responsible for costs they incur to rectify the problem. The uncertainty
involved in the timing of certain projects could also negatively affect the
Tyree's staff utilization, causing a drop in efficiency and reduced profits.
SUBCONTRACTOR PERFORMANCE AND PRICING COULD EXPOSE TYREE TO LOSS OF REPUTATION
AND ADDITIONAL FINANCIAL OR PERFORMANCE OBLIGATIONS THAT COULD RESULT IN REDUCED
PROFITS OR LOSSES.
Tyree often hires subcontractors for its projects. The success of these projects
depends, in varying degrees, on the satisfactory performance of its
subcontractors and Tyree's ability to successfully manage subcontractor costs
and pass them through to its customers. If Tyree's subcontractors do not meet
their obligations or Tyree is unable to manage or pass through costs, it may be
unable to profitably perform and deliver contracted services. Under these
circumstances, Tyree may be required to make additional investments and expend
23
additional resources to ensure the adequate performance and delivery of the
contracted services. In addition, the inability of its subcontractors to
adequately perform or Tyree's inability to manage subcontractor costs on certain
projects could hurt Tyree's competitive reputation and ability to obtain future
projects.
TYREE'S SERVICES COULD EXPOSE IT TO SIGNIFICANT LIABILITY NOT COVERED BY
INSURANCE.
The services provided by Tyree expose it to significant risks of professional
and other liabilities. In addition, Tyree sometimes assumes liability by
contract under indemnification provisions. Tyree is unable to predict the total
amount of such potential liabilities. Tyree has obtained insurance to cover
potential risks and liabilities. However, insurance may be inadequate or
unavailable in the future to protect Tyree for such liabilities and risks.
ENVIRONMENTAL AND POLLUTION RISKS COULD POTENTIALLY IMPACT TYREE'S FINANCIAL
RESULTS.
Tyree is exposed to certain environmental and pollution risks due to the nature
of some of the contract work it performs. Costs associated with pollution clean
up efforts and environmental regulatory compliance have not yet had a material
adverse impact on its capital expenditures, earnings, or competitive position.
However, the occurrence of a future environmental or pollution event could
potentially have an adverse impact.
TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS.
FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN
ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT TYREE TO
FINES, PENALTIES, JUDGMENTS AND IMPOSE LIMITS ON TYREE'S ABILITY TO EXPAND.
Tyree is subject to potential liability and restrictions under environmental
laws, including those relating to treatment, storage and disposal of gasoline,
discharges to air and water, and the remediation of contaminated soil, surface
water and groundwater. If Tyree does not comply with the requirements that apply
to a particular site or if it operates without necessary approvals or permits,
Tyree could be subject to civil, and possibly criminal, fines and penalties, and
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.
24
TYREE IS EXPOSED TO THE CREDIT RISK, INCLUDING BANKRUPTCY, OF ITS CUSTOMERS IN
THE ORDINARY COURSE OF BUSINESS.
Tyree has various credit terms with virtually all of its customers, and its
customers have varying degrees of creditworthiness. Although Tyree evaluates the
creditworthiness of each of its customers, Tyree may not always be able to fully
anticipate or detect deterioration in their creditworthiness and overall
financial condition, which could expose Tyree to an increased risk of nonpayment
or other default under its contracts and other arrangements with them. In the
event that a material customer or customers default on their payment obligations
to Tyree or file for bankruptcy protection, this could materially adversely
affect Tyree's financial condition, results of operations or cash flows.
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of approximately $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 approximately $593,709.20. Tyree may never collect or may only collect
a small percentage of this post-petition amount owed. A Proof of Claim was filed
with the Bankruptcy court on Tuesday, April 10, 2012. GPMI's bankruptcy could
materially adversely affect Tyree's financial condition, results of operations
or cash flows.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
N/A
ITEM 2. PROPERTIES
a) Registrant occupies approximately 24,806 square feet in a suite subleased
by Capstone Business Credit, LLC and Capstone Capital Group I, LLC at 1350
Avenue of the Americas, 24th Floor, New York, NY 10019. This space is
rented to the Registrant and is currently suitable for the Registrant's
operations.
b) Baker's Pride, Inc.'s corporate headquarters is located at 3400 Mt.
Pleasant St., Burlington, Iowa, which is an industrial warehouse building
baking facility. Additionally, Baker's Pride, Inc. has locations at 834
Jefferson Street, Burlington, Iowa, a light manufacturing baking facility,
and 915 Maple Street, Burlington, Iowa, a commercial building with
unoccupied retail space. All three locations are partially utilized and are
currently suitable for Baker's Pride, Inc.'s operations.
25
c) Tyree Holdings Corp.'s executive offices are located at 300 Midlantic
Drive, Unit 105, Mount Laurel, New Jersey under a lease agreement. Tyree
leases additional locations in New York, Connecticut, Pennsylvania and
Massachusetts, as well as a satellite office in Southern California. Tyree
Holdings Corp. believes that each of the properties is currently suitable
for its operations.
d) Environmental Quality Services, Inc.'s offices are located at 208 Route
109, Farmingdale, NY under a lease agreement. Environmental Quality
Services, Inc. believes that this property is currently suitable for its
operations.
e) Advanced Waste & Water Technology, Inc.'s offices are located at 208 Route
109, Farmingdale, NY under a lease agreement. Advanced Waste & Water
Technology, Inc. believes that this property is currently suitable for its
operations.
ITEM 3. LEGAL PROCEEDINGS
In early 2011, counsel for the former President of Imperia Masonry Supply Corp.
indicated 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.
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.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder.
As of the report date, title to the Property has been transferred to Amincor
Other Assets, Inc., and the issuance of the deed is pending completion of
filling with the Westchester County Clerk.
Management believes any litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
Additionally, on December 5, 2011, Tyree's largest customer, Getty Petroleum
Marketing, Inc. ("GPMI") filed for Chapter 11 bankruptcy protection in the
United States Bankruptcy Court for the Southern District of New York. As of that
date, Tyree has a pre-petition receivable of approximately $1,515,401.27. As an
unsecured creditor, Tyree may never collect or may only collect a small
26
percentage of this pre-petition amount owed. Additionally, Tyree has a
post-petition administrative claim for approximately $593,709.20. Tyree may
never collect or may only collect a small percentage of this post-petition
amount owed. A Proof of Claim was filed with the Bankruptcy court on Tuesday,
April 10, 2012.
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.
As of the date of this filing, Tyree management has negotiated settlements with
Local Union 99, Local Union 138 and Local Union 355. Tyree management continues
to negotiate with Local Union 1, Local Union 25, and Local Union 200 over unpaid
benefits that are due and owing to each of the respective unions. Tyree records
indicate approximately $1,100,000 of unpaid benefits due. Tyree management does
not dispute that benefits are due and owing to the respective unions, however,
settlement and payment plan discussions are ongoing. The Local Union 1 and Local
Union 200 have each filed suit in the United States District Court Eastern
District of New York to enforce their rights as to the unpaid benefits due and
owing from Tyree, and as guarantor of certain amounts due and owing, Amincor,
Inc. is also a named party in these lawsuits. Local Union 200 has also filed a
claim with the National Labor Relations Board.
27
Other than noted above, Registrant is not presently a party to any litigation,
claim or assessment against it, and is unaware of any unasserted claim or
assessment which will have a material effect on the financial position or future
operations of Registrant. No director, executive officer or affiliate of the
Registrant or owner of record or beneficially of more than five percent of the
Registrant's common stock is a party adverse to Registrant or has a material
interest adverse to Registrant in any proceeding.
ITEM 4. MINE SAFETY DISCLOSURES
N/A
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our Class A Common and Class B Common shares are now quoted on the Over the
Counter Bulletin Board under the symbols "AMNC" and "AMNCB", respectively. While
the shares are now quoted on the Over the Counter Bulletin Board, 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. Registrant is currently working with Janney Montgomery Scott to
facilitate the depositing of shares by shareholders into trading accounts in
order to create the ability to buy and sells shares on the market, with Janney
Montgomery Scott acting as a market maker.
HOLDERS
As of April 17, 2013, there were 55 Class A stockholders of record, owning all
of the 7,663,023 issued and outstanding shares of our Class A common stock;
there were 88 institutional shareholders of record owning all of the 21,286,344
issued and outstanding shares of our Class B non-voting common stock and there
were 36 institutional shareholders of record owning all of the 1,752,823 issued
and outstanding shares of our Preferred Stock.
Amincor's Class B Common and Preferred shares were issued to its stockholders
based upon their investments in the Capstone Funds, as of December 31, 2009. In
exchange for their interests in the Capstone Funds, the investors in the
Capstone Funds received shares in Amincor based on the net asset value of their
interests in the Capstone Funds. A share price of $100.00 for Preferred Stock
and of $10.00 for Class B non-voting common stock was established for the
purpose of issuing shares in Amincor to the investors of the Capstone Funds in
proportion to their respective interests in the Funds and was not indicative of
the actual value of the stock at the time of issuance.
28
DIVIDENDS
We have not paid any cash dividends to date and do not anticipate or contemplate
paying dividends in the foreseeable future. It is the present intention of
management to utilize all available funds for the development of our business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data derived
from the audited consolidated financials of the Company for the five years ended
December 31, 2012 and should be read in conjunction with those statements, which
are included in this Annual Report on Form 10-K. The consolidated or combined
financial statements have been audited by Rosen Seymour Shapss Martin & Company
LLP.
Year Ended December 31,
-------------------------------------------------------------------------------------
2012 2011 2010 2009 2008
------------- ------------- ------------ ------------- ------------
(consolidated) (consolidated) (combined) (combined) (combined)
Net revenues $ 52,266,698 $ 62,297,683 $ 66,916,423 $ 70,894,139 $ 61,762,727
============= ============= ============ ============= ============
(Loss) income from operations $ (9,923,814) $ (13,371,286) $ (207,962) $ 336,131 $ 605,980
============= ============= ============ ============= ============
Net loss from continuing operations $ (32,029,135) $ (13,999,593) $ (441,097) $ (1,522,066) $ (1,838,618)
============= ============= ============ ============= ============
Loss from discontinued operations $ (1,131,348) $ (9,059,608) $ (6,534,123) $ (9,926,064) $ (9,220,795)
============= ============= ============ ============= ============
Net loss $ (33,160,483) $ (23,059,201) $ (6,975,220) $ (11,448,130) $(11,059,413)
============= ============= ============ ============= ============
Net loss attributable to Amincor
shareholders $ (32,448,552) $ (21,962,851) $ (6,704,450) $ (10,805,987) $(10,495,802)
============= ============= ============ ============= ============
Per share information -
basic and diluted:
Net loss from continuing operations $ (1.11) $ (0.49) $ (0.02) $ (0.05) $ (0.09)
============= ============= ============ ============= ============
Net loss attributable to Amincor
shareholders $ (1.13) $ (0.76) $ (0.23) $ (0.39) $ (0.54)
============= ============= ============ ============= ============
Weighted average shares outstanding -
basic and diluted 28,724,218 28,723,599 28,723,599 27,770,797 19,403,182
============= ============= ============ ============= ============
Balance sheet data:
Total assets $ 35,427,141 $ 62,201,251 $ 80,418,374 $ 86,903,280 $ 90,306,684
============= ============= ============ ============= ============
Total long-term obligations $ 2,980,514 $ 3,448,135 $ 2,343,141 $ 2,234,273 $ 5,062,135
============= ============= ============ ============= ============
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, our financial statements and notes related
thereto, and other more detailed financial information appearing elsewhere in
this Annual Report on Form 10-K. Consequently, you should read the following
discussion and analysis of our financial condition and results of operations
together with such financial statements and other financial data included
elsewhere in this Annual Report on Form 10-K. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Annual Report on
Form 10-K, including information with respect to our plans and strategy for our
business and includes forward-looking statements that involve risks and
uncertainties. You should review the "Risk Factors" section of this Annual
Report on Form 10-K for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including
additional factors that could materially affect our financial results, is
included herein and in our other filings with the SEC.
AMINCOR (CONSOLIDATED BASIS)
GOING CONCERN / LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2012, cash flows provided by operating
activities from continuing operations were $2,835,410. This was principally due
to a net loss from continuing operations of $32,029,135 which was partially
offset by an impairment of goodwill and intangible assets of approximately $21.4
million, an increase in accounts payable of approximately $5.7 million, a
decrease in accounts receivable of approximately $2.7 million and add backs for
depreciation and amortization of intangible assets of approximately $1.6 million
and $1.5 million, respectively. The net loss from continuing operations is
discussed in greater detail in the results from operations for the years ended
December 30, 2012 and 2011 section of this MD&A.
For the year ended December 31, 2012, cash flows used in investing activities
from continuing operations of $3,282,957 were primarily due to the purchase of
additional plant, machinery and equipment at Baker's Pride, Inc.'s subsidiary
Mt. Pleasant Street Bakery, Inc.
For the year ended December 31, 2012, cash flows used in by financing activities
from continuing operations of $137,363 was primarily due to payments made on
assumed liabilities for Tyree.
For the year ended December 31, 2012, total cash flows used in discontinued
operations was $341,602. Cash used in discontinued operations was primarily
related to the winding down of entities classified as discontinued operations.
The accompanying consolidated or combined 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 or combined financial
statements, we recorded a net loss from continuing operations of $32,029,135 for
the year ended December 31, 2012. We had a working capital deficit of
30
$21,092,591 and an accumulated deficit of $84,342,834 as of December 31, 2012.
The results of the Company's cash flows from continuing operations for the year
ended December 31, 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.
Our auditors, Rosen Seymour Shapss Martin & Company LLP, have stated in their
audit report that there is substantial doubt on the Company's ability to
continue operations as a going concern due to our recurring net losses from
operations, and the Company having a significant negative working capital. Our
ability to continue as a going concern is dependent upon our capability to raise
additional funds through debt and equity financing, and to achieve profitable
operations. Our plans to continue as a going concern and to achieve a profitable
level of operations are as follows:
With respect to BPI, management has successfully negotiated a contract for
co-packing frozen donut products to one of the worlds largest family owned food
companies which is a global supplier to the food service and in store bakery
retail industries. Management believes that this contract will pave the way for
additional contracts from other significant food companies in addition to
increased business from the newly acquired customer. BPI has entered the frozen
segment and is also positioning itself to enter back into the fresh bread
manufacturing industry by placing significant and competitive bids to strategic
players within the fresh bread markets. Management believes that by September of
2013, the Mt. Pleasant Street facility and the Jefferson Street facility will be
operationally capable of supporting itself on its internally generated cash
flows. Management has had verbal conversations with its lender, Central State
Bank, regarding the bridge loan financing which will allow for BPI to extend its
interest only financing on the new donut equipment until such time that BPI is
able through its cash flow to make principal payments.
With respect to Tyree, management is projecting an increase in its environmental
business through the end of 2013 and 2014. Tyree's ability to succeed in
securing additional environmental business depends on the ability of one of
Tyree's primary customers to secure remediation work by bidding environmental
liabilities currently present on gasoline stations and referring this work to
Tyree. Management is in the process of evaluating the profitability of Tyree's
other divisions and intends to continue these operations provided that they
continue to be profitable. In addition, Tyree's management believes that it is
currently holding greater level of inventory than is necessary for operations
and will seek to liquidate or cease additional purchases of similar inventory on
a going forward basis. Management intends to utilize cash flows generated from
this decrease in inventory as additional working capital.
Tyree's management is working to secure additional available capital resources
and turnaround Tyree's operations to generate operating income. As of December
31, 2012, Tyree has a working capital deficit of approximately $10.5 million
(excluding amounts due to its Parent Amincor) and recorded a net loss of
approximately $15.4 million for the year ended December 31, 2012. Tyree has
entered into settlement agreements and continues to negotiate with creditors to
pay off its outstanding debt obligations. However, without additional capital
resources, Tyree may not be able to continue to operate and may be forced to
curtail its business, liquidate assets and/file for bankruptcy protection. In
any such case, its business, operating results or financial condition would be
materially adversely affected.
With respect to EHC, one of EQS' managers has signed a letter of intent to
purchase EQS in exchange for the assumption of the accounts payable and a
$500,000 note to Amincor Other Assets, Inc. which is collateralized with a
secured lien on all of the lab equipment of EQS. Management believes that this
31
will increase the cash flows of EHC as EQS had historically received cash to
cover expenses for operations from its sister company, AWWT. AWWT has recently
signed a licensing agreement with a Denver based water technology company which
will allow AWWT to sell waste water treatment equipment to large municipal,
industrial, agricultural and commercial generators of waste water. Management is
currently in discussion with multiple customers in this market and believes that
there is a significant opportunity for consistent and reliable cash flows from
placing systems in use with these customers.
With respect to Amincor Other Assets, there are significant assets currently
residing on Amincor Other Asset's balance sheet related to the discontinued
operations of Imperia and Tulare in addition to assets held for sale. Management
intends to liquidate these assets as soon as they are able to do so profitably.
Management believes there is more value in these assets than is currently shown
on our balance sheet and an attempt to liquidate these assets quickly will
decrease their value to, or below, what is currently showing on our balance
sheet. In the meantime, management is utilizing these assets to the best of
their ability by offsetting the costs associated with owning those assets by
generating income from renting these properties out when possible.
With respect to Amincor, Inc.'s corporate offices, Management continues to seek
new financing from a financial institution in order to provide more working
capital to its subsidiary companies. Management has had discussions with many
financial institutions of different types and has narrowed down eligible
candidates to only a few. Management expects that by executing on the above
plans for the subsidiary companies and by acquiring new financing for working
capital for its subsidiary companies, Baker's Pride, Tyree and AWWT will become
profitable and be able to generate enough internal cash flow to operate
independently of one another.
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. Volkl is seeking a $400,000 royalty payment. ESI has initiated
counterclaims against the various parties, including but not limited to Samsung,
seeking damages for, including but not limited to infringement, improper use of
company assets and breach of fiduciary duty. The counterclaim against Samsung
has been settled and ESI has moved to have Samsung dismissed Samsung from any
further claims.
Volkl was successful in obtaining a judgment against ESI and a confirmation of
the Arbitration is presently pending in Federal Court. Management believes that
this matter and the Frost matter below will eventually be settled out of court
for less than the royalty and damages amounts sought.
On September 28, 2012, Sean Frost ("Frost"), the former President of ESI, 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.
32
As of the date this filing, the case continues to be litigated and Management
will update accordingly.
TYREE
One of Tyree's largest customers, Getty Petroleum Marketing, Inc. ("GPMI") filed
for bankruptcy protection on December 5, 2011. As of that date, Tyree had a
pre-petition receivable of $1,515,401.27. Additionally, Tyree has a
post-petition administrative claim for $593,709.20. 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 and post petition amounts owed. To date, Tyree has not be
notified of any intent by the United States Bankruptcy Court for the Southern
District of New York to claw back any amounts paid to Tyree pre-petition.
Tyree management has negotiated settlements with Local Union 99, Local Union 138
and Local Union 355. Tyree management continues to negotiate with Local Union 1,
Local Union 25, and Local Union 200 over unpaid benefits that are due and owing
to each of the respective unions. Tyree records indicate approximately
$1,100,000 of unpaid benefits due. Tyree management does not dispute that
benefits are due and owing to the respective unions, however, settlement and
payment plan discussions are ongoing. The Local Union 1 and Local Union 200 have
each filed suit in the United States District Court Eastern District of New York
to enforce their rights as to the unpaid benefits due and owing from Tyree, and
as guarantor of certain amounts due and owing, Amincor, Inc. is also a named
party in these lawsuits. Local Union 200 has also filed a claim with the
National Labor Relations Board.
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices, as noted in Tyree's financial statements under accounts payable and
notes payable. Each of these actions is handled on a case by case basis, with
settlement and payment plan.
BPI
In connection with Baker's Pride's USDA loan application, BPI had Environmental
Site Assessments done on the property where the Mt. Pleasant Street Bakery, Inc.
resides as required by BPI's prospective lender. A Phase II Environmental Site
Assessment was completed on October 31, 2011 and was submitted to the Iowa
Department of Natural Resources ("IDNR") for their review. IDNR requested that a
Tier Two Site Cleanup Report ("Tier Two") be issued and completed in order to
better understand what environmental hazards exist on the property. The Tier Two
was completed on February 3, 2012 and was submitted to IDNR for further review.
Management's latest correspondence with IDNR, dated March 21, 2012, required
revisions to the Tier Two to be in compliance with IDNR's regulations.
Management has retained the necessary environmental consultants to become
compliant with IDNR's request. Due to the nature of the liability, the
remediation work is 100% eligible for refund from INDR's Innocent Landowner
Fund. As such there is no direct liability related to the clean up of the
hazard.
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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.
RESULTS FROM OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NET REVENUES
Net revenues for the year ended December 31, 2012 totaled $52,266,698 as
compared to net revenues of $62,297,683 for the year ended December 31, 2011, a
decrease in net revenues of $10,030,985 or approximately 16.1%. The primary
reason for the decrease in net revenues is related to Tyree's and BPI's
operations. Tyree's net revenues decreased by approximately $8.8 million and
BPI's net revenues decreased by approximately $1.4 million during the year ended
December 31, 2012. A detailed analysis of each subsidiary company's individual
net revenues can be found within their respective MD&A sections of this Form
10-K.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2012 totaled $43,158,511 or
approximately 82.6% of net revenues as compared to $48,305,007 or approximately
77.5% of net revenues for the year ended December 31, 2011. The primary reason
for the increase in cost of revenues as a percentage of net revenues is related
to Tyree's operations. Tyree's cost of revenues was 85.3% of Tyree's net
revenues for the year ended December 31, 2012 as compared to 79.3% of Tyree's
net revenues for the year ended December 31, 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-K.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the year ended
December 31, 2012 totaled $19,032,001 as compared to $27,363,962 for the year
ended December 31, 2011, a decrease in operating expenses of $8,331,961 or
approximately 30.4%. The primary reason for the decrease in SG&A expenses was
related to Amincor's corporate operations and Tyree's operations. Amincor's
corporate operating expenses decreased by approximately $3.5 million due to
management fees paid for the same amount during the year ended December 31, 2011
that were not incurred during the year ended December 31, 2012. Tyree's
operating expenses decreased by $4.3 million during the year ended December 31,
2012 as compared to the year ended December 31, 2011. A detailed analysis of
each subsidiary company's individual operating expenses can be found within
their respective MD&A sections of this Form 10-K.
34
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2012 totaled $9,923,814 as
compared to $13,371,286 for the year ended December 31, 2011, a decrease
increase in loss from operations of $3,447,472 or approximately 25.8%. The
primary reason for the decrease in loss from operations is related to the
decrease in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2012 totaled $22,105,321 as
compared to $628,307 for the year ended December 31, 2011, an increase in other
expenses of $21,477,014. The primary reason for the increase in other expenses
is related to the impairment of goodwill and intangible assets related to BPI,
Tyree and EQS of approximately $21.4 million.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $32,029,135 for the year ended
December 31, 2012 as compared to $13,999,593 for the year ended December 31,
2011, an increase in net loss from continuing operations of $18,029,542. The
primary reason for the increase in net loss from continuing operations is
related to the impairment of goodwill and intangible assets related to BPI,
Tyree and EQS of approximately $21.4 million.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations totaled $1,131,348 for the year ended December
31, 2012 as compared to $9,059,608 for the year ended December 31, 2011, a
decrease in loss from discontinued operations of $7,928,260 or approximately
87.5%. 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 $283,847 for the year ended December 31, 2012 as compared to
$3,918,111 for the year ended December 31, 2011, a decrease in net loss of
$3,634,264 or approximately 81.8%. The net loss of Tulare was $546,483 for the
year ended December 31, 2012 as compared to $3,001,639 for the year ended
December 31, 2011, a decrease in net loss of $2,455,156 or approximately 92.8%.
The net loss of ESI was $37,582 for the year ended December 31, 2012 as compared
to $626,677 for the year ended December 31, 2011, a decrease in net loss of
$583,207 or approximately 94.0%. The remainder of the loss from discontinued
operations was related to Amincor Other Assets and Amincor, Inc. which had a
combined net loss of $263,436 for the year ended December 31, 2012 as compared
to $2,034,588 for the year ended December 31, 2011, a decrease in net loss of
$1,771,152 or approximately 87.1%. The primary reason for the decreases in net
loss in 2012 was due to the substantial write down of assets incurred during the
year ended December 31, 2011.
NET LOSS
Net loss totaled $33,160,483 for the year ended December 31, 2012 as compared to
$23,059,201 for the year ended December 31, 2011, an increase in net loss of
$10,101,282 or approximately 43.8%. The primary reason for the increase in net
loss in 2012 was due to the impairment of goodwill and intangible assets related
to BPI, Tyree and EQS of approximately $21.4 million, the lower gross profit of
approximately $4.9 million in 2012, which was partially offset by approximately
35
$7.9 million in higher discontinued losses in 2011 and by reductions in SG&A
expenses of approximately $8.3 million.
RESULTS FROM OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $62,297,683 compared
to net revenues of $66,916,423 for year ended December 31, 2010, a decrease in
net revenues of $4,618,740 or approximately 6.9%. The primary reason for the
decrease in net revenues is related to Tyree's operations. Tyree's net revenues
decreased by over $8 million, but the difference was partially offset by an
increase in net revenues for Baker's Pride and the addition of EQS's net
revenues for the year ended December 31, 2011. A detailed analysis of each
subsidiary company's individual net revenues can be found within their
respective management's discussions and analysis sections of this form 10-K.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $48,305,007 or
approximately 77.5% of net revenues compared to $51,406,007 or approximately
76.8% of net revenues for the year ended December 31, 2010. Cost of revenues was
relatively unchanged as a percentage of net revenues between the year ended
December 31, 2011 and December 31, 2010. A detailed analysis of each subsidiary
company's individual cost of revenues can be found within their respective
management's discussions and analysis sections of this form 10-K.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2011 totaled $27,363,962 compared
to $15,718,378 for the year ended December 31, 2010, an increase in operating
expenses of $11,645,584 or approximately 74.1%. The primary reason for the
increase in operating expenses is related to the addition of Amincor's corporate
operating expenses in addition to an intangible impairment on Tyree. Amincor's
corporate operating expenses totaled approximately $10.0 million and the
amortization of intangible assets was higher by $1,717,238 due to a reduction in
the estimated lives of non-compete agreements with officers' of Tyree. A
detailed analysis of each subsidiary company's individual operating expenses can
be found within their respective management's discussions and analysis sections
of this form 10-K.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled $13,371,286 as
compared to loss from operations of $207,962 for the year ended December 31,
2010, an increase in loss from operations of $13,163,324. The primary reason for
the increase in loss from operations is related to the decreases in net revenues
and the increases in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2011 totaled $628,307 compared to
$48,885 for the year ended December 31, 2010, an increase in other expenses of
$579,422.
36
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $13,999,593 for the year ended
December 31, 2011 compared to $441,097 for the year ended December 31, 2010, an
increase in net loss from continuing operations of $13,558,496. The primary
reasons for the increase in net loss from continuing operations is related to
the increases in operating expenses and the decrease in net revenues as
mentioned above.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations totaled $9,059,608 for the year ended December
31, 2011 compared to $6,534,123 for the year ended December 31, 2010, an
increase in net loss of $2,525,485 or approximately 38.7%. The loss from
discontinued operations related to Masonry Supply Holding Corp. was $3,918,111
for the year ended December 31, 2011 compared to $2,492,860 for the year ended
December 31, 2010, an increase in net loss of $1,425,251 or approximately 57.2%.
The primary reason for the increase in net loss was related to asset write downs
associated with the discontinuation of Masonry, including a write off of its
intangible assets, a write down of its property plant, and equipment to its
expected net realizable value, a write down of inventory to its expected net
realizable value and an increase in the reserve on Masonry's existing accounts
receivable. The net loss from discontinued operations related to Tulare Frozen
Foods, LLC was $3,001,639 for the year ended December 31, 2011 compared to a net
loss of $2,718,529 for the year ended December 31, 2010, an increase in net loss
of $283,110 or approximately 10.4%. The primary reason for the increase in net
loss related to the operations of Tulare Frozen Foods, LLC was the inability of
the Tulare to increase prices related to rising raw material costs. The net loss
from discontinued operations related to ESI was $626,677 for the year ended
December 31, 2011 compared to a net loss of $1,683,608 for the year ended
December 31, 2010, a decrease in net loss of $1,056,931 or approximately 62.8%.
The primary reasons for the decrease in net loss was due to overhead reductions
related to marketing and promotions, a reduction in staff and reductions in
third party consulting. The remainder of the net loss from discontinued
operations related to Amincor Other Assets which was $2,034,588 for the year
ended December 31, 2011, compared to $471,344 for the year ended December 31,
2010, an increase in net loss of $1,563,244 or approximately 331.7%. The primary
reason for the increase in net loss was a $1.9 million impairment of property
and equipment held for sale in Allentown, Pennsylvania in 2011.
NET LOSS
Net loss totaled $23,059,201 for the year ended December 31, 2011 compared to
$6,975,220 for the year ended December 31, 2010, an increase in net loss of
$16,083,981. The primary reasons for the increase in net loss is related to the
increases in operating expenses and the decreases in net revenues as mentioned
above. In addition, the additional losses incurred due to write offs and write
down on the discontinued operations further contributed to the decrease in net
increase s between the two periods.
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
37
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.
Net revenues generated from Aldi comprised 89.5%, 92.1% and 100.0% of net
revenues for the twelve months ended December 31, 2012, 2011 and 2010,
respectively. All of the revenues generated from Aldi were generated from BPI's
Jefferson Street facility. The balance of the net revenues was generated by
BPI's South Street facility. On November 30, 2012, BPI terminated the equipment
and facility lease which allowed 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
has moved all equipment owned but formerly residing at the South Street facility
to the Mt. Pleasant Street facility. Management intends to return to its
business plan of operating the Mt. Pleasant Street facility thereby reducing
fixed overhead and variable costs by using cross trained personnel and providing
its customer base the opportunity to purchase one, two 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. Production is currently underway with
low volume regional companies with plans to increase product offerings and grow
the business. Discussions are active for co-packing arrangements to enable BPI
to broaden its offerings for new business opportunities. Discussions continue
with major branded food products companies with BPI operating as the producer;
however, as of the time of filing BPI has not yet secured a significant contract
with a new bread customer but has secured a significant contract with a donut
customer.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NET REVENUES
Net revenues for the year ended December 31, 2012 totaled $14,587,744 as
compared to $15,968,945 for the year ended December 31, 2011, a decrease of
$1,381,201 or approximately 8.6%. Revenues generated by the Jefferson Street
facility were in excess of 90.0% of revenues for the years ended December 31,
2012 and 2011.
Bread sales for the year ended December 31, 2012 totaled $12,151,941 as compared
to $13,565,216 for the year ended December 31, 2011, a decrease of $1,413,275 or
approximately 10.4%. The primary reason for this decrease is the result of the
termination of BPI's contract with Aldi on November 2, 2012.
Donut sales for the year ended December 31, 2012 totaled $954,039 as compared to
$1,142,268 for the year ended December 31, 2011, a decrease of $188,229 or
38
approximately 16.5%. The primary reason for this decrease is the result of the
termination of BPI's contract with Aldi on November 2, 2012.
Cookie sales for the year ended December 31, 2012 totaled $1,481,764 as compared
to $1,260,243 for the year ended December 31, 2011, an increase of $221,521 or
approximately 17.6%. This increase was primarily due to the South Street Bakery
facility beginning production in late August 2011 and as such, the year ended
December 31, 2011 only reflects five months of operations.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2012 totaled $11,165,230 or
approximately 76.5% of net revenues as compared to $11,667,289 or approximately
73.1% for the year ended December 31, 2011, a decrease of $502,059 or
approximately 4.3%. The Company had an 8.6% decrease in net revenues against a
4.3% decrease in cost of revenues in 2012, as compared to 2011.
Of this decrease of $502,059 in cost of revenues in 2012 for Baker's Pride,
Inc., the South Street Bakery was responsible for $2,078,618 of the total cost
of revenues with net revenues of $1,481,764. BPI's other operating unit, the
Jefferson Street Bakery Inc., had net revenues of $13,100,658 and cost of
revenues of $9,073,741. The balance of net revenues, $5,322, was generated by
the Mt. Pleasant Street Bakery and is related to small donut orders received in
the month of December. BPI has moved its purchased cookie machinery to its Mt.
Pleasant Street facility where it will increase its efficiencies and facility
utilization once it is able to offer cookie products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2012 totaled $6,664,872 or
approximately 45.7% of net revenues as compared to $4,853,875 or 30.4% for the
year ended December 31, 2011, an increase of $1,810,997 or approximately 37.3%.
The primary reason for this increase was the result of management fees paid to
Amincor for approximately $2.6 million for the year ended December 31, 2012 that
were only incurred in the month of December 2011 for the year ended December 31,
2011.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2012 totaled $3,242,358 or
approximately 22.2% of net revenue as compared to $552,219 or approximately 3.5%
for the year ended December 31, 2011, an increase of $2,690,139. The increase in
loss from operations was primarily due to the increases in cost of revenues and
operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2012 totaled $13,397,372
or approximately 91.8% of net revenues as compared to $276,696 or approximately
1.7% of net revenues for the year ended December 31, 2011, an increase of
$13,120,676. 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
39
line and the 2012 bridge loan to purchase new equipment for the Mt. Pleasant
Street facility.
NET LOSS
Net loss for the year ended December 31, 2012 totaled $16,639,730 as compared to
$828,915 for the year ended December 31, 2011, an increase of $15,810,815. Of
the Company's 2012 increase in net loss of $15,810,815, the South Street Bakery
facility generated approximately $2.3 million and the impairment of goodwill and
intangible assets resulting from the loss of Aldi as a customer resulted in
approximately $12.6 million of this net loss.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $15,968,945 compared
to $13,292,090 for the year ended December 31, 2010, an increase of $2,676,855
or approximately 20.1%. All revenue was generated by BPI's Jefferson Street and
South Street facilities as the Mt. Pleasant facility is awaiting funds to
complete the start-up of donut and brownie production.
Bread sales for the year ended December 31, 2011 totaled $13,565,216 compared to
$12,274,475 for the year ended December 31, 2010, an increase of $1,290,741 or
approximately 10.5%. Factors contributing to this increase were: Effective April
2011, the company was able to increase wholesale prices by approximately 7%. Due
to the April 2011 effective date of this increase an increase of 5.25% in sales
was realized for the year ended December 31, 2011 as related to bread sales. In
late July, BPI's customer wished to convert to granulated cane sugar from using
high fructose corn syrup in the bread BPI produces for them. This change
resulted in an increase of $0.025 in the wholesale price to compensate for the
additional cost of this change. Comparison of the bread category sales between
2010 and 2011 reflected two unusual events. In May 2010, production was halted
at the Jefferson Street Bakery due to a flash flood which resulted in a loss of
sales of $227,375. On December 24, 2010, a fire occurred at a neighboring
building to the Jefferson Street facility resulting in a loss of sales by
$23,695. The customer raised retail prices on some varieties of bread to
compensate for the wholesale price increase which in turn appears to have
resulted in reduction of sales and units produced at the Jefferson Street
facility.
Bread sales on a national level for the year ended December 31, showed a similar
trend as BPI's. Total bread sales for all stores according to Industrial
Research Institute ("IRI") data for all of 2011 indicated a sales increase of
only 1.4% and units showed a decrease of 4.3% for the year. The areas served by
our Jefferson Street Bakery, the Plains and Great Lakes Regions, showed a
decrease in total bread units of approximately the same percentage (4.3%) most
of which came from the Sara Lee and Wonder brands. Management believes that
customers are visiting their food stores less often due to higher gasoline
prices which has caused the aforementioned decrease in total bread units.
Donut sales for the year ended December 31, 2011 totaled $1,142,268 compared to
$1,018,107 for the year ended December 31, 2010, an increase of $124,161 or
approximately 12.2%. The company was able to justify an increase in donut
wholesale prices of 7.0% to compensate for the increases in input costs. Due to
the late April effective date of this price increase, donut sales dollars
increased by 5.0% for the year ending December 31, 2011. The amount of the sales
increase for 2011, due to increased unit sales when compared to 2010, amounted
to an increase of $68,162.
40
Cookie sales for the year ended December 31, 2011 totaled $1,260,243 compared to
$0 for the year ended December 31, 2010. Bakers Pride, Inc. took control of the
Clear Lake Iowa bakery operation in late August 2011.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $11,667,289 or
approximately 73.1% of net revenues compared to $9,120,205 or approximately
68.6% of net revenues for the year ended December 31, 2010, an increase of
$2,547,084 or approximately 27.9%. This was primarily due to the cost of
revenues and the costs related to acquisition and start up of the newly acquired
South Street Bakery. Much of these increased costs will not be recurring
expenses.
Of this increase of $2,547,084 in cost of revenues, the South Street Bakery
generated an increase of $1,491,329 with net revenues of $1,260,243 and the
Jefferson Street Bakery had net sales of $13,292,092 and cost of revenues of
$10,175,961.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2011 totaled $4,853,875 or
approximately 30.4% of net revenues compared to $3,964,582 or 29.8% of net
revenues for the year ended December 31, 2010, an increase of $889,293 or
approximately 22.4%. This increase in SG&A expenses was primarily due to the
South Street Bakery, the new operation, which added approximately $607,957 to
BPI's operating expenses for the 4 1/2 months that the bakery operated in 2011.
Much of these expenses are non-recurring.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled ($552,219) or
approximately (3.5%) of net revenues compared to income from operations of
$207,303 or approximately 1.6% of net revenues for the year ended December 31,
2010, a decrease in income from operations of $759,522. The decrease in profit
from operations was primarily due to the increases in cost of revenues and
operating expenses associated with the startup of the South Street Bakery.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2011 totaled $276,696 or
approximately 1.7% of net revenues compared to of $476,916 or approximately 3.6%
of net revenues for the year ended December 31, 2010, a decrease in other
expenses (income) of $200,220 or approximately 42.0%.
Other income for the year ended December 31, 2011 totaled ($64,048) compared to
other income of ($102,776) for the year ended December 31, 2010, a decrease in
other income of $10,914 or approximately 14.6%. The primary reason for the
decrease in other income in 2011 was a result of a one-time insurance payment
due to a flash flood that occurred in 2010.
Other expenses for the year ended December 31, 2011 totaled $340,743 compared to
other expenses of $579,692 for the year ended December 31, 2010, a decrease of
$238,949 or approximately 41.2%. The primary reason for this decrease was due to
a decrease in the interest rate on financing agreements.
41
NET LOSS
Net loss for the year ended December 31, 2011 totaled $828,915 compared to a net
loss of $269,613 for the year ended December 31, 2010, an increase of $559,302
or approximately 207.4%. Of the Company's net loss of $829,915, the South Street
Bakery, Inc. generated $834,904 of this net loss.
ENVIRONMENTAL HOLDINGS CORP.
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.
AWWT's sales are typically higher during the second and third quarters of its
fiscal year. The fourth and first quarters of the year are usually affected by
inclement weather which makes it difficult to process liquid streams due to
freezing.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NET REVENUES
Net revenues for the year ended December 31, 2012 totaled $1,329,105 as compared
to $1,250,689 for the year ended December 31, 2011, an increase of $78,416 or
approximately 6.3%.
Net revenues at EQS totaled $1,230,360 for the year ended December 31, 2012 as
compared to $1,250,689 for the year ended December 31, 2011, a decrease of
$20,329 or approximately 1.6%. EQS was negatively affected by the impacts of
Hurricane Sandy in October of 2012. While the facility lost power for only a
week, some clients were not able to resume normal operations completely.
Net revenues at AWWT totaled $98,745 for the year ended December 31, 2012 as
compared to $0 for the year ended December 31, 2011. AWWT completed the
acquisition of its operating assets on November 5, 2012.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2012 totaled $1,014,772 or
approximately 76.4% of net revenues as compared to $1,326,511 or approximately
106.1% for the year ended December 31, 2011; an increase in net revenues of 6.3%
alongside a decrease on cost of revenues of 23.5%.
Cost of revenues at EQS totaled $976,915 for the year ended December 31, 2012 as
compared to $1,326,511 for the year ended December 31, 2011, a decrease in cost
of revenues of $349,596. 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 at EQS
42
Cost of revenues at AWWT totaled $37,857 for the year ended December 31, 2012 as
compared to $0 for the year ended December 31, 2011. AWWT completed the
acquisition of its operating assets on November 5, 2012.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2012 totaled $681,293 or
approximately 51.3% of net revenues as compared to $327,043 or 26.1% of net
revenues for the year ended December 31, 2011, an increase of $354,250 or
approximately 108.3%.
SG&A expenses at EQS totaled $662,154 for the year ended December 31, 2012 as
compared to $327,043 for the year ended December 31, 2011, an increase of
$335,111. 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.
SG&A expenses at AWWT totaled $19,139 for the year ended December 31, 2012 as
compared to $0 for the year ended December 31, 2011. AWWT completed the
acquisition of its operating assets on November 5, 2012.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2012 totaled $366,960 or
approximately 27.6% of net revenues as compared to $402,866 or approximately
32.2% of net revenues for the year ended December 31, 2011, a decrease in loss
from operations of $35,906 or approximately 8.9%. The decrease in loss from
operations was primarily due to the decreases in cost of revenues as noted
above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2012 totaled $487,874 or
approximately 36.7% of net revenues as compared to other expenses (income) of
$58,102 or approximately 4.6% of net revenues for year ended December 31, 2011.
The primary reason for this increase is related to the impairment of EQS's
goodwill in accordance with a projected year over year decrease in net revenues
for the year ended December 31, 2013 of approximately $536,000.
NET LOSS
Net loss for the year ended December 31, 2012 totaled $854,834 as compared to a
net loss of $460,968 for the year ended December 31, 2011, an increase in net
loss of $393,866 or approximately 85.4%. The increase in net loss is primarily
attributable to impairment of goodwill as discussed above.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
EHC's subsidiaries, EQS and AWWT were acquired on January 3, 2011 and November
5, 2012, respectively, and as such have no financial information for the year
ended December 31, 2010 on which a formal Management's Discussion and analysis
can be compared to. Management filed its first MD&A for EHC under EQS on our
Form 10-Q filing for the quarter ended March 31, 2012.
43
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 1, 2016. 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 $4,819,829 and
$4,629,981 as of December 31, 2012 and 2011, respectively. Borrowings under this
agreement are collateralized by a first lien security interest in all tangible
and intangible assets owned by Tyree. Availability of funding from Amincor is
dependent on Amincor's liquidity. The annual interest rate charged on this loan
was approximately 5% for the year ended December 31, 2012 and 2011.
Going forward, Tyree's growth will be difficult to attain until either (i) new
working capital is available through profitable operations or (ii) new equity is
invested into Tyree to facilitate organic and acquisition based growth.
LIQUIDITY
Tyree incurred net losses of $15,425,134 and $7,737,817 for the year ended
December 31, 2012 and 2011, respectively. Weather related problems during the
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, at December
31, 2012 this amounted to $2,501,000. 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 reduced its rent commitments. In addition,
44
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 force as necessary until it is able to replace
the business lost as a result of the GPMI bankruptcy filing and the Green Valley
business cessation.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NET REVENUES
Net revenues for the year ended December 31, 2012 totaled $36,559,923 as
compared to $45,311,720 for the year ended December 31, 2011, a decrease of
$8,751,797 or approximately 19.3%. The decrease in revenues in 2012 can
primarily be attributable to loss of revenues from GPMI due to its bankruptcy
and Green Valley's cessation of business. Revenues by operating division for the
year ended December 31, 2012 and December 31, 2011 were as follows:
REVENUES
2012 2011
----------- -----------
Service and Construction $22,964,189 $31,274,327
Environmental, Compliance and Engineering 13,171,479 13,478,242
Manufacturing / International 424,255 559,151
----------- -----------
Total $36,559,923 $45,311,720
=========== ===========
COST OF REVENUES
Cost of revenues for the year ended December 31, 2012 totaled $31,188,583 or
approximately 85.3% of net revenues as compared to $35,936,431, or 79.3% for the
year ended December 31, 2011. The primary reason for the cost of revenue
increase was due to the loss of Getty Petroleum Marketing, Inc. and an increase
in business with Cumberland Farms for the year ended December 31, 2012. The
gross profit margin on Getty Petroleum Marketing, Inc.'s business was
approximately 30% on fixed fee maintenance and approximately 17% on time and
materials maintenance for the year ended December 31, 2011. By comparison,
Tyree's second largest customer was Cumberland Farms which had a gross profit
margin below 5%. When Tyree terminated its contract with Cumberland Farms at the
end of 2012, additional charge backs were incurred that brought the gross profit
for the year to a negative margin.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2012 totaled $11,978,445, or
approximately 32.8% of net revenues compared to $16,280,658, or approximately
35.9% of net revenues for the year ended December 31, 2011, a decrease in
operating expenses of 4,302,213 or approximately 26.4%.The largest reduction in
expenses was related to administrative payroll. The payroll was reduced by
$2,361,000 and benefits related to that expense was reduced by $230,000. The
largest payroll reductions were in corporate support, equipment division and
construction. In addition to the payroll reduction there were many smaller
expense reductions throughout the company during the year ended December 31,
2012.
45
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2012 totaled $6,607,105 or
approximately 18.1% of net revenues as compared to $6,905,368, or approximately
15.2% of net revenues for the year ended December 31, 2011, a decrease in loss
from operations of $298,263 or approximately 4.3%. The decrease in loss from
operations was primarily due to the decreases in operating expenses as
previously discussed above.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2012 totaled $8,818,029
or approximately 24.1% of net revenues as compared to other expenses (income) of
$832,449, or approximately 1.8% of net revenues for the year ended December 31,
2011, an increase in other expenses (income) of $7,985,580. The primary reason
for this increase is related to the impairment of Tyree's goodwill and
intangible assets in accordance with a projected year over year decrease in net
revenues for the year ended December 31, 2013 of approximately $8.2 million.
NET LOSS
Net loss for the year ended December 31, 2012 totaled $15,425,134 as compared to
$7,737,817 for the year ended December 31, 2011, an increase in net loss of
$7,687,317 or approximately 99.3%. The increase in net loss was primarily due to
the factors noted above.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $45,311,720 compared
to $53,624,333 for the year ended December 31, 2010, a decrease of $8,312,613 or
approximately 15.5%. The decrease is primarily due to the difficult weather
conditions encountered during the first quarter and the Getty Petroleum
Marketing bankruptcy filing in the fourth quarter:
REVENUES
2011 2010
----------- -----------
Service and Construction $31,274,327 $33,864,874
Environmental, Compliance and Engineering 13,478,242 19,102,598
Manufacturing / International 559,151 656,861
----------- -----------
Total $45,311,720 $53,624,333
=========== ===========
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $35,936,431 or
approximately 79.3% of net revenues compared to $42,677,354, or 79.6% of net
revenues for the year ended December 31, 2010. The cost of revenues was
basically the same on a percentage of sales basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2011 totaled $16,280,658, or
approximately 35.9% of net revenues compared to $10,539,820, or approximately
19.7% of net revenues for the year ended December 31, 2010, an increase of
46
$5,740,838 or approximately 54.5%. The increase in SG&A expenses during the year
ended December 31, 2011 was primarily due to one time accounting charges. A
charge was recorded for a provision for doubtful accounts of $1,454,213 to
reserve for pre-petition accounts receivable of Tyree's largest customer
(compared to a reduction of the allowance in 2010 of $512,352). In addition, the
amortization of intangible assets was higher by $1,717,238 due to a reduction in
the estimated lives of non-compete agreements with officers' of Tyree.
(LOSS) INCOME FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled ($6,905,368),
or approximately (15.2%) of net revenues, as compared to the profit from
operations of $407,159, or approximately 0.8% of net revenues for the year ended
December 31, 2010, an increase in loss from operations of $7,312,527. The
increase in loss from operations was primarily due to a drastic drop in sales as
previously discussed with the corresponding reduction in operating expenses and
the increase in selling, general and administrative expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2011 totaled $832,449, or
approximately 1.8% of net revenues compared to other income of ($290,854), or
approximately 0.5% of net revenues for the year ended December 31, 2010, an
increase in other expenses of $1,123,303. The increase in other expenses during
the year ended December 31, 2011 was primarily due accounting adjustments in
2010. The majority of the other income in 2010 was related to the reversal of an
opening balance sheet accrual for taxes due to New York State that settled in
late 2010 in addition to certain audit adjustments related to other assumed
liabilities also recorded on the opening balance sheet.
NET (LOSS) INCOME
Net loss for the year ended December 31, 2011 totaled ($7,737,817) compared to a
net income of $513,763 for the year ended December 31, 2010, an increase in net
loss of $8,251,580. The increase in net loss was primarily due to the factors
noted above.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated or combined financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of our consolidated or
combined financial statements in accordance with U.S. GAAP requires us to make
certain estimates, judgments and assumptions that affect the reported amount of
assets and liabilities as of the date of the financial statements, the reported
amounts and classification of revenues and expenses 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 on 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
47
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.
We believe that the accounting policies described below are critical to
understanding our business, results of operations, and financial condition
because they involve significant judgments and estimates used in the preparation
of our consolidated or combined financial statements. An accounting policy is
deemed to be critical if it requires a judgment or accounting estimate to be
made based on assumptions about matters that are highly uncertain, and if
different estimates that could have been used, or if changes in the accounting
estimates that are reasonably likely to occur periodically, could materially
impact our consolidated financial statements. Other significant accounting
policies, primarily those with lower levels of uncertainty than those discussed
below, are also critical to understanding our consolidated or combined financial
statements. The notes to our consolidated or combined financial statements
contain additional information related to our accounting policies and should be
read in conjunction with this discussion.
BASIS OF PRESENTATION
The accompanying consolidated or combined financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Amincor, Inc. and
all of its consolidated subsidiaries (collectively the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization 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.
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.
48
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 firms 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.
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
49
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, EQS, and AWWT 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 December 31, 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.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Market is determined based on the net realizable value with
appropriate consideration given to obsolescence, excessive levels and other
market factors. An inventory reserve is recorded if the carrying amount of the
inventory exceeds its estimated market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
50
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived tangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value.
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.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and are included in
selling, general and administrative costs on the consolidated statements of
operations. Advertising expenses were approximately $62,000, $74,000 and
$104,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
RESTATEMENT AND RECLASSIFICATIONS
The non-controlling interest equity consists of minority interests in ESI and
Tyree held by their former owner. Since Tyree was acquired, the Company has
acquired additional shares from the former owners thus increasing the Company's
ownership and decreasing the ownership of the non-controlling interest. GAAP
requires that the equity of the shareholders' and the non-controlling ownership
interest be reallocated each time the relative ownership interest changes. The
Company has determined that is was not reallocating the ownership interests of
the minority shareholder of Tyree for the additional interest acquired since its
original acquisition. Therefore, the previously reported amounts of the net loss
and equity have been restated to correct for those errors.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation
51
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new accounting pronouncements that are in effect
that are applicable. These pronouncements did not have any material impact on
the consolidated or combined financial statements unless otherwise disclosed,
and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its
financial position or results of operations.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following table presents our commitments and contractual obligations as of
December 31, 2012, as well as our debt obligations:
Payments due by Period
----------------------------------------------------------------------------
Total 2013 2014-2015 2016-2017 Thereafter
----------- ----------- ----------- ----------- -----------
Long-term debt obligations $ 7,377,000 $ 6,058,000 $ 1,319,000 $ -- $ --
Loan payable to related party 1,239,000 1,239,000 -- -- --
Capital lease obligations 891,000 350,000 433,000 108,000 --
Interest on debt obligations 1,172,000 881,000 287,000 4,000 --
Operating lease obligations 1,043,000 469,000 574,000 -- --
Other long-term obligations -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total $11,722,000 $ 8,997,000 $ 2,613,000 $ 112,000 $ --
=========== =========== =========== =========== ===========
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet financing arrangements.
ITEM 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited consolidated or combined financial statements for
the three years ended December 31, 2012 begins on F-1 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
52
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain "disclosure controls and procedures" as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer, 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 has 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, 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(f) 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
53
* 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. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate.
Our management has not assessed the effectiveness of our internal control over
financial reporting as of December 31, 2012. Management understands that in
making this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at December 31, 2012.
As of the date of this report, we have been unable to complete a full assessment
and adequately test our internal control over financial reporting and
accordingly lack the documented evidence that we believe is necessary to support
an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude whether there are any material
weaknesses, nor can we appropriately remediate any such weaknesses that might
have been detected.
Therefore, there is a possibility that misstatements which could be material to
our annual or interim financial statements could occur that would not be
prevented or detected.
There have been no changes in our internal control over financial reporting
during our fourth 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
U.S, Securities Exchange Commission ("SEC") Fair Disclosure Rules
(Regulation FD) governing disclosure of material, non-public
information to the public.
54
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Amincor's business will be managed by its officers and directors. The following
persons are the officers and directors of Amincor:
Director
Name Age Position Since
---- --- -------- -----
John R. Rice III 70 President and Director 2010
Joseph F. Ingrassia* 54 Vice-President, Secretary and Director 2010
Robert L. Olson 70 Chief Financial Officer and Director 2010
Unless otherwise indicated in the biographical information below, there are no
family relationships among members of our management or Amincor, Inc.'s Board of
Directors (the "Board").
JOHN R. RICE III, PRESIDENT AND DIRECTOR
Mr. Rice is the President and a Director of Amincor, Inc. and is jointly
responsible, with Mr. Ingrassia, for monitoring the operation and the
performance of the operating subsidiaries, their management teams, execution of
their business plans and growth strategies, which includes identifying
opportunities, analyzing acquisition or roll up opportunities, divestitures and
investment in the operating subsidiaries since January 9, 2008. In addition to
his duties with his work at Amincor, Mr. Rice is a managing member and principal
of the Capstone group of companies which he co-founded with Joseph F. Ingrassia
in 1994. Mr. Rice was responsible for overseeing international marketing of
Capstone's programs and services to investors, joint venture partners and
55
various parties who originated business opportunities for Capstone and was
jointly responsible with Mr. Ingrassia for banking relationships, client and
portfolio management, supervision of due diligence and legal documentation and
accounting and administration. Mr. Rice studied liberal arts and business at the
University of Miami.
JOSEPH F. INGRASSIA, VICE-PRESIDENT, SECRETARY AND DIRECTOR
Mr. Ingrassia is the Vice-President, Secretary, Interim Chief Financial Officer
and a Director of Amincor, Inc. and is jointly responsible, with Mr. Rice, for
monitoring the operation and the performance of the operating subsidiaries,
their management teams, execution of their business plans and growth strategies,
which includes identifying opportunities, analyzing acquisition or roll up
opportunities, divestitures and investment in the operating subsidiaries since
January 9, 2008. In addition to his duties at Amincor, Mr. Ingrassia is a
managing member and principal of the Capstone group of companies which he
co-founded with Mr. Rice in 1994. Mr. Ingrassia was responsible for banking
relationships, client and portfolio management, supervision of due diligence and
legal documentation, and accounting and administration for the Capstone
companies. Mr. Ingrassia received a Bachelor of Arts Degree in psychology from
Siena College, in 1980 and an MBA from Golden Gate University in 1984.
ROBERT L. OLSON, DIRECTOR
On November 26, 2012, Mr. Olson, resigned from his position as Chief Financial
Officer of Amincor. Mr. Olson remains a Director of Amincor. Mr. Olson's
resignation from Amincor was not tendered in connection with any disagreement
with Amincor on any matter relating to the Amincor's operations, policies or
practices. Rather, Mr. Olson became the Chief Financial Officer of Tyree
Holdings Corp., a subsidiary of Amincor. Mr. Olson has been chief financial
officer for private and publicly held corporations for more than 27 years. Mr.
Olson received a Bachelor of Science Degree in accounting from Long Island
University in 1965.
Messrs. Rice and Ingrassia each devote as much time as required to their duties
as officer and directors of Amincor. It is anticipated that they will spend
approximately seventy percent (70%) of their time on their responsibilities
related to Amincor.
* As Amincor continues to search for a new Chief Financial Officer, Mr.
Joseph F. Ingrassia has assumed the role of Interim Chief Financial Officer
of the Company.
SUBSIDIARY COMPANIES' MANAGEMENT BIOGRAPHICAL INFORMATION
THE BUSINESS OF BAKER'S PRIDE INC. IS MANAGED BY ITS OFFICERS:
ROBERT BROOKHART, PRESIDENT, 58
Mr. Brookhart has been the President of Baker's Pride, Inc. since October 2008
and is responsible for managing and monitoring the operations of The Jefferson
Street Bakery and The Mt. Pleasant Street Bakery, developing operating budgets
to measure profitability, assisting departmental directors in obtaining
established goals, monitoring Food Safety Programs, federal, state and local
regulation compliance, negotiating commodity contracts, product development and
communicating with customers. Mr. Brookhart was responsible for baking
56
operations and held the position of Vice-President of The Baking Company of
Burlington from January 2007 to October of 2008. From 1983 through December
2006, Mr. Brookhart was the Director of Bakery Operations for Aldi, Inc. and
managed the bakery operation, monitored product quality, developed and monitored
the Fresh Bread Program for Aldi, Inc. and assisted in inspection and selection
of new bakery suppliers as the company expanded. Mr. Brookhart attended American
Institute of Baking Course in Bread Production in 1982 and the Aldi Management
System programs.
THE BUSINESS OF ENVIRONMENTAL HOLDINGS CORP. IS MANAGED BY ITS OFFICERS:
PATRICIA WERNER-ELS, PRESIDENT, 51
Ms. Werner-Els is the President of Environmental Quality Services, Inc. since
January 2011 and the President of Advanced Waste & Water Technology since its
inception in 2011. She is responsible for the overall operational management of
the laboratory which includes the monitoring and review of financial statements
to decrease expenses; standards of performance in quality control and quality
assurance; the validity of the analyses performed and data generated in the
laboratory to assure reliable data. From 1990-2011, Ms. Werner-Els was employed
by Environmental Testing Laboratories, Inc., where she was responsible for
similar duties. From 2006 to 2011, Ms. Werner Els served as President of
Environmental Testing Laboratories, Inc. Ms. Werner-Els received a Bachelors
Degree in Environmental Sciences from Fairleigh Dickinson University, in
Madison, New Jersey in 1983.
THE BUSINESS OF TYREE HOLDINGS CORP. IS MANAGED BY ITS OFFICERS:
STEVEN TYREE, PRESIDENT AND CHIEF OPERATING OFFICER, 51
Mr. Tyree is President and Chief Operating Officer of Tyree Holdings Corp. and
oversees the performance of Sales and Marketing, Business Development groups as
well as the critical support functions of operations. Mr. Tyree is also
responsible for strategic planning and the overall profitability, functions,
development of the corporate business plan. Prior to his present position, he
had been Vice-President of Sales and Marketing and Chief Executive Officer of
The Tyree Organization, Hudson Valley Region, 1994-2001; Director of Remediation
Recovery for Tyree Brothers Environmental Services in Farmingdale, New York,
1985-1994, and Construction Worker for Tyree Brother Environmental Services in
Farmingdale, New York 1983-1985. Mr. Tyree received an A.A.S. degree in Liberal
Sciences from Dean College in 1981 and received a Bachelor of Arts degree in
English Literature and Journalism from Lynchburg College in 1983. Mr. Tyree's
professional affiliations include the American Management Association, the
National Ground Water Association and the New York State Transportation
Association.
WILLIAM M. TYREE, VICE-PRESIDENT, 60
Mr. Tyree is responsible for identification of new business opportunities and
development of strategies to bring those opportunities to closure. Prior to his
present position, Mr. Tyree was Chief Operating Officer of The Tyree
Organization, 1996-2000, responsible for sales projections and overall
profitability, development of the corporate business plan and final approval of
the company budget. Prior to becoming Chief Operating Officer, Mr. Tyree was
Division Manager of Company divisions in New England, New Jersey and California
57
from late 1980 to 1996. Mr. Tyree earned a Bachelor of Arts degree from
Gettysburg College in 1973. His professional affiliations include: Petroleum
Equipment Institute, Long Island Association; Nassau/ Suffolk Contractors
Association; Worcester (Massachusetts.) Chamber of Commerce; New England
Petroleum Council; New Jersey Fuel Merchants Association; Pennsylvania Petroleum
Association; New York State Transportation Association; National Water Works
Association; National Groundwater Association; New York State Superintendents
Association.
ROBERT L. OLSON, CHIEF FINANCIAL OFFICER, 70
Mr. Olson is the Chief Financial Officer of Tyree with responsibility for
financial projections, preparation of financial reports and required schedules
and analysis for Tyree. Mr. Olson was formerly the Chief Financial Officer of
the Company. Since 2006, Mr. Olson had been the Chief Financial Officer
responsible for preparing financial statements in connection with the management
of the various companies to which the Capstone group of companies had made
loans. At Tyree, Mr. Olson supervises the accounting staff, monitors and reviews
client account statements, accounts receivable reports, inventory reports, cash
flow and other asset based loans and is responsible for accounts payable
management, cash management, bank relationship management, general ledger
management and audit coordination. Mr. Olson has been chief financial officer
for private and publicly held corporations for more than 27 years. Mr. Olson
received a Bachelor of Science Degree in accounting from Long Island University
in 1965.
FAMILY RELATIONSHIPS
There are no family relationships between any directors or named executive
officers of the Company, either by blood or by marriage.
DIRECTORSHIPS
No Director of the Company or person nominated or chosen to become a Director
holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any other company
registered as an investment company under the Investment Company Act of 1940, as
amended.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no present or former director, executive officer or
person nominated to become a director or an executive officer of the Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy or
two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
58
(4) was found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated a Federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors is the acting Audit Committee. Our Board of Directors has
determined that Robert L. Olson, on our Board of Directors qualifies as an audit
committee financial expert as that term is defined by applicable Securities and
Exchange Commission rules. However, Mr. Olson does not meet the independence
standards of the Securities Exchange Commission rules. The Board of Directors
believes that obtaining the services of an independent audit committee financial
expert is not economically feasible at this time in light of the costs
associated with identifying and retaining an individual who would qualify as an
independent audit committee financial expert.
There are no other committees of the Board of Directors. The Board of Directors
believes that obtaining the services of additional directors is not economically
feasible at this time in light of the costs associated retaining such
individuals. As the financial resources become available and qualified
individuals are identified, the Board of Directors intends to add additional
directors as well as form the committees required under applicable securities
laws and listing standards.
CODE OF ETHICS
We have adopted a code of ethics applicable to all employees, officers and
directors. The code of ethics will be made available through our website,
www.amincorinc.com. We will disclose on our website amendments to or waivers
from the codes of ethics in accordance with all applicable laws and regulations.
SECTION 16aA) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of the filings furnished to us pursuant to Rule 16a-3(e)
promulgated under the Exchange Act and on representations from its executive
officers, directors and persons who beneficially own more than 10% of the Common
Stock, all filing requirements of such persons under Section 16(a) of the
Exchange Act were complied with during the fiscal year ended December 31, 2012.
ITEM 11. EXECUTIVE COMPENSATION
For the fiscal year ended December 31, 2012, Mr. Rice earned a salary of
$232,000, Mr. Ingrassia earned a salary of $199,000 and Mr. Olson earned a
salary of $198,000 for their service as executive officers of Amincor plus the
option awards discussed below.
The table below sets forth the compensation earned by the Chief Executive
Officers of Baker's Pride, Inc, and the President of Tyree Holdings Corp for the
fiscal years ended December 31, 2012, 2011 and 2010. The compensation earned by
the Presidents of Environmental Quality Services, Inc for the fiscal years ended
December 31, 2012 and 2011 is included. **
59
Change in
Pension
Value and
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($)* Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Robert 2010 $269,418 None None None None None None $153,000
Brookhart 2011 $270,000 None None None None None None $153,000
CEO 2012 $164,442 None None None None None None $164,442
Stephen Tyree 2010 $334,179 None None None None None None $334,179
President 2011 $394,826 None None None None None None $394,826
2012 $198,635 None None None None None None $198,635
Patricia 2011 $ 96,000 None None None None None None $ 96,000
Werner-Els 2012 $ 91,080 None None None None None None $ 91,080
President
----------
* On April 1, 2011, the Board of Directors of the Registrant approved the
grant of options to purchase common stock to, Brookhart (7,000), Tyree
(26,000) and Werner-Els (7,000) with an exercise price of $1.88. On
September 1, 2011 the Board of Directors of the Registrant approved the
grant of options to purchase common stock to Brookhart (7,000), Tyree
(26,000) and Werner-Els (7,000) with an exercise price of $1.73. On each
December 1, 2011 the Board of Directors of the Registrant approved the
grant of options to purchase common stock to Brookhart (10,000), Tyree
(26,000) and Werner-Els (7,000) with an exercise price of $1.73. On April
17, 2012, the Board of Directors of the Registrant approved the grant of
options to purchase common stock to Brookhart (10,000), Tyree (26,000) and
Werner-Els (7,000) with an exercise price of $1.29. On July 1, 2012 the
Board of Directors of the Registrant approved the grant of options to
purchase common stock to Brookhart (10,000). Tyree (26,000) and Werner-Els
(7,000) with an exercise price of $1.21. On October 1, 2012, the board of
Directors of the Registrant approved the grant of options to purchase
common stock to Brookhart (10,000), Tyree (26,000) and Werner-Els (7,000)
with an exercise price of $1.13. On December 31, 2012, the Board of
Directors of the Registrant approved the grant of options to purchase
common stock to Brookhart (10,000), Tyree (26,000) and Werner-Els (7,000)
with an exercise price of $0.65.
The options exercise price is based on the estimated fair market value of
the Registrant's share price on the date of the grant. The options vest 50%
on the first anniversary of the grant date and 100% on the second
anniversary of the grant date, so long as the optionee is still employed by
the Registrant or its subsidiaries. The options are valid for five years
from the grant date and shall expire thereafter. Each optionee will sign a
Non-Qualified Stock Option Agreement with the Registrant which more fully
details the terms and conditions of the grant.
** In fiscal year 2012, pursuant to a severance agreement, David Raymes, the
former President of Imperia Masonry Supply Corp., received payments
totaling $12,332. Pursuant to a severance agreement dated June 1, 2012,
Richard Oswald, the former Chief Executive Officer of Tyree Holdings Corp.,
is entitled to receive an aggregate payment of $250,000, payable over 50
weeks beginning June 1, 2012 at a rate of $5,000 per week, subject to
applicable withholdings required by law. Said payments will cease on May
31, 2013.
60
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDED DECEMBER 31, 2012
On December 31, 2010, the Board of Directors of the Registrant approved the
grant of options to purchase common stock to John R. Rice, III, President,
Joseph F. Ingrassia, Vice-President and Robert L. Olson, Director and certain
management and employees of Registrant and certain officers and employees of its
subsidiary companies. Messrs. Rice and Ingrassia, were each granted 42,017
options and Mr. Olson was granted 36,765 options.
The options granted have an exercise price of $2.80, based on the estimated fair
market value of the Registrant's share price on the date of the grant. The
options vest 50% on the first anniversary of the grant date and 100% on the
second anniversary of the grant date, so long as the optionee is still employed
by the Registrant or its subsidiaries. The options are valid for five years from
the grant date and shall expire thereafter. Each optionee will sign a
Non-Qualified Stock Option Agreement with the Registrant which more fully
details the terms and conditions of the grant.
On each of April 1, 2011, September 1, 2011 and December 1, 2011, the Board of
Directors of the Registrant approved the grant of options to purchase common
stock to John R. Rice, III, President, Joseph F. Ingrassia, Vice-President and
Robert L. Olson, Director and certain management and employees of Registrant and
certain officers and employees of its subsidiary companies. Messrs. Rice,
Ingrassia and Olson, were each granted 60,000
The options granted have an exercise price of $1.88, $1.73 and $1.73,
respectively, based on the estimated fair market value of the Registrant's share
price on the date of the grant. The options vest 50% on the first anniversary of
the grant date and 100% on the second anniversary of the grant date, so long as
the optionee is still employed by the Registrant or its subsidiaries. The
options are valid for five years from the grant date and shall expire
thereafter. Each optionee will sign a Non-Qualified Stock Option Agreement with
the Registrant which more fully details the terms and conditions of the grant.
On each of April 17, 2012, July 1, 2012, October 1, 2012 and December 31, 2012,
the Board of Directors of the Registrant approved the grant of options to
purchase common stock to John. R. Rice, III, President, Joseph F. Ingrassia,
Vice-President and Robert L. Olson, Director and certain management and
employees of Registrant and certain officers and employees of its subsidiary
companies. Messrs. Rice, Ingrassia and Olson were each granted 60,000.
The options granted have an exercise price of$1.29, $1.21, $1.13 and $0.65,
respectively, based on the estimated fair market value of the Registrant's share
price on the date of the grant. The options vest 50% on the first anniversary of
the grant date and 100% on the second anniversary of the grant date, so long as
the optionee is still employed by the Registrant or its subsidiaries. The
options are valid for five years from the grant date and shall expire
thereafter. Each optionee will sign a Non-Qualified Stock Option Agreement with
the Registrant which more fully details the terms and conditions of the grant.
COMPENSATION OF DIRECTORS
There was no compensation paid to any director during the fiscal year ended
December 31, 2012 in his capacity as such.
61
Directors serve without compensation and there are no standard or other
arrangements for their compensation. There are no employment contracts,
compensatory plans or arrangements, including payments to be received from the
Company with respect to any Director that would result in payments to such
person because of his or her resignation with the Company, or its subsidiaries
or any change in control of the Company. There are no agreements or
understandings for any Director to resign at the request of another person. None
of our Directors or executive officers acts or will act on behalf of or at the
direction of any other person.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of
our Class A voting common stock by (a) each person known to be a beneficial
owner of more than 5% of our voting common stock as of April 17, 2013 by (b)
each of our officers and directors; (c) all our officers and directors as a
group. Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
Number of Percentage of
Class A Voting Class A Voting
Name and Address Shares Owned Shares Owned
---------------- ------------ ------------
John R. Rice III 3,378,774 44.09%
1 Makamah Beach Road
Fort Salonga, New York 11768
Joseph F. Ingrassia 3,378,774 44.09%
14511 Legends Blvd. N
Ft. Meyers, Florida 33912
Robert L. Olson 38,000 0.50%
24 Brook Hill Lane
Norwalk, CT 06851
All Executive officers and
Directors as a Group (3 persons) 6,795,548 88.68%
The shares of Common Stock in the foregoing table have not been pledged or
otherwise deposited as collateral, are not the subject matter of any voting
trust or other similar agreement and are not the subject of any contract
providing for the sale or other disposition of securities.
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.
As a result, the amount of Class B shares outstanding as of December 31, 2011
and 2010 and the weighted average shares outstanding for the years ended
December 31, 2011 and 2010 have been restated. This correction is de minimus and
had no discernible effect on previously reported loss per share.
On December 31, 2012, the Company approved, allotted, sold and issued to each of
Mr. John R. Rice, III and Mr. Joseph F. Ingrassia 92,307 shares of Class A
Voting Common Stock valued at $120,000 in consideration for the additional Paid
62
In Capital of the Company. Additionally, pursuant to an Exchange Agreement, the
Company approved, allotted, sold and issued 41,154 Class B Non-Voting Shares in
exchange for the interests held by ST&WT Holdings, LLC in Tyree Holdings Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
In addition to being officers and directors of Amincor, Inc., Messrs. John R.
Rice, III and Joseph F. Ingrassia are the controlling shareholders of Capstone
Capital Management, Inc., which was the General Partner of both the Capstone
Cayman Special Purpose Fund, L.P. and the Capstone Special Purpose Fund, L.P.
(collectively, the "Capstone Funds"). Messrs. Rice and Ingrassia are also the
owners and managing members of Capstone Business Credit, LLC and Capstone
Capital Group I, LLC, Capstone Credit, LLC and Capstone Capital Group, LLC which
are asset based lenders.
RELATED PARTY TRANSACTIONS
Amincor, Inc. and Baker's Pride, Inc. entered into a loan and security
agreement, dated November 1, 2010, with Capstone Capital Group, LLC, a Delaware
limited liability company, an asset based lender pursuant to which Capstone
Capital Group, LLC provided Baker's Pride, Inc. an $1,000,000 credit line, with
an 18% interest rate, secured by the assets of Bakers' Pride, Inc. Amincor, Inc.
and South Street Bakery, Inc. entered into a loan and security agreement, dated
August 15, 2011, with Capstone Capital Group, LLC, a Delaware limited liability
company, an asset based lender pursuant to which Capstone Capital Group, LLC
provided South Street Bakery, Inc. an $1,000,000 credit line, with an 18%
interest rate, secured by the assets of South Street Bakery, Inc. Messrs. Rice
and Ingrassia are also the owners and managing members of Capstone Capital
Group, LLC.
INDEPENDENCE OF DIRECTORS
Our current directors are John R. Rice, III, Joseph F. Ingrassia and Robert L.
Olson. We are not currently subject to corporate governance standards defining
the independence of our directors. We have not yet adopted an independence
standard or policy. Accordingly, our Board of Directors currently determines the
independence of each Director and nominee for election as a Director. The Board
of Directors has determined that none of our directors currently qualifies as an
independent director under the standards applied by current federal securities
laws, NASDAQ or the New York Stock Exchange.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees for professional audit services paid by
us to Rosen Seymour Shapss Martin & Company LLP, our independent registered
public accounting firm for the years ended December 31, 2012 and 2011:
2012 2011
-------- --------
Audit $383,397 $289,700
Audit related 26,685 97,856
Tax 74,898 76,188
Other 0 2,237
-------- --------
$484,980 $465,981
======== ========
63
AUDIT FEES
Audit fees relate to professional services rendered in connection with the
audits of our annual consolidated financials included on Form 10-K for the years
ended December 31, 2011 and 2010 and the review of our 2012 and 2011 interim
quarterly financial statements included in our Quarterly Reports on Form 10-Q.
Audit fees also relate to the professional services rendered in connection to
the audits of our following operating subsidiaries for the year ended December
31, 2011: Baker's Pride, Inc, Environmental Holding Corp. and Tyree Holdings
Corp. and the audits of our following operating subsidiaries for the year ended
December 31, 2010: Baker's Pride, Inc, Epic Sports International, Inc., Masonry
Supply Holding Corp., Tulare Holdings, Inc. and Tyree Holdings Corp.
AUDIT-RELATED FEES
Audit-related fees relate to professional services provided for certain of our
regulatory filings, consultations regarding financial accounting and reporting
standards, and the 2011 and 2010 audit fees of Tyree Holdings Corp.'s employee
benefits plan.
TAX FEES
Tax fees relate to professional services provided in connection with the
preparation of federal, state and local consolidated tax returns of Amincor,
Inc. and our following operating subsidiaries: Amincor Contract Administrators,
Inc., Amincor Other Assets, Inc., Baker's Pride, Inc, Epic Sports International,
Inc., Environmental Holding Corp., Masonry Supply Holding Corp., Tulare
Holdings, Inc. and Tyree Holdings Corp.
PRE-APPROVAL POLICIES AND PROCEDURES
Our Board of Directors has authorized, in accordance with the Sarbanes-Oxley Act
of 2002 requiring pre-approval of all auditing services and all audit related,
tax or other services not prohibited under Section 10A(g) of the Securities
Exchange Act of 1934, as amended, to be performed for us by our independent
auditor, subject to the de minimus exception described in Section 10A(i)(1)(B)
of the Exchange Act. The Board of Directors authorized our independent auditor
to perform audit services required in connection with the annual audit relating
to our fiscal years ended December 31, 2010 and December 31, 2011. Our Board of
Directors is responsible for granting pre-approvals of other audit,
audit-related, tax and other services to be performed for us by our independent
auditor.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" contained herein. All other
schedules are omitted because (i) they are not required under the instructions,
(ii) they are inapplicable or (iii) the information is included in the financial
statements.
64
(b) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Amincor, Inc. (Incorporated by
reference to Company's Registration Statement on Form 10 filed on
August 4, 2010)
3.2 Amincor, Inc. By-Laws (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010) 3.3
Certificate of Incorporation of Amincor Contract Administrators,
Inc.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.4 Certificate of Incorporation of Amincor Other Assets, Inc.
(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
3.5 Certificate of Incorporation of Baker's Pride, Inc. (Incorporated
by reference to Company's Form 10-K filed on April 18, 2011)
3.6 Certificate of Incorporation of the Mount Pleasant Street Bakery,
Inc.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.7 Certificate of Incorporation of the Jefferson Street Bakery,
Inc.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.8 Certificate of Amendment to the Articles of Incorporation of Epic
Sports International, Inc. (Incorporated by reference to Company's
Form 10-K filed on April 18, 2011)
3.9 Certificate of Incorporation of Environmental Holding
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.10 Certificate of Incorporation of Environmental Quality Services,
Inc. (Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.11 Certificate of Incorporation of Masonry Supply Holding
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.12 Certificate of Incorporation of Imperia Masonry Supply
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.13 Certificate of Incorporation Tulare Holdings, Inc. (Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.14 Articles of Formation Tulare Frozen Foods, LLC(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
65
3.15 Certificate of Incorporation Tyree Holdings Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.16 Certificate of Incorporation Tyree Environmental Corp.(Incorporated
by reference to Company's Form 10-K filed on April 18, 2011)
3.17 Certificate of Incorporation Tyree Equipment Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.18 Certificate of Incorporation Tyree Service Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.19 Certificate of Incorporation The South Street Bakery, Inc.
(Incorporated by reference to Company's Form 10-K filed on April
16, 2012)
3.20 Certificate of Incorporation Advanced Waste & Water Technology,
Inc. ((Incorporated by reference to Company's Form 10-Q filed on
May 18, 2012)
10.1 Share Exchange Agreement between Amincor, Inc. and Tulare Frozen
Foods Inc. (Incorporated by reference to Company's Registration
Statement on Form 10 filed on August 4, 2010)
10.2 Letter of Intent for Acquisition of Tulare Holdings, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.3 Discount Factoring Agreement between Capstone Business Credit, LLC
and Tulare Frozen Foods, Inc. (Incorporated by reference to
Company's Registration Statement on Form 10 Amendment No. 2 filed
on January 7, 2011)
10.4 Purchase Order Financing Agreement between Tulare Frozen Foods,
Inc. and Capstone Capital Group I, LLC (Incorporated by reference
to Company's Registration Statement on Form 10 Amendment No. 2
filed on January 7, 2011)
10.5 Amendment to Purchase Order Financing Agreement between Tulare
Frozen Foods, Inc. and Capstone Capital Group I, LLC (Incorporated
by reference to Company's Registration Statement on Form 10
Amendment No. 2 filed on January 7, 2011)
10.6 Letter of Intent for the acquisition of Baker's Pride, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.7 Letter of Intent for the acquisition of Imperia Masonry Supply
Corp. (Incorporated by reference to Company's Registration
Statement on Form 10 Amendment No. 2 filed on January 7, 2011)
10.8 Letter of Intent for the acquisition of Klip America, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.9 Letter of Intent for the acquisition of Tyree Holdings Corp.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
66
10.10 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Tyree Holdings Corp. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
19, 2010)
10.11 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Masonry Supply Holding Corp.
(Incorporated by reference to Company's Current Report on Form 8-K
filed on October 19, 2010)
10.12 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Baker's Pride, Inc. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
19, 2010)
10.13 Stock Purchase Agreement, dated October 18, 2010, by and between
Registrant and Universal Apparel Holdings, Inc. for the purchase of
Epic Sports International, Inc. (Incorporated by reference to
Company's Current Report on Form 8-K filed on October 19, 2010)
10.14 Strategic Alliance Agreement, dated October 26, 2010, by and
between Epic Sports International, Inc and Samsung C&T America,
Inc. (Incorporated by reference to Company's Current Report on Form
8-K filed on October 29, 2010)
10.15 Option Agreement, dated October 26, 2010, for Samsung to Purchase
Shares of Epic Sports International, Inc. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
29, 2010)
10.16 Form of Non-Qualified Stock Option Agreement, dated December 31,
2010 (Incorporated by reference to Company's Current Report on Form
8-K filed on January 26, 2011)
10.17 Surrender of Collateral, Strict Foreclosure and Release Agreement,
dated January 3, 2011 for the assets to be assigned to
Environmental Quality Services, Inc. (Incorporated by reference to
Company's Current Report on Form 8-K filed on January 26, 2011)
10.18 Loan and Security Agreement, dated November 1, 2010, by and among
Amincor, Inc., Baker's Pride, Inc. and Capstone Capital Group,
LLC(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
10.19 License Agreement, dated January 1, 2011, by and between Amincor,
Inc. and Brescia Apparel Corp.(Incorporated by reference to
Company's Form 10-K filed on April 18, 2011)
10.20 Transition Services Agreement, dated as of December 31, 2009, by
and among Capstone Capital Group I, LLC, Capstone Business Credit,
LLC, Capstone Capital Management, Inc., Capstone Trade Partners,
Ltd. and Joning, Corp.(Incorporated by reference to Company's Form
10-K filed on April 18, 2011)
10.21 Amendment to Transition Services Agreement, dated as of December
31, 2010, by and among Capstone Capital Group I, LLC, Capstone
Business Credit, LLC, Capstone Capital Management, Inc., Capstone
Trade Partners, Ltd. and Joning, Corp.(Incorporated by reference to
Company's Form 10-K filed on April 18, 2011)
10.22 Loan Agreement, by and between South Street Bakery and Central
State Bank, dated January _, 2012*
14.1 Code of Ethics(Incorporated by reference to Company's Form 10-K
filed on April 18, 2011)
67
21 Organizational Chart of Amincor, Inc. and its
subsidiaries(Incorporated by reference to Company's Form 10-K filed
on April 18, 2011)
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.*
99.1 Lease for Tulare Premises (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.2 Tulare Equipment Lease (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.3 Amendment to Lease for Tulare Premises (Incorporated by reference
to Company's Registration Statement on Form 10 filed on August 4,
2010)
99.4 Amendment to Tulare Equipment Lease (Incorporated by reference to
Company's Registration Statement on Form 10 filed on August 4,
2010)
99.5 Organizational Chart - Capstone companies (Incorporated by
reference to Company's Registration Statement on Form 10 Amendment
No. 2 filed on January 7, 2011)
99.6 Organizational Chart - Tulare Holdings, Inc. (Incorporated by
reference to Company's Registration Statement on Form 10 Amendment
No. 2 filed on January 7, 2011)
99.7 Lease Agreement, dated August 12, 2011, by and among Corbi
Properties, LLC, Clear Lake Specialty Products, Inc. and The South
Street Bakery, Inc. (Incorporated by reference to Company's Form
10-Q filed on August 16, 2011)
99.8 Option Agreement, dated August 12, 2011, by and among Corbi
Properties, LLC, Clear Lake Specialty Products, Inc. and The South
Street Bakery, Inc. (Incorporated by reference to Company's Form
10-Q filed on August 16, 2011)
101 Interactive Data Files pursuant to Rule 405 of Regulation S-T.**
----------
* filed herewith
** to be filed by amendment
68
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 hereunto duly authorized.
AMINCOR, INC.
Date: April 17, 2013
/s/ John R. Rice, III
--------------------------------------------------------
By: John R. Rice, III, President
Date: April 17, 2013
/s/ Joseph F. Ingrassia
--------------------------------------------------------
By: Joseph F. Ingrassia, Interim Chief Financial Officer
BOARD OF DIRECTORS
Date: April 17, 2013
/s/ John R. Rice, III
--------------------------------------------------------
John R. Rice, III, Director
/s/ Joseph F. Ingrassia
--------------------------------------------------------
Joseph F. Ingrassia, Director
/s/ Robert L. Olson
--------------------------------------------------------
By: Robert L. Olson, Director
69
AMINCOR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED OR COMBINED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2012
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
CONSOLIDATED OR COMBINED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2012 and 2011 F-3
Consolidated or Combined Statements of Operations for the Three Years
Ended December 31, 2012 F-5
Consolidated or Combined Statements of Changes in Shareholders' Equity
for the Three Years Ended December 31, 2012 F-6
Consolidated or Combined Statements of Cash Flows for the Three Years
Ended December 31, 2012 F-7
Notes to Consolidated or Combined Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Amincor, Inc.
We have audited the accompanying consolidated balance sheets of Amincor, Inc.
and Subsidiaries (the "Company") as of December 31, 2012 and 2011, and the
related consolidated or combined statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2012. Amincor's management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financials
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated or combined financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 2012 and 2011, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2012, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated or combined financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the consolidated or combined financial statements, the
Company has suffered recurring net losses from operations and has a working
capital deficit of $21,092,591 as of December 31, 2012. The future of the
Company is dependent upon its ability to raise debt and equity financing, and to
achieve profitable operations. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in Note 3. The accompanying consolidated or combined
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ ROSEN SEYMOUR SHAPSS MARTIN & COMPANY LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
April 17, 2013
F-2
Amincor, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2012 and 2011
2012 2011
------------ ------------
(restated)
ASSETS
CURRENT ASSETS:
Cash $ 359,728 $ 1,286,240
Accounts receivable, net of allowance of $428,953
and $1,903,626 in 2012 and 2011, respectively 5,297,323 8,005,935
Due from factor - related party 84,699 --
Inventories, net 2,620,899 4,473,245
Costs and estimated earnings in excess of billings
on uncompleted contracts 30,260 381,931
Prepaid expenses and other current assets 703,123 936,027
Current assets - discontinued operations 424,647 5,217
------------ ------------
TOTAL CURRENT ASSETS 9,520,679 15,088,595
------------ ------------
PROPERTY AND EQUIPMENT, NET
Property and equipment, net - continuing operations 14,524,824 11,633,966
Property and equipment, net - discontinued operations -- 598,106
------------ ------------
TOTAL PROPERTY AND EQUIPMENT, NET 14,524,824 12,232,072
------------ ------------
OTHER ASSETS:
Mortgages receivable, net 6,000,000 6,000,000
Goodwill 22,241 15,882,388
Other intangible assets, net 2,744,000 9,742,458
Other assets 48,964 513,305
Assets held for sale 2,566,433 2,667,433
Other assets - discontinued operations -- 75,000
------------ ------------
TOTAL OTHER ASSETS 11,381,638 34,880,584
------------ ------------
TOTAL ASSETS $ 35,427,141 $ 62,201,251
============ ============
F-3
Amincor, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2012 and 2011
2012 2011
------------ ------------
(restated)
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,904,777 $ 10,206,720
Assumed liabilities - current portion 1,324,863 2,088,899
Accrued expenses and other current liabilities 2,981,824 2,765,709
Loans payable to related party 1,238,619 838,485
Notes payable - current portion 6,057,595 1,846,565
Capital lease obligations - current portion 295,722 220,274
Billings in excess of costs and estimated earnings
on uncompleted contracts 446,295 1,105,741
Deferred revenue 358,911 666,558
Current liabilities - discontinued operations 5,004,664 4,569,594
------------ ------------
TOTAL CURRENT LIABILITIES 30,613,270 24,308,545
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 208,772 190,997
Capital lease obligations - net of current portion 486,827 543,617
Due to related party 902,397 894,837
Notes payable - net of current portion 1,318,672 1,800,371
Other long-term liabilities 63,846 18,313
------------ ------------
TOTAL LONG-TERM LIABILITIES 2,980,514 3,448,135
------------ ------------
TOTAL LIABILITIES 33,593,784 27,756,680
------------ ------------
COMMITMENTS AND CONTINGENCIES
EQUITY:
AMINCOR SHAREHOLDERS' EQUITY - 2011 RESTATED:
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, 7,663,023 and 7,478,409 issued and oustanding
as of December 31, 2012 and 2011, respectively 7,663 7,478
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,286,344 and 21,245,190 issued and
outstanding as of December 31, 2012 and 2011, respectively 21,286 21,245
Additional paid-in capital 86,549,322 85,500,069
Accumulated deficit (84,342,834) (50,956,710)
------------ ------------
TOTAL AMINCOR SHAREHOLDERS' EQUITY 2,237,190 34,573,835
------------ ------------
NONCONTROLLING INTEREST EQUITY - 2011 RESTATED: (403,833) (129,264)
------------ ------------
TOTAL EQUITY 1,833,357 34,444,571
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 35,427,141 $ 62,201,251
============ ============
The accompanying notes are an integral part of these
consolidated or combined financial statements
F-4
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Operations
Three Years Ended December 31, 2012
2012 2011 2010
------------ ------------ ------------
(consolidated) (consolidated) (combined)
NET REVENUES $ 52,266,698 $ 62,297,683 $ 66,916,423
COST OF REVENUES 43,158,511 48,305,007 51,406,007
------------ ------------ ------------
Gross profit 9,108,187 13,992,676 15,510,416
SELLING, GENERAL AND ADMINISTRATIVE 19,032,001 27,363,962 15,718,378
------------ ------------ ------------
Loss from operations (9,923,814) (13,371,286) (207,962)
------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 1,254,622 459,793 1,022,725
Other expense (income) (530,585) 168,514 (973,840)
Impairment of goodwill and intangible assets 21,381,284 -- --
------------ ------------ ------------
TOTAL OTHER EXPENSES (INCOME) 22,105,321 628,307 48,885
------------ ------------ ------------
Loss before provision for income taxes (32,029,135) (13,999,593) (256,847)
Provision for income taxes -- -- 184,250
------------ ------------ ------------
Net loss from continuing operations (32,029,135) (13,999,593) (441,097)
------------ ------------ ------------
Loss from discontinued operations (1,131,348) (9,059,608) (6,534,123)
------------ ------------ ------------
Net loss (33,160,483) (23,059,201) (6,975,220)
------------ ------------ ------------
Net loss attributable to non-controlling interests (711,931) (1,096,350) (270,770)
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO AMINCOR SHAREHOLDERS $(32,448,552) $(21,962,851) $ (6,704,450)
============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS
- BASIC AND DILUTED:
Net loss from continuing operations $ (1.11) $ (0.49) $ (0.02)
============ ============ ============
Weighted average shares outstanding - basic and diluted 28,724,218 28,723,599 28,723,599
============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS
- BASIC AND DILUTED:
Net loss attributable to Amincor shareholders $ (1.13) $ (0.76) $ (0.23)
============ ============ ============
Weighted average shares outstanding - basic and diluted 28,724,218 28,723,599 28,723,599
============ ============ ============
The accompanying notes are an integral part of these
consolidated or combined financial statements
F-5
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statement of Changes in Shareholders' Equity
Three Years Ended December 31, 2012
Amincor, Inc. and Subsidiaries
--------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------ ------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at December 31, 2009 -
restated and combined (1) 1,752,823 $1,753 7,478,409 $7,478 21,245,190 $21,245
--------- ------ ---------- ------ ---------- -------
Conversion of loans from related parties -- -- -- -- -- --
Acquisition of common shares of
Tyree Holdings Corp. (1) -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2010 - restated and
consolidated 1,752,823 1,753 7,478,409 7,478 21,245,190 21,245
--------- ------ ---------- ------ ---------- -------
Acquisition of Environmental Quality Services, Inc -- -- -- -- -- --
Share-based compensation -- -- -- -- -- --
Acquisition of common shares of Tyree
Holdings Corp. (1) -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2011 - restated and
consolidated 1,752,823 1,753 7,478,409 7,478 21,245,190 21,245
--------- ------ ---------- ------ ---------- -------
Issuance of shares to officers for cash -- -- 184,614 185 -- --
Exchange of common shares of Tyree Holdings
Corp. for common shares of Amincor, Inc. -- -- -- -- 41,154 41
Share based compensation -- -- -- -- -- --
Acquisition of common shares of Tyree Holdings Corp. -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2012 - consolidated 1,752,823 $1,753 7,663,023 $7,663 21,286,344 $21,286
========= ====== ========== ====== ========== =======
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at December 31, 2009 -
restated and combined (1) $76,098,840 (21,500,875) $ 1,243,422 $ 55,871,863
----------- ------------ ----------- ------------
Conversion of loans from related parties 8,047,129 -- -- 8,047,129
Acquisition of common shares of
Tyree Holdings Corp. (1) (281,293) 74,474 206,819 --
Net loss -- (6,704,450) (270,770) (6,975,220)
----------- ------------ ----------- ------------
Balance at December 31, 2010 - restated and
consolidated 83,864,676 (28,130,851) 1,179,471 56,943,772
----------- ------------ ----------- ------------
Acquisition of Environmental Quality Services, Inc 145,000 -- -- 145,000
Share-based compensation 415,000 -- -- 415,000
Acquisition of common shares of Tyree
Holdings Corp. (1) 1,075,393 (863,008) (212,385) --
Net loss -- (21,962,851) (1,096,350) (23,059,201)
----------- ------------ ----------- ------------
Balance at December 31, 2011 - restated and
consolidated 85,500,069 (50,956,710) (129,264) 34,444,571
----------- ------------ ----------- ------------
Issuance of shares to officers for cash 119,815 -- -- 120,000
Exchange of common shares of Tyree Holdings
Corp. for common shares of Amincor, Inc. (41) -- -- --
Share based compensation 429,269 -- -- 429,269
Acquisition of common shares of Tyree Holdings Corp. 500,210 (937,572) 437,362 --
Net loss -- (32,448,552) (711,931) (33,160,483)
----------- ------------ ----------- ------------
Balance at December 31, 2012 - consolidated $86,549,322 $(84,342,834) $ (403,833) $ 1,833,357
=========== ============ =========== ============
----------
(1) Represents the reallocation of the previously reported equity of the
shareholders' and the non-controlling interest.
The accompanying notes are an integral part of these
consolidated or combined financial statements
F-6
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Cash Flows
Three Years Ended December 31, 2012
2012 2011 2010
------------ ------------ ------------
(consolidated) (consolidated) (combined)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(32,029,135) $(13,999,593) $ (441,097)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property,
plant and equipment 1,563,036 1,821,599 1,972,129
Amortization of intangible assets 1,499,561 3,589,075 1,871,336
Amortization of deferred financing costs 162,973 -- --
Impairment of goodwill and intangible assets 21,381,284 -- --
Stock based compensation 429,269 415,000 --
Gain on sale of equipment (125,026) (79,272) (20,981)
Provision for (recovery of) doubtful accounts 96,148 4,096,616 (296,675)
Provision for credit losses -- 180,000 --
Changes in assets and liabilities:
Accounts receivable 2,694,436 (880,485) 1,459,422
Due from factor - related party (84,699) -- 2,680,926
Inventories 1,852,346 (1,103,383) (439,841)
Costs and estimated earnings in excess of billings
on uncompleted contracts 351,671 (102,779) (165,816)
Prepaid expenses and other current assets (217,702) (284,877) (55,402)
Other assets 301,368 (42,865) 148,468
Accounts payable 5,715,325 4,457,546 708,055
Accrued expenses and other current liabilities 216,115 (102,924) 1,213,615
Billings in excess of costs and estimated earnings
on uncompleted contracts (659,446) 568,916 (820,953)
Deferred revenue (307,647) 192,558 --
Other long-term liabilities (4,467) (3,348) (848)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATIONS - CONTINUING OPERATIONS 2,835,410 (1,278,216) 7,812,338
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,407,983) (135,644) (95,198)
Proceeds from sale of equipment 125,026 135,546 37,454
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (3,282,957) (98) (57,744)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments to) related parties 407,694 (13,312) (1,003,402)
Proceeds from issuance of common stock 120,000 -- --
Principal payments of capital lease obligations (269,046) (158,853) (71,992)
Borrowings form (repayments) of notes payable 712,063 (230,832) 113,639
Proceeds from loans with related parties -- 124,555 --
Payments of assumed liabilities (1,108,074) (591,598) (1,772,486)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES - CONTINUING OPERATIONS (137,363) (870,040) (2,734,241)
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS (584,910) (2,148,354) 5,020,353
------------ ------------ ------------
Net cash used in operating activities - discontinued operations (923,465) (5,332,732) (3,259,349)
Net cash provided by investing activities - discontinued operations 581,863 6,414,827 603,866
Net cash used in financing activities - discontinued operations -- (254,826) (82,904)
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (341,602) 827,269 (2,738,387)
------------ ------------ ------------
F-7
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Cash Flows
Three Years Ended December 31, 2012
2012 2011 2010
------------ ------------ ------------
(consolidated) (consolidated) (combined)
(Decrease) increase in cash (926,512) (1,321,085) 2,281,966
Cash, beginning of year 1,286,240 2,607,325 325,359
------------ ------------ ------------
CASH, END OF YEAR $ 359,728 $ 1,286,240 $ 2,607,325
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 643,519 $ 573,339 $ 1,305,271
============ ============ ============
Income taxes $ 82,080 $ 57,640 $ 37,396
============ ============ ============
Non-cash investing and financing activities:
Acquisition of equipment by capital leases and notes payable $ 287,704 $ 333,928 $ 660,808
============ ============ ============
Conversion of accounts payable to term notes payable $ 3,017,268 $ -- $ --
============ ============ ============
Acquisition of the assets and assumption of liabilities
of predecessor company to Enviromental Quality Services, Inc. $ -- $ 145,000 $ --
============ ============ ============
Conversion of loans from related parties $ -- $ -- $ 8,047,129
============ ============ ============
The accompanying notes are an integral part of these
consolidated or combined financial statements
F-8
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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 2011 and 2010, Amincor acquired all or a majority of
the outstanding stock of the following companies:
Baker's Pride, Inc. ("BPI")
Environmental Holdings Corp. ("EHC")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings", or "Tulare")
Tyree Holdings Corp. ("Tyree")
On November 5, 2012, the Company acquired all of the assets and assumed some of
the liabilities of Environmental Waste Treatment, LLC ("EWT Business"). The
Company assigned the EWT Business to Advanced Waste & Water Technology, Inc.
("AWWT") a subsidiary of EHC.
As of December 31, 2012, the following are operating subsidiaries of Amincor:
Baker's Pride, Inc.
Tyree Holdings Corp.
Environmental Holdings Corp.
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 is
headquartered and operates facilities 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.
F-9
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
EHC
Through its wholly owned subsidiaries, Environmental Quality Services, Inc
("EQS") and Advanced Waste & Water Technology, Inc. ("AWWT"), EHC provides
environmental and hazardous waste testing and water remediation services in the
Northeastern United States, and is headquartered in Farmingdale, New York.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables. As of December 31, 2012, all of Other Assets' real estate and
equipment are classified as held for sale.
CONTRACT ADMIN
Contract Admin was incorporated to manage contracts which were entered into by
Amincor but performed by Tyree.
DISCONTINUED OPERATIONS
During 2011, Amincor adopted a plan to discontinue the operations of the
following entities:
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.
F-10
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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 consolidated or combined financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Amincor, Inc. and
all of its consolidated subsidiaries (collectively the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization 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.
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.
F-11
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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 firms 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.
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.
F-12
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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, EQS, and AWWT 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 December 31, 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.
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.
F-13
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived tangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value.
INCOME TAXES
The Company accounts for income taxes using the liability method, which provides
for an asset and liability approach to accounting for income taxes. Under this
method, deferred tax assets and liabilities are recorded for future tax effects
of temporary differences between the financial reporting and tax basis of assets
and liabilities, and measured when using the current tax rates and laws that are
expected to be in effect when the underlying assets or liabilities are
anticipated to be recovered or settled. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount of tax benefits
expected to be realized.
F-14
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
GAAP requires that, in applying the liability method, the financial statement
effects of an uncertain tax position be recognized based on the outcome that is
more likely than not to occur. Under this criterion the most likely resolution
of an uncertain tax position should be analyzed based on technical merits and on
the outcome that would likely be sustained under examination.
FAIR VALUE MEASUREMENT
Financial instruments and certain non-financial assets and liabilities are
measured at their fair value as determined based on the assets highest and best
use. GAAP has established a framework for measuring fair value that is based on
a hierarchy which requires that the valuation technique used be based on the
most objective inputs available for measuring a particular asset or liability.
There are three broad levels in the fair value hierarchy which describe the
degree of objectivity of the inputs used to determine fair value. The fair value
hierarchy is set forth as below:
Level 1 - inputs to the valuation methodology and quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement. They are based on best information
available in the absence of level 1 and 2 inputs.
The fair value of all of the Company's financial instruments is approximately
the same as their carrying amounts.
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 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.
F-15
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and are included in
selling, general and administrative costs on the consolidated statements of
operations. Advertising expenses were approximately $62,000, $74,000 and
$104,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
RESTATEMENT AND RECLASSIFICATIONS
The non-controlling interest equity consists of minority interests in ESI and
Tyree held by their former owners. Since Tyree was acquired, the Company has
acquired additional shares from the Tyree's former owners thus increasing the
Company's ownership and decreasing the ownership of the non-controlling interest
in Tyree. GAAP requires that the equity of the shareholders' and the
non-controlling ownership interest be reallocated each time the relative
ownership interest changes. The Company has determined that is was not
reallocating the ownership interests of the minority shareholder of Tyree for
the additional interest acquired since its original acquisition. Therefore, the
previously reported amounts of the net loss and equity have been restated to
correct for those errors.
Certain reclassifications have been made to the prior years' consolidated or
combined financial statements to conform to the current year's presentation.
3. GOING CONCERN
The accompanying consolidated or combined financial statements have been
prepared assuming that the Company will continue as a going concern that
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has suffered recurring net losses
from operations and has a working capital deficit of $21,092,591 as of December
31, 2012, which raises substantial doubt about the Company's ability to continue
as a going concern. The Company's ability to continue as a going concern is
dependent upon its capability to raise additional funds through debt and equity
financing, and to achieve profitable operations. Management's plans to continue
as a going concern and to achieve a profitable level of operations are as
follows:
F-16
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
* Baker's Pride, Inc.
* Secure additional donut and bread customers to increase the
utilization of existing plant assets and place significant and
competitive bids to strategic players within the fresh bread
manufacturing industry, as well as increase revenues from its
existing customers,
* Increase co-pack donut, bread and bun business once the existing
plant assets are operating at maximum capacity,
* Negotiate with the commercial bank to extend their bridge loan
which matures on May 31, 2013, which will allow BPI to extend its
interest only financing on the new donut equipment until such
time that BPI is able through its cash flow to make principal
payments.
* Environmental Holdings Corp.
* Complete the sale of EQS or liquidate the equipment assets of
EQS,
* Successfully sell large-scale waste water treatment equipment
through AWWT's established licensing agreement.
* Tyree Holdings Corp.
* Increase sales of the environmental business unit to existing
customers and bid on additional jobs outside of Tyree's current
customer base. Tyree's ability to succeed in securing additional
environmental business depends on the ability of one of Tyree's
primary customers to secure remediation work by bidding
environmental liabilities currently present on gasoline stations
and referring this work to Tyree,
* Evaluate Tyree's construction and maintenance business units with
respect to their ability to increase margins and operate
profitably independent of each other,
* Liquidate excess inventory that will not be utilized in the
normal course of operations during the next six months to
generate additional working capital.
* Amincor Other Assets, Inc.
* Liquidate assets held for sale to provide working capital to the
Company's subsidiaries,
* Rent out assets held for sale to offset the costs of ownership of
those assets wherever possible, if the assets cannot be
liquidated.
* Amincor, Inc.
* Secure new financing from a financial institution to provide
needed working capital to the subsidiary companies.
F-17
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
While management believes that it will be able to continue to raise capital from
various funding sources in such amounts sufficient to sustain operations at the
Company's current levels through at least December 31, 2013, if the Company is
not able to do so and if the Company is unable to become profitable in 2013, the
Company would likely need to modify its plans and/or cut back on its operations.
If the Company is able to raise additional funds through the issuance of equity
securities, substantial dilution to existing shareholders may result. However,
if management's plans are not achieved, if significant unanticipated events
occur, or if the Company is unable to obtain the necessary additional funding on
favorable terms or at all, management would likely have to modify its business
plans to continue as a going concern.
4. BUSINESS COMBINATIONS
The Company's acquisition of five of its subsidiaries (BPI, Tyree, Masonry,
Tulare, and ESI) in 2010 has been accounted for using the pooling-of-interest
method because they were all under common control. Therefore, as required by
GAAP for business combinations for entities under common control, the financial
statements presented for the year ended December 31, 2010 reflect a combination
of the financial statements for each subsidiary since it came under common
control.
In connection with the acquisitions, the Company assumed liabilities for the
payment of certain delinquent accounts payable, income taxes, litigation
settlements and other specified liabilities. The Company has since negotiated
repayment terms with the majority of the parties owed. The remaining amounts due
are non-interest bearing and have terms ranging in duration from 1 to 48 months.
The balances of these assumed liabilities totaled approximately $1,110,000 and
$2,280,000 as of December 31, 2012, 2011, respectively.
AWWT
On November 5, 2012, the Company acquired all of the assets and assumed some of
the liabilities of Environmental Waste Treatment, LLC ("EWT Business"), a
company in the business of providing water remediation services, in exchange for
a note payable of $50,000 to the seller. The Company assigned the EWT Business
to AWWT.
The Company accounted for the AWWT acquisition as a business combination and the
estimated fair values at November 5, 2012 of assets acquired and liabilities
assumed have been allocated as follows:
F-18
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Amount
----------
Accounts receivable $ 81,972
Property, plant and equipment 307,600
Current liabilities assumed (144,337)
Long-term liabilities assumed (217,476)
Note payable to seller (50,000)
----------
Total identifiable net liabilities assumed $ (22,241)
==========
Since the acquisition date, the revenues and net loss of AWWT was approximately
$93,000 and $35,000, respectively, for the period ended December 31, 2012. Such
amounts are included in the accompanying 2012 consolidated statement of
operations.
Pro forma information for the operations of AWWT for the periods prior to the
acquisition are not present since AWWT was not material to the Company's
consolidated results of operations and earnings per share.
EQS
In 2011, the Company acquired all of the assets and assumed some of the
liabilities of Environmental Testing Laboratories, Inc. ("ETL Business"), a
company in the business of providing environmental testing and laboratory
services in exchange for forgiving the debt of the former owner. The Company
assigned the ETL Business to EQS.
The Company accounted for the EQS acquisition as a business combination and the
total consideration of $145,000 has been allocated to the net assets acquired
and liabilities assumed based on their respective estimated fair values at
January 3, 2011 as follows:
Amount
----------
Equipment $ 395,054
Other intangibles 135,000
Accounts payable (36,844)
Assumed liabilities (362,198)
Note payable (522,501)
----------
Total identifiable net liabilities assumed (391,489)
----------
Goodwill 536,489
----------
Net assets acquired $ 145,000
==========
F-19
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
For the period January 3, 2011 to December 31, 2011, the revenues and net loss
of EQS was approximately $1,251,000 and $461,000, respectively, which are
included in the accompanying 2011 consolidated statement of operations.
Pro forma information for the operations of EQS for the period prior to the
acquisition is not present since EQS was not material to the Company's
consolidated results of operations and earnings per share.
5. 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 financial statements for the years ended December
31, 2012, 2011 and 2010, respectively. Assets and liabilities related to
discontinued operations are presented separately on the consolidated balance
sheets as of December 31, 2012 and 2011, respectively. Changes in net cash from
discontinued operations are presented in the accompanying consolidated
statements of cash flows for the years ended December 31, 2012, 2011 and 2010,
respectively. All prior period information has been reclassified to conform to
the current period presentation.
As part of determining whether to discontinue the operations of Masonry, Tulare
Holdings and ESI, the Company evaluated the carrying value of the assets of
those companies as of December 31, 2011 and determined that the carrying value
of such assets was not recoverable. Therefore, the Company recorded an
impairment charge of approximately $2.9 million for the year ended December 31,
2011, of which approximately $1.2 million related to the reduction of the
carrying value of property and equipment to the estimated fair value,
approximately $1.4 million related to the write off of intangible assets, and
approximately $300,000 related to the impairment of other assets. As of December
31, 2012, the only asset remaining is approximately $425,000 in escrow due to
Masonry which is related to the foreclosure of its real property.
The following amounts related to Masonry, Tulare and ESI have been segregated
from continuing operations and reported as discontinued operations:
For the Years Ended December 31,
--------------------------------------------------
2012 2011 2010
------------ ------------ ------------
Results From Discontinued Operations:
Net revenues from discontinued operations $ 1,983 $ 4,854,062 $ 19,143,149
============ ============ ============
Loss from discontinued operations $ (1,131,348) $ (9,059,608) $ (6,534,123)
============ ============ ============
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 balance sheets).
F-20
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
December 31,
------------------------------
2012 2011
------------ ------------
Prepaid expenses and other current assets $ -- $ 5,217
Property, plant and equipment, net -- 598,106
Other assets 424,647 75,000
------------ ------------
Total assets 424,647 678,323
------------ ------------
Accounts payable 4,121,126 3,661,771
Accrued expenses and other current liabilities 883,538 907,823
------------ ------------
Total liabilities 5,004,664 4,569,594
------------ ------------
Net liabilities $ (4,580,017) $ (3,891,271)
============ ============
The Company will continue to provide administrative services for the
discontinued operations until the liquidation of these assets is completed.
6. MORTGAGES RECEIVABLE
The mortgages receivable consist of two notes collateralized by property in
Pelham Manor, New York, which were in the process of foreclosure as of December
31, 2012. The value of the mortgages is based on the fair value of the
collateral.
As of December 31, 2012 and 2011 the mortgages receivable, designated as
non-performing loans, totaled $6,180,000. The Company has established an
allowance for loan losses of $180,000 as of December 31, 2012 and 2011.
The following table presents mortgages receivable and the related allowance for
loan losses as of December 31, 2012 and 2011:
2012 2011
------------ ------------
Mortgage loans:
Secured by commercial real estate $ 6,180,000 $ 6,180,000
Less:
Allowance for loan losses (180,000) (180,000)
------------ ------------
Total loans receivable $ 6,000,000 $ 6,000,000
============ ============
F-21
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
2012 2011
------------ ------------
Beginning Balance $ 180,000 $ --
Charge-offs -- --
Recoveries -- --
Provisions -- 180,000
------------ ------------
Ending Balance $ 180,000 $ 180,000
============ ============
Ending balance:
individually evaluated for impairment $ -- $ --
============ ============
Ending balance:
collectively evaluated for impairment $ 180,000 $ 180,000
============ ============
Loans:
Ending balance:
individually evaluated for impairment $ -- $ --
============ ============
Ending balance:
collectively evaluated for impairment $ 6,000,000 $ 6,000,000
============ ============
The changes to the allowance for loan losses for the years ended December 31,
2012 and 2011 is summarized as follows:
7. INVENTORIES
Inventories consist of:
* Construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventory as of December 31, 2012 and 2011 is below:
2012 2011
---------- ----------
Raw materials $3,058,645 $4,321,380
Ingredients 108,673 637,153
Finished goods 454 91,405
---------- ----------
3,167,772 5,049,938
Inventory reserves 546,873 576,693
---------- ----------
Inventories, net $2,620,899 $4,473,245
========== ==========
F-22
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
8. PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2012 and 2011 property, plant and equipment from continuing
operations consisted of the following:
Useful Lives
(Years) 2012 2011
------- ----------- -----------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 16,407,366 12,840,288
Furniture and fixtures 5-10 110,439 110,439
Building and leasehold improvements 10 3,376,869 3,226,010
Computer equipment and software 5-7 847,329 804,010
Construction in progress n/a -- 14,801
Vehicles 3-10 408,080 212,093
----------- -----------
21,580,083 17,637,641
Less accumulated depreciation 7,055,259 6,003,675
----------- -----------
$14,524,824 $11,633,966
=========== ===========
Property, plant and equipment include items under capital leases of $1,151,704
and $864,464 as of December 31, 2012 and 2011, respectively. Accumulated
depreciation includes $296,348 and $103,181 related to those items as of
December 31, 2012 and 2011, respectively.
Total depreciation expense related to continuing operations for years ended
December 31, 2012, 2011 and 2010 was $1,563,036, $1,821,599 and $1,972,129,
respectively.
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill
On July 16, 2012, BPI was notified that its 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. 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 2012.
On December 31, 2012, annual impairment studies were performed on Tyree and
EHC's goodwill. The impairment study on Tyree's goodwill concluded that Tyree's
goodwill asset was fully impaired. The impairment study on EHC's goodwill
concluded that the goodwill as related to EQS subsidiary was fully impaired,
while the goodwill as related to AWWT subsidiary was not impaired. The Company
recorded an impairment expense of $7,575,500 and $535,988 for Tyree and EHC,
respectively in 2012 in accordance with the results of these impairment studies.
Goodwill of $22,241 and $15,882,388 at December 31, 2012 and 2011, respectively,
and licenses and permits (an intangible asset) of $2,744,000 and $3,430,400 at
December 31, 2012 and 2011, respectively, have indefinite useful lives and are
F-23
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
not being amortized but tested for impairment annually or whenever an event
occurs that may indicate a significant decrease in the fair value of the assets
has taken place.
Intangible Assets
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 December 31, 2012 and 2011:
Useful Lives
(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 7,214,000 8,550,942
----------- -----------
Intangible assets subject to
amortization, net -- 6,312,058
Intangible assets not subject
to amortization:
Licenses and permits 2,744,000 3,430,400
----------- -----------
Intangible assets, net $ 2,744,000 $ 9,742,458
=========== ===========
The aforementioned licenses and permits have renewal provisions which are
generally one to four years. At December 31, 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.
Prior to December 31, 2011, the Company amortized the non-compete intangible
asset using the contractual term of the underlining agreements. However, based
on the contractual revisions, the Company determined that the non-compete
intangible asset has a shorter life than previously estimated. As a result, the
Company changed the estimate of amortizable lives for the non-compete intangible
asset to 5 years. The purpose of this change was to more accurately reflect the
useful life of this asset. In accordance with GAAP, the change in the life has
been accounted for as a change in accounting estimate on a prospective basis
from December 31, 2011. As a result of the change in the estimated life of the
non-compete intangible asset, both selling and general administrative expenses
and net loss were higher by $1,717,238 for the year ended December 31, 2011, as
compared to December 31, 2010.
For the year ended December 31, 2012, the Company recorded total impairment
expense of $21,381,284 consisting of $15,882,388, $4,812,496, and $686,400 on
goodwill, customer relationships, and licenses and permits, respectively.
F-24
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Amortization expense related to continuing operations for the years ended
December 31, 2012, 2011 and 2010 was $1,499,561, $3,589,075 and $1,871,336,
respectively. At December 31, 2012, all intangible assets subject to
amortization were fully amortized.
10. TYREE CONTRACTS
Tyree's contracts are as follows:
2012 2011
------------ ------------
Costs incurred on uncompleted contracts $ 4,734,336 $ 9,030,273
Estimated earnings 878,953 2,616,311
------------ ------------
5,613,289 11,646,584
Less: Billings to date (6,029,324) (12,370,394)
------------ ------------
$ (416,035) $ (723,810)
============ ============
Included in the accompanying consolidated
balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 30,260 $ 381,931
Billings in excess of costs and estimated
earnings on uncompleted contracts (446,295) (1,105,741)
------------ ------------
$ (416,035) $ (723,810)
============ ============
11. INCOME TAXES
The Company records the income tax effect of transactions in the same year that
the transactions occur to determine net income, regardless of when the
transactions are recognized for tax purposes. Deferred taxes are provided to
reflect the income tax effects of amounts included in the Company's financial
statements in different periods than for tax purposes, and principally relate to
bad debt allowances for accounts receivables, equity compensation charges,
impairment of long-lived assets, depreciation, and amortization expenses. The
provision for the income taxes for the years ended December 31, 2012, 2011, and
2010 is as follows:
F-25
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Years Ended December 31,
-------------------------------------------
2012 2011 2010
-------- --------- --------
CURRENT:
Federal $ -- $ -- $ --
State and local -- -- 184,250
-------- --------- --------
Total current -- -- 184,250
-------- --------- --------
DEFERRED:
Federal -- -- --
State and local -- -- --
-------- --------- --------
Total deferred -- -- --
-------- --------- --------
PROVISION FOR INCOME TAXES $ -- $ -- $184,250
======== ========= ========
Deferred tax assets represent the future income tax benefit from amounts that
have been recognized as expenses for financial statement purposes in the current
period which may not be deducted for income tax purposes until future years.
Likewise, deferred tax liabilities represent the current income tax benefit from
amounts that may be deducted for income tax purposes but have not yet been
recognized as expenses for financial statement purposes.
The Company evaluates deferred income taxes quarterly to determine if it is more
likely than not that the future tax benefits from deferred tax assets will be
realized in future years. Valuation allowances are established if it is
determined that the Company may not realize some or all of such future tax
benefits. The Company assesses whether valuation allowances against the deferred
tax assets should be established or adjusted based on consideration of all
available evidence, both positive and negative, using the more likely than not
standard. This assessment considers, among other matters, the nature, frequency
of recent income and losses, forecasts of future profitability and the duration
of statutory carry forwards periods. In making such judgments, significant
weight is given to evidence that can be objectively verified.
The tax effect of temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, 2012 and 2011 are presented below:
F-26
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
December 31,
2012 2011
------------ ------------
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 14,459,000 $ 10,121,000
Accounts receivable 179,000 833,000
Inventory 275,000 298,000
Goodwill 4,416,000 --
Intangible assets 3,927,000 1,821,000
Accrued expenses and other current liabilities 518,000 276,000
------------ ------------
TOTAL DEFERRED TAX ASSETS $ 23,774,000 $ 13,349,000
------------ ------------
DEFERRED TAX LIABILITIES:
Goodwill $ -- $ 1,513,000
Intangible assets -- 352,000
Property, plant and equipment 113,000 417,000
------------ ------------
TOTAL DEFERRED TAX LIABILITIES 113,000 2,282,000
------------ ------------
23,661,000 11,067,000
LESS VALUATION ALLOWANCE 23,661,000 11,067,000
------------ ------------
NET DEFERRED TAX ASSETS $ -- $ --
============ ============
As of December 31, 2012, the Company's federal net operating losses were
approximately $36 million. These net operating loss carryforwards expire from
the years ended 2028 to 2032. These net operating loss carryforwards may be
limited in accordance with the Internal Revenue Code ("IRC") based on certain
changes in ownership that have occurred, or could occur in the future.
The Company is in the process of completing its 2011 federal and state tax
returns.
The Company's effective tax rate differs from the statutory Federal income tax
rate of 34%, primarily due to the effect of state and local income taxes and the
impact of recording a deferred tax valuation allowance. A deferred tax valuation
allowance is recorded if it is determined that the Company may not realize some
or all of the future tax benefits from the deferred tax assets, which primarily
consist of the potential future tax benefits from net operating loss
carryforwards. The following is a reconciliation of the income tax expense that
would result from applying the U.S. Federal statutory income tax rate to the
Company's recorded income tax expense for the years ended December 31, 2012,
2011, and 2010:
F-27
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Income tax expense at federal statutory rate $(11,274,000) $ (7,840,000) $ (2,372,000)
State taxes (1,990,000) (1,384,000) (419,000)
Permanent differences 669,000 1,227,000 432,000
Loss of NOL's due to SRLY rules -- 5,394,000 --
Change in deferred tax calculation allowances 12,595,000 2,603,000 2,359,000
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
12. Long-Term Debt
Long-term debt consists of the following at December 31, 2012 and 2011:
2012 2011
---------- ----------
Equipment loans payable, collateralized by the
assets purchased, and bearing interest at
annual fixed rates ranging from 8.00% to 15.00%
as of December 31, 2012 and 2011, with
principal and interest payable in installments
through July 2014 $ 748,293 $ 820,251
Promissory notes payable, with zero interest to
current accounts payable vendors including
imputed interest of $154,216 and $225,672
calculated at 10.00% and 8.80% for 2012 and
2011, respectively. Payment terms are from 12
to 36 months 3,135,840 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 matured, are in default as of
December 31, 2012, and bear interest at an
annual fixed rate of 6.00% 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%
242,149 370,618
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 5.00% and a ceiling of 7.00%.
The loan matures on May 31, 2013 2,749,985 --
---------- ----------
Total 7,376,267 3,646,936
Less current portion 6,057,595 1,846,565
---------- ----------
Long-term portion $1,318,672 $1,800,371
========== ==========
Future minimum principal payments on long-term debt are as follows:
F-28
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Year Ending December 31,
2013 $6,057,595
2014 1,161,615
2015 157,057
----------
$7,376,267
==========
The Company is obligated under various capital lease agreements for machinery
and equipment. The terms of the leases range from one to five years and have
effective interest rates that range from 4.4% to 13.0%
Future minimum lease payments under the capital lease obligations at December
31, 2012 are as follows:
Years Ended Total
----------- -----
2013 $ 350,140
2014 295,809
2015 136,644
2016 79,117
2017 28,842
----------
890,552
----------
Less amount representing interest 108,003
----------
$ 782,549
==========
13. 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.
F-29
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Loans from a related party consist of the following at:
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 $ 764,799 $ 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 $1,000,000 473,820 499,577
---------- ----------
Total loans and amounts payable to related
parties $1,238,619 $ 838,485
========== ==========
Interest expense for these loans amounted to $330,894, $200,893, and $16,928 for
the years ended December 31, 2012, 2011 and 2010, respectively.
14. Shareholders' Equity
Prior to the acquisition by the Company, the businesses of each of the companies
acquired were borrowers under financing agreements with several interrelated
partnerships. Due to their failure to make payments under their financing
agreements, the lending partnerships exercised their right to take control of
these borrowing businesses. Upon taking control, new corporate entities were
formed to own and operate each of these businesses and capital stock of each of
the new corporations was distributed to the partners of the lenders in
proportion to their partnership interests. Following these takeovers, the
Company acquired these businesses and then the stockholders of the newly formed
corporations received Amincor capital stock, in proportion to their former
partnership interests.
Upon completion of these acquisitions, the general partners of the lending
partnerships referred to the above received Amincor Class A voting common stock
and the limited partners received Amincor Class B non-voting or convertible
preferred stock. Convertible preferred stock was issued to those limited
partners who had placed redemption requests before the defaults and subsequent
takeovers discussed as above. Except for the voting rights, Class A and Class B
common stock are identical.
As a result, the Company's stockholders each have an ownership interest in
Amincor that is equivalent to their rights and interest in the above mentioned
lending partnerships.
CONVERTIBLE PREFERRED STOCK
The Company may at any time or from time to time redeem on a pro rata basis
issued and outstanding preferred shares by paying the holders of preferred stock
$100 for each share redeemed. In the event of liquidation, dissolution, or
winding up of the company, the preferred shares are entitled to a payment of
F-30
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
$100 per share before any payment is made to or set aside for the holders of
common shares.
On or after January 1, 2011, any holders of convertible preferred shares are
entitled to convert their shares into Class B common shares on the basis of 10
shares of common stock for each preferred share.
For the years ended December 31, 2012 and 2011, no preferred stock was converted
into Class B common shares.
COMMON STOCK
The holders of both Class A and Class B common shares are entitled to dividends,
if declared by the Board of Directors, however no dividends can be paid on
common stock until all shares of convertible preferred stock have been redeemed
or converted to common stock. The holders of Class B common stock do not have
any voting rights. In the event of liquidation, the holders of both classes are
entitled to share ratably in all assets remaining after payment of all
liabilities and any preferences on preferred stock that may be then outstanding.
The common stockholders do not have any cumulative or preemptive rights.
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 2010 and the weighted average shares
outstanding for the years ended December 31, 2011 and 2010 have been restated.
This correction is de minimus and had no discernible effect on previously
reported loss per share.
On December 31, 2012, the Company issued 41,154 shares of Class B common shares
in exchange for 10,700 shares of Tyree's Common Stock. Tyree's Common Stock was
converted to Amincor Class B shares using a $0.65 valuation as calculated by the
Company's book value of shares outstanding on September 30, 2012. As a result,
the Company's ownership stake in Tyree changed from 95.4% to 99.0%.
On December 31, 2012, the Company issued 184,614 shares of Class A common shares
to certain officers of the Company in exchange for $120,000. The Company's Class
A shares were valued using a $0.65 valuation as calculated by the Company's book
value of shares outstanding on September 30, 2012.
15. Share-Based Compensation
The Company does not have a formally adopted share-based compensation plan.
Stock option grants have been made as determined by the Board of Directors.
F-31
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
On April 17, July 1, October 1, and December 31, 2012 the Company's Board of
Directors granted common stock Class A options to the President, Vice-President,
CFO, certain management and employees of the Company, and certain officers and
employees of its subsidiary companies, all at various exercise prices, based on
the estimated fair market value of the Company's share price at the date of the
grant. 50% of the options vest and become exercisable on the first anniversary
of the grant date and the remaining 50% on the second anniversary of the grant
date, provided that the individual is employed by the Company on the anniversary
date.
On April 1, September 1, and December 1, 2011 the Company's Board of Directors
granted common stock Class A options to the President, Vice-President, CFO,
certain management and employees of the Company, and certain officers and
employees of its subsidiary companies, all at various exercise prices, based on
the estimated fair market value of the Company's share price at the date of the
grant. The options granted on April 1, 2011 vested and became exercisable
immediately. For the September 1, 2011 and December 1, 2011 grants, 50% of the
options vested and became exercisable on the first anniversary of the grant
date, provided that the individual is employed by the Company on the anniversary
date.
On December 31, 2010, the Board of Directors approved the issuance and granting
of stock options to certain of the Company's officers. The grant was for options
to purchase an aggregate 120,799 shares of Class A common stock at an exercise
price of $2.80. 50% of the options vested and became exercisable on the first
anniversary of the grant date and the remaining 50% on the second anniversary of
the grant date, provided that the individual is employed by the Company on the
anniversary date.
The Company estimates the fair value of the stock options on the date of the
grant using the Black-Scholes option model, which requires the input of
subjective assumptions. These assumptions include the estimated volatility of
the Company's common stock price of the expected term, the fair value of the
Company's stock, the risk-free interest rate and the dividend yield. Changes in
the subjective assumptions can materially affect the estimated fair value of
stock compensation. The following assumptions were used in 2012, 2011, and 2010:
Valuation Assumptions 2012 2011 2010
--------------------- ---- ---- ----
Expected life 5 5 5
Risk-free interest rate 0.72% - 0.90% 0.9% - 2.24% 5.20%
Expected volatility 40% 40% 27%
Dividend yield -- -- --
Forfeiture rate 0% 0% 0%
Share based compensation cost of approximately $429,000, $415,000 and $0 is
reflected in selling, general and administrative expenses on the accompanying
consolidated or combined statements of operations for the years ended December
31, 2012, 2011 and 2010, respectively.
F-32
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
The following table summarizes the Company's stock options activity for the
three years ended December 31, 2012:
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Shares Price Term (Years)
------ ----- ------------
Options outstanding at January 1, 2010
Granted 120,799 $2.80 3.00
Exercised -- -- --
Canceled, forfeited or expired -- -- --
--------- ----- ----
Options outstanding at December 31, 2010 120,799 2.80 3.00
Granted 1,389,890 1.78 3.60
Exercised -- -- --
Canceled, forfeited or expired -- -- --
--------- ----- ----
Options outstanding at December 31, 2011 1,510,689 1.86 3.55
Granted 1,630,780 1.07 4.62
Exercised -- -- --
Canceled, forfeited or expired -- -- --
--------- ----- ----
Options outstanding at December 31, 2012 3,141,469 $1.45 4.11
========= ===== ====
Options vested and exercisable at:
December 31, 2011 532,399 $1.98 4.22
========= ===== ====
December 31, 2012 1,051,744 $1.92 3.45
========= ===== ====
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2012
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Life Exercise Exercise
Prices Outstanding (Years) Price Exercisable Price
------ ----------- ------- ----- ----------- -----
$0.65 398,500 5.00 $0.65 -- $ --
1.13 403,500 4.75 1.13 -- --
1.21 410,890 4.50 1.21 -- --
1.29 417,890 4.25 1.29 -- --
1.73 917,890 3.78 1.73 458,945 1.73
1.88 472,000 3.25 1.88 472,000 1.88
2.80 120,799 3.00 2.80 120,799 2.80
----- --------- ---- ----- --------- -----
$1.45 3,141,469 4.11 $1.45 1,051,744 $1.92
===== ========= ==== ===== ========= =====
F-33
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
As of December 31, 2012, the total compensation cost related to nonvested awards
not yet recognized was approximately $620,000 and this expense is expected to be
recognized over a remaining weighted average period of 4.11 years.
16. Loss Per Share
The calculation of net loss per share is as follows:
Year Ended December 31,
2012 2011 2010
------------ ------------ ------------
Numerator for loss per share
Net loss from continuing operations $(32,029,135) $(13,999,593) $ (441,097)
Net loss from discontinued operations (1,131,348) (9,059,608) (6,534,123)
------------ ------------ ------------
Net loss $(33,160,483) $(23,059,201) $ (6,975,220)
============ ============ ============
Denominator for loss per share
Basic and diluted weighted-average shares: 28,724,218 28,723,599 28,723,599
============ ============ ============
Loss per share:
Basic and diluted
Net loss from continuing operations $ (1.12) $ (0.49) $ (0.02)
============ ============ ============
Net loss from discontinued operations $ (0.04) $ (0.31) $ (0.22)
============ ============ ============
Net loss $ (1.15) $ (0.80) $ (0.24)
============ ============ ============
The Company's loss attributable to common stockholders, along with the dilutive
effect of potentially issuable common stock due to outstanding options and
convertible securities causes the normal computation of diluted loss per share
to be smaller than the basic loss per share; thereby yielding a result that is
counterintuitive. Consequently, the diluted loss per share amount presented does
not differ from basic loss per share due to this "anti-dilutive" effect.
At December 31, 2012, 2011, and 2010, the Company had potentially dilutive
common shares attributable to the following:
Year Ended December 31,
2012 2011 2010
------------ ------------ ------------
Stock options 3,141,469 1,510,689 120,799
Convertible preferred stock 17,528,230 17,528,230 17,528,230
------------ ------------ ------------
Total 20,669,699 19,038,919 17,649,029
============ ============ ============
17. Operating Segments
The Company is organized into six operating segments: (1) Amincor, (2) Other
Assets, (3) Contract Admin (4) BPI, (5) EHC, and (6) Tyree. Assets related to
discontinued operations ("Disc. Ops") are also presented below. Segment
information is as follows:
F-34
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
December 31,
2012 2011
------------ ------------
ASSETS:
Amincor $ 710,791 $ 536,061
Other Assets 8,566,434 8,667,433
Contract Admin -- --
BPI 12,051,571 24,851,264
EHC 1,144,626 1,298,597
Tyree 12,529,072 26,169,574
Disc. Ops 424,647 678,322
------------ ------------
TOTAL ASSETS $ 35,427,141 $ 62,201,251
============ ============
December 31,
2012 2011
------------ ------------
CAPITAL EXPENDITURES
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 3,752,384 58,644
EHC 323,310 --
Tyree 375,043 77,000
------------ ------------
TOTAL CAPITAL EXPENDITURES $ 4,450,737 $ 135,644
============ ============
December 31,
2012 2011
------------ ------------
GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI -- 7,770,900
EHC 22,241 535,988
Tyree -- 7,575,500
------------ ------------
TOTAL GOODWILL $ 22,241 $ 15,882,388
============ ============
December 31,
2012 2011
------------ ------------
INTANGIBLE ASSETS, NET:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI -- 5,194,946
EHC 135,000 135,000
Tyree 2,609,000 4,412,512
------------ ------------
TOTAL INTANGIBLE ASSETS $ 2,744,000 $ 9,742,458
============ ============
F-35
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Net Revenues:
Amincor $ -- $ -- $ --
Other Assets -- -- --
Contract Admin -- -- --
BPI 14,587,744 15,968,945 13,292,090
EHC 1,119,031 1,017,017 --
Tyree 36,559,923 45,311,721 53,624,333
------------ ------------ ------------
NET REVENUES $ 52,266,698 $62,297,683 $66,916,423
============ ============ ============
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Income(loss) before
Provision for Income
Taxes:
Amincor $ 863,055 $ (6,194,254) $ (1,832,938)
Other Assets 28,100 1,221,966 1,147,494
Contract Admin (592) 395 197
BPI (16,639,730) (828,915) (269,613)
EHC (854,834) (460,968) --
Tyree (15,425,134) (7,737,817) 698,013
------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES $(32,029,135) $(13,999,593) $ (256,847)
============ ============ ============
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Depreciation of Property
and Equipment:
Amincor $ -- $ -- $ --
Other Assets -- 813,300 1,041,010
Contract Admin -- -- --
BPI 872,109 9,873 3,875
EHC 101,743 93,768 --
Tyree 589,184 904,658 927,244
------------ ------------ ------------
TOTAL DEPRECIATION OF
PROPERTY AND EQUIPMENT $ 1,563,036 $ 1,821,599 $ 1,972,129
============ ============ ============
F-36
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Amortization of Intangible
Assets:
Amincor $ -- $ -- $ --
Other Assets -- -- --
Contract Admin -- -- --
BPI 382,450 764,900 764,900
EHC -- -- --
Tyree 1,117,111 2,824,175 1,106,436
------------ ------------ ------------
TOTAL AMORTIZATION OF
INTANGIBLE ASSETS $ 1,499,561 $ 3,589,075 $ 1,871,336
============ ============ ============
Years Ended December 31,
2012 2011 2010
------------ ------------ ------------
Interest (Income) Expense:
Amincor $ (369,904) $ (688,220) $ (136,901)
Other Assets (28,100) (26,732) --
Contract Admin -- -- --
BPI 535,986 285,279 579,692
EHC 85,203 58,102 --
Tyree 1,031,437 831,364 579,934
------------ ------------ ------------
TOTAL INTEREST
EXPENSE, NET $ 1,254,622 $ 459,793 $ 1,022,725
============ ============ ============
18. Commitments and Contingencies
WARRANTY
Tyree's contracts with its customers usually contain a written or implied
warranty on workmanship for one year. Subcontractors and parts suppliers used by
Tyree generally warrant the parts they supply or services they perform for a
similar period. At project or service completion, customers provide written or
verbal acceptance of Tyree's work. Warranty related costs experiences by Tyree
typically consist of minor adjustments or calibration work. Tyree has accrued
approximately $50,000 at December 31, 2012 and 2011 for estimated warranty costs
related to completed contracts.
LEASE COMMITMENTS
The Company leases office and warehouse space under non-cancelable operating
leases that expire at various dates through 2015. Some of the leases carry
renewal provisions and some require the Company to pay maintenance costs or a
share of real estate taxes and other costs. Rental payments may be adjusted for
increases in taxes and insurance.
F-37
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Rent expense on leases containing scheduled rent increases is recognized by
amortizing the aggregate lease payments on a straight-line basis over the lease
term. This has resulted in deferred rent liabilities of $13,429 and $18,313 as
of December 31, 2012 and 2011, respectively which are included in other
liabilities on the consolidated balance sheet.
Rent expense totaled $2,113,872 $1,802,985, and $805,035 for the years ended
December 31, 2012, 2011, and 2010, respectively, which includes related party
rent of $1,257,368, $1,073,317, and $264,520 for the years ended December 31,
2012, 2011, and 2010, respectively.
At December 31, 2012, the future minimum lease commitments under non-cancelable
operating leases, including leases with related parties, are as follows:
Total
----------
Years ending December 31,
2013 $ 469,204
2014 378,834
2015 194,580
----------
$1,042,618
==========
EMPLOYEE BENEFIT PLANS
BPI
BPI established a 401(k) retirement plan (the "BPI Plan") effective January 1,
2009. The Plan covers employees of the Company who have completed three months
(250 hours) of service and have attained the age of twenty-one. All employees
hired prior to January 1, 2009, entered the Plan immediately. The BPI Plan
permits participants to choose either a traditional pre-tax salary deferral plan
or a Roth after-tax deferral plan. BPI does not make matching or discretionary
contributions.
TYREE
Tyree has established the Tyree Holdings 401(k) Retirement Plan (the "Tyree
Plan"), which covers all eligible non-union employees. The Tyree Plan provides
for voluntary contributions by eligible employees up to a maximum of 85% of
their eligible compensation, subject to the applicable federal limitations.
Tyree has the option to make a discretionary contribution each year, but did not
make any contributions for the years ended December 31, 2012, 2011 and 2010.
Tyree has collective bargaining agreements with labor unions. These agreements
expired at varying dates through November 30, 2012. In accordance with its
collective bargaining agreements, Tyree participates in four multi-employer
F-38
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
pension plans and one defined contribution (401k) Plan. These plans provide
benefits to substantially all union employees. Such plans are usually
administered by a board of trustees comprised of the management of the
participating companies and labor representatives. The net pension cost of the
pension plans is equal to the annual contribution determined in accordance with
the provisions of negotiated labor contracts. Assets contributed to such pension
plans are not segregated or otherwise restricted to provide benefits only to the
Tyree's employees. The risks of participating in these multi-employer pension
plans are different from single-employer plans in the following aspects: 1)
assets contributed to the multi-employer pension plan by one employer may be
used to provide benefits to employees of other participating employers; 2) if a
participating employer stops contributing to the plan, the unfunded obligations
of the plan may be borne by the remaining participating employers; and 3) if
Tyree chooses to stop participating in some of its multi-employer pension plans,
Tyree may be required to pay those plans an amount based on the underfunded
status of the plan, which is referred to as a withdrawal liability.
Tyree's participation in these pension plans for the annual period ended
December 31, 2012, 2011, and 2010 is outlined in the table below. The
"EIN/Pension Plan Number" column provides the Employee Identification Number
("EIN") and the three-digit plan number. Unless otherwise noted, the most recent
Pension Protection Act ("PPA") zone status available in 2012, 2011, and 2010 is
for the plan's year-end at December 31, 2012, 2011, and 2010, respectively. The
zone status is based on information that Tyree received from the plan and is
certified by the plan's actuary. Among other factors, plans in the red zone are
generally less than 65 percent funded, plans in the yellow zone are less than 80
percent funded, and plans in the green zone are at least 80 percent funded. The
"FIP/RP Status Pending/Implemented" column indicates plans for which a financial
improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or
has been implemented. The last column lists the expiration dates of the
collective-bargaining agreements to which the plans are subject.
Expiration
Pension Protection FIP/RP Date of
Act Zone Status Status Tyree Contributions Collective-
EIN/Pension -------------------------- Pending / ----------------------- Surcharge Bargaining
Pension Fund Plan Number 2011 2010 2009 Implemented 2011 2010 2009 Imposed Agreement
------------ ----------- ---- ---- ---- ----------- ---- ---- ---- ------- ---------
I.B.E.W. Local
No.25 Pension
Fund 11-6038558/001 Green Green Green NA $ 29,223 $ 52,577 $ 55,158 No 4/30/2012
Plumbers Local
Union No. 200
Pension Fund 11-3125387/001 Yellow(1) Yellow(1) Yellow(1) Yes 29,915 27,949 40,851 No 4/30/2012
Local 99-
National
Electrical
Benefit Fund 53-0181657/001 Green Green Green NA 26,602 17,978 21,933 No 11/30/2012
Local 1
National
Pension Fund 11-25411118/001 Yellow(1) Yellow(1) Yellow(1) Yes 25,923 14,685 8,988 No 4/30/2012
-------- -------- --------
Total contributions: $111,663 $113,189 $126,930
======== ======== ========
----------
(1) Plan years ended June 30, 2012, 2011, and 2010
F-39
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
CONTINGENCIES:
BPI
In connection with Baker's Pride's USDA loan application, BPI had Environmental
Site Assessments done on the property where the Mt. Pleasant Street Bakery, Inc.
resides as required by BPI's prospective lender. A Phase II Environmental Site
Assessment was completed on October 31, 2011 and was submitted to the Iowa
Department of Natural Resources ("IDNR") for their review. IDNR requested that a
Tier Two Site Cleanup Report ("Tier Two") be issued and completed in order to
better understand what environmental hazards exist on the property. The Tier Two
was completed on February 3, 2012 and was submitted to IDNR for further review.
Management's latest correspondence with IDNR, dated March 21, 2012, required
additional environmental remediation to be in compliance with IDNR's
regulations. Management has retained the necessary environmental consultants to
become compliant with IDNR's request. Due to the nature of the liability, the
remediation work is 100% eligible for refund from INDR's Innocent Landowner
Fund. As such there is no direct liability related to the clean up of the
hazard.
Tyree
One of Tyree's largest customers, Getty Petroleum Marketing, Inc. ("GPMI") filed
for bankruptcy protection on December 5, 2011. As of that date, Tyree had a
pre-petition receivable of $1,515,401. Additionally, Tyree has a post-petition
administrative claim for $593,709. 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 and post petition amounts owed. To date, Tyree has not
been notified of any intent by the United States Bankruptcy Court for the
Southern District of New York to claw back any amounts paid to Tyree
pre-petition.
Tyree management continues to negotiate with Local Union 1, Local Union 25,
Local Union 99, Local Union 138, Local Union 200 and Local Union 355 over unpaid
benefits that are due to each of the respective unions. Tyree's records indicate
approximately $1 million of unpaid benefits due as of December 31, 2012. Tyree
management does not dispute that benefits are due to the respective unions,
however, settlement and payment plan discussions are ongoing. The Local Unions
have filed suit to enforce their rights as to the unpaid benefits as of March
2013.
F-40
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices. Each of these actions is handled on a case by case basis, to determine
the settlement and payment plan.
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. Volkl is seeking a $400,000 royalty payment. Epic has initiated
counterclaims against the various parties, including but not limited to Samsung,
seeking damages for, including but not limited to infringement, improper use of
company assets and breach of fiduciary duty. Volkl was successful in obtaining a
judgment against Epic Sports International, Inc. and a confirmation of the
Arbitration is presently pending in Federal Court. Management believes that this
matter and the Frost matter below will eventually be settled out of court for
less than the royalty and damages amounts sought.
On September 28, 2012, Sean Frost ("Frost"), the former President of Epic Sports
International, Inc., filed a complaint against Epic Sports International Inc.,
Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The first
cause of action of the complaint is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action of the complaint is for breach of contract for alleged
non-payment of expenses, vacation days and assumption of certain debts. The
third cause of action of the complaint is for violation of the California Labor
Code for failure to pay wages. In addition, Frost is seeking among other things,
damages, attorneys' fees and costs and expenses.
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. Litigation is pending. Management believes that this
lawsuit has no merit or basis and intends to vigorously defend it.
F-41
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
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. The
regulations put Tyree or Tyree's predecessor companies at risk for 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.
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 filing 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.
F-42
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
19. Concentrations of Credit Risk
The Company places its cash balances with various stable financial institutions
which may at times exceed the Federal Deposit Insurance Corporation ("FDIC")
limit. The Company believes its risk of loss is negligible, and, as of December
31, 2012 and 2011, the Company's cash balances did not exceed FDIC insurance
limits.
MAJOR CUSTOMERS
For the years ended December 31, 2012, 2011, and 2010, and as of December 31,
2012 and 2011, revenue and accounts receivable concentrations are as follows:
Percentage of
2012 2011 2010
-------------------------- ------------------------- --------
Consolidated Consolidated Consolidated and
Consolidated Accounts Consolidated Accounts Combined
Revenues Receivable Revenues Receivable Revenues
-------- ---------- -------- ---------- --------
Customer A 27.1 30.1 20.8 29.3 27.9
Customer B 25.1 -- 23.6 16.3 19.9
Customer C 12.3 6.4 12.8 10.9 11.1
---- ---- ---- ---- ----
64.5 36.5 57.2 56.5 58.9
==== ==== ==== ==== ====
20. Subsequent Events
In January 2013, the Company conducted an analysis of operations at EQS for the
prior two years and has decided that it was more prudent to sell the existing
company rather than to operate it. As of the filing date, the Company has
entered into a letter of intent for the sale of EQS, but no formal sale
documents have been executed.
The Company had no additional significant subsequent events requiring
disclosure.
F-43
Amincor, Inc. And Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three Years Ended December 31, 2012
Schedule II - Valuation and Qualifying Accounts and Reserves Schedule
Fiscal Years Ended December 31, 2012, 2011, and 2010
Beginning Direct Ending
Balance Additions Deductions Write-Off Balance
------------ ------------ ------------ ------------ ------------
2012
Allowance for doubtful accounts $ 1,903,626 $ 4,694 $ 1,479,367 $ -- $ 428,953
============ ============ ============ ============ ============
Inventory allowance $ 576,693 $ -- $ (29,820) $ -- $ 546,873
============ ============ ============ ============ ============
Deferred tax asset valuation allowance $ 11,067,000 $ 12,594,000 $ -- $ -- $ 23,661,000
============ ============ ============ ============ ============
2011
Allowance for doubtful accounts $ 450,000 $ 1,466,864 $ (13,238) $ -- $ 1,903,626
============ ============ ============ ============ ============
Inventory allowance $ 220,360 $ 356,333 $ -- $ -- $ 576,693
============ ============ ============ ============ ============
Deferred tax asset valuation allowance $ 8,464,000 $ 2,603,000 $ -- $ -- $ 11,067,000
============ ============ ============ ============ ============
2010
Allowance for doubtful accounts $ 905,000 $ -- $ (455,000) $ -- $ 450,000
============ ============ ============ ============ ============
Inventory allowance $ -- $ 220,360 $ -- $ -- $ 220,360
============ ============ ============ ============ ============
Deferred tax asset valuation allowance $ 6,105,000 $ -- $ 2,359,000 $ -- $ 8,464,000
============ ============ ============ ============ ============
F-44